[Congressional Record Volume 141, Number 181 (Wednesday, November 15, 1995)]
[House]
[Pages H12509-H13034]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


[[Page H 12509]]


      CONFERENCE REPORT ON H.R. 2491, BALANCED BUDGET ACT OF 1995

  Mr. HOBSON submitted the following conference report and statement on 
the bill (H.R. 2491) to provide for reconciliation pursuant to section 
105 of the concurrent resolution on the budget for fiscal year 1996:

                Conference Report (H. Rept. No. 104-347)

       The committee of conference on the disagreeing votes of the 
     two Houses on the amendment of the Senate to the bill (H.R. 
     2491), to provide for reconciliation pursuant to section 105 
     of the concurrent resolution on the budget for fiscal year 
     1996, having met, after full and free conference, have agreed 
     to recommend and do recommend to their respective Houses as 
     follows:
       That the House recede from its disagreement to the 
     amendment of the Senate and agree to the same with an 
     amendment as follows:
       In lieu of the matter proposed to be inserted by the Senate 
     amendment, insert the following:

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Balanced Budget Act of 
     1995''.

     SEC. 2. TABLE OF TITLES.

       This Act is organized into titles as follows:

Title I--Agriculture and Related Provisions
Title II--Banking, Housing, and Related Provisions
Title III--Communication and Spectrum Allocation Provisions
Title IV--Education and Related Provisions
Title V--Energy and Natural Resources Provisions
Title VI--Federal Retirement and Related Provisions
Title VII--Medicaid
Title VIII--Medicare
Title IX--Transportation and Related Provisions
Title X--Veterans and Related Provisions
Title XI--Revenues
Title XII--Teaching hospitals and graduate medical education; asset 
              sales; welfare; and other provisions
              TITLE I--AGRICULTURE AND RELATED PROVISIONS

     SEC. 1001. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This title may be cited as the 
     ``Agricultural Reconciliation Act of 1995''.
       (b) Table of Contents.--The table of contents of this title 
     is as follows:

Sec. 1001. Short title; table of contents.

           Subtitle A--Agricultural Market Transition Program

Sec. 1101. Short title.
Sec. 1102. Definitions.
Sec. 1103. Production flexibility contracts.
Sec. 1104. Nonrecourse marketing assistance loans and loan deficiency 
              payments.
Sec. 1105. Payment limitations.
Sec. 1106. Peanut program.
Sec. 1107. Sugar program.
Sec. 1108. Administration.
Sec. 1109. Elimination of permanent price support authority.
Sec. 1110. Effect of amendments.

                        Subtitle B--Conservation

Sec. 1201. Conservation.

         Subtitle C--Agricultural Promotion and Export Programs

Sec. 1301. Market promotion program.
Sec. 1302. Export enhancement program.

                       Subtitle D--Miscellaneous

Sec. 1401. Crop insurance.
Sec. 1402. Collection and use of agricultural quarantine and inspection 
              fees.
Sec. 1403. Commodity Credit Corporation interest rate.
           Subtitle A--Agricultural Market Transition Program

     SEC. 1101. SHORT TITLE.

       This subtitle may be cited as the ``Agricultural Market 
     Transition Act''.

     SEC. 1102. DEFINITIONS.

       In this subtitle:
       (1) Considered planted.--The term ``considered planted'' 
     means acreage that is considered planted under title V of the 
     Agricultural Act of 1949 (7 U.S.C. 1461 et seq.) (as in 
     effect prior to the amendment made by section 1109(b)(2)).
       (2) Contract.--The term ``contract'' means a production 
     flexibility contract entered into under section 1103.
       (3) Contract acreage.--The term ``contract acreage'' means 
     1 or more crop acreage bases established for contract 
     commodities under title V of the Agricultural Act of 1949 (as 
     in effect prior to the amendment made by section 1109(b)(2)). 
     If a crop acreage base was not enrolled in an annual program 
     for the 1995 crop in order to increase crop acreage base, the 
     contract acreage for the 1996 crop shall reflect the 
     increased base acreage that would have been established under 
     title V of the Act (as so in effect).
       (4) Contract commodity.--The term `contract commodity' 
     means wheat, corn, grain sorghum, barley, oats, upland 
     cotton, and rice.
       (5) Contract payment.--The term ``contract payment'' means 
     a payment made under section 1103 pursuant to a contract.
       (6) Farm program payment yield.--The term ``farm program 
     payment yield'' means the farm program payment yield 
     established for the 1995 crop of a contract commodity under 
     title V of the Agricultural Act of 1949 (as in effect prior 
     to the amendment made by section 1109(b)(2)).
       (7) Loan commodity.--The term `loan commodity' means each 
     contract commodity, extra long staple cotton, and oilseeds.
       (8) Oilseed.--The term ``oilseed'' means a crop of 
     soybeans, sunflower seed, rapeseed, canola, safflower, 
     flaxseed, mustard seed, or, if designated by the Secretary, 
     other oilseeds.
       (9) Program.--The term ``program'' means the agricultural 
     market transition program established under this subtitle.
       (10) Secretary.--The term ``Secretary'' means the Secretary 
     of Agriculture.

     SEC. 1103. PRODUCTION FLEXIBILITY CONTRACTS.

       (a) Contracts Authorized.--
       (1) Offer and terms.--Beginning as soon as practicable 
     after the date of the enactment of this subtitle, the 
     Secretary shall offer to enter into a contract with an 
     eligible owner or operator described in paragraph (2) on a 
     farm containing eligible farmland. Under the terms of a 
     contract, the owner or operator shall agree, in exchange for 
     annual contract payments, to comply with--
       (A) the conservation plan for the farm prepared in 
     accordance with section 1212 of the Food Security Act of 1985 
     (16 U.S.C. 3812);
       (B) wetland protection requirements applicable to the farm 
     under subtitle C of title XII of the Act (16 U.S.C. 3821 et 
     seq.); and
       (C) the planting flexibility requirements of subsection 
     (j).
       (2) Eligible owners and operators described.--The following 
     persons shall be considered to be an owner or operator 
     eligible to enter into a contract:
       (A) An owner of eligible farmland who assumes all of the 
     risk of producing a crop.
       (B) An owner of eligible farmland who shares in the risk of 
     producing a crop.
       (C) An operator of eligible farmland with a share-rent 
     lease of the eligible farmland, regardless of the length of 
     the lease, if the owner enters into the same contract.

[[Page H 12510]]

       (D) An operator of eligible farmland who cash rents the 
     eligible farmland under a lease expiring on or after 
     September 30, 2002, in which case the consent of the owner is 
     not required.
       (E) An operator of eligible farmland who cash rents the 
     eligible farmland under a lease expiring before September 30, 
     2002, if the owner consents to the contract.
       (F) An owner of eligible farmland who cash rents the 
     eligible farmland and the lease term expires before September 
     30, 2002, but only if the actual operator of the farm 
     declines to enter into a contract. In the case of an owner 
     covered by this subparagraph, contract payments shall not 
     begin under a contract until the fiscal year following the 
     fiscal year in which the lease held by the nonparticipating 
     operator expires.
       (G) An owner or operator described in a preceding 
     subparagraph regardless of whether the owner or operator 
     purchased catastrophic risk protection for a fall-planted 
     1996 crop under section 508(b) of the Federal Crop Insurance 
     Act (7 U.S.C. 1508(b)).
       (3) Tenants and sharecroppers.--In carrying out this 
     section, the Secretary shall provide adequate safeguards to 
     protect the interests of operators who are tenants and 
     sharecroppers.
       (b) Elements.--
       (1) Time for contracting.--
       (A) Deadline.--Except as provided in subparagraph (B), the 
     Secretary may not enter into a contract after April 15, 1996.
       (B) Conservation reserve lands.--
       (i) In general.--At the beginning of each fiscal year, the 
     Secretary shall allow an eligible owner or operator on a farm 
     covered by a conservation reserve contract entered into under 
     section 1231 of the Food Security Act of 1985 (16 U.S.C. 
     3831) that terminates after the date specified in 
     subparagraph (A) to enter into or expand a production 
     flexibility contract to cover the contract acreage of the 
     farm that was subject to the former conservation reserve 
     contract.
       (ii) Amount.--Contract payments made for contract acreage 
     under this subparagraph shall be made at the rate and amount 
     applicable to the annual contract payment level for the 
     applicable crop.
       (2) Duration of contract.--
       (A) Beginning date.--A contract shall begin with--
       (i) the 1996 crop of a contract commodity; or
       (ii) in the case of acreage that was subject to a 
     conservation reserve contract described in paragraph (1)(B), 
     the date the production flexibility contract was entered into 
     or expanded to cover the acreage.
       (B) Ending date.--A contract shall extend through the 2002 
     crop.
       (3) Estimation of contract payments.--At the time the 
     Secretary enters into a contract, the Secretary shall provide 
     an estimate of the minimum contract payments anticipated to 
     be made during at least the first fiscal year for which 
     contract payments will be made.
       (c) Eligible Farmland Described.--Land shall be considered 
     to be farmland eligible for coverage under a contract only if 
     the land has contract acreage attributable to the land and--
       (1) for at least 1 of the 1991 through 1995 crops, at least 
     a portion of the land was enrolled in the acreage reduction 
     program authorized for a crop of a contract commodity under 
     section 101B, 103B, 105B, or 107B of the Agricultural Act of 
     1949 (as in effect prior to the amendment made by section 
     1109(b)(2)) or was considered planted;
       (2) was subject to a conservation reserve contract under 
     section 1231 of the Food Security Act of 1985 (16 U.S.C. 
     3831) whose term expired, or was voluntarily terminated, on 
     or after January 1, 1995; or
       (3) is released from coverage under a conservation reserve 
     contract by the Secretary during the period beginning on 
     January 1, 1995, and ending on the date specified in 
     subsection (b)(1)(A).
       (d) Time for Payment.--
       (1) In general.--An annual contract payment shall be made 
     not later than September 30 of each of fiscal years 1996 
     through 2002.
       (2) Advance payments.--
       (A) Fiscal year 1996.--At the option of the owner or 
     operator, 50 percent of the contract payment for fiscal year 
     1996 shall be made not later than 60 days after the date on 
     which the owner or operator enters into a contract.
       (B) Subsequent fiscal years.--At the option of the owner or 
     operator for fiscal year 1997 and each subsequent fiscal 
     year, 50 percent of the annual contract payment shall be made 
     on December 15.
       (e) Amounts Available for Contract Payments for Each Fiscal 
     Year.--
       (1) In general.--The Secretary shall expend on a fiscal 
     year basis the following amounts to satisfy the obligations 
     of the Secretary under all contracts:
       (A) For fiscal year 1996, $5,570,000,000.
       (B) For fiscal year 1997, $5,385,000,000.
       (C) For fiscal year 1998, $5,800,000,000.
       (D) For fiscal year 1999, $5,603,000,000.
       (E) For fiscal year 2000, $5,130,000,000.
       (F) For fiscal year 2001, $4,130,000,000.
       (G) For fiscal year 2002, $4,008,000,000.
       (2) Allocation.--The amount made available for a fiscal 
     year under paragraph (1) shall be allocated as follows:
       (A) For wheat, 26.26 percent.
       (B) For corn, 46.22 percent.
       (C) For grain sorghum, 5.11 percent.
       (D) For barley, 2.16 percent.
       (E) For oats, 0.15 percent.
       (F) For upland cotton, 11.63 percent.
       (G) For rice, 8.47 percent.
       (3) Adjustment.--The Secretary shall adjust the amounts 
     allocated for each contract commodity under paragraph (2) for 
     a particular fiscal year by--
       (A) subtracting an amount equal to the amount, if any, 
     necessary to satisfy payment requirements under sections 
     101B, 103B, 105B, and 107B of the Agricultural Act of 1949 
     (as in effect prior to the amendment made by section 
     1109(b)(2)) for the 1994 and 1995 crops of the commodity;
       (B) adding an amount equal to the sum of all producer 
     repayments of deficiency payments received under section 
     114(a)(2) of the Act (as so in effect) for the commodity;
       (C) adding an amount equal to the sum of all contract 
     payments withheld by the Secretary, at the request of 
     producers, during the preceding fiscal year as an offset 
     against producer repayments of deficiency payments otherwise 
     required under section 114(a)(2) of the Act (as so in effect) 
     for the commodity; and
       (D) adding an amount equal to the sum of all refunds of 
     contract payments received during the preceding fiscal year 
     under subsection (h) for the commodity.
       (f) Determination of Contract Payments.--
       (1) Individual payment quantity of contract commodities.--
     For each contract, the payment quantity of a contract 
     commodity for each fiscal year shall be equal to the product 
     of--
       (A) 85 percent of the contract acreage; and
       (B) the farm program payment yield.
       (2) Annual payment quantity of contract commodities.--The 
     payment quantity of each contract commodity covered by all 
     contracts for each fiscal year shall equal the sum of the 
     amounts calculated under paragraph (1) for each individual 
     contract.
       (3) Annual payment rate.--The payment rate for a contract 
     commodity for each fiscal year shall be equal to--
       (A) the amount made available under subsection (e) for the 
     contract commodity for the fiscal year; divided by
       (B) the amount determined under paragraph (2) for the 
     fiscal year.
       (4) Annual payment amount.--The amount to be paid under a 
     contract in effect for each fiscal year with respect to a 
     contract commodity shall be equal to the product of--
       (A) the payment quantity determined under paragraph (1) 
     with respect to the contract; and
       (B) the payment rate in effect under paragraph (3).
       (5) Assignment of contract payments.--The provisions of 
     section 8(g) of the Soil Conservation and Domestic Allotment 
     Act (16 U.S.C. 590h(g)) (relating to assignment of payments) 
     shall apply to contract payments under this subsection. The 
     owner or operator making the assignment, or the assignee, 
     shall provide the Secretary with notice, in such manner as 
     the Secretary may require in the contract, of any assignment 
     made under this paragraph.
       (6) Sharing of contract payments.--The Secretary shall 
     provide for the sharing of contract payments among the owners 
     and operators subject to the contract on a fair and equitable 
     basis.
       (g) Payment Limitation.--The total amount of contract 
     payments made to a person under a contract during any fiscal 
     year may not exceed the payment limitations established under 
     section 1105.
       (h) Effect of Violation.--
       (1) Termination of contract.--Except as provided in 
     paragraph (2), if an owner or operator subject to a contract 
     violates the conservation plan for the farm containing 
     eligible farmland under the contract, wetland protection 
     requirements applicable to the farm, or the planting 
     flexibility requirements of subsection (j), the Secretary 
     shall terminate the contract with respect to the owner or 
     operator. On the termination, the owner or operator shall 
     forfeit all rights to receive future contract payments and 
     shall refund to the Secretary all contract payments received 
     by the owner or operator during the period of the violation, 
     together with interest on the contract payments as determined 
     by the Secretary.
       (2) Refund or adjustment.--If the Secretary determines that 
     a violation does not warrant termination of the contract 
     under paragraph (1), the Secretary may require the owner or 
     operator subject to the contract--
       (A) to refund to the Secretary that part of the contract 
     payments received by the owner or operator during the period 
     of the violation, together with interest on the contract 
     payments as determined by the Secretary; or
       (B) to accept a reduction in the amount of future contract 
     payments that is proportionate to the severity of the 
     violation, as determined by the Secretary.
       (3) Foreclosure.--An owner or operator subject to a 
     contract may not be required to make repayments to the 
     Secretary of amounts received under the contract if the 
     contract acreage has been foreclosed on and the Secretary 
     determines that forgiving the repayments is appropriate in 
     order to provide fair and equitable treatment. This paragraph 
     shall not void the responsibilities of such an owner or 
     operator under the contract if the owner or operator 
     continues or resumes operation, or control, of the contract 
     acreage. On the resumption of operation or control over the 
     contract acreage by the owner or operator, the provisions of 
     the contract in effect on the date of the foreclosure shall 
     apply.
       (4) Review.--A determination of the Secretary under this 
     subsection shall be considered to be an adverse decision for 
     purposes of the availability of administrative review of the 
     determination.
       (i) Transfer of Interest in Lands Subject to Contract.--
       (1) Effect of transfer.--Except as provided in paragraph 
     (2), the transfer by an owner or operator subject to a 
     contract of the right and interest of the owner or operator 
     in the contract acreage shall result in the termination of 
     the contract with respect to the acreage, effective on the 
     date of the transfer, unless the transferee of the acreage 
     agrees with the Secretary to assume all obligations of the 
     contract. At the request of 

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     the transferee, the Secretary may modify the contract if the 
     modifications are consistent with the objectives of this 
     section as determined by the Secretary.
       (2) Exception.--If an owner or operator who is entitled to 
     a contract payment dies, becomes incompetent, or is otherwise 
     unable to receive the contract payment, the Secretary shall 
     make the payment, in accordance with regulations prescribed 
     by the Secretary.
       (j) Planting Flexibility.--
       (1) Permitted crops.--Subject to paragraph (2)(A), any 
     commodity or crop may be planted on contract acreage.
       (2) Limitations.--
       (A) In general.--Except as provided in subparagraph (B), 
     the planting of any fruit or vegetable, and unlimited haying 
     and grazing, shall be permitted on not more than 15 percent 
     of the contract acreage.
       (B) Exception.--Subparagraph (A) shall not apply to the 
     planting of contract commodities, lentils, mung beans, and 
     dry peas on contract acreage.
       (3) Alfalfa.--The planting of alfalfa on contract acreage 
     is unlimited, except that the quantity of acreage on which 
     the contract payment of the owner or operator would otherwise 
     be based shall be reduced for each acre planted to alfalfa in 
     excess of the limitation in effect under paragraph (2)(A) for 
     the contract.
       (4) Haying and grazing.--Subject to paragraphs (2) and (3), 
     haying and grazing of contract acreage shall be permitted, 
     except during any consecutive 5-month period that is 
     established by the State committee established under section 
     8(b) of the Soil Conservation and Domestic Allotment Act (16 
     U.S.C. 590h(b)) for a State. The 5-month period shall be 
     established during the period beginning April 1, and ending 
     October 31, of a year. In the case of a natural disaster, the 
     Secretary may permit unlimited haying and grazing on the 
     contract acreage.

     SEC. 1104. NONRECOURSE MARKETING ASSISTANCE LOANS AND LOAN 
                   DEFICIENCY PAYMENTS.

       (a) Availability of Nonrecourse Loans.--
       (1) Availability.--For each of the 1996 through 2002 crops 
     of each loan commodity, the Secretary shall make available to 
     producers on a farm nonrecourse marketing assistance loans 
     for loan commodities produced on the farm. The loans shall be 
     made under terms and conditions that are prescribed by the 
     Secretary and at the loan rate established under subsection 
     (b) for the loan commodity.
       (2) Eligible production.--The following production shall be 
     eligible for a marketing assistance loan under this section:
       (A) In the case of a marketing assistance loan for a 
     contract commodity, any production by a producer who has 
     entered into a production flexibility contract.
       (B) In the case of a marketing assistance loan for extra 
     long staple cotton and oilseeds, any production.
       (b) Loan Rates.--
       (1) Wheat.--
       (A) Loan rate.--Subject to subparagraph (B), the loan rate 
     for a marketing assistance loan for wheat shall be--
       (i) not less than 85 percent of the simple average price 
     received by producers of wheat, as determined by the 
     Secretary, during the marketing years for the immediately 
     preceding 5 crops of wheat, excluding the year in which the 
     average price was the highest and the year in which the 
     average price was the lowest in the period; but
       (ii) not more than $2.58 per bushel.
       (B) Stocks to use ratio adjustment.--If the Secretary 
     estimates for any marketing year that the ratio of ending 
     stocks of wheat to total use for the marketing year will be--
       (i) equal to or greater than 30 percent, the Secretary may 
     reduce the loan rate for wheat for the corresponding crop by 
     an amount not to exceed 10 percent in any year;
       (ii) less than 30 percent but not less than 15 percent, the 
     Secretary may reduce the loan rate for wheat for the 
     corresponding crop by an amount not to exceed 5 percent in 
     any year; or
       (iii) less than 15 percent, the Secretary may not reduce 
     the loan rate for wheat for the corresponding crop.
       (C) No effect on future years.--Any reduction in the loan 
     rate for wheat under subparagraph (B) shall not be considered 
     in determining the loan rate for wheat for subsequent years.
       (2) Feed grains.--
       (A) Loan rate for corn.--Subject to subparagraph (B), the 
     loan rate for a marketing assistance loan for corn shall be--
       (i) not less than 85 percent of the simple average price 
     received by producers of corn, as determined by the 
     Secretary, during the marketing years for the immediately 
     preceding 5 crops of corn, excluding the year in which the 
     average price was the highest and the year in which the 
     average price was the lowest in the period; but
       (ii) not more than $1.89 per bushel.
       (B) Stocks to use ratio adjustment.--If the Secretary 
     estimates for any marketing year that the ratio of ending 
     stocks of corn to total use for the marketing year will be--
       (i) equal to or greater than 25 percent, the Secretary may 
     reduce the loan rate for corn for the corresponding crop by 
     an amount not to exceed 10 percent in any year;
       (ii) less than 25 percent but not less than 12.5 percent, 
     the Secretary may reduce the loan rate for corn for the 
     corresponding crop by an amount not to exceed 5 percent in 
     any year; or
       (iii) less than 12.5 percent the Secretary may not reduce 
     the loan rate for corn for the corresponding crop.
       (C) No effect on future years.--Any reduction in the loan 
     rate for corn under subparagraph (B) shall not be considered 
     in determining the loan rate for corn for subsequent years.
       (D) Other feed grains.--The loan rate for a marketing 
     assistance loan for grain sorghum, barley, and oats, 
     respectively, shall be established at such level as the 
     Secretary determines is fair and reasonable in relation to 
     the rate that loans are made available for corn, taking into 
     consideration the feeding value of the commodity in relation 
     to corn.
       (3) Upland cotton.--
       (A) Loan rate.--Subject to subparagraph (B), the loan rate 
     for a marketing assistance loan for upland cotton shall be 
     established by the Secretary at such loan rate, per pound, as 
     will reflect for the base quality of upland cotton, as 
     determined by the Secretary, at average locations in the 
     United States a rate that is not less than the smaller of--
       (i) 85 percent of the average price (weighted by market and 
     month) of the base quality of cotton as quoted in the 
     designated United States spot markets during 3 years of the 
     5-year period ending July 31 in the year in which the loan 
     rate is announced, excluding the year in which the average 
     price was the highest and the year in which the average price 
     was the lowest in the period; or
       (ii) 90 percent of the average, for the 15-week period 
     beginning July 1 of the year in which the loan rate is 
     announced, of the 5 lowest-priced growths of the growths 
     quoted for Middling 1\3/32\-inch cotton C.I.F. Northern 
     Europe (adjusted downward by the average difference during 
     the period April 15 through October 15 of the year in which 
     the loan is announced between the average Northern European 
     price quotation of such quality of cotton and the market 
     quotations in the designated United States spot markets for 
     the base quality of upland cotton), as determined by the 
     Secretary.
       (B) Limitations.--The loan rate for a marketing assistance 
     loan for upland cotton shall not be less than $0.50 per pound 
     or more than $0.5192 per pound.
       (4) Extra long staple cotton.--The loan rate for a 
     marketing assistance loan for extra long staple cotton shall 
     be--
       (A) not less than 85 percent of the simple average price 
     received by producers of extra long staple cotton, as 
     determined by the Secretary, during 3 years of the 5 previous 
     marketing years, excluding the year in which the average 
     price was the highest and the year in which the average price 
     was the lowest in the period; but
       (B) not more than $0.7965 per pound.
       (5) Rice.--The loan rate for a marketing assistance loan 
     for rice shall be $6.50 per hundredweight.
       (6) Oilseeds.--
       (A) Soybeans.--The loan rate for a marketing assistance 
     loan for soybeans shall be $4.92 per bushel.
       (B) Sunflower seed, canola, rapeseed, safflower, mustard 
     seed, and flaxseed.--The loan rates for a marketing 
     assistance loan for sunflower seed, canola, rapeseed, 
     safflower, mustard seed, and flaxseed, individually, shall be 
     $0.087 per pound.
       (C) Other oilseeds.--The loan rates for a marketing 
     assistance loan for other oilseeds shall be established at 
     such level as the Secretary determines is fair and reasonable 
     in relation to the loan rate available for soybeans, except 
     in no event shall the rate for the oilseeds (other than 
     cottonseed) be less than the rate established for soybeans on 
     a per-pound basis for the same crop.
       (c) Term of Loan.--In the case of each loan commodity 
     (other than upland cotton or extra long staple cotton), a 
     marketing assistance loan under subsection (a) shall have a 
     term of 9 months beginning on the first day of the first 
     month after the month in which the loan is made. A marketing 
     assistance loan for upland cotton or extra long staple cotton 
     shall have a term of 10 months. The Secretary may not extend 
     the term of a marketing assistance loan for any loan 
     commodity.
       (d) Repayment.--
       (1) Repayment rates generally.--The Secretary shall permit 
     producers to repay a marketing assistance loan under 
     subsection (a) for a loan commodity (other than extra long 
     staple cotton) at a level that is the lesser of--
       (A) the loan rate established for the commodity under 
     subsection (b); or
       (B) the prevailing world market price for the commodity 
     (adjusted to United States quality and location), as 
     determined by the Secretary.
       (2) Repayment rates for extra long staple cotton.--
     Repayment of a marketing assistance loan for extra long 
     staple cotton shall be at the loan rate established for the 
     commodity under subsection (b).
       (3) Prevailing world market price.--For purposes of 
     paragraph (1)(B) and subsection (f), the Secretary shall 
     prescribe by regulation--
       (A) a formula to determine the prevailing world market 
     price for each loan commodity, adjusted to United States 
     quality and location; and
       (B) a mechanism by which the Secretary shall announce 
     periodically the prevailing world market price for each loan 
     commodity.
       (4) Adjustment of prevailing world market price for upland 
     cotton.--
       (A) In general.--During the period ending July 31, 2003, 
     the prevailing world market price for upland cotton (adjusted 
     to United States quality and location) established under 
     paragraph (3) shall be further adjusted if--
       (i) the adjusted prevailing world market price is less than 
     115 percent of the loan rate for upland cotton established 
     under subsection (b), as determined by the Secretary; and
       (ii) the Friday through Thursday average price quotation 
     for the lowest-priced United States growth as quoted for 
     Middling (M) 1\3/32\-inch cotton delivered C.I.F. Northern 
     Europe is greater than the Friday through Thursday average 
     price of the 5 lowest-priced growths of upland cotton, as 
     quoted for Middling (M) 1\3/32\-inch cotton, delivered C.I.F. 
     Northern Europe (referred to in this subsection as the 
     ``Northern Europe price'').
       (B) Further adjustment.--Except as provided in subparagraph 
     (C), the adjusted prevailing world market price for upland 
     cotton shall 

[[Page H 12512]]
     be further adjusted on the basis of some or all of the following data, 
     as available:
       (i) The United States share of world exports.
       (ii) The current level of cotton export sales and cotton 
     export shipments.
       (iii) Other data determined by the Secretary to be relevant 
     in establishing an accurate prevailing world market price for 
     upland cotton (adjusted to United States quality and 
     location).
       (C) Limitation on further adjustment.--The adjustment under 
     subparagraph (B) may not exceed the difference between--
       (i) the Friday through Thursday average price for the 
     lowest-priced United States growth as quoted for Middling 
     1\3/32\-inch cotton delivered C.I.F. Northern Europe; and
       (ii) the Northern Europe price.
       (e) Loan Deficiency Payments.--
       (1) Availability.--Except as provided in paragraph (4), the 
     Secretary may make loan deficiency payments available to 
     producers who, although eligible to obtain a marketing 
     assistance loan under subsection (a) with respect to a loan 
     commodity, agree to forgo obtaining the loan for the 
     commodity in return for payments under this subsection.
       (2) Computation.--A loan deficiency payment under this 
     subsection shall be computed by multiplying--
       (A) the loan payment rate determined under paragraph (3) 
     for the loan commodity; by
       (B) the quantity of the loan commodity that the producers 
     on a farm are eligible to place under loan but for which the 
     producers forgo obtaining the loan in return for payments 
     under this subsection.
       (3) Loan payment rate.--For purposes of this subsection, 
     the loan payment rate shall be the amount by which--
       (A) the loan rate established under subsection (b) for the 
     loan commodity; exceeds
       (B) the rate at which a loan for the commodity may be 
     repaid under subsection (d).
       (4) Exception for extra long staple cotton.--This 
     subsection shall not apply with respect to extra long staple 
     cotton.
       (f) Special Marketing Loan Provisions for Upland Cotton.--
       (1) First handler marketing certificates.--
       (A) In general.--During the period ending on July 31, 2003, 
     if the repayment rates provided in subsection (d) for upland 
     cotton or the availability of loan deficiency payments for 
     upland cotton under subsection (e) fails to make United 
     States upland cotton fully competitive in world markets and 
     the prevailing world market price of upland cotton (adjusted 
     to United States quality and location) is below the current 
     loan repayment rate for upland cotton, to make United States 
     upland cotton competitive in world markets and to maintain 
     and expand domestic consumption and exports of upland cotton 
     produced in the United States, the Secretary shall provide 
     for the issuance of marketing certificates or cash payments 
     in accordance with this paragraph.
       (B) Payments.--The Commodity Credit Corporation, under such 
     regulations as the Secretary may prescribe, shall make 
     payments, through the issuance of marketing certificates or 
     cash payments, to first handlers of upland cotton (persons 
     regularly engaged in buying or selling upland cotton) who 
     have entered into an agreement with the Commodity Credit 
     Corporation to participate in the program established under 
     this paragraph. The payments shall be made in such amounts 
     and subject to such terms and conditions as the Secretary 
     determines will make upland cotton produced in the United 
     States available at competitive prices, consistent with the 
     purposes of this paragraph.
       (C) Value.--The value of each certificate or cash payment 
     issued under subparagraph (B) shall be based on the 
     difference between--
       (i) the loan repayment rate for upland cotton; and
       (ii) the prevailing world market price of upland cotton 
     (adjusted to United States quality and location), as 
     determined by the Secretary.
       (D) Redemption, marketing, or exchange.--The Commodity 
     Credit Corporation, under regulations prescribed by the 
     Secretary, may assist any person receiving marketing 
     certificates under this paragraph in the redemption of 
     certificates for cash, or marketing or exchange of the 
     certificates for agricultural commodities or products owned 
     by the Commodity Credit Corporation, at such times, in such 
     manner, and at such price levels as the Secretary determines 
     will best effectuate the purposes of the program established 
     under this paragraph. Any price restrictions that may 
     otherwise apply to the disposition of agricultural 
     commodities by the Commodity Credit Corporation shall not 
     apply to the redemption of certificates under this paragraph.
       (E) Designation of commodities and products; charges.--
     Insofar as practicable, the Secretary shall permit owners of 
     certificates to designate the commodities and products, 
     including storage sites, the owners would prefer to receive 
     in exchange for certificates. If any certificate is not 
     presented for redemption, marketing, or exchange within a 
     reasonable number of days after the issuance of the 
     certificate (as determined by the Secretary), reasonable 
     costs of storage and other carrying charges, as determined by 
     the Secretary, shall be deducted from the value of the 
     certificate for the period beginning after the reasonable 
     number of days and ending with the date of the presentation 
     of the certificate to the Commodity Credit Corporation.
       (F) Displacement.--The Secretary shall take such measures 
     as may be necessary to prevent the marketing or exchange of 
     agricultural commodities and products for certificates under 
     this subsection from adversely affecting the income of 
     producers of the commodities or products.
       (G) Transfers.--Under regulations prescribed by the 
     Secretary, certificates issued to cotton handlers under this 
     paragraph may be transferred to other handlers and persons 
     approved by the Secretary.
       (2) Cotton user marketing certificates.--
       (A) Issuance.--Subject to subparagraph (D), during the 
     period ending July 31, 2003, the Secretary shall issue 
     marketing certificates or cash payments to domestic users and 
     exporters for documented purchases by domestic users and 
     sales for export by exporters made in the week following a 
     consecutive 4-week period in which--
       (i) the Friday through Thursday average price quotation for 
     the lowest-priced United States growth, as quoted for 
     Middling (M) 1\3/32\-inch cotton, delivered C.I.F. Northern 
     Europe exceeds the Northern Europe price by more than 1.25 
     cents per pound; and
       (ii) the prevailing world market price for upland cotton 
     (adjusted to United States quality and location) does not 
     exceed 130 percent of the loan rate for upland cotton 
     established under subsection (b).
       (B) Value of certificates or payments.--The value of the 
     marketing certificates or cash payments shall be based on the 
     amount of the difference (reduced by 1.25 cents per pound) in 
     the prices during the 4th week of the consecutive 4-week 
     period multiplied by the quantity of upland cotton included 
     in the documented sales.
       (C) Administration.--Subparagraphs (D) through (G) of 
     paragraph (1) shall apply to marketing certificates issued 
     under this paragraph. Any such certificates may be 
     transferred to other persons in accordance with regulations 
     issued by the Secretary.
       (D) Exception.--The Secretary shall not issue marketing 
     certificates or cash payments under subparagraph (A) if, for 
     the immediately preceding consecutive 10-week period, the 
     Friday through Thursday average price quotation for the 
     lowest priced United States growth, as quoted for Middling 
     (M) 1\3/32\-inch cotton, delivered C.I.F. Northern Europe, 
     adjusted for the value of any certificate issued under this 
     paragraph, exceeds the Northern Europe price by more than 
     1.25 cents per pound.
       (E) Limitation on expenditures.--Total expenditures under 
     this paragraph shall not exceed $701,000,000 during fiscal 
     years 1996 through 2002.
       (3) Special import quota.--
       (A) Establishment.--The President shall carry out an import 
     quota program that provides that, during the period ending 
     July 31, 2003, whenever the Secretary determines and 
     announces that for any consecutive 10-week period, the Friday 
     through Thursday average price quotation for the lowest-
     priced United States growth, as quoted for Middling (M) 1\3/
     32\-inch cotton, delivered C.I.F. Northern Europe, adjusted 
     for the value of any certificates issued under paragraph (2), 
     exceeds the Northern Europe price by more than 1.25 cents per 
     pound, there shall immediately be in effect a special import 
     quota.
       (B) Quantity.--The quota shall be equal to 1 week's 
     consumption of upland cotton by domestic mills at the 
     seasonally adjusted average rate of the most recent 3 months 
     for which data are available.
       (C) Application.--The quota shall apply to upland cotton 
     purchased not later than 90 days after the date of the 
     Secretary's announcement under subparagraph (A) and entered 
     into the United States not later than 180 days after the 
     date.
       (D) Overlap.--A special quota period may be established 
     that overlaps any existing quota period if required by 
     subparagraph (A), except that a special quota period may not 
     be established under this paragraph if a quota period has 
     been established under subsection (g).
       (E) Preferential tariff treatment.--The quantity under a 
     special import quota shall be considered to be an in-quota 
     quantity for purposes of--
       (i) section 213(d) of the Caribbean Basin Economic Recovery 
     Act (19 U.S.C. 2703(d));
       (ii) section 204 of the Andean Trade Preference Act (19 
     U.S.C. 3203);
       (iii) section 503(d) of the Trade Act of 1974 (19 U.S.C. 
     2463(d)); and
       (iv) General Note 3(a)(iv) to the Harmonized Tariff 
     Schedule.
       (F) Definition.--In this paragraph, the term ``special 
     import quota'' means a quantity of imports that is not 
     subject to the over-quota tariff rate of a tariff-rate quota.
       (g) Limited Global Import Quota For Upland Cotton.--
       (1) In general.--The President shall carry out an import 
     quota program that provides that whenever the Secretary 
     determines and announces that the average price of the base 
     quality of upland cotton, as determined by the Secretary, in 
     the designated spot markets for a month exceeded 130 percent 
     of the average price of such quality of cotton in the markets 
     for the preceding 36 months, notwithstanding any other 
     provision of law, there shall immediately be in effect a 
     limited global import quota subject to the following 
     conditions:
       (A) Quantity.--The quantity of the quota shall be equal to 
     21 days of domestic mill consumption of upland cotton at the 
     seasonally adjusted average rate of the most recent 3 months 
     for which data are available.
       (B) Quantity if prior quota.--If a quota has been 
     established under this subsection during the preceding 12 
     months, the quantity of the quota next established under this 
     subsection shall be the smaller of 21 days of domestic mill 
     consumption calculated under subparagraph (A) or the quantity 
     required to increase the supply to 130 percent of the demand.
       (C) Preferential tariff treatment.--The quantity under a 
     limited global import quota shall be considered to be an in-
     quota quantity for purposes of--
       (i) section 213(d) of the Caribbean Basin Economic Recovery 
     Act (19 U.S.C. 2703(d));
       (ii) section 204 of the Andean Trade Preference Act (19 
     U.S.C. 3203);
       (iii) section 503(d) of the Trade Act of 1974 (19 U.S.C. 
     2463(d)); and
       (iv) General Note 3(a)(iv) to the Harmonized Tariff 
     Schedule.

[[Page H 12513]]

       (D) Definitions.--In this subsection:
       (i) Supply.--The term ``supply'' means, using the latest 
     official data of the Bureau of the Census, the Department of 
     Agriculture, and the Department of the Treasury--

       (I) the carry-over of upland cotton at the beginning of the 
     marketing year (adjusted to 480-pound bales) in which the 
     quota is established;
       (II) production of the current crop; and
       (III) imports to the latest date available during the 
     marketing year.

       (ii) Demand.--The term ``demand'' means--

       (I) the average seasonally adjusted annual rate of domestic 
     mill consumption in the most recent 3 months for which data 
     are available; and
       (II) the larger of--

       (aa) average exports of upland cotton during the preceding 
     6 marketing years; or
       (bb) cumulative exports of upland cotton plus outstanding 
     export sales for the marketing year in which the quota is 
     established.
       (iii) Limited global import quota.--The term ``limited 
     global import quota'' means a quantity of imports that is not 
     subject to the over-quota tariff rate of a tariff-rate quota.
       (D) Quota entry period.--When a quota is established under 
     this subsection, cotton may be entered under the quota during 
     the 90-day period beginning on the date the quota is 
     established by the Secretary.
       (2) No overlap.--Notwithstanding paragraph (1), a quota 
     period may not be established that overlaps an existing quota 
     period or a special quota period established under subsection 
     (f)(3).

     SEC. 1105. PAYMENT LIMITATIONS.

       (a) Limitation on Payments Under Production Flexibility 
     Contracts.--The total amount of contract payments made to a 
     person under 1 or more production flexibility contracts 
     during any fiscal year may not exceed $40,000.
       (b) Limitation on Marketing Loan Gains and Loan Deficiency 
     Payments.--
       (1) Limitation.--The total amount of payments specified in 
     paragraph (2) that a person shall be entitled to receive 
     under section 1104 for contract commodities and oilseeds 
     during any fiscal year may not exceed $75,000.
       (2) Description of payments.--The payments referred to in 
     paragraph (1) are the following:
       (A) Any gain realized by a producer from repaying a 
     marketing assistance loan for a crop of any loan commodity at 
     a lower level than the original loan rate established for the 
     commodity under section 1104(b).
       (B) Any loan deficiency payment received for a loan 
     commodity under section 1104(e).
       (c) Applicability of Other Provisions Regarding Payment 
     Limitations.--Paragraphs (5), (6), and (7) of section 1001 
     and sections 1001A through 1001C of the Food Security Act of 
     1985 (7 U.S.C. 1308 et seq.) shall apply with respect to the 
     application of payment limitations under this section.
       (d) Conforming Amendments.--Section 1001 of the Food 
     Security Act of 1985 (7 U.S.C. 1308) is amended by striking 
     ``1997'' each place it appears in paragraphs (1)(A), (1)(B), 
     and (2)(A) and inserting ``1995''.

     SEC. 1106. PEANUT PROGRAM.

       (a) Quota Peanuts.--
       (1) Availability of loans.--The Secretary shall make 
     nonrecourse loans available to producers of quota peanuts.
       (2) Loan rate.--The national average quota loan rate for 
     quota peanuts shall be $610 per ton.
       (3) Inspection, handling, or storage.--The loan amount may 
     not be reduced by the Secretary by any deductions for 
     inspection, handling, or storage.
       (4) Location and other factors.--The Secretary may make 
     adjustments in the loan rate for quota peanuts for location 
     of peanuts and such other factors as are authorized by 
     section 411 of the Agricultural Adjustment Act of 1938.
       (b) Additional Peanuts.--
       (1) In general.--The Secretary shall make nonrecourse loans 
     available to producers of additional peanuts at such rates as 
     the Secretary finds appropriate, taking into consideration 
     the demand for peanut oil and peanut meal, expected prices of 
     other vegetable oils and protein meals, and the demand for 
     peanuts in foreign markets.
       (2) Announcement.--The Secretary shall announce the loan 
     rate for additional peanuts of each crop not later than 
     February 15 preceding the marketing year for the crop for 
     which the loan rate is being determined.
       (c) Area Marketing Associations.--
       (1) Warehouse storage loans.--
       (A) In general.--In carrying out subsections (a) and (b), 
     the Secretary shall make warehouse storage loans available in 
     each of the producing areas (described in section 1446.95 of 
     title 7 of the Code of Federal Regulations (January 1, 1989)) 
     to a designated area marketing association of peanut 
     producers that is selected and approved by the Secretary and 
     that is operated primarily for the purpose of conducting the 
     loan activities. The Secretary may not make warehouse storage 
     loans available to any cooperative that is engaged in 
     operations or activities concerning peanuts other than those 
     operations and activities specified in this section and 
     section 358e of the Agricultural Adjustment Act of 1938 (7 
     U.S.C. 1359a).
       (B) Administrative and supervisory activities.--An area 
     marketing association shall be used in administrative and 
     supervisory activities relating to loans and marketing 
     activities under this section and section 358e of the 
     Agricultural Adjustment Act of 1938 (7 U.S.C. 1359a).
       (C) Association costs.--Loans made to the association under 
     this paragraph shall include such costs as the area marketing 
     association reasonably may incur in carrying out the 
     responsibilities, operations, and activities of the 
     association under this section and section 358e of the 
     Agricultural Adjustment Act of 1938 (7 U.S.C. 1359a).
       (2) Pools for quota and additional peanuts.--
       (A) In general.--The Secretary shall require that each area 
     marketing association establish pools and maintain complete 
     and accurate records by area and segregation for quota 
     peanuts handled under loan and for additional peanuts placed 
     under loan, except that separate pools shall be established 
     for Valencia peanuts produced in New Mexico. Bright hull and 
     dark hull Valencia peanuts shall be considered as separate 
     types for the purpose of establishing the pools.
       (B) Net gains.--Net gains on peanuts in each pool, unless 
     otherwise approved by the Secretary, shall be distributed 
     only to producers who placed peanuts in the pool and shall be 
     distributed in proportion to the value of the peanuts placed 
     in the pool by each producer. Net gains for peanuts in each 
     pool shall consist of the following:
       (i) Quota peanuts.--For quota peanuts, the net gains over 
     and above the loan indebtedness and other costs or losses 
     incurred on peanuts placed in the pool.
       (ii) Additional peanuts.--For additional peanuts, the net 
     gains over and above the loan indebtedness and other costs or 
     losses incurred on peanuts placed in the pool for additional 
     peanuts.
       (d) Losses.--Losses in quota area pools shall be covered 
     using the following sources in the following order of 
     priority:
       (1) Transfers from additional loan pools.--The proceeds due 
     any producer from any pool shall be reduced by the amount of 
     any loss that is incurred with respect to peanuts transferred 
     from an additional loan pool to a quota loan pool by the 
     producer under section 358-1(b)(8) of the Agricultural 
     Adjustment Act of 1938 (7 U.S.C. 1358-1(b)(8)).
       (2) Other producers in same pool.--Further losses in an 
     area quota pool shall be offset by reducing the gain of any 
     producer in the pool by the amount of pool gains attributed 
     to the same producer from the sale of additional peanuts for 
     domestic and export edible use.
       (3) Use of marketing assessments.--The Secretary shall use 
     funds collected under subsection (g) (except funds 
     attributable to handlers) to offset further losses in area 
     quota pools. The Secretary shall transfer to the Treasury 
     those funds collected under subsection (g) and available for 
     use under this subsection that the Secretary determines are 
     not required to cover losses in area quota pools.
       (4) Cross compliance.--Further losses in area quota pools, 
     other than losses incurred as a result of transfers from 
     additional loan pools to quota loan pools under section 358-
     1(b)(8) of the Agricultural Adjustment Act of 1938 (7 U.S.C. 
     1358-1(b)(8)), shall be offset by any gains or profits from 
     quota pools in other production areas (other than separate 
     type pools established under subsection (c)(2)(A) for 
     Valencia peanuts produced in New Mexico) in such manner as 
     the Secretary shall by regulation prescribe.
       (5) Increased assessments.--If use of the authorities 
     provided in the preceding paragraphs is not sufficient to 
     cover losses in an area quota pool, the Secretary shall 
     increase the marketing assessment established under 
     subsection (g) by such an amount as the Secretary considers 
     necessary to cover the losses. The increased assessment shall 
     apply only to quota peanuts in the production area covered by 
     the pool. Amounts collected under subsection (g) as a result 
     of the increased assessment shall be retained by the 
     Secretary to cover losses in that pool.
       (e) Disapproval of Quotas.--Notwithstanding any other 
     provision of law, no loan for quota peanuts may be made 
     available by the Secretary for any crop of peanuts with 
     respect to which poundage quotas have been disapproved by 
     producers, as provided for in section 358-1(d) of the 
     Agricultural Adjustment Act of 1938 (7 U.S.C. 1358-1(d)).
       (f) Quality Improvement.--
       (1) In general.--With respect to peanuts under loan, the 
     Secretary shall--
       (A) promote the crushing of peanuts at a greater risk of 
     deterioration before peanuts of a lesser risk of 
     deterioration;
       (B) ensure that all Commodity Credit Corporation 
     inventories of peanuts sold for domestic edible use must be 
     shown to have been officially inspected by licensed 
     Department of Agriculture inspectors both as farmer stock and 
     shelled or cleaned in-shell peanuts;
       (C) continue to endeavor to operate the peanut program so 
     as to improve the quality of domestic peanuts and ensure the 
     coordination of activities under the Peanut Administrative 
     Committee established under Marketing Agreement No. 146, 
     regulating the quality of domestically produced peanuts 
     (under the Agricultural Adjustment Act (7 U.S.C. 601 et 
     seq.), reenacted with amendments by the Agricultural 
     Marketing Agreement Act of 1937); and
       (D) ensure that any changes made in the peanut program as a 
     result of this subsection requiring additional production or 
     handling at the farm level shall be reflected as an upward 
     adjustment in the Department of Agriculture loan schedule.
       (2) Exports and other peanuts.--The Secretary shall require 
     that all peanuts in the domestic and export markets fully 
     comply with all quality standards under Marketing Agreement 
     No. 146.
       (g) Marketing Assessment.--
       (1) In general.--The Secretary shall provide for a 
     nonrefundable marketing assessment. The assessment shall be 
     made on a per pound basis in an amount equal to 1.1 percent 
     for each of the 1994 and 1995 crops, 1.15 percent for the 
     1996 crop, and 1.2 percent for each of the 1997 through 2002 
     crops, of the national average quota or additional peanut 
     loan rate for the applicable crop.
       (2) First purchasers.--

[[Page H 12514]]

       (A) In general.--Except as provided under paragraphs (3) 
     and (4), the first purchaser of peanuts shall--
       (i) collect from the producer a marketing assessment equal 
     to the quantity of peanuts acquired multiplied by--

       (I) in the case of each of the 1994 and 1995 crops, .55 
     percent of the applicable national average loan rate;
       (II) in the case of the 1996 crop, .6 percent of the 
     applicable national average loan rate; and
       (III) in the case of each of the 1997 through 2002 crops, 
     .65 percent of the applicable national average loan rate;

       (ii) pay, in addition to the amount collected under clause 
     (i), a marketing assessment in an amount equal to the 
     quantity of peanuts acquired multiplied by .55 percent of the 
     applicable national average loan rate; and
       (iii) remit the amounts required under clauses (i) and (ii) 
     to the Commodity Credit Corporation in a manner specified by 
     the Secretary.
       (B) Definition of first purchaser.--In this subsection, the 
     term ``first purchaser'' means a person acquiring peanuts 
     from a producer except that in the case of peanuts forfeited 
     by a producer to the Commodity Credit Corporation, the term 
     means the person acquiring the peanuts from the Commodity 
     Credit Corporation.
       (3) Other private marketings.--In the case of a private 
     marketing by a producer directly to a consumer through a 
     retail or wholesale outlet or in the case of a marketing by 
     the producer outside of the continental United States, the 
     producer shall be responsible for the full amount of the 
     assessment and shall remit the assessment by such time as is 
     specified by the Secretary.
       (4) Loan peanuts.--In the case of peanuts that are pledged 
     as collateral for a loan made under this section, \1/2\ of 
     the assessment shall be deducted from the proceeds of the 
     loan. The remainder of the assessment shall be paid by the 
     first purchaser of the peanuts. For purposes of computing net 
     gains on peanuts under this section, the reduction in loan 
     proceeds shall be treated as having been paid to the 
     producer.
       (5) Penalties.--If any person fails to collect or remit the 
     reduction required by this subsection or fails to comply with 
     the requirements for recordkeeping or otherwise as are 
     required by the Secretary to carry out this subsection, the 
     person shall be liable to the Secretary for a civil penalty 
     up to an amount determined by multiplying--
       (A) the quantity of peanuts involved in the violation; by
       (B) the national average quota peanut rate for the 
     applicable crop year.
       (6) Enforcement.--The Secretary may enforce this subsection 
     in the courts of the United States.
       (h) Crops.--Subsections (a) through (f) shall be effective 
     only for the 1996 through 2002 crops of peanuts.
       (i) Marketing Quotas.--
       (1) In general.--Part VI of subtitle B of title III of the 
     Agricultural Adjustment Act of 1938 is amended--
       (A) in section 358-1 (7 U.S.C. 1358-1)--
       (i) in the section heading, by striking ``1991 through 1997 
     crops of'';
       (ii) in subsections (a)(1), (b)(1)(B), (b)(2)(A), 
     (b)(2)(C), and (b)(3)(A), by striking ``of the 1991 through 
     1997 marketing years'' each place it appears and inserting 
     ``marketing year'';
       (iii) in subsection (a)(3), by striking ``1990'' and 
     inserting ``1990, for the 1991 through 1995 marketing years, 
     and 1995, for the 1996 through 2002 marketing years'';
       (iv) in subsection (b)(1)(A)--

       (I) by striking ``each of the 1991 through 1997 marketing 
     years'' and inserting ``each marketing year''; and
       (II) in clause (i), by inserting before the semicolon the 
     following: ``, in the case of the 1991 through 1995 marketing 
     years, and the 1995 marketing year, in the case of the 1996 
     through 2002 marketing years''; and

       (v) in subsection (f), by striking ``1997'' and inserting 
     ``2002'';
       (B) in section 358b (7 U.S.C. 1358b)--
       (i) in the section heading, by striking ``1991 through 1995 
     crops of''; and
       (ii) in subsection (c), by striking ``1995'' and inserting 
     ``2002'';
       (C) in section 358c(d) (7 U.S.C. 1358c(d)), by striking 
     ``1995'' and inserting ``2002''; and
       (D) in section 358e (7 U.S.C. 1359a)--
       (i) in the section heading, by striking ``for 1991 through 
     1997 crops of peanuts''; and
       (ii) in subsection (i), by striking ``1997'' and inserting 
     ``2002''.
       (2) Elimination of quota floor.--Section 358-1(a)(1) of the 
     Act (7 U.S.C. 1358-1(a)(1)) is amended by striking the second 
     sentence.
       (3) Temporary quota allocation.--Section 358-1 of the Act 
     (7 U.S.C. 1358-1) is amended--
       (A) in subsection (a)(1), by striking ``domestic edible, 
     seed,'' and inserting ``domestic edible use''; and
       (B) in subsection (b)(2)--
       (i) in subparagraph (A), by striking ``subparagraph (B) and 
     subject to''; and
       (ii) by striking subparagraph (B) and inserting the 
     following:
       ``(B) Temporary quota allocation.--
       ``(i) Allocation related to seed peanuts.--Temporary 
     allocation of quota pounds for the marketing year only in 
     which the crop is planted shall be made to producers for each 
     of the 1996 through 2002 marketing years as provided in this 
     subparagraph.
       ``(ii) Quantity.--The temporary quota allocation shall be 
     equal to the pounds of seed peanuts planted on the farm, as 
     may be adjusted under regulations prescribed by the 
     Secretary.
       ``(iii) Additional quota.--The temporary allocation of 
     quota pounds under this paragraph shall be in addition to the 
     farm poundage quota otherwise established under this 
     subsection and shall be credited, for the applicable 
     marketing year only, in total to the producer of the peanuts 
     on the farm in a manner prescribed by the Secretary.
       ``(iv) Effect of other requirements.--Nothing in this 
     section alters or changes the requirements regarding the use 
     of quota and additional peanuts established by section 
     358e(b).''.
       (4) Undermarketings.--Part VI of subtitle B of title III of 
     the Act is amended--
       (A) in section 358-1(b) (7 U.S.C. 1358-1(b))--
       (i) in paragraph (1)(B), by striking ``including--'' and 
     clauses (i) and (ii) and inserting ``including any increases 
     resulting from the allocation of quotas voluntarily released 
     for 1 year under paragraph (7).'';
       (ii) in paragraph (3)(B), by striking ``include--'' and 
     clauses (i) and (ii) and inserting ``include any increase 
     resulting from the allocation of quotas voluntarily released 
     for 1 year under paragraph (7).''; and
       (iii) by striking paragraphs (8) and (9); and
       (B) in section 358b(a) (7 U.S.C. 1358b(a))--
       (i) in paragraph (1), by striking ``(including any 
     applicable under marketings)'' both places it appears;
       (ii) in paragraph (1)(A), by striking ``of undermarketings 
     and'';
       (iii) in paragraph (2), by striking ``(including any 
     applicable under marketings)''; and
       (iv) in paragraph (3), by striking ``(including any 
     applicable undermarketings)''.
       (5) Disaster transfers.--Section 358-1(b) of the Act (7 
     U.S.C. 1358-1(b)), as amended by paragraph (4)(A)(iii), is 
     further amended by adding at the end the following:
       ``(8) Disaster transfers.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     additional peanuts produced on a farm from which the quota 
     poundage was not harvested and marketed because of drought, 
     flood, or any other natural disaster, or any other condition 
     beyond the control of the producer, may be transferred to the 
     quota loan pool for pricing purposes on such basis as the 
     Secretary shall by regulation provide.
       ``(B) Limitation.--The poundage of peanuts transferred 
     under subparagraph (A) shall not exceed the difference 
     between--
       ``(i) the total quantity of peanuts meeting quality 
     requirements for domestic edible use, as determined by the 
     Secretary, marketed from the farm; and
       ``(ii) the total farm poundage quota, excluding quota 
     pounds transferred to the farm in the fall.
       ``(C) Support rate.--Peanuts transferred under this 
     paragraph shall be supported at not more than 70 percent of 
     the quota support rate for the marketing years in which the 
     transfers occur. The transfers for a farm shall not exceed 25 
     percent of the total farm quota pounds, excluding pounds 
     transferred in the fall.''.

     SEC. 1107. SUGAR PROGRAM.

       (a) Sugarcane.--The Secretary shall make loans available to 
     processors of domestically grown sugarcane at a rate equal to 
     18 cents per pound for raw cane sugar.
       (b) Sugar Beets.--The Secretary shall make loans available 
     to processors of domestically grown sugar beets at a rate 
     equal to 22.9 cents per pound for refined beet sugar.
       (c) Term of Loans.--
       (1) In general.--Loans under this section during any fiscal 
     year shall be made available not earlier than the beginning 
     of the fiscal year and shall mature at the earlier of--
       (A) the end of 9 months; or
       (B) the end of the fiscal year.
       (2) Supplemental loans.--In the case of loans made under 
     this section in the last 3 months of a fiscal year, the 
     processor may repledge the sugar as collateral for a second 
     loan in the subsequent fiscal year, except that the second 
     loan shall--
       (A) be made at the loan rate in effect at the time the 
     second loan is made; and
       (B) mature in 9 months less the quantity of time that the 
     first loan was in effect.
       (d) Loan Type; Processor Assurances.--
       (1) Recourse loans.--Subject to paragraph (2), the 
     Secretary shall carry out this section through the use of 
     recourse loans.
       (2) Nonrecourse loans.--During any fiscal year in which the 
     tariff rate quota for imports of sugar into the United States 
     is established at, or is increased to, a level in excess of 
     1,500,000 short tons raw value, the Secretary shall carry out 
     this section by making available nonrecourse loans. Any 
     recourse loan previously made available by the Secretary 
     under this section during the fiscal year shall be changed by 
     the Secretary into a nonrecourse loan.
       (3) Processor assurances.--If the Secretary is required 
     under paragraph (2) to make nonrecourse loans available 
     during a fiscal year or to change recourse loans into 
     nonrecourse loans, the Secretary shall obtain from each 
     processor that receives a loan under this section such 
     assurances as the Secretary considers adequate to ensure that 
     the processor will provide payments to producers that are 
     proportional to the value of the loan received by the 
     processor for sugar beets and sugarcane delivered by 
     producers served by the processor. The Secretary may 
     establish appropriate minimum payments for purposes of this 
     paragraph.
       (e) Marketing Assessment.--
       (1) Sugarcane.--Effective for marketings of raw cane sugar 
     during the 1996 through 2003 fiscal years, the first 
     processor of sugarcane shall remit to the Commodity Credit 
     Corporation a nonrefundable marketing assessment in an amount 
     equal to--
       (A) in the case of marketings during fiscal year 1996, 1.1 
     percent of the loan rate established under subsection (a) per 
     pound of raw cane sugar, processed by the processor from 
     domestically produced sugarcane or sugarcane molasses, that 
     has been marketed (including the transfer or delivery of the 
     sugar to a refinery for further processing or marketing); and
       (B) in the case of marketings during each of fiscal years 
     1997 through 2003, 1.375 percent of 

[[Page H 12515]]
     the loan rate established under subsection (a) per pound of raw cane 
     sugar, processed by the processor from domestically produced 
     sugarcane or sugarcane molasses, that has been marketed 
     (including the transfer or delivery of the sugar to a 
     refinery for further processing or marketing).
       (2) Sugar beets.--Effective for marketings of beet sugar 
     during the 1996 through 2003 fiscal years, the first 
     processor of sugar beets shall remit to the Commodity Credit 
     Corporation a nonrefundable marketing assessment in an amount 
     equal to--
       (A) in the case of marketings during fiscal year 1996, 
     1.1794 percent of the loan rate established under subsection 
     (a) per pound of beet sugar, processed by the processor from 
     domestically produced sugar beets or sugar beet molasses, 
     that has been marketed; and
       (B) in the case of marketings during each of fiscal years 
     1997 through 2003, 1.47425 percent of the loan rate 
     established under subsection (a) per pound of beet sugar, 
     processed by the processor from domestically produced sugar 
     beets or sugar beet molasses, that has been marketed.
       (3) Collection.--
       (A) Timing.--A marketing assessment required under this 
     subsection shall be collected on a monthly basis and shall be 
     remitted to the Commodity Credit Corporation not later than 
     30 days after the end of each month. Any cane sugar or beet 
     sugar processed during a fiscal year that has not been 
     marketed by September 30 of the year shall be subject to 
     assessment on that date. The sugar shall not be subject to a 
     second assessment at the time that it is marketed.
       (B) Manner.--Subject to subparagraph (A), marketing 
     assessments shall be collected under this subsection in the 
     manner prescribed by the Secretary and shall be 
     nonrefundable.
       (4) Penalties.--If any person fails to remit the assessment 
     required by this subsection or fails to comply with such 
     requirements for recordkeeping or otherwise as are required 
     by the Secretary to carry out this subsection, the person 
     shall be liable to the Secretary for a civil penalty up to an 
     amount determined by multiplying--
       (A) the quantity of cane sugar or beet sugar involved in 
     the violation; by
       (B) the loan rate for the applicable crop of sugarcane or 
     sugar beets.
       (5) Enforcement.--The Secretary may enforce this subsection 
     in a court of the United States.
       (f) Forfeiture Penalty.--
       (1) In general.--A penalty shall be assessed on the 
     forfeiture of any sugar pledged as collateral for a 
     nonrecourse loan under this section.
       (2) Sugarcane.--The penalty for sugarcane shall be 1 cent 
     per pound.
       (3) Sugar beets.--The penalty for sugar beets shall bear 
     the same relation to the penalty for sugarcane as the 
     marketing assessment for sugar beets bears to the marketing 
     assessment for sugarcane.
       (4) Effect of forfeiture.--Any payments owed producers by a 
     processor that forfeits of any sugar pledged as collateral 
     for a nonrecourse loan shall be reduced in proportion to the 
     loan forfeiture penalty incurred by the processor.
       (g) Information Reporting.--
       (1) Duty of processors and refiners to report.--A sugarcane 
     processor, cane sugar refiner, and sugar beet processor shall 
     furnish the Secretary, on a monthly basis, such information 
     as the Secretary may require to administer sugar programs, 
     including the quantity of purchases of sugarcane, sugar 
     beets, and sugar, and production, importation, distribution, 
     and stock levels of sugar.
       (2) Penalty.--Any person willfully failing or refusing to 
     furnish the information, or furnishing willfully any false 
     information, shall be subject to a civil penalty of not more 
     than $10,000 for each such violation.
       (3) Monthly reports.--Taking into consideration the 
     information received under paragraph (1), the Secretary shall 
     publish on a monthly basis composite data on production, 
     imports, distribution, and stock levels of sugar.
       (h) Marketing Allotments.--Part VII of subtitle B of title 
     III of the Agricultural Adjustment Act of 1938 (7 U.S.C. 
     1359aa et seq.) is repealed.
       (i) Crops.--This section (other than subsection (h)) shall 
     be effective only for the 1996 through 2002 crops of sugar 
     beets and sugarcane.

     SEC. 1108. ADMINISTRATION.

       (a) Commodity Credit Corporation.--
       (1) Use of corporation.--The Secretary shall carry out this 
     subtitle through the Commodity Credit Corporation.
       (2) Salaries and expenses.--No funds of the Corporation 
     shall be used for any salary or expense of any officer or 
     employee of the Department of Agriculture in connection with 
     the administration of payments or loans under this subtitle.
       (b) Administration.--Title IV of the Agricultural 
     Adjustment Act of 1938 (as added by section 1109) shall apply 
     to the administration of this subtitle.
       (c) Regulations.--The Secretary may issue such regulations 
     as the Secretary determines necessary to carry out this 
     subtitle.

     SEC. 1109. ELIMINATION OF PERMANENT PRICE SUPPORT AUTHORITY.

       (a) Agricultural Adjustment Act of 1938.--The Agricultural 
     Adjustment Act of 1938 is amended--
       (1) in title III--
       (A) in subtitle B--
       (i) by striking parts II through V (7 U.S.C. 1326-1351); 
     and
       (ii) in part VI, by striking sections 358, 358a, and 358d 
     (7 U.S.C. 1358, 1358a, and 1359); and
       (B) by striking subtitle D (7 U.S.C. 1379a-1379j); and
       (2) by striking title IV (7 U.S.C. 1401-1407).
       (b) Agricultural Act of 1949.--
       (1) Transfer of certain sections.--The Agricultural Act of 
     1949 is amended--
       (A) by transferring sections 106, 106A, and 106B (7 U.S.C. 
     1445, 1445-1, 1445-2) to appear after section 314A of the 
     Agricultural Adjustment Act of 1938 (7 U.S.C. 1314-1) and 
     redesignating the transferred sections as sections 315, 315A, 
     and 315B, respectively;
       (B) by transferring sections 111, 201(c), and 204 (7 U.S.C. 
     1445f, 1446(c), 1446e) to appear after section 304 of the 
     Agricultural Adjustment Act of 1938 (7 U.S.C. 1304) and 
     redesignating the transferred sections as sections 305, 306, 
     and 307, respectively;
       (C) by transferring sections 403, 405, 407, 412, and 422 (7 
     U.S.C. 1423, 1425, 1427, 1429, 1431a) to appear after section 
     393 (7 U.S.C. 1393) and redesignating the transferred 
     sections as sections 411, 412, 413, 414, and 415, 
     respectively; and
       (D) by transferring section 416 (7 U.S.C. 1431) to appear 
     after section 415 of the Agricultural Adjustment Act of 1938 
     (as transferred and redesignated by subparagraph (C)).
       (2) Repeal.--The Agricultural Act of 1949 (7 U.S.C. 1421 et 
     seq.) (as amended by paragraph (1)) is repealed.
       (c) Conforming Amendments.--The Agricultural Adjustment Act 
     of 1938 is amended--
       (1) in section 306 (as transferred and redesignated by 
     subsection (b)(1)(B)), by striking ``204'' and inserting 
     ``307''; and
       (2) by striking section 411 (as transferred and 
     redesignated by subsection (b)(1)(C)) and inserting the 
     following:
                  ``TITLE IV--ADMINISTRATION OF LOANS

     ``SEC. 411. ADJUSTMENTS FOR GRADE, TYPE, QUALITY, LOCATION, 
                   AND OTHER FACTORS.

       ``The Secretary may make such adjustments in the announced 
     loan rate for a commodity as the Secretary considers 
     appropriate to reflect differences in grade, type, quality, 
     location, and other factors.''.

     SEC. 1110. EFFECT OF AMENDMENTS.

       (a) Effect on Prior Crops.--Except as otherwise 
     specifically provided and notwithstanding any other provision 
     of law, this subtitle and the amendments made by this 
     subtitle shall not affect the authority of the Secretary to 
     carry out a price support or production adjustment program 
     for any of the 1991 through 1995 crops of an agricultural 
     commodity established under a provision of law in effect 
     immediately before the date of the enactment of this Act.
       (b) Liability.--A provision of this subtitle or an 
     amendment made by this subtitle shall not affect the 
     liability of any person under any provision of law as in 
     effect before the date of the enactment of this Act.
                        Subtitle B--Conservation

     SEC. 1201. CONSERVATION.

       (a) Funding.--Subtitle E of title XII of the Food Security 
     Act of 1985 (16 U.S.C. 3841 et seq.) is amended to read as 
     follows:
                         ``Subtitle E--Funding

     ``SEC. 1241. FUNDING.

       ``(a) Mandatory Expenses.--For each of fiscal years 1996 
     through 2002, the Secretary shall use the funds of the 
     Commodity Credit Corporation to carry out the programs 
     authorized by--
       ``(1) subchapter B of chapter 1 of subtitle D (including 
     contracts extended by the Secretary pursuant to section 1437 
     of the Food, Agriculture, Conservation, and Trade Act of 1990 
     (Public Law 101-624; 16 U.S.C. 3831 note));
       ``(2) subchapter C of chapter 1 of subtitle D; and
       ``(3) chapter 4 of subtitle D.
       ``(b) Livestock Environmental Assistance Program.--For each 
     of fiscal years 1996 through 2002, $100,000,000 of the funds 
     of the Commodity Credit Corporation shall be available for 
     providing technical assistance, cost-sharing payments, and 
     incentive payments for practices relating to livestock 
     production under the livestock environmental assistance 
     program under chapter 4 of subtitle D.''.
       (b) Livestock Environmental Assistance Program.--To carry 
     out the programs funded under the amendment made by 
     subsection (a), subtitle D of title XII of the Food Security 
     Act of 1985 (16 U.S.C. 3830 et seq.) is amended by adding at 
     the end the following:

        ``CHAPTER 4--LIVESTOCK ENVIRONMENTAL ASSISTANCE PROGRAM

     ``SEC. 1240. DEFINITIONS.

       ``In this chapter:
       ``(1) Land management practice.--The term `land management 
     practice' means a site-specific nutrient or manure 
     management, irrigation management, tillage or residue 
     management, grazing management, or other land management 
     practice that the Secretary determines is needed to protect, 
     in the most cost effective manner, water, soil, or related 
     resources from degradation due to livestock production.
       ``(2) Large confined livestock operation.--The term `large 
     confined livestock operation' means an operation that--
       ``(A) is a confined animal feeding operation; and
       ``(B) has more than--
       ``(i) 55 mature dairy cattle;
       ``(ii) 10,000 beef cattle;
       ``(iii) 30,000 laying hens or broilers (if the facility has 
     continuous overflow watering);
       ``(iv) 100,000 laying hens or broilers (if the facility has 
     a liquid manure system);
       ``(v) 55,000 turkeys;
       ``(vi) 15,000 swine; or
       ``(vii) 10,000 sheep or lambs.
       ``(3) Livestock.--The term `livestock' means dairy cows, 
     beef cattle, laying hens, broilers, turkeys, swine, sheep, 
     lambs, and such other animals as determined by the Secretary.
       ``(4) Operator.--The term `operator' means a person who is 
     engaged in livestock production (as defined by the 
     Secretary).

[[Page H 12516]]

       ``(5) Structural practice.--The term `structural practice' 
     means the establishment of an animal waste management 
     facility, terrace, grassed waterway, contour grass strip, 
     filterstrip, or other structural practice that the Secretary 
     determines is needed to protect, in the most cost effective 
     manner, water, soil, or related resources from degradation 
     due to livestock production.

     ``SEC. 1240A. ESTABLISHMENT AND ADMINISTRATION OF LIVESTOCK 
                   ENVIRONMENTAL ASSISTANCE PROGRAM.

       ``(a) Establishment.--
       ``(1) In general.--During the 1996 through 2002 fiscal 
     years, the Secretary shall provide technical assistance, 
     cost-sharing payments, and incentive payments to operators 
     who enter into contracts with the Secretary, through a 
     livestock environmental assistance program.
       ``(2) Eligible practices.--
       ``(A) Structural practices.--An operator who implements a 
     structural practice shall be eligible for technical 
     assistance or cost-sharing payments, or both.
       ``(B) Land management practices.--An operator who performs 
     a land management practice shall be eligible for technical 
     assistance or incentive payments, or both.
       ``(3) Eligible land.--Assistance under this chapter may be 
     provided with respect to land that is used for livestock 
     production and on which a serious threat to water, soil, or 
     related resources exists, as determined by the Secretary, by 
     reason of the soil types, terrain, climatic, soil, 
     topographic, flood, or saline characteristics, or other 
     factors or natural hazards.
       ``(4) Selection criteria.--In providing technical 
     assistance, cost-sharing payments, and incentive payments to 
     operators in a region, watershed, or conservation priority 
     area in which an agricultural operation is located, the 
     Secretary shall consider--
       ``(A) the significance of the water, soil, and related 
     natural resource problems; and
       ``(B) the maximization of environmental benefits per dollar 
     expended.
       ``(b) Application and Term.--
       ``(1) In general.--A contract between an operator and the 
     Secretary under this chapter may--
       ``(A) apply to 1 or more structural practices or 1 or more 
     land management practices, or both; and
       ``(B) have a term of not less than 5, nor more than 10, 
     years, as determined appropriate by the Secretary, depending 
     on the practice or practices that are the basis of the 
     contract.
       ``(2) Duties of operators and secretary.--To receive cost 
     sharing or incentive payments, or technical assistance, 
     participating operators shall comply with all terms and 
     conditions of the contract and a plan, as established by the 
     Secretary.
       ``(c) Structural Practices.--
       ``(1) Competitive offer.--The Secretary shall administer a 
     competitive offer system for operators proposing to receive 
     cost-sharing payments in exchange for the implementation of 1 
     or more structural practices by the operator. The competitive 
     offer system shall consist of--
       ``(A) the submission of a competitive offer by the operator 
     in such manner as the Secretary may prescribe; and
       ``(B) evaluation of the offer in light of the selection 
     criteria established under subsection (a)(4) and the 
     projected cost of the proposal, as determined by the 
     Secretary.
       ``(2) Concurrence of owner.--If the operator making an 
     offer to implement a structural practice is a tenant of the 
     land involved in agricultural production, for the offer to be 
     acceptable, the operator shall obtain the concurrence of the 
     owner of the land with respect to the offer.
       ``(d) Land Management Practices.--The Secretary shall 
     establish an application and evaluation process for awarding 
     technical assistance or incentive payments, or both, to an 
     operator in exchange for the performance of 1 or more land 
     management practices by the operator.
       ``(e) Cost-Sharing, Incentive Payments, and Technical 
     Assistance.--
       ``(1) Cost-sharing payments.--
       ``(A) In general.--The Federal share of cost-sharing 
     payments to an operator proposing to implement 1 or more 
     structural practices shall not be greater than 75 percent of 
     the projected cost of each practice, as determined by the 
     Secretary, taking into consideration any payment received by 
     the operator from a State or local government.
       ``(B) Limitation.--An operator of a large confined 
     livestock operation shall not be eligible for cost-sharing 
     payments to construct an animal waste management facility.
       ``(C) Other payments.--An operator shall not be eligible 
     for cost-sharing payments for structural practices on 
     eligible land under this chapter if the operator receives 
     cost-sharing payments or other benefits for the same land 
     under chapter 1, 2, or 3.
       ``(2) Incentive payments.--The Secretary shall make 
     incentive payments in an amount and at a rate determined by 
     the Secretary to be necessary to encourage an operator to 
     perform 1 or more land management practices.
       ``(3) Technical assistance.--
       ``(A) Funding.--The Secretary shall allocate funding under 
     this chapter for the provision of technical assistance 
     according to the purpose and projected cost for which the 
     technical assistance is provided for a fiscal year. The 
     allocated amount may vary according to the type of expertise 
     required, quantity of time involved, and other factors as 
     determined appropriate by the Secretary. Funding shall not 
     exceed the projected cost to the Secretary of the technical 
     assistance provided for a fiscal year.
       ``(B) Other authorities.--The receipt of technical 
     assistance under this chapter shall not affect the 
     eligibility of the operator to receive technical assistance 
     under other authorities of law available to the Secretary.
       ``(f) Limitation on Payments.--
       ``(1) In general.--The total amount of cost-sharing and 
     incentive payments paid to a person under this chapter may 
     not exceed--
       ``(A) $10,000 for any fiscal year; or
       ``(B) $50,000 for any multiyear contract.
       ``(2) Regulations.--The Secretary shall issue regulations 
     that are consistent with section 1001 for the purpose of--
       ``(A) defining the term `person' as used in paragraph (1); 
     and
       ``(B) prescribing such rules as the Secretary determines 
     necessary to ensure a fair and reasonable application of the 
     limitations established under this subsection.
       ``(g) Regulations.--Not later than 180 days after the 
     effective date of this subsection, the Secretary shall issue 
     regulations to implement the livestock environmental 
     assistance program established under this chapter.''.
       (c) Conforming Amendments.--
       (1) Commodity credit corporation charter act.--Section 5(g) 
     of the Commodity Credit Corporation Charter Act (15 U.S.C. 
     714c(g)) is amended to read as follows:
       ``(g) Carry out conservation functions and programs.''.
       (2) Wetlands reserve program.--
       (A) In general.--Section 1237 of the Food Security Act of 
     1985 (16 U.S.C. 3837) is amended--
       (i) in subsection (b)(2)--

       (I) by striking ``not less'' and inserting ``not more''; 
     and
       (II) by striking ``2000'' and inserting ``2002''; and

       (ii) in subsection (c), by striking ``2000'' and inserting 
     ``2002''.
       (B) Length of easement.--Section 1237A(e) of the Food 
     Security Act of 1985 (16 U.S.C. 3837a(e)) is amended by 
     striking paragraph (2) and inserting the following:
       ``(2) shall be for 15 years, but in no case shall be a 
     permanent easement.''.
       (3) Conservation reserve program.--
       (A) In general.--Section 1231(d) of the Food Security Act 
     of 1985 (16 U.S.C. 3831(d)) is amended by striking ``total 
     of'' and all that follows through the period at the end of 
     the subsection and inserting ``total of 36,400,000 acres.''.
       (B) Optional contract termination by producers.--Section 
     1235 of the Food Security Act of 1985 (16 U.S.C. 3835) is 
     amended by adding at the end the following:
       ``(e) Termination by Owner or Operator.--
       ``(1) Notice of termination.--An owner or operator of land 
     subject to a contract entered into under this subchapter may 
     terminate the contract by submitting to the Secretary written 
     notice of the intention of the owner or operator to terminate 
     the contract.
       ``(2) Effective date.--The contract termination shall take 
     effect 60 days after the date on which the owner or operator 
     submits the written notice under paragraph (1).
       ``(3) Prorated rental payment.--If a contract entered into 
     under this subchapter is terminated under this subsection 
     before the end of the fiscal year for which a rental payment 
     is due, the Secretary shall provide a prorated rental payment 
     covering the portion of the fiscal year during which the 
     contract was in effect.
       ``(4) Renewed enrollment.--The termination of a contract 
     entered into under this subchapter shall not affect the 
     ability of the owner or operator who requested the 
     termination to submit a subsequent bid to enroll the land 
     that was subject to the contract into the conservation 
     reserve.
       ``(5) Conservation requirements.--If land that was subject 
     to a contract is returned to production of an agricultural 
     commodity, the conservation requirements under subtitles B 
     and C shall apply to the use of the land to the extent that 
     the requirements are similar to those requirements imposed on 
     other similar lands in the area, except that the requirements 
     may not be more onerous that the requirements imposed on 
     other lands.
       ``(6) Repayment of cost share.--A person who terminates a 
     contract entered into under this subchapter within less than 
     3 years after entering into the contract shall reimburse the 
     Secretary for any cost share assistance provided under the 
     contract.''.
       (C) Limitation.--Notwithstanding any other provision of 
     law, no new acres shall be enrolled in the conservation 
     reserve program established under subchapter B of chapter 1 
     of subtitle D of title XII of the Food Security Act of 1985 
     (16 U.S.C. 3831 et seq.) in calendar year 1997.
         Subtitle C--Agricultural Promotion and Export Programs

     SEC. 1301. MARKET PROMOTION PROGRAM.

       Effective October 1, 1995, section 211(c)(1) of the 
     Agricultural Trade Act of 1978 (7 U.S.C. 5641(c)(1)) is 
     amended--
       (1) by striking ``and'' after ``1991 through 1993,''; and
       (2) by striking ``through 1997,'' and inserting ``through 
     1995, and not more than $100,000,000 for each of fiscal years 
     1996 through 2002,''.

     SEC. 1302. EXPORT ENHANCEMENT PROGRAM.

       Effective October 1, 1995, section 301(e)(1) of the 
     Agricultural Trade Act of 1978 (7 U.S.C. 5651(e)(1)) is 
     amended to read as follows:
       ``(1) In general.--The Commodity Credit Corporation shall 
     make available to carry out the program established under 
     this section not more than--
       ``(A) $350,000,000 for fiscal year 1996;
       ``(B) $350,000,000 for fiscal year 1997;
       ``(C) $500,000,000 for fiscal year 1998;
       ``(D) $550,000,000 for fiscal year 1999;
       ``(E) $579,000,000 for fiscal year 2000;
       ``(F) $478,000,000 for fiscal year 2001; and
       ``(G) $478,000,000 for fiscal year 2002.''.
                       Subtitle D--Miscellaneous

     SEC. 1401. CROP INSURANCE.

       (a) Catastrophic Risk Protection.--Section 508(b) of the 
     Federal Crop Insurance Act (7 U.S.C. 1508(b)) is amended--

[[Page H 12517]]

       (1) in paragraph (4), by adding at the end the following:
       ``(C) Delivery of coverage.--
       ``(i) In general.--In full consultation with approved 
     insurance providers, the Secretary may continue to offer 
     catastrophic risk protection in a State (or a portion of a 
     State) through local offices of the Department if the 
     Secretary determines that there is an insufficient number of 
     approved insurance providers operating in the State or 
     portion to adequately provide catastrophic risk protection 
     coverage to producers.
       ``(ii) Coverage by approved insurance providers.--To the 
     extent that catastrophic risk protection coverage by approved 
     insurance providers is sufficiently available in a State as 
     determined by the Secretary, only approved insurance 
     providers may provide the coverage in the State.
       ``(iii) Current policies.--Subject to clause (ii), all 
     catastrophic risk protection policies written by local 
     offices of the Department shall be transferred (including all 
     fees collected for the crop year in which the approved 
     insurance provider will assume the policies) to the approved 
     insurance provider for performance of all sales, service, and 
     loss adjustment functions.''; and
       (2) in paragraph (7), by striking subparagraph (A) and 
     inserting the following:
       ``(A) In general.--Effective for the spring-planted 1996 
     and subsequent crops, to be eligible for any payment or loan 
     under the Agricultural Market Transition Act, the 
     conservation reserve program, or any benefit described in 
     section 371 of the Consolidated Farm and Rural Development 
     Act (7 U.S.C. 2008f), a person shall--
       ``(i) obtain at least the catastrophic level of insurance 
     for each crop of economic significance in which the person 
     has an interest; or
       ``(ii) provide a written waiver to the Secretary that 
     waives any eligibility for emergency crop loss assistance in 
     connection with the crop.''.
       (b) Coverage of Seed Crops.--Section 519(a)(2)(B) of the 
     Act (7 U.S.C. 1519(a)(2)(B) is amended by inserting ``seed 
     crops,'' after ``turfgrass sod,''.

     SEC. 1402. COLLECTION AND USE OF AGRICULTURAL QUARANTINE AND 
                   INSPECTION FEES.

       Subsection (a) of section 2509 of the Food, Agriculture, 
     Conservation, and Trade Act of 1990 (21 U.S.C. 136a) is 
     amended to read as follows:
       ``(a) Quarantine and Inspection Fees.--
       ``(1) Fees authorized.--The Secretary of Agriculture may 
     prescribe and collect fees sufficient--
       ``(A) to cover the cost of providing agricultural 
     quarantine and inspection services in connection with the 
     arrival at a port in the customs territory of the United 
     States, or the preclearance or preinspection at a site 
     outside the customs territory of the United States, of an 
     international passenger, commercial vessel, commercial 
     aircraft, commercial truck, or railroad car;
       ``(B) to cover the cost of administering this subsection; 
     and
       ``(C) through fiscal year 2002, to maintain a reasonable 
     balance in the Agricultural Quarantine Inspection User Fee 
     Account established under paragraph (5).
       ``(2) Limitation.--In setting the fees under paragraph (1), 
     the Secretary shall ensure that the amount of the fees are 
     commensurate with the costs of agricultural quarantine and 
     inspection services with respect to the class of persons or 
     entities paying the fees. The costs of the services with 
     respect to passengers as a class includes the costs of 
     related inspections of the aircraft or other vehicle.
       ``(3) Status of fees.--Fees collected under this subsection 
     by any person on behalf of the Secretary are held in trust 
     for the United States and shall be remitted to the Secretary 
     in such manner and at such times as the Secretary may 
     prescribe.
       ``(4) Late payment penalties.--If a person subject to a fee 
     under this subsection fails to pay the fee when due, the 
     Secretary shall assess a late payment penalty, and the 
     overdue fees shall accrue interest, as required by section 
     3717 of title 31, United States Code.
       ``(5) Agricultural quarantine inspection user fee 
     account.--
       ``(A) Establishment.--There is established in the Treasury 
     of the United States a no-year fund, to be known as the 
     `Agricultural Quarantine Inspection User Fee Account', which 
     shall contain all of the fees collected under this subsection 
     and late payment penalties and interest charges collected 
     under paragraph (4) through fiscal year 2002.
       ``(B) Use of account.--For each of the fiscal years 1996 
     through 2002, funds in the Agricultural Quarantine Inspection 
     User Fee Account shall be available, in such amounts as are 
     provided in advance in appropriations Acts, to cover the 
     costs associated with the provision of agricultural 
     quarantine and inspection services and the administration of 
     this subsection. Amounts made available under this 
     subparagraph shall be available until expended.
       ``(C) Excess fees.--Fees and other amounts collected under 
     this subsection in any of the fiscal years 1996 through 2002 
     in excess of $100,000,000 shall be available for the purposes 
     specified in subparagraph (B) until expended, without further 
     appropriation.
       ``(6) Use of amounts collected after fiscal year 2002.--
     After September 30, 2002, the unobligated balance in the 
     Agricultural Quarantine Inspection User Fee Account and fees 
     and other amounts collected under this subsection shall be 
     credited to the Department of Agriculture accounts that incur 
     the costs associated with the provision of agricultural 
     quarantine and inspection services and the administration of 
     this subsection. The fees and other amounts shall remain 
     available to the Secretary until expended without fiscal year 
     limitation.
       ``(7) Staff years.--The number of full-time equivalent 
     positions in the Department of Agriculture attributable to 
     the provision of agricultural quarantine and inspection 
     services and the administration of this subsection shall not 
     be counted toward the limitation on the total number of full-
     time equivalent positions in all agencies specified in 
     section 5(b) of the Federal Workforce Restructuring Act of 
     1994 (Public Law 103-226; 5 U.S.C. 3101 note) or other 
     limitation on the total number of full-time equivalent 
     positions.''.

     SEC. 1403. COMMODITY CREDIT CORPORATION INTEREST RATE.

       Notwithstanding any other provision of law, the monthly 
     Commodity Credit Corporation interest rate applicable to 
     loans provided for agricultural commodities by the 
     Corporation shall be 100 basis points greater than the rate 
     determined under the applicable interest rate formula in 
     effect on October 1, 1995.
           TITLE II--BANKING, HOUSING, AND RELATED PROVISIONS

     SEC. 2001. TABLE OF CONTENTS.

       The table of contents for this title is as follows:

           TITLE II--BANKING, HOUSING, AND RELATED PROVISIONS

Sec. 2001. Table of contents.

           TITLE II--BANKING, HOUSING, AND RELATED PROVISIONS

                   Subtitle A--Financial Institutions

Sec. 2011. Special assessment to capitalize SAIF.
Sec. 2012. Financing Corporation assessments shared proportionally by 
              all insured depository institutions.
Sec. 2013. Merger of BIF and SAIF.
Sec. 2014. Creation of SAIF Special Reserve.
Sec. 2015. Refund of amounts in deposit insurance fund in excess of 
              designated reserve amount.
Sec. 2016. Assessment rates for SAIF members may not be less than 
              assessment rates for BIF members.
Sec. 2017. Assessments authorized only if needed to maintain the 
              reserve ratio of a deposit insurance fund.
Sec. 2018. Limitation on authority of Oversight Board to continue to 
              employ more than 18 officers and employees.
Sec. 2019. Definitions.

                          Subtitle B--Housing

Sec. 2051. Annual adjustment factors for operating costs only; 
              restraint on rent increases.
Sec. 2052. Foreclosure avoidance and borrower assistance.
           TITLE II--BANKING, HOUSING, AND RELATED PROVISIONS
                   Subtitle A--Financial Institutions

     SEC. 2011. SPECIAL ASSESSMENT TO CAPITALIZE SAIF.

       (a) In General.--Except as provided in subsection (f), the 
     Board of Directors shall impose a special assessment on the 
     SAIF-assessable deposits of each insured depository 
     institution at a rate applicable to all such institutions 
     that the Board of Directors, in its sole discretion, 
     determines (after taking into account the adjustments 
     described in subsections (g) through (j)) will cause the 
     Savings Association Insurance Fund to achieve the designated 
     reserve ratio on the first business day of January 1996.
       (b) Factors To Be Considered.--In carrying out subsection 
     (a), the Board of Directors shall base its determination on--
       (1) the monthly Savings Association Insurance Fund balance 
     most recently calculated;
       (2) data on insured deposits reported in the most recent 
     reports of condition filed not later than 70 days before the 
     date of enactment of this Act by insured depository 
     institutions; and
       (3) any other factors that the Board of Directors deems 
     appropriate.
       (c) Date of Determination.--For purposes of subsection (a), 
     the amount of the SAIF-assessable deposits of an insured 
     depository institution shall be determined as of March 31, 
     1995.
       (d) Date Payment Due.--The special assessment imposed under 
     this section shall be--
       (1) due on the first business day of January 1996; and
       (2) paid to the Corporation on the later of--
       (A) the first business day of January 1996; or
       (B) such other date as the Corporation shall prescribe, but 
     not later than 60 days after the date of enactment of this 
     Act.
       (e) Assessment Deposited in SAIF.--Notwithstanding any 
     other provision of law, the proceeds of the special 
     assessment imposed under this section shall be deposited in 
     the Savings Association Insurance Fund.
       (f) Exemptions for Certain Institutions.--
       (1) Exemption for weak institutions.--The Board of 
     Directors may, by order, in its sole discretion, exempt any 
     insured depository institution that the Board of Directors 
     determines to be weak, from paying the special assessment 
     imposed under this section if the Board of Directors 
     determines that the exemption would reduce risk to the 
     Savings Association Insurance Fund.
       (2) Guidelines required.--Not later than 30 days after the 
     date of enactment of this Act, the Board of Directors shall 
     prescribe guidelines setting forth the criteria that the 
     Board of Directors will use in exempting institutions under 
     paragraph (1). Such guidelines shall be published in the 
     Federal Register.
       (3) Exemption for certain newly chartered and other defined 
     institutions.--
       (A) In general.--In addition to the institutions exempted 
     from paying the special assessment under paragraph (1), the 
     Board of Directors shall exempt any insured depository 
     institution from payment of the special assessment if the 
     institution--
       (i) was in existence on October 1, 1995, and held no SAIF-
     assessable deposits prior to January 1, 1993;
       (ii) is a Federal savings bank which--

[[Page H 12518]]


       (I) was established de novo in April 1994 in order to 
     acquire the deposits of a savings association which was in 
     default or in danger of default; and
       (II) received minority interim capital assistance from the 
     Resolution Trust Corporation under section 21A(w) of the 
     Federal Home Loan Bank Act in connection with the acquisition 
     of any such savings association; or

       (iii) is a savings association, the deposits of which are 
     insured by the Savings Association Insurance Fund, which--

       (I) prior to January 1, 1987, was chartered as a Federal 
     savings bank insured by the Federal Savings and Loan 
     Insurance Corporation for the purpose of acquiring all or 
     substantially all of the assets and assuming all or 
     substantially all of the deposit liabilities of a national 
     bank in a transaction consummated after July 1, 1986; and
       (II) as of the date of that transaction, had assets of less 
     than $150,000,000.

       (B) Definition.--For purposes of this paragraph, an 
     institution shall be deemed to have held SAIF-assessable 
     deposits prior to January 1, 1993, if--
       (i) it directly held SAIF-assessable insured deposits prior 
     to that date; or
       (ii) it succeeded to, acquired, purchased, or otherwise 
     holds any SAIF-assessable deposits as of the date of 
     enactment of this Act that were SAIF-assessable deposits 
     prior to January 1, 1993.
       (4) Exempt institutions required to pay assessments at 
     former rates.--
       (A) Payments to saif and dif.--Any insured depository 
     institution that the Board of Directors exempts under this 
     subsection from paying the special assessment imposed under 
     this section shall pay semiannual assessments--
       (i) during calendar years 1996 and 1997, into the Savings 
     Association Insurance Fund, based on SAIF-assessable deposits 
     of that institution, at assessment rates calculated under the 
     schedule in effect for Savings Association Insurance Fund 
     members on June 30, 1995; and
       (ii) during calendar years 1998 and 1999--

       (I) into the Deposit Insurance Fund, based on SAIF-
     assessable deposits of that institution as of December 31, 
     1997, at assessment rates calculated under the schedule in 
     effect for Savings Association Insurance Fund members on June 
     30, 1995; or
       (II) in accordance with clause (i), if the Bank Insurance 
     Fund and the Savings Association Insurance Fund are not 
     merged into the Deposit Insurance Fund.

       (B) Optional pro rata payment of special assessment.--This 
     paragraph shall not apply with respect to any insured 
     depository institution (or successor insured depository 
     institution) that has paid, during any calendar year from 
     1997 through 1999, upon such terms as the Corporation may 
     announce, an amount equal to the product of--
       (i) 12.5 percent of the special assessment that the 
     institution would have been required to pay under subsection 
     (a), if the Board of Directors had not exempted the 
     institution; and
       (ii) the number of full semiannual periods remaining 
     between the date of the payment and December 31, 1999.
       (g) Special Election for Certain Institutions Facing 
     Hardship as a Result of the Special Assessment.--
       (1) Election authorized.--If--
       (A) an insured depository institution, or any depository 
     institution holding company which, directly or indirectly, 
     controls such institution, is subject to terms or covenants 
     in any debt obligation or preferred stock outstanding on 
     September 13, 1995; and
       (B) the payment of the special assessment under subsection 
     (a) would pose a significant risk of causing such depository 
     institution or holding company to default or violate any such 
     term or covenant,

     the depository institution may elect, with the approval of 
     the Corporation, to pay such special assessment in accordance 
     with paragraphs (2) and (3) in lieu of paying such assessment 
     in the manner required under subsection (a).
       (2) 1st assessment.--An insured depository institution 
     which makes an election under paragraph (1) shall pay an 
     assessment of 50 percent of the amount of the special 
     assessment that would otherwise apply under subsection (a), 
     by the date on which such special assessment is otherwise due 
     under subsection (d).
       (3) 2d assessment.--An insured depository institution which 
     makes an election under paragraph (1) shall pay a 2d 
     assessment, by the date established by the Board of Directors 
     in accordance with paragraph (4), in an amount equal to the 
     product of 51 percent of the rate determined by the Board of 
     Directors under subsection (a) for determining the amount of 
     the special assessment and the SAIF-assessable deposits of 
     the institution on March 31, 1996, or such other date in 
     calendar year 1996 as the Board of Directors determines to be 
     appropriate.
       (4) Due date of 2d assessment.--The date established by the 
     Board of Directors for the payment of the assessment under 
     paragraph (3) by a depository institution shall be the 
     earliest practicable date which the Board of Directors 
     determines to be appropriate, which is at least 15 days after 
     the date used by the Board of Directors under paragraph (3).
       (5) Supplemental special assessment.--An insured depository 
     institution which makes an election under paragraph (1) shall 
     pay a supplemental special assessment, at the same time the 
     payment under paragraph (3) is made, in an amount equal to 
     the product of--
       (A) 50 percent of the rate determined by the Board of 
     Directors under subsection (a) for determining the amount of 
     the special assessment; and
       (B) 95 percent of the amount by which the SAIF-assessable 
     deposits used by the Board of Directors for determining the 
     amount of the 1st assessment under paragraph (2) exceeds, if 
     any, the SAIF-assessable deposits used by the Board for 
     determining the amount of the 2d assessment under paragraph 
     (3).
       (h) Adjustment of Special Assessment for Certain Bank 
     Insurance Fund Member Banks.--
       (1) In general.--For purposes of computing the special 
     assessment imposed under this section with respect to a Bank 
     Insurance Fund member bank, the amount of any deposits of any 
     insured depository institution which section 5(d)(3) of the 
     Federal Deposit Insurance Act treats as insured by the 
     Savings Association Insurance Fund shall be reduced by 20 
     percent--
       (A) if the adjusted attributable deposit amount of the Bank 
     Insurance Fund member bank is less than 50 percent of the 
     total domestic deposits of that member bank as of June 30, 
     1995; or
       (B) if, as of June 30, 1995, the Bank Insurance Fund 
     member--
       (i) had an adjusted attributable deposit amount equal to 
     less than 75 percent of the total assessable deposits of that 
     member bank;
       (ii) had total assessable deposits greater than 
     $5,000,000,000; and
       (iii) was owned or controlled by a bank holding company 
     that owned or controlled insured depository institutions 
     having an aggregate amount of deposits insured or treated as 
     insured by the Bank Insurance Fund greater than the aggregate 
     amount of deposits insured or treated as insured by the 
     Savings Association Insurance Fund.
       (2) Adjusted attributable deposit amount.--For purposes of 
     this subsection, the ``adjusted attributable deposit amount'' 
     shall be determined in accordance with section 5(d)(3)(C) of 
     the Federal Deposit Insurance Act.
       (i) Adjustment to the Adjusted Attributable Deposit Amount 
     for Certain Bank Insurance Fund Member Banks.--Section 
     5(d)(3) of the Federal Deposit Insurance Act (12 U.S.C. 
     1815(d)(3)) is amended--
       (1) in subparagraph (C), by striking ``The adjusted 
     attributable deposit amount'' and inserting ``Except as 
     provided in subparagraph (K), the adjusted attributable 
     deposit amount''; and
       (2) by adding at the end the following new subparagraph:
       ``(K) Adjustment of adjusted attributable deposit amount.--
     The amount determined under subparagraph (C)(i) for deposits 
     acquired by March 31, 1995, shall be reduced by 20 percent 
     for purposes of computing the adjusted attributable deposit 
     amount for the payment of any assessment for any semiannual 
     period after December 31, 1995 (other than the special 
     assessment imposed under section 2011(a) of the Balanced 
     Budget Act of 1995), for a Bank Insurance Fund member bank 
     that, as of June 30, 1995--
       ``(i) had an adjusted attributable deposit amount that was 
     less than 50 percent of the total deposits of that member 
     bank; or
       ``(ii)(I) had an adjusted attributable deposit amount equal 
     to less than 75 percent of the total assessable deposits of 
     that member bank;
       ``(II) had total assessable deposits greater than 
     $5,000,000,000; and
       ``(III) was owned or controlled by a bank holding company 
     that owned or controlled insured depository institutions 
     having an aggregate amount of deposits insured or treated as 
     insured by the Bank Insurance Fund greater than the aggregate 
     amount of deposits insured or treated as insured by the 
     Savings Association Insurance Fund.''.
       (j) Adjustment of Special Assessment for Certain Savings 
     Associations.--
       (1) Special assessment reduction.--For purposes of 
     computing the special assessment imposed under this section, 
     in the case of any converted association, the amount of any 
     deposits of such association which were insured by the 
     Savings Association Insurance Fund as of March 31, 1995, 
     shall be reduced by 20 percent.
       (2) Converted association.--For purposes of this 
     subsection, the term ``converted association'' means--
       (A) any Federal savings association--
       (i) that is a member of the Savings Association Insurance 
     Fund and that has deposits subject to assessment by that fund 
     which did not exceed $4,000,000,000, as of March 31, 1995; 
     and
       (ii) that had been, or is a successor by merger, 
     acquisition, or otherwise to an institution that had been, a 
     State savings bank, the deposits of which were insured by the 
     Federal Deposit Insurance Corporation prior to August 9, 
     1989, that converted to a Federal savings association 
     pursuant to section 5(i) of the Home Owners' Loan Act prior 
     to January 1, 1985;
       (B) a State depository institution that is a member of the 
     Savings Association Insurance Fund that had been a State 
     savings bank prior to October 15, 1982, and was a Federal 
     savings association on August 9, 1989;
       (C) an insured bank that--
       (i) was established de novo in order to acquire the 
     deposits of a savings association in default or in danger of 
     default;
       (ii) did not open for business before acquiring the 
     deposits of such savings association; and
       (iii) was a Savings Association Insurance Fund member as of 
     the date of enactment of this Act; and
       (D) an insured bank that--
       (i) resulted from a savings association before December 19, 
     1991, in accordance with section 5(d)(2)(G) of the Federal 
     Deposit Insurance Act; and
       (ii) had an increase in its capital in conjunction with the 
     conversion in an amount equal to more than 75 percent of the 
     capital of the institution on the day before the date of the 
     conversion.

     SEC. 2012. FINANCING CORPORATION ASSESSMENTS SHARED 
                   PROPORTIONALLY BY ALL INSURED DEPOSITORY 
                   INSTITUTIONS.

       (a) In General.--Section 21 of the Federal Home Loan Bank 
     Act (12 U.S.C. 1441) is amended--

[[Page H 12519]]

       (1) in subsection (f)(2)--
       (A) in the matter immediately preceding subparagraph (A)--
       (i) by striking ``Savings Association Insurance Fund 
     member'' and inserting ``insured depository institution''; 
     and
       (ii) by striking ``members'' and inserting 
     ``institutions''; and
       (B) by striking ``, except that--'' and all that follows 
     through the end of the paragraph and inserting ``, except 
     that--
       ``(A) the Financing Corporation shall have first priority 
     to make the assessment; and
       ``(B) no limitation under clause (i) or (iii) of section 
     7(b)(2)(A) of the Federal Deposit Insurance Act shall apply 
     for purposes of this paragraph.''; and
       (2) in subsection (k)--
       (A) by striking ``section--'' and inserting ``section, the 
     following definitions shall apply:'';
       (B) by striking paragraph (1);
       (C) by redesignating paragraphs (2) and (3) as paragraphs 
     (1) and (2), respectively; and
       (D) by adding at the end the following new paragraph:
       ``(3) Insured depository institution.--The term `insured 
     depository institution' has the same meaning as in section 3 
     of the Federal Deposit Insurance Act.''.
       (b) Conforming Amendment.--Section 7(b)(2) of the Federal 
     Deposit Insurance Act (12 U.S.C. 1817(b)(2)) is amended by 
     striking subparagraph (D).
       (c) Effective Date.--This section and the amendments made 
     by this section shall become effective on January 1, 1996.

     SEC. 2013. MERGER OF BIF AND SAIF.

       (a) In General.--
       (1) Merger.--The Bank Insurance Fund and the Savings 
     Association Insurance Fund shall be merged into the Deposit 
     Insurance Fund established by section 11(a)(4) of the Federal 
     Deposit Insurance Act, as amended by this section.
       (2) Disposition of assets and liabilities.--All assets and 
     liabilities of the Bank Insurance Fund and the Savings 
     Association Insurance Fund shall be transferred to the 
     Deposit Insurance Fund.
       (3) No separate existence.--The separate existence of the 
     Bank Insurance Fund and the Savings Association Insurance 
     Fund shall cease.
       (b) Special Reserve of the Deposit Insurance Fund.--
       (1) In general.--Immediately before the merger of the Bank 
     Insurance Fund and the Savings Association Insurance Fund, if 
     the reserve ratio of the Savings Association Insurance Fund 
     exceeds the designated reserve ratio, the amount by which 
     that reserve ratio exceeds the designated reserve ratio shall 
     be placed in the Special Reserve of the Deposit Insurance 
     Fund, established under section 11(a)(5) of the Federal 
     Deposit Insurance Act, as amended by this section.
       (2) Definition.--For purposes of this subsection, the term 
     ``reserve ratio'' means the ratio of the net worth of the 
     Savings Association Insurance Fund to aggregate estimated 
     insured deposits held in all Savings Association Insurance 
     Fund members.
       (c) Effective Date.--This section and the amendments made 
     by this section shall become effective on January 1, 1998, if 
     no insured depository institution is a savings association on 
     that date.
       (d) Technical and Conforming Amendments.--
       (1) Deposit insurance fund.--Section 11(a)(4) of the 
     Federal Deposit Insurance Act (12 U.S.C. 1821(a)(4)) is 
     amended--
       (A) by redesignating subparagraph (B) as subparagraph (C);
       (B) by striking subparagraph (A) and inserting the 
     following:
       ``(A) Establishment.--There is established the Deposit 
     Insurance Fund, which the Corporation shall--
       ``(i) maintain and administer;
       ``(ii) use to carry out its insurance purposes in the 
     manner provided by this subsection; and
       ``(iii) invest in accordance with section 13(a).
       ``(B) Uses.--The Deposit Insurance Fund shall be available 
     to the Corporation for use with respect to Deposit Insurance 
     Fund members.''; and
       (C) by striking ``(4) General provisions relating to 
     funds.--'' and inserting the following:
       ``(4) Establishment of the deposit insurance fund.--''.
       (2) Other references.--Section 11(a)(4)(C) of the Federal 
     Deposit Insurance Act (12 U.S.C. 1821(a)(4)(C), as 
     redesignated by paragraph (1) of this subsection) is amended 
     by striking ``Bank Insurance Fund and the Savings Association 
     Insurance Fund'' and inserting ``Deposit Insurance Fund''.
       (3) Deposits into fund.--Section 11(a)(4) of the Federal 
     Deposit Insurance Act (12 U.S.C. 1821(a)(4)) is amended by 
     adding at the end the following new subparagraph:
       ``(D) Deposits.--All amounts assessed against insured 
     depository institutions by the Corporation shall be deposited 
     in the Deposit Insurance Fund.''.
       (4) Special reserve of deposits.--Section 11(a)(5) of the 
     Federal Deposit Insurance Act (12 U.S.C. 1821(a)(5)) is 
     amended to read as follows:
       ``(5) Special reserve of deposit insurance fund.--
       ``(A) Establishment.--
       ``(i) In general.--There is established a Special Reserve 
     of the Deposit Insurance Fund, which shall be administered by 
     the Corporation and shall be invested in accordance with 
     section 13(a).
       ``(ii) Limitation.--The Corporation shall not provide any 
     assessment credit, refund, or other payment from any amount 
     in the Special Reserve.
       ``(B) Emergency use of special reserve.--Notwithstanding 
     subparagraph (A)(ii), the Corporation may, in its sole 
     discretion, transfer amounts from the Special Reserve to the 
     Deposit Insurance Fund, for the purposes set forth in 
     paragraph (4), only if--
       ``(i) the reserve ratio of the Deposit Insurance Fund is 
     less than 50 percent of the designated reserve ratio; and
       ``(ii) the Corporation expects the reserve ratio of the 
     Deposit Insurance Fund to remain at less than 50 percent of 
     the designated reserve ratio for each of the next 4 calendar 
     quarters.
       ``(C) Exclusion of special reserve in calculating reserve 
     ratio.--Notwithstanding any other provision of law, any 
     amounts in the Special Reserve shall be excluded in 
     calculating the reserve ratio of the Deposit Insurance Fund 
     under section 7.''.
       (5) Federal home loan bank act.--Section 21B(f)(2)(C)(ii) 
     of the Federal Home Loan Bank Act (12 U.S.C. 
     1441b(f)(2)(C)(ii)) is amended--
       (A) in subclause (I), by striking ``to Savings Associations 
     Insurance Fund members'' and inserting ``to insured 
     depository institutions, and their successors, which were 
     Savings Association Insurance Fund members on September 1, 
     1995''; and
       (B) in subclause (II), by striking ``to Savings 
     Associations Insurance Fund members'' and inserting ``to 
     insured depository institutions, and their successors, which 
     were Savings Association Insurance Fund members on September 
     1, 1995''.
       (6) Repeals.--
       (A) Section 3.--Section 3(y) of the Federal Deposit 
     Insurance Act (12 U.S.C. 1813(y)) is amended to read as 
     follows:
       ``(y) Definitions Relating to the Deposit Insurance Fund.--
     The term
       ``(1) Deposit insurance fund.--The term `Deposit Insurance 
     Fund' means the fund established under section 11(a)(4).
       ``(2) Reserve ratio.--The term `reserve ratio' means the 
     ratio of the net worth of the Deposit Insurance Fund to 
     aggregate estimated insured deposits held in all insured 
     depository institutions.
       ``(3) Designated reserve ratio.--The designated reserve 
     ratio of the Deposit Insurance Fund for each year shall be--
       ``(A) 1.25 percent of estimated insured deposits; or
       ``(B) a higher percentage of estimated insured deposits 
     that the Board of Directors determines to be justified for 
     that year by circumstances raising a significant risk of 
     substantial future losses to the fund.
       (B) Section 7.--Section 7 of the Federal Deposit Insurance 
     Act (12 U.S.C. 1817) is amended--
       (i) by striking subsection (l);
       (ii) by redesignating subsections (m) and (n) as 
     subsections (l) and (m), respectively;
       (iii) in subsection (b)(2), by striking subparagraphs (B) 
     and (F), and by redesignating subparagraphs (C), (E), (G), 
     and (H) as subparagraphs (B) through (E), respectively.
       (C) Section 11.--Section 11(a) of the Federal Deposit 
     Insurance Act (12 U.S.C. 1821(a)) is amended--
       (i) by striking paragraphs (6) and (7); and
       (ii) by redesignating paragraph (8) as paragraph (6).
       (7) Section 5136 of the revised statutes.--Paragraph 
     Eleventh of section 5136 of the Revised Statutes (12 U.S.C. 
     24) is amended in the fifth sentence, by striking ``affected 
     deposit insurance fund'' and inserting ``Deposit Insurance 
     Fund''.
       (8) Investments promoting public welfare; limitations on 
     aggregate investments.--The 23d undesignated paragraph of 
     section 9 of the Federal Reserve Act (12 U.S.C. 338a) is 
     amended in the fourth sentence, by striking ``affected 
     deposit insurance fund'' and inserting ``Deposit Insurance 
     Fund''.
       (9) Advances to critically undercapitalized depository 
     institutions.--Section 10B(b)(3)(A)(ii) of the Federal 
     Reserve Act (12 U.S.C. 347b(b)(3)(A)(ii)) is amended by 
     striking ``any deposit insurance fund in'' and inserting 
     ``the Deposit Insurance Fund of''.
       (10) Amendments to the balanced budget and emergency 
     deficit control act of 1985.--Section 255(g)(1)(A) of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 (2 
     U.S.C. 905(g)(1)(A)) is amended--
       (A) by striking ``Bank Insurance Fund'' and inserting 
     ``Deposit Insurance Fund''; and
       (B) by striking ``Federal Deposit Insurance Corporation, 
     Savings Association Insurance Fund;''.
       (11) Further amendments to the federal home loan bank 
     act.--The Federal Home Loan Bank Act (12 U.S.C. 1421 et seq.) 
     is amended--
       (A) in section 11(k) (12 U.S.C. 1431(k))--
       (i) in the subsection heading, by striking ``SAIF'' and 
     inserting ``the Deposit Insurance Fund''; and
       (ii) by striking ``Savings Association Insurance Fund'' 
     each place such term appears and inserting ``Deposit 
     Insurance Fund'';
       (B) in section 21A(b)(4)(B) (12 U.S.C. 1441a(b)(4)(B)), by 
     striking ``affected deposit insurance fund'' and inserting 
     ``Deposit Insurance Fund'';
       (C) in section 21A(b)(6)(B) (12 U.S.C. 1441a(b)(6)(B))--
       (i) in the subparagraph heading, by striking ``SAIF-insured 
     banks'' and inserting ``Charter conversions''; and
       (ii) by striking ``Savings Association Insurance Fund 
     member'' and inserting ``savings association'';
       (D) in section 21A(b)(10)(A)(iv)(II) (12 U.S.C. 
     1441a(b)(10)(A)(iv)(II)), by striking ``Savings Association 
     Insurance Fund'' and inserting ``Deposit Insurance Fund'';
       (E) in section 21B(e) (12 U.S.C. 1441b(e))--
       (i) in paragraph (5), by inserting ``as of the date of 
     funding'' after ``Savings Association Insurance Fund 
     members'' each place such term appears;

[[Page H 12520]]

       (ii) by striking paragraph (7); and
       (iii) by redesignating paragraph (8) as paragraph (7); and
       (F) in section 21B(k) (12 U.S.C. 1441b(k))--
       (i) by striking paragraph (8); and
       (ii) by redesignating paragraphs (9) and (10) as paragraphs 
     (8) and (9), respectively.
       (12) Amendments to the home owners' loan act.--The Home 
     Owners' Loan Act (12 U.S.C. 1461 et seq.) is amended--
       (A) in section 5 (12 U.S.C. 1464)--
       (i) in subsection (c)(5)(A), by striking ``that is a member 
     of the Bank Insurance Fund'';
       (ii) in subsection (c)(6), by striking ``As used in this 
     subsection--'' and inserting ``For purposes of this 
     subsection, the following definitions shall apply:'';
       (iii) in subsection (o)(1), by striking ``that is a Bank 
     Insurance Fund member'';
       (iv) in subsection (o)(2)(A), by striking ``a Bank 
     Insurance Fund member until such time as it changes its 
     status to a Savings Association Insurance Fund member'' and 
     inserting ``insured by the Deposit Insurance Fund'';
       (v) in subsection (t)(5)(D)(iii)(II), by striking 
     ``affected deposit insurance fund'' and inserting ``Deposit 
     Insurance Fund'';
       (vi) in subsection (t)(7)(C)(i)(I), by striking ``affected 
     deposit insurance fund'' and inserting ``Deposit Insurance 
     Fund''; and
       (vii) in subsection (v)(2)(A)(i), by striking ``, the 
     Savings Association Insurance Fund'' and inserting ``or the 
     Deposit Insurance Fund''; and
       (B) in section 10 (12 U.S.C. 1467a)--
       (i) in subsection (e)(1)(A)(iii)(VII), by adding ``or'' at 
     the end;
       (ii) in subsection (e)(1)(A)(iv), by adding ``and'' at the 
     end;
       (iii) in subsection (e)(1)(B), by striking ``Savings 
     Association Insurance Fund or Bank Insurance Fund'' and 
     inserting ``Deposit Insurance Fund'';
       (iv) in subsection (e)(2), by striking ``Savings 
     Association Insurance Fund or the Bank Insurance Fund'' and 
     inserting ``Deposit Insurance Fund''; and
       (v) in subsection (m)(3), by striking subparagraph (E), and 
     by redesignating subparagraphs (F), (G), and (H) as 
     subparagraphs (E), (F), and (G), respectively.
       (13) Amendments to the national housing act.--The National 
     Housing Act (12 U.S.C. 1701 et seq.) is amended--
       (A) in section 317(b)(1)(B) (12 U.S.C. 1723i(b)(1)(B)), by 
     striking ``Bank Insurance Fund for banks or through the 
     Savings Association Insurance Fund for savings associations'' 
     and inserting ``Deposit Insurance Fund''; and
       (B) in section 526(b)(1)(B)(ii) (12 U.S.C. 1735f-
     14(b)(1)(B)(ii)), by striking ``Bank Insurance Fund for banks 
     and through the Savings Association Insurance Fund for 
     savings associations'' and inserting ``Deposit Insurance 
     Fund''.
       (14) Further amendments to the federal deposit insurance 
     act.--The Federal Deposit Insurance Act (12 U.S.C. 1811 et 
     seq.) is amended--
       (A) in section 3(a)(1) (12 U.S.C. 1813(a)(1)), by striking 
     subparagraph (B) and inserting the following:
       ``(B) includes any former savings association.'';
       (B) in section 5(b)(5) (12 U.S.C. 1815(b)(5)), by striking 
     ``the Bank Insurance Fund or the Savings Association 
     Insurance Fund;'' and inserting ``Deposit Insurance Fund,'';
       (C) in section 5(d) (12 U.S.C. 1815(d)), by striking 
     paragraphs (2) and (3);
       (D) in section 5(d)(1) (12 U.S.C. 1815(d)(1))--
       (i) in subparagraph (A), by striking ``reserve ratios in 
     the Bank Insurance Fund and the Savings Association Insurance 
     Fund'' and inserting ``the reserve ratio of the Deposit 
     Insurance Fund'';
       (ii) by striking subparagraph (B) and inserting the 
     following:
       ``(2) Fee credited to the deposit insurance fund.--The fee 
     paid by the depository institution under paragraph (1) shall 
     be credited to the Deposit Insurance Fund.'';
       (iii) by striking ``(1) Uninsured institutions.--''; and
       (iv) by redesignating subparagraphs (A) and (C) as 
     paragraphs (1) and (3), respectively, and moving the margins 
     2 ems to the left;
       (E) in section 5(e) (12 U.S.C. 1815(e))--
       (i) in paragraph (5)(A), by striking ``Bank Insurance Fund 
     or the Savings Association Insurance Fund'' and inserting 
     ``Deposit Insurance Fund'';
       (ii) by striking paragraph (6); and
       (iii) by redesignating paragraphs (7), (8), and (9) as 
     paragraphs (6), (7), and (8), respectively;
       (F) in section 6(5) (12 U.S.C. 1816(5)), by striking ``Bank 
     Insurance Fund or the Savings Association Insurance Fund'' 
     and inserting ``Deposit Insurance Fund'';
       (G) in section 7(b) (12 U.S.C. 1817(b))--
       (i) in paragraph (1)(D), by striking ``each deposit 
     insurance fund'' and inserting ``the Deposit Insurance 
     Fund'';
       (ii) in clauses (i)(I) and (iv) of paragraph (2)(A), by 
     striking ``each deposit insurance fund'' each place such term 
     appears and inserting ``the Deposit Insurance Fund'';
       (iii) in paragraph (2)(A)(iii), by striking ``a deposit 
     insurance fund'' and inserting ``the Deposit Insurance 
     Fund'';
       (iv) by striking clause (iv) of paragagraph (2)(A);
       (v) in paragraph (2)(C) (as redesignated by paragraph 
     (6)(B) of this subsection)--

       (I) by striking ``any deposit insurance fund'' and 
     inserting ``the Deposit Insurance Fund''; and
       (II) by striking ``that fund'' each place such term appears 
     and inserting ``the Deposit Insurance Fund'';

       (vi) in paragraph (2)(D) (as redesignated by paragraph 
     (6)(B) of this subsection)--

       (I) in the subparagraph heading, by striking ``funds 
     achieve'' and inserting ``fund achieves''; and
       (II) by striking ``a deposit insurance fund'' and inserting 
     ``the Deposit Insurance Fund'';

       (vii) in paragraph (3)--

       (I) in the paragraph heading, by striking ``funds'' and 
     inserting ``fund'';
       (II) by striking ``that fund'' each place such term appears 
     and inserting ``the Deposit Insurance Fund'';
       (III) in subparagraph (A), by striking ``Except as provided 
     in paragraph (2)(F), if'' and inserting ``If'';
       (IV) in subparagraph (A), by striking ``any deposit 
     insurance fund'' and inserting ``the Deposit Insurance 
     Fund''; and
       (V) by striking subparagraphs (C) and (D) and inserting the 
     following:

       ``(C) Amending schedule.--The Corporation may, by 
     regulation, amend a schedule promulgated under subparagraph 
     (B).''; and
       (viii) in paragraph (6)--

       (I) by striking ``any such assessment'' and inserting ``any 
     such assessment is necessary'';
       (II) by striking ``(A) is necessary--'';
       (III) by striking subparagraph (B);
       (IV) by redesignating clauses (i), (ii), and (iii) as 
     subparagraphs (A), (B), and (C), respectively, and moving the 
     margins 2 ems to the left; and
       (V) in subparagraph (C) (as redesignated), by striking ``; 
     and'' and inserting a period;

       (H) in section 11(f)(1) (12 U.S.C. 1821(f)(1)), by striking 
     ``, except that--'' and all that follows through the end of 
     the paragraph and inserting a period;
       (I) in section 11(i)(3) (12 U.S.C. 1821(i)(3))--
       (i) by striking subparagraph (B);
       (ii) by redesignating subparagraph (C) as subparagraph (B); 
     and
       (iii) in subparagraph (B) (as redesignated), by striking 
     ``subparagraphs (A) and (B)'' and inserting ``subparagraph 
     (A)'';
       (J) in section 11A(a) (12 U.S.C. 1821a(a))--
       (i) in paragraph (2), by striking ``liabilities.--'' and 
     all that follows through ``Except'' and inserting 
     ``liabilities.--Except'';
       (ii) by striking paragraph (2)(B); and
       (iii) in paragraph (3), by striking ``the Bank Insurance 
     Fund, the Savings Association Insurance Fund,'' and inserting 
     ``the Deposit Insurance Fund'';
       (K) in section 11A(b) (12 U.S.C. 1821a(b)), by striking 
     paragraph (4);
       (L) in section 11A(f) (12 U.S.C. 1821a(f)), by striking 
     ``Savings Association Insurance Fund'' and inserting 
     ``Deposit Insurance Fund'';
       (M) in section 13 (12 U.S.C. 1823)--
       (i) in subsection (a)(1), by striking ``Bank Insurance 
     Fund, the Savings Association Insurance Fund,'' and inserting 
     ``Deposit Insurance Fund, the Special Reserve of the Deposit 
     Insurance Fund,'';
       (ii) in subsection (c)(4)(E)--

       (I) in the subparagraph heading, by striking ``funds'' and 
     inserting ``fund''; and
       (II) in clause (i), by striking ``any insurance fund'' and 
     inserting ``the Deposit Insurance Fund'';

       (iii) in subsection (c)(4)(G)(ii)--

       (I) by striking ``appropriate insurance fund'' and 
     inserting ``Deposit Insurance Fund'';
       (II) by striking ``the members of the insurance fund (of 
     which such institution is a member)'' and inserting ``insured 
     depository institutions'';
       (III) by striking ``each member's'' and inserting ``each 
     insured depository institution's''; and
       (IV) by striking ``the member's'' each place such term 
     appears and inserting ``the institution's'';

       (iv) in subsection (c), by striking paragraph (11);
       (v) in subsection (h), by striking ``Bank Insurance Fund'' 
     and inserting ``Deposit Insurance Fund'';
       (vi) in subsection (k)(4)(B)(i), by striking ``Savings 
     Association Insurance Fund'' and inserting ``Deposit 
     Insurance Fund''; and
       (vii) in subsection (k)(5)(A), by striking ``Savings 
     Association Insurance Fund'' and inserting ``Deposit 
     Insurance Fund'';
       (N) in section 14(a) (12 U.S.C. 1824(a)) in the fifth 
     sentence--
       (i) by striking ``Bank Insurance Fund or the Savings 
     Association Insurance Fund'' and inserting ``Deposit 
     Insurance Fund''; and
       (ii) by striking ``each such fund'' and inserting ``the 
     Deposit Insurance Fund'';
       (O) in section 14(b) (12 U.S.C. 1824(b)), by striking 
     ``Bank Insurance Fund or Savings Association Insurance Fund'' 
     and inserting ``Deposit Insurance Fund'';
       (P) in section 14(c) (12 U.S.C. 1824(c)), by striking 
     paragraph (3);
       (Q) in section 14(d) (12 U.S.C. 1824(d))--
       (i) by striking ``BIF'' each place such term appears and 
     inserting ``DIF''; and
       (ii) by striking ``Bank Insurance Fund'' each place such 
     term appears and inserting ``Deposit Insurance Fund'';
       (R) in section 15(c)(5) (12 U.S.C. 1825(c)(5))--
       (i) by striking ``the Bank Insurance Fund or Savings 
     Association Insurance Fund, respectively'' each place such 
     term appears and inserting ``the Deposit Insurance Fund''; 
     and
       (ii) in subparagraph (B), by striking ``the Bank Insurance 
     Fund or the Savings Association Insurance Fund, 
     respectively'' and inserting ``the Deposit Insurance Fund'';
       (S) in section 17(a) (12 U.S.C. 1827(a))--
       (i) in the subsection heading, by striking ``BIF, SAIF,'' 
     and inserting ``the Deposit Insurance Fund''; and
       (ii) in paragraph (1), by striking ``the Bank Insurance 
     Fund, the Savings Association Insurance Fund,'' each place 
     such term appears and inserting ``the Deposit Insurance 
     Fund'';
       (T) in section 17(d) (12 U.S.C. 1827(d)), by striking ``the 
     Bank Insurance Fund, the Savings Association Insurance 
     Fund,'' each place such term appears and inserting ``the 
     Deposit Insurance Fund'';
       (U) in section 18(m)(3) (12 U.S.C. 1828(m)(3))--
       (i) by striking ``Savings Association Insurance Fund'' each 
     place such term appears and inserting ``Deposit Insurance 
     Fund''; and

[[Page H 12521]]

       (ii) in subparagraph (C), by striking ``or the Bank 
     Insurance Fund'';
       (V) in section 18(p) (12 U.S.C. 1828(p)), by striking 
     ``deposit insurance funds'' and inserting ``Deposit Insurance 
     Fund'';
       (W) in section 24 (12 U.S.C. 1831a) in subsections (a)(1) 
     and (d)(1)(A), by striking ``appropriate deposit insurance 
     fund'' each place such term appears and inserting ``Deposit 
     Insurance Fund'';
       (X) in section 28 (12 U.S.C. 1831e), by striking ``affected 
     deposit insurance fund'' each place such term appears and 
     inserting ``Deposit Insurance Fund'';
       (Y) by striking section 31 (12 U.S.C. 1831h);
       (Z) in section 36(i)(3) (12 U.S.C. 1831m(i)(3)) by striking 
     ``affected deposit insurance fund'' and inserting ``Deposit 
     Insurance Fund'';
       (AA) in section 38(a) (12 U.S.C. 1831o(a)) in the 
     subsection heading, by striking ``Funds'' and inserting 
     ``Fund'';
       (BB) in section 38(k) (12 U.S.C. 1831o(k))--
       (i) in paragraph (1), by striking ``a deposit insurance 
     fund'' and inserting ``the Deposit Insurance Fund''; and
       (ii) in paragraph (2)(A)--

       (I) by striking ``A deposit insurance fund'' and inserting 
     ``The Deposit Insurance Fund''; and
       (II) by striking ``the deposit insurance fund's outlays'' 
     and inserting ``the outlays of the Deposit Insurance Fund''; 
     and

       (CC) in section 38(o) (12 U.S.C. 1831o(o))--
       (i) by striking ``Associations.--'' and all that follows 
     through ``Subsections (e)(2)'' and inserting 
     ``Associations.--Subsections (e)(2)'';
       (ii) by redesignating subparagraphs (A), (B), and (C) as 
     paragraphs (1), (2), and (3), respectively, and moving the 
     margins 2 ems to the left; and
       (iii) in paragraph (1) (as redesignated), by redesignating 
     clauses (i) and (ii) as subparagraphs (A) and (B), 
     respectively, and moving the margins 2 ems to the left.
       (15) Amendments to the financial institutions reform, 
     recovery, and enforcement act of 1989.--The Financial 
     Institutions Reform, Recovery, and Enforcement Act (Public 
     Law 101-73; 103 Stat. 183) is amended--
       (A) in section 951(b)(3)(B) (12 U.S.C. 1833a(b)(3)(B)), by 
     striking ``Bank Insurance Fund, the Savings Association 
     Insurance Fund,'' and inserting ``Deposit Insurance Fund''; 
     and
       (B) in section 1112(c)(1)(B) (12 U.S.C. 3341(c)(1)(B)), by 
     striking ``Bank Insurance Fund, the Savings Association 
     Insurance Fund,'' and inserting ``Deposit Insurance Fund''.
       (16) Amendment to the bank enterprise act of 1991.--Section 
     232(a)(1) of the Bank Enterprise Act of 1991 (12 U.S.C. 
     1834(a)(1)) is amended by striking ``section 7(b)(2)(H)'' and 
     inserting ``section 7(b)(2)(G)''.
       (17) Amendment to the bank holding company act.--Section 
     2(j)(2) of the Bank Holding Company Act of 1956 (12 U.S.C. 
     1841(j)(2)) is amended by striking ``Savings Association 
     Insurance Fund'' and inserting ``Deposit Insurance Fund''.

     SEC. 2014. CREATION OF SAIF SPECIAL RESERVE.

       Section 11(a)(6) of the Federal Deposit Insurance Act (12 
     U.S.C. 1821(a)(6)) is amended by adding at the end the 
     following new subparagraph:
       ``(L) Establishment of saif special reserve.--
       ``(i) Establishment.--If, on January 1, 1998, the reserve 
     ratio of the Savings Association Insurance Fund exceeds the 
     designated reserve ratio, there is established a Special 
     Reserve of the Savings Association Insurance Fund, which 
     shall be administered by the Corporation and shall be 
     invested in accordance with section 13(a).
       ``(ii) Amounts in special reserve.--If, on January 1, 1998, 
     the reserve ratio of the Savings Association Insurance Fund 
     exceeds the designated reserve ratio, the amount by which the 
     reserve ratio exceeds the designated reserve ratio shall be 
     placed in the Special Reserve of the Savings Association 
     Insurance Fund established by clause (i).
       ``(iii) Limitation.--The Corporation shall not provide any 
     assessment credit, refund, or other payment from any amount 
     in the Special Reserve of the Savings Association Insurance 
     Fund.
       ``(iv) Emergency use of special reserve.--Notwithstanding 
     clause (iii), the Corporation may, in its sole discretion, 
     transfer amounts from the Special Reserve of the Savings 
     Association Insurance Fund to the Savings Association 
     Insurance Fund for the purposes set forth in paragraph (4), 
     only if--
       ``(I) the reserve ratio of the Savings Association 
     Insurance Fund is less than 50 percent of the designated 
     reserve ratio; and
       ``(II) the Corporation expects the reserve ratio of the 
     Savings Association Insurance Fund to remain at less than 50 
     percent of the designated reserve ratio for each of the next 
     4 calendar quarters.
       ``(v) Exclusion of special reserve in calculating reserve 
     ratio.--Notwithstanding any other provision of law, any 
     amounts in the Special Reserve of the Savings Association 
     Insurance Fund shall be excluded in calculating the reserve 
     ratio of the Savings Association Insurance Fund.''.

     SEC. 2015. REFUND OF AMOUNTS IN DEPOSIT INSURANCE FUND IN 
                   EXCESS OF DESIGNATED RESERVE AMOUNT.

       Subsection (e) of section 7 of the Federal Deposit 
     Insurance Act (12 U.S.C. 1817(e)) is amended to read as 
     follows:
       ``(e) Refunds.--
       ``(1) Overpayments.--In the case of any payment of an 
     assessment by an insured depository institution in excess of 
     the amount due to the Corporation, the Corporation may--
       ``(A) refund the amount of the excess payment to the 
     insured depository institution; or
       ``(B) credit such excess amount toward the payment of 
     subsequent semiannual assessments until such credit is 
     exhausted.
       ``(2) Balance in insurance fund in excess of designated 
     reserve.--
       ``(A) In general.--Subject to subparagraphs (B) and (C), 
     if, as of the end of any semiannual assessment period, the 
     amount of the actual reserves in--
       ``(i) the Bank Insurance Fund (until the merger of such 
     fund into the Deposit Insurance Fund pursuant to section 2013 
     of the Balanced Budget Act of 1995); or
       ``(ii) the Deposit Insurance Fund (after the establishment 
     of such fund),

     exceeds the balance required to meet the designated reserve 
     ratio applicable with respect to such fund, such excess 
     amount shall be refunded to insured depository institutions 
     by the Corporation on such basis as the Board of Directors 
     determines to be appropriate, taking into account the factors 
     considered under the risk-based assessment system.
       ``(B) Refund not to exceed previous semiannual 
     assessment.--The amount of any refund under this paragraph to 
     any member of a deposit insurance fund for any semiannual 
     assessment period may not exceed the total amount of 
     assessments paid by such member to the insurance fund with 
     respect to such period.
       ``(C) Refund limitation for certain institutions.--No 
     refund may be made under this paragraph with respect to the 
     amount of any assessment paid for any semiannual assessment 
     period by any insured depository institution described in 
     clause (v) of subsection (b)(2)(A).''.

     SEC. 2016. ASSESSMENT RATES FOR SAIF MEMBERS MAY NOT BE LESS 
                   THAN ASSESSMENT RATES FOR BIF MEMBERS.

       Section 7(b)(2)(C) of the Federal Deposit Insurance Act (12 
     U.S.C. 1817(b)(2)(E), as redesignated by section 2013(d)(6) 
     of this Act) is amended--
       (1) by striking ``and'' at the end of clause (i);
       (2) by striking the period at the end of clause (ii) and 
     inserting ``; and''; and
       (3) by adding at the end the following new clause:
       ``(iii) notwithstanding any other provision of this 
     subsection, during the period beginning on the date of 
     enactment of the Balanced Budget Act of 1995, and ending on 
     January 1, 1998, the assessment rate for a Savings 
     Association Insurance Fund member may not be less than the 
     assessment rate for a Bank Insurance Fund member that poses a 
     comparable risk to the deposit insurance fund.''.

     SEC. 2017. ASSESSMENTS AUTHORIZED ONLY IF NEEDED TO MAINTAIN 
                   THE RESERVE RATIO OF A DEPOSIT INSURANCE FUND.

       (a) In General.--Section 7(b)(2)(A)(i) of the Federal 
     Deposit Insurance Act (12 U.S.C. 1817(b)(2)(A)(i)) is amended 
     in the matter preceding subclause (I) by inserting ``when 
     necessary, and only to the extent necessary'' after ``insured 
     depository institutions''.
       (b) Limitation on Assessment.--Section 7(b)(2)(A)(iii) of 
     the Federal Deposit Insurance Act (12 U.S.C. 
     1817(b)(2)(A)(iii)) is amended to read as follows:
       ``(iii) Limitation on assessment.--Except as provided in 
     clause (v), the Board of Directors shall not set semiannual 
     assessments with respect to a deposit insurance fund in 
     excess of the amount needed--

       ``(I) to maintain the reserve ratio of the fund at the 
     designated reserve ratio; or
       ``(II) if the reserve ratio is less than the designated 
     reserve ratio, to increase the reserve ratio to the 
     designated reserve ratio.''.

       (c) Exception to Limitation on Assessments.--Section 
     7(b)(2)(A) of the Federal Deposit Insurance Act (12 U.S.C. 
     1817(b)(2)(A)) is amended by adding at the end the following 
     new clause:
       ``(v) Exception to limitation on assessments.--The Board of 
     Directors may set semiannual assessments in excess of the 
     amount permitted under clauses (i) and (iii) with respect to 
     insured depository institutions that exhibit financial, 
     operational, or compliance weaknesses ranging from moderately 
     severe to unsatisfactory, or are not well capitalized, as 
     that term is defined in section 38.''.

     SEC. 2018. LIMITATION ON AUTHORITY OF OVERSIGHT BOARD TO 
                   CONTINUE TO EMPLOY MORE THAN 18 OFFICERS AND 
                   EMPLOYEES.

       (a) In General.--Section 21A(a) of the Federal Home Loan 
     Bank Act (12 U.S.C. 1441a(a)) is amended by adding at the end 
     the following new paragraph:
       ``(17) Phased-down operation of oversight board following 
     termination of corporation.--
       ``(A) Termination of authority to employ staff.--Except as 
     provided in subparagraph (B), the authority of the Thrift 
     Depositor Protection Oversight Board under paragraph (5) to 
     establish officer and employee positions, to compensate 
     officers and employees of the Board, and to provide other 
     benefits for officers and employees of the Board shall 
     terminate as of December 31, 1995.
       ``(B) Limited authority for employing staff.--The Thrift 
     Depositor Protection Oversight Board may employ not more than 
     18 individuals, excluding any employee of any other 
     department or agency utilized by the Board, to carry out the 
     functions of the Board during the period beginning on January 
     1, 1996 and ending on May 1, 1996, other than employees whose 
     employment is in the process of being terminated in 
     accordance with subparagraph (C).
       ``(C) Termination of employment of additional employees 
     required to be commenced.--The Thrift Depositor Protection 
     Oversight Board shall commence terminating, not 

[[Page H 12522]]
     later than December 31, 1995, and in accordance with title 5, United 
     States Code, and applicable regulations of the Office of 
     Personnel Management, the employment of any employee of the 
     Board whose continued employment by the Board after such date 
     is inconsistent with the requirement of subparagraph (B).''.
       (b) Technical and Conforming Amendments.--Section 21A(a)(5) 
     of the Federal Home Loan Bank Act (12 U.S.C. 1441a(a)(5)) is 
     amended in subparagraphs (B), (C), (D), and (E), by inserting 
     ``subject to paragraph (17),'' after the closing parenthesis 
     of the subparagraph designation in each such subparagraph.

     SEC. 2019. DEFINITIONS.

       For purposes of this subtitle--
       (1) the term ``Bank Insurance Fund'' means the fund 
     established pursuant to section (11)(a)(5)(A) of the Federal 
     Deposit Insurance Act, as that section existed on the day 
     before the date of enactment of this Act;
       (2) the terms ``Bank Insurance Fund member'' and ``Savings 
     Association Insurance Fund member'' have the same meanings as 
     in section 7(l) of the Federal Deposit Insurance Act;
       (3) the terms ``bank'', ``Board of Directors'', 
     ``Corporation'', ``insured depository institution'', 
     ``Federal savings association'', ``savings association'', 
     ``State savings bank'', and ``State depository institution'' 
     have the same meanings as in section 3 of the Federal Deposit 
     Insurance Act;
       (4) the term ``Deposit Insurance Fund'' means the fund 
     established under section 11(a)(4) of the Federal Deposit 
     Insurance Act, as amended by section 2013(d) of this Act;
       (5) the term ``depository institution holding company'' has 
     the same meaning as in section 3 of the Federal Deposit 
     Insurance Act;
       (6) the term ``designated reserve ratio'' has the same 
     meaning as in section 7(b)(2)(A)(iv) of the Federal Deposit 
     Insurance Act;
       (7) the term ``Savings Association Insurance Fund'' means 
     the fund established pursuant to section 11(a)(6)(A) of the 
     Federal Deposit Insurance Act, as that section existed on the 
     day before the date of enactment of this Act; and
       (8) the term ``SAIF-assessable deposit'' means--
       (A) a deposit that is subject to assessment for purposes of 
     the Savings Association Insurance Fund under the Federal 
     Deposit Insurance Act; and
       (B) a deposit that section 5(d)(3) of the Federal Deposit 
     Insurance Act treats as insured by the Savings Association 
     Insurance Fund.
                          Subtitle B--Housing

     SEC. 2051. ANNUAL ADJUSTMENT FACTORS FOR OPERATING COSTS 
                   ONLY; RESTRAINT ON RENT INCREASES.

       (a) Annual Adjustment Factors for Operating Costs Only.--
     Section 8(c)(2)(A) of the United States Housing Act of 1937 
     (42 U.S.C. 1437f(c)(2)(A)) is amended--
       (1) by striking ``(2)(A)'' and inserting ``(2)(A)(i)'';
       (2) by striking the second sentence and all that follows 
     through the end of the subparagraph; and
       (3) by adding at the end the following new clause:
       ``(ii) Each assistance contract under this section shall 
     provide that--
       ``(I) if the maximum monthly rent for a unit in a new 
     construction or substantial rehabilitation project to be 
     adjusted using an annual adjustment factor exceeds 100 
     percent of the fair market rent for an existing dwelling unit 
     in the market area, the Secretary shall adjust the rent using 
     an operating costs factor that increases the rent to reflect 
     increases in operating costs in the market area; and
       ``(II) if the owner of a unit in a project described in 
     subclause (I) demonstrates that the adjusted rent determined 
     under subclause (I) would not exceed the rent for an 
     unassisted unit of similar quality, type, and age in the same 
     market area, as determined by the Secretary, the Secretary 
     shall use the otherwise applicable annual adjustment 
     factor.''.
       (b) Restraint on Section 8 Rent Increases.--Section 
     8(c)(2)(A) of the United States Housing Act of 1937 (42 
     U.S.C. 1437f(c)(2)(A)), as amended by subsection (a), is 
     amended by adding at the end the following new clause:
       ``(iii)(I) Subject to subclause (II), with respect to any 
     unit assisted under this section that is occupied by the same 
     family at the time of the most recent annual rental 
     adjustment, if the assistance contract provides for the 
     adjustment of the maximum monthly rent by applying an annual 
     adjustment factor, and if the rent for the unit is otherwise 
     eligible for an adjustment based on the full amount of the 
     annual adjustment factor, 0.01 shall be subtracted from the 
     amount of the annual adjustment factor, except that the 
     annual adjustment factor shall not be reduced to less than 
     1.0.
       ``(II) With respect to any unit described in subclause (I) 
     that is assisted under the certificate program, the adjusted 
     rent shall not exceed the rent for a comparable unassisted 
     unit of similar quality, type, and age in the market area in 
     which the unit is located.''.
       (c) Effective Date.--The amendments made by this section 
     shall become effective on October 1, 1995.

     SEC. 2052. FORECLOSURE AVOIDANCE AND BORROWER ASSISTANCE.

       (a) Foreclosure Avoidance.--Except as provided in 
     subsection (e), the last sentence of section 204(a) of the 
     National Housing Act (12 U.S.C. 1710(a)) is amended by 
     inserting before the period the following: ``: And provided 
     further, That the Secretary may pay insurance benefits to the 
     mortgagee to recompense the mortgagee for its actions to 
     provide an alternative to foreclosure of a mortgage that is 
     in default, which actions may include such actions as special 
     forbearance, loan modification, and deeds in lieu of 
     foreclosure, all upon such terms and conditions as the 
     mortgagee shall determine in the mortgagee's sole discretion 
     within guidelines provided by the Secretary, but which may 
     not include assignment of a mortgage to the Secretary: And 
     provided further, That for purposes of the preceding proviso, 
     no action authorized by the Secretary and no action taken, 
     nor any failure to act, by the Secretary or the mortgagee 
     shall be subject to judicial review''.
       (b) Authority to Assist Mortgagors in Default.--Except as 
     provided in subsection (e), section 230 of the National 
     Housing Act (12 U.S.C. 1715u) is amended to read as follows:


              ``authority to assist mortgagors in default

       ``Sec. 230. (a) Payment of Partial Claim.--The Secretary 
     may establish a program for payment of a partial insurance 
     claim to a mortgagee that agrees to apply the claim amount to 
     payment of a mortgage on a 1- to 4-family residence that is 
     in default. Any such payment under such program to the 
     mortgagee shall be made in the Secretary's sole discretion 
     and on terms and conditions acceptable to the Secretary, 
     except that--
       ``(1) the amount of the payment shall be in an amount 
     determined by the Secretary, which shall not exceed an amount 
     equivalent to 12 monthly mortgage payments and any costs 
     related to the default that are approved by the Secretary; 
     and
       ``(2) the mortgagor shall agree to repay the amount of the 
     insurance claim to the Secretary upon terms and conditions 
     acceptable to the Secretary.

     The Secretary may pay the mortgagee, from the appropriate 
     insurance fund, in connection with any activities that the 
     mortgagee is required to undertake concerning repayment by 
     the mortgagor of the amount owed to the Secretary.
       ``(b) Assignment.--
       ``(1) Program authority.--The Secretary may establish a 
     program for assignment to the Secretary, upon request of the 
     mortgagee, of a mortgage on a 1- to 4-family residence 
     insured under this Act.
       ``(2) Program requirements.--The Secretary may accept 
     assignment of a mortgage under a program under this 
     subsection only if--
       ``(A) the mortgage was in default;
       ``(B) the mortgagee has modified the mortgage to cure the 
     default and provide for mortgage payments within the 
     reasonable ability of the mortgagor to pay at interest rates 
     not exceeding current market interest rates; and
       ``(C) the Secretary arranges for servicing of the assigned 
     mortgage by a mortgagee (which may include the assigning 
     mortgagee) through procedures that the Secretary has 
     determined to be in the best interests of the appropriate 
     insurance fund.
       ``(3) Payment of insurance benefits.--Upon accepting 
     assignment of a mortgage under the program under this 
     subsection, the Secretary may pay insurance benefits to the 
     mortgagee from the appropriate insurance fund in an amount 
     that the Secretary determines to be appropriate, but which 
     may not exceed the amount necessary to compensate the 
     mortgagee for the assignment and any losses and expenses 
     resulting from the mortgage modification.
       ``(c) Prohibition of Judicial Review.--No decision by the 
     Secretary to exercise or forego exercising any authority 
     under this section shall be subject to judicial review.
       ``(d) Savings Provision.--Any mortgage for which the 
     mortgagor has applied to the Secretary, before the date of 
     the enactment of the Balanced Budget Act of 1995, for 
     assignment pursuant to subsection (b) of this section as in 
     effect before such date of enactment shall continue to be 
     governed by the provisions of this section in effect 
     immediately before such date of enactment.
       ``(e) Applicability of Other Laws.--No provision of this 
     Act or any other law shall be construed to require the 
     Secretary to provide an alternative to foreclosure for 
     mortgagees with mortgages on 1- to 4-family residences 
     insured by the Secretary under this Act, or to accept 
     assignments of such mortgages.''.
       (c) Applicability of Amendments.--Except as provided in 
     subsection (e), the amendments made by subsections (a) and 
     (b) shall apply only with respect to mortgages insured under 
     the National Housing Act that are originated on or after 
     October 1, 1995.
       (d) Regulations.--Not later than the expiration of the 60-
     day period beginning on the date of the enactment of this 
     Act, the Secretary of Housing and Urban Development shall 
     issue interim regulations to implement this section and the 
     amendments made by this section.
       (e) Effectiveness and Applicability.--If this Act is 
     enacted after the date of the enactment of the Departments of 
     Veterans Affairs and Housing and Urban Development, and 
     Independent Agencies Appropriations Act, 1996--
       (1) subsections (a), (b), (c), and (d) of this section 
     shall not take effect; and
       (2) subsection (c) of the section relating to foreclosure 
     avoidance and borrower assistance in title II of the 
     Departments of Veterans Affairs and Housing and Urban 
     Development, and Independent Agencies Appropriations Act, 
     1996, is amended by striking ``only with respect to mortgages 
     insured under the National Housing Act that are originated 
     before October 1, 1995'' and inserting ``to mortgages 
     originated before, on, and after October 1, 1995''.
      TITLE III--COMMUNICATIONS AND SPECTRUM ALLOCATION PROVISIONS

     SEC. 3001. SPECTRUM AUCTIONS.

       (a) Extension and Expansion of Auction Authority.--
       (1) Amendments.--Section 309(j) of the Communications Act 
     of 1934 (47 U.S.C. 309(j)) is amended--
       (A) by striking paragraphs (1) and (2) and inserting the 
     following:

[[Page H 12523]]

       ``(1) General authority.--If, consistent with the 
     obligations described in paragraph (6)(E), mutually exclusive 
     applications are accepted for any initial license or 
     construction permit, then the Commission shall grant such 
     license or permit to a qualified applicant through a system 
     of competitive bidding that meets the requirements of this 
     subsection.
       ``(2) Exemptions.--The competitive bidding authority 
     granted by this subsection shall not apply to licenses or 
     construction permits issued by the Commission--
       ``(A) that, as the result of the Commission carrying out 
     the obligations described in paragraph (6)(E), are not 
     mutually exclusive;
       ``(B) for public safety radio services, including non-
     Government uses the sole or principal purpose of which is to 
     protect the safety of life, health, and property and which 
     are not made commercially available to the public; or
       ``(C) for initial licenses or construction permits for new 
     terrestrial digital television services assigned by the 
     Commission to existing terrestrial broadcast licensees to 
     replace their current television licenses, unless--
       ``(i) the Commission, not later than 180 days after the 
     date of enactment of the Balanced Budget Act of 1995, after 
     notice and public comment, submits to Congress a report on 
     the use of the authority provided in this subsection for the 
     assignment of initial licenses or construction permits for 
     use of the electromagnetic spectrum allocated but not 
     assigned as of the date of enactment of that Act for 
     television broadcast services; and
       ``(ii) the Congress amends this subsection to authorize the 
     use of the authority provided by this subsection for such 
     licenses or permits.
     Except as provided in this subparagraph, the Commission may 
     not assign initial licenses or construction permits under 
     this title to terrestrial commercial television broadcast 
     licensees to replace their existing broadcast licenses before 
     November 15, 1996.''; and
       (B) by striking ``1998'' in paragraph (11) and inserting 
     ``2002''.
       (2) Conforming amendment.--Subsection (i) of section 309 of 
     such Act is repealed.
       (3) Effective date.--The amendment made by paragraph (1)(A) 
     shall not apply with respect to any license or permit for a 
     terrestrial radio or television broadcast station for which 
     the Federal Communications Commission has accepted mutually 
     exclusive applications on or before the date of enactment of 
     this Act.
       (b) Commission Obligation To Make Additional Spectrum 
     Available by Auction.--
       (1) In general.--The Federal Communications Commission 
     shall complete all actions necessary to permit the 
     assignment, by September 30, 2002, by competitive bidding 
     pursuant to section 309(j) of the Communications Act of 1934 
     (47 U.S.C. 309(j)) of licenses for the use of bands of 
     frequencies that--
       (A) individually span not less than 25 megahertz, unless a 
     combination of smaller bands can, notwithstanding the 
     provisions of paragraph (7) of such section, reasonably be 
     expected to produce greater receipts;
       (B) in the aggregate span not less than 100 megahertz;
       (C) are located below 3 gigahertz; and
       (D) have not, as of the date of enactment of this Act--
       (i) been designated by Commission regulation for assignment 
     pursuant to such section;
       (ii) been identified by the Secretary of Commerce pursuant 
     to section 113 of the National Telecommunications and 
     Information Administration Organization Act; or
       (iii) been reserved for Federal Government use pursuant to 
     section 305 of the Communications Act of 1934 (47 U.S.C. 
     305).
     The Commission shall conduct the competitive bidding for not 
     less than one-half of such aggregate spectrum by September 
     30, 2000.
       (2) Criteria for reassignment.--In making available bands 
     of frequencies for competitive bidding pursuant to paragraph 
     (1), the Commission shall--
       (A) seek to promote the most efficient use of the spectrum;
       (B) take into account the cost to incumbent licensees of 
     relocating existing uses to other bands of frequencies or 
     other means of communication;
       (C) take into account the needs of public safety radio 
     services;
       (D) comply with the requirements of international 
     agreements concerning spectrum allocations; and
       (E) take into account the costs to satellite service 
     providers that could result from multiple auctions of like 
     spectrum internationally for global satellite systems.
       (3) Notification to ntia.--The Commission shall notify the 
     Secretary of Commerce if--
       (A) the Commission is not able to provide for the effective 
     relocation of incumbent licensees to bands of frequencies 
     that are available to the Commission for assignment; and
       (B) the Commission has identified bands of frequencies that 
     are--
       (i) suitable for the relocation of such licensees; and
       (ii) allocated for Federal Government use, but that could 
     be reallocated pursuant to part B of the National 
     Telecommunications and Information Administration 
     Organization Act (as amended by this section).
       (c) Identification and Reallocation of Frequencies.--The 
     National Telecommunications and Information Administration 
     Organization Act (47 U.S.C. 901 et seq.) is amended--
       (1) in section 113, by adding at the end the following new 
     subsections:
       ``(f) Additional Reallocation Report.--If the Secretary 
     receives a notice from the Commission pursuant to section 
     3001(b)(3) of the Balanced Budget Act of 1995, the Secretary 
     shall prepare and submit to the President and the Congress a 
     report recommending for reallocation for use other than by 
     Federal Government stations under section 305 of the 1934 Act 
     (47 U.S.C. 305), bands of frequencies that are suitable for 
     the uses identified in the Commission's notice.
       ``(g) Relocation of Federal Government Stations.--
       ``(1) In general.--In order to expedite the efficient use 
     of the electromagnetic spectrum and notwithstanding section 
     3302(b) of title 31, United States Code, any Federal entity 
     which operates a Federal Government station may accept 
     payment in advance or in-kind reimbursement of costs, or a 
     combination of payment in advance and in-kind reimbursement, 
     from any person to defray entirely the expenses of relocating 
     the Federal entity's operations from one or more radio 
     spectrum frequencies to another frequency or frequencies, 
     including, without limitation, the costs of any modification, 
     replacement, or reissuance of equipment, facilities, 
     operating manuals, regulations, or other expenses incurred by 
     that entity. Any such payment shall be deposited in the 
     account of such Federal entity in the Treasury of the United 
     States. Funds deposited according to this paragraph shall be 
     available, without appropriation or fiscal year limitation, 
     only for the operations of the Federal entity for which such 
     funds were deposited under this paragraph.
       ``(2) Process for relocation.--Any person seeking to 
     relocate a Federal Government station that has been assigned 
     a frequency within a band allocated for mixed Federal and 
     non-Federal use may submit a petition for such relocation to 
     NTIA. The NTIA shall limit or terminate the Federal 
     Government station's operating license when the following 
     requirements are met:
       ``(A) the person seeking relocation of the Federal 
     Government station has guaranteed to defray entirely, through 
     payment in advance, in-kind reimbursement of costs, or a 
     combination thereof, all relocation costs incurred by the 
     Federal entity, including all engineering, equipment, site 
     acquisition and construction, and regulatory fee costs;
       ``(B) the person seeking relocation completes all 
     activities necessary for implementing the relocation, 
     including construction of replacement facilities (if 
     necessary and appropriate) and identifying and obtaining on 
     the Federal entity's behalf new frequencies for use by the 
     relocated Federal Government station (where such station is 
     not relocating to spectrum reserved exclusively for Federal 
     use);
       ``(C) any necessary replacement facilities, equipment 
     modifications, or other changes have been implemented and 
     tested to ensure that the Federal Government station is able 
     to successfully accomplish its purposes; and
       ``(D) NTIA has determined that the proposed use of the 
     spectrum frequency band to which the Federal entity will 
     relocate its operations is--
       ``(i) consistent with obligations undertaken by the United 
     States in international agreements and with United States 
     national security and public safety interests; and
       ``(ii) suitable for the technical characteristics of the 
     band and consistent with other uses of the band.
     In exercising its authority under subparagraph (D)(i), NTIA 
     shall consult with the Secretary of Defense, the Secretary of 
     State, or other appropriate officers of the Federal 
     Government.
       ``(3) Right to reclaim.--If within one year after the 
     relocation the Federal Government station demonstrates to the 
     Commission that the new facilities or spectrum are not 
     comparable to the facilities or spectrum from which the 
     Federal Government station was relocated, the person seeking 
     such relocation must take reasonable steps to remedy any 
     defects or pay the Federal entity for the costs of returning 
     the Federal Government station to the spectrum from which 
     such station was relocated.
       ``(h) Federal Action To Expedite Spectrum Transfer.--Any 
     Federal Government station which operates on electromagnetic 
     spectrum that has been identified for reallocation for mixed 
     Federal and non-Federal use in any reallocation report under 
     subsection (a) shall, to the maximum extent practicable 
     through the use of the authority granted under subsection (g) 
     and any other applicable provision of law, take action to 
     relocate its spectrum use to other frequencies that are 
     reserved for Federal use or to consolidate its spectrum use 
     with other Federal Government stations in a manner that 
     maximizes the spectrum available for non-Federal use. 
     Subsection (c)(4) of this section shall not apply to the 
     extent that a non-Federal user seeks to relocate or relocates 
     a Federal power agency under subsection (g).
       ``(i) Definition.--For purposes of this section, the term 
     `Federal entity' means any department, agency, or other 
     instrumentality of the Federal Government that utilizes a 
     Government station license obtained under section 305 of the 
     1934 Act (47 U.S.C. 305).''; and
       (2) in section 114(a)(1), by striking ``(a) or (d)(1)'' and 
     inserting ``(a), (d)(1), or (f)''.
       (d) Identification and Reallocation of Auctionable 
     Frequencies.--The National Telecommunications and Information 
     Administration Organization Act (47 U.S.C. 901 et seq.) is 
     amended--
       (1) in section 113(b)--
       (A) by striking the heading of paragraph (1) and inserting 
     ``Initial reallocation report.--'';
       (B) by inserting ``in the first report required by 
     subsection (a)'' after ``recommend for reallocation'' in 
     paragraph (1);
       (C) by inserting ``or (3)'' after ``paragraph (1)'' each 
     place it appears in paragraph (2); and
       (D) by inserting after paragraph (2) the following new 
     paragraph:
       ``(3) Second reallocation report.--In accordance with the 
     provisions of this section, the Secretary shall recommend for 
     reallocation in the second report required by subsection (a), 
     for use other than by Federal Government stations under 
     section 305 of the 1934 Act (47 U.S.C. 305), 

[[Page H 12524]]
     a single frequency band that spans not less than an additional 20 
     megahertz, that is located below 3 gigahertz, and that meets 
     the criteria specified in paragraphs (1) through (5) of 
     subsection (a).''; and
       (2) in section 115--
       (A) in subsection (b), by striking ``the report required by 
     section 113(a)'' and inserting ``the initial reallocation 
     report required by section 113(a)''; and
       (B) by adding at the end the following new subsection:
       ``(c) Allocation and Assignment of Frequencies Identified 
     in the Second Reallocation Report.--With respect to the 
     frequencies made available for reallocation pursuant to 
     section 113(b)(3), the Commission shall, not later than 1 
     year after receipt of the second reallocation report required 
     by such section, prepare, submit to the President and the 
     Congress, and implement, a plan for the allocation and 
     assignment under the 1934 Act of such frequencies. Such plan 
     shall propose the immediate allocation and assignment of all 
     such frequencies in accordance with section 309(j) of the 
     1934 Act (47 U.S.C. 309(j)).''.
               TITLE IV--EDUCATION AND RELATED PROVISIONS

     SEC. 4000. TABLE OF CONTENTS.

       The table of contents for this title is as follows:

               TITLE IV--EDUCATION AND RELATED PROVISIONS

Sec. 4000. Table of contents.

                      Subtitle A--Higher Education

Sec. 4001. Short title; references; and general effective date.
Sec. 4002. Participation of institutions and administration of loan 
              programs.
Sec. 4003. Loan terms and conditions.
Sec. 4004. Amendments affecting guaranty agencies.
Sec. 4005. Amendments affecting FFELP lenders and loan holders.
Sec. 4006. Connie Lee privatization.
Sec. 4007. Extension of program duration.

   Subtitle B--Provisions Relating to the Employee Retirement Income 
                          Security Act of 1974

Sec. 4101. Waiver of minimum period for joint and survivor annuity 
              explanation before annuity starting date.
                      Subtitle A--Higher Education

     SEC. 4001. SHORT TITLE; REFERENCES; AND GENERAL EFFECTIVE 
                   DATE.

       (a) Short Title.--This subtitle may be cited as the 
     ``Student Loan Reform Act of 1995''.
       (b) References.--Except as otherwise expressly provided, 
     whenever in this subtitle an amendment or repeal is expressed 
     in terms of an amendment to, or repeal of, a section or other 
     provision, the reference shall be considered to be made to a 
     section or other provision of the Higher Education Act of 
     1965 (20 U.S.C. 1001 et seq.).
       (c) General Effective Date.--Unless otherwise specified in 
     this subtitle, the amendments made by this subtitle shall 
     take effect on January 1, 1996.

     SEC. 4002. PARTICIPATION OF INSTITUTIONS AND ADMINISTRATION 
                   OF LOAN PROGRAMS.

       (a) Limitation on Proportion of Loans Made Under the Direct 
     Loan Program.--Section 453(a) (20 U.S.C. 1087c(a)) is 
     amended--
       (1) by amending paragraph (2) to read as follows:
       ``(2) Determination of number of agreements.--
     Notwithstanding any other provision of law, the Secretary may 
     enter into agreements under subsections (a) and (b) of 
     section 454 with institutions for participation in the direct 
     loan program under this part, subject to the following:
       ``(A) For academic year 1994-1995, loans made under this 
     part shall represent not more than 5 percent of new student 
     loan volume for such year.
       ``(B) For academic year 1995-1996, loans made under this 
     part, including Federal Direct Consolidation Loans, shall 
     represent not more than 30 percent of the new student loan 
     volume for such year, except that the Secretary shall not 
     enter into such an agreement with an eligible institution 
     that has not applied and been accepted for participation in 
     the direct loan program under this part on or before 
     September 30, 1995.
       ``(C) For academic year 1996-1997 and for each succeeding 
     academic year, loans made under this part, including Federal 
     Direct Consolidation Loans, shall represent not more than 10 
     percent of the new student loan volume for such year, except 
     that only the 102 eligible institutions that participated in 
     the direct loan program under this part for academic year 
     1994-1995 shall be eligible to participate in such program 
     for academic year 1996-1997 and for each succeeding academic 
     year.'';
       (2) by striking paragraph (3);
       (3) by redesignating paragraph (4) as paragraph (3); and
       (4) in the second sentence of paragraph (3) (as 
     redesignated by paragraph (3)), by striking ``on the most 
     recent program data available'' and inserting ``on data from 
     the academic year preceding the academic year for which the 
     estimate is made''.
       (b) Elimination of Conscription.--Section 453(b)(2) (20 
     U.S.C. 1087c(b)(2)) is amended--
       (1) by striking subparagraph (B); and
       (2) in subparagraph (A)--
       (A) in clause (ii)--
       (i) by striking ``beginning''; and
       (ii) by striking ``clause (i); and'' and inserting 
     ``subparagraph (A).'';
       (B) by redesignating clause (ii) (as amended by 
     subparagraph (A)) as subparagraph (B); and
       (C) by striking ``(i) categorizing'' and inserting 
     ``categorizing''.
       (c) Control of Administrative Expenses.--Section 458 (20 
     U.S.C. 1087h) is amended--
       (1) by amending subsection (a) to read as follows:
       ``(a) Expenses.--
       ``(1) In general.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     each fiscal year there shall be available to the Secretary 
     from funds not otherwise appropriated, funds to be obligated 
     for subsidy costs under this part for the William D. Ford 
     Federal Direct Loan Program. There shall also be available 
     from funds not otherwise appropriated, funds to be obligated 
     for indirect administrative expenses under this part and part 
     B, not to exceed (from such funds not otherwise appropriated) 
     $260,000,000 for fiscal year 1994, $345,000,000 for fiscal 
     year 1995, $85,000,000 (and such sums as may be necessary for 
     administrative cost allowances for guaranty agencies for 
     costs accrued prior to January 1, 1996) for fiscal year 1996, 
     and $85,000,000 for each of the fiscal years 1997 through 
     2002.
       ``(B) Reduction.--The amount authorized to be made 
     available for fiscal year 1997 under subparagraph (A) shall 
     be reduced by the amount of any unobligated unexpended funds 
     available to carry out this subsection for any fiscal year 
     prior to fiscal year 1996.
       ``(2) Direct and indirect administrative expenses.--
       ``(A) Direct administrative expenses.--
       ``(i) In general.--For purposes of this subsection the term 
     `direct administrative expenses' means the cost under the 
     William D. Ford Federal Direct Loan Program of--

       ``(I) activities related to credit extension, loan 
     origination, loan servicing, management of contractors, and 
     payments to contractors, other government entities, and 
     program participants, under this part;
       ``(II) collection of delinquent loans under this part; and
       ``(III) write-off and closeout of loans under this part.

       ``(ii) Clarification with respect to certain expenses.--
     Such term does not include the costs to the Department of 
     personnel, training, rent, printing, or other administrative 
     costs, associated with the activities described in subclause 
     (I), (II), or (III) of clause (i).
       ``(B) Indirect administrative expenses.--For purposes of 
     this subsection the term `indirect administrative expenses' 
     means the cost of--
       ``(i) personnel engaged in developing program regulations, 
     policy and administrative guidance;
       ``(ii) audits of institutions and contractors;
       ``(iii) program reviews; and
       ``(iv) other oversight of the program under this part or 
     under part B.
       ``(3) Subsidy cost.--The term `subsidy cost' means the 
     estimated long-term cost to the Federal Government of direct 
     administrative expenses calculated on a net present value 
     basis.''; and
       (2) by striking subsection (d).
       (d) Default Rate Limitations on Direct Lending.--
       (1) Institutional eligibility based on default rates.--The 
     first sentence of section 435(a)(2)(A) (20 U.S.C. 
     1085(a)(2)(A)) is amended by inserting ``or part D'' after 
     ``under this part''.
       (2) Cohort default rate.--Section 435(m)(1) (20 U.S.C. 
     1085(m)(1)) is amended--
       (A) in subparagraph (A)--
       (i) by striking ``428, 428A, or 428H'' and inserting ``428, 
     428A, 428H, or part D (other than Federal Direct PLUS 
     Loans)''; and
       (ii) by striking ``428C'' and inserting ``428C or 455(g)'';
       (B) in subparagraph (B)--
       (i) by striking ``only''; and
       (ii) by inserting ``and loans made under part D determined 
     by the Secretary to be in default,'' after ``for 
     insurance,''; and
       (C) in subparagraph (C), by striking ``428C'' and inserting 
     ``428C or 455(g)''.
       (3) Default rates and income contingent repayment.--Section 
     435(m) (20 U.S.C. 1085(m)) is amended by adding at the end 
     the following new paragraph:
       ``(5) Default rate and income contingent repayment.--The 
     Secretary shall prescribe regulations for the calculation of 
     default rates for loans that are repaid pursuant to income 
     contingent repayment under this part, which regulations shall 
     be comparable to regulations for the calculation of default 
     rates for loans that are repaid pursuant to income contingent 
     repayment under part D.''.
       (4) Termination of institutional participation.--Section 
     455 (20 U.S.C. 1087e) is amended by adding at the end the 
     following new subsection:
       ``(l) Termination of Institutions for High Default Rates.--
       ``(1) Methodology and criteria.--The Secretary shall 
     develop--
       ``(A) a methodology for the calculation of institutional 
     default rates under the loan programs operated pursuant to 
     this part;
       ``(B) criteria for the initiation of termination 
     proceedings on the basis of such default rates; and
       ``(C) procedures for the conduct of such termination 
     proceedings.
       ``(2) Comparability to part b.--In developing the 
     methodology, criteria, and procedures required by paragraph 
     (1), the Secretary, to the maximum extent possible, shall 
     establish standards for the termination of institutions from 
     participation in loan programs under this part that are 
     comparable to the standards established for the termination 
     of institutions from participation in the loan programs under 
     part B. Such procedures shall include provisions for the 
     appeal of default rate calculations based on deficiencies in 
     the servicing of loans under this part that are comparable to 
     the provisions for such appeals based on deficiencies in the 
     servicing of loans under part B.
       ``(3) Promulgation.--The methodology, criteria, procedures 
     and standards required by paragraphs (1) and (2) shall be 
     promulgated in 

[[Page H 12525]]
     final form not later than 120 days after the date of enactment of this 
     paragraph.''.
       (e) Elimination of Transition to Direct Loans.--The Act (20 
     U.S.C. 1001 et seq.) is further amended--
       (1) in section 422(c)(7) (20 U.S.C. 1072(c)(7))--
       (A) in subparagraph (A), by striking ``during the 
     transition'' and all that follows through ``part D of this 
     title''; and
       (B) in subparagraph (B), by striking ``section 
     428(c)(10)(F)(v)'' and inserting ``section 428(c)(9)(F)(v)'';
       (2) in section 422(g)(1) (20 U.S.C. 1072(g)(1))--
       (A) in the first sentence, by striking ``or the program 
     authorized by part D of this title''; and
       (B) in the second sentence, by striking ``or the program 
     authorized by part D of this title'';
       (3) in section 428(c)(8) (20 U.S.C. 1078(c)(8))--
       (A) by striking subparagraph (B); and
       (B) by striking ``(A) If'' and inserting ``If'';
       (4) in section 428(c)(9)(F)(vii) (20 U.S.C. 
     1078(c)(9)(F)(vii))--
       (A) by inserting ``and'' before ``to avoid disruption''; 
     and
       (B) by striking ``, and to ensure an orderly transition'' 
     and all that follows through the end of such clause and 
     inserting a period;
       (5) in section 428(c)(9)(K) (20 U.S.C. 1078(c)(9)(K)), by 
     striking ``the progress of the transition from the loan 
     programs under this part to'' and inserting ``the integrity 
     and administration of'';
       (6) in section 428(e)(1)(B)(ii) (20 U.S.C. 
     1078(e)(1)(B)(ii)), by striking ``during the transition'' and 
     all that follows through ``under part D of this title'';
       (7) in section 428(e)(3) (20 U.S.C. 1078(e)(3)), by 
     striking ``costs of transition'' and inserting ``indirect 
     administrative expenses'';
       (8) in section 428(j)(3) (20 U.S.C. 1078(j)(3))--
       (A) in the heading for paragraph (3), by striking ``during 
     transition to direct lending''; and
       (B) in subparagraph (A), by striking ``during the 
     transition'' and all that follows through ``part D of this 
     title'';
       (9) in the heading for paragraph (2) of section 453(c) (20 
     U.S.C. 1087c(c)), by striking ``Transition'' and inserting 
     ``Institutional'';
       (10) in the heading for paragraph (3) of section 453(c) (20 
     U.S.C. 1087c(c)), by striking ``after transition''; and
       (11) in section 456(b) (20 U.S.C. 1087f(b))--
       (A) in paragraph (3), by inserting ``and'' after the 
     semicolon;
       (B) by striking paragraph (4);
       (C) by redesignating paragraph (5) as paragraph (4); and
       (D) in paragraph (4) (as redesignated by subparagraph (C)), 
     by striking ``successful operation'' and inserting 
     ``integrity and efficiency''.
       (f) Fees for Origination Services.--Section 452 (20 U.S.C. 
     1087b) is amended--
       (1) by striking subsection (b); and
       (2) by redesignating subsections (c) and (d) as subsections 
     (b) and (c), respectively.
       (g) Risk Sharing.--Section 428(n) (20 U.S.C. 1078(n)) is 
     amended by adding at the end the following new paragraph:
       ``(5) Applicability to part d loans.--The provisions of 
     this subsection shall apply to institutions of higher 
     education participating in direct lending under part D with 
     respect to loans made under such part, and for the purposes 
     of this paragraph, paragraph (4) shall be applied by 
     inserting `or part D' after `this part'.''.
       (h) Technical Amendment.--Section 428(b)(1)(X) (20 U.S.C. 
     1078(b)(1)(X)) is amended by striking ``section 428(c)(10)'' 
     and inserting ``section 428(c)(9)''.

     SEC. 4003. LOAN TERMS AND CONDITIONS.

       (a) Comparability Provisions.--
       (1) In general.--Paragraph (1) of section 455(a) (20 U.S.C. 
     1087e(a)) is amended to read as follows:
       ``(1) Parallel terms, conditions, eligibility requirements, 
     benefits and amounts.--Unless otherwise specified in this 
     part, loans made to borrowers under this part shall have the 
     same terms, conditions, deferments, forbearances, eligibility 
     requirements, and benefits, be subject to the same 
     administrative requirements for origination, payment and 
     processing of applications, be available in the same amounts, 
     be subject to the same interest rates and same amount of 
     fees, and have the same repayment plans, as the corresponding 
     types of loans made to borrowers under sections 428, 428B, 
     and 428H. The Secretary shall promulgate regulations 
     implementing this paragraph not later than 120 days after the 
     date of enactment of the Student Loan Reform Act of 1995.''.
       (2) Conforming amendments.--Section 428(b)(1) (20 U.S.C. 
     1078(b)(1)) is amended--
       (A) in subparagraph (D)(ii), by inserting ``(except 
     pursuant to a graduated, income-sensitive, or income 
     contingent repayment schedule)'' after ``10 years''; and
       (B) in subparagraph (E)(ii), by inserting ``(except 
     pursuant to a graduated, income-sensitive, or income 
     contingent repayment schedule)'' after ``10 years''.
       (b) Ability of Part D Borrowers To Obtain Federal Stafford 
     Consolidation Loans.--Section 428C(a)(4) (20 U.S.C. 1078-
     3(a)(4)) is amended--
       (1) by redesignating subparagraphs (B), (C), and (D) as 
     subparagraphs (C), (D), and (E), respectively; and
       (2) by inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) made under part D of this title;''.
       (c) Ability of Part B Borrowers To Obtain Federal Direct 
     Consolidation Loans.--Paragraph (5) of section 428C(b) (20 
     U.S.C. 1078-3(b)) is amended to read as follows:
       ``(5) Direct consolidation loans for borrowers in specified 
     circumstances.--
       ``(A) Subject to subparagraphs (B) and (C) of section 
     453(a)(2), the Secretary may offer a borrower a Federal 
     Direct Consolidation loan if such borrower is otherwise 
     eligible for a consolidation loan pursuant to this section 
     and such borrower is--
       ``(i) unable to obtain a consolidation loan from a lender 
     with an agreement under subsection (a)(1) that holds one of 
     such borrower's loans under this part; or
       ``(ii) unable to obtain a consolidation loan with income 
     contingent repayment terms from a lender with an agreement 
     under subsection (a)(1).
       ``(B) The Secretary shall establish appropriate 
     certification procedures to verify the eligibility of 
     borrowers for consolidation loans under this paragraph.
       ``(C) The Secretary shall not offer consolidation loans 
     under this paragraph if, in the Secretary's judgment, the 
     Department does not have the necessary origination and 
     servicing arrangements in place for such loans, or the 
     projected volume in such loans will be destabilizing to the 
     availability of loans otherwise available under this part.''.
       (d) Income Contingent Repayment in the Federal Family 
     Education Loan Program.--
       (1) Insurance program agreements.--Section 428(b)(1)(E)(i) 
     (20 U.S.C. 1078(b)(1)(E)(i)) is amended by striking ``or 
     income-sensitive repayment schedule'' and inserting 
     ``repayment schedule or an income-sensitive repayment 
     schedule, and may, at the discretion of the lender, offer the 
     borrower the option of repaying the loan in accordance with 
     an income contingent repayment schedule,''.
       (2) Repayment schedules.--The matter preceding clause (i) 
     of section 428C(c)(2)(A) (20 U.S.C. 1078-3(c)(2)(A)) is 
     amended--
       (A) in the first sentence, by striking ``or income-
     sensitive repayment schedules'' and inserting ``repayment 
     schedules or income-sensitive repayment schedules, and may 
     include, at the discretion of the lender, the establishment 
     of income contingent repayment schedules''; and
       (B) in the second sentence, by striking ``income-
     sensitive'' and inserting ``graduated, income-sensitive, or 
     income contingent''.
       (3) Comparable terms and conditions.--Section 428(m) (20 
     U.S.C. 1078(m)) is amended by adding at the end the following 
     new paragraph:
       ``(3) Income contingent repayment schedules.--For the 
     purpose of this part, income contingent repayment schedules 
     established pursuant to subsection (b)(1)(E)(i) and section 
     428C(c)(2)(A) shall have terms and conditions comparable to 
     the terms and conditions established by the Secretary 
     pursuant to section 455(e)(4). The Secretary shall discharge 
     or cancel the indebtedness of borrowers that repay pursuant 
     to income contingent repayment under this part to the same 
     extent, and under the same circumstances, as the Secretary 
     discharges or cancels the indebtedness of borrowers that 
     repay pursuant to income contingent repayment under part 
     D.''.
       (e) Plus Program Reductions.--Section 428B(b) (20 U.S.C. 
     1078-2(b)) is amended--
       (1) by striking ``(b) Limitation based on need.--'' and 
     inserting the following:
       ``(b) Annual Limits.--
       ``(1) Limitation based on need.--'';
       (2) by inserting before the last sentence thereof the 
     following:
       ``(3) Limitation computed on basis of actual payments.--''; 
     and
       (3) by inserting before paragraph (3) (as designated by the 
     amendment made by paragraph (2) of this section) the 
     following new paragraph:
       ``(2) Dollar limitation.--Subject to paragraph (1), the 
     maximum amount parents may borrow for one student in any 
     academic year or its equivalent (as defined by regulations of 
     the Secretary) is $15,000.''.

     SEC. 4004. AMENDMENTS AFFECTING GUARANTY AGENCIES.

       (a) Use of Reserve Funds To Purchase Defaulted Loans.--
     Section 422 (20 U.S.C. 1072) is amended by adding at the end 
     the following new subsection:
       ``(h) Use of Reserve Funds To Purchase Defaulted Loans.--
       ``(1) In general.--Except as provided in paragraph (2), a 
     guaranty agency shall use not less than 50 percent of such 
     agency's reserve funds to purchase and hold defaulted loans 
     that are guaranteed by such agency and for which a claim for 
     insurance is filed with such agency by an eligible lender. 
     The amount of such purchases shall be considered as reserve 
     funds under this section and used in the calculation of the 
     minimum reserve level under section 428(c)(9).
       ``(2) Special rule.--A guaranty agency shall not be 
     required to use its reserve funds to purchase and hold 
     defaulted loans in accordance with paragraph (1) to the 
     extent that--
       ``(A) the dollar volume of insurance claims filed with such 
     agency does not amount to 50 percent of such agency's 
     available reserve funds;
       ``(B) such use is prohibited by State law; or
       ``(C) such use will compromise the ability of the guaranty 
     agency to pay program expenses.''.
       (b) Extension of Period a Guaranty Agency Must Hold a 
     Defaulted Loan.--
       (1) Exemption for extended holding period.--The last 
     sentence of section 428(c)(1)(A) (20 U.S.C. 1078(c)(1)(A)) is 
     amended by striking ``A guaranty agency'' and inserting 
     ``Except as provided in section 428K, a guaranty agency''.
       (2) New extended holding period program.--
       (A) Amendment.--Part B of title IV (20 U.S.C. 1071 et seq.) 
     is amended by inserting after section 428J the following new 
     section:

     ``SEC. 428K. GUARANTOR PURCHASE OF CLAIMS WITH RESERVE FUNDS.

       ``(a) Loans Subject to Extended Holding Period.--Except as 
     provided in subsection (b), a guaranty agency shall file a 
     claim for reimbursement with respect to losses (resulting 
     from 

[[Page H 12526]]
     the default of a borrower) subject to reimbursement by the Secretary 
     pursuant to section 428(c)(1) not less than 180 days nor more 
     than 225 days after the guaranty agency discharges such 
     agency's insurance obligation on a loan insured under this 
     part. Such claim shall include losses on the unpaid principal 
     and accrued interest of any such loan, including interest 
     accrued from the date of such discharge to the date such 
     agency files the claim for reimbursement from the Secretary.
       ``(b) Loans Excluded From Extended Holding.--A guaranty 
     agency may file a claim with respect to losses subject to 
     reimbursement by the Secretary pursuant to section 428(c)(1) 
     prior to 180 days after the date the guaranty agency 
     discharges such agency's insurance obligation on a loan 
     insured under this part, if--
       ``(1) such agency used 50 percent or more of such agency's 
     reserve funds to purchase or hold loans in accordance with 
     section 422(h);
       ``(2) such claim is based on an inability to locate the 
     borrower and the guaranty agency certifies to the Secretary 
     that--
       ``(A) diligent attempts were made to locate the borrower 
     through the use of reasonable skip-tracing techniques in 
     accordance with section 428(c)(2)(G); and
       ``(B) such skip-tracing attempts to locate the borrower 
     were unsuccessful; or
       ``(3) the guaranty agency determines that the borrower is 
     unlikely to possess the financial resources to begin repaying 
     the loan prior to 180 days after default by the borrower.
       ``(c) Guaranty Agency Efforts During Extended Holding 
     Period.--A guaranty agency shall attempt to bring a loan 
     described in subsection (a) into repayment status during the 
     period prior to 225 days after the date the guaranty agency 
     discharges its insurance obligation on such loan, so that no 
     claim for reimbursement by the Secretary is necessary. Upon 
     securing payments satisfactory to the guaranty agency during 
     such period, such agency shall, if practicable, sell such 
     loan to an eligible lender. Such loan shall not be sold to an 
     eligible lender that the guaranty agency determines has 
     substantially failed to exercise the due diligence required 
     of lenders under this part.
       ``(d) Regulation Prohibited.--The Secretary shall not 
     promulgate regulations regarding the collection activity of a 
     guaranty agency with respect to a loan described in 
     subsection (a) for which reinsurance has not been paid under 
     section 428(c)(1).''.
       (B) Effective date.--The amendment made by this paragraph 
     shall apply with respect to loans for which claims for 
     insurance are filed by eligible lenders on or after January 
     1, 1996.
       (c) Administrative Cost Allowance.--Section 428(f)(1) (20 
     U.S.C. 1078(f)(1)) is amended--
       (1) in the matter preceding clause (i) of subparagraph (A), 
     by striking ``For a fiscal year prior to fiscal year 1994, 
     the'' and inserting ``The''; and
       (2) by amending subparagraph (B) to read as follows:
       ``(B)(i) The total amount of payments for any fiscal year 
     prior to fiscal year 1994 made under this paragraph shall be 
     equal to 1 percent of the total principal amount of the loans 
     upon which insurance was issued under this part during such 
     fiscal year by such guaranty agency.
       ``(ii) For the period beginning January 1, 1996 and ending 
     September 30, 1996, and for each fiscal year thereafter, each 
     guaranty agency shall receive an administrative cost 
     allowance, payable quarterly, for such fiscal year calculated 
     on the basis of 0.85 percent of the total principal amount of 
     the loans upon which insurance was issued under this part 
     during such fiscal year by such guaranty agency.
       ``(iii) The guaranty agency shall be deemed to have a 
     contractual right against the United States to receive 
     payments according to the provisions of this subparagraph. 
     Payments shall be made promptly and without administrative 
     delay to any guaranty agency submitting an accurate and 
     complete application therefor under this subparagraph.
       ``(iv) Notwithstanding clauses (ii) and (iii)--
       ``(I) for each of the fiscal years 1996 through 1998, the 
     Secretary shall pay an aggregate amount for such year of not 
     more than $220,000,000 to all guaranty agencies receiving 
     administrative cost allowances under this subparagraph; and
       ``(II) for each of the fiscal years 1999 through 2002, the 
     Secretary shall pay an aggregate amount for such year of not 
     more than $180,000,000 to all guaranty agencies receiving 
     administrative cost allowances under this subparagraph.''.
       (d) Secretary's Equitable Share of Collections on 
     Consolidated Defaulted Loans.--Section 428(c)(6)(A) (20 
     U.S.C. 1078(c)(6)(A)) is amended--
       (1) in the matter preceding clause (i)--
       (A) by inserting ``or on behalf of'' after ``made by''; and
       (B) by inserting ``, including payments made to discharge 
     loans made under this title to obtain a consolidation loan 
     pursuant to this part or part D,'' after ``borrower''; and
       (2) in clause (ii), by inserting after ``an amount equal 
     to'' the following: ``--

       ``(I) for defaulted loans consolidated pursuant to this 
     part or part D on or after January 1, 1996, 18.5 percent of 
     the balance of the principal, accrued interest, and 
     collection costs, outstanding at the time of such 
     consolidation; or
       ``(II) for all other loans,''.

       (e) Reserve Fund Reforms.--
       (1) Strengthening and stabilizing guaranty agencies.--
     Section 428(c) (20 U.S.C. 1078(c)) is amended--
       (A) in paragraph (9)(C)(ii), by striking ``80 percent'' and 
     inserting ``76 percent''; and
       (B) in paragraph (9)(E)--
       (i) in the matter preceding clause (i), by striking ``The 
     Secretary may terminate a'' and inserting ``After providing a 
     guaranty agency notice and opportunity for a hearing on the 
     record, the Secretary may terminate such'';
       (ii) in clause (iv), by inserting ``or'' after the 
     semicolon;
       (iii) by striking clause (vi); and
       (iv) in clause (v), by striking ``; or'' and inserting a 
     period.
       (2) Additional amendments.--Section 422 (20 U.S.C. 1072) is 
     further amended--
       (A) in the last sentence of subsection (a)(2), by striking 
     ``Except as provided in section 428(c)(10)(E) or (F), such'' 
     and inserting ``Except as provided in subparagraph (E) or (F) 
     of section 428(c)(9), such''; and
       (B) in subsection (g), by amending paragraph (4) to read as 
     follows:
       ``(4) Disposition of funds returned to or recovered by the 
     secretary.--Any funds that are returned to or otherwise 
     recovered by the Secretary pursuant to this subsection shall 
     be returned to the Treasury of the United States for purposes 
     of reducing the Federal debt and shall be deposited into the 
     special account under section 3113(d) of title 31, United 
     States Code.''.
       (f) Elimination of Supplemental Preclaims Assistance.--
       (1) Amendment.--Section 428(l) (20 U.S.C. 1078(l)) is 
     amended--
       (A) by striking paragraph (2); and
       (B) by striking ``(l) Preclaims'' and all that follows 
     through ``Upon receipt'' and inserting the following:
       ``(l) Preclaims Assistance and Supplemental Preclaims 
     Assistance.--Upon receipt''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to loans for which the first delinquency occurs 
     on or after January 1, 1996.
       (g) Reserve Ratios.--Section 428(c)(9)(A) (20 U.S.C. 
     1078(c)(9)(A)) is amended--
       (1) in clause (i), by inserting ``and'' after the 
     semicolon;
       (2) in clause (ii), by striking ``; and'' and inserting a 
     period; and
       (3) by striking clause (iii).
       (h) Guaranty Agency Reimbursement.--
       (1) In general.--Section 428(c)(1) (20 U.S.C. 1078(c)(1)) 
     is amended--
       (A) in subparagraph (A), by striking ``98 percent'' and 
     inserting ``96 percent''; and
       (B) in subparagraph (B)--
       (i) in clause (i), by striking ``88 percent'' and inserting 
     ``86 percent''; and
       (ii) in clause (ii), by striking ``78 percent'' and 
     inserting ``76 percent''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply with respect to loans for which the first 
     disbursement is made on or after January 1, 1996.

     SEC. 4005. AMENDMENTS AFFECTING FFELP LENDERS AND LOAN 
                   HOLDERS.

       (a) Risk Sharing by the Loan Holders.--
       (1) Amendment.--Section 428(b)(1)(G) (20 U.S.C. 
     1078(b)(1)(G)) is amended by striking ``not less than 98 
     percent'' and inserting ``95 percent''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply with respect to loans for which the first 
     disbursement is made on or after January 1, 1996.
       (b) Lenders-of-Last-Resort.--Section 428(j)(2) (20 U.S.C. 
     1078(j)(2)) is amended--
       (1) in subparagraph (A), by striking ``60 days'' and 
     inserting ``15 days''; and
       (2) in subparagraph (B), by striking ``two rejections from 
     eligible lenders'' and inserting ``one rejection from an 
     eligible lender''.
       (c) Exceptional Performance Insurance Reduction.--Section 
     428I(b)(1) (20 U.S.C. 1078-9(b)(1)) is amended--
       (1) in the paragraph heading, by striking ``100 percent''; 
     and
       (2) by striking ``100 percent'' and inserting ``95 percent 
     (or 100 percent in the case of a lender-of-last-resort)''.
       (d) Loan Fees From Lenders.--
       (1) Amendment.--Section 438(d)(2) (20 U.S.C. 1087-1(d)(2)) 
     is amended by striking ``0.50 percent'' and inserting ``0.80 
     percent''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply with respect to loans for which the first 
     disbursement is made on or after January 1, 1996.
       (e) Lender and Holder Rebate.--
       (1) Amendment.--Section 438 (20 U.S.C. 1078) is amended by 
     adding at the end the following new subsection:
       ``(g) Subsidy Rebate on Stafford and PLUS Loans.--
       ``(1) Rebate.--Each holder of a subsidized or unsubsidized 
     Federal Stafford Loan under this part, or a Federal PLUS loan 
     under section 428B, shall pay to the Secretary, on June 30 
     and December 31 of each year, a subsidy rebate in an amount 
     equal to 0.035 percent of the unpaid principal amount of each 
     such loan that such holder holds during the repayment period 
     described in section 428(b)(7), except that, notwithstanding 
     subparagraphs (A), (B), and (C) of section 428(b)(7), such 
     holder shall pay a subsidy rebate under this paragraph with 
     respect to such loan during any period of authorized 
     forbearance.
       ``(2) Payment of rebate.--The subsidy rebate shall be paid, 
     to the extent possible, by subtracting from amounts owed such 
     holder under section 438(b) (after deducting from such 
     amounts any amount owed by such holder under section 438(d) 
     for the quarters ending June 30 and December 31, as 
     appropriate) the amount of subsidy rebates owed by such 
     holder. To the extent the amounts owed such holder under 
     section 438(b) (after making the deduction described in the 
     preceding sentence) are insufficient to pay in full the 
     subsidy rebates due from such holder, such holder shall pay 
     the insufficiency by check or wire transfer of funds, in a 
     manner determined by the Secretary.
       ``(3) Deposit.--The Secretary shall deposit all subsidy 
     rebates collected under the second sentence of paragraph (2) 
     into the insurance fund established in section 431.''.

[[Page H 12527]]

       (2) Effective date.--The amendment made by this subsection 
     shall apply with respect to loans for which the first 
     disbursement is made on or after January 1, 1996.
       (f) Small Lender Audit Exemption.--Section 
     428(b)(1)(U)(iii) (20 U.S.C. 1078(b)(1)(U)(iii)) is amended--
       (1) by inserting ``in the case of any lender that 
     originates or holds more than $5,000,000 in principal on 
     loans made under this title in any fiscal year'' before ``for 
     (I)'';
       (2) in subclause (I), by inserting ``such'' before ``lender 
     at least once'';
       (3) in subclause (II), by inserting ``such'' before ``a 
     lender that is audited''; and
       (4) by striking ``if the lender'' and inserting ``if such 
     lender''.

     SEC. 4006. CONNIE LEE PRIVATIZATION.

       (a) Status of the Corporation and Corporate Powers; 
     Obligations Not Federally Guaranteed.--
       (1) Status of the corporation.--The Corporation shall not 
     be an agency, instrumentality, or establishment of the United 
     States Government, nor a Government corporation nor a 
     Government controlled corporation as such terms are defined 
     in section 103 of title 5, United States Code. No action 
     under section 1491 of title 28, United States Code (commonly 
     known as the Tucker Act) shall be allowable against the 
     United States based on the actions of the Corporation.
       (2) Corporate powers.--The Corporation shall be subject to 
     the provisions of this section, and, to the extent not 
     inconsistent with this section, to the District of Columbia 
     Business Corporation Act (or the comparable law of another 
     State, if applicable). The Corporation shall have the powers 
     conferred upon a corporation by the District of Columbia 
     Business Corporation Act (or such other applicable State law) 
     as from time to time in effect in order to conduct its 
     affairs as a private, for-profit corporation and to carry out 
     its purposes and activities incidental thereto. The 
     Corporation shall have the power to enter into contracts, to 
     execute instruments, to incur liabilities, to provide 
     products and services, and to do all things as are necessary 
     or incidental to the proper management of its affairs and the 
     efficient operation of a private, for-profit business.
       (3) Limitation on ownership of stock.--
       (A) Secretary of the treasury.--The Secretary of the 
     Treasury, in completing the sale of stock pursuant to 
     subsection (c), may not sell or issue the stock held by the 
     Secretary of Education to an agency, instrumentality, or 
     establishment of the United States Government, or to a 
     Government corporation or a Government controlled corporation 
     as such terms are defined in section 103 of title 5, United 
     States Code, or to a government-sponsored enterprise as such 
     term is defined in section 622 of title 2, United States 
     Code.
       (B) Student loan marketing association.--The Student Loan 
     Marketing Association shall not increase its share of the 
     ownership of the Corporation in excess of 42 percent of the 
     shares of stock of the Corporation outstanding on the date of 
     enactment of this Act. The Student Loan Marketing Association 
     shall not control the operation of the Corporation, except 
     that the Student Loan Marketing Association may participate 
     in the election of directors as a shareholder, and may 
     continue to exercise its right to appoint directors under 
     section 754 of the Higher Education Act of 1965 (20 U.S.C. 
     1132f-3) as long as that section is in effect.
       (C) Prohibition.--Until such time as the Secretary of the 
     Treasury sells the stock of the Corporation owned by the 
     Secretary of Education pursuant to subsection (c), the 
     Student Loan Marketing Association shall not provide 
     financial support or guarantees to the Corporation.
       (D) Financial support or guarantees.--After the Secretary 
     of the Treasury sells the stock of the Corporation owned by 
     the Secretary of Education pursuant to subsection (c), the 
     Student Loan Marketing Association may provide financial 
     support or guarantees to the Corporation, if such support or 
     guarantees are subject to terms and conditions that are no 
     more advantageous to the Corporation than the terms and 
     conditions the Student Loan Marketing Association provides to 
     other entities, including, where applicable, other monoline 
     financial guaranty corporations in which the Student Loan 
     Marketing Association has no ownership interest.
       (4) No federal guarantee.--
       (A) Obligations insured by the corporation.--
       (i) Full faith and credit of the united states.--No 
     obligation that is insured, guaranteed, or otherwise backed 
     by the Corporation shall be deemed to be an obligation that 
     is guaranteed by the full faith and credit of the United 
     States.
       (ii) Student loan marketing association.--No obligation 
     that is insured, guaranteed, or otherwise backed by the 
     Corporation shall be deemed to be an obligation that is 
     guaranteed by the Student Loan Marketing Association.
       (iii) Special rule.--This paragraph shall not affect the 
     determination of whether such obligation is guaranteed for 
     purposes of Federal income taxes.
       (B) Securities offered by the corporation.--No debt or 
     equity securities of the Corporation shall be deemed to be 
     guaranteed by the full faith and credit of the United States.
       (5) Definition.--The term ``Corporation'' as used in this 
     section means the College Construction Loan Insurance 
     Association as in existence on the day before the date of 
     enactment of this Act, and to any successor corporation.
       (b) Related Privatization Requirements.--
       (1) Notice requirements.--
       (A) In general.--During the six-year period following the 
     date of enactment of this Act, the Corporation shall include, 
     in each of the Corporation's contracts for the insurance, 
     guarantee, or reinsurance of obligations, and in each 
     document offering debt or equity securities of the 
     Corporation a prominent statement providing notice that--
       (i) such obligations or such securities, as the case may 
     be, are not obligations of the United States, nor are such 
     obligations guaranteed in any way by the full faith and 
     credit of the United States; and
       (ii) the Corporation is not an instrumentality of the 
     United States.
       (B) Additional notice.--During the five-year period 
     following the sale of stock pursuant to subsection (c)(1), in 
     addition to the notice requirements in subparagraph (A), the 
     Corporation shall include, in each of the contracts and 
     documents referred to in such subparagraph, a prominent 
     statement providing notice that the United States is not an 
     investor in the Corporation.
       (2) Corporate charter.--The Corporation's charter shall be 
     amended as necessary and without delay to conform to the 
     requirements of this section.
       (3) Corporate name.--The name of the Corporation, or of any 
     direct or indirect subsidiary thereof, may not contain the 
     term ``College Construction Loan Insurance Association'', or 
     any substantially similar variation thereof.
       (4) Articles of incorporation.--The Corporation shall amend 
     its articles of incorporation without delay to reflect that 
     one of the purposes of the Corporation shall be to guarantee, 
     insure, and reinsure bonds, leases, and other evidences of 
     debt of educational institutions, including Historically 
     Black Colleges and Universities and other academic 
     institutions which are ranked in the lower investment grade 
     category using a nationally recognized credit rating system.
       (5) Requirements until stock sale.--Notwithstanding 
     subsection (d), the requirements of sections 754 and 760 of 
     the Higher Education Act of 1965 (20 U.S.C. 1132f-3 and 
     1132f-9), as such sections were in effect on the day before 
     the date of enactment of this Act, shall continue to be 
     effective until the day immediately following the date of 
     closing of the purchase of the Secretary of Education's stock 
     (or the date of closing of the final purchase, in the case of 
     multiple transactions) pursuant to subsection (c)(1) of this 
     Act.
       (c) Sale of Federally Owned Stock.--
       (1) Sale of stock required.--The Secretary of the Treasury 
     shall sell, pursuant to section 324 of title 31, United 
     States Code, the stock of the Corporation owned by the 
     Secretary of Education as soon as possible after the date of 
     enactment of this Act, but not later than six months after 
     such date.
       (2) Purchase by the corporation.--In the event that the 
     Secretary of the Treasury is unable to sell the stock, or any 
     portion thereof, at a price acceptable to the Secretary of 
     Education and the Secretary of the Treasury, the Corporation 
     shall purchase, within 6 months after the date of enactment 
     of this Act, such stock at a price determined by the 
     Secretary of the Treasury and acceptable to the Corporation 
     based on the independent appraisal of one or more nationally 
     recognized financial firms, except that such price shall not 
     exceed the value of the Secretary of Education's stock as 
     determined by the Congressional Budget Office in House Report 
     104-153, dated June 22, 1995.
       (3) Reimbursement of costs of sale.--The Secretary of the 
     Treasury shall be reimbursed from the proceeds of the sale of 
     the stock under this subsection for all reasonable costs 
     related to such sale, including all reasonable expenses 
     relating to one or more independent appraisals under this 
     subsection.
       (4) Assistance by the corporation.--The Corporation shall 
     provide such assistance as the Secretary of the Treasury and 
     the Secretary of Education may require to facilitate the sale 
     of the stock under this subsection.
       (d) Repeal of Statutory Restrictions and Related 
     Provisions.--Part D of title VII of the Higher Education Act 
     of 1965 (20 U.S.C. 1001 et seq.) is repealed.

     SEC. 4007. EXTENSION OF PROGRAM DURATION.

       Part B of title IV (20 U.S.C. 1071 et seq.) is amended--
       (1) in section 424(a) (20 U.S.C. 1074(a)), by striking 
     ``1998'' and inserting ``2002'';
       (2) in section 428(a)(5) (20 U.S.C. 1078(a)(5))--
       (A) by striking ``1998'' and inserting ``2002''; and
       (B) by striking ``2002'' and inserting ``2006''; and
       (3) in section 428C(e) (20 U.S.C. 1078-3(e)), by amending 
     the first sentence to read as follows: ``The authority to 
     make loans under this section expires at the close of 
     September 30, 2002.''.
   Subtitle B--Provisions Relating to the Employee Retirement Income 
                          Security Act of 1974

     SEC. 4101. WAIVER OF MINIMUM PERIOD FOR JOINT AND SURVIVOR 
                   ANNUITY EXPLANATION BEFORE ANNUTIY STARTING 
                   DATE.

       (a) General Rule.--For purposes of section 205(c)(3)(A) of 
     the Employee Retirement Income Security Act of 1974 (29 
     U.S.C. 1055(c)(3)(A)), the minimum period prescribed by the 
     Secretary of the Treasury between the date that the 
     explanation referred to in such section is provided and the 
     annuity starting date shall not apply if waived by the 
     participant and, if applicable, the participant's spouse. 

[[Page H 12528]]

       (b) Effective Date,--Subsection (a) shall apply to plan 
     years beginning after December 31, 1995.
            TITLE V--ENERGY AND NATURAL RESOURCES PROVISIONS
        Subtitle A--Nuclear Regulatory Commission Annual Charges

     SEC. 5001. NUCLEAR REGULATORY COMMISSION ANNUAL CHARGES.

       Section 6101(a)(3) of the Omnibus Budget Reconciliation Act 
     of 1990 (42 U.S.C. 2214(a)(3)) is amended by striking 
     ``September 30, 1998'' and inserting ``September 30, 2002''.
                Subtitle B--Department of Energy Assets

            CHAPTER 1--UNITED STATES ENRICHMENT CORPORATION

     SEC. 5201. SHORT TITLE.

       This chapter may be cited as the ``USEC Privatization 
     Act''.

     SEC. 5202. DEFINITIONS.

       For purposes of this chapter:
       (1) The term ``AVLIS'' means atomic vapor laser isotope 
     separation technology.
       (2) The term ``Corporation'' means the United States 
     Enrichment Corporation and, unless the context otherwise 
     requires, includes the private corporation and any successor 
     thereto following privatization.
       (3) The term ``gaseous diffusion plants'' means the Paducah 
     Gaseous Diffusion Plant at Paducah, Kentucky and the 
     Portsmouth Gaseous Diffusion Plant at Piketon, Ohio.
       (4) The term ``highly enriched uranium'' means uranium 
     enriched to 20 percent or more of the uranium-235 isotope.
       (5) The term ``low-enriched uranium'' means uranium 
     enriched to less than 20 percent of the uranium-235 isotope, 
     including that which is derived from highly enriched uranium.
       (6) The term ``low-level radioactive waste'' has the 
     meaning given such term in section 2(9) of the Low-Level 
     Radioactive Waste Policy Act (42 U.S.C. 2021b(9)).
       (7) The term ``private corporation'' means the corporation 
     established under section 5205.
       (8) The term ``privatization'' means the transfer of 
     ownership of the Corporation to private investors.
       (9) The term ``privatization date'' means the date on which 
     100 percent of the ownership of the Corporation has been 
     transferred to private investors.
       (10) The term ``public offering'' means an underwritten 
     offering to the public of the common stock of the private 
     corporation pursuant to section 5204.
       (11) The ``Russian HEU Agreement'' means the Agreement 
     Between the Government of the United States of America and 
     the Government of the Russian Federation Concerning the 
     Disposition of Highly Enriched Uranium Extracted from Nuclear 
     Weapons, dated February 18, 1993.
       (12) The term ``Secretary'' means the Secretary of Energy.
       (13) The ``Suspension Agreement'' means the Agreement to 
     Suspend the Antidumping Investigation on Uranium from the 
     Russian Federation, as amended.
       (14) The term ``uranium enrichment'' means the separation 
     of uranium of a given isotopic content into 2 components, 1 
     having a higher percentage of a fissile isotope and 1 having 
     a lower percentage.

     SEC. 5203. SALE OF THE CORPORATION.

       (a) Authorization.--The Board of Directors of the 
     Corporation, with the approval of the Secretary of the 
     Treasury, shall transfer the interest of the United States in 
     the United States Enrichment Corporation to the private 
     sector in a manner that provides for the long-term viability 
     of the Corporation, provides for the continuation by the 
     Corporation of the operation of the Department of Energy's 
     gaseous diffusion plants, provides for the protection of the 
     public interest in maintaining a reliable and economical 
     domestic source of uranium mining, enrichment and conversion 
     services, and, to the extent not inconsistent with such 
     purposes, secures the maximum proceeds to the United States.
       (b) Proceeds.--Proceeds from the sale of the United States' 
     interest in the Corporation shall be deposited in the general 
     fund of the Treasury.

     SEC. 5204. METHOD OF SALE.

       (a) Authorization.--The Board of Directors of the 
     Corporation, with the approval of the Secretary of the 
     Treasury, shall transfer ownership of the assets and 
     obligations of the Corporation to the private corporation 
     established under section 5205 (which may be consummated 
     through a merger or consolidation effected in accordance 
     with, and having the effects provided under, the law of the 
     state of incorporation of the private corporation, as if the 
     Corporation were incorporated thereunder).
       (b) Board Determination.--The Board, with the approval of 
     the Secretary of the Treasury, shall select the method of 
     transfer and establish terms and conditions for the transfer 
     that will provide the maximum proceeds to the Treasury of the 
     United States and will provide for the long-term viability of 
     the private corporation, the continued operation of the 
     gaseous diffusion plants, and the public interest in 
     maintaining reliable and economical domestic uranium mining 
     and enrichment industries.
       (c) Adequate Proceeds.--The Secretary of the Treasury shall 
     not allow the privatization of the Corporation unless before 
     the sale date the Secretary of Treasury determines that the 
     method of transfer will provide the maximum proceeds to the 
     Treasury consistent with the principles set forth in section 
     5203(a).
       (d) Application of Securities Laws.--Any offering or sale 
     of securities by the private corporation shall be subject to 
     the Securities Act of 1933 (15 U.S.C. 77a et seq.), the 
     Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), and 
     the provisions of the Constitution and laws of any State, 
     territory, or possession of the United States relating to 
     transactions in securities.

     SEC. 5205. ESTABLISHMENT OF PRIVATE CORPORATION.

       (a) Incorporation.--(1) The directors of the Corporation 
     shall establish a private for-profit corporation under the 
     laws of a State for the purpose of receiving the assets and 
     obligations of the Corporation at privatization and 
     continuing the business operations of the Corporation 
     following privatization.
       (2) The directors of the Corporation may serve as 
     incorporators of the private corporation and shall take all 
     steps necessary to establish the private corporation, 
     including the filing of articles of incorporation consistent 
     with the provisions of this chapter.
       (3) Employees and officers of the Corporation (including 
     members of the Board of Directors) acting in accordance with 
     this section on behalf of the private corporation shall be 
     deemed to be acting in their official capacities as employees 
     or officers of the Corporation for purposes of section 205 of 
     title 18, United States Code.
       (b) Status of the Private Corporation.--(1) The private 
     corporation shall not be an agency, instrumentality, or 
     establishment of the United States, a Government corporation, 
     or a Government-controlled corporation.
       (2) Except as otherwise provided by this chapter, financial 
     obligations of the private corporation shall not be 
     obligations of, or guaranteed as to principal or interest by, 
     the Corporation or the United States, and the obligations 
     shall so plainly state.
       (3) No action under section 1491 of title 28, United States 
     Code, shall be allowable against the United States based on 
     actions of the private corporation.
       (c) Application of Post-Government Employment 
     Restrictions.--Beginning on the privatization date, the 
     restrictions stated in section 207 (a), (b), (c), and (d) of 
     title 18, United States Code, shall not apply to the acts of 
     an individual done in carrying out official duties as a 
     director, officer, or employee of the private corporation, if 
     the individual was an officer or employee of the Corporation 
     (including a director) continuously during the 45 days prior 
     to the privatization date.
       (d) Dissolution.--In the event that the privatization does 
     not occur, the Corporation will provide for the dissolution 
     of the private corporation within 1 year of the private 
     corporation's incorporation unless the Secretary of the 
     Treasury or his delegate, upon the Corporation's request, 
     agrees to delay any such dissolution for an additional year.

     SEC. 5206. TRANSFERS TO THE PRIVATE CORPORATION.

       Concurrent with privatization, the Corporation shall 
     transfer to the private corporation--
       (1) the lease of the gaseous diffusion plants in accordance 
     with section 5207,
       (2) all personal property and inventories of the 
     Corporation,
       (3) all contracts, agreements, and leases under section 
     5208(a),
       (4) the Corporation's right to purchase power from the 
     Secretary under section 5208(b),
       (5) such funds in accounts of the Corporation held by the 
     Treasury or on deposit with any bank or other financial 
     institution as approved by the Secretary of the Treasury, and
       (6) all of the Corporation's records, including all of the 
     papers and other documentary materials, regardless of 
     physical form or characteristics, made or received by the 
     Corporation.

     SEC. 5207. LEASING OF GASEOUS DIFFUSION FACILITIES.

       (a) Transfer of Lease.--Concurrent with privatization, the 
     Corporation shall transfer to the private corporation the 
     lease of the gaseous diffusion plants and related property 
     for the remainder of the term of such lease in accordance 
     with the terms of such lease.
       (b) Renewal.--The private corporation shall have the 
     exclusive option to lease the gaseous diffusion plants and 
     related property for additional periods following the 
     expiration of the initial term of the lease.
       (c) Exclusion of Facilities for Production of Highly 
     Enriched Uranium.--The Secretary shall not lease to the 
     private corporation any facilities necessary for the 
     production of highly enriched uranium but may, subject to the 
     requirements of the Atomic Energy Act of 1954 (42 U.S.C. 2011 
     et seq.), grant the Corporation access to such facilities for 
     purposes other than the production of highly enriched 
     uranium.
       (d) DOE Responsibility for Preexisting Conditions.--The 
     payment of any costs of decontamination and decommissioning, 
     response actions, or corrective actions with respect to 
     conditions existing before July 1, 1993 at the gaseous 
     diffusion plants shall remain the sole responsibility of the 
     Secretary.
       (e) Environmental Audit.--For purposes of subsection (d), 
     the conditions existing before July 1, 1993, at the gaseous 
     diffusion plants shall be determined from the environmental 
     audit conducted pursuant to section 1403(e) of the Atomic 
     Energy Act of 1954 (42 U.S.C. 2297c-2(e)).
       (f) Treatment Under Price-Anderson Provisions.--Any lease 
     executed between the Secretary and the Corporation or the 
     private corporation, and any extension or renewal thereof, 
     under this section shall be deemed to be a contract for 
     purposes of section 170d. of the Atomic Energy Act of 1954 
     (42 U.S.C. 2210(d)).
       (g) Waiver of EIS Requirement.--The execution or transfer 
     of the lease between the Secretary and the Corporation or the 
     private corporation, and any extension or renewal thereof, 
     shall not be considered a major Federal action significantly 
     affecting the quality of the human environment for purposes 
     of section 102 of the National Environmental Policy Act of 
     1969 (42 U.S.C. 4332).

     SEC. 5208. TRANSFER OF CONTRACTS.

       (a) Transfer of Contracts.--Concurrent with privatization, 
     the Corporation shall transfer to the private corporation all 
     contracts, agreements, and leases, including all uranium 
     enrichment contracts, that were--
       (1) transferred by the Secretary to the Corporation 
     pursuant to section 1401(b) of the Atomic Energy Act of 1954 
     (42 U.S.C. 2297c(b)), or
       (2) entered into by the Corporation before the 
     privatization date.

[[Page H 12529]]

       (b) Nontransferable Power Contracts.--The Corporation shall 
     transfer to the private corporation the right to purchase 
     power from the Secretary under the power purchase contracts 
     for the gaseous diffusion plants executed by the Secretary 
     before July 1, 1993. The Secretary shall continue to receive 
     power for the gaseous diffusion plants under such contracts 
     and shall continue to resell such power to the private 
     corporation at cost during the term of such contracts.
       (c) Effect of Transfer.--(1) Notwithstanding subsection 
     (a), the United States shall remain obligated to the parties 
     to the contracts, agreements, and leases transferred under 
     subsection (a) for the performance of its obligations under 
     such contracts, agreements, or leases during their terms. 
     Performance of such obligations by the private corporation 
     shall be considered performance by the United States.
       (2) If a contract, agreement, or lease transferred under 
     subsection (a) is terminated, extended, or materially amended 
     after the privatization date--
       (A) the private corporation shall be responsible for any 
     obligation arising under such contract, agreement, or lease 
     after any extension or material amendment, and
       (B) the United States shall be responsible for any 
     obligation arising under the contract, agreement, or lease 
     before the termination, extension, or material amendment.
       (3) The private corporation shall reimburse the United 
     States for any amount paid by the United States under a 
     settlement agreement entered into with the consent of the 
     private corporation or under a judgment, if the settlement or 
     judgment--
       (A) arises out of an obligation under a contract, 
     agreement, or lease transferred under subsection (a), and
       (B) arises out of actions of the private corporation 
     between the privatization date and the date of a termination, 
     extension, or material amendment of such contract, agreement, 
     or lease.
       (d) Pricing.--The Corporation may establish prices for its 
     products, materials, and services provided to customers on a 
     basis that will allow it to attain the normal business 
     objectives of a profit making corporation.

     SEC. 5209. LIABILITIES.

       (a) Liability of the United States.--(1) Except as 
     otherwise provided in this chapter, all liabilities arising 
     out of the operation of the uranium enrichment enterprise 
     before July 1, 1993, shall remain the direct liabilities of 
     the Secretary.
       (2) Except as provided in subsection (a)(3) or otherwise 
     provided in a memorandum of agreement entered into by the 
     Corporation and the Office of Management and Budget prior to 
     the privatization date, all liabilities arising out of the 
     operation of the Corporation between July 1, 1993, and the 
     privatization date shall remain the direct liabilities of the 
     United States.
       (3) All liabilities arising out of the disposal of depleted 
     uranium generated by the Corporation between July 1, 1993, 
     and the privatization date shall become the direct 
     liabilities of the Secretary.
       (4) Any stated or implied consent for the United States, or 
     any agent or officer of the United States, to be sued by any 
     person for any legal, equitable, or other relief with respect 
     to any claim arising from any action taken by any agent or 
     officer of the United States in connection with the 
     privatization of the Corporation is hereby withdrawn.
       (5) To the extent that any claim against the United States 
     under this section is of the type otherwise required by 
     Federal statute or regulation to be presented to a Federal 
     agency or official for adjudication or review, such claim 
     shall be presented to the Department of Energy in accordance 
     with procedures to be established by the Secretary. Nothing 
     in this paragraph shall be construed to impose on the 
     Department of Energy liability to pay any claim presented 
     pursuant to this paragraph.
       (6) The Attorney General shall represent the United States 
     in any action seeking to impose liability under this 
     subsection.
       (b) Liability of the Corporation.--Notwithstanding any 
     provision of any agreement to which the Corporation is a 
     party, the Corporation shall not be considered in breach, 
     default, or violation of any agreement because of the 
     transfer of such agreement to the private corporation under 
     section 5208 or any other action the Corporation is required 
     to take under this chapter.
       (c) Liability of the Private Corporation.--Except as 
     provided in this chapter, the private corporation shall be 
     liable for any liabilities arising out of its operations 
     after the privatization date.
       (d) Liability of Officers and Directors.--(1) No officer, 
     director, employee, or agent of the Corporation shall be 
     liable in any civil proceeding to any party in connection 
     with any action taken in connection with the privatization 
     if, with respect to the subject matter of the action, suit, 
     or proceeding, such person was acting within the scope of his 
     employment.
       (2) This subsection shall not apply to claims arising under 
     the Securities Act of 1933 (15 U.S.C. 77a. et seq.), the 
     Securities Exchange Act of 1934 (15 U.S.C. 78a. et seq.), or 
     under the Constitution or laws of any State, territory, or 
     possession of the United States relating to transactions in 
     securities.

     SEC. 5210. EMPLOYEE PROTECTIONS.

       (a) Contractor Employees.--(1) Privatization shall not 
     diminish the accrued, vested pension benefits of employees of 
     the Corporation's operating contractor at the two gaseous 
     diffusion plants.
       (2) In the event that the private corporation terminates or 
     changes the contractor at either or both of the gaseous 
     diffusion plants, the plan sponsor or other appropriate 
     fiduciary of the pension plan covering employees of the prior 
     operating contractor shall arrange for the transfer of all 
     plan assets and liabilities relating to accrued pension 
     benefits of such plan's participants and beneficiaries from 
     such plant to a pension plan sponsored by the new contractor 
     or the private corporation or a joint-labor management plan, 
     as the case may be.
       (3) In addition to any obligations arising under the 
     National Labor Relations Act (29 U.S.C. 151 et seq.), any 
     employer (including the private corporation if it operates a 
     gaseous diffusion plant without a contractor or any 
     contractor of the private corporation) at a gaseous diffusion 
     plant shall--
       (A) abide by the terms of any unexpired collective 
     bargaining agreement covering employees in bargaining units 
     at the plant and in effect on the privatization date until 
     the stated expiration or termination date of the agreement; 
     or
       (B) in the event a collective bargaining agreement is not 
     in effect upon the privatization date, have the same 
     bargaining obligations under section 8(d) of the National 
     Labor Relations Act (29 U.S.C. 158(d)) as it had immediately 
     before the privatization date.
       (4) If the private corporation replaces its operating 
     contractor at a gaseous diffusion plant, the new employer 
     (including the new contractor or the private corporation if 
     it operates a gaseous diffusion plant without a contractor) 
     shall--
       (A) offer employment to non-management employees of the 
     predecessor contractor to the extent that their jobs still 
     exist or they are qualified for new jobs, and
       (B) abide by the terms of the predecessor contractor's 
     collective bargaining agreement until the agreement expires 
     or a new agreement is signed.
       (5) In the event of a plant closing or mass layoff (as such 
     terms are defined in section 2101(a)(2) and (3) of title 29, 
     United States Code) at either of the gaseous diffusion 
     plants, the Secretary of Energy shall treat any adversely 
     affected employee of an operating contractor at either plant 
     who was an employee at such plant on July 1, 1993, as a 
     Department of Energy employee for purposes of sections 3161 
     and 3162 of the National Defense Authorization Act for Fiscal 
     Year 1993 (42 U.S.C. 7274h-7274i).
       (6)(A) The Secretary and the private corporation shall 
     cause the post-retirement health benefits plan provider (or 
     its successor) to continue to provide benefits for eligible 
     persons, as described under subparagraph (B), employed by an 
     operating contractor at either of the gaseous diffusion 
     plants in an economically efficient manner and at 
     substantially the same level of coverage as eligible retirees 
     are entitled to receive on the privatization date.
       (B) Persons eligible for coverage under subparagraph (A) 
     shall be limited to:
       (i) persons who retired from active employment at one of 
     the gaseous diffusion plants on or before the privatization 
     date as vested participants in a pension plan maintained 
     either by the Corporation's operating contractor or by a 
     contractor employed prior to July 1, 1993, by the Department 
     of Energy to operate a gaseous diffusion plant; and
       (ii) persons who are employed by the Corporation's 
     operating contractor on or before the privatization date and 
     are vested participants in a pension plan maintained either 
     by the Corporation's operating contractor or by a contractor 
     employed prior to July 1, 1993, by the Department of Energy 
     to operate a gaseous diffusion plant.
       (C) The Secretary shall fund the entire cost of post-
     retirement health benefits for persons who retired from 
     employment with an operating contractor prior to July 1, 
     1993.
       (D) The Secretary and the Corporation shall fund the cost 
     of post-retirement health benefits for persons who retire 
     from employment with an operating contractor on or after July 
     1, 1993, in proportion to the retired person's years and 
     months of service at a gaseous diffusion plant under their 
     respective management.
       (7)(A) Any suit under this subsection alleging a violation 
     of an agreement between an employer and a labor organization 
     shall be brought in accordance with section 301 of the Labor 
     Management Relations Act (29 U.S.C. 185).
       (B) Any charge under this subsection alleging an unfair 
     labor practice violative of section 8 of the National Labor 
     Relations Act (29 U.S.C. 158) shall be pursued in accordance 
     with section 10 of the National Labor Relations Act (29 
     U.S.C. 160).
       (C) Any suit alleging a violation of any provision of this 
     subsection, to the extent it does not allege a violation of 
     the National Labor Relations Act, may be brought in any 
     district court of the United States having jurisdiction over 
     the parties, without regard to the amount in controversy or 
     the citizenship of the parties.
       (b) Former Federal Employees.--(1)(A) An employee of the 
     Corporation that was subject to either the Civil Service 
     Retirement System (referred to in this section as ``CSRS'') 
     or the Federal Employees' Retirement System (referred to in 
     this section as ``FERS'') on the day immediately preceding 
     the privatization date shall elect--
       (i) to retain the employee's coverage under either CSRS or 
     FERS, as applicable, in lieu of coverage by the Corporation's 
     retirement system, or
       (ii) to receive a deferred annuity or lump-sum benefit 
     payable to a terminated employee under CSRS or FERS, as 
     applicable.
       (B) An employee that makes an election under subparagraph 
     (A)(ii) shall have the option to transfer the balance in the 
     employee's Thrift Savings Plan account to a defined 
     contribution plan under the Corporation's retirement system, 
     consistent with applicable law and the terms of the 
     Corporation's defined contribution plan.

[[Page H 12530]]

       (2) The Corporation shall pay to the Civil Service 
     Retirement and Disability Fund--
       (A) such employee deductions and agency contributions as 
     are required by sections 8334, 8422, and 8423 of title 5, 
     United States Code, for those employees who elect to retain 
     their coverage under either CSRS or FERS pursuant to 
     paragraph (1);
       (B) such additional agency contributions as are determined 
     necessary by the Office of Personnel Management to pay, in 
     combination with the sums under subparagraph (A), the 
     ``normal cost'' (determined using dynamic assumptions) of 
     retirement benefits for those employees who elect to retain 
     their coverage under CSRS pursuant to paragraph (1), with the 
     concept of ``normal cost'' being used consistent with 
     generally accepted actuarial standards and principles; and
       (C) such additional amounts, not to exceed two percent of 
     the amounts under subparagraphs (A) and (B), as are 
     determined necessary by the Office of Personnel Management to 
     pay the cost of administering retirement benefits for 
     employees who retire from the Corporation after the 
     privatization date under either CSRS or FERS, for their 
     survivors, and for survivors of employees of the Corporation 
     who die after the privatization date (which amounts shall be 
     available to the Office of Personnel Management as provided 
     in section 8348(a)(1)(B) of title 5, United States Code).
       (3) The Corporation shall pay to the Thrift Savings Fund 
     such employee and agency contributions as are required by 
     section 8432 of title 5, United States Code, for those 
     employees who elect to retain their coverage under FERS 
     pursuant to paragraph (1).
       (4) Any employee of the Corporation who was subject to the 
     Federal Employee Health Benefits Program (referred to in this 
     section as ``FEHBP'') on the day immediately preceding the 
     privatization date and who elects to retain coverage under 
     either CSRS or FERS pursuant to paragraph (1) shall have the 
     option to receive health benefits from a health benefit plan 
     established by the Corporation or to continue without 
     interruption coverage under the FEHBP, in lieu of coverage by 
     the Corporation's health benefit system.
       (5) The Corporation shall pay to the Employees Health 
     Benefits Fund--
       (A) such employee deductions and agency contributions as 
     are required by section 8906(a)-(f) of title 5, United States 
     Code, for those employees who elect to retain their coverage 
     under FEHBP pursuant to paragraph (4); and
       (B) such amounts as are determined necessary by the Office 
     of Personnel Management under paragraph (6) to reimburse the 
     Office of Personnel Management for contributions under 
     section 8906(g)(1) of title 5, United States Code, for those 
     employees who elect to retain their coverage under FEHBP 
     pursuant to paragraph (4).
       (6) The amounts required under paragraph (5)(B) shall pay 
     the Government contributions for retired employees who retire 
     from the Corporation after the privatization date under 
     either CSRS or FERS, for survivors of such retired employees, 
     and for survivors of employees of the Corporation who die 
     after the privatization date, with said amounts prorated to 
     reflect only that portion of the total service of such 
     employees and retired persons that was performed for the 
     Corporation after the privatization date.

     SEC. 5211. OWNERSHIP LIMITATIONS.

       (a) Securities Limitations.--No director, officer, or 
     employee of the Corporation may acquire any securities, or 
     any rights to acquire any securities of the private 
     corporation on terms more favorable than those offered to the 
     general public--
       (1) in a public offering designed to transfer ownership of 
     the Corporation to private investors,
       (2) pursuant to any agreement, arrangement, or 
     understanding entered into before the privatization date, or
       (3) before the election of the directors of the private 
     corporation.
       (b) Ownership Limitation.--Immediately following the 
     consummation of the transaction or series of transactions 
     pursuant to which 100 percent of the ownership of the 
     Corporation is transferred to private investors, and for a 
     period of three years thereafter, no person may acquire, 
     directly or indirectly, beneficial ownership of securities 
     representing more than 10 percent of the total votes of all 
     outstanding voting securities of the Corporation. The 
     foregoing limitation shall not apply to--
       (1) any employee stock ownership plan of the Corporation,
       (2) members of the underwriting syndicate purchasing shares 
     in stabilization transactions in connection with the 
     privatization, or
       (3) in the case of shares beneficially held in the ordinary 
     course of business for others, any commercial bank, broker-
     dealer, or clearing agency.

     SEC. 5212. URANIUM TRANSFERS AND SALES.

       (a) Transfers and Sales by the Secretary.--The Secretary 
     shall not provide enrichment services or transfer or sell any 
     uranium (including natural uranium concentrates, natural 
     uranium hexafluoride, or enriched uranium in any form) to any 
     person except as consistent with this section.
       (b) Russian HEU.--(1) On or before December 31, 1996, the 
     United States Executive Agent under the Russian HEU Agreement 
     shall transfer to the Secretary without charge title to an 
     amount of uranium hexafluoride equivalent to the natural 
     uranium component of low-enriched uranium derived from at 
     least 18 metric tons of highly enriched uranium purchased 
     from the Russian Executive Agent under the Russian HEU 
     Agreement. The quantity of such uranium hexafluoride 
     delivered to the Secretary shall be based on a tails assay of 
     0.30 U\235\. Uranium hexafluoride transferred to the 
     Secretary pursuant to this paragraph shall be deemed under 
     United States law for all purposes to be of Russian origin.
       (2) Within 7 years of the date of enactment of this Act, 
     the Secretary shall sell, and receive payment for, the 
     uranium hexafluoride transferred to the Secretary pursuant to 
     paragraph (1). Such uranium hexafluoride shall be sold--
       (A) at any time for use in the United States for the 
     purpose of overfeeding;
       (B) at any time for end use outside the United States;
       (C) in 1995 and 1996 to the Russian Executive Agent at the 
     purchase price for use in matched sales pursuant to the 
     Suspension Agreement; or,
       (D) in calendar year 2001 for consumption by end users in 
     the United States not prior to January 1, 2002, in volumes 
     not to exceed 3,000,000 pounds U3O8 equivalent per 
     year.
       (3) With respect to all enriched uranium delivered to the 
     United States Executive Agent under the Russian HEU Agreement 
     on or after January 1, 1997, the United States Executive 
     Agent shall, upon request of the Russian Executive Agent, 
     enter into an agreement to deliver concurrently to the 
     Russian Executive Agent an amount of uranium hexafluoride 
     equivalent to the natural uranium component of such uranium. 
     An agreement executed pursuant to a request of the Russian 
     Executive Agent, as contemplated in this paragraph, may 
     pertain to any deliveries due during any period remaining 
     under the Russian HEU Agreement. The quantity of such uranium 
     hexafluoride delivered to the Russian Executive Agent shall 
     be based on a tails assay of 0.30 U\235\. Title to uranium 
     hexafluoride delivered to the Russian Executive Agent 
     pursuant to this paragraph shall transfer to the Russian 
     Executive Agent upon delivery of such material to the Russian 
     Executive Agent, with such delivery to take place at a North 
     American facility designated by the Russian Executive Agent. 
     Uranium hexafluoride delivered to the Russian Executive Agent 
     pursuant to this paragraph shall be deemed under U.S. law for 
     all purposes to be of Russian origin. Such uranium 
     hexafluoride may be sold to any person or entity for delivery 
     and use in the United States only as permitted in subsections 
     (b)(5), (b)(6) and (b)(7) of this section.
       (4) In the event that the Russian Executive Agent does not 
     exercise its right to enter into an agreement to take 
     delivery of the natural uranium component of any low-enriched 
     uranium, as contemplated in paragraph (3), within 90 days of 
     the date such low-enriched uranium is delivered to the United 
     States Executive Agent, or upon request of the Russian 
     Executive Agent, then the United States Executive Agent shall 
     engage an independent entity through a competitive selection 
     process to auction an amount of uranium hexafluoride or 
     U3O8 (in the event that the conversion component of 
     such hexafluoride has previously been sold) equivalent to the 
     natural uranium component of such low-enriched uranium. An 
     agreement executed pursuant to a request of the Russian 
     Executive Agent, as contemplated in this paragraph, may 
     pertain to any deliveries due during any period remaining 
     under the Russian HEU Agreement. Such independent entity 
     shall sell such uranium hexafluoride in one or more lots to 
     any person or entity to maximize the proceeds from such 
     sales, for disposition consistent with the limitations set 
     forth in this subsection. The independent entity shall pay to 
     the Russian Executive Agent the proceeds of any such auction 
     less all reasonable transaction and other administrative 
     costs. The quantity of such uranium hexafluoride auctioned 
     shall be based on a tails assay of 0.30 U235. Title to 
     uranium hexafluoride auctioned pursuant to this paragraph 
     shall transfer to the buyer of such material upon delivery of 
     such material to the buyer. Uranium hexafluoride auctioned 
     pursuant to this paragraph shall be deemed under United 
     States law for all purposes to be of Russian origin.
       (5) Except as provided in paragraphs (6) and (7), uranium 
     hexafluoride delivered to the Russian Executive Agent under 
     paragraph (3) or auctioned pursuant to paragraph (4), may not 
     be delivered for consumption by end users in the United 
     States either directly or indirectly prior to January 1, 
     1998, and thereafter only in accordance with the following 
     schedule:

             Annual maximum deliveries to end users

  Year:                       (millions lbs. U3O8 equivalent)
  1998...........................................................2 ....

  1999...........................................................4 ....

  2000...........................................................6 ....

  2001...........................................................8 ....

  2002..........................................................10 ....

  2003..........................................................12 ....

  2004..........................................................14 ....

  2005..........................................................16 ....

  2006..........................................................17 ....

  2007..........................................................18 ....

  2008..........................................................19 ....

  2009 and each year thereafter.................................20.....

       (6) Uranium hexafluoride delivered to the Russian Executive 
     Agent under paragraph (3) or auctioned pursuant to paragraph 
     (4) may be sold at any time as Russian-origin natural uranium 
     in a matched sale pursuant to the Suspension Agreement, and 
     in such case shall not be counted against the annual maximum 
     deliveries set forth in paragraph (5).
       (7) Uranium hexafluoride delivered to the Russian Executive 
     Agent under paragraph (3) or auctioned pursuant to paragraph 
     (4) may be sold at any time for use in the United States for 
     the purpose of overfeeding in the operations of enrichment 
     facilities.
       (8) Nothing in this subsection (b) shall restrict the sale 
     of the conversion component of such uranium hexafluoride.
       (9) The Secretary of Commerce shall have responsibility for 
     the administration and enforcement of the limitations set 
     forth in this subsection. The Secretary of Commerce may 
     require 

[[Page H 12531]]
     any person to provide any certifications, information, or take any 
     action that may be necessary to enforce these limitations. 
     The United States Customs Service shall maintain and provide 
     any information required by the Secretary of Commerce and 
     shall take any action requested by the Secretary of Commerce 
     which is necessary for the administration and enforcement of 
     the uranium delivery limitations set forth in this section.
       (10) The President shall monitor the actions of the United 
     States Executive Agent under the Russian HEU Agreement and 
     shall report to the Congress not later than December 31 of 
     each year on the effect the low-enriched uranium delivered 
     under the Russian HEU Agreement is having on the domestic 
     uranium mining, conversion, and enrichment industries, and 
     the operation of the gaseous diffusion plants. Such report 
     shall include a description of actions taken or proposed to 
     be taken by the President to prevent or mitigate any material 
     adverse impact on such industries or any loss of employment 
     at the gaseous diffusion plants as a result of the Russian 
     HEU Agreement.
       (c) Transfers to the Corporation.--(1) The Secretary shall 
     transfer to the Corporation without charge up to 50 metric 
     tons of enriched uranium and up to 7,000 metric tons of 
     natural uranium from the Department of Energy's stockpile, 
     subject to the restrictions in subsection (c)(2).
       (2) The Corporation shall not deliver for commercial end 
     use in the United States--
       (A) any of the uranium transferred under this subsection 
     before January 1, 1998;
       (B) more than 10 percent of the uranium (by uranium 
     hexafluoride equivalent content) transferred under this 
     subsection or more than 4,000,000 pounds, whichever is less, 
     in any calendar year after 1997; or
       (C) more than 800,000 separative work units contained in 
     low-enriched uranium transferred under this subsection in any 
     calendar year.
       (d) Inventory Sales.--(1) In addition to the transfers 
     authorized under subsections (c) and (e), the Secretary may, 
     from time to time, sell natural and low-enriched uranium 
     (including low-enriched uranium derived from highly enriched 
     uranium) from the Department of Energy's stockpile.
       (2) Except as provided in subsections (b), (c), and (e), no 
     sale or transfer of natural or low-enriched uranium shall be 
     made unless--
       (A) the President determines that the material is not 
     necessary to national security needs,
       (B) the Secretary determines that the sale of the material 
     will not have an adverse material impact on the domestic 
     uranium mining, conversion, or enrichment industry, taking 
     into account the sales of uranium under the Russian HEU 
     Agreement and the Suspension Agreement, and
       (C) the price paid to the Secretary will not be less than 
     the fair market value of the material.
       (e) Government Transfers.--Notwithstanding subsection 
     (d)(2), the Secretary may transfer or sell enriched uranium--
       (1) to a Federal agency if the material is transferred for 
     the use of the receiving agency without any resale or 
     transfer to another entity and the material does not meet 
     commercial specifications;
       (2) to any person for national security purposes, as 
     determined by the Secretary; or
       (3) to any State or local agency or nonprofit, charitable, 
     or educational institution for use other than the generation 
     of electricity for commercial use.
       (f) Savings Provision.--Nothing in this chapter shall be 
     read to modify the terms of the Russian HEU Agreement.

     SEC. 5213. LOW-LEVEL WASTE.

       (a) Responsibility of DOE.--(1) The Secretary, at the 
     request of the generator, shall accept for disposal low-level 
     radioactive waste, including depleted uranium if it were 
     ultimately determined to be low-level radioactive waste, 
     generated by the Corporation as a result of the operations of 
     the gaseous diffusion plants or as a result of the treatment 
     of such wastes at a location other than a gaseous diffusion 
     plant. The terms and conditions for such service shall be no 
     more favorable than those the Secretary offers any other 
     generator of such wastes generated by uranium enrichment 
     plants licensed by the Nuclear Regulatory Commission.
       (2) The Secretary shall recover the cost of providing the 
     service in paragraph (1), including a pro rata share of any 
     capital costs, by charging the Corporation a fee for such 
     service in an amount equal to the price charged uranium 
     enrichment plants licensed by the Nuclear Regulatory 
     Commission, but in no event shall the Secretary charge any 
     generator more than an amount equal to that which would be 
     charged by commercial, state, regional, or interstate compact 
     entities for disposal of such waste.
       (b) Agreements With Other Persons.--The Corporation or any 
     other generator may also enter into agreements for the 
     disposal of low-level radioactive waste subject to subsection 
     (a) with any person other than the Secretary that is 
     authorized by applicable laws and regulations to dispose of 
     such wastes, but shall have no authority under this or any 
     other law to require a State or interstate compact to treat, 
     store, or dispose of such waste in a State or interstate 
     compact facility without the State or compact's consent.

     SEC. 5214. AVLIS.

       (a) Exclusive Right To Commercialize.--The Corporation 
     shall have the exclusive commercial right to deploy and use 
     any AVLIS patents, processes, and technical information owned 
     or controlled by the Government, upon completion of a royalty 
     agreement with the Secretary.
       (b) Transfer of Related Property to Corporation.--
       (1) In general.--To the extent requested by the Corporation 
     and subject to the requirements of the Atomic Energy Act of 
     1954 (42 U.S.C. 2011 et seq.), the President shall transfer 
     without charge to the Corporation all of the right, title, or 
     interest in and to property owned by the United States under 
     control or custody of the Secretary that is directly related 
     to and materially useful in the performance of the 
     Corporation's purposes regarding AVLIS and alternative 
     technologies for uranium enrichment, including--
       (A) facilities, equipment, and materials for research, 
     development, and demonstration activities; and
       (B) all other facilities, equipment, materials, processes, 
     patents, technical information of any kind, contracts, 
     agreements, and leases.
       (2) Exception.--Facilities, real estate, improvements, and 
     equipment related to the gaseous diffusion, and gas 
     centrifuge, uranium enrichment programs of the Secretary 
     shall not transfer under paragraph (1)(B).
       (3) Expiration of transfer authority.--The President's 
     authority to transfer property under this subsection shall 
     expire upon the privatization date.
       (c) Liability for Patent and Related Claims.--With respect 
     to any right, title, or interest provided to the Corporation 
     under subsection (a) or (b), the Corporation shall have sole 
     liability for any payments made or awards under section 157 
     b. (3) of the Atomic Energy Act of 1954 (42 U.S.C. 
     2187(b)(3)), or any settlements or judgments involving claims 
     for alleged patent infringement. Any royalty agreement under 
     subsection (a) of this section shall provide for a reduction 
     of royalty payments to the Secretary to offset any payments, 
     awards, settlements, or judgments under this subsection.

     SEC. 5215. APPLICATION OF CERTAIN LAWS.

       (a) OSHA.--(1) As of the privatization date, the private 
     corporation shall be subject to and comply with the 
     Occupational Safety and Health Act of 1970 (29 U.S.C. 651 et 
     seq.).
       (2) The Nuclear Regulatory Commission and the Occupational 
     Safety and Health Administration shall, within 90 days after 
     the date of enactment of this Act, enter into a memorandum of 
     agreement to govern the exercise of their authority over 
     occupational safety and health hazards at the gaseous 
     diffusion plants, including inspection, investigation, 
     enforcement, and rulemaking relating to such hazards.
       (b) Antitrust Laws.--For purposes of the antitrust laws, 
     the performance by the private corporation of a ``matched 
     import'' contract under the Suspension Agreement shall be 
     considered to have occurred prior to the privatization date, 
     if at the time of privatization, such contract had been 
     agreed to by the parties in all material terms and confirmed 
     by the Secretary of Commerce under the Suspension Agreement.
       (c) Energy Reorganization Act Requirements.--(1) The 
     private corporation and its contractors and subcontractors 
     shall be subject to the provisions of section 211 of the 
     Energy Reorganization Act of 1974 (42 U.S.C. 5851) to the 
     same extent as an employer subject to such section.
       (2) With respect to the operation of the facilities leased 
     by the private corporation, section 206 of the Energy 
     Reorganization Act of 1974 (42 U.S.C. 5846) shall apply to 
     the directors and officers of the private corporation.

     SEC. 5216. AMENDMENTS TO THE ATOMIC ENERGY ACT.

       (a) Repeal.--(1) Chapters 22 through 26 of the Atomic 
     Energy Act of 1954 (42 U.S.C. 2297-2297e-7) are repealed as 
     of the privatization date.
       (2) The table of contents of such Act is amended as of the 
     privatization date by striking the items referring to 
     sections repealed by paragraph (1).
       (b) NRC Licensing.--(1) Section 11v. of the Atomic Energy 
     Act of 1954 (42 U.S.C. 2014v.) is amended by striking ``or 
     the construction and operation of a uranium enrichment 
     facility using Atomic Vapor Laser Isotope Separation 
     technology''.
       (2) Section 193 of the Atomic Energy Act of 1954 (42 U.S.C. 
     2243) is amended by adding at the end the following:
       ``(f) Limitation.--No license or certificate of compliance 
     may be issued to the United States Enrichment Corporation or 
     its successor under this section or sections 53, 63, or 1701, 
     if the Commission determines that--
       ``(1) the Corporation is owned, controlled, or dominated by 
     an alien, a foreign corporation, or a foreign government; or
       ``(2) the issuance of such a license or certificate of 
     compliance would be inimical to--
       ``(A) the common defense and security of the United States; 
     or
       ``(B) the maintenance of a reliable and economical domestic 
     source of enrichment services.''.
       (3) Section 1701(c)(2) of the Atomic Energy Act of 1954 (42 
     U.S.C. 2297f(c)(2)) is amended to read as follows:
       ``(2) Periodic application for certificate of compliance.--
     The Corporation shall apply to the Nuclear Regulatory 
     Commission for a certificate of compliance under paragraph 
     (1) periodically, as determined by the Commission, but not 
     less than every 5 years. The Commission shall review any such 
     application and any determination made under subsection 
     (b)(2) shall be based on the results of any such review.''.
       (4) Section 1702(a) of the Atomic Energy Act of 1954 (42 
     U.S.C. 2297f-1(a)) is amended--
       (1) by striking ``other than'' and inserting ``including'', 
     and
       (2) by striking ``sections 53 and 63'' and inserting 
     ``sections 53, 63, and 193''.
       (c) Judicial Review of NRC Actions.--Section 189b. of the 
     Atomic Energy Act of 1954 (42 U.S.C. 2239(b)) is amended to 
     read as follows:
       ``b. The following Commission actions shall be subject to 
     judicial review in the manner prescribed in chapter 158 of 
     title 28, United States Code and chapter 7 of title 5, United 
     States Code:

[[Page H 12532]]

       ``(1) Any final order entered in any proceeding of the kind 
     specified in subsection (a).
       ``(2) Any final order allowing or prohibiting a facility to 
     begin operating under a combined construction and operating 
     license.
       ``(3) Any final order establishing by regulation standards 
     to govern the Department of Energy's gaseous diffusion 
     uranium enrichment plants, including any such facilities 
     leased to a corporation established under the USEC 
     Privatization Act.
       ``(4) Any final determination under section 1701(c) 
     relating to whether the gaseous diffusion plants, including 
     any such facilities leased to a corporation established under 
     the USEC Privatization Act, are in compliance with the 
     Commission's standards governing the gaseous diffusion plants 
     and all applicable laws.''.
       (d) Civil Penalties.--Section 234 a. of the Atomic Energy 
     Act of 1954 (42 U.S.C. 2282(a)) is amended by--
       (1) striking ``any licensing provision of section 53, 57, 
     62, 63, 81, 82, 101, 103, 104, 107, or 109'' and inserting: 
     ``any licensing or certification provision of section 53, 57, 
     62, 63, 81, 82, 101, 103, 104, 107, 109, or 1701''; and
       (2) by striking ``any license issued thereunder'' and 
     inserting: ``any license or certification issued 
     thereunder''.
       (e) References to the Corporation.--Following the 
     privatization date, all references in the Atomic Energy Act 
     of 1954 to the United States Enrichment Corporation shall be 
     deemed to be references to the private corporation.

     SEC. 5217. AMENDMENTS TO OTHER LAWS.

       (a) Definition of Government Corporation.--As of the 
     privatization date, section 9101(3) of title 31, United 
     States Code, is amended by striking subparagraph (N) as added 
     by section 902(b) of Public Law 102-486.
       (b) Definition of the Corporation.--Section 1018(1) of the 
     Energy Policy Act of 1992 (42 U.S.C. 2296b-7(1) is amended by 
     inserting ``or its successor'' before the period.

                    CHAPTER 2--DEPARTMENT OF ENERGY

     SEC. 5221. SALE OF DOE ASSETS

       (a) Asset Management and Disposition Program.--
       (1) In general.--In order to maximize the use of Department 
     of Energy assets and to reduce overhead and other costs 
     related to asset management at the Department's facilities 
     and laboratories, the Secretary of Energy shall conduct an 
     asset management and disposition program that will result in 
     not less than $225,000,000 in receipts and savings by October 
     1, 2000.
       (2) Items to be included.--The program shall include an 
     inventory of assets in the care of the Department and its 
     contractors; the recovery, reuse, and stewardship of assets; 
     and disposition of a minimum of 1,139,000,000 pounds of fuel, 
     136,000 tons of chemicals and industrial gases, 557,000 tons 
     of scrap metal, 14,000 radiation sources, 17,000 pieces of 
     major equipment, 11,000 pounds of precious metals, and 
     91,000,000 pounds of base metals.
       (b) Federal Property and Adminstrative Services Act.--The 
     disposition of assets under this section is not subject to 
     section 202 or 203 of the Federal Property and Administrative 
     Services Act of 1949 (40 U.S.C. 483, 484) or section 13 of 
     the Surplus Property Act of 1944 (50 U.S.C. App. 1622). In 
     order to avoid market disruptions, the Secretary shall 
     consult with appropriate executive agencies with respect to 
     dispositions under this section.
       (c) Disposition of Proceeds.--After deduction of 
     administrative costs of disposition under this section not to 
     exceed $7,000,000 per year, the remainder of the proceeds 
     from dispositions under this subpart shall be returned to the 
     Treasury as miscellaneous receipts. There shall be 
     established a new receipt account in the Treasury for 
     proceeds of asset sales under this section.

     SEC. 5222. SALE OF WEEKS ISLAND OIL.

       Notwithstanding section 161 of the Energy Policy and 
     Conservation Act (42 U.S.C. 6241), the Secretary of Energy 
     shall draw down and sell 32,000,000 barrels of oil contained 
     in the Weeks Island Strategic Petroleum Reserve Facility. The 
     Secretary shall, to the greatest extent practicable, sell oil 
     from the reserve in a manner that minimizes the impact of 
     such sale upon supply levels and market forces.

     SEC. 5223. LEASE OF EXCESS STRATEGIC PETROLEUM RESERVE 
                   CAPACITY.

       (a) Amendment.--Part B of title I of the Energy Policy and 
     Conservation Act (42 U.S.C. 6231 et seq.) is amended by 
     adding at the end the following:


                   ``USE OF UNDERUTILIZED FACILITIES

       ``Sec. 168. (a) Authority.--Notwithstanding any other 
     provision of this title, the Secretary, by lease or 
     otherwise, for any term and under such other conditions as 
     the Secretary considers necessary or appropriate, may store 
     in underutilized Strategic Petroleum Reserve facilities 
     petroleum product owned by a foreign government or its 
     representative. Petroleum products stored under this section 
     are not part of the Strategic Petroleum Reserve and may be 
     exported without license from the United States.
       ``(b) Protection of Facilities.--All agreements entered 
     into pursuant to subsection (a) shall contain provisions 
     providing for fees to fully compensate the United States for 
     all costs of storage and removals of petroleum products, 
     including the cost of replacement facilities necessitated as 
     a result of any withdrawals.
       ``(c) Access to Stored Oil.--The Secretary shall ensure 
     that agreements to store petroleum products for foreign 
     governments or their representatives do not affect the 
     ability of the United States to withdraw, distribute, or sell 
     petroleum from the Strategic Petroleum reserve in response to 
     an energy emergency or to the obligations of the United 
     States under the Agreement on an International Energy 
     Program.
       ``(d) Availability of Funds.--Beginning in fiscal year 2001 
     and in each fiscal year thereafter except for fiscal years 
     2003 and 2004, 50 percent of the funds resulting from the 
     leasing of Strategic Petroleum Reserve facilities authorized 
     by subsection (a) shall be available to the Secretary of 
     Energy without further appropriation for the purchase of oil 
     for the Strategic Petroleum Reserve.''.
       (b) Table of Contents Amendment.--The table of contents of 
     part B of title I of the Energy Policy and Conservation Act 
     is amended by adding at the end the following:

``Sec. 168. Use of underutilized facilities.''.

                     Subtitle C--Natural Resources

           CHAPTER 1--DEPARTMENT OF THE INTERIOR CONVEYANCES

              Subchapter A--California Directed Land Sale

     SEC. 5301. CONVEYANCE OF PROPERTY.

       All right, title and interest of the United States in the 
     property depicted on a map designated USGS 7.5 minute 
     quadrangle, west of Flattop Mtn, CA 1984, entitled ``Location 
     Map for Ward Valley Site'', located in San Bernardino 
     Meridian, Township 9 North, Range 19 East, and improvements 
     thereon, together with all necessary easements for utilities 
     and ingress and egress to such property, including, but not 
     limited to, the right to improve those easements, are 
     conveyed to the Department of Health Services of the State of 
     California upon the tendering of $500,100 on behalf of the 
     State of California and the release of the United States by 
     the State of California from any liability for claims 
     relating to the property described in this section and, as 
     part of the consideration paid for such property, such 
     conveyance is declared to meet and fully comply with any 
     otherwise applicable provisions of section 7 of Endangered 
     Species Act of 1973 (16 U.S.C. 1536) and the National 
     Environmental Policy Act of 1969 (42 U.S.C. 4332). The 
     Secretary of the Interior shall issue evidence of title 
     pursuant to this Act notwithstanding any other provision of 
     law.

                     Subchapter B--Helium Reserves

     SEC. 5311. SHORT TITLE.

       This subchapter may be cited as the ``Helium Act of 1995''.

     SEC. 5312. AMENDMENT OF HELIUM ACT.

       Except as otherwise expressly provided, whenever in this 
     chapter an amendment or repeal is expressed in terms of an 
     amendment to, or repeal of, a section or other provision, the 
     reference shall be considered to be made to a section or 
     other provision of the Helium Act (50 U.S.C. 167 to 167n).

     SEC. 5313. AUTHORITY OF SECRETARY.

       Sections 3, 4, and 5 are amended to read as follows:

     ``SEC. 3. AUTHORITY OF SECRETARY.

       ``(a) Extraction and Disposal of Helium on Federal Lands.--
       ``(1) In general.--The Secretary may enter into agreements 
     with private parties for the recovery and disposal of helium 
     on Federal lands upon such terms and conditions as the 
     Secretary deems fair, reasonable, and necessary.
       ``(2) Leasehold rights.--The Secretary may grant leasehold 
     rights to any such helium.
       ``(3) Limitation.--The Secretary may not enter into any 
     agreement by which the Secretary sells such helium other than 
     to a private party with whom the Secretary has an agreement 
     for recovery and disposal of helium.
       ``(4) Regulations.--Agreements under paragraph (1) may be 
     subject to such regulations as may be prescribed by the 
     Secretary.
       ``(5) Existing rights.--An agreement under paragraph (1) 
     shall be subject to any rights of any affected Federal oil 
     and gas lessee that may be in existence prior to the date of 
     the agreement.
       ``(6) Terms and conditions.--An agreement under paragraph 
     (1) (and any extension or renewal of an agreement) shall 
     contain such terms and conditions as the Secretary may 
     consider appropriate.
       ``(7) Prior agreements.--This subsection shall not in any 
     manner affect or diminish the rights and obligations of the 
     Secretary and private parties under agreements to dispose of 
     helium produced from Federal lands in existence on the date 
     of enactment of the Helium Act of 1995 except to the extent 
     that such agreements are renewed or extended after that date.
       ``(b) Storage, Transportation and Sale.--The Secretary may 
     store, transport, and sell helium only in accordance with 
     this Act.

     ``SEC. 4. STORAGE, TRANSPORTATION, AND WITHDRAWAL OF CRUDE 
                   HELIUM.

       ``(a) Storage, Transportation and Withdrawal.--The 
     Secretary may store, transport and withdraw crude helium and 
     maintain and operate crude helium storage facilities, in 
     existence on the date of enactment of the Helium Act of 1995 
     at the Bureau of Mines Cliffside Field, and related helium 
     transportation and withdrawal facilities.
       ``(b) Cessation of Production, Refining, and Marketing.--
     Not later than 18 months after the date of enactment of the 
     Helium Act of 1995, the Secretary shall cease producing, 
     refining, and marketing refined helium and shall cease 
     carrying out all other activities relating to helium which 
     the Secretary was authorized to carry out under this Act 
     before the date of enactment of the Helium Act of 1995, 
     except activities described in subsection (a).
       ``(c) Disposal of Facilities.--
       ``(1) In general.--Subject to paragraph (5), not later than 
     24 months after the cessation of activities referred to in 
     section (b) of this section, the Secretary shall designate as 
     excess property and dispose of all facilities, equipment, and 
     other real and personal property, and all interests therein, 
     held by the United States for the purpose of producing, 
     refining and marketing refined helium.
       ``(2) Applicable law.--The disposal of such property shall 
     be in accordance with the Federal Property and Administrative 
     Services Act of 1949.

[[Page H 12533]]

       ``(3) Proceeds.--All proceeds accruing to the United States 
     by reason of the sale or other disposal of such property 
     shall be treated as moneys received under this chapter for 
     purposes of section 6(f).
       ``(4) Costs.--All costs associated with such sale and 
     disposal (including costs associated with termination of 
     personnel) and with the cessation of activities under 
     subsection (b) shall be paid from amounts available in the 
     helium production fund established under section 6(f).
       ``(5) Exception.--Paragraph (1) shall not apply to any 
     facilities, equipment, or other real or personal property, or 
     any interest therein, necessary for the storage, 
     transportation and withdrawal of crude helium or any 
     equipment, facilities, or other real or personal property, 
     required to maintain the purity, quality control, and quality 
     assurance of crude helium in the Bureau of Mines Cliffside 
     Field.
       ``(d) Existing Contracts.--
       ``(1) In general.--All contracts that were entered into by 
     any person with the Secretary for the purchase by the person 
     from the Secretary of refined helium and that are in effect 
     on the date of the enactment of the Helium Act of 1995 shall 
     remain in force and effect until the date on which the 
     refining operations cease, as described in subsection (b).
       ``(2) Costs.--Any costs associated with the termination of 
     contracts described in paragraph (1) shall be paid from the 
     helium production fund established under section 6(f).

     ``SEC. 5. FEES FOR STORAGE, TRANSPORTATION AND WITHDRAWAL.

       ``(a) In General.--Whenever the Secretary provides helium 
     storage withdrawal or transportation services to any person, 
     the Secretary shall impose a fee on the person to reimburse 
     the Secretary for the full costs of providing such storage, 
     transportation, and withdrawal.
       ``(b) Treatment.--All fees received by the Secretary under 
     subsection (a) shall be treated as moneys received under this 
     Act for purposes of section 6(f).''.

     SEC. 5314. SALE OF CRUDE HELIUM.

       (a) Subsection 6(a) is amended by striking ``from the 
     Secretary'' and inserting ``from persons who have entered 
     into enforceable contracts to purchase an equivalent amount 
     of crude helium from the Secretary''.
       (b) Subsection 6(b) is amended--
       (1) by inserting ``crude'' before ``helium''; and
       (2) by adding the following at the end: ``Except as may be 
     required by reason of subsection (a), sales of crude helium 
     under this section shall be in amounts as the Secretary 
     determines, in consultation with the helium industry, 
     necessary to carry out this subsection with minimum market 
     disruption.''.
       (c) Subsection 6(c) is amended--
       (1) by inserting ``crude'' after ``Sales of''; and
       (2) by striking ``together with interest as provided in 
     this subsection'' and all that follows through the end of the 
     subsection and inserting ``all funds required to be repaid to 
     the United States as of October 1, 1995 under this section 
     (referred to in this subsection as `repayable amounts'). The 
     price at which crude helium is sold by the Secretary shall 
     not be less than the amount determined by the Secretary by--
       ``(1) dividing the outstanding amount of such repayable 
     amounts by the volume (in million cubic feet) of crude helium 
     owned by the United States and stored in the Bureau of Mines 
     Cliffside Field at the time of the sale concerned, and
       ``(2) adjusting the amount determined under paragraph (1) 
     by the Consumer Price Index for years beginning after 
     December 31, 1995.''.
       (d) Subsection 6(d) is amended to read as follows:
       ``(d) Extraction of Helium From Deposits on Federal 
     Lands.--All moneys received by the Secretary from the sale or 
     disposition of helium on Federal lands shall be paid to the 
     Treasury and credited against the amounts required to be 
     repaid to the Treasury under subsection (c).''.
       (e) Subsection 6(e) is repealed.
       (f) Subsection 6(f) is amended--
       (1) by striking ``(f)'' and inserting ``(e)(1)''; and
       (2) by adding the following at the end:
       ``(2)(A) Within 7 days after the commencement of each 
     fiscal year after the disposal of the facilities referred to 
     in section 4(c), all amounts in such fund in excess of 
     $2,000,000 (or such lesser sum as the Secretary deems 
     necessary to carry out this Act during such fiscal year) 
     shall be paid to the Treasury and credited as provided in 
     paragraph (1).
       ``(B) On repayment of all amounts referred to in subsection 
     (c), the fund established under this section shall be 
     terminated and all moneys received under this Act shall be 
     deposited in the general fund of the Treasury.''.

     SEC. 5315. ELIMINATION OF STOCKPILE.

       Section 8 is amended to read as follows:

     ``SEC. 8. ELIMINATION OF STOCKPILE.

       ``(a) Stockpile Sales.--
       ``(1) Commencement.--Not later than January 1, 2005, the 
     Secretary shall commence offering for sale crude helium from 
     helium reserves owned by the United States in such amounts as 
     would be necessary to dispose of all such helium reserves in 
     excess of 600,000,000 cubic feet on a straight-line basis 
     between such date and January 1, 2015.
       ``(2) Times of sale.--The sales shall be at such times 
     during each year and in such lots as the Secretary 
     determines, in consultation with the helium industry, to be 
     necessary to carry out this subsection with minimum market 
     disruption.
       ``(3) Price.--The price for all sales under paragraph (1), 
     as determined by the Secretary in consultation with the 
     helium industry, shall be such price as will ensure repayment 
     of the amounts required to be repaid to the Treasury under 
     section 6(c).
       ``(b) Discovery of Additional Reserves.--The discovery of 
     additional helium reserves shall not affect the duty of the 
     Secretary to make sales of helium under subsection (a).''.

     SEC. 5316. REPEAL OF AUTHORITY TO BORROW.

       Sections 12 and 15 are repealed.

     SEC. 5317. LAND CONVEYANCE IN POTTER COUNTY, TEXAS.

       (a) In General.--The Secretary of the Interior shall 
     transfer all right, title, and interest of the United States 
     in and to the parcel of land described in subsection (b) to 
     the Texas Plains Girl Scout Council for consideration of $1, 
     reserving to the United States such easements as may be 
     necessary for pipeline rights-of-way.
       (b) Land Description.--The parcel of land referred to in 
     subsection (a) is all those certain lots, tracts or parcels 
     of land lying and being situated in the County of Potter and 
     State of Texas, and being the East Three Hundred Thirty-One 
     (E331) acres out of Section Seventy-eight (78) in Block Nine 
     (9), B.S. & F. Survey, (some times known as the G.D. Landis 
     pasture) Potter County, Texas, located by certificate No. 1/
     39 and evidenced by letters patents Nos. 411 and 412 issued 
     by the State of Texas under date of November 23, 1937, and of 
     record in Vol. 66A of the Patent Records of the State of 
     Texas. The metes and bounds description of such lands is as 
     follows:
       (1) First tract.--One Hundred Seventy-one (171) acres of 
     land known as the North part of the East part of said survey 
     Seventy-eight (78) aforesaid, described by metes and bounds 
     as follows:
       Beginning at a stone 20 x 12 x 3 inches marked X, set by 
     W.D. Twichell in 1905, for the Northeast corner of this 
     survey and the Northwest corner of Section 59;
       Thence, South 0 degrees 12 minutes East with the West line 
     of said Section 59, 999.4 varas to the Northeast corner of 
     the South 160 acres of East half of Section 78;
       Thence, North 89 degrees 47 minutes West with the North 
     line of the South 150 acres of the East half, 956.8 varas to 
     a point in the East line of the West half Section 78;
       Thence, North 0 degrees 10 minutes West with the East line 
     of the West half 999.4 varas to a stone 18 x 14 x 3 inches in 
     the middle of the South line of Section 79;
       Thence, South 89 degrees 47 minutes East 965 varas to the 
     place of beginning.
       (2) Second tract.--One Hundred Sixty (160) acres of land 
     known as the South part of the East part of said survey No. 
     Seventy-eight (78) described by metes and bounds as follows:
       Beginning at the Southwest corner of Section 59, a stone 
     marked X and a pile of stones; Thence, North 89 degrees 47 
     minutes West with the North line of Section 77, 966.5 varas 
     to the Southeast corner of the West half of Section 78; 
     Thence, North 0 degrees 10 minutes West with the East line of 
     the West half of Section 78;
       Thence, South 89 degrees 47 minutes East 965.8 varas to a 
     point in the East line of Section 78;
       Thence, South 0 degrees 12 minutes East 934.6 varas to the 
     place of beginning.
       Containing an area of 331 acres, more or less.

        CHAPTER 2--ARCTIC COASTAL PLAIN LEASING AND REVENUE ACT

     SEC. 5312. SHORT TITLE.

       This chapter may be cited as the 'Arctic Coastal Plain 
     Leasing and Revenue Act of 1995''.

     SEC. 5322. DEFINITIONS.

       When used in this chapter the term--
       (1) ``Coastal Plain'' means that area identified as such in 
     the map entitled ``Arctic National Wildlife Refuge'', dated 
     August 1980, as referenced in section 1002(b) of the Alaska 
     National Interest Lands Conservation Act of 1980 (16 U.S.C. 
     3142(b)(1)) comprising approximately 1, 549,000 acres; and
       (2) ``Secretary'' except as otherwise provided, means the 
     Secretary of the Interior or the Secretary's designee.

     SEC. 5333. LEASING PROGRAM FOR LANDS WITHIN THE COASTAL 
                   PLAIN.

       (a) Authorization.--The Congress hereby authorizes and 
     directs the Secretary, acting through the Bureau of Land 
     Management in consultation with the Fish and Wildlife Service 
     and other appropriate Federal officers and agencies, to take 
     such actions as are necessary to establish and implement a 
     competitive oil and gas leasing program that will result in 
     an environmentally sound program for the exploration, 
     development, and production of the oil and gas resources of 
     the Coastal Plain and to administer the provisions of this 
     chapter through regulations, lease terms, conditions, 
     restrictions, prohibitions, stipulations and other provisions 
     that ensure the oil and gas exploration, development, and 
     production activities on the Coastal Plain will result in no 
     significant adverse effect on fish and wildlife, their 
     habitat, subsistence resources, and the environment, and 
     shall require the application of the best commercially 
     available technology for oil and gas exploration, 
     development, and production, on all new exploration, 
     development, and production operations, and whenever 
     practicable, on existing operations, and in a manner to 
     ensure the receipt of fair market value by the public for the 
     mineral resources to be leased.
       (b) Repeal.--The prohibitions and limitations contained in 
     section 1003 of the Alaska National Interest Lands 
     Conservation Act of 1980 (16 U.S.C. 3143) are hereby 
     repealed.
       (c) Compatibility.--Congress hereby determines that the oil 
     and gas leasing program and activities authorized by this 
     section in the Coastal Plain are compatible with the purposes 
     for which the Arctic National Wildlife Refuge was 
     established, and that no further findings or decisions are 
     required to implement this determination.
       (d) Sole Authority.--This chapter shall be the sole 
     authority for leasing on the Coastal Plain. Provided, That 
     nothing in this chapter 

[[Page H 12534]]
     shall be deemed to expand or limit state and local regulatory 
     authority.
       (e) Federal Land.--The Coastal Plain shall be considered 
     ``Federal land'' for the purposes of the Federal Oil and Gas 
     Royalty Management Act of 1982 .
       (f) Special Areas.--The Secretary, after consultation with 
     the State of Alaska, City of Kaktovik, and the North Slope 
     Borough, is authorized to designate up to a total of 45,000 
     acres of the Coastal Plain as Special Areas and close such 
     areas to leasing if the Secretary determines that these 
     Special Areas are of such unique character and interest so as 
     to require special management and regulatory protection. The 
     Secretary may, however, permit leasing of all or portions of 
     any Special Areas within the Coastal Plain by setting lease 
     terms that limit or condition surface use and occupancy by 
     lessees of such lands but permit the use of horizontal 
     drilling technology from sites on leases located outside the 
     designated Special Areas.
       (g) Limitation on Closed Areas.--The Secretary's sole 
     authority to close lands within the Coastal Plain to oil and 
     gas leasing and to exploration, development, and production 
     is that set forth in this subtitle.
       (h) Conveyance.--In order to maximize federal revenues by 
     removing clouds on title of lands and clarifying land 
     ownership patterns within the Coastal Plain, the Secretary, 
     notwithstanding the provisions of section 1302(h)(2) of the 
     Alaska National Interest Lands Conservation Act (16 U.S.C. 
     3192(h)(2)), is authorized and directed to convey (1) to the 
     Kaktovik Inupiat Corporation the surface estate of the lands 
     described in paragraph 2 of Public Land Order 6959, to the 
     extent necessary to fulfill the corporation's entitlement 
     under section 12 of the Alaska Native Claims Settlement Act 
     (43 U.S.C. 1611), and (2) to the Arctic Slope Regional 
     Corporation the subsurface estate beneath such surface estate 
     pursuant to the August 9, 1983, agreement between the Arctic 
     Slope Regional Corporation and the United States of America.

     SEC. 5334. RULES AND REGULATIONS.

       (a) Promulgation.--The Secretary shall prescribe such rules 
     and regulations as may be necessary to carry out the purposes 
     and provisions of this chapter, including rules and 
     regulations relating to protection of the fish and wildlife, 
     their habitat, subsistence resources, and the environment of 
     the Coastal Plain. Such rules and regulations shall be 
     promulgated no later than fourteen months after the date of 
     enactment of this chapter and shall, as of their effective 
     date, apply to all operations conducted under a lease issued 
     or maintained under the provisions of this chapter and all 
     operations on the Coastal Plain related to the leasing, 
     exploration, development and production of oil and gas.
       (b) Revision of Regulations.--The Secretary shall 
     periodically review and, if appropriate, revise the rules and 
     regulations issued under subsection (a) of this section to 
     reflect any significant biological, environmental, or 
     engineering data which come to the Secretary's attention.

     SEC. 5335. ADEQUACY OF THE DEPARTMENT OF THE INTERIOR'S 
                   LEGISLATIVE ENVIRONMENTAL IMPACT STATEMENT.

       The ``Final Legislative Environmental Impact Statement'' 
     (April 1987) on the Coastal Plain prepared pursuant to 
     section 1002 of the Alaska National Interest Lands 
     Conservation Act of 1980 (16 U.S.C. 3142) and section 
     102(2)(C) of the National Environmental Policy Act of 1969 
     (42 U.S.C. 4332(2)(C)) is hereby found by the Congress to be 
     adequate to satisfy the legal and procedural requirements of 
     the National Environmental Policy Act of 1969 with respect to 
     actions authorized to be taken by the Secretary to develop 
     and promulgate the regulations for the establishment of the 
     leasing program authorized by this chapter, to conduct the 
     first lease sale and any subsequent lease sale authorized by 
     this chapter, and to grant rights-of-way and easements to 
     carry out the purposes of this chapter.

     SEC. 5336. LEASE SALES.

       (a) Lease Sales.--Lands may be leased pursuant to the 
     provisions of this chapter to any person qualified to obtain 
     a lease for deposits of oil and gas under the Mineral Leasing 
     Act, as amended (30 U.S.C. 181).
       (b) Procedures.--The Secretary shall, by regulation, 
     establish procedures for--
       (1) receipt and consideration of sealed nominations for any 
     area in the Coastal Plain for inclusion in, or exclusion (as 
     provided in subsection (c)) from, a lease sale; and
       (2) public notice of and comment on designation of areas to 
     be included in, or excluded from, a lease sale.
       (c) Lease Sales on Coastal Plain.--The Secretary shall, by 
     regulation, provide for lease sales of lands on the Coastal 
     Plain. When lease sales are to be held, they shall occur 
     after the nomination process provided for in subsection (b) 
     of this section. For the first lease sale, the Secretary 
     shall offer for lease those acres receiving the greatest 
     number of nominations, but no less than two hundred thousand 
     acres and no more than three hundred thousand acres shall be 
     offered. If the total acreage nominated is less than two 
     hundred thousand acres, the Secretary shall include in such 
     sale any other acreage which he believes has the highest 
     resource potential, but in no event shall more than three 
     hundred thousand acres of the Coastal Plain be offered in 
     such sale. With respect to subsequent lease sales, the 
     Secretary shall offer for lease no less than two hundred 
     thousand acres of the Coastal Plain. The initial lease sale 
     shall be held within twenty months of the date of enactment 
     of this chapter. The second lease sale shall be held no later 
     than twenty-four months after the initial sale, with 
     additional sales conducted no later than twelve months 
     thereafter so long as sufficient interest in development 
     exists to warrant, in the Secretary's judgment, the conduct 
     of such sales.

     SEC. 5337. GRANT OF LEASES BY THE SECRETARY.

       (a) In General.--The Secretary is authorized to grant to 
     the highest responsible qualified bidder by sealed 
     competitive cash bonus bid any lands to be leased on the 
     Coastal Plain upon payment by the lessee of such bonus as may 
     be accepted by the Secretary and of such royalty as may be 
     fixed in the lease, which shall be not less than 12\1/2\ per 
     centum in amount or value of the production removed or sold 
     from the lease.
       (b) Antitrust Review.--Following each notice of a proposed 
     lease sale and before the acceptance of bids and the issuance 
     of leases based on such bids, the Secretary shall allow the 
     Attorney General, in consultation with the Federal Trade 
     Commission, thirty days to perform an antitrust review of the 
     results of such lease sale on the likely effects the issuance 
     of such leases would have on competition and the Attorney 
     General shall advise the Secretary with respect to such 
     review, including any recommendation for the nonacceptance of 
     any bid or the imposition of terms or conditions on any 
     lease, as may be appropriate to prevent any situation 
     inconsistent with the antitrust laws.
       (c) Subsequent Transfers.--No lease issued under this 
     chapter may be sold, exchanged, assigned, sublet, or 
     otherwise transferred except with the approval of the 
     Secretary. Prior to any such approval the Secretary shall 
     consult with, and give due consideration to the views of, the 
     Attorney General.
       (d) Immunity.--Nothing in this chapter shall be deemed to 
     convey to any person, association, corporation, or other 
     business organization immunity from civil or criminal 
     liability, or to create defenses to actions, under any 
     antitrust law.
       (e) Definitions.--As used in this section, the term--
       (1) ``antitrust review'' shall be deemed an ``antitrust 
     investigation'' for the purposes of the Antitrust Civil 
     Process Act (15 U.S.C. 1311); and
       (2) ``antitrust laws'' means those Acts set forth in 
     section 1 of the Clayton Act (15 U.S.C. 12) as amended.

     SEC. 5338. LEASE TERMS AND CONDITIONS.

       An oil or gas lease issued pursuant to this chapter shall--
       (1) be for a tract consisting of a compact area not to 
     exceed five thousand seven hundred sixty acres, or nine 
     surveyed or protracted sections which shall be as compact in 
     form as possible.
       (2) be for an initial period of ten years and shall be 
     extended for so long thereafter as oil or gas is produced in 
     paying quantities from the lease or unit area to which the 
     lease is committed or for so long as drilling or reworking 
     operations, as approved by the Secretary, are conducted on 
     the lease or unit area;
       (3) require the payment of royalty as provided for in 
     section 5337 of this chapter;
       (4) require that exploration activities pursuant to any 
     lease issued or maintained under this chapter shall be 
     conducted in accordance with an exploration plan or a 
     revision of such plan approved by the Secretary;
       (5) require that all development and production pursuant to 
     a lease issued or maintained pursuant to this chapter shall 
     be conducted in accordance with development and production 
     plans approved by the Secretary;
       (6) require posting of bond as required by section 5339 of 
     this chapter;
       (7) provide that the Secretary may close, on a seasonal 
     basis, portions of the Coastal Plain to exploratory drilling 
     activities as necessary to protect caribou calving areas and 
     other species of fish and wildlife;
       (8) contain such provisions relating to rental and other 
     fees as the Secretary may prescribe at the time of offering 
     the area for lease;
       (9) provide that the Secretary may direct or assent to the 
     suspension of operations and production under any lease 
     granted under the terms of this chapter in the interest of 
     conservation of the resource or where there is no available 
     system to transport the resource. If such a suspension is 
     directed or assented to by the Secretary, any payment of 
     rental prescribed by such lease shall be suspended during 
     such period of suspension of operations and production, and 
     the term of the lease shall be extended by adding any such 
     suspension period thereto;
       (10) provide that whenever the owner of a nonproducing 
     lease fails to comply with any of the provisions of this 
     chapter, or of any applicable provision of Federal or State 
     environmental law, or of the lease, or of any regulation 
     issued under this chapter, such lease may be canceled by the 
     Secretary if such default continues for more than thirty days 
     after mailing of notice by registered letter to the lease 
     owner at the lease owner's record post office address of 
     record;
       (11) provide that whenever the owner of any producing lease 
     fails to comply with any of the provisions of this chapter, 
     or of any applicable provision of Federal or State 
     environmental law, or of the lease, or of any regulation 
     issued under this chapter, such lease may be forfeited and 
     canceled by any appropriate proceeding brought by the 
     Secretary in any United States district court having 
     jurisdiction under the provisions of this chapter;
       (12) provide that cancellation of a lease under this 
     chapter shall in no way release the owner of the lease from 
     the obligation to provide for reclamation of the lease site;
       (13) allow the lessee, at the discretion of the Secretary, 
     to make written relinquishment of all rights under any lease 
     issued pursuant to this chapter. The Secretary shall accept 
     such relinquishment by the lessee of any lease issued under 
     this chapter where there has not been surface disturbance on 
     the lands covered by the lease;
       (14) provide that for the purpose of conserving the natural 
     resources of any oil or gas pool, field, or like area, or any 
     part thereof, and in order to avoid the unnecessary 
     duplication of facilities, to protect the environment of the 
     Coastal Plain, and to protect correlative rights, the 
     Secretary shall require that, to the greatest extent 
     practicable, lessees unite with each other 

[[Page H 12535]]
     in collectively adopting and operating under a cooperative or unit plan 
     of development for operation of such pool, field, or like 
     area, or any part thereof, and the Secretary is also 
     authorized and directed to enter into such agreements as are 
     necessary or appropriate for the protection of the United 
     States against drainage;
       (15) require that the holder of a lease or leases on lands 
     within the Coastal Plain shall be fully responsible and 
     liable for the reclamation of lands within the Coastal Plain 
     and any other Federal lands adversely affected in connection 
     with exploration, development, production or transportation 
     activities on a lease within the Coastal Plain by the holder 
     of a lease or as a result of activities conducted on the 
     lease by any of the leaseholder's subcontractors or agents;
       (16) provide that the holder of a lease may not delegate or 
     convey, by contract or otherwise, the reclamation 
     responsibility and liability to another party without the 
     express written approval of the Secretary;
       (17) provide that the standard of reclamation for lands 
     required to be reclaimed under this chapter be, as nearly as 
     practicable, a condition capable of supporting the uses which 
     the lands were capable of supporting prior to any 
     exploration, development, or production activities, or upon 
     application by the lessee, to a higher or better use as 
     approved by the Secretary;
       (18) contain the terms and conditions relating to 
     protection of fish and wildlife, their habitat, and the 
     environment, as required by section 5333(a) of this chapter;
       (19) provide that the holder of a lease, its agents, and 
     contractors use best efforts to provide a fair share, as 
     determined by the level of obligation previously agreed to in 
     the 1974 agreement implementing Section 29 of the Federal 
     Agreement and Grant of Right of Way for the Operation of the 
     Trans-Alaska Pipeline, of employment and contracting for 
     Alaska Natives and Alaska Native Corporations from throughout 
     the State; and
       (20) contain such other provisions as the Secretary 
     determines necessary to ensure compliance with the provisions 
     of this chapter and the regulations issued under this 
     chapter.

     SEC. 5339. BONDING REQUIREMENTS TO ENSURE FINANCIAL 
                   RESPONSIBILITY OF LESSEE AND AVOID FEDERAL 
                   LIABILITY.

       (a) Requirement.--The Secretary shall, by rule or 
     regulation, establish such standards as may be necessary to 
     ensure that an adequate bond, surety, or other financial 
     arrangement will be established prior to the commencement of 
     surface disturbing activities on any lease, to ensure the 
     complete and timely reclamation of the lease tract, and the 
     restoration of any lands or surface waters adversely affected 
     by lease operations after the abandonment or cessation of oil 
     and gas operations on the lease. Such bond, surety, or 
     financial arrangement is in addition to, and not in lieu, of 
     any bond, surety, or financial arrangement required by any 
     other regulatory authority or required by any other provision 
     of law.
       (b) Amount.--The bond, surety, or financial arrangement 
     shall be in an amount--
       (1) to be determined by the Secretary to provide for 
     reclamation of the lease site in accordance with an approved 
     or revised exploration or development and production plan; 
     plus
       (2) set by the Secretary consistent with the type of 
     operations proposed, to provide the means for rapid and 
     effective cleanup, and to minimize damages resulting from an 
     oil spill, the escape of gas, refuse, domestic wastewater, 
     hazardous or toxic substances, or fire caused by oil and gas 
     activities.
       (c) Adjustment.--In the event that an approved exploration 
     or development and production plan is revised, the Secretary 
     may adjust the amount of the bond, surety, or other financial 
     arrangement to conform to such modified plan.
       (d) Duration.--The responsibility and liability of the 
     lessee and its surety under the bond, surety, or other 
     financial arrangement shall continue until such time as the 
     Secretary determines that there has been compliance with the 
     terms and conditions of the lease and all applicable law.
       (e) Termination.--Within sixty days after determining that 
     there has been compliance with the terms and conditions of 
     the lease and all applicable laws, the Secretary, after 
     consultation with affected Federal and State agencies, shall 
     notify the lessee that the period of liability under the 
     bond, surety, or other financial arrangement has been 
     terminated.

     SEC. 5340. OIL AND GAS INFORMATION.

       (a) In General.--(1) Any lessee or permittee conducting any 
     exploration for, or development or production of, oil or gas 
     pursuant to this chapter shall provide the Secretary access 
     to all data and information from any lease granted pursuant 
     to this chapter (including processed and analyzed) obtained 
     from such activity and shall provide copies of such data and 
     information as the Secretary may request. Such data and 
     information shall be provided in accordance with regulations 
     which the Secretary shall prescribe.
       (2) If processed and analyzed information provided pursuant 
     to paragraph (1) is provided in good faith by the lessee or 
     permittee, such lessee or permittee shall not be responsible 
     for any consequence of the use or of reliance upon such 
     processed and analyzed information.
       (3) Whenever any data or information is provided to the 
     Secretary, pursuant to paragraph (1)--
       (A) by a lessee or permittee, in the form and manner of 
     processing which is utilized by such lessee or permittee in 
     the normal conduct of business, the Secretary shall pay the 
     reasonable cost of reproducing such data and information; or
       (B) by a lessee or permittee, in such other form and manner 
     of processing as the Secretary may request, the Secretary 
     shall pay the reasonable cost of processing and reproducing 
     such data and information.
       (b) Regulations.--The Secretary shall prescribe regulations 
     to: (1) assure that the confidentiality of privileged or 
     proprietary information received by the Secretary under this 
     section will be maintained; and (2) set forth the time 
     periods and conditions which shall be applicable to the 
     release of such information.

     SEC. 5341. EXPEDITED JUDICIAL REVIEW.

       (a) Any complaint seeking judicial review of any provision 
     in this chapter, or any other action of the Secretary under 
     this chapter may be filed in any appropriate district court 
     of the United States, and such complaint must be filed within 
     ninety days from the date of the action being challenged, or 
     after such date if such complaint is based solely on grounds 
     arising after such ninetieth day, in which case the complaint 
     must be filed within ninety days after the complainant knew 
     or reasonably should have known of the grounds for the 
     complaint: Provided, That any complaint seeking judicial 
     review of an action of the Secretary in promulgating any 
     regulation under this chapter may be filed only in the United 
     States Court of Appeals for the District of Columbia.
       (b) Actions of the Secretary with respect to which review 
     could have been obtained under this section shall not be 
     subject to judicial review in any civil or criminal 
     proceeding for enforcement.

     SEC. 5342. RIGHTS-OF-WAY ACROSS THE COASTAL PLAIN.

       Notwithstanding Title XI of the Alaska National Interest 
     Lands Conservation Act of 1980 (16 U.S.C. 3161 et seq.), the 
     Secretary is authorized and directed to grant, in accordance 
     with the provisions of Section 28(c) through (t) and (v) 
     through (y) of the Mineral Leasing Act of 1920 (30 U.S.C. 
     185), rights-of-way and easements across the Coastal Plain 
     for the transportation of oil and gas under such terms and 
     conditions as may be necessary so as not to result in a 
     significant adverse effect on the fish and wildlife, 
     subsistence resources, their habitat, and the environment of 
     the Coastal Plain. Such terms and conditions shall include 
     requirements that facilities be sited or modified so as to 
     avoid unnecessary duplication of roads and pipelines. The 
     regulations issued as required by section 5334 of this 
     chapter shall include provisions granting rights-of-way and 
     easements across the Coastal Plain.

     SEC. 5343. ENFORCEMENT OF SAFETY AND ENVIRONMENTAL 
                   REGULATIONS TO ENSURE COMPLIANCE WITH TERMS AND 
                   CONDITIONS OF LEASE.

       (a) Responsibility of the Secretary.--The Secretary shall 
     diligently enforce all regulations, lease terms, conditions, 
     restrictions, prohibitions, and stipulations promulgated 
     pursuant to this chapter.
       (b) Responsibility of Holders of Lease.--It shall be the 
     responsibility of any holder of a lease under this chapter 
     to--
       (1) maintain all operations within such lease area in 
     compliance with regulations intended to protect persons and 
     property on, and fish and wildlife, their habitat, 
     subsistence resources, and the environment of, the Coastal 
     Plain; and
       (2) allow prompt access at the site of any operations 
     subject to regulation under this chapter to any appropriate 
     Federal or State inspector, and to provide such documents and 
     records which are pertinent to occupational or public health, 
     safety, or environmental protection, as may be requested.
       (c) On-Site Inspection.--The Secretary shall promulgate 
     regulations to provide for--
       (1) scheduled onsite inspection by the Secretary, at least 
     twice a year, of each facility on the Coastal Plain which is 
     subject to any environmental or safety regulation promulgated 
     pursuant to this chapter or conditions contained in any lease 
     issued pursuant to this chapter to assure compliance with 
     such environmental or safety regulations or conditions; and
       (2) periodic onsite inspection by the Secretary at least 
     once a year without advance notice to the operator of such 
     facility to assure compliance with all environmental or 
     safety regulations.

     SEC. 5344. NEW REVENUES.

       (a) Distribution of Revenues.--(1) Notwithstanding any 
     other provision of law, all revenues received by the Federal 
     Government from competitive bids, sales, bonuses, royalties, 
     rents, fees, or interest derived from the leasing of oil and 
     gas within the Coastal Plain shall be deposited into the 
     Treasury of the United States, solely as provided in this 
     subsection.
       (2) Fifty percent of all revenues referred to in paragraph 
     (1) shall be paid by the Secretary of the Treasury 
     semiannually to the State of Alaska, on March 30 and 
     September 30 of each year.
       (3)(A) The Secretary of the Treasury is directed to monitor 
     the revenues deposited into the Treasury from oil and gas 
     leases issued under the authority of this chapter. Except as 
     provided in subparagraph (B), all monies deposited into the 
     Treasury from such oil and gas leases in excess of 
     $2,600,000,000 shall be distributed as follows:
       (i) Fifty percent shall be paid to the State of Alaska in 
     the manner provided in this subsection; and
       (ii) Fifty percent shall be deposited into a special fund 
     established in the Treasury of the United States known as the 
     ``National Park, Refuge, and Fish and Wildlife Renewal and 
     Protection Fund (hereinafter in this section referred to as 
     the ``renewal fund'').
       (B) Deposits into the renewal fund shall not exceed 
     $250,000,000 over the life of the renewal fund. Monies in 
     excess of such amount shall be deposited as miscellaneous 
     receipts in the Treasury of the United States.
       (C) Deposits into the renewal fund shall remain available 
     until expended. The Secretary of the Treasury is directed to 
     develop procedures 

[[Page H 12536]]
     for use of the renewal fund to ensure accountability and demonstrated 
     results.
       (b) Use of Renewal Fund.--Monies from the renewal fund 
     shall be made available to the Secretary of the Interior, 
     without further appropriation, at the beginning of each 
     fiscal year in which funds are available, and shall be 
     expended by the Secretary as follows:
       (1) Twenty-five percent shall be used for infrastructure 
     needs at units of the National Park System, including but not 
     limited to, facility refurbishment, repair and replacement, 
     interpretive media and exhibit repair and replacement, and 
     Infrastructure projects associated with park resource 
     protection;
       (2) Twenty-five percent shall be used for infrastructure 
     needs at units of the National Wildlife Refuge System, 
     including but not limited to, facility refurbishment, repair 
     and replacement, interpretive media and exhibit repair and 
     replacement, and infrastructure projects associated with 
     refuge resource protection;
       (3) Twenty-five percent shall be used for acquisition of 
     important habitat lands for threatened or endangered species 
     from owners of private property. Such lands shall be acquired 
     solely on a willing seller basis and shall be managed by the 
     Secretary for the conservation of such species pursuant to 
     the terms of section 5 of the Endangered Species Act of 1973 
     (16 U.S.C. 1534); and
       (4) Twenty-five percent shall be available for wetlands 
     projects in accordance with the applicable provision of the 
     North American Wetlands Conservation Act (16 U.S.C. 4401 et 
     seq.).
       (c) Community Assistance.--There is hereby established a 
     Community Assistance Fund in the Treasury into which shall be 
     deposited $30,000,000 from revenues derived from the federal 
     share of the first lease sale authorized under this chapter. 
     The Secretary of the Treasury shall invest the funds in the 
     Community Assistance Fund in interest bearing government 
     securities. No more than $5,000,000 per year from the 
     Community Assistance Fund, shall be available to the 
     Secretary for distribution, upon application and without 
     further appropriation, to organized boroughs, other municipal 
     subdivisions of the State of Alaska, and recognized Indian 
     Reorganization Act entities which are directly impacted by 
     the exploration and production of oil and gas on the Coastal 
     Plain authorized by this chapter to provide public and social 
     services and facilities required in connection with such 
     activities.

                       CHAPTER 3--WATER PROJECTS

                  Subchapter A--Irrigation Prepayment

     SEC. 5351. AUTHORIZATION FOR PREPAYMENT OF CONSTRUCTION 
                   CHARGES.

       Subsection 213(a) of the Reclamation Reform Act of 1982 (96 
     Stat.1269, 43 U.S.C. 390mm(a)) is amended:
       (1) by adding at the beginning:
       ``Notwithstanding any provision of Reclamation law or 
     limitation contained in any repayment or water service 
     contract, any person or district holding such a contract or 
     receiving water under such a contract with the United States 
     may prepay the construction costs referred to in this section 
     either through accelerated or lump sum payments. For the 
     purposes of such prepayment only, the project to which such 
     contract applies is declared to be complete and the Secretary 
     shall determine the repayment obligations associated with the 
     construction costs of the project facilities so that 
     accelerated payments or a lump sum payment may be made. The 
     amount of any prepayment shall be calculated by discounting 
     the remaining payments due under a contract in accordance 
     with the guidelines set forth in Circular A-129 issued by the 
     Office of Management and Budget: Provided, That the discount 
     shall be adjusted by any amounts necessary to compensate the 
     Federal Government for the direct or indirect loss of future 
     tax revenues if the individual or district plans to use 
     federally tax-exempt financing for such prepayment.'';
       (2) by striking ``lands in a district'' and inserting: 
     ``lands in a district, or lands owned or leased by a 
     person'';
       (3) by striking ``obligation of a district'' and inserting: 
     ``obligation of a district or a person'';
       (4) by striking ``enactment of this Act.'' and inserting: 
     ``enactment of this Act or as otherwise provided for in this 
     section. Any additional capital costs incurred after the date 
     of such prepayment shall be recoverable as a separate 
     obligation and shall not be considered to be a new or 
     supplemental benefit for the purposes of this act nor cause 
     the full cost pricing limitation of this Act or the ownership 
     limitations contained in any provision of federal reclamation 
     law to apply to the lands to which such capital costs 
     apply.''.

     SEC. 5352. CONFORMING AMENDMENT.

       Subsection 213 (c) of the Reclamation Reform Act of 1982 
     (43 U.S.C. 390 mm (c)) is repealed.

                       Subchapter B--Hetch Hetchy

     SEC. 5353. HETCH HETCHY DAM.

       Section 7 of the Act of December 19, 1913 (38 Stat. 242, 
     chapter 4), is amended--
       (1) by striking ``$30,000'' in the first sentence and 
     inserting ``$2,000,000''; and
       (2) by amending the second and third sentences to read as 
     follows: ``These funds shall be placed in a separate fund by 
     the United States and, notwithstanding any other provision of 
     law, shall not be available for obligation or expenditure 
     until appropriated by the Congress. The highest priority use 
     of the funds shall be for annual operation of Yosemite 
     National Park, with the remainder of any funds to be used to 
     fund operations of other national parks in the State of 
     California.''.

                     Subchapter C--Collbran Project

     SEC. 5355. COLLBRAN PROJECT.

       (a) Short Title.--This subchapter may be cited as the 
     ``Collbran Project Unit Conveyance Act''.
       (b) Definitions.--For purposes of this subchapter:
       (1) Districts.--The term ``Districts'' means the Ute Water 
     Conservancy District and the Collbran Conservancy District 
     (including their successors and assigns), which are political 
     subdivisions of the State of Colorado.
       (2) Federal reclamation laws.--The term ``Federal 
     reclamation laws'' means the Act of June 17, 1902 and Acts 
     amendatory thereof or supplementary thereto (32 Stat. 388, 
     chapter 1093; 43 U.S.C. 371 et seq.) (including regulations 
     adopted pursuant to those Acts).
       (3) Project.--The term ``Project'' means the Collbran 
     Reclamation Project, as constructed and operated under the 
     Act of July 3, 1952 (66 Stat. 325, chapter 565), including 
     all property, equipment, and assets of or relating to the 
     Project that are owned by the United States, including--
       (A) Vega Dam and Reservoir (but not including The Vega 
     Recreation Facilities);
       (B) Leon-Park Dams and Feeder Canal;
       (C) Southside Canal;
       (D) East Fork Diversion Dam and Feeder Canal;
       (E) Bonham-Cottonwood Pipeline;
       (F) Snowcat Shed and Diesel Storage;
       (G) Upper Molina Penstock and Power Plant;
       (H) Lower Molina Penstock and Power Plant;
       (I) the diversion structure in the tailrace of the Lower 
     Molina Power Plant;
       (J) all substations and switchyards;
       (K) a non-exclusive easement for the use of existing 
     easements or rights-of-way owned by the United States on or 
     across nonfederal lands which are necessary for access to 
     Project facilities;
       (L) title to lands reasonably necessary for all Project 
     facilities except for land described in subparagraph (K) or 
     subsection (c)(1)(B) or (C);
       (M) all permits and contract rights held by the Bureau of 
     Reclamation, including, without limitation, contract or other 
     rights relating to the operation, use, maintenance, repair, 
     or replacement of the water storage reservoirs located on the 
     Grand Mesa which are operated as a part of the Project;
       (N) all equipment, parts inventories, and tools;
       (O) all additions, replacements, betterments, and 
     appurtenances to any of the above; and
       (P) a copy of all data, plans, designs, reports, records, 
     or other materials, whether in writing or in any form of 
     electronic storage relating specifically to the Project.
       (4) Vega recreation facilities.--The term ``Vega Recreation 
     Facilities'' includes, but is not limited to, buildings, 
     campgrounds, picnic areas, parking lots, fences, boat docks 
     and ramps, electrical lines, water and sewer systems, trash 
     and toilet facilities, roads and trails, and other structures 
     and equipment used for State park purposes at and near Vega 
     Reservoir such as recreation, maintenance and daily and 
     overnight visitor use, and lands above the high water level 
     of Vega Reservoir within the area previously defined by the 
     Department of the Interior as the ``Reservoir Area Boundary'' 
     which have not historically been utilized for Collbran 
     Project water storage and delivery facilities, together with 
     an easement for public access for recreational purposes to 
     Vega Reservoir and the water surface thereof, and 
     construction, operation, maintenance and replacement of such 
     recreation facilities below the high water line. Such 
     facilities shall also include improvements constructed or 
     added as a result of the agreements referred to in section 
     (c)(6).
       (c) Conveyance of the Collbran Project.--
       (1) In general.--
       (A) Conveyance to districts.--The Secretary of the Interior 
     shall convey to the Districts all right, title, and interest 
     of the United States in and to the Project, as described in 
     subsection (b)(3), by quitclaim deed and bill of sale, 
     without warranties, in the last quarter of fiscal year 2000, 
     subject only to the requirements of this section. Until such 
     conveyance occurs, the Bureau of Reclamation shall continue 
     to provide for the operation, maintenance, repair, and 
     replacement of Project facilities and the storage reservoirs 
     on the Grand Mesa to the extent such responsibilities are the 
     responsibility of the Bureau of Reclamation and have not been 
     delegated to the Districts prior to the date of enactment of 
     this Act or are delegated or transferred to the Districts by 
     agreement thereafter, so that at the time of conveyance such 
     facilities are in the same condition as, or better condition 
     than, the condition of the facilities on the date of 
     enactment of this Act.
       (B) Easements on national forest system lands.--The 
     Secretary of Agriculture shall grant, in the last quarter of 
     fiscal year 2000, subject only to the requirements of this 
     section; (i) a non-exclusive easement on and across National 
     Forest System lands to the Districts for ingress and egress 
     on existing access routes to each existing component of the 
     Project and to the existing storage reservoirs on the Grand 
     Mesa which are operated as a part of the Project; (ii) a non-
     exclusive easement on National Forest System lands for the 
     operation, use, maintenance, repair, and replacement, but not 
     enlargement, of the existing storage reservoirs on the Grand 
     Mesa to the owners and operators of such reservoirs which are 
     operated as a part of the Project; which easement may be 
     exercised in the event that the existing land use 
     authorizations for such storage reservoirs are restricted, 
     terminated, relinquished, or abandoned, and which easement 
     shall not be subject to conditions or requirements that 
     interfere with or limit the use of such reservoirs for water 
     supply or power purposes; and (iii) a non-exclusive easement 
     to the Districts for the operation, use, maintenance, repair, 
     and replacement, but not enlargement, of those components of 
     Project facilities which are located on National Forest 
     System lands, subject to the requirement that the Districts 
     shall provide reasonable notice to 

[[Page H 12537]]
     and the opportunity for consultation with the designated representative 
     of the Secretary of Agriculture for non-routine, non-
     emergency activities that occur on such easements.
       (C) Easements to districts for southside canal.--The 
     Secretary of the Interior shall grant to the Districts, in 
     the last quarter of fiscal year 2000, subject only to the 
     requirements of this section, (i) a non-exclusive easement on 
     and across lands administered by agencies within the 
     Department of the Interior for ingress and egress on existing 
     access routes to and along the Southside Canal, and (ii) a 
     non-exclusive easement for the operation, use, maintenance, 
     repair, and replacement of the Southside Canal, subject to 
     the requirement that the Districts shall provide reasonable 
     notice to and the opportunity for consultation with the 
     designated representative of the Secretary of the Interior 
     for non-routine, non-emergency activities that occur on such 
     easements.
       (2) Reservation.--The transfer of rights and interests 
     pursuant to paragraphs (1)(A), (B), and (C) shall reserve to 
     the United States all minerals, including hydrocarbons, and a 
     perpetual right of public access over, across, under, and to 
     the portions of the Project which on the date of enactment of 
     this Act were open to public use for fishing, boating, 
     hunting, and other outdoor recreation purposes and other 
     public uses such as grazing, mineral development and logging: 
     Provided, That the United States may allow for continued 
     public use and enjoyment of such portions of the Project for 
     recreational activities and other public uses conducted as of 
     the date of enactment of this Act.
       (3) Conveyance to state of colorado.--All right, title, and 
     interest in the Vega Recreation Facilities shall remain in 
     the United States until the terms of the agreements referred 
     to in paragraph (6) have been fulfilled by the United States. 
     At such time, all right, title, and interest in the Vega 
     Recreation Facilities shall be conveyed by the Secretary of 
     the Interior to the State of Colorado, Division of Parks and 
     Outdoor Recreation.
       (4) Payment.--
       (A) In general.--At the time of transfer, the Districts 
     shall pay to the United States $12,900,000 ($12,300,000 of 
     which represents the net present value of the outstanding 
     repayment obligations for the Project), of which--
       (i) $12,300,000 shall be deposited in the general fund of 
     the United States Treasury; and
       (ii) $600,000 shall be deposited in a special account in 
     the United States Treasury and shall be available to the 
     United States Fish and Wildlife Service, Region 6, without 
     further appropriation, for use in funding Colorado operations 
     and capital expenditures associated with the Grand Valley 
     Water Management Project for the purpose of recovering 
     endangered fish in the Upper Colorado River Basin, as 
     identified in the Recovery Implementation Program for 
     Endangered Fish Species in the Upper Colorado River Basin, or 
     such other component of the Recovery Implementation Program 
     within Colorado that is selected with the concurrence of the 
     Governor of the State of Colorado.
       (B) Source of funds.--Funds for the payment to the extent 
     of the amount specified in subparagraph (A) shall not be 
     derived from the issuance or sale, prior to the conveyance, 
     of State or local bonds the interest on which is exempt from 
     taxation under section 103 of the Internal Revenue Code of 
     1986.
       (5) Operation of project.--
       (A) In general.--The Project was authorized and constructed 
     to place water to beneficial use for authorized purposes 
     within the State of Colorado. The Project shall be operated 
     and used by the Districts for a period of 40 years after the 
     date of enactment of this Act for the purposes for which the 
     Project was authorized under the Act of July 3, 1952 (66 
     Stat. 325, chapter 565). The Districts shall attempt to the 
     extent practicable, taking into consideration historic 
     Project operations, to notify the State of Colorado of 
     changes in historic Project operations which may adversely 
     affect State park operations.
       (B) Requirements.--During the 40-year period described in 
     subparagraph (A)--
       (i) the Districts shall annually submit to the Secretary of 
     Agriculture and the Colorado Department of Natural Resources 
     a plan for operation of the Project, which plan shall--

       (I) report on Project operations for the previous year;
       (II) provide a description of the manner of Project 
     operations anticipated for the forthcoming year, which shall 
     be prepared after consultation with the designated 
     representatives of the Secretary of Agriculture, the Board of 
     County Commissioners of Mesa County, Colorado, and the 
     Colorado Department of Natural Resources; and
       (III) certify that the Districts have operated and will 
     operate and maintain the Project facilities in accordance 
     with sound engineering practices; and

       (ii) subject to subsection (d), all electric power 
     generated by operation of the Project shall be made available 
     to and be marketed by the Western Area Power Administration 
     (including its successors or assigns).
       (6) Agreements.--Conveyance of the Project shall be subject 
     to the agreements between the United States and the State of 
     Colorado dated August 22, 1994, and September 23, 1994, 
     relating to the construction and operation of recreational 
     facilities at Vega Reservoir, which agreements shall continue 
     to be performed by the parties thereto according to the terms 
     of the agreements.
       (d) Operation of the Power Component.--
       (1) Conformity to historic operations.--The power component 
     and facilities of the Project shall be operated in 
     substantial conformity with the historic operations of the 
     power component and facilities (including recent operations 
     in a peaking mode).
       (2) Power marketing.--
       (A) Existing marketing arrangement.--The Post-1989 
     Marketing Criteria, which provide for the marketing of power 
     generated by the power component of the Project as part of 
     the output of the Salt Lake City Area Integrated Projects, 
     shall no longer be binding on the Project upon conveyance of 
     the Project under subsection (c)(1).
       (B) After termination of existing marketing arrangement.--
       (i) In general.--After the conveyance, the Districts shall 
     offer all power produced by the power component of the 
     Project to the Western Area Power Administration or its 
     successors or assigns (referred to in this section as 
     ``Western''), which, in consultation with its affected 
     preference customers, shall have the first right to purchase 
     such power at the rates established in accordance with clause 
     (ii). If Western declines to purchase the power after 
     consultation with its affected preference customers, such 
     power shall then be offered at the same rates first to 
     Western's preference customers located in the Salt Lake City 
     Area Integrated Projects marketing area (referred to in this 
     section as the ``SLCAIP preference customers''). Thereafter, 
     such power may be sold to any other party: Provided, however, 
     That no such sale may occur at rates less than rates 
     established in accordance with clause (ii) unless such power 
     is first offered at such lesser rate first to Western and 
     then to its SLCAIP preference customers.
       (ii) The rate for power initially offered to Western and 
     its SLCAIP preference customers under this paragraph shall 
     not exceed that required to produce revenues sufficient to 
     provide for

       (I) annual debt service and/or recoupment of the cost of 
     capital for the amount specified in subsection (c)(4)(A)(i) 
     of this section, less the sum of $310,000 (which is the net 
     present value of the outstanding repayment obligation of the 
     Collbran Conservancy District), and
       (II) the cost of operation, maintenance, and replacement of 
     the power component of the Project.

     Such costs and rate shall be determined in a manner 
     consistent with the current principles followed by the 
     Secretary of the Interior and by Western in its annual power 
     and repayment study.
       (e) License.--
       (1) Prior to the conveyance of the Project to the 
     Districts, the Commission shall issue to the Districts a 
     license or licenses as appropriate under part I of the 
     Federal Power Act, as amended, (16 U.S.C. 791 et seq.), 
     authorizing for a term of 40 years the continued operation 
     and maintenance of the power component of the Project.
       (2) The license issued pursuant to subsection (1):
       (A) shall be for the purpose of operating, using, 
     maintaining, repairing, and replacing the power component of 
     the Project as authorized by the Act of July 3, 1952 (66 
     Stat. 325, chapter 565);
       (B) shall be conditioned upon the requirement that the 
     power component of the project continue to be operated and 
     maintained in accordance with the authorized purposes of the 
     project;
       (C) shall be subject only to the provisions of Part I of 
     the Federal Power Act, except the word ``constructed'' in 
     section 3(10); the four provisos of section 4(e); section 6 
     to the extent it requires the licensee's acceptance of those 
     terms and conditions of the Act that this subsection waives; 
     section 10(e) as concerns annual charges for the use and 
     occupancy of federal lands and facilities; section 10(f); 
     section 10(j); section 18; section 19; section 20; and 
     section 22 of the Federal Power Act, 16 U.S.C. 796(10), 
     797(e), 799, 803(e), 803(f), 803(j), 811, 812, 813, and 815; 
     and shall not be subject to the standard ``L-Form'' license 
     conditions, published at 54 FPC 1792-1928 (1975), the Federal 
     Land Policy and Management Act (43 U.S.C. 1701 et seq.), as 
     amended, section 2402 of the Energy Policy Act of 1992 (16 
     U.S.C. 797c), the National Environmental Policy Act of 1969 
     (42 U.S.C. 4321 et seq.), the Endangered Species Act of 1973 
     (16 U.S.C. 1531 et seq.), the Wild and Scenic Rivers Act (16 
     U.S.C. 1271 et seq.), the Federal Water Pollution Control Act 
     (commonly known as the ``Clean Water Act'') (33 U.S.C. 1251 
     et seq.), the National Historic Preservation Act (16 U.S.C. 
     470 et seq.), the Coastal Zone Management Act of 1972 (16 
     U.S.C. 1451 et seq.), the Fish and Wildlife Coordination Act 
     (16 U.S.C. 661 et seq.), or any other Act otherwise 
     applicable to the licensing of the project.
       (3) The license issued under paragraph (1) is deemed to 
     meet the licensing standards of the Federal Power Act, 
     including section 10(a) and the last sentence of section 
     4(e), 16 U.S.C. 797(e).
       (4) Any power site reservation established by the 
     President, the Secretary of the Interior, or pursuant to 
     section 24 of the Federal Power Act (16 U.S.C. 818) or any 
     other law, which exists on any lands, whether federally or 
     privately owned, that are included within the boundaries of 
     the project shall be vacated by operation of law upon 
     issuance of the license for the project.
       (5) All requirements of Part I of the Federal Power Act and 
     of any other Act applicable to the licensing of a 
     hydroelectric project shall apply to the project upon 
     expiration of the license issued under this section.
       (6) For purposes of this section, ``Commission'' means the 
     Federal Energy Regulatory Commission.
       (7) The operation of the Project shall be subject to all 
     applicable state and federal laws subsequent to the issuance 
     of the license pursuant to paragraph (1).
       (f) Inapplicability of NEPA.--Neither the conveyance of the 
     Project nor the issuance of easements pursuant to this 
     section constitutes a major Federal action within the meaning 
     of the National Environmental Policy Act of 1969 (42 

[[Page H 12538]]
     U.S.C. 4321 et seq.), including any regulations issued under such Act.
       (g) Inapplicability of Prior Agreements and of Federal 
     Reclamation Laws.--On conveyance of the Project to the 
     Districts--
       (1) the Repayment Contract dated May 27, 1957, as amended 
     April 12, 1962, between the Collbran Conservancy District and 
     the United States, and the Contract for use of Project 
     facilities for Diversion of Water dated January 11, 1962, as 
     amended November 10, 1977, between the Ute Water Conservancy 
     District and the United States, shall be terminated and of no 
     further force or effect; and
       (2) the Project shall no longer be subject to or governed 
     by the Federal reclamation laws.
       (h) Districts' Liability.--The Districts shall be liable, 
     to the extent allowed under State law, for all acts or 
     omissions relating to the operation and use of the Project by 
     the Districts that occur subsequent to the conveyance under 
     section (c), including damages to Federal lands or facilities 
     which result from the failure of Project facilities.
       (i) Effect on State Law.--Nothing in this section shall be 
     construed to impair the effectiveness of any State or local 
     law (including regulations) relating to land use.
       (j) Treatment of Sales for Purposes of Certain Laws.--The 
     sales of assets under this subchapter shall not be considered 
     a disposal of Federal surplus property under the following 
     provisions of law:
       (1) Section 203 of the Federal Property and Administrative 
     Services Act of 1949 (40 U.S.C. 484).
       (2) Section 13 of the Surplus Property Act of 1944 (50 
     U.S.C. App. 1622).

                         Subchapter D--Sly Park

     SEC. 5356. SLY PARK.

       (a) Short Title.--This subchapter may be cited as the ``Sly 
     Park Unit Conveyance Act''.
       (b) Definitions.--For purposes of this subchapter:
       (1) The term ``El Dorado Irrigation District'' or 
     ``District'' means a political subdivision of the State of 
     California duly organized, existing, and acting pursuant to 
     the laws thereof with its principal place of business in the 
     city of Placerville, El Dorado County, California.
       (2) The term ``Secretary'' means the Secretary of the 
     Interior.
       (3) The term ``Sly Park Unit'' means the Sly Park Dam and 
     Reservoir, Camp Creek Diversion Dam and Tunnel and conduits 
     and canals as authorized under the Act entitled ``An Act to 
     authorize the American River Basin development, California, 
     for irrigation and reclamation, and for other purposes'', 
     approved October 14, 1949 (63 Stat. 852 chapter 690), 
     together with all other facilities owned by the United States 
     including those used to convey and store water delivered from 
     Sly Park, as well as all recreation facilities associated 
     thereto.
       (c) Sale of the Sly Park Unit.--
       (1) In general.--The Secretary shall, on or before December 
     31, 1997, and upon receipt of the payment for the original 
     construction debt described in paragraph (2), sell and convey 
     to the El Dorado Irrigation District all right, title, and 
     interest of the United States in and to the Sly Park Unit. At 
     the time the Sly Park Unit is conveyed, the Secretary shall 
     also transfer and assign to the District the water rights 
     relating to the Sly Park Unit held in trust by the Secretary 
     for diversion and storage under California State permits 
     numbered 2631, 5645A, 10473, and 10474.
       (2) Sale price.--The sale price for the Sly Park Unit shall 
     be $3,993,982, which is the outstanding balance for the 
     original construction of the Sly Park Unit payable to the 
     United States. Payment shall be deposited as miscellaneous 
     receipts in the Treasury and credited to the Central Valley 
     Project Restoration Fund. Payment of such price shall 
     extinguish all payment obligations under contract numbered 
     14-06-200-949 between the District and the Secretary.
       (d) No Additional Environmental Impact.--The Congress 
     specifically finds that (A) the sale, conveyance and 
     assignment of the Sly Park Unit and water rights under this 
     section involves the transfer of the ownership and operation 
     of an existing ongoing water project, (B) the Sly Park Unit 
     operation, facilities, and water rights have been, and after 
     the sale and transfer will continue to be, committed to 
     maximum reasonable and beneficial use for existing services, 
     and (C) the sale, conveyance and assignment of the Sly Park 
     Unit and water rights does not involve any additional growth 
     or expansion of the project or other environmental impacts. 
     Consequently, the sale, conveyance and assignment of the Sly 
     Park Unit and water rights shall not be subject to 
     environmental review pursuant to the National Environmental 
     Policy Act of 1969 (42 U.S.C. 4332) or endangered species 
     review or consultation pursuant to section 7 of the 
     Endangered Species Act of 1973 (16 U.S.C. 1536).
       (e) Certain Contract Obligations not Affected.--The sale of 
     the Sly Park Unit under this section shall not affect the 
     payment obligations of the District under the contract 
     between the District and the Secretary numbered 14-06-200-
     7734, as amended by contracts numbered 14-06-200-4282A and 
     14-06-200-8536A.
       (f) Treatment of Sales for Purposes of Certain Laws.--The 
     sales of assets under this subchapter part shall not be 
     considered a disposal of Federal surplus property under the 
     following provisions of law:
       (1) Section 203 of the Federal Property and Administrative 
     Services Act of 1949 (40 U.S.C. 484).
       (2) Section 13 of the Surplus Property Act of 1944 (50 
     U.S.C. App. 1622).

                   Subchapter E--Central Utah Project

     SEC. 5357. PREPAYMENT OF CERTAIN REPAYMENT CONTRACTS BETWEEN 
                   THE UNITED STATES AND THE CENTRAL UTAH WATER 
                   CONSERVANCY DISTRICT.

       The second sentence of section 210 of the Central Utah 
     Project Completion Act (106 Stat. 4624) is amended to read as 
     follows: ``The Secretary shall allow for prepayment of the 
     repayment contract between the United States and the Central 
     Utah Water Conservancy District dated December 28, 1965, and 
     supplemented on November 26, 1985, providing for repayment of 
     municipal and industrial water delivery facilities for which 
     repayment is provided pursuant to such contract, under terms 
     and conditions similar to those contained in the supplemental 
     contract that provided for the prepayment of the Jordan 
     Aqueduct dated October 28, 1993. The prepayment may be 
     provided in several installments to reflect substantial 
     completion of the delivery facilities being prepaid and may 
     not be adjusted on the basis of the type of prepayment 
     financing utilized by the District: Provided That the 
     District shall complete all payments authorized pursuant to 
     this section by the end of fiscal year 2002.''.

                CHAPTER 4--FEDERAL OIL AND GAS ROYALTIES

     SEC. 5361. DEFINITIONS.

       Section 3 of the Federal Oil and Gas Royalty Management Act 
     of 1982 (30 U.S.C. 1701 et seq.) is amended--
       (1) by amending paragraph (7) to read as follows:
       ``(7) `lessee' means any person to whom the United States 
     issues an oil and gas lease or any person to whom operating 
     rights in a lease have been assigned;''; and
       (2) by striking ``and'' at the end of paragraph (15), by 
     striking the period at the end of paragraph (16) and 
     inserting a semicolon, and by adding at the end the 
     following:
       ``(17) `adjustment' means an amendment to a previously 
     filed report on an obligation, and any additional payment or 
     credit, if any, applicable thereto, to rectify an 
     underpayment or overpayment on a lease;
       ``(18) `administrative proceeding' means any Department of 
     the Interior agency process in which a demand, decision or 
     order issued by the Secretary or a delegated State is subject 
     to appeal or has been appealed;
       ``(19) `assessment' means any fee or charge levied or 
     imposed by the Secretary or a delegated State other than--
       ``(A) the principal amount of any royalty, minimum royalty, 
     rental, bonus, net profit share or proceed of sale;
       ``(B) any interest; or
       ``(C) any civil or criminal penalty;
       ``(20) `commence' means--
       ``(A) with respect to a judicial proceeding, the service of 
     a complaint, petition, counterclaim, crossclaim, or other 
     pleading seeking affirmative relief or seeking credit or 
     recoupment; or
       ``(B) with respect to a demand, the receipt by the 
     Secretary or a delegated State or a lessee of the demand;
       ``(21) `credit' means the application of an overpayment (in 
     whole or in part) against an obligation which has become due 
     to discharge, cancel or reduce the obligation;
       ``(22) `delegated State' means a State which, pursuant to 
     an agreement or agreements under section 205, performs 
     authorities, duties, responsibilities, or activities of the 
     Secretary which may be performed by a State under the 
     Constitution of the United States for all lands within the 
     State, including, but not limited to--
       ``(A) activities under sections 111 and 115;
       ``(B) collection, audit, lease and post-lease management 
     activities, and applicable enforcement activities;
       ``(C) inspections (including activities described in 
     section 108;
       ``(D) approval of pooling, unitization, and communitization 
     agreements; and
       ``(E) investigations;
       ``(23) `demand' means--
       ``(A) an order to pay issued by the Secretary or the 
     applicable delegated State that has a reasonable basis to 
     conclude that the obligation in the amount of the demand is 
     due and owing; or
       ``(B) a separate written request by a lessee which asserts 
     an obligation due the lessee that has a reasonable basis to 
     conclude that the obligation in the amount of the demand is 
     due and owing, but does not mean any royalty or production 
     report, or any information contained therein, required by the 
     Secretary or a delegated State;
       ``(24) `obligation' means--
       ``(A) any duty of the Secretary or, if applicable, a 
     delegated State--
       ``(i) to take oil or gas royalty in kind at or near the 
     lease (unless the lease expressly provides for delivery at a 
     different location); or
       ``(ii) to pay, refund, offset, or credit monies including 
     but not limited to)--

       ``(I) the principal amount of any royalty, minimum royalty, 
     rental, bonus, net profit share or proceed of sale; or
       ``(II) any interest;

       ``(B) any duty of a lessee--
       ``(i) to deliver oil or gas royalty in kind at or near the 
     lease (unless the lease expressly provides for delivery at a 
     different location); or
       ``(ii) to pay, offset or credit monies including but not 
     limited to--

       ``(I) the principal amount of any royalty, minimum royalty, 
     rental, bonus, net profit share or proceed of sale;
       ``(II) any interest;
       ``(III) any penalty; or
       ``(IV) any assessment, which arises from or relates to any 
     lease administered by the Secretary for, or any mineral 
     leasing law related to, the exploration, production and 
     development of oil or gas on Federal lands or the Outer 
     Continental Shelf;

       ``(25) `order to pay' means a written order issued by the 
     Secretary or the applicable delegated State which--
       ``(A) asserts a specific, definite, and quantified 
     obligation claimed to be due, and

[[Page H 12539]]

       ``(B) specifically identifies the obligation by lease, 
     production month and monetary amount of such obligation 
     claimed to be due and ordered to be paid, as well as the 
     reason or reasons such obligation is claimed to be due, but 
     such term does not include any other communication or action 
     by or on behalf of the Secretary or a delegated State;
       ``(26) `overpayment' means any payment by a lessee in 
     excess of an amount legally required to be paid on an 
     obligation and includes the portion of any estimated payment 
     for a production month that is in excess of the royalties due 
     for that month;
       ``(27) `payment' means satisfaction, in whole or in part, 
     of an obligation;
       ``(28) `penalty' means a statutorily authorized civil fine 
     levied or imposed for a violation of this Act, any mineral 
     leasing law, or a term or provision of a lease administered 
     by the Secretary;
       ``(29) `refund' means the return of an overpayment;
       ``(30) `State concerned' means, with respect to a lease, a 
     State which receives a portion of royalties or other payments 
     under the mineral leasing laws from such lease;
       ``(31) `underpayment' means any payment or nonpayment by a 
     lessee that is less than the amount legally required to be 
     paid on an obligation; and
       ``(32) `United States' means the United States Government 
     and any department, agency, or instrumentality thereof, the 
     several States, the District of Columbia, and the territories 
     of the United States.''.

     SEC. 5362. MAXIMIZING RECEIPTS THROUGH STATE EFFORTS.

       (a) General Authority.--Section 205(a) of the Federal Oil 
     and Gas Royalty Management Act of 1982 (30 U.S.C. 1735(a)) is 
     amended to read as follows:
       ``(a) In order to provide incentives to States to maximize 
     the amount of oil and gas receipts collected on lease 
     obligations within the six-year period of limitations, and 
     consequently to maximize the Federal share of such receipts 
     to the United States Treasury, upon written request of a 
     State, the State, pursuant to an agreement or agreements and 
     consistent with subsection (c), may perform all or part of 
     the authorities, duties, responsibilities, and activities of 
     the Secretary under this Act which may be delegated to a 
     State under the Constitution of the United States for all 
     Federal lands within the State. The delegated State shall 
     assume and perform the authorities, duties, responsibilities, 
     or activities delegated under this section. To avoid 
     duplication of effort, any authority, duty, responsibility, 
     or activity delegated to a State under this Act with respect 
     to all Federal lands within the State may not be carried out 
     by the Secretary. Under any such agreement, the Secretary 
     shall share oil or gas royalty management information.''.
       (b) Determination.--Section 205(b) of the Federal Oil and 
     Gas Royalty Management Act of 1982 (30 U.S.C. 1735(b)) is 
     amended by striking ``is authorized to'' and inserting 
     ``shall''.
       (c) Federal-State Royalty Collection Efforts.--Subsection 
     (c) section 205 of the Federal Oil and Gas Royalty Management 
     Act of 1982 (30 U.S.C. 1735) is amended by striking ``which 
     define'' and all that follows and inserting ``within 18 
     months after the date of enactment of section 115, under 
     which States may perform the authorities, duties, 
     responsibilities, and activities under this title which are 
     subject to delegation, based on the recommendations of the 
     States concerned following consultation with affected 
     persons. If the Secretary decides not to follow any 
     recommendations supported by all States concerned, the 
     Secretary shall justify such decision within 30 days after 
     making such decision. In carrying out this section the 
     Secretary shall provide for reasonable flexibility to a State 
     to perform any authority, duty, responsibility or activity 
     delegated hereunder in a more efficient and cost-effective 
     manner and provide the States concerned a direct role in 
     determining such requirements, procedures and policies. To 
     ensure efficient and timely collections of royalties pursuant 
     to this Act, the delegated States shall provide--
       ``(1) for the effective and efficient performance of any 
     authority, duty, responsibility or activity delegated under 
     this Act;
       ``(2) for the consistent and uniform performance among the 
     delegated States of any authority, duty, responsibility or 
     activity delegated under this Act;
       ``(3) for valuation under the terms of the leases and 
     applicable Federal statutes; and
       ``(4) for uniform reporting form and reporting requirements 
     for all Federal lessees, unless the State and all affected 
     parties otherwise agree.''.
       (d) Performance.--Subsection (d) of section 205 of the 
     Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 
     1735) is amended by striking ``, pertaining'' and all that 
     follows and inserting the following: ``for requirements 
     pertaining to records and accounts to be maintained and 
     reporting procedures to be required by delegated States under 
     this section. The records and accounts under such reporting 
     procedures shall be sufficient to allow the Secretary to 
     monitor the performance of any delegated State under this 
     section. The applicable delegated State and the Secretary 
     shall agree to terms and conditions for inclusion into an 
     agreement to perform all or part of the authorities, duties, 
     responsibilities, and activities under this title consistent 
     with subsection (c).''.
       (e) State Actions.--Section 204 of the Federal Oil and Gas 
     Royalty Management Act of 1982 (30 U.S.C. 1734) is amended by 
     adding at the end the following:
       ``(d) With respect to enforcement of an obligation under 
     this Act, a State bringing an action under this section shall 
     enjoy no greater rights than the Secretary enjoys under this 
     Act.''.
       (f) Savings Provision.--Nothing in the amendments made by 
     this section shall impair any agreement, or any extension 
     thereof, existing under section 205 as in effect on the day 
     before the date of enactment of this Act. Following enactment 
     of this Act, any State which is a party to an existing 
     agreement under such section under which the State has been 
     delegated audit or inspection responsibility, may issue 
     orders to pay, subpoenas, or notices to perform restructured 
     accounting and may continue to perform audits or inspections 
     under terms and conditions consistent with the Federal Oil 
     and Gas Royalty Management Act of 1982 (30 U.S.C. 1701 et 
     seq.), as amended by this chapter.
       (g) Receipts.--Section 205(f) of the Federal Oil and Gas 
     Royalty Management Act of 1982 (30 U.S.C. 1735(f)) is amended 
     by adding at the end the following: ``Such costs shall be 
     allocable for the purposes of section 35(b) of the Act 
     entitled ``An Act to promote the mining of coal, phosphate, 
     oil, oil shale, gas, and sodium on the public domain'', 
     approved February 25, 1920 (commonly known as the ``Mineral 
     Leasing Act'') (30 U.S.C. 191(b)) to the administration and 
     enforcement of laws providing for the leasing of any onshore 
     lands or interests in land owned by the United States. The 
     Secretary shall compensate any State in the next succeeding 
     fiscal year for the aggregate amount of such costs incurred 
     but not compensated due to such allocation for the current 
     fiscal year. All money received from sales, bonuses, 
     royalties, and interest, including money claimed to be due 
     and owing pursuant to a delegation under this section, shall 
     be payable and paid to the Treasury of the United States.''.

     SEC. 5363. SECRETARIAL AND DELEGATED STATES' ACTIONS AND 
                   LIMITATION PERIODS.

       (a) In General.--The Federal Oil and Gas Royalty Management 
     Act of 1982 (30 U.S.C. 1701 et seq.) is amended by adding 
     after section 114 the following new section:

     ``SEC. 115. SECRETARIAL AND DELEGATED STATES' ACTIONS AND 
                   LIMITATION PERIODS.

       ``(a) In General.--All duties, responsibilities, and 
     activities with respect to a lease shall be performed by the 
     Secretary, delegated States, and lessees in a timely manner.
       ``(b) Limitation Period.--
       ``(1) A judicial proceeding or demand which arises from, or 
     relates to an obligation, shall be commenced within six years 
     from the date on which the obligation becomes due and if not 
     so commenced shall be barred. The Secretary, a delegated 
     State, or a lessee (A) shall not take any other or further 
     action regarding that obligation, including (but not limited 
     to) the issuance of any order, request, demand or other 
     communication seeking any document, accounting, 
     determination, calculation, recalculation, payment, 
     principal, interest, assessment, or penalty or the 
     initiation, pursuit or completion of an audit with respect to 
     that obligation; and (B) shall not pursue any other equitable 
     or legal remedy, whether under statute or common law, with 
     respect to an action on or an enforcement of said obligation.
       ``(2) The limitations set forth in sections 2401, 2415, 
     2416, and 2462 of title 28, United States Code and section 42 
     of the Mineral Leasing Act (30 U.S.C. 226-2) shall not apply 
     to any obligation to which this Act applies. Section 3716 of 
     title 31, United States Code, may be applied to an obligation 
     the enforcement of which is not barred by this Act, but may 
     not be applied to any obligation the enforcement of which is 
     barred by this Act.
       ``(c) Obligation Becomes Due.--
       ``(1) In general.--For purposes of this Act, an obligation 
     becomes due when the right to enforce the obligation is 
     fixed.
       ``(2) Royalty obligations.--The right to enforce any 
     royalty obligation for any given production month for a lease 
     is fixed for purposes of this Act on the last day of the 
     calendar month following the month in which oil or gas is 
     produced.
       ``(d) Tolling of Limitation Period.--The running of the 
     limitation period under subsection (b) shall not be 
     suspended, tolled, extended, or enlarged for any obligation 
     for any reason by any action, including an action by the 
     Secretary or a delegated State, other than the following:
       ``(1) Tolling agreement.--A written agreement executed 
     during the limitation period between the Secretary or a 
     delegated State and a lessee which tolls the limitation 
     period for the amount of time during which the agreement is 
     in effect.
       ``(2) Subpoena.--
       ``(A) The issuance of a subpoena to a lessee in accordance 
     with the provisions of subsection (B)(i) shall toll the 
     limitation period with respect to the obligation which is the 
     subject of a subpoena only for the period beginning on the 
     date the lessee receives the subpoena and ending on the date 
     on which (i) the lessee has produced such subpoenaed records 
     for the subject obligation, (ii) the Secretary or a delegated 
     State receives written notice that the subpoenaed records for 
     the subject obligation are not in existence or are not in the 
     lessee's possession or control, or (iii) a court has 
     determined in a final decision that such records are not 
     required to be produced, whichever occurs first.
       ``(B)(i) A subpoena for the purposes of this section which 
     requires a lessee to produce records necessary to determine 
     the proper reporting and payment of an obligation due the 
     Secretary may be issued only by an Assistant Secretary of the 
     Interior or an acting Assistant Secretary of the Interior who 
     is a schedule C employee (as defined by section 213.3301 of 
     title 5, Code of Federal Regulations) and may not be 
     delegated to any other person. If a State has been delegated 
     authority pursuant to section 205, the State, acting through 
     the highest elected State official having ultimate authority 
     over 

[[Page H 12540]]
     the collection of royalties from leases on Federal lands within the 
     state, may issue such subpoena, but may not delegate such 
     authority to any other person.
       ``(ii) A subpoena described in clause (i) may only be 
     issued against a lessee during the limitation period provided 
     in this section and only after the Secretary or a delegated 
     State has in writing requested the records from the lessee 
     related to the obligation which is the subject of the 
     subpoena and has determined that--
       ``(I) the lessee has failed to respond within a reasonable 
     period of time to the Secretary's or the applicable delegated 
     State's written request for such records necessary for an 
     audit, investigation or other inquiry made in accordance with 
     the Secretary's or such delegated State's responsibilities 
     under this Act; or
       ``(II) the lessee has in writing denied the Secretary's or 
     the applicable delegated State's written request to produce 
     such records in the lessee's possession or control necessary 
     for an audit, investigation or other inquiry made in 
     accordance with the Secretary's or such delegated State's 
     responsibilities under this Act; or
       ``(III) the lessee has unreasonably delayed in producing 
     records necessary for an audit, investigation or other 
     inquiry made in accordance with the Secretary's or the 
     applicable delegated State's responsibilities under this Act 
     after the Secretary's or such delegated State's written 
     request.
       ``(C) In seeking records, the Secretary or the applicable 
     delegated State shall afford the lessee a reasonable period 
     of time after a written request by the Secretary or such 
     delegated State in which to provide such records prior to the 
     issuance of any subpoena.
       ``(3) Misrepresentation or concealment.--The intentional 
     misrepresentation or concealment of a material fact for the 
     purpose of evading the payment of an obligation in which case 
     the limitation period shall be tolled for the period of such 
     misrepresentation or such concealment.
       ``(4) Order to perform a restructured accounting.--(A) The 
     issuance of a notice under subsection (D) that the lessee has 
     not adequately performed a restructured accounting shall toll 
     the limitation period with respect to the obligation which is 
     the subject of the notice only for the period beginning on 
     the date the lessee receives the notice and ending 120 days 
     after the date on which (i) the Secretary or the applicable 
     delegated State receives written notice the accounting or 
     other requirement has been performed, or (ii) a court has 
     determined in a final decision that the lessee is not 
     required to perform the accounting, whichever occurs first.
       ``(B)(i) The Secretary or the applicable delegated State 
     may issue an order to perform a restructured accounting to a 
     lessee when the Secretary or such delegated State determines 
     during an in-depth audit of a lessee that the lessee should 
     recalculate royalty due on an obligation based upon the 
     Secretary's or the delegated State's finding that the lessee 
     has made identified underpayments or overpayments which are 
     demonstrated by the Secretary or the delegated State to be 
     based upon repeated, systemic reporting errors for a 
     significant number of leases or a single lease for a 
     significant number of reporting months with the same type of 
     error which constitutes a pattern of violations and which are 
     likely to result in either significant underpayments or 
     overpayments.
       ``(ii) The power of the Secretary to issue an order to 
     perform a restructured accounting may not be delegated below 
     the most senior career professional position having 
     responsibility for the royalty management program, which 
     position is currently designated as the `Associate Director 
     for Royalty Management', and may not be delegated to any 
     other person. If a State has been delegated authority 
     pursuant to section 205, the State, acting through the 
     highest ranking State official having ultimate authority over 
     the collection of royalties from leases on Federal lands 
     within the state, may issue such order to perform, which may 
     not be delegated to any other person. An order to perform a 
     restructured accounting shall--
       ``(I) be issued within a reasonable period of time from 
     when the audit identifies the systemic, reporting errors;
       ``(II) specify the reasons and factual bases for such 
     order; and
       ``(III) be specifically identified as an `order to perform 
     a restructured accounting'.
       ``(C) An order to perform a restructured accounting shall 
     not mean or be construed to include any other communication 
     or action by or on behalf of the Secretary or a delegated 
     State.
       ``(D) If a lessee fails to adequately perform a 
     restructured accounting pursuant to this subsection, a notice 
     shall be issued to the lessee that the restructured 
     accounting has not been adequately performed. A lessee shall 
     be given a reasonable time within which to perform the 
     restructured accounting. Such notice may be issued under this 
     section only by an Assistant Secretary of the Interior or an 
     acting Assistant Secretary of the Interior who is a schedule 
     C employee (as defined by section 213.3301 of title 5, Code 
     of Federal Regulations) and may not be delegated to any other 
     person. If a State has been delegated authority pursuant to 
     section 205, the State, acting through the highest elected 
     State official having ultimate authority over the collection 
     of royalties from leases on Federal lands within the state, 
     may issue such notice, which may not be delegated to any 
     other person.
       ``(e) Termination of Limitations Period.--An action or an 
     enforcement of an obligation by the Secretary or delegated 
     State or a lessee shall be barred under this section prior to 
     the running of the six-year period provided in subsection (b) 
     in the event--
       ``(1) the Secretary or a delegated State has notified the 
     lessee in writing that a time period is closed to further 
     audit; or
       ``(2) the Secretary or a delegated State and a lessee have 
     so agreed in writing.
       ``(f) Records Required for Determining Collections.--
     Records required pursuant to section 103 by the Secretary or 
     any delegated State for the purpose of determining 
     obligations due and compliance with any applicable mineral 
     leasing law, lease provision, regulation or order with 
     respect to oil and gas leases from Federal lands or the Outer 
     Continental Shelf shall be maintained for the same period of 
     time during which a judicial proceeding or demand may be 
     commenced under subsection (b). If a judicial proceeding or 
     demand is timely commenced, the record holder shall maintain 
     such records until the final nonappealable decision in such 
     judicial proceeding is made, or with respect to that demand 
     is rendered, unless the Secretary or the applicable delegated 
     State authorizes in writing an earlier release of the 
     requirement to maintain such records. Notwithstanding 
     anything herein to the contrary, under no circumstance shall 
     a record holder be required to maintain or produce any record 
     relating to an obligation for any time period which is barred 
     by the applicable limitation in this section. Records 
     required for administrative actions and investigations 
     (including, but not limited to, accounting collection and 
     audits) under this Act involving obligations shall not be 
     duplicated pursuant to section 3518(c)(1)(B) of title 44, 
     United States Code.
       ``(g) Timely Collections.--In order to most effectively 
     utilize resources available to the Secretary to maximize the 
     collection of oil and gas receipts from lease obligations to 
     the Treasury within the six-year period of limitations, and 
     consequently to maximize the State share of such receipts, 
     the Secretary shall not perform or require accounting, 
     reporting, or audit activities if the Secretary and the State 
     concerned determines that the cost of conducting or requiring 
     the activity exceeds the expected amount to be collected by 
     the activity, based on the most current 12 months of 
     activity. To the maximum extent possible, the Secretary and 
     delegated States shall reduce costs to the United States 
     Treasury and the States by discontinuing requirements for 
     unnecessary or duplicative data and other information, such 
     as separate allowances and payor information, relating to 
     obligations due. If the Secretary and the State concerned 
     determine that collection will result sooner, the Secretary 
     or the applicable delegated State may waive or forego 
     interest in whole or in part.
       ``(h) Appeals and Final Agency Action.--
       ``(1) 30-month period.--All orders issued by the Secretary 
     or a delegated State are subject to appeal to the Secretary. 
     No State shall impose any conditions which would hinder a 
     lessee's immediate appeal of an order to the Secretary or the 
     Secretary's designee. The Secretary shall issue a final 
     decision in any administrative proceeding, including any 
     administrative proceedings pending on the date of enactment 
     of this section, within 30 months from the date such 
     proceeding was commenced or 30 months from the date of such 
     enactment, whichever is later. The 30-month period may be 
     extended by any period of time agreed upon in writing by the 
     Secretary and the lessee.
       ``(2) Effect of failure to issue decision.--If no such 
     decision has been issued by the Secretary within the 30-month 
     period referred to in paragraph (1)--
       ``(A) the Secretary shall be deemed to have issued and 
     granted a decision in favor of the lessee or lessees as to 
     any nonmonetary obligation and any monetary obligation the 
     principal amount of which is less than $2,500; and
       ``(B) the Secretary shall be deemed to have issued a final 
     decision in favor of the Secretary, which decision shall be 
     deemed to affirm those issues for which the agency rendered a 
     decision prior to the end of such period, as to any monetary 
     obligation the principal amount of which is $2,500 or more, 
     and the lessee shall have a right to a de novo judicial 
     review of such deemed final decision.
       ``(i) Collections of Disputed Amounts Due.--To expedite 
     collections relating to disputed obligations due within the 
     six-year period beginning on the date the obligation became 
     due, the parties shall hold not less than one settlement 
     consultation and the Secretary and the State concerned may 
     take such action as is appropriate to compromise and settle a 
     disputed obligation, including waiving or reducing interest 
     and allowing offsetting of obligations among leases.
       ``(j) Enforcement of a Claim for Judicial Review.--In the 
     event a demand subject to this section is properly and timely 
     issued, the obligation which is the subject of the demand may 
     be enforced beyond the six year limitations period without 
     being barred by this statute of limitations. In the event a 
     demand subject to this section is properly and timely 
     commenced, a judicial proceeding challenging the final agency 
     action with respect to such demand shall be deemed timely so 
     long as such judicial proceeding is commenced within 180 days 
     from receipt of notice by the lessee of the final agency 
     action.
       ``(k) Implementation of Final Decision.--In the event a 
     judicial proceeding or demand subject to this section is 
     timely commenced and thereafter the limitation period in this 
     section lapses during the pendency of such proceeding, any 
     party to such proceeding shall not be barred from taking such 
     action as is required or necessary to implement a final 
     unappealable judicial or administrative decision, including 
     any action required or necessary to implement such decision 
     by the recovery or recoupment of an underpayment or 
     overpayment by means of refund or credit.
       ``(l) Stay of Payment Obligation Pending Review.--Any party 
     ordered by the Secretary or a delegated State to pay any 
     obligation (other than an assessment) shall be entitled to a 
     stay of such payment without bond or other surety instrument 
     pending an administrative or judicial proceeding if the party 
     periodically demonstrates to the satisfaction of the 
     Secretary 

[[Page H 12541]]
     that such party is financially solvent or otherwise able to pay the 
     obligation. In the event the party is not able to so 
     demonstrate, the Secretary may require a bond or other surety 
     instrument satisfactory to cover the obligation. Any party 
     ordered by the Secretary or a delegated State to pay an 
     assessment shall be entitled to a stay without bond or other 
     surety instrument.''.
       (b) Clerical Amendment.--The table of contents in section 1 
     of the Federal Oil and Gas Royalty Management Act of 1982 (30 
     U.S.C. 1701) is amended by inserting after the item relating 
     to section 114 the following new item:

``Sec. 115. Limitation periods and agency actions.''.

     SEC. 5364. ADJUSTMENT AND REFUNDS.

       (a) In General.--The Federal Oil and Gas Royalty Management 
     Act of 1982 (30 U.S.C. 1701 et seq.) is amended by inserting 
     after section 111 the following:

     ``SEC. 111A. ADJUSTMENTS AND REFUNDS.

       ``(a) Adjustments to Royalties Paid to the Secretary or a 
     Delegated State.--
       ``(1) If, during the adjustment period, a lessee determines 
     that an adjustment or refund request is necessary to correct 
     an underpayment or overpayment of an obligation, the lessee 
     shall make such adjustment or request a refund within a 
     reasonable period of time and only during the adjustment 
     period. The filing of a royalty report which reflects the 
     underpayment or overpayment of an obligation shall constitute 
     prior written notice to the Secretary or the applicable 
     delegated State of an adjustment.
       ``(2)(A) For any adjustment, the lessee shall calculate and 
     report the interest due attributable to such adjustment at 
     the same time the lessee adjusts the principal amount of the 
     subject obligation, except as provided by subparagraph (B).
       ``(B) In the case of a lessee who determines that 
     subparagraph (A) would impose a hardship, the Secretary or 
     such delegated State shall calculate the interest due and 
     notify the lessee within a reasonable time of the amount of 
     interest due, unless such lessee elects to calculate and 
     report interest in accordance with subparagraph (A).
       ``(3) An adjustment or a request for a refund for an 
     obligation may be made after the adjustment period only upon 
     written notice to and approval by the Secretary or the 
     applicable delegated State, as appropriate, during an audit 
     of the period which includes the production month for which 
     the adjustment is being made. If an overpayment is identified 
     during an audit, then the Secretary or the applicable 
     delegated State, as appropriate, shall allow a credit or 
     refund in the amount of the overpayment.
       ``(4) For purposes of this section, the adjustment period 
     for any obligation shall be the five-year period following 
     the date on which an obligation became due. The adjustment 
     period shall be suspended, tolled, extended, enlarged, or 
     terminated by the same actions as the limitation period in 
     section 115.
       ``(b) Refunds.--
       ``(1) In general.--A request for refund is sufficient if 
     it--
       ``(A) is made in writing to the Secretary and, for purposes 
     of section 115, is specifically identified as a demand;
       ``(B) identifies the person entitled to such refund;
       ``(C) provides the Secretary information that reasonably 
     enables the Secretary to identify the overpayment for which 
     such refund is sought; and
       ``(D) provides the reasons why the payment was an 
     overpayment.
       ``(2) Notice.--The Secretary shall promptly notify each 
     State concerned of a request for refund.
       ``(3) Payment by secretary of the treasury.--The Secretary 
     shall certify the amount of the refund to be paid under 
     paragraph (1) to the Secretary of the Treasury who shall make 
     such refund. Such refund shall be paid from amounts received 
     as current receipts from sales, bonuses, royalties (including 
     interest charges collected under this section) and rentals of 
     the public lands and the Outer Continental Shelf under the 
     provisions of the Mineral Leasing Act and the Outer 
     Continental Shelf Lands Act, which are not payable to a State 
     or the Reclamation Fund. The portion of any such refund 
     attributable to any amounts previously disbursed to a State, 
     the Reclamation Fund, or any recipient prescribed by law 
     shall be deducted from the next disbursements to that 
     recipient made under the applicable law. Such amounts 
     deducted from subsequent disbursements shall be credited to 
     miscellaneous receipts in the Treasury.
       ``(4) Payment period.--A refund under this subsection shall 
     be paid or denied (with an explanation of the reasons for the 
     denial) within 120 days of the date on which the request for 
     refund is received by the Secretary. Such refund shall be 
     subject to later audit by the Secretary or the applicable 
     delegated State and subject to the provisions of this Act.
       ``(5) Prohibition against reduction of refunds or 
     credits.--In no event shall the Secretary or any delegated 
     State directly or indirectly claim or offset any amount or 
     amounts against, or reduce any refund or credit (or interest 
     accrued thereon) by the amount of any obligation the 
     enforcement of which is barred by section 115.''.
       (b) Clerical Amendment.--The table of contents in section 1 
     of the Federal Oil and Gas Royalty Management Act of 1982 (30 
     U.S.C. 1701) is amended by inserting after the item relating 
     to section 111 the following new item:

``Sec. 111A. Adjustments and refunds.''.

     SEC. 5365. ROYALTY TERMS AND CONDITIONS, INTEREST, AND 
                   PENALTIES.

       (a) Lessee Interest.--Section 111 of the Federal Oil and 
     Gas Royalty Management Act of 1982 (30 U.S.C. 1721) is 
     amended by adding after subsection (g) the following:
       ``(h) Interest shall be allowed and paid or credited on any 
     overpayment, with such interest to accrue from the date such 
     overpayment was made, at the rate obtained by applying the 
     provisions of subparagraphs (A) and (B) of section 6621(a)(1) 
     of the Internal Revenue Code of 1986, but determined without 
     regard to the matter following subparagraph (B) of section 
     6621(a)(1). Interest which has accrued on any overpayment may 
     be applied to reduce an underpayment. This subsection applies 
     to overpayments made later than six months after the date of 
     enactment of this subsection or September 1, 1996, whichever 
     is later. Such interest shall be paid from amounts received 
     as current receipts from sales, bonuses, royalties (including 
     interest charges collected under this section) and rentals of 
     the public lands and the Outer Continental Shelf under the 
     provisions of the Mineral Leasing Act, and the Outer 
     Continental Shelf Lands Act, which are not payable to a State 
     or the Reclamation Fund. The portion of any such interest 
     payment attributable to any amounts previously disbursed to a 
     State, the Reclamation Fund, or any other recipient 
     designated by law shall be deducted from the next 
     disbursements to that recipient made under the applicable 
     law. Such amounts deducted from subsequent disbursements 
     shall be credited to miscellaneous receipts in the 
     Treasury.''.
       (b) Limitation on Interest.--Section 111 of the Federal Oil 
     and Gas Royalty Management Act of 1982, as amended by 
     subsection (a), is further amended by adding at the end the 
     following:
       ``(i) Upon a determination by the Secretary that an 
     excessive overpayment (based upon all obligations of a lessee 
     for a given reporting month) was made for the sole purpose of 
     receiving interest, interest shall not be paid on the 
     excessive amount of such overpayment. For purposes of this 
     Act, an `excessive overpayment' shall be the amount that any 
     overpayment a lessee pays for a given reporting month 
     (excluding payments for demands for obligations determined to 
     be due as a result of judicial or administrative proceedings 
     or agreed to be paid pursuant to settlement agreements) for 
     the aggregate of all of its Federal leases exceeds 10 percent 
     of the total royalties paid that month for those leases.''.
       (c) Estimated Payment.--Section 111 of the Federal Oil and 
     Gas Royalty Management Act of 1982 (30 U.S.C. 1721), as 
     amended by subsections (a) and (b), is further amended by 
     adding at the end the following:
       ``(j) A lessee may make a payment for the approximate 
     amount of royalties (hereinafter in this subsection 
     `estimated payment') that would otherwise be due for such 
     lease to avoid underpayment or nonpayment interest charges. 
     When an estimated payment is made, actual royalties are due 
     and payable at the end of the month following the month in 
     which the estimated payment is made. If the lessee makes a 
     payment for such actual royalties, the lessee may apply the 
     estimated payment to future royalties. Any estimated payment 
     may be adjusted, recouped, or reinstated at any time by the 
     lessee.''.
       (d) Volume Allocation of Oil and Gas Production.--Section 
     111 of the Federal Oil and Gas Royalty Management Act of 1982 
     (30 U.S.C. 1721), as amended by subsections (a) through (c), 
     is amended by adding at the end the following:
       ``(k)(1) Except as otherwise provided by this subsection--
       ``(A) a lessee of a lease in a unit or communitization 
     agreement which contains only Federal leases with the same 
     royalty rate and funds distribution shall report and pay 
     royalties on oil and gas production for each production month 
     based on the actual volume of production sold by or on behalf 
     of that lessee;
       ``(B) a lessee of a lease in any other unit or 
     communitization agreement shall report and pay royalties on 
     oil and gas production for each production month based on the 
     volume of oil and gas produced from such agreement and 
     allocated to the lease in accordance with the terms of the 
     agreement; and
       ``(C) a lessee of a lease that is not contained in a unit 
     or communitization agreement shall report and pay royalties 
     on oil and gas production for each production month based on 
     the actual volume of production sold by or on behalf of that 
     lessee.
       ``(2) This subsection applies only to requirements for 
     reporting and paying royalties. Nothing in this subsection is 
     intended to alter a lessee's liability for royalties on oil 
     or gas production based on the share of production allocated 
     to the lease in accordance with the terms of the lease, a 
     unit or communitization agreement, or any other agreement.
       ``(3) For any unit or communitization agreement, if all 
     lessees contractually agree to an alternative method of 
     royalty reporting and payment, the lessees may submit such 
     alternative method to the Secretary or the delegated State 
     for approval and make payments in accordance with such 
     approved alternative method so long as such alternative 
     method does not reduce the amount of the royalty obligation.
       ``(4) The Secretary or the delegated State shall grant an 
     exception from the reporting and payment requirements for 
     marginal properties by allowing for any calendar year or 
     portion thereof royalties to be paid each month based on the 
     volume of production sold. Interest shall not accrue on the 
     difference for the entire calendar year or portion thereof 
     between the amount of oil and gas actually sold and the share 
     of production allocated to the lease until the beginning of 
     the month following calendar year or portion thereof. Any 
     additional royalties due or overpaid royalties and associated 
     interest shall be paid, refunded, or credited within six 
     months after the end of each calendar year in which 

[[Page H 12542]]
     royalties are paid based on volumes of production sold. For the purpose 
     of this subsection, the term 'marginal property' means a 
     lease that produces on average the combined equivalent of 
     less than 15 barrels of oil per day or 90 thousand cubic feet 
     of gas per day, or a combination thereof, determined by 
     dividing the average daily production of crude oil and 
     natural gas from producing wells on such lease by the number 
     of such wells, unless the Secretary, together with the State 
     concerned, determines that a different production is more 
     appropriate.
       ``(5) Not later than two years after the date of the 
     enactment of this subsection, the Secretary shall issue any 
     appropriate demand for all outstanding royalty payment 
     disputes regarding who is required to report and pay 
     royalties on production from units and communitization 
     agreements outstanding on the date of the enactment of this 
     subsection, and collect royalty amounts owed on such 
     production.''.
       ``(e) Production Allocation.--Section 111 of the Federal 
     Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 1721), 
     as amended by subsections (a) through (d), is amended by 
     adding at the end the following:
       ``(l) The Secretary or the delegated State shall issue all 
     determinations of allocations of production for units and 
     communitization agreements within 120 days of a request for 
     determination. If the Secretary or the delegated State fails 
     to issue a determination within such 120-day period, the 
     Secretary shall waive interest due on obligations subject to 
     the determination until the end of the month following the 
     month in which the determination is made.''.
       (f) New Assessment to Encourage Proper Royalty Payments.--
       (1) In general.--The Federal Oil and Gas Royalty Management 
     Act of 1982 (30 U.S.C. 1721), as amended by this section, is 
     further amended by adding at the end the following:

     ``SEC. 116. ASSESSMENTS.

       ``Beginning eighteen months after the date of enactment of 
     this section, to encourage proper royalty payment the 
     Secretary or the delegated State shall impose assessments on 
     lessees who chronically submit erroneous reports under this 
     Act. Assessments under this Act may only be issued as 
     provided for in this section.''.
       (2) Clerical amendment.--The table of contents in section 1 
     of such Act (30 U.S.C. 1701) is amended by adding after the 
     item relating to section 115 the following new item:

``Sec. 116. Assessments.''.

       (g) Liability for Royalty Payments.--Section 102(a) of the 
     Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 
     1712(a)) is amended to read as follows:
       ``(a) In order to increase receipts and achieve effective 
     collections of royalty and other payments, a lessee who is 
     required to make any royalty or other payment under a lease 
     or under the mineral leasing laws, shall make such payments 
     in the time and manner as may be specified by the Secretary 
     or the applicable delegated State. A lessee may designate a 
     person to make all or part of the payments due under a lease 
     on the lessee's behalf and shall notify the Secretary or the 
     applicable delegated State in writing of such designation, in 
     which event said designated person may, in its own name, pay, 
     offset or credit monies, make adjustments, request and 
     receive refunds and submit reports with respect to payments 
     required by the lessee. The person owning operating rights in 
     a lease shall be primarily liable for its pro rata share of 
     payment obligations under the lease. If the person owning the 
     legal record title in a lease is other than the operating 
     rights owner, the person owning the legal record title shall 
     be secondarily liable for its pro rata share of such payment 
     obligations under the lease.''.
       (h) Clerical Amendment.--The heading of section 111 of the 
     Federal Oil and Gas Royalty Management Act of 1982 (30 U.S.C. 
     1721) is amended to read as follows:


       ``royalty terms and conditions, interest, and penalties''.

     SEC. 5366. ALTERNATIVES FOR MARGINAL PROPERTIES.

       (a) In General.--The Federal Oil and Gas Royalty Management 
     Act of 1982 (30 U.S.C. 1701 et seq.), as amended by section 
     5365 of this chapter, is further amended by adding at the end 
     the following:

     ``SEC. 117. ALTERNATIVES FOR MARGINAL PROPERTIES.

       ``(a) Determination of Best Interests of State Concerned 
     and the United States.--The Secretary and the State 
     concerned, acting in the best interests of the United States 
     and the State concerned to promote production, reduce 
     administrative costs, and increase net receipts to the United 
     States and the States, shall jointly determine, on a case by 
     case basis, the amount of what marginal production from a 
     lease or leases or well or wells, or parts thereof, shall be 
     subject to a prepayment under subsection (b) or regulatory 
     relief under subsection (c). If the State concerned does not 
     consent, such prepayments or regulatory relief shall not be 
     made available under this section for such marginal 
     production, provided that if royalty payments from a lease or 
     leases, or well or wells is not shared with any State, such 
     determination shall be made solely by the Secretary.
       ``(b) Prepayment of Royalty.--
       ``(1) I general.--Notwithstanding the provisions of any 
     lease to the contrary, for any lease or leases or well or 
     wells identified by the Secretary and the State concerned 
     pursuant to subsection (a), the Secretary is authorized to 
     accept a prepayment for royalties in lieu of monthly royalty 
     payments under the lease for the remainder of the lease term 
     if the affected lessee so agrees. Any prepayment agreed to by 
     the Secretary, State concerned and lessee which is less than 
     an average $500 per month in total royalties shall be 
     effectuated under this section not earlier than two years 
     after the date of enactment of this section and, any 
     prepayment which is greater than an average $500 per month in 
     total royalties shall be effectuated under this section not 
     earlier than three years after the date of enactment of this 
     section. The Secretary and the State concerned may condition 
     their acceptance of the prepayment authorized under this 
     section on the lessee's agreeing to such terms and conditions 
     as the Secretary and the State concerned deem appropriate and 
     consistent with the purposes of this Act. Such terms may--
       ``(A) provide for prepayment that does not result in a loss 
     of revenue to the United States in present value terms;
       ``(B) include provisions for receiving additional 
     prepayments or royalties for developments in the lease or 
     leases or well or wells that deviate significantly from the 
     assumptions and facts on which the valuation is determined; 
     and
       ``(C) require the lessee to provide such periodic 
     production reports as may be necessary to allow the Secretary 
     and the State concerned to monitor production for the 
     purposes of subparagraph (B).
       ``(2) State share.--A prepayment under this section shall 
     be shared by the Secretary with any State or other recipient 
     to the same extent as any royalty payment for such lease.
       ``(3) Satisfaction of obligation.--Except as may be 
     provided in the terms and conditions established by the 
     Secretary under subsection (b), a lessee who makes a 
     prepayment under this section shall have satisfied in full 
     its obligation to pay royalty on the production stream sold 
     from the lease or leases or well or wells.
       ``(c) Alternative Accounting and Auditing Requirements.--
       ``(1) In general.--Within one year after the date of the 
     enactment of this section, the Secretary or the delegated 
     State shall provide accounting, reporting, and auditing 
     relief that will encourage lessees to continue to produce and 
     develop properties subject to subsection (a); provided, that 
     such relief will only be available to lessees in a State that 
     concurs, which concurrence is not required if royalty from 
     the lease or leases or well or wells is not shared with any 
     State. Prior to granting such relief, the Secretary and, if 
     appropriate, the State concerned shall agree that the type of 
     marginal wells and relief provided under this paragraph is in 
     the best interest of the United States and, if appropriate, 
     the State concerned.''.
       (b) Clerical Amendment.--The table of contents in section 1 
     of such Act (30 U.S.C. 1701) is amended by adding after the 
     item relating to section 115 the following new item:

``Sec. 117. Alternatives for marginal properties.''.

     SEC. 5367. REPEALS.

       (a) FOGRMA.--As applicable to Federal lands, sections 202 
     and 307 of the Federal Oil and Gas Royalty Management Act of 
     1982 (30 U.S.C. 1732 and 1755), are repealed. Such repeal 
     shall not affect cooperative agreements involving Indian 
     tribes or Indian lands. Section 1 of such Act (relating to 
     the table of contents) is amended by striking out the items 
     relating to sections 202 and 307.
       (b) OCSLA.--Effective on the date of the enactment of this 
     Act, section 10 of the Outer Continental Shelf Lands Act (43 
     U.S.C. 1339) is repealed.

     SEC. 5368. INDIAN LANDS.

       The amendments and repeals made by this chapter shall not 
     apply with respect to Indian lands, and the provisions of the 
     Federal Oil and Gas Royalty Management Act of 1982 as in 
     effect on the day before the date of enactment of this Act 
     shall continue to apply after such date with respect to 
     Indian lands.

     SEC. 5369. PRIVATE LANDS.

       This chapter shall not apply to any privately owned 
     minerals.

     SEC. 5369A. EFFECTIVE DATE.

       Except as provided by section 115(f), section 111(h), 
     section 111(k)(5), and section 117 of the Federal Oil and Gas 
     Royalty Management Act of 1982 (as added by this chapter), 
     this chapter, and the amendments made by this chapter, shall 
     apply with respect to the production of oil and gas after the 
     first day of the month following the date of the enactment of 
     this Act.

                           CHAPTER 5--MINING

     SEC. 5371. SHORT TITLE.

       This chapter may be cited as ``The Mining Law Revenue Act 
     of 1995''.

     SEC. 5372. DEFINITIONS.

       When used in this chapter--
       (1) ``Assessment year'' means the annual period commencing 
     at 12 o'clock noon on the 1st day of September and ending at 
     12 o'clock noon on the 1st day of September of the following 
     year.
       (2) ``Federal lands'' means lands and interests in lands 
     owned by the United States that are open to mineral location, 
     or that were open to mineral location when a mining claim or 
     site was located and which have not been patented under the 
     general mining laws.
       (3) ``General mining laws'' means those Acts which 
     generally comprise chapters 2, 11, 12, 12A, 15, and 16, and 
     sections 161 and 162, of Title 30 of the United States Code, 
     all Acts heretofore enacted which are amendatory of or 
     supplementary to any of the foregoing Acts, and the judicial 
     and administrative decisions interpreting such Acts.
       (4) ``Locatable minerals'' means those minerals owned by 
     the United States and subject to location and disposition 
     under the general mining laws on or after the effective date 
     of this chapter, but not including any mineral held in trust 
     by the United States for any Indian or Indian tribe, as 
     defined in section 2 of the Indian Mineral Development Act of 
     1982 (25 U.S.C. 2101), or any mineral owned by any Indian or 

[[Page H 12543]]
     Indian tribe, as defined in that section, that is subject to a 
     restriction against alienation imposed by the United States, 
     or any mineral owned by any incorporated Native group, 
     village corporation, or regional corporation and acquired by 
     the group or corporation under the provisions of the Alaska 
     Native Claims Settlement Act (43 U.S.C. 1601 et seq.).
       (5) ``Mineral activities'' means any activity related to, 
     or incidental to, exploration for or development, mining, 
     production, beneficiation, or processing of any locatable 
     mineral or mineral that would be locatable if it were subject 
     to disposition under the general mining laws, or reclamation 
     of the impacts of such activities.
       (6) ``Mining claim or site'', except where provided 
     otherwise, means a lode mining claim, placer mining claim, 
     mill site or tunnel site.
       (7) ``Operator'' means any person conducting mineral 
     activities subject to this chapter.
       (8) ``Person'' means an individual, Indian tribe, 
     partnership, association, society, joint venture, joint stock 
     company, firm, company, limited liability company, 
     corporation, cooperative or other organization, and any 
     instrumentality of State or local government, including any 
     publicly owned utility or publicly owned corporation of State 
     or local government.
       (9) ``Secretary'' means the Secretary of the Interior.

     SEC. 5373. RENTAL PAYMENT REQUIREMENTS.

       (a) Rental Payments.--(1) After the date of enactment of 
     this Act, the owner of each unpatented mining claim or site 
     located pursuant to the general mining laws, whether located 
     before or after the enactment of this Act, shall pay to the 
     Secretary prior to September 1 of each year, until a patent 
     has been issued therefor, an annual rental payment for each 
     unpatented mining claim or site.
       (2) Location payment.--The owner of each unpatented mining 
     claim or site located after the date of enactment of this Act 
     pursuant to the general mining laws shall pay to the 
     Secretary, at the time the copy of the notice or certificate 
     of location is filed with the Bureau of Land Management 
     pursuant to section 314(b) of the Federal Land Policy and 
     Management Act of 1976 (43 U.S.C. 1744(b)), a $25.00 location 
     payment, in lieu of the annual rental payment of $100 per 
     mining claim or site for the assessment year which includes 
     the date of location of such mining claim or site.
       (3) Exemption and waiver.--(A) The owner of any mining 
     claim or site who demonstrates to the Secretary on or before 
     the first day of any assessment year that access to such 
     mining claim or site was denied during the prior assessment 
     year by the action or inaction of any State or Federal 
     governmental officer, agency, or court, or by any Indian 
     tribal authority, shall be exempt from the annual rental 
     payment requirements of paragraph (1) for the assessment year 
     following the filing of the certification.
       (B) The rental payment provided for in subsection 5373(a) 
     shall be waived for the owner of a mining claim or site who 
     certifies in writing to the Secretary, on or before the date 
     the payment is due, that, as of the date such payment is due, 
     such owner and all related persons own not more than ten 
     unpatented mining claims or sites. Any owner of a mining 
     claim or site that is not required to pay a rental payment 
     under this subsection shall continue to be subject to the 
     assessment work requirements of the general mining laws or of 
     any other State or Federal law, subject to any suspension or 
     deferment of annual assessment work provided by law, for the 
     assessment year following the filing of the certification 
     required by this subsection.
       (4) Amount of annual rental payment.--For each assessment 
     year the annual rental payment payable for a claim or site 
     referred to in paragraph (1) shall be in the amount specified 
     in Table 1.

                                Table 1

Amount of Payment Per Site or Claim:
$100 per year..........................................................
$200 per yeareafter....................................................

       (5) Effect of forfeiture.--No owner or co-owner of a mining 
     claim or site which has been forfeited because the rental 
     payment has not been paid and no person who is a related 
     person of any such owner or co-owner may relocate a new claim 
     on any part of lands located within the forfeited claim for a 
     period of 12 months after the date of forfeiture.
       (b) Annual Labor.--(1) Beginning in 1999, amounts expended 
     on activities that qualify as annual labor under the general 
     mining laws may be credited on a dollar for dollar basis 
     towards up to 50 percent of the annual rental payment payable 
     under this section for the following assessment year. During 
     the assessment year in 1999, annual labor performed in 1998 
     may be credited toward the annual rental payment due in 1999.
       (2) In order to receive credit under this subsection for 
     annual labor work, the description and value of the work must 
     be included in the statement required in subsection (e) and 
     the statement must be timely filed.
       (3) Annual labor performed on an individual mining claim or 
     site within a group of contiguous claims may be credited 
     towards the aggregate amount of rental payments due on all of 
     the contiguous claims within that group.
       (c) Work Qualifying as Annual Labor.--(1) Only work which 
     directly benefits or develops a mining claim or facilitates 
     the extraction of ore qualifies as annual labor or other 
     activities as determined by the Secretary. Acceptable labor 
     and improvements include, but are not limited to, any of the 
     following:
       (A) Drilling or excavating, including ore extraction.
       (B) Mining costs directly associated with the production of 
     ore.
       (C) Prospecting work which benefits the claim or a 
     contiguous claim.
       (D) Development work toward an actual mine, such as shafts, 
     tunnels, crosscuts and drifts, settling ponds and dams.
       (E) Activities covered under section 1 of the Act of 
     September 2, 1958 (30 U.S.C. 281), as amended.
       (F) Reclamation conducted pursuant to State or Federal 
     surface management laws or regulations.
       (2) The following activities do not qualify as annual 
     labor:
       (A) Work involved in maintaining the location such as 
     brushing and marking boundaries or replacing corner posts and 
     location notices.
       (B) Transportation of workers to or from the location.
       (C) Prospecting or exploration work not conducted within 
     the location or a contiguous location.
       (d) Amendments of Public Law 85-876.--The Act of September 
     2, 1958 (Public Law 85-876; 30 U.S.C. 281), is amended as 
     follows:
       (1) Section 1 is amended by inserting ``mineral activities, 
     environmental baseline monitoring, and'' after ``without 
     being limited to'' and before ``geological, geochemical and 
     geophysical surveys'' and by striking ``Such'' at the 
     beginning of the last sentence and inserting ``Airborne''.
       (2) Section 2(d) is amended by inserting ``environmental 
     baseline monitoring or'' after ``experience to conduct'' and 
     before ``geological, geochemical or geophysical surveys''.
       (3) Section 2 is amended by adding the following new 
     subsection at the end thereof:
       ``(e) The term `environmental baseline monitoring' means 
     activities for collecting, reviewing and analyzing 
     information concerning soil, vegetation, wildlife, mineral, 
     air, water, cultural, historical, archaeological or other 
     resources related to planning for or complying with Federal 
     and State environmental or permitting requirements applicable 
     to potential or proposed mineral activities on the 
     claim(s).''.
       (e) Rental Payment Statement.--Each payment under 
     subsection (a) of this section shall be accompanied by a 
     statement which reasonably identifies the mining claim or 
     site for which the rental payment is being paid. The 
     statement required under this subsection shall be in lieu of 
     any annual filing requirements for mining claims or sites, 
     under any other Federal law, but shall not supersede any such 
     filing requirement under applicable State law.
       (f) Annual Labor Statement.--When the value of annual labor 
     is credited towards part or all of the rental payment, 
     subject to the 50-percent limit set forth in subsection 
     (b)(1), the following shall apply:
       (1) The rental payment statement required in subsection (e) 
     must also state the dates of performance of the labor, 
     describe the character and total value of the improvements 
     made or the labor performed, and the amount of labor used as 
     a credit toward the rental payment for the current year.
       (2) The annual labor statements must include a summary of 
     the quantity, value and location of work done. This includes 
     a listing of the physical work done, to include drilling, 
     trenching, sampling and underground excavation, and the 
     location of any environmental, geologic, geochemical, and 
     geophysical surveys. The claim holder shall maintain 
     sufficient records which document the value of the work 
     claimed.
       (3) All supporting material filed pursuant to paragraph (2) 
     shall remain confidential in accordance with section 552 of 
     title 5 of the United States Code as long as the location is 
     maintained and for a period of one year after the location is 
     abandoned, after which all data filed shall be considered 
     public information.
       (4) To the extent that labor credited against the rental 
     payment payable under this section is determined by a final 
     action not to qualify as labor under the general mining laws, 
     the claimant shall pay the insufficiency by making payment to 
     the Secretary of an amount equal to the amount of the rental 
     payment against which the insufficient labor was credited. If 
     such payment is made within 30 days of the claimant's receipt 
     of a notice of a final decision making such determination, 
     the claim concerned shall not be forfeited or null or void, 
     and the rental payment applicable to such claim shall be 
     deemed timely paid.
       (g) Credit Against Royalty.--The annual claim rental 
     payment payable in advance of the assessment year for any 
     unpatented mining claim or site, or the aggregate rental 
     payments from a group of contiguous claims or sites, shall be 
     credited against the amount of royalty obligation accruing 
     for that year for such claims or sites under section 5375.
       (h) Failure to Comply.--The failure of the owner to pay any 
     claim rental payment for a mining claim or site by the date 
     such payment is due under this section shall constitute 
     forfeiture of the mining claim or site and such mining claim 
     or site shall be null and void, effective as of the day after 
     the date such payment is due: Provided, That if such rental 
     payment is paid on or before the 30th day after such payment 
     was due under this section, such mining claim or site shall 
     not be forfeited or null or void.
       (i) Amendment of FLPMA Filing Requirements.--Section 314(a) 
     of the Federal Land Policy and Management Act of 1976 (43 
     U.S.C. 1744(a)) is hereby repealed.
       (j) Related Persons.--As used in this section, the term 
     ``related persons'' includes--
       (1) the spouse and dependent children (as defined in 
     section 152 of the Internal Revenue Code of 1986) of the 
     owner of the mining claim or site; and
       (2) a person controlled by, controlling, or under common 
     control with the owner of the mining claim or site.
       (k) Repeal.--Sections 10101 through 10106 of the Omnibus 
     Budget Reconciliation Act of 1993 (107 Stat. 406; 30 U.S.C. 
     28g) are repealed.

[[Page H 12544]]


     SEC. 5374. PATENTS.

       (a) In General.--Except as provided in subsection (c), any 
     patent issued by the United States under the general mining 
     laws after the date of enactment of this chapter shall be 
     issued only--
       (1) upon payment by the owner of the claim of the fair 
     market value for the interest in the land owned by the United 
     States exclusive of and without regard to the mineral 
     deposits in the land or the use of the land for mineral 
     activities; and
       (2) subject to reservation by the United States of the 
     royalty provided in section 5375.
       (b) Right of Re-entry.--
       (1) Except as provided in subsection 5374(c), and 
     notwithstanding any other provision of law, the United States 
     shall retain a right of re-entry in lands patented under 
     section 5374.
       (2) Such right of re-entry of the United States shall ripen 
     if--
       (A) the land is used by the patentee, or any subsequent 
     owners, for any purpose other than conducting mineral 
     activities in good faith;
       (B) such use is not discontinued within a time period 
     specified by the Secretary (but not earlier than 90 days 
     after the Secretary provides the owner of the land with 
     written notice pursuant to paragraph (2) to discontinue such 
     use); and
       (C) the Secretary elects to assert the right of re-entry in 
     accordance with paragraph (3).
       (3) The ripened right of re-entry retained by the United 
     States pursuant to subparagraph (2) shall vest and all right, 
     title and interest in such patented estate shall revert to 
     the United States only if--
       (A) the Secretary files a declaration of re-entry within 6 
     months of the requisite occurrences under paragraph (2) with 
     the Office of the Bureau of Land Management in the state 
     where the land subject to such right of re-entry is situated; 
     and
       (B) the Secretary records such declaration in the office of 
     the county recorder of the county in which the lands subject 
     to a reversion are situated within 30 days of filing under 
     subparagraph (A).
       (4) One year after the patent holder provides written 
     notice to the Secretary that all mineral activities are 
     completed and applicable reclamation is completed, the right 
     of re-entry held by the United States and created under the 
     subsection (b) shall expire unless within such period the 
     Secretary notifies the patent holder in writing that he is 
     exercising the right of re-entry held by the United States. 
     At such time, ownership of the patented lands shall 
     automatically revert to the United States, notwithstanding 
     subparagraphs (A), (B) and (C) of subsection (b)(2). The 
     Secretary may decline to exercise the right of re-entry and 
     such rights shall continue if--
       (a) solid waste or hazardous substances released on or from 
     the patented estate may pose a threat to public safety or the 
     environment; or
       (b) acceptance of title would expose the United States to 
     liability for past mineral activities on the patented estate.
       (c) Protection of Valid Existing Rights.--Notwithstanding 
     any other provision of law, the requirements of this chapter 
     (except with respect to rental payments in accordance with 
     section 5373)--
       (1) shall not apply to the mining claims and sites 
     contained within those mineral patent applications pending at 
     the Department as of September 30, 1995, which shall be 
     processed under the general mining laws in effect immediately 
     prior to the date of enactment of this chapter; and
       (2) likewise shall not apply to the mining claims or sites 
     for which there is on the date of enactment of this chapter a 
     vested possessory property right against the Government under 
     the general mining laws in effect immediately prior to the 
     date of enactment of this chapter.

     SEC. 5375. ROYALTY.

       (a) In General.--The production and sale of locatable 
     minerals (including associated minerals) from any unpatented 
     mining claim (other than those from Federal lands to which 
     subsection 5374(c) applies) or any mining claim patented 
     under subsection 5374(a) shall be subject to a royalty of 5.0 
     percent on the net proceeds from such production mined and 
     sold from such claim.
       (b) Royalty Exclusion.--
       (1) The royalty payable under this section shall be waived 
     for any person with annual net proceeds from mineral 
     production subject to subsection (a) of less than $50,000.
       (2) The obligation to pay royalties hereunder shall accrue 
     upon the sale of locatable minerals or mineral products 
     produced from a mining claim subject to such royalty, and not 
     upon the stockpiling of the same for future processing.
       (3) Where mining operations subject to this section are 
     conducted in two or more places by the same person, the 
     operations shall be considered a single operation the 
     aggregate net proceeds from which shall be subject to the 
     $50,000 limitation set forth in this subsection.
       (4) No royalty shall be payable under this section with 
     respect to minerals processed at a facility by the same 
     person or entity which extracted the minerals if an urban 
     development action grant has been made under section 119 of 
     the Housing and Community Development Act of 1974 with 
     respect to any portion of such facility.
       (c) Definitions.--For the purposes of this chapter:
       (1) The term ``net proceeds'' shall mean gross yield, less 
     the sum of the following deductions for costs incurred prior 
     to sale or value determination, and none other:
       (A) The actual cost of extracting the locatable mineral.
       (B) The actual cost of transporting the locatable mineral 
     from the claim to the place or places of reduction, 
     beneficiation, refining, and sale.
       (C) The actual cost of reduction, beneficiation, refining, 
     and sale of the locatable mineral.
       (D) The actual cost of marketing and delivering the 
     locatable mineral and the conversion of the locatable mineral 
     into money.
       (E) The actual cost of maintenance and repairs of--
       (i) all machinery, equipment, apparatus, and facilities 
     used in the mine;
       (ii) all crushing, milling, leaching, refining, smelting, 
     and reduction works, plants, and facilities; and
       (iii) all facilities and equipment for transportation.
       (F) The actual cost for support personnel and support 
     services at the mine site, including without limitation, 
     accounting, assaying, drafting and mapping, computer 
     services, surveying, housing, camp, and office expenses, 
     safety, and security.
       (G) The actual cost of engineering, sampling, and assaying 
     pertaining to development and production.
       (H) The actual cost of permitting, reclamation, 
     environmental compliance and monitoring.
       (I) The actual cost of fire and other insurance on the 
     machinery, equipment, apparatus, works, plants, and 
     facilities mentioned in subparagraph (E).
       (J) Depreciation of the original capitalized cost of the 
     machinery, equipment, apparatus, works, plants, and 
     facilities listed in subparagraph (E). The annual 
     depreciation charge shall consist of amortization of the 
     original cost in the manner consistent with the Internal 
     Revenue Code of 1986, as amended from time to time. The 
     probable life of the property represented by the original 
     cost must be considered in computing the depreciation charge.
       (K) All money expended for premiums for industrial 
     insurance, and the owner paid cost of hospital and medical 
     attention and accident benefits and group insurance for all 
     employees engaged in the production or processing of 
     locatable minerals.
       (L) All money paid as contributions or payments under State 
     unemployment compensation law, all money paid as 
     contributions under the Federal Social Security Act, and all 
     money paid to State government in real property taxes and 
     severance or other taxes measured or levied on production, or 
     Federal excise tax payments and payments as fees or charges 
     for use of the Federal lands from which the locatable 
     minerals are produced.
       (M) The actual cost of the developmental work in or about 
     the mine or upon a group of mines when operated as a unit.
       (2) The term ``gross yield'' shall having the following 
     meaning:
       (A) In the case of sales of gold and silver ore, 
     concentrates or bullion, or the sales of other locatable 
     minerals in the form of ore or concentrates, the term ``gross 
     yield'' means the actual proceeds of sale of such ore, 
     concentrates or bullion.
       (B) In the case of sales of beneficiated products from 
     locatable minerals other than those subject to subparagraph 
     (A) (including cathode, anode or copper rod or wire, or other 
     products fabricated from the locatable minerals), the term 
     ``gross yield'' means the gross income from mining derived 
     from the first commercially marketable product determined in 
     the same manner as under section 613 of the Internal Revenue 
     Code of 1986.
       (C) If ore, concentrates, beneficiated or fabricated 
     products, or locatable minerals are used or consumed and are 
     not sold in an arms length transaction, the term ``gross 
     yield'' means the reasonable fair market value of the ore, 
     concentrates, beneficiated or fabricated products at the mine 
     or wellhead determined from the first applicable of the 
     following:
       (i) Published or other competitive selling prices of 
     locatable minerals of like kind and grade.
       (ii) Any proceeds of sale.
       (iii) Value received in exchange for any thing or service.
       (iv) The value of any locatable minerals in kind or used or 
     consumed in a manufacturing process or in providing a 
     service.
     Without limiting the foregoing, the profits or losses 
     incurred in connection with forward sales, futures or 
     commodity options trading, metal loans, or any other price 
     hedging or speculative activity or arrangement shall not be 
     included in gross yield.
       (d) Limitations and Allocations of Net Proceeds, Gross 
     Yield, and Allowable Deductions.--
       (1) The deductions listed in subsection (c)(1) are intended 
     to allow a reasonable allowance for overhead. Such deductions 
     shall not include any expenditures for salaries, or any 
     portion of salaries, of any person not actually engaged in--
       (A) the working of the mine;
       (B) the operating of the leach pads, ponds, plants, mills, 
     smelters, or reduction works;
       (C) the operating of the facilities or equipment for 
     transportation; or
       (D) superintending the management of any of those 
     operations described in subparagraphs (A) through (C).
       (2) Ores or solutions of locatable minerals subject to the 
     royalty requirements of this section may be extracted from 
     mines comprised of mining claims and lands other than mining 
     claims and ore or solutions of locatable minerals subject to 
     the royalty requirements of this section may be commingled 
     with ores or solutions from lands other than mining claims. 
     In any such case, for purposes of determining the amount of 
     royalties payable under this section--
       (A) the operator shall first sample, weigh or measure, and 
     assay the same in accordance with accepted industry 
     standards; and
       (B) gross yield, allowable costs and net proceeds for 
     royalty purposes shall be allocated in proportion to mineral 
     products recovered from the mining claims in accordance with 
     accepted industry standards.

[[Page H 12545]]

       (e) Liability for Royalty Payments.--The owner or co-owners 
     of a mining claim subject to a royalty under this section 
     shall be liable for such royalty to the extent of the 
     interest in such claim owned. As used in this subsection, the 
     terms ``owner'' and ``co-owner'' mean the person or persons 
     owning the right to mine locatable minerals from such claim 
     and receiving the net proceeds of such sale. No person who 
     makes any royalty payment attributable to the interest of the 
     owner or co-owners liable therefor shall become liable to the 
     United States for such royalty as a result of making such 
     payment on behalf of such owner or co-owners.
       (f) Time and Manner of Payment.--
       (1) Royalty payments for production from any mining claim 
     subject to the royalty payable under this section shall be 
     due to the United States at the end of the month following 
     the end of the calendar quarter in which the net proceeds 
     from the sale of such production are received by the owner or 
     co-owners. Royalty payments may be made based upon good faith 
     estimates of the gross yield, net proceeds and the quantity 
     of ore, concentrates, or other beneficiated or fabricated 
     products of locatable minerals, subject to adjustment when 
     the actual annual gross yield, net proceeds and quantity are 
     determined by the owner of the mining claim or site or co-
     owners.
       (2) Each royalty payment or adjustment shall be accompanied 
     by a statement containing each of the following:
       (A) The name and Bureau of Land Management serial number of 
     the mining claim or claims from which ores, concentrates, 
     solutions or beneficiated products of locatable minerals 
     subject to the royalty required in this section were produced 
     and sold for the period covered by such payment or 
     adjustment.
       (B) The estimated (or actual, if determined) quantity of 
     such ore, concentrates, solutions or beneficiated or 
     fabricated products produced and sold from such mining claim 
     or claims for such period.
       (C) The estimated (or actual, if determined) gross yield 
     from the production and sale of such ore, concentrates, 
     solutions or beneficiated products for such period.
       (D) The estimated (or actual, if determined) net proceeds 
     from the production and sale of such ores, concentrates, 
     solutions or beneficiated products for such period, including 
     an itemization of the applicable deductions described in 
     subsection (c)(1).
       (E) The estimated (or actual, if determined) royalty due to 
     the United States, or adjustment due to the United States or 
     such owner or co-owners, for such period.
       (3) In lieu of receiving a refund under subsection (h), the 
     owner or co-owners may elect to apply any adjustment due to 
     such owner or co-owners as an offset against royalties due 
     from such owner or co-owners to the United States under this 
     Act, regardless of whether such royalties are due for 
     production and sale from the same mining claim or claims.
       (g) Recordkeeping and Reporting Requirements.--
       (1) An owner, operator, or other person directly involved 
     in the conduct of mineral activities, transportation, 
     purchase, or sale of locatable minerals, concentrates, or 
     products derived therefrom, subject to the royalty under this 
     section, through the point of royalty computation, shall 
     establish and maintain any records, make any reports, and 
     provide any information that the Secretary may reasonably 
     require for the purposes of implementing this section or 
     determining compliance with regulations or orders under this 
     section. Upon the request of the Secretary when conducting an 
     audit or investigation pursuant to subsection (i), the 
     appropriate records, reports, or information required by this 
     subsection shall be made available for inspection and 
     duplication by the Secretary.
       (2) Records required by the Secretary under this section 
     shall be maintained for 3 years after the records are 
     generated unless the Secretary notifies the record holder 
     that he or she has initiated an audit or investigation 
     specifically identifying and involving such records and that 
     such records must be maintained for a longer period. When an 
     audit or investigation is under way, such records shall be 
     maintained until the earlier of the date that the Secretary 
     releases the record holder of the obligation to maintain such 
     records or the date that the limitations period applicable to 
     such audit or investigation under subsection (i) expires.
       (h) Interest Assessments.--
       (1) If royalty payments under this section are not received 
     by the Secretary on the date that such payments are due, or 
     if such payments are less than the amount due, the Secretary 
     shall charge interest on such unpaid amount. Interest under 
     this subsection shall be computed at the rate published by 
     the Department of the Treasury as the ``Treasury Current 
     Value of Funds Rate.'' In the case of an underpayment or 
     partial payment, interest shall be computed and charged only 
     on the amount of the deficiency and not on the total amount, 
     and only for the number of days such payment is late. No 
     other late payment or underpayment charge or penalty shall be 
     charged with respect to royalties under this section.
       (2) In any case in which royalty payments are made in 
     excess of the amount due, or amounts are held by the 
     Secretary pending the outcome of any appeal in which the 
     Secretary does not prevail, the Secretary shall promptly 
     refund such overpayments or pay such amounts to the person or 
     persons entitled thereto, together with interest thereon for 
     the number of days such overpayment or amounts were held by 
     the Secretary, with the addition of interest charged against 
     the United States computed at the rate published by the 
     Department of the Treasury as the ``Treasury Current Value of 
     Funds Rate.''
       (i) Audits, Payment Demands and Limitations.--
       (1) The Secretary may conduct, after notice, any audit 
     reasonably necessary and appropriate to verify the payments 
     required under this section.
       (2) The Secretary shall send or issue any billing or demand 
     letter for royalty due on locatable minerals produced and 
     sold from any mining claim subject to royalty required by 
     this section not later than 3 years after the date such 
     royalty was due and must specifically identify the production 
     involved, the royalty allegedly due and the basis for the 
     claim. No action, proceeding or claim for royalty due on 
     locatable minerals produced and sold, or relating to such 
     production, may be brought by the United States, including 
     but not limited to any claim for additional royalties or 
     claim of the right to offset the amount of such additional 
     royalties against amounts owed to any person by the United 
     States, unless judicial suit or administrative proceedings 
     are commenced to recover specific amounts claimed to be due 
     prior to the expiration of 3 years from the date such royalty 
     is alleged to have been due.
       (j) Transitional Rules.--Any mining claim for which a 
     patent is issued pursuant to section 5374(c) shall not be 
     subject to the obligation to pay the royalty pursuant to this 
     section. Royalty payments for any claim processed under 
     section 5374(c) shall be suspended pending final 
     determination of the right to patent. For any such claim that 
     is determined not to qualify for the issuance of a patent 
     under section 5374(c), royalties shall be payable under this 
     section on production after the date of enactment of this 
     Act, plus interest computed at the rate published by the 
     Department of the Treasury as the ``Treasury Current Value of 
     Funds Rate'' on production after such date of enactment and 
     before the date of such determination.
       (k) Penalties.--Any person who withholds payment or 
     royalties under this section after a final, nonappealable 
     determination of liability may be liable for civil penalties 
     of up to $ 5,000 per day that payment is withheld after 
     becoming due.
       (l) Disbursement of Revenues.--The receipts from royalties 
     collected under this section shall be disbursed as follows:
       (1) Fifty percent of such receipts shall be paid into the 
     Treasury of the United States and deposited as miscellaneous 
     receipts.
       (2) Forty percent of such receipts shall be paid into a 
     State Fund or Federal Fund in accordance with section 5376; 
     until termination as provided in section 5379.
       (3) Ten percent of such receipts shall be paid by the 
     Secretary of the Treasury to the State in which the mining 
     claim from which production occurred is located.

     SEC. 5376. ABANDONED LOCATABLE MINERALS MINE RECLAMATION 
                   FUND.

       (a) State Fund.--Any State within which royalties are 
     collected pursuant to section 5375 from a mining claim and 
     which wishes to become eligible to receive such proceeds 
     allocated by paragraph 5375(l)(2) shall establish and 
     maintain an interest-bearing abandoned locatable mineral mine 
     reclamation fund (hereinafter referred to in this chapter as 
     ``State Fund'') to accomplish the purposes of this chapter. 
     States with existing abandoned locatable mineral reclamation 
     programs shall qualify to receive proceeds allocated by 
     section 5375(l)(2).
       (b) Federal Fund.--There is established on the books of the 
     Treasury of the United States an interest-bearing fund to be 
     known as the Abandoned Locatable Minerals Mine Reclamation 
     Fund (hereinafter referred to in this chapter as ``Federal 
     Fund'') which shall consist of royalty proceeds allocated by 
     paragraph 5375(l)(2) from mining claims in a State where a 
     State Fund has not been established or maintained under 
     subsection (a).

     SEC. 5377. ALLOCATION AND PAYMENTS.

       (a) State Fund.--Royalties collected pursuant to section 
     5375 and allocated by section 5375(l)(2) shall be paid by the 
     Secretary of the Treasury to the State Fund established 
     pursuant to subsection 5376(a) for the State where the mining 
     claim from which the production occurred is located. Payments 
     to States under this subsection with respect to any royalties 
     received by the United States, shall be made not later than 
     the last business day of the month in which such royalties 
     are warranted by the United States Treasury to the Secretary 
     of the Interior as having been received, except for any 
     portion of such royalties which is under challenge, which 
     shall be placed in a suspense account pending resolution of 
     such challenge. Such warrants shall be issued by the United 
     States Treasury not later than 10 days after receipt of such 
     royalties by the Treasury. Royalties placed in a suspense 
     account which are determined to be due the United States 
     shall be payable to a State Fund not later than fifteen days 
     after such challenge is resolved. Any such amount placed in a 
     suspense account pending resolution shall bear interest until 
     the challenge is resolved. In determining the amount of 
     payments to State Funds under this section, the amount of 
     such payments shall not be reduced by any administrative or 
     other costs incurred by the United States.
       (b) Federal Fund.--Royalties collected pursuant to section 
     5375, and allocated by paragraph 5375(l)(2), from mining 
     claims located in a State which has not established or 
     maintained a State Fund, and such royalties from mining 
     claims located in a State for which the Secretary's authority 
     has expired under subsection 5379(a), shall be credited to 
     the Federal Fund and distributed in accordance with 
     subsection (c).
       (c) Transition.--Prior to the time a State establishes a 
     State Fund pursuant to subsection 5376(a), any royalties 
     collected from a mining claim within such State shall be 
     deposited into the Federal Fund and allocated to such State. 
     Once a State establishes a State Fund under 

[[Page H 12546]]
     subsection 5376(a), the State allocation in the Federal Fund with 
     accrued interest shall be paid by the Secretary of the 
     Treasury to the State Fund in accordance with subsection (a). 
     Commencing three years after the date of enactment of this 
     chapter, the Secretary of the Treasury shall distribute 
     royalty proceeds then accrued or which are thereafter 
     credited to the Federal Fund equally among all States which 
     maintain a State Fund established under subsection 5376(a), 
     and for which the Secretary of the Treasury's authority has 
     not expired under subsection 5379(a).

     SEC. 5378. ELIGIBLE AREA.

       (a) In General.--Subject to subsection (b), lands and water 
     eligible for reclamation under this chapter shall be Federal 
     lands that --
       (1) have been adversely affected by past mineral activities 
     on lands abandoned and left inadequately reclaimed prior to 
     the date of enactment of this chapter; and
       (2) for which the State determines there is no identifiable 
     party with a continuing reclamation responsibility under 
     State or Federal laws.
       (b) Specific Sites and Areas Not Eligible.--The following 
     areas shall not be eligible for expenditures from a State 
     Fund:
       (1) any area subject to a plan of operations submitted or 
     approved prior to, on or after the date of enactment of this 
     chapter which includes remining or reclamation of the area 
     adversely affected by past locatable mineral activities;
       (2) any area affected by coal mining eligible for 
     reclamation expenditures pursuant to section 404 of the 
     Surface Mining Control and Reclamation Act (30 U.S.C. 1234);
       (3) any area designated for remedial action pursuant to the 
     Uranium Mill Tailings Radiation Control Act of 1978 (42 
     U.S.C. 7912); and
       (4) any area that was listed on the National Priorities 
     List pursuant to the Comprehensive Environmental Response, 
     Compensation and Liability Act of 1980 (42 U.S.C. 9605) prior 
     to the date of enactment of this chapter, or where the 
     Environmental Protection Agency has initiated or caused to be 
     initiated a response action pursuant to that Act.

     SEC. 5379. SUNSET PROVISIONS.

       (a) Termination of Authority.--The Secretary of the 
     Treasury's authority to allocate funds to a State Fund under 
     section 5377 shall expire on the date that the State submits 
     a report to the Congress which states that there are no areas 
     in the State eligible under subsection 5378(a) which remain 
     to be reclaimed.
       (b) Termination of Fund.--Upon the termination of authority 
     as provided in subsection (a) with respect to all State 
     Funds, the Federal Fund shall also be terminated, and all 
     royalty proceeds thereafter remaining in the Federal Fund 
     shall be distributed to the States as provided for in Section 
     5375(l)(3).

     SEC. 5380. EFFECT ON THE GENERAL MINING LAWS.

       The provisions of this chapter shall supersede the general 
     mining laws only to the extent such laws conflict with the 
     requirements of this chapter. Where no such conflict exists, 
     the general mining laws, including all judicial and 
     administrative decisions interpreting them, shall remain in 
     full force and effect.

     SEC. 5381. SEVERABILITY.

       If any provision of this chapter or the applicability 
     thereof to any person or circumstances is held invalid, the 
     remainder of this chapter and the application of such 
     provision to other persons or circumstances shall not be 
     affected thereby.

     SEC. 5382. MINERAL MATERIALS.

       (a) Determinations.--Section 3 of the Act of July 23, 1955 
     (30 U.S.C. 611), is amended as follows:
       (1) Insert ``(a)'' before the first sentence.
       (2) Add the following new subsection at the end thereof:
       (b)(1) Subject to valid existing rights, after the date of 
     enactment of this subsection, notwithstanding the reference 
     to common varieties in subsection (a) and to the exception to 
     such term relating to a deposit of materials with some 
     property giving it distinct and special value, all deposits 
     of mineral materials referred to in such subsection, 
     including the block pumice referred to in such subsection, 
     shall be subject to disposal only under the terms and 
     conditions of the Materials Act of 1947.
       (2) For purposes of paragraph (1), the term `valid existing 
     rights' means that a mining claim located for any such 
     mineral material had some property giving it the distinct and 
     special value referred to in subsection (a), or as the case 
     may be, met the definition of block pumice referred to in 
     such subsection, was properly located and maintained under 
     the general mining laws prior to the date of the enactment of 
     this subsection, and was supported by a discovery of a 
     valuable mineral deposit within the meaning of the general 
     mining laws as in effect immediately prior to such date of 
     enactment and that such claim continues to be valid under 
     this Act.''.
       (b) Identified Deposits.--The Act entitled ``An Act to 
     provide for the disposal of materials on the public lands of 
     the United States'', approved July 31, 1947 (30 U.S.C. 602), 
     is amended by adding at the end the following:
       ``(b) Identified Deposits.--
       ``(1) Lands known to contain valuable deposits of mineral 
     materials subject to this Act and subsequent amendments and 
     not covered by any contract, permit, or lease, for uncommon 
     varieties of mineral materials under this section or by a 
     valid mining claim for an uncommon variety of a mineral 
     material under the general mining laws shall be subject to 
     disposition by lease under this Act by the Secretary through 
     advertisement, competitive bidding, or such other methods as 
     he may by general regulations adopt, and in such reasonably 
     compact areas as he shall fix.
       ``(2) All leases will be conditioned upon--
       ``(A) the payment by the lessee of such royalty as may be 
     fixed in the lease, not less than two percent of the quantity 
     or gross value of the output of mineral materials, and
       ``(B) the payment in advance of a rental of 25 cents per 
     acre for the first calendar year or fraction thereof; 50 
     cents per acre for the second, third, fourth, and fifth 
     years, respectively; and $1 per acre per annum thereafter 
     during the continuance of the lease, such rental for that 
     year being credited against royalties accruing for that year.
       ``(3)(A) Any lease issued under this subsection shall be 
     for a term of 20 years and so long thereafter as the lessee 
     complies with the terms and conditions of the lease and upon 
     the further condition that at the end of each 20-year period 
     succeeding the date of the lease such reasonable adjustment 
     of the terms and conditions thereof may be made therein as 
     may be prescribed by the Secretary unless otherwise provided 
     by law at the expiration of such periods.
       ``(B) Leases shall be conditioned upon a minimum annual 
     production or the payment of a minimum royalty in lieu 
     thereof, except when production is interrupted by strikes, 
     the elements, or casualties not attributable to the lessee.
       ``(C) The Secretary may permit suspension of operations 
     under any such leases when marketing conditions are such that 
     the leases cannot be operated except at a loss.
       ``(D) The Secretary upon application by the lessee prior to 
     the expiration of any existing lease in good standing shall 
     amend such lease to provide for the same tenure and to 
     contain the same conditions, including adjustment at the end 
     of each 20-year period succeeding the date of said lease, as 
     provided for in this subsection.
       ``(c) Other Lands.--
       ``(1) The Secretary is hereby authorized, under such rules 
     and regulations as he may prescribe, to grant to any 
     qualified applicant a prospecting permit which shall give the 
     exclusive right to prospect for mineral materials in lands 
     belonging to the United States which are not subject to 
     subsection (b), and are not covered by a contract, permit, or 
     lease under this Act, except that a prospecting permit shall 
     not exceed a period of 2 years and the area to be included in 
     such a permit shall not exceed 2,560 acres of land in 
     reasonably compact form.
       ``(2) The Secretary shall reserve and may exercise the 
     authority to cancel any prospecting permit upon failure by 
     the permittee to exercise due diligence in the prosecution of 
     the prospecting work in accordance with the terms and 
     conditions stated in the permit, and shall insert in every 
     such permit issued under the provisions of this Act 
     appropriate provisions for its cancellation by him.
       ``(3)(A) Upon showing to the satisfaction of the Secretary 
     that valuable deposits of one of the mineral materials 
     subject to the Materials Act of 1947 have been discovered by 
     the permittee within the area covered by his permit, and that 
     such land is valuable therefor, the permittee shall be 
     entitled to a lease for any or all of the land embraced in 
     the prospecting permit, at a royalty of not less than two 
     percent of the quantity or gross value of the output of the 
     mineral materials at the point of shipment to market, such 
     lease to be taken in compact form by legal subdivisions of 
     the public land surveys, or if the land be not surveyed, by 
     survey executed at the cost of the permittee in accordance 
     with regulations prescribed by the Secretary.''.
       ``(B) ``Persons holding valid mining claims for uncommon 
     varieties of mineral materials shall be entitled to receive a 
     lease under this subsection.''
       (D) Mineral Materials Disposal Clarification.--Section 4 
     July 23, 1955 (30 U.S.C. 612), is amended as follows:
       (1) In subsection (b) insert ``and mineral material'' after 
     ``vegetative''.
       (2) In subsection (c) insert ``and mineral material'' after 
     ``vegetative''.
       (e) Authorization for Disposal of Mineral Materials by 
     Contract.--Section 2(a) of the Act entitled ``An Act to 
     provide for the disposal of materials on the public lands of 
     the United States'', approved July 31, 1947 (30 U.S.C. 
     602(a)), is amended--
       (1) by striking the period at the end of paragraph (3) and 
     inserting ``or, if''; and
       (2) by adding after paragraph (3) the following:
       ``(4) the material is a mineral material.''.

                 CHAPTER 6--DEPARTMENT OF THE INTERIOR

     SEC. 5391. AIRCRAFT SERVICES.

       (a) Use of Private Contractors.--By not later than October 
     1, 1996, the Secretary of the Interior shall contract with 
     private entities for the provision of all aircraft services 
     required by the Department of the Interior, other than those 
     available from existing DOI aircraft whose primary purpose is 
     fire suppression.
       (b) Sale of Federal Aircraft.--By September 30, 1998, the 
     Secretary of the Interior is authorized and directed to sell 
     all aircraft owned by the Department of the Interior and all 
     associated equipment and facilities, other than those whose 
     primary purpose is fire suppression.
       (c) Exemptions.--The disposition of assets under this 
     section is not subject to section 202 and 203 of the Federal 
     Property and Administrative Services Act of 1949 (40 U.S.C. 
     483 and 484) or section 13 of the Surplus Property Act of 
     1944 (50 U.S.C. App. 1622).
       (d) Disposition of Proceeds.--The proceeds from 
     dispositions under this section shall be returned to the 
     Treasury as miscellaneous receipts and all savings from 
     reduced overhead and other costs related to the management of 
     the assets sold shall be returned to the Treasury.

               CHAPTER 7--POWER MARKETING ADMINISTRATIONS

       Subchapter A--Bonneville Power Administration Refinancing

     SEC. 5401. DEFINITIONS.

       For the purposes of this subchapter--

[[Page H 12547]]

       (1) ``Administrator'' means the Administrator of the 
     Bonneville Power Administration;
       (2) ``capital investment'' means a capitalized cost funded 
     by Federal appropriations that--
       (A) is for a project, facility, or separable unit or 
     feature of a project or facility;
       (B) is a cost for which the Administrator is required by 
     law to establish rates to repay to the United States Treasury 
     through the sale of electric power, transmission, or other 
     services;
       (C) excludes a Federal irrigation investment; and
       (D) excludes an investment financed by the current revenues 
     of the Administrator or by bonds issued and sold, or 
     authorized to be issued and sold, by the Administrator under 
     section 13 of the Federal Columbia River Transmission System 
     Act (16 U.S.C. 838k);
       (3) ``new capital investment'' means a capital investment 
     for a project, facility, or separable unit or feature of a 
     project, facility, or separable unit or feature of a project 
     or facility, placed in service after September 30, 1995;
       (4) ``old capital investment'' means a capital investment 
     the capitalized cost of which--
       (A) was incurred, but not repaid, before October 1, 1995, 
     and
       (B) was for a project, facility, or separable unit or 
     feature of a project or facility, placed in service before 
     October 1, 1995;
       (5) ``repayment date'' means the end of the period within 
     which the Administrator's rates are to assure the repayment 
     of the principal amount of a capital investment; and
       (6) ``Treasury rate'' means--
       (A) for an old capital investment, a rate determined by the 
     Secretary of the Treasury, taking into consideration 
     prevailing market yields, during the month preceding October 
     1, 1995, on outstanding interest-bearing obligations of the 
     United States with periods to maturity comparable to the 
     period between October 1, 1995, and the repayment date for 
     the old capital investment; and
       (B) for a new capital investment, a rate determined by the 
     Secretary of the Treasury, taking into consideration 
     prevailing market yields, during the month preceding the 
     beginning of the fiscal year in which the related project, 
     facility, or separable unit or feature is placed in service, 
     on outstanding interest-bearing obligations of the United 
     States with periods to maturity comparable to the period 
     between the beginning of the fiscal year and the repayment 
     date for the new capital investment.

     SEC. 5402. NEW PRINCIPAL AMOUNTS.

       (a) Principal Amount.--Effective October 1, 1995, an old 
     capital investment has a new principal amount that is the sum 
     of--
       (1) the present value of the old payment amounts for the 
     old capital investment, calculated using a discount rate 
     equal to the Treasury rate for the old capital investment; 
     and
       (2) an amount equal to $100,000,000 multiplied by a 
     fraction the numerator of which is the principal amount of 
     the old payment amounts for the old capital investment and 
     the denominator of which is the sum of the principal amounts 
     of the old payment amounts for all old capital investments.
       (b) Determination.--With the approval of the Secretary of 
     the Treasury, based solely on consistency with this 
     subchapter, the Administrator shall determine the new 
     principal amounts under this section and the assignment of 
     interest rates to the new principal amounts under section 
     5403.
       (c) Old Payment Amount.--For the purposes of this section, 
     ``old payment amounts'' means, for an old capital investment, 
     the annual interest and principal that the Administrator 
     would have paid to the United States Treasury from October 1, 
     1995, if this subchapter had not been enacted, assuming 
     that--
       (1) the principal were repaid--
       (A) on the repayment date the Administrator assigned before 
     October 1, 1993, to the old capital investment, or
       (B) with respect to an old capital investment for which the 
     Administrator has not assigned a repayment date before 
     October 1, 1993, on a repayment date the Administrator shall 
     assign to the old capital investment in accordance with 
     paragraph 10(d)(1) of the version of Department of Energy 
     Order RA 6120.2 in effect on October 1, 1993; and
       (2) interest were paid--
       (A) at the interest rate the Administrator assigned before 
     October 1, 1993, to the old capital investment, or
       (B) with respect to an old capital investment for which the 
     Administrator has not assigned an interest rate before 
     October 1, 1993, at a rate determined by the Secretary of the 
     Treasury, taking into consideration prevailing market yields, 
     during the month preceding the beginning of the fiscal year 
     in which the related project, facility, or separable unit or 
     feature is placed in service, on outstanding interest-bearing 
     obligations of the United States with periods to maturity 
     comparable to the period between the beginning of the fiscal 
     year and the repayment date for the old capital investment.

     SEC. 5403. INTEREST RATE FOR NEW PRINCIPAL AMOUNTS.

       As of October 1, 1995, the unpaid balance on the new 
     principal amount established for an old capital investment 
     under section 5402 bears interest annually at the Treasury 
     rate for the old capital investment until the earlier of the 
     date that the new principal amount is repaid or the repayment 
     date for the new principal amount.

     SEC. 5404. REPAYMENT DATES.

       As of October 1, 1995, the repayment date for the new 
     principal amount established for an old capital investment 
     under section 5402 is no earlier than the repayment date for 
     the old capital investment assumed in section 5402(c)(1).

     SEC. 5405. PREPAYMENT LIMITATIONS.

       During the period October 1, 1995, through September 30, 
     2000, the total new principal amounts of old capital 
     investments, as established under section 5402, that the 
     Administrator may pay before their respective repayment dates 
     shall not exceed $100,000,000.

     SEC. 5406. INTEREST RATES FOR NEW CAPITAL INVESTMENTS DURING 
                   CONSTRUCTION.

       (a) New Capital Investment.--The principal amount of a new 
     capital investment includes interest in each fiscal year of 
     construction of the related project, facility, or separable 
     unit or feature at a rate equal to the one-year rate for the 
     fiscal year on the sum of--
       (1) construction expenditures that were made from the date 
     construction commenced through the end of the fiscal year, 
     and
       (2) accrued interest during construction.
       (b) Payment.--The Administrator is not required to pay, 
     during construction of the project, facility, or separable 
     unit or feature, the interest calculated, accrued, and 
     capitalized under subsection (a).
       (c) One-Year Rate.--For the purposes of this section, 
     ``one-year rate'' for a fiscal year means a rate determined 
     by the Secretary of the Treasury, taking into consideration 
     prevailing market yields, during the month preceding the 
     beginning of the fiscal year, on outstanding interest-bearing 
     obligations of the United States with periods to maturity of 
     approximately one year.

     SEC. 5407. INTEREST RATES FOR NEW CAPITAL INVESTMENTS.

       The unpaid balance on the principal amount of a new capital 
     investment bears interest at the Treasury rate for the new 
     capital investment from the date the related project, 
     facility, or separable unit or feature is placed in service 
     until the earlier of the date the new capital investment is 
     repaid or the repayment date for the new capital investment.

     SEC. 5408. CREDITS TO ADMINISTRATOR'S PAYMENTS TO THE UNITED 
                   STATES TREASURY.

       The Confederated Tribe of the Colville Reservation Grand 
     Coulee Dam Settlement Act (Public Law 103-436; 108 Stat. 
     4577) is amended by striking section 6 and inserting the 
     following:

     ``SEC. 6. CREDITS TO ADMINISTRATOR'S PAYMENTS TO THE UNITED 
                   STATES TREASURY.

       ``So long as the Administrator makes annual payments to the 
     tribes under the settlement agreement, the Administrator 
     shall apply against amounts otherwise payable by the 
     Administrator to the United States Treasury a credit that 
     reduces the Administrator's payment in the amount and for 
     each fiscal year as follows: $15,250,000 in fiscal year 1996; 
     $15,860,000 in fiscal year 1997; $16,490,000 in fiscal year 
     1998; $17,150,000 in fiscal year 1999; $17,840,000 in fiscal 
     year 2000; and $4,100,000 in each succeeding fiscal year.''.

     SEC. 5409. CONTRACT PROVISIONS.

       In each contract of the Administrator that provides for the 
     Administrator to sell electric power, transmission, or 
     related services, and that is in effect after September 30, 
     1995, the Administrator shall offer to include, or as the 
     case may be, shall offer to amend to include, provisions 
     specifying that after September 30, 1995--
       (1) the Administrator shall establish rates and charges on 
     the basis that--
       (A) the principal amount of an old capital investment shall 
     be no greater than the new principal amount established under 
     section 5402;
       (B) the interest rate applicable to the unpaid balance of 
     the new principal amount of an old capital investment shall 
     be no greater than the interest rate established under 
     section 5403;
       (C) any payment of principal of an old capital investment 
     shall reduce the outstanding principal balance of the old 
     capital investment in the amount of the payment at the time 
     the payment is tendered; and
       (D) any payment of interest on the unpaid balance of the 
     new principal amount of an old capital investment shall be a 
     credit against the appropriate interest account in the amount 
     of the payment at the time the payment is tendered;
       (2) apart from charges necessary to repay the new principal 
     amount of an old capital investment as established under 
     section 5402 and to pay the interest on the principal amount 
     under section 5403, no amount may be charged for return to 
     the United States Treasury as repayment for or return on an 
     old capital investment, whether by way of rate, rent, lease 
     payment, assessment, user charge, or any other fee;
       (3) amounts provided under section 1304 of title 31, United 
     States Code, shall be available to pay, and shall be the sole 
     source for payment of, a judgment against or settlement by 
     the Administrator or the United States on a claim for a 
     breach of the contract provisions required by this 
     subchapter; and
       (4) the contract provisions specified in this subchapter do 
     not--
       (A) preclude the Administrator from recovering, through 
     rates or other means, any tax that is generally imposed on 
     electric utilities in the United States, or
       (B) affect the Administrator's authority under applicable 
     law, including section 7(g) of the Pacific Northwest Electric 
     Power Planning and Conservation Act (16 U.S.C. 839e(g)), to--
       (i) allocate costs and benefits, including but not limited 
     to fish and wildlife costs, to rates or resources, or
       (ii) design rates.

     SEC. 5410. SAVINGS PROVISIONS.

       (a) Repayment.--This subchapter does not affect the 
     obligation of the Administrator to repay the principal 
     associated with each capital investment, and to pay interest 
     on the principal, only from the ``Administrator's net 
     proceeds,'' as defined in section 13(b) of the Federal 
     Columbia River Transmission System Act (16 U.S.C. 838k(b)).
       (b) Payment of Capital Investment.--Except as provided in 
     section 5405, this subchapter does not affect the authority 
     of the Administrator to pay all or a portion of the principal 


[[Page H 12548]]
     amount associated with a capital investment before the repayment date 
     for the principal amount.
        Subchapter B--Alaska Power Marketing Administration Sale

     SEC. 5411. SHORT TITLE.

       This subchapter may be cited as the ``Alaska Power 
     Administration Asset Sale and Termination Act''.

     SEC. 5412. DEFINITIONS.

       For Purposes of this subchapter:
       (1) The term ``Eklutna'' means Eklutna Hydroelectric 
     Project and related assets as described in section 4 and 
     Exhibit A of the Eklutna Purchase Agreement.
       (2) The term ``Eklutna Purchase Agreement'' means the 
     August 2, 1989, Eklutna Purchase Agreement between the Alaska 
     Power Administration of the Department of Energy and the 
     Eklutna Purchasers, together with any amendments thereto 
     adopted before the date of enactment of this Act.
       (3) The term ``Eklutna Purchasers'' means the Municipality 
     of Anchorage doing business as Municipal Light and Power, the 
     Chugach Electric Association, Inc. and the Matanuska Electric 
     Association, Inc.
       (4) The term ``Snettisham'' means the Snettisham 
     Hydroelectric Project and related assets as described in 
     section 4 and Exhibit A of the Snettisham Purchase Agreement.
       (5) The term ``Snettisham Purchase Agreement'' means the 
     February 10, 1989, Snettisham Purchase Agreement between the 
     Alaska Power Administration of the Department of Energy and 
     the Alaska Power Authority and its successors in interest, 
     together with any amendments thereto adopted before the date 
     of enactment of this Act.
       (6) The term ``Snettisham Purchaser'' means the Alaska 
     Industrial Development and Export Authority or a successor 
     State agency or authority.

     SEC. 5413. SALE OF EKLUTNA AND SNETTISHAM HYDROELECTRIC 
                   PROJECTS.

       (a) Sale of Eklutna.--The Secretary of Energy is authorized 
     and directed to sell Eklutna to the Eklutna Purchasers in 
     accordance with the terms of this subchapter and the Eklutna 
     Purchase Agreement.
       (b) Sale of Snettisham.--The Secretary of Energy is 
     authorized and directed to sell Snettisham to the Snettisham 
     Purchaser in accordance with the terms of this subchapter and 
     the Snettisham Purchase Agreement.
       (c) Cooperation of Other Agencies.--The heads of other 
     Federal departments, agencies, and instrumentalities of the 
     United States shall assist the Secretary of Energy in 
     implementing the sales and conveyances authorized and 
     directed by this subchapter.
       (d) Proceeds.--Proceeds from the sales required by this 
     subchapter shall be deposited in the Treasury of the United 
     States to the credit of miscellaneous receipts.
       (e) Preparation of Eklutna and Snettisham for Sale.--The 
     Secretary of Energy is authorized and directed to use such 
     funds from the sale of electric power by the Alaska Power 
     Administration as may be necessary to prepare, survey, and 
     acquire Eklutna and Snettisham assets for sale and 
     conveyance. Such preparations and acquisitions shall provide 
     sufficient title to ensure the beneficial use, enjoyment, and 
     occupancy by the purchaser.
       (f) Contributed Funds.--Notwithstanding any other provision 
     of law, the Alaska Power Administration is authorized to 
     receive, administer, and expend such contributed funds as may 
     be provided by the Eklutna Purchasers or customers or the 
     Snettisham Purchaser or customers for the purposes of 
     upgrading, improving, maintaining, or administering Eklutna 
     or Snettisham. Upon the termination of the Alaska Power 
     Administration under section 5414(f), the Secretary of Energy 
     shall administer and expend any remaining balances of such 
     contributed funds for the purposes intended by the 
     contributors.

     SEC. 5414. EXEMPTION AND OTHER PROVISIONS.

       (a) Federal Power Act.--
       (1) After the sales authorized by this subchapter occur, 
     Eklutna and Snettisham, including future modifications, shall 
     continue to be exempt from the requirements of part I of the 
     Federal Power Act (16 U.S.C. 791a et seq.), except as 
     provided in subsection (b).
       (2) The exemption provided by paragraph (1) shall not 
     affect the Memorandum of Agreement entered into among the 
     State of Alaska, the Eklutna Purchasers, the Alaska Energy 
     Authority, and Federal fish and wildlife agencies regarding 
     the protection, mitigation of, damages to, and enhancement of 
     fish and wildlife, dated August 7, 1991, which remains in 
     full force and effect.
       (3) Nothing in this subchapter or the Federal Power Act (16 
     U.S.C. 791 et seq.) preempts the State of Alaska from 
     carrying out the responsibilities and authorities of the 
     Memorandum of Agreement.
       (b) Subsequent Transfers.--Except for subsequent assignment 
     of interest in Eklutna by the Eklutna Purchasers to the 
     Alaska Electric Generation and Transmission Cooperative Inc. 
     pursuant to section 19 of the Eklutna Purchase Agreement, 
     upon any subsequent sale or transfer of any portion of 
     Eklutna or Snettisham from the Eklutna Purchasers or the 
     Snettisham Purchaser to any other person, the exemption set 
     forth in paragraph (1) of subsection (a) of this section 
     shall cease to apply to such portion.
       (c) Review.--
       (1) The United States District Court for the District of 
     Alaska shall have jurisdiction to review decisions made under 
     the Memorandum of Agreement and to enforce the provisions of 
     the Memorandum of Agreement, including the remedy of specific 
     performance.
       (2) An action seeking review of a Fish and Wildlife Program 
     (``Program'') of the Governor of Alaska under the Memorandum 
     of Agreement or challenging actions of any of the parties to 
     the Memorandum of Agreement prior to the adoption of the 
     Program shall be brought not later than 90 days after the 
     date on which the Program is adopted by the Governor of 
     Alaska, or be barred.
       (3) An action seeking review of implementation of the 
     Program shall be brought not later than 90 days after the 
     challenged act implementing the Program, or be barred.
       (d) Eklutna Lands.--With respect to Eklutna lands described 
     in Exhibit A of the Eklutna Purchase Agreement:
       (1) The Secretary of the Interior shall issue rights-of-way 
     to the Alaska Power Administration for subsequent 
     reassignment to the Eklutna Purchasers--
       (A) at no cost to the Eklutna Purchasers;
       (B) to remain effective for a period equal to the life of 
     Eklutna as extended by improvements, repairs, renewals, or 
     replacements; and
       (C) sufficient for the operation of, maintenance of, repair 
     to, and replacement of, and access to, Eklutna facilities 
     located on military lands and lands managed by the Bureau of 
     Land Management, including lands selected by the State of 
     Alaska.
       (2) Fee title to lands at Anchorage Substation shall be 
     transferred to Eklutna Purchasers at no additional cost if 
     the Secretary of the Interior determines that pending claims 
     to, and selections of, those lands are invalid or 
     relinquished.
       (3) With respect to the Eklutna lands identified in 
     paragraph 1 of Exhibit A of the Eklutna Purchase Agreement, 
     the State of Alaska may select, and the Secretary of the 
     Interior shall convey to the State, improved lands under the 
     selection entitlements in section 6 of the Act of July 7, 
     1958 (commonly known as the Alaska Statehood Act, Public Law 
     85-508; 72 Stat. 339), and the North Anchorage Land Agreement 
     dated January 31, 1983. This conveyance shall be subject to 
     the rights-of-way provided to the Eklutna Purchasers under 
     paragraph (1).
       (e) Snettisham Lands.--With respect to the Snettisham lands 
     identified in paragraph 1 of Exhibit A of the Snettisham 
     Purchase Agreement and Public Land Order No. 5108, the State 
     of Alaska may select, and the Secretary of the Interior shall 
     convey to the State of Alaska, improved lands under the 
     selection entitlements in section 6 of the Act of July 7, 
     1958 (commonly known as the Alaska Statehood Act, Public Law 
     85-508; 72 Stat. 339).
       (f) Termination of Alaska Power Administration.--Not later 
     than one year after both of the sales authorized in section 
     5413 have occurred, as measured by the Transaction Dates 
     stipulated in the Purchase Agreements, the Secretary of 
     Energy shall--
       (1) complete the business of, and close out, the Alaska 
     Power Administration;
       (2) submit to Congress a report documenting the sales; and
       (3) return unobligated balances of funds appropriated for 
     the Alaska Power Administration to the Treasury of the United 
     States.
       (g) Repeals.--
       (1) The Act of July 31, 1950 (64 Stat. 382) is repealed 
     effective on the date that Eklutna is conveyed to the Eklutna 
     Purchasers.
       (2) Section 204 of the Flood Control Act of 1962 (76 Stat. 
     1193) is repealed effective on the date that Snettisham is 
     conveyed to the Snettisham Purchaser.
       (3) The Act of August 9, 1955, concerning water resources 
     investigation in Alaska (69 Stat. 618), is repealed.
       (h) DOE Organization Act.--As of the later of the two dates 
     determined in paragraphs (1) and (2) of subsection (g), 
     section 302(a) of the Department of Energy Organization Act 
     (42 U.S.C. 7152(a)) is amended--
       (1) in paragraph (1)--
       (A) by striking subparagraph (C); and
       (B) by redesignating subparagraphs (D), (E), and (F) as 
     subparagraphs (C), (D), and (E) respectively; and
       (2) in paragraph (2) by striking out ``and the Alaska Power 
     Administration'' and by inserting ``and'' after 
     ``Southwestern Power Administration,''.
       (i) Disposal.--The sales of Eklutna and Snettisham under 
     this subchapter are not considered disposal of Federal 
     surplus property under the Federal Property and 
     Administrative Services Act of 1949 (40 U.S.C. 484) or the 
     Act of October 3, 1944, popularly known as the ``Surplus 
     Property Act of 1944'' (50 U.S.C. App. 1622).

     SEC. 5415. OTHER FEDERAL HYDROELECTRIC PROJECTS.

       The provisions of this subchapter regarding the sale of the 
     Alaska Power Administration's hydroelectric projects under 
     section 5413 and the exemption of these projects from part I 
     of the Federal Power Act under section 5414 do not apply to 
     other Federal hydroelectric projects.

      CHAPTER 8--OUTER CONTINENTAL SHELF DEEP WATER ROYALTY RELIEF

     SEC. 5421. SHORT TITLE.

       This chapter may be referred to as the ``Outer Continental 
     Shelf Deep Water Royalty Relief Act''.

     SEC. 5422. AMENDMENTS TO THE OUTER CONTINENTAL SHELF LANDS 
                   ACT.

       Section 8(a)(3) of the Outer Continental Shelf Lands Act 
     (43 U.S.C. 1337(a)(3)), is amended--
       (1) by designating the provisions of paragraph (3) as 
     subparagraph (A) of such paragraph (3); and
       (2) by inserting after subparagraph (A), as so designated, 
     the following:
       ``(B) In the Western and Central Planning Areas of the Gulf 
     of Mexico and the portion of the Eastern Planning Area of the 
     Gulf of Mexico encompassing whole lease blocks lying west of 
     87 degrees, 30 minutes West longitude, the Secretary may, in 
     order to--
       ``(i) promote development or increased production on 
     producing or non-producing leases; or

[[Page H 12549]]

       ``(ii) encourage production of marginal resources on 
     producing or non-producing leases;
     through primary, secondary, or tertiary recovery means, 
     reduce or eliminate any royalty or net profit share set forth 
     in the lease(s). With the lessee's consent, the Secretary may 
     make other modifications to the royalty or net profit share 
     terms of the lease in order to achieve these purposes.
       ``(C)(i) Notwithstanding the provisions of this Act other 
     than this subparagraph, with respect to any lease or unit in 
     existence on the date of enactment of the Outer Continental 
     Shelf Deep Water Royalty Relief Act meeting the requirements 
     of this subparagraph, no royalty payments shall be due on new 
     production, as defined in clause (iv) of this subparagraph, 
     from any lease or unit located in water depths of 200 meters 
     or greater in the Western and Central Planning Areas of the 
     Gulf of Mexico, including that portion of the Eastern 
     Planning Area of the Gulf of Mexico encompassing whole lease 
     blocks lying west of 87 degrees, 30 minutes West longitude, 
     until such volume of production as determined pursuant to 
     clause (ii) has been produced by the lessee.
       ``(ii) Upon submission of a complete application by the 
     lessee, the Secretary shall determine within 180 days of such 
     application whether new production from such lease or unit 
     would be economic in the absence of the relief from the 
     requirement to pay royalties provided for by clause (i) of 
     this subparagraph. In making such determination, the 
     Secretary shall consider the increased technological and 
     financial risk of deep water development and all costs 
     associated with exploring, developing, and producing from the 
     lease. The lessee shall provide information required for a 
     complete application to the Secretary prior to such 
     determination. The Secretary shall clearly define the 
     information required for a complete application under this 
     section. Such application may be made on the basis of an 
     individual lease or unit. If the Secretary determines that 
     such new production would be economic in the absence of the 
     relief from the requirement to pay royalties provided for by 
     clause (i) of this subparagraph, the provisions of clause (i) 
     shall not apply to such production. If the Secretary 
     determines that such new production would not be economic in 
     the absence of the relief from the requirement to pay 
     royalties provided for by clause (i), the Secretary must 
     determine the volume of production from the lease or unit on 
     which no royalties would be due in order to make such new 
     production economically viable; except that for new 
     production as defined in clause (iv)(I), in no case will that 
     volume be less than 17.5 million barrels of oil equivalent in 
     water depths of 200 to 400 meters, 52.5 million barrels of 
     oil equivalent in 400 to 800 meters of water, and 87.5 
     million barrels of oil equivalent in water depths greater 
     than 800 meters. Redetermination of the applicability of 
     clause (i) shall be undertaken by the Secretary when 
     requested by the lessee prior to the commencement of the new 
     production and upon significant change in the factors upon 
     which the original determination was made. The Secretary 
     shall make such redetermination within 120 days of submission 
     of a complete application. The Secretary may extend the time 
     period for making any determination or redetermination under 
     this clause for 30 days, or longer if agreed to by the 
     applicant, if circumstances so warrant. The lessee shall be 
     notified in writing of any determination or redetermination 
     and the reasons for and assumptions used for such 
     determination. Any determination or redetermination under 
     this clause shall be a final agency action. The Secretary's 
     determination or redetermination shall be judicially 
     reviewable under section 10(a) of the Administrative 
     Procedure Act (5 U.S.C. 702), only for actions filed within 
     30 days of the Secretary's determination or redetermination.
       ``(iii) In the event that the Secretary fails to make the 
     determination or redetermination called for in clause (ii) 
     upon application by the lessee within the time period, 
     together with any extension thereof, provided for by clause 
     (ii), no royalty payments shall be due on new production as 
     follows:
       ``(I) For new production, as defined in clause (iv) (I) of 
     this subparagraph, no royalty shall be due on such production 
     according to the schedule of minimum volumes specified in 
     clause (ii) of this subparagraph.
       ``(II) For new production, as defined in clause (iv) (II) 
     of this subparagraph, no royalty shall be due on such 
     production for one year following the start of such 
     production.
       ``(iv) For purposes of this subparagraph, the term `new 
     production' is--
       ``(I) any production from a lease from which no royalties 
     are due on production, other than test production, prior to 
     the date of enactment of the Outer Continental Shelf Deep 
     Water Royalty Relief Act; or
       ``(II) any production resulting from lease development 
     activities pursuant to a Development Operations Coordination 
     Document, or supplement thereto that would expand production 
     significantly beyond the level anticipated in the Development 
     Operations Coordination Document, approved by the Secretary 
     after the date of enactment of the Outer Continental Shelf 
     Deep Water Royalty Relief Act.
       ``(v) During the production of volumes determined pursuant 
     to clauses (ii) or (iii) of this subparagraph, in any year 
     during which the arithmetic average of the closing prices on 
     the New York Mercantile Exchange for light sweet crude oil 
     exceeds $28.00 per barrel, any production of oil will be 
     subject to royalties at the lease stipulated royalty rate. 
     Any production subject to this clause shall be counted toward 
     the production volume determined pursuant to clause (ii) or 
     (iii). Estimated royalty payments will be made if such 
     average of the closing prices for the previous year exceeds 
     $28.00. After the end of the calendar year, when the new 
     average price can be calculated, lessees will pay any 
     royalties due, with interest but without penalty, or can 
     apply for a refund, with interest, of any overpayment.
       ``(vi) During the production of volumes determined pursuant 
     to clause (ii) or (iii) of this subparagraph, in any year 
     during which the arithmetic average of the closing prices on 
     the New York Mercantile Exchange for natural gas exceeds 
     $3.50 per million British thermal units, any production of 
     natural gas will be subject to royalties at the lease 
     stipulated royalty rate. Any production subject to this 
     clause shall be counted toward the production volume 
     determined pursuant to clauses (ii) or (iii). Estimated 
     royalty payments will be made if such average of the closing 
     prices for the previous year exceeds $3.50. After the end of 
     the calendar year, when the new average price can be 
     calculated, lessees will pay any royalties due, with interest 
     but without penalty, or can apply for a refund, with 
     interest, of any overpayment.
       ``(vii) The prices referred to in clauses (v) and (vi) of 
     this subparagraph shall be changed during any calendar year 
     after 1994 by the percentage, if any, by which the implicit 
     price deflator for the gross domestic product changed during 
     the preceding calendar year.''.

     SEC. 5423. NEW LEASES.

       Section 8(a)(1) of the Outer Continental Shelf Lands Act, 
     as amended (43 U.S.C. 1337 (a)(1)), is amended--
       (1) by redesignating subparagraph (H) as subparagraph (I);
       (2) by striking ``or'' at the end of subparagraph (G); and
       (3) by inserting after subparagraph (G) the following new 
     subparagraph:
       ``(H) cash bonus bid with royalty at no less than 12 and 1/
     2 per centum fixed by the Secretary in amount or value of 
     production saved, removed, or sold, and with suspension of 
     royalties for a period, volume, or value of production 
     determined by the Secretary, which suspensions may vary based 
     on the price of production from the lease; or''.

     SEC. 5424. LEASE SALES.

       For all tracts located in water depths of 200 meters or 
     greater in the Western and Central Planning Area of the Gulf 
     of Mexico, including that portion of the Eastern Planning 
     Area of the Gulf of Mexico encompassing whole lease blocks 
     lying west of 87 degrees, 30 minutes West longitude, any 
     lease sale within seven years of the date of enactment of 
     this chapter, shall use the bidding system authorized in 
     section 8(a)(1)(H) of the Outer Continental Shelf Lands Act, 
     as amended by this chapter, except that the suspension of 
     royalties shall be set at a volume of not less than the 
     following:
       (1) 17.5 million barrels of oil equivalent for leases in 
     water depths of 200 to 400 meters;
       (2) 52.5 million barrels of oil equivalent for leases in 
     400 to 800 meters of water; and
       (3) 87.5 million barrels of oil equivalent for leases in 
     water depths greater than 800 meters.

     SEC. 5425. REGULATIONS.

       The Secretary shall promulgate such rules and regulations 
     as are necessary to implement the provisions of this chapter 
     within 180 days after the enactment of this Act.

     SEC. 5426. SAVINGS CLAUSE.

       Nothing in this chapter shall be construed to affect any 
     offshore pre-leasing, leasing, or development moratorium, 
     including any moratorium applicable to the Eastern Planning 
     Area of the Gulf of Mexico located off the Gulf Coast of 
     Florida.

              CHAPTER 9--EXPORTS OF ALASKA NORTH SLOPE OIL

     SEC. 5431. EXPORTS OF ALASKAN NORTH SLOPE OIL.

       Section 28 of the Mineral Leasing Act (30 U.S.C. 185) is 
     amended by amending subsection (s) to read as follows:


                  ``exports of Alaskan north slope oil

       ``(s)(1) Subject to paragraphs (2) through (6) of this 
     subsection and notwithstanding any other provision of this 
     Act or any other provision of law (including any regulation) 
     applicable to the export of oil transported by pipeline over 
     right-of-way granted pursuant to section 203 of the Trans-
     Alaska Pipeline Authorization Act (43 U.S.C. 1652), such oil 
     may be exported unless the President finds that exportation 
     of this oil is not in the national interest. The President 
     shall make his national interest determination within five 
     months of the date of enactment of this subsection. In 
     evaluating whether exports of this oil are in the national 
     interest, the President shall at a minimum consider--
       ``(A) whether exports of this oil would diminish the total 
     quantity or quality of petroleum available to the United 
     States;
       ``(B) the results of an appropriate environmental review, 
     including consideration of appropriate measures to mitigate 
     any potential adverse effects of exports of this oil on the 
     environment, which shall be completed within four months of 
     the date of the enactment of this subsection; and
       ``(C) whether exports of this oil are likely to cause 
     sustained material oil supply shortages or sustained oil 
     prices significantly above world market levels that would 
     cause sustained material adverse employment effects in the 
     United States or that would cause substantial harm to 
     consumers, including noncontiguous States and Pacific 
     territories. If the President determines that exports of this 
     oil are in the national interest, he may impose such terms 
     and conditions (other than a volume limitation) as are 
     necessary or appropriate to ensure that such exports are 
     consistent with the national interest.
       ``(2) Except in the case of oil exported to a country with 
     which the United States entered into a bilateral 
     international oil supply agreement before November 26, 1979, 
     or to a country pursuant to the International Emergency Oil 

[[Page H 12550]]
     Sharing Plan of the International Energy Agency, any oil transported by 
     pipeline over right-of-way granted pursuant to section 203 of 
     the Trans-Alaska Pipeline Authorization Act (43 U.S.C. 1652) 
     shall, when exported, be transported by a vessel documented 
     under the laws of the United States and owned by a citizen of 
     the United States (as determined in accordance with section 2 
     of the Shipping Act, 1916 (46 U.S.C. App. 802)).
       ``(3) Nothing in this subsection shall restrict the 
     authority of the President under the Constitution, the 
     International Emergency Economic Powers Act (50 U.S.C. 1701 
     et seq.), the National Emergencies Act (50 U.S.C. 1601 et 
     seq.), or part B of title II of the Energy Policy and 
     Conservation Act (42 U.S.C. 6271-76) to prohibit exports.
       ``(4) The Secretary of Commerce shall issue any rules 
     necessary for implementation of the President's national 
     interest determination, including any licensing requirements 
     and conditions, within 30 days of the date of such 
     determination by the President. The Secretary of Commerce 
     shall consult with the Secretary of Energy in administering 
     the provisions of this subsection.
       ``(5) If the Secretary of Commerce finds that exporting oil 
     under authority of this subsection has caused sustained 
     material oil supply shortages or sustained oil prices 
     significantly above world market levels and further finds 
     that these supply shortages or price increases have caused or 
     are likely to cause sustained material adverse employment 
     effects in the United States, the Secretary of Commerce, in 
     consultation with the Secretary of Energy, shall recommend, 
     and the President may take, appropriate action concerning 
     exports of this oil, which may include modifying or revoking 
     authority to export such oil.
       ``(6) Administrative action under this subsection is not 
     subject to sections 551 and 553 through 559 of title 5, 
     United States Code.''.

 CHAPTER 10--SKI AREA PERMIT RENTAL CHARGES ON NATIONAL FOREST SYSTEM 
                                 LANDS

     SEC. 5441. SKI AREA PERMIT RENTAL CHARGE.

       (a) The Secretary of Agriculture shall charge a rental 
     charge for all ski area permits issued pursuant to section 3 
     of the National Forest Ski Area Permit Act of 1986 (16 U.S.C. 
     497b), the Act of March 4, 1915 (38 Stat. 1101, chapter 144; 
     16 U.S.C. 497), or the 9th through 20th paragraphs under the 
     heading ``Surveying the public lands'' under the heading 
     ``under the department of the interior'' in the Act of June 
     4, 1897 (30 Stat. 34, chapter 2), on National Forest System 
     lands. Permit rental charges for permits issued pursuant to 
     the National Forest Ski Area Permit Act of 1986 shall be 
     calculated as set forth in subsection (b). Permit rental 
     charges for existing ski area permits issued pursuant to the 
     Act of March 4, 1915, and the Act of June 4, 1897, shall be 
     calculated in accordance with those existing permits: 
     Provided, That a permittee may, at the permittee's option, 
     use the calculation method set forth in subsection (b).
       (b)(1) The ski area permit rental charge (SAPRC) shall be 
     calculated by adding the permittee's gross revenues from lift 
     ticket/year-round ski area use pass sales plus revenue from 
     ski school operations (LT+SS) and multiplying such total by 
     the slope transport feet percentage (STFP) on National Forest 
     System land. That amount shall be increased by the gross 
     year-round revenue from ancillary facilities (GRAF) 
     physically located on national forest land, including all 
     permittee or subpermittee lodging, food service, rental 
     shops, parking and other ancillary operations, to determine 
     the adjusted gross revenue (AGR) subject to the permit rental 
     charge. The final rental charge shall be calculated by 
     multiplying the AGR by the following percentages for each 
     revenue bracket and adding the total for each revenue 
     bracket:
       (A) 1.5 percent of all adjusted gross revenue below 
     $3,000,000;
       (B) 2.5 percent for adjusted gross revenue between 
     $3,000,000 and $15,000,000;
       (C) 2.75 percent for adjusted gross revenue between 
     $15,000,000 and $50,000,000; and
       (D) 4.0 percent for the amount of adjusted gross revenue 
     that exceeds $50,000,000.
       (2) In cases where ski areas are only partially located on 
     national forest lands, the slope transport feet percentage on 
     national forest land referred to in subsection (b) shall be 
     calculated as generally described in the Forest Service 
     Manual in effect as of January 1, 1992. Revenues from Nordic 
     ski operations shall be included or excluded from the rental 
     charge calculation according to the percentage of trails 
     physically located on national forest land.
       (3) In order to ensure that the rental charge remains fair 
     and equitable to both the United States and ski area 
     permittees, the adjusted gross revenue figures for each 
     revenue bracket in paragraph (1) shall be adjusted annually 
     by the percent increase or decrease in the national Consumer 
     Price Index for the preceding calendar year.
       (c) The rental charge set forth in subsection (b) shall be 
     due on June 1 of each year and shall be paid or pre-paid by 
     the permittee on a monthly, quarterly, annual or other 
     schedule as determined appropriate by the Secretary in 
     consultation with the permittee. Unless mutually agreed 
     otherwise by the Secretary of Agriculture and the permittee, 
     the payment or prepayment schedule shall conform to the 
     permittee's schedule in effect prior to the date of enactment 
     of this Act. To reduce costs to the permittee and the Forest 
     Service, the Secretary shall each year provide the permittee 
     with a standardized form and worksheets (including annual 
     rental charge calculation brackets and rates) to be used for 
     rental charge calculation and submitted with the rental 
     charge payment.
       (d) The ski area permit rental charge set forth in this 
     section shall become effective on June 1, 1996 and cover 
     receipts retroactive to June 1, 1995: Provided, however, That 
     if a permittee has paid rental charges for the period June 1, 
     1995, to June 1, 1996, under the graduated rate rental charge 
     system formula in effect prior to the date of enactment of 
     this Act, such rental charges shall be credited toward the 
     new rental charge due on June 1, 1996. In order to ensure 
     increasing rental charge receipt levels to the United States 
     during transition from the graduated rate rental charge 
     system formula to the formula of this Act, the rental charge 
     paid by any individual permittee shall be--
       (1) for the 1995-1996 permit year, shall be either the 
     rental charge paid for the preceding 1994-1995 base year or 
     the rental charge calculated pursuant to this Act, whichever 
     is higher;
       (2) for the 1996-1997 permit year, the rental charge paid 
     shall be either the rental charge paid for the 1994-1995 base 
     year or the rental charge calculated pursuant to this Act, 
     whichever is higher; and
       (3) for the 1997-1998 permit year, the rental charge for 
     the 1994-1995 base year or the rental charge calculated 
     pursuant to this Act, whichever is higher.
     If an individual permittee's adjusted gross revenue for the 
     1995-1996, 1996-1997, or 1997-1998 permit years falls more 
     than 10 percent below the 1994-1995 base year, the rental 
     charge paid shall be the rental charge calculated pursuant to 
     this Act.
       (e) Under no circumstances shall revenue, or subpermittee 
     revenue (other than lift ticket, area use pass, or ski school 
     sales) obtained from operations physically located on non-
     national forest land be included in the ski area permit 
     rental charge calculation.
       (f) To reduce administrative costs on ski area permittees 
     and the Forest Service the terms ``revenue'' and ``sales'', 
     as used in this section, shall mean actual income from sales 
     and shall not include sales of operating equipment, refunds, 
     rent paid to the permittee by sublessees, sponsor 
     contributions to special events or any amounts attributable 
     to employee gratuities or employee lift tickets, discounts, 
     or other goods or services (except for bartered goods and 
     complimentary lift tickets) for which the permittee does not 
     receive money.
       (g) In cases where an area of national forest land is under 
     a ski area permit but the permittee does not have revenue or 
     sales qualifying for rental charge payment pursuant to 
     subsection (a), the permittee shall pay an annual minimum 
     rental charge of $2 for each national forest acre under 
     permit or a percentage of appraised land value, as determined 
     to be appropriate by the Secretary.
       (h) Where the new rental charge provided for in subsection 
     (b)(1) results in an increase in permit rental charge greater 
     than one half of one percent of the permittee's adjusted 
     gross revenue (as determined under subsection (b)(1)), the 
     new rental charge shall be phased in over a 5-year period in 
     a manner providing for increases of approximately equal 
     increments.

                     CHAPTER 11--PARK ENTRANCE FEES

     SEC. 5451. FEES.

       (a) Admission Fees.--Section 4(a) of the Land and Water 
     Conservation Fund Act of 1965 (16 U.S.C. 460l-6a(a)) is 
     amended--
       (1) in the first sentence of the subsection by striking 
     ``no more than 21'';
       (2) in the first sentence of paragraph (1)(A)(i) by 
     striking ``$25'' and inserting ``$50'';
       (3) in the second sentence of paragraph (1)(B) by striking 
     ``$15'' and inserting ``$25'';
       (4) in paragraph (2) by striking the fourth, fifth, and 
     sixth sentences and inserting ``The fee for a single-visit 
     permit at any designated area shall be collected on a per 
     person basis, not to exceed $6 per person, including for 
     persons entering by private, noncommercial vehicle.'';
       (5) in paragraph (3)--
       (A) in the third sentence by inserting ``Great'' before 
     ``Smoky''; and
       (B) by striking the last sentence;
       (6) in paragraph (4)--
       (A) by striking the second sentence and inserting ``Such 
     permit shall be nontransferable, shall be issued for a one-
     time charge, which shall be set at the same rate as the fee 
     for a Golden Eagle Passport, and shall entitle the permittee 
     to free admission into any area designated pursuant to this 
     subsection.''; and
       (B) by striking the third sentence and inserting ``No fees 
     of any kind shall be collected from any persons who have a 
     right of access for hunting or fishing privileges under a 
     specific provision of law or treaty or who are engaged in the 
     conduct of official Federal, State, or local government 
     business.'';
       (7) by striking paragraph (5) and inserting the following:
       ``(5) The Secretary of the Interior and the Secretary of 
     Agriculture shall establish procedures providing for the 
     issuance of a lifetime admission permit to any citizen of, or 
     person legally domiciled in, the United States, if such 
     citizen or person applies for such permit and is permanently 
     disabled. Such procedures shall ensure that a lifetime 
     admission permit shall be issued only to persons who have 
     been medically determined to be permanently disabled. A 
     lifetime admission permit shall be nontransferable, shall be 
     issued without charge, and shall entitle the permittee and 
     one accompanying individual to general admission into any 
     area designated pursuant to this subsection, notwithstanding 
     the method of travel.'';
       (8) by striking paragraph (9) and by redesignating 
     paragraph (10) as paragraph (9)'';
       (9) by striking all but the last sentence of paragraph (11) 
     and redesignating paragraph (11) as paragraph (10); and
       (10) by redesignating paragraph (12) as paragraph (11).
       (b) Recreation Fees.--Section 4 of the Land and Water 
     Conservation Fund Act of 1965 (16 U.S.C. 460l-6a) is amended 
     by striking subsection (b) and inserting the following:

[[Page H 12551]]

       ``(b) Recreation Use Fees.--Each agency developing, 
     administering, providing, or furnishing at Federal expense 
     services for such activities as camping, including, but not 
     limited to, back country camping under permit, guarded 
     swimming sites, boat launch facilities, managed parking lots, 
     motorized recreation use and other recreation uses, is 
     authorized, in accordance with this section to provide for 
     the collection of recreation use fees at the place of use or 
     any reasonably convenient location. The administering 
     Secretary may establish both daily and annual recreation use 
     fees.''.
       (c) Criteria, Posting and Uniformity of Fees.--Section 4(d) 
     of the Land and Water Conservation Fund Act of 1965 (16 
     U.S.C. 460l-6a(d)) is amended in the first sentence by 
     striking ``recreation fees charged by non-Federal public 
     agencies,'' and inserting ``fees charged by other public and 
     private entities,''.
       (d) Penalty.--Section 4(e) of the Land and Water 
     Conservation Fund Act of 1965 (16 U.S.C. 460l-6a(e)) is 
     amended by striking ``of not more than $100.'' and inserting 
     ``as provided by law.''.
       (e) Technical Amendments.--Section 4(h) of the Land and 
     Water Conservation Fund Act of 1965 (16 U.S.C. 460l-6a(h)) is 
     amended--
       (1) by striking ``Bureau of Outdoor Recreation'' and 
     inserting ``National Park Service'';
       (2) by striking ``Natural Resources'' and inserting 
     ``Resources''; and
       (3) by striking ``Bureau'' and inserting ``National Park 
     Service''.
       (f) Use of Fees.--Section 4(i) of the Land and Water 
     Conservation Fund Act of 1965 (16 U.S.C. 460l-6a(i)) is 
     amended--
       (1) in the first sentence of paragraph (1)(B) by striking 
     ``fee collection costs for that fiscal year'' and inserting 
     ``fee collection costs for the immediately preceding fiscal 
     year'' and by striking ``section in that fiscal year'' and 
     inserting ``section in such immediately preceding fiscal 
     year'';
       (2) in the second sentence of subparagraph (B) by striking 
     ``in that fiscal year''; and
       (3) by striking paragraph (4) and inserting the following:
       ``(4) Amounts covered into the special account for the 
     National Park Service shall be allocated among park system 
     units in accordance with subsection (j) for obligation or 
     expenditure by the Director of the National Park Service for 
     park operations.''.
       (g) Time of Reimbursement.--Section 4(k) of the Land and 
     Water Conservation Fund Act of 1965 (16 U.S.C. 460l-6a(k)) is 
     amended by striking the last sentence.
       (h) Commercial Tour Use Fees.--Section 4(n) of the Land and 
     Water Conservation Fund Act of 1965 (16 U.S.C. 460l-6a(n)) is 
     amended--
       (1) by striking the first sentence of paragraph (1) and 
     inserting ``In the case of each unit of the National Park 
     System for which an admission fee is charged under this 
     section, the Secretary of the Interior shall establish, by 
     October 1, 1996, a commercial tour use fee in lieu of a per 
     person admission fee to be imposed on each vehicle entering 
     the unit for the purpose of providing commercial tour 
     services within the unit.''; and
       (2) by striking the period at the end of paragraph (3) and 
     inserting ``, with written notification of such adjustments 
     provided to commercial tour operators 12 months in advance of 
     implementation.''.
       (i) Conforming Amendments.--
       (1) Title I of the Department of the Interior and Related 
     Agencies Appropriations Act, 1994, is amended by striking the 
     second proviso under the heading ``Administrative 
     Provisions'' under the heading ``National Park Service'' 
     (related to recovery of costs associated with special use 
     permits).
       (2) Section 3 of the Act entitled ``An Act creating the 
     Mount Rushmore National Memorial Commission and defining its 
     purposes and powers'', approved February 25, 1929 (45 Stat. 
     1300, chapter 315), is amended by striking the last sentence.
       (3) Section 5 of Public Law 87-657 (16 U.S.C. 459c-5), is 
     amended by striking subsection (e).
       (4) Section 3 of Public Law 87-750 (16 U.S.C. 398e) is 
     amended by striking subsection (b).
       (5) Section 4(e) of Public Law 92-589 (16 U.S.C. 460bb-3) 
     is amended by striking the first sentence.
       (6) Section 6 of Public Law 95-348 (16 U.S.C. 410dd) is 
     amended by striking subsection (j).
       (7) Section 207 of Public Law 96-199 (16 U.S.C. 410ff-6) is 
     repealed.
       (8) Section 106 of Public Law 96-287 (16 U.S.C. 410gg-5) is 
     amended by striking the last sentence.
       (9) Section 204 of Public Law 96-287 (94 Stat. 601) is 
     amended by striking the last sentence.
       (10) Section 5 of Public Law 96-428 (94 Stat. 1842; 16 
     U.S.C. 461 note) is repealed.
       (11) Public Law 100-55 (101 Stat. 371; U.S.C. 460l-6a note) 
     is repealed.

     SEC. 5452. COVERING OF INCREASED FEE REVENUES INTO SPECIAL 
                   ACCOUNTS.

       Of the funds deposited in special accounts in the Treasury 
     for the National Park Service, Bureau of Land Management, and 
     Forest Service as set forth in section 4(i) of the Land and 
     Water Conservation Fund Act of 1965 (16 U.S.C. 460l-6a(i)), 
     beginning in fiscal year 1997, 80 percent of all receipts 
     earned in the previous year in excess of the following 
     amounts for each covered agency shall be made available to 
     that agency without further appropriation:
       (1) National Park System:
       (A) $82,000,000 for fiscal year 1997.
       (B) $85,000,000 for fiscal year 1998.
       (C) $88,000,000 for fiscal year 1999.
       (D) $91,000,000 for fiscal year 2000.
       (E) $94,000,000 for fiscal year 2001.
       (F) $97,000,000 for fiscal year 2002.
       (G) $100,000,000 for fiscal year 2003.
       (H) $112,000,000 for fiscal year 2004.
       (I) $106,000,000 for fiscal year 2005.
       (2) Bureau of Land Management:
       (A) $4,500,000 for fiscal year 1997.
       (B) $5,000,000 for fiscal year 1998.
       (C) $5,000,000 for fiscal year 1999.
       (D) $5,000,000 for fiscal year 2000.
       (E) $5,000,000 for fiscal year 2001.
       (F) $5,000,000 for fiscal year 2002.
       (G) $5,000,000 /for fiscal year 2003.
       (H) $5,000,000 /for fiscal year 2004.
       (I) $5,000,000 /for fiscal year 2005.
       (3) Forest Service:
       (A) $20,000,000 for fiscal year 1997.
       (B) $20,600,000 for fiscal year 1998.
       (C) $21,200,000 for fiscal year 1999.
       (D) $21,900,000 for fiscal year 2000.
       (E) $22,500,000 for fiscal year 2001.
       (F) $23,600,000 for fiscal year 2002.
       (G) $24,300,000 for fiscal year 2003.
       (H) $25,000,000 for fiscal year 2004.
       (I) $25,800,000 for fiscal year 2005.
     Beginning in fiscal year 2006, and in each fiscal year 
     thereafter, the amounts set forth in this section for each 
     covered agency in fiscal year 2005 shall be increased by 4 
     percent per year, and 80 percent of all receipts earned in 
     excess of such amounts for each covered agency shall be made 
     available to that agency without further appropriation.

     SEC. 5453. ALLOCATION AND USE OF FEES.

       (a) Allocation.--Beginning in fiscal year 1997, receipts 
     above the amounts stated in section 5452 in each covered 
     agency's special account from the previous fiscal year shall 
     be allocated as follows:
       (1) Seventy-five percent shall be allocated among the units 
     or areas of each affected agency in the same proportion as 
     fees collected pursuant to section 4 of the Land and Water 
     Conservation Fund Act of 1965 (16 U.S.C. 460l-6a) from a 
     specific unit or area bear to the total amount of such fees 
     collected from all units or areas of the same covered agency 
     for each fiscal year.
       (2) Twenty-five percent shall be allocated among each 
     covered agency's units or areas on the basis of need, as 
     determined by the Secretary.
       (b) Use.--Expenditures from the special accounts shall be 
     used solely for infrastructure related to visitor use and 
     annual operating expenses related to visitor services at 
     units or areas of the covered agencies.

                     CHAPTER 12--CONCESSION REFORM

     SEC. 5461. SHORT TITLE.

       This chapter may be cited as the ``Visitor Facilities and 
     Services Enhancement Act of 1995''.

     SEC. 5462. DEFINITIONS.

       In this chapter:
       (1) ``adjusted gross receipts'' means gross receipts less 
     revenue derived from goods and services provided on other 
     than Federal lands or conveyed to units of Government for 
     hunting or fishing licenses or for entrance or recreation 
     fees, or from such other exclusions as the Secretary 
     concerned might apply.
       (2) ``agency head'' means the head of an agency or his or 
     her designated representative.
       (3) ``bidder'' means a person who has submitted, or may 
     submit, a proposal respecting the facilities or services, 
     whether or not such bidder is the current concessioner.
       (4) ``concessioner'' means a person or other entity acting 
     under a concession authorization which provides public 
     services, facilities, or activities on Federal lands pursuant 
     to a concession service agreement or concession license.
       (5) ``concession authorization'' means a concession service 
     agreement or concession license as applicable.
       (6) ``concession license'' means a written contract between 
     the agency head and the concessioner which sets forth the 
     terms and conditions under which the concessioner is 
     authorized to provide recreation services or activities on a 
     limited basis as well as the rights and obligations of the 
     Federal Government.
       (7) ``concession service agreement'' means a written 
     contract between the agency head and the concessioner which 
     sets forth the terms and conditions under which the 
     concessioner is authorized to provide visitor services, 
     facilities, or activities as well as the rights and 
     obligations of the Federal Government.
       (8) ``Consumer Price Index'' means the Consumer Price 
     Index-All Urban Consumers published by the Bureau of Labor 
     Statistics of the Department of Labor, and from and after 
     such time as such index is no longer published, the Consumer 
     Price Index or other regularly-published cost-of-living index 
     chosen by the Secretary concerned which reasonably 
     approximates the Consumer Price Index specified above.
       (9) ``gross receipts'' means revenue from goods or services 
     provided by concession services, facilities, or activities on 
     Federal lands and waters.
       (10) ``performance incentive'' means a credit based on past 
     performance toward the score awarded by the Secretary 
     concerned to an incumbent concessioner's proposal submitted 
     in response to a solicitation for the reissuance of such 
     incumbent concessioner's contract.
       (11) ``proposal'' means the complete submission for a 
     concession service agreement offered in response to the 
     solicitation for such concession service agreement.
       (12) ``prospectus'' means a document or documents issued by 
     the Secretary concerned and included with a solicitation 
     which sets forth the minimum requirements for the award of a 
     concession service agreement.
       (13) ``Secretary concerned'' means --
       (A) the Secretary of the Interior with respect to all 
     concession authorizations issued by the National Park 
     Service, and all concession authorizations for river runner, 
     outfitter, or guide concessions issued by the United States 
     Fish and Wildlife Service and the Bureau of Land Management; 
     and
       (B) the Secretary of Agriculture with respect to all river 
     runner, outfitter, or guide concessions issued by the Forest 
     Service.

[[Page H 12552]]

       (14) ``selected bidder'' means the bidder selected by the 
     Secretary concerned for the award of a concession service 
     agreement until such bidder becomes the concessioner.
       (15) ``solicitation'' means a request by the Secretary 
     concerned for proposals in response to a prospectus.

     SEC. 5463. NATURE AND TYPES OF CONCESSION AUTHORIZATIONS.

       (a) In General.--The Secretary concerned may enter into 
     concession authorizations as follows:
       (1) Concession service agreement.--A concession service 
     agreement shall be entered into for all concessions where the 
     Secretary concerned determines that the provision of 
     concession services is in the interest of the Federal 
     Government and issues either a competitive offering for 
     concession services, facilities or activities or a 
     noncompetitive offering for such services, facilities, or 
     activities based on a finding that due to special 
     circumstances it is not in the public interest of the United 
     States to award a concession service agreement on a 
     competitive basis.
       (2) Concession license.--Whenever the Secretary concerned 
     makes a determination that public enjoyment of Federal lands 
     would be enhanced through the provision of concession 
     services for one-time, intermittent, or infrequently 
     scheduled activities and that there exists no need to limit 
     the number of concessionaires providing such services, the 
     Secretary shall enter into a concession license with a 
     qualified concessioner. The Secretary concerned may not limit 
     the number of concession licenses issued for the same types 
     of activities in a particular geographic area.
       (3) Lands under multiple jurisdictions.--In order to reduce 
     administrative costs the Secretaries of the Departments 
     concerned shall designate an agency to be the lead agency 
     concerning concessions which conduct a single operation on 
     lands or waters under the jurisdiction of more than one 
     agency. Unless otherwise agreed to by each such Secretary 
     concerned, the lead agency shall be that agency under whose 
     jurisdiction the concessioner generates the greatest amount 
     of gross receipts. The agency so designated shall issue a 
     single concession authorization and collect a single fee 
     under paragraphs (1) and (2) for such operation.

     SEC. 5464. COMPETITIVE SELECTION PROCESS FOR CONCESSION 
                   SERVICE AGREEMENTS.

       (a) Award to Best Proposal.--The Secretary concerned shall 
     enter into, and reissue, a concession service agreement with 
     the person whom the Secretary determines in accordance with 
     this section submits the best proposal through a competitive 
     process as defined in this section.
       (b) Solicitation and Prospectus.--Prior to making a 
     solicitation for a concession service agreement, the 
     Secretary concerned shall prepare a prospectus for such 
     solicitation, shall publish notice of its availability at 
     least once in such local or national newspapers or trade 
     publications as the Secretary determines appropriate, and 
     shall make such prospectus available upon request to all 
     interested parties. The prospectus shall specify the minimum 
     requirements for such concession service agreement, including 
     but not limited to:
       (1) a description of the services and facilities to be 
     provided by the concessioner.
       (2) the level of capital investment required by the 
     concessioner (if any).
       (3) terms and conditions of the concession service 
     agreement.
       (4) minimum facilities and services to be provided by the 
     Secretary concerned to the concessioner, if any, including 
     but not limited to public access, utilities, buildings, and 
     minimum public services.
       (5) such other information related to the concession 
     operation available to the Secretary concerned as is not 
     privileged or otherwise exempt from disclosure under Federal 
     law, as the Secretary determines is necessary to allow for 
     the submission of competitive proposals; and
       (6) Local hiring preferences provisions, if applicable, and 
     notwithstanding any other provision of law, to increase 
     revenue to the United States by avoiding additional 
     transportation and related costs associated with non-resident 
     labor, each contract awarded by the Department of the 
     Interior for concessioner or commercial use contractor-
     provided visitor services performed in whole or in part of a 
     State which is not contiguous with another State and has an 
     unemployment rate in excess of the national average rate of 
     unemployment, as determined by the Secretary of Labor shall 
     include a provision requiring the concessioner or commercial 
     use contractor to employ individuals who are residents of 
     such State, and who, in the case of any craft or trade, 
     possess or would be able to acquire promptly the necessary 
     skills for the purpose of performing that portion of the 
     contract in such State.
       (7) Minimum fees to the United States.
       (c) Factors and Minimum Standards in Determining Best 
     Proposal.--The prospectus shall assign a weight to each 
     factor identified therein related to the importance of such 
     factor in the selection process. Points shall be awarded for 
     each such factor, based on the relative strength of the 
     proposal concerning that factor. In selecting the best 
     proposal, the Secretary concerned shall take into 
     consideration (but shall not be limited to) the following, 
     including whether the proposal meets the minimum requirements 
     (if any) of the Secretary for each of the following:
       (1) Responsiveness to the prospectus.
       (2) Quality of visitor services to be provided taking into 
     account the nature of equipment and facilities to be 
     provided.
       (3) Experience and performance in providing the same or 
     similar accommodations, facilities, or services. This factor 
     shall account for not less than 20 percent of the maximum 
     points available under any prospectus. Where the Secretary 
     concerned determines it to be warranted to provide for a high 
     quality visitor experience, the prospectus for a concession 
     service agreement shall provide greater weight to this factor 
     based on such aspects of the concession service agreement as 
     scope or size, complexity, nature of technical skills 
     required, and site-specific knowledge of the area. The 
     similarity of the qualifying experience outlined in the 
     proposal to the nature of the services required under the 
     concession service agreement and the length of such 
     qualifying experience shall be the basis for awarding points 
     for this factor.
       (4) Record of resource protection (as appropriate for 
     services and activities with potential to impact natural or 
     cultural resources).
       (5) Financial capability.
       (6) Fees to the United States.
       (d) Selection Process.--The process for selecting the best 
     proposal shall consist of the following:
       (1) First, the Secretary concerned shall identify those 
     proposals which meet the minimum standards (if any) for the 
     factors identified under subsection (c).
       (2) Second, the Secretary concerned shall evaluate all 
     proposals identified under paragraph (1), considering all 
     factors identified under subsection (c), as well as 
     performance incentives earned under subsection (e) and 
     renewal penalties incurred under subsection (f).
       (3) Third, the Secretary concerned shall offer the 
     concession service agreement to the best qualified applicant 
     as determined by the evaluation under paragraph (2). Prior to 
     any such offer, the Secretary shall certify that such 
     applicant has adequate funds to purchase any investment 
     interest.
       (e) Performance Incentives.--
       (1) In evaluating the proposal of an incumbent concessioner 
     when the Secretary concerned issues a prospectus for the 
     renewal of the concession service agreement, such 
     concessioner is entitled to a performance incentive of--
       (A) one percent of the maximum points available under such 
     prospectus for each year in which the concessioner's annual 
     performance is rated as exceeding the requirements outlined 
     in the prospectus or ``good'', and
       (B) a one-time 3-year merit term extension upon a finding 
     that a concessioner has been rated as ``good'' in each annual 
     performance evaluation through the term of the concession 
     service agreement.
       (2) A performance incentive awarded under paragraph (1)(A) 
     may not exceed 10 percent of the maximum points available 
     under such prospectus.
       (3) The performance incentive specified under paragraph 
     (1)(A) may only be awarded to a concessioner which meets the 
     monetary definition of a small business under section 3 of 
     the Small Business Act (15 U.S.C. 632). The Board of Contract 
     Appeals within each Department shall adjudicate disputes 
     between the Federal Government and concessionaires regarding 
     performance evaluations.
       (f) Renewal Penalty.--In evaluating the proposal of an 
     incumbent concessioner when the Secretary concerned issues a 
     prospectus for the renewal of the concession service 
     agreement, the incumbent concessioner shall be penalized one 
     percent of the maximum points available under such prospectus 
     for each year in which the concessioner's annual performance 
     is found to be unsatisfactory.
       (g) Inapplicability of NEPA to Temporary Extensions and 
     Similar Reissuance of Concessions Agreements.--The temporary 
     extension of a concession authorization, or reissuance of a 
     concession authorization to provide concession services 
     similar in nature and amount to concession services provided 
     under the previous authorization, is hereby determined not to 
     be a major Federal action for the purposes of the National 
     Environmental Policy Act of 1969 (42 U.S.C. 4331 et. seq.).
       (h) Provision for Additional Related Services.--The 
     Secretary concerned may modify the concession service 
     agreement to allow concessionaires to provide services 
     closely related to such agreement only if the Secretary 
     concerned determines that such changes would enhance the 
     safety or enjoyment of visitors and would not unduly restrict 
     the award of future concession service agreements.

     SEC. 5465. CAPITAL IMPROVEMENTS.

       (a) In General.--Concessionaires may construct or finance 
     construction under terms of section 5470 only such public 
     facilities on Federal lands as are to be used by the 
     concessioner under the terms of its concession service 
     agreement or facilities which are necessary for the 
     concessioner to administer such public facilities on Federal 
     lands.
       (b) Investment Interest.--
       (1) In general.--A concessioner that is required or 
     authorized under a concession service agreement pursuant to 
     this subchapter to acquire or construct any structure, 
     improvement, or fixture pursuant to such agreement on Federal 
     lands shall have an investment interest therein, as defined 
     in this subchapter. Any such investment interest shall 
     consist of all incidents of ownership, except legal title 
     which shall be vested in the Federal Government. Such 
     investment interest shall not be extinguished by the 
     expiration of such agreement. Such investment interest may be 
     assigned, transferred, encumbered or relinquished.
       (2) Limitation.--Such investment interest shall not be 
     construed to include or imply any authority, privilege, or 
     right to operate or engage in any business or other activity, 
     and the use of any improvement in which the concessioner has 
     an investment interest shall be wholly subject to the 
     applicable provisions of the concession service agreement and 
     of laws and regulations relating to the area.

[[Page H 12553]]

       (3) Federal property.--Notwithstanding paragraph (1), a 
     concession service agreement may specify that certain new 
     structures, improvements, or fixtures required to be 
     constructed under terms of the concession service agreement 
     shall be property of the Federal Government subject only to 
     the right of the concessioner to use such improvements during 
     the term of such agreement and that the concessioner shall 
     not be accorded an investment interest therein. Concession 
     service agreements shall not, to the extent practicable, 
     provide for a concessioner to obtain an investment interest 
     in any building or facilities wholly owned by the Federal 
     Government.
       (c) Sale of Assets.--If the existing concessioner is not 
     the selected bidder at the time of reissuance of a concession 
     service agreement, the Secretary concerned shall require the 
     new concessioner to buy the investment interest of the 
     existing concession. In the event that the successor 
     concessioner is unable to fully pay such investment interest, 
     any deficiency shall be paid by the Federal Government.
       (d) Closure of Concessioner Facilities.--If the Secretary 
     concerned determines that the public interest, by reason of 
     public and safety considerations or for other reasons beyond 
     the control of the concessioner, requires the discontinuation 
     or closure of facilities in which the concessioner has an 
     investment interest, the Federal Government shall compensate 
     the concessioner in the amount equal to the value of the 
     investment interest.
       (e) Determination of Value of Investment Interest.--For 
     purposes of this subchapter, the investment interest of any 
     capital improvement at the end of the concession service 
     agreement period shall be an amount equal to the actual cost 
     of construction or purchase of such investment interest or 
     such capital improvement adjusted from the time of completion 
     of such construction by changes in the Consumer Price Index 
     less depreciation evidenced by the condition and prospective 
     serviceability in comparison with a new unit of like kind. 
     The Secretary concerned shall include the value to be paid by 
     the selected bidder for any existing investment interest in 
     the prospectus for the related concession service agreement.

     SEC. 5466. DURATION OF CONCESSION AUTHORIZATION.

       (a) Concession Service Agreement.--The standard term of a 
     concession service agreement shall be 10 years. The Secretary 
     concerned may issue a concession service agreement for less 
     than 10 years if the Secretary determines that the average 
     annual gross receipts over the life of the concession service 
     agreement would be less than $100,000. The Secretary 
     concerned may not issue a concession service agreement for 
     less than 5 years. The Secretary concerned shall issue a 
     concession service agreement for longer than 10 years if the 
     Secretary determines that such longer term is in the public 
     interest or necessary due to the extent of investment and 
     associated financing requirements and to meet the obligations 
     assumed. The term for a concession service agreement may not 
     exceed 30 years.
       (b) Concession License.--The term for a concession license 
     may not exceed 2 years.
       (c) Temporary Extension.--The Secretary concerned may agree 
     to temporary extensions of concession service agreements for 
     up to 2 years on a noncompetitive basis to avoid interruption 
     of services to the public.

     SEC. 5467. RATES AND CHARGES TO THE PUBLIC.

       In general, rates and charges to the public shall be set by 
     the concessioner. For concession service agreements only, a 
     concessioner's rates and charges to the public shall be 
     subject to the approval of the Secretary concerned in those 
     instances where the Secretary determines that sufficient 
     competition for such facilities and services does not exist 
     within or in close proximity to the area in which the 
     concessioner operates. In those instances, the concession 
     service agreement shall state that the reasonableness of the 
     concessioner's rates and charges to the public shall be 
     reviewed and approved by the Secretary concerned primarily by 
     comparison with those rates and charges for facilities and 
     services of comparable character under similar conditions, 
     with due consideration for length of season, seasonal 
     variations, average percentage of occupancy, accessibility, 
     availability and costs of labor and materials, type of 
     patronage, and other factors deemed significant by the 
     Secretary concerned. Such review shall be completed within 90 
     days of receipt of all necessary information, or the 
     requirement for the Secretary's approval shall be waived and 
     such rates and charges as proposed by the concessioner 
     considered to be approved for immediate use.

     SEC. 5468. TRANSFERABILITY OF CONCESSION AUTHORIZATIONS.

       (a) Concession Service Agreements.--
       (1) Approval required.--A concession service agreement is 
     transferable or assignable only with the approval of the 
     Secretary concerned, which approval may not be unreasonably 
     withheld or delayed. The Secretary may not approve any such 
     transfer or assignment if the Secretary determines that the 
     prospective concessioner is or is likely to be unable to 
     completely satisfy all of the material requirements, term, 
     and conditions of the agreement or that the terms of the 
     transfer or assignment would preclude providing appropriate 
     facilities or services to the public at reasonable rates.
       (2) Consideration period.--If the Secretary concerned fails 
     to approve or disapprove a transfer or assignment under 
     paragraph (1) within 90 days after the date on which the 
     Secretary receives all necessary information requested by the 
     Secretary with respect to such transfer, the transfer or 
     assignment shall be deemed to have been approved.
       (3) No modification of terms and conditions.--The terms and 
     conditions of the concessions service agreement shall not be 
     subject to modification by reason of any transfer or 
     assignment under this section.
       (b) Concession License.--A concession license may not be 
     transferred.

     SEC. 5469. FEES CHARGED BY THE UNITED STATES FOR CONCESSION 
                   AUTHORIZATIONS.

       (a) In General.--The Secretary concerned shall charge a fee 
     for the privilege of providing concession services pursuant 
     to this subchapter. The fee for any concession service 
     agreement may include any of the following:
       (1) An annual cash payment for the privilege of providing 
     concession services.
       (2) The amount required for capital improvements required 
     pursuant to section 5465 (a).
       (3) Fees for rental or lease of Government-owned facilities 
     or lands occupied by the concessioner.
       (4) Expenditures for maintenance of or improvements to 
     Government-owned facilities occupied by the concessioner.
       (b) Establishment of Amount.--
       (1) Minimum acceptable fee.--The Secretary concerned shall 
     establish a minimum fee for each applicable category 
     specified in paragraphs (1) through (4) of subsection (a) 
     which is acceptable to the Secretary under this section and 
     shall include the minimum fee in the prospectus under section 
     5464. This fee shall be based on historical data, where 
     available, as well as industry-specific and other market data 
     available to the Secretary concerned.
       (2) Final fee.--Except as provided in paragraph (3), the 
     final fee shall be the amount bid by the selected applicant 
     under section 5464.
       (3) Substantially similar services in a specific geographic 
     area.--When the Secretary concerned simultaneously offers 
     authorizations for more than one river runner, outfitter, or 
     guide concession operation to provide substantially similar 
     services in a defined geographic area, the concession fee for 
     all such concessionaires shall be specified by the Secretary 
     concerned in the prospectus. The Secretary concerned shall 
     base the fee on historical data, where available, as well as 
     on industry-specific and other market data available to the 
     Secretary concerned or may establish a charge per user day.
       (c) Adjustment of Fees.--The amount of any fee for the term 
     of the concession service agreement shall be set at the 
     beginning of the concession authorization and may only be 
     modified if stated in the contract on the basis of inflation, 
     when the annual payment is not determined by a percentage of 
     adjusted gross receipts (as measured by changes in the 
     Consumer Price Index), to reflect substantial changes from 
     the conditions specified in the prospectus, or in the event 
     of an unforseen disaster.
       (d) Concession License Fee.--The fee for a concession 
     license shall at least cover the program administrative costs 
     and may not be changed over the term of the license.

     SEC. 5470. DISPOSITION OF FEES.

       (a) Concession Improvement Account.--
       (1) In general.--The Secretary concerned shall, whenever 
     the concession service agreement requires or authorizes the 
     concessioner to perform maintenance or make improvements to 
     Government-owned facilities occupied by the concessioner, 
     require the concessioner to establish a concession 
     improvement account. The concessioner shall deposit into this 
     account all funds for maintenance of or improvements to 
     Government-owned facilities occupied by the concessioner;
       (2) Terms and conditions.--The account shall be maintained 
     by the concessioner in an interest bearing account in a 
     Federally insured financial institution. The concessioner 
     shall maintain the account separately from any other funds or 
     accounts and shall not commingle the money in the account 
     with any other money.
       (3) Disbursements.--The concessioner shall make 
     disbursements from the account for improvements and other 
     activities, only for capital improvements or maintenance of 
     improvements to Government-owned facilities occupied by the 
     concessioner as specified in the concession service 
     agreement.
       (4) Transfer of remaining balance.--On the termination of a 
     concession authorization, or on the transfer of a concession 
     service agreement, any remaining balance in the account shall 
     be transferred by the concessioner to the successor 
     concessioner, to be used solely as set forth in this 
     subsection. In the event there is no successor concessioner, 
     the account balance shall be deposited in the Treasury as 
     miscellaneous receipts.
       (b) When the concessioner is required to make capital 
     improvements to other than Government-owned facilities 
     occupied by the concessioner in accordance with a concession 
     service agreement, the concessioner shall have the option to 
     control and expend such funds directly.
       (c) Amounts Received Relating to Privilege of Providing 
     Concession Services and Rental of Government-Owned 
     Facilities.--
       (1) Deposit into treasury.--The Secretary concerned shall 
     deposit in the Treasury of the United States as miscellaneous 
     receipts all funds not deposited in concession improvement 
     accounts or funds for capital improvements specified in (b) 
     above, including specifically amounts received for a fiscal 
     year for the privilege of providing concession services and 
     the rental of Government-owned facilities, except that of the 
     amount of fees paid by vessel operators for the privilege of 
     entering into Glacier Bay, Alaska, 50 percent of such fees 
     for the 5-year period beginning on the first full fiscal year 
     following the date of enactment of this subchapter shall be 
     deposited into a special account and that such funds shall be 
     available without further appropriation and may only be used 
     to conduct research to quantify any effect of such vessel 
     activity on wildlife and other natural resource values of 
     Glacier Bay National Park. For the 

[[Page H 12554]]
     National Park Service such deposits into the Treasury shall total not 
     less than the amounts specified in the table in paragraph 
     (2). For the other agencies covered under this subchapter, 
     the Secretary concerned shall develop a schedule of 
     anticipated receipts to be deposited to the Treasury and 
     submit such schedule to the appropriate Congressional 
     committees not later than 18 months after the date of 
     enactment of this Act. Nothing in this chapter shall be 
     construed to modify any provision of law relating to sharing 
     of Federal receipts with any other level of Government.
       (2) Deposit into concession improvement accounts.--The 
     table referred to in paragraph (1), expressed by fiscal year, 
     is as follows:

                         National Park Service

``Fiscal year:                                                  Amount:
  1997......................................................$15,800,000
  1998......................................................$21,100,000
  1999......................................................$26,700,000
  2000......................................................$32,300,000
  2001......................................................$38,200,000
  2002.....................................................$44,400,000.

       (d) Beginning in fiscal year 1998, the Inspector General of 
     the Department concerned shall conduct a biennial audit of 
     concession fees generated pursuant to this chapter. The 
     Inspector General shall make a determination as to whether 
     concession fees are being collected and expended in 
     accordance with this chapter and shall submit copies of each 
     audit to the Committee on Resources of the House of 
     Representatives and the Committee on Energy and Natural 
     Resources of the Senate.

     SEC. 5471. REGULATIONS.

       The Secretary concerned shall promulgate regulations to 
     implement this chapter no later than 2 years after the date 
     of enactment of this Act. Subsequent to the date of enactment 
     of this chapter, no new concession authorization may be 
     issued, nor may any existing concession authorization be 
     amended or extended, unless such authorization, amendment, or 
     extension is fully consistent with sections 5465, 5469(c), 
     and 5470.

     SEC. 5472. RELATIONSHIP TO OTHER LAWS.

       (a) Repeals.--
       (1) The Act entitled ``An Act relating to the establishment 
     of concession policies in the areas administered by the 
     National Park Service and for other purposes'' (16 U.S.C. 20-
     20g) approved October 9, 1965, is repealed.
       (b) Savings.--
       (1) In general.--The repeal of any provision, the 
     superseding of any provision, and the amendment of any 
     provision, of an Act referred to in subsection (a) shall not 
     affect the validity of any authorizations entered into under 
     any such Act. The provisions of this chapter shall apply to 
     any such authorizations, except to the extent such provisions 
     are inconsistent with the express terms and conditions of 
     such authorizations.
       (2) Right of renewal.--The right of renewal explicitly 
     provided for by any concession contract under any such 
     provision shall be preserved for a single renewal of a 
     contract following the enactment of, or concession 
     authorization under, this chapter.
       (3) Value of capital improvements or possessory interest.--
     Nothing in this chapter shall be construed to change the 
     value as of the date of enactment of this chapter for 
     existing capital improvements or possessory interest as 
     identified in concession contracts entered into before the 
     date of enactment of this Act. Subsequent to enactment of 
     this chapter, the increase in value for any possessory 
     interest established under any concession contract in effect 
     on the date of enactment of this chapter shall be as provided 
     for in this chapter unless otherwise specifically provided in 
     the contract.
       (4) Anilca.--Nothing in this chapter shall be construed to 
     amend, supersede or otherwise affect any provision of the 
     Alaska National Interest Lands Conservation Act (16 U.S.C. 
     3101 et seq.) relating to revenue-producing visitor services.
       (5) Procedures for considering existing concessionaires in 
     reissuance of contracts.--In the case of a concession 
     contract which has expired prior to the date of the enactment 
     of this Act, or within 5 years after the date of the 
     enactment of this Act, an incumbent concessioner shall be 
     entitled to a one-time bonus of five percent of the maximum 
     points available in the reissuance of a previous concession 
     authorization. For any concession contract entered into prior 
     to the date of enactment of this Act, which is projected to 
     terminate 5 years or later after the date of enactment of 
     this Act, any concessioner shall be entitled to a performance 
     incentive in accordance with this chapter. The concessioner 
     shall be entitled to an evaluation of ``good'' for each year 
     in which the Secretary concerned does not complete an 
     evaluation as provided for in this chapter.
          TITLE VI--FEDERAL RETIREMENT AND RELATED PROVISIONS
        Subtitle A--Civil Service and Postal Service Provisions

     SEC. 6001. EXTENSION OF DELAY IN COST-OF-LIVING ADJUSTMENTS 
                   IN FEDERAL EMPLOYEE RETIREMENT BENEFITS THROUGH 
                   FISCAL YEAR 2002.

       Section 11001(a) of the Omnibus Budget Reconciliation Act 
     of 1993 (Public Law 103-66; 107 Stat. 408) is amended in the 
     matter preceding paragraph (1) by striking out ``or 1996,'' 
     and inserting in lieu thereof ``1996, 1997, 1998, 1999, 2000, 
     2001, or 2002,''.

     SEC. 6002. INCREASED CONTRIBUTIONS TO FEDERAL CIVILIAN 
                   RETIREMENT SYSTEMS.

       (a) Civil Service Retirement System.--
       (1) Deductions.--The first sentence of section 8334(a)(1) 
     of title 5, United States Code, is amended to read as 
     follows: ``The employing agency shall deduct and withhold 
     from the basic pay of an employee, Member, Congressional 
     employee, law enforcement officer, firefighter, bankruptcy 
     judge, judge of the United States Court of Appeals for the 
     Armed Forces, United States magistrate, or Claims Court 
     judge, as the case may be, the percentage of basic pay 
     applicable under subsection (c).''.
       (2) Agency contributions.--
       (A) Increase in agency contributions during calendar years 
     1996 through 2002.--Section 8334(a)(1) of title 5, United 
     States Code (as amended by this section) is further amended--
       (i) by inserting ``(A)'' after ``(1)''; and
       (ii) by adding at the end thereof the following new 
     subparagraph:
       ``(B)(i) Notwithstanding subparagraph (A), the agency 
     contribution under the second sentence of such subparagraph, 
     during the period beginning on January 1, 1996, through 
     December 31, 2002--
       ``(I) for each employing agency (other than the United 
     States Postal Service or the Washington Metropolitan Airport 
     Authority) shall be 8.51 percent of the basic pay of an 
     employee, Congressional employee, and a Member of Congress, 
     9.01 percent of the basic pay of a law enforcement officer, a 
     member of the Capitol Police, and a firefighter, and 8.51 
     percent of the basic pay of a Claims Court judge, a United 
     States magistrate, a judge of the United States Court of 
     Appeals for the Armed Services, and a bankruptcy judge, as 
     the case may be; and
       ``(II) for the United States Postal Service and the 
     Washington Metropolitan Airport Authority shall be 7 percent 
     of the basic pay of an employee and 7.5 percent of the basic 
     pay of a law enforcement officer or firefighter.''.
       (B) No reduction in agency contributions by the postal 
     service.--Agency contributions by the United States Postal 
     Service under section 8348(h) of title 5, United States 
     Code--
       (i) shall not be reduced as a result of the amendments made 
     under paragraph (3) of this subsection; and
       (ii) shall be computed as though such amendments had not 
     been enacted.
       (3) Individual deductions, withholdings, and deposits.--The 
     table under section 8334(c) of title 5, United States Code, 
     is amended--
       (A) in the matter relating to an employee by striking out


                                 ``7........  After December 31, 1969.''
                                                                        

     and inserting in lieu thereof the following:


                                 ``7........  January 1, 1970, to       
                                               December 31, 1995.       
                                  7.25......  January 1, 1996, to       
                                               December 31, 1996.       
                                  7.4.......  January 1, 1997, to       
                                               December 31, 1997.       
                                  7.5.......  January 1, 1998, to       
                                               December 31, 2002.       
                                  7.........  After December 31,        
                                               2002.'';                 
                                                                        

       (B) in the matter relating to a Member or employee for 
     Congressional employee service by striking out


                                 ``7\1/2\...  After December 31, 1969.''
                                                                        

     and inserting in lieu thereof the following:


                                 ``7.5......  January 1, 1970, to       
                                               December 31, 1995.       
                                  7.25......  January 1, 1996, to       
                                               December 31, 1996.       
                                  7.4.......  January 1, 1997, to       
                                               December 31, 1997.       
                                  7.5.......  January 1, 1998, to       
                                               December 31, 2002.       
                                  7.........  After December 31,        
                                               2002.'';                 
                                                                        

       (C) in the matter relating to a Member for Member service 
     by striking out


                                 ``8........  After December 31, 1969.''
                                                                        

     and inserting in lieu thereof the following:


                                 ``8........  January 1, 1970, to       
                                               December 31, 1995.       
                                  7.25......   January 1, 1996, to      
                                               December 31, 1996.       
                                  7.4.......  January 1, 1997, to       
                                               December 31, 1997.       
                                  7.5.......  January 1, 1998, to       
                                               December 31, 2002.       
                                  7.........  After December 31,        
                                               2002.'';                 
                                                                        

       (D) in the matter relating to a law enforcement officer for 
     law enforcement service and firefighter for firefighter 
     service by striking out


                                 ``7\1/2\...  After December 31, 1974.''
                                                                        

     and inserting in lieu thereof the following:


                                 ``7.5......  January 1, 1975, to       
                                               December 31, 1995.       

[[Page H 12555]]
                                                                        
                                  7.75......  January 1, 1996, to       
                                               December 31, 1996.       
                                  7.9.......  January 1, 1997, to       
                                               December 31, 1997.       
                                  8.........  January 1, 1998, to       
                                               December 31, 2002.       
                                  7.5.......  After December 31,        
                                               2002.'';                 
                                                                        


       (E) in the matter relating to a bankruptcy judge by 
     striking out


                                 ``8........  After December 31, 1983.''
                                                                        

     and inserting in lieu thereof the following:


                                 ``8........  January 1, 1984, to       
                                               December 31, 1995.       
                                  7.25......  January 1, 1996, to       
                                               December 31, 1996.       
                                  7.4.......  January 1, 1997, to       
                                               December 31, 1997.       
                                  7.5.......  January 1, 1998, to       
                                               December 31, 2002.       
                                  7.........  After December 31,        
                                               2002.'';                 
                                                                        

       (F) in the matter relating to a judge of the United States 
     Court of Appeals for the Armed Forces for service as a judge 
     of that court by striking out


                                 ``8........  On and after the date of  
                                               the enactment of the     
                                               Department of Defense    
                                               Authorization Act,       
                                               1984.''                  
                                                                        

     and inserting in lieu thereof the following:


                                 ``8........  The date of the enactment 
                                               of the Department of     
                                               Defense Authorization    
                                               Act, 1984, to December   
                                               31, 1995.                
                                  7.25......  January 1, 1996, to       
                                               December 31, 1996.       
                                  7.4.......  January 1, 1997, to       
                                               December 31, 1997.       
                                  7.5.......  January 1, 1998, to       
                                               December 31, 2002.       
                                  7.........  After December 31,        
                                               2002.'';                 
                                                                        

       (G) in the matter relating to a United States magistrate by 
     striking out


                                 ``8........  After September 30,       
                                               1987.''                  
                                                                        

     and inserting in lieu thereof the following:


                                 ``8........  October 1, 1987, to       
                                               December 31, 1995.       
                                  7.25......  January 1, 1996, to       
                                               December 31, 1996.       
                                  7.4.......  January 1, 1997, to       
                                               December 31, 1997.       
                                  7.5.......  January 1, 1998, to       
                                               December 31, 2002.       
                                  7.........  After December 31,        
                                               2002.'';                 
                                                                        

       (H) in the matter relating to a Claims Court judge by 
     striking out



                                 ``8........  After September 30,       
                                               1988.''                  
                                                                        

     and inserting in lieu thereof the following:


                                 ``8........  October 1, 1988, to       
                                               December 31, 1995.       
                                  7.25......  January 1, 1996, to       
                                               December 31, 1996.       
                                  7.4.......  January 1, 1997, to       
                                               December 31, 1997.       
                                  7.5.......  January 1, 1998, to       
                                               December 31, 2002.       
                                  7.........  After December 31,        
                                               2002.'';                 
                                                                        

     and
       (I) by inserting after the matter relating to a Claims 
     Court judge the following:


``Member of the Capitol Police.  2.5........  August 1, 1920, to June   
                                               30, 1926.                
                                 3.5........  July 1, 1926, to June 30, 
                                               1942.                    
                                 5..........  July 1, 1942, to June 30, 
                                               1948.                    
                                 6..........  July 1, 1948, to October  
                                               31, 1956.                
                                 6.5........  November 1, 1956, to      
                                               December 31, 1969.       
                                 7.5........  January 1, 1970, to       
                                               December 31, 1995.       
                                 7.75.......  January 1, 1996, to       
                                               December 31, 1996.       
                                 7.9........  January 1, 1997, to       
                                               December 31, 1997.       
                                 8..........  January 1, 1998, to       
                                               December 31, 2002.       
                                 7.5........  After December 31,        
                                               2002.''.                 
                                                                        

       (4) Other service.--
       (A) Military service.--Section 8334(j) of title 5, United 
     States Code, is amended--
       (i) in paragraph (1)(A) by inserting ``and subject to 
     paragraph (5),'' after ``Except as provided in subparagraph 
     (B),''; and
       (ii) by adding at the end thereof the following new 
     paragraph:
       ``(5) Effective with respect to any period of military 
     service after December 31, 1995, the percentage of basic pay 
     under section 204 of title 37 payable under paragraph (1) 
     shall be equal to the same percentage as would be applicable 
     under section 8334(c) for that same period for service as an 
     employee, subject to paragraph (1)(B).''.
       (B) Volunteer service.--Section 8334(l) of title 5, United 
     States Code, is amended--
       (i) in paragraph (1) by adding at the end thereof the 
     following: ``This paragraph shall be subject to paragraph 
     (4).''; and
       (ii) by adding at the end thereof the following new 
     paragraph:
       ``(4) Effective with respect to any period of service after 
     December 31, 1995, the percentage of the readjustment 
     allowance or stipend (as the case may be) payable under 
     paragraph (1) shall be equal to the same percentage as would 
     be applicable under section 8334(c) for that same period for 
     service as an employee.''.
       (b) Federal Employees Retirement System.--
       (1) Individual deductions and withholdings.--
       (A) In general.--Section 8422(a) of title 5, United States 
     Code, is amended by striking out paragraph (2) and inserting 
     in lieu thereof the following:
       ``(2) The percentage to be deducted and withheld from basic 
     pay for any pay period shall be equal to--
       ``(A) the applicable percentage under paragraph (3), minus
       ``(B) the percentage then in effect under section 3101(a) 
     of the Internal Revenue Code of 1986 (relating to rate of tax 
     for old-age, survivors, and disability insurance).
       ``(3) The applicable percentage under this paragraph, for 
     civilian service shall be as follows:


Employee......................  7.............  Before January 1, 1996. 
                                7.25..........  January 1, 1996, to     
                                                 December 31, 1996.     
                                7.4...........  January 1, 1997, to     
                                                 December 31, 1997.     
                                7.5...........  January 1, 1998, to     
                                                 December 31, 2002.     
                                7.............  After December 31, 2002.
 Congressional employee.......  7.5...........  Before January 1, 1996. 
                                7.25..........  January 1, 1996, to     
                                                 December 31, 1996.     
                                7.4...........  January 1, 1997, to     
                                                 December 31, 1997.     
                                7.5...........  January 1, 1998, to     
                                                 December 31, 2002.     
                                7.............  After December 31, 2002.
 Member.......................  7.5...........  Before January 1, 1996. 
                                7.25..........  January 1, 1996, to     
                                                 December 31, 1996.     
                                7.4...........  January 1, 1997, to     
                                                 December 31, 1997.     
                                7.5...........  January 1, 1998, to     
                                                 December 31, 2002.     
                                7.............  After December 31, 2002.
 Law enforcement officer,       7.5...........  Before January 1, 1996. 
 firefighter, member of the                                             
 Capitol Police, or air                                                 
 traffic controller.                                                    
                                7.75..........  January 1, 1996, to     
                                                 December 31, 1996.     
                                7.9...........  January 1, 1997, to     
                                                 December 31, 1997.     
                                8.............  January 1, 1998, to     
                                                 December 31, 2002.     
                                7.5...........  After December 31, 2002.
                                                                        

       (B) Military service.--Section 8422(e) of title 5, United 
     States Code, is amended--
       (i) in paragraph (1)(A) by inserting ``and subject to 
     paragraph (6),'' after ``Except as provided in subparagraph 
     (B),''; and
       (ii) by adding at the end thereof the following:
       ``(6) The percentage of basic pay under section 204 of 
     title 37 payable under paragraph (1), 

[[Page H 12556]]
     with respect to any period of military service performed during--
       ``(A) January 1, 1996, through December 31, 1996, shall be 
     3.25 percent;
       ``(B) January 1, 1997, through December 31, 1997, shall be 
     3.4 percent; and
       ``(C) January 1, 1998, through December 31, 2002, shall be 
     3.5 percent.''.
       (C) Volunteer service.--Section 8422(f) of title 5, United 
     States Code, is amended--
       (i) in paragraph (1) by adding at the end thereof the 
     following: ``This paragraph shall be subject to paragraph 
     (4).''; and
       (ii) by adding at the end the following:
       ``(4) The percentage of the readjustment allowance or 
     stipend (as the case may be) payable under paragraph (1), 
     with respect to any period of volunteer service performed 
     during--
       ``(A) January 1, 1996, through December 31, 1996, shall be 
     3.25 percent;
       ``(B) January 1, 1997, through December 31, 1997, shall be 
     3.4 percent; and
       ``(C) January 1, 1998, through December 31, 2002, shall be 
     3.5 percent.''.
       (2) No reduction in agency contributions.--Agency 
     contributions under section 8423 (a) and (b) of title 5, 
     United States Code , shall not be reduced as a result of the 
     amendments made under paragraph (1) of this subsection.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the first day of the first applicable 
     pay period beginning on or after January 1, 1996.

     SEC. 6003. FEDERAL RETIREMENT PROVISIONS RELATING TO MEMBERS 
                   OF CONGRESS AND CONGRESSIONAL EMPLOYEES.

       (a) Relating to the Years of Service as a Member of 
     Congress and Congressional Employees for Purposes of 
     Computing an Annuity.--
       (1) CSRS.--Section 8339 of title 5, United States Code, is 
     amended--
       (A) in subsection (a) by inserting ``or Member'' after 
     ``employee''; and
       (B) by striking out subsections (b) and (c).
       (2) FERS.--Section 8415 of title 5, United States Code, is 
     amended--
       (A) by striking out subsections (b) and (c);
       (B) in subsections (a) and (g) by inserting ``or Member'' 
     after ``employee'' each place it appears; and
       (C) in subsection (g)(2) by striking out ``Congressional 
     employee''.
       (b) Accrual Rate for Member and Congressional Employee 
     Service Performed but not Vested Before Effective Date.--
       (1) Application.--This subsection shall apply to an 
     individual who--
       (A) is a Member of Congress or Congressional employee on 
     December 31, 1995;
       (B) has performed less than 5 years of service as a Member 
     of Congress or Congressional employee on December 31, 1995; 
     and
       (C) after December 31, 1995, completes 5 years of service 
     as a Member of Congress or Congressional employee, that 
     includes a period of service performed as a Member of 
     Congress or Congressional employee before January 1, 1996.
       (2) Computation of annuity.-- In computing the annuity of 
     an individual described under paragraph (1)--
       (A) any period of service as a Member of Congress or 
     Congressional employee performed before January 1, 1996, 
     shall be computed under section 8339 or 8415 of title 5, 
     United States Code (as though the amendments under subsection 
     (a) of this section were not enacted); and
       (B) the 5 year service requirement under subsections (b) 
     and (c) of section 8339 or 8415 of such title (as in effect 
     before the date of enactment of this Act) shall be deemed 
     fulfilled.
       (c) Capitol Police.--Section 8339(q) of title 5, United 
     States Code, is amended by striking out ``with subsection 
     (b), except that, in the case of a member who retires under 
     section 8335(d) or 8336(m), and who meets the requirements of 
     subsection (b)(2),'' and inserting in lieu thereof ``with 
     subsection (a), except that in the case of a member who 
     retires under section 8335(d) or 8336(m), and who has 
     deductions withheld from his pay or has made deposit covering 
     his last 5 years of civilian service,''.
       (d) Administrative Regulations.--The Office of Personnel 
     Management, in consultation with the Secretary of the Senate 
     and the Clerk of the House of Representatives, may prescribe 
     regulations to carry out the provisions of this section and 
     the amendments made by this section for applicable employees 
     and Members of Congress.
       (e) Effective Dates.--
       (1) Years of service; annuity computation.--
       (A) Service after effective date.--The amendments made by 
     subsection (a) shall take effect on January 1, 1996, and 
     shall apply only with respect to the computation of an 
     annuity relating to--
       (i) the service of a Member of Congress as a Member or as a 
     Congressional employee performed on or after January 1, 1996; 
     and
       (ii) the service of a Congressional employee as a 
     Congressional employee performed on or after January 1, 1996.
       (B) Service before effective date.--An annuity shall be 
     computed as though the amendments made under subsection (a) 
     had not been enacted with respect to--
       (i) the service of a Member of Congress as a Member or a 
     Congressional employee or military service performed before 
     January 1, 1996; and
       (ii) the service of a Congressional employee as a 
     Congressional employee or military service performed before 
     January 1, 1996.
       (C) Alternative effective date relating to members of 
     congress.--If a court of competent jurisdiction makes a final 
     determination that a provision of this paragraph violates the 
     27th amendment of the United States Constitution, the 
     effective date and application dates relating to Members of 
     Congress shall be January 1, 1997.
       (2) Administrative provisions.--The provisions of 
     subsections (b), (c), and (d) shall take effect on the date 
     of the enactment of this Act.

     SEC. 6004. ACCRUAL RATES RELATING TO CERTAIN JUDGES WITH 
                   SIMILAR TREATMENT AS CONGRESSIONAL SERVICE.

       (a) Judge of the United States Court of Military Appeals.--
     Section 8339(d)(7) of title 5, United States Code, is amended 
     by striking out ``service.'' and inserting in lieu thereof 
     ``service performed before January 1, 1996.''.
       (b) Claims Court Judge, Bankruptcy Judge, United States 
     Magistrate.--Section 8339(n) of title 5, United States Code, 
     is amended by striking out ``service.'' and inserting in lieu 
     thereof ``service performed before January 1, 1996. The 
     annuity of any such employee is, with respect to any service 
     referred to in the preceding sentence that is performed on or 
     after January 1, 1996, computed under subsection (a).''.

     SEC. 6005. REPEAL OF AUTHORIZATION OF TRANSITIONAL 
                   APPROPRIATIONS FOR THE UNITED STATES POSTAL 
                   SERVICE.

       (a) Repeal.--
       (1) In general.--Section 2004 of title 39, United States 
     Code, is repealed.
       (2) Technical and conforming amendments.--
       (A) The table of sections for chapter 20 of such title is 
     amended by repealing the item relating to section 2004.
       (B) Section 2003(e)(2) of such title is amended by striking 
     ``sections 2401 and 2004'' each place it appears and 
     inserting ``section 2401''.
       (b) Clarification That Liabilities Formerly Paid Pursuant 
     to Section 2004 Remain Liabilities Payable by the Postal 
     Service.--Section 2003 of title 39, United States Code, is 
     amended by adding at the end the following:
       ``(h) Liabilities of the former Post Office Department to 
     the Employees' Compensation Fund (appropriations for which 
     were authorized by former section 2004, as in effect before 
     the effective date of this subsection) shall be liabilities 
     of the Postal Service payable out of the Fund.''.
       (c) Effective Date.--
       (1) In general.--This section and the amendments made by 
     this section shall be effective as of October 1, 1995.
       (2) Provisions relating to payments for fiscal year 1996.--
       (A) Amounts not yet paid.--No payment may be made to the 
     Postal Service Fund, on or after the date of the enactment of 
     this Act, pursuant to any appropriation for fiscal year 1996 
     authorized by section 2004 of title 39, United States Code 
     (as in effect before the effective date of this section).
       (B) Amounts paid.--If any payment to the Postal Service 
     Fund is or has been made pursuant to an appropriation for 
     fiscal year 1996 authorized by such section 2004, then an 
     amount equal to the amount of such payment shall be paid from 
     such Fund into the Treasury as miscellaneous receipts.
                 Subtitle B--Patent and Trademark Fees

     SEC. 6011. PATENT AND TRADEMARK FEES.

       Section 10101 of the Omnibus Budget Reconciliation Act of 
     1990 (35 U.S.C. 41 note) is amended--
       (1) in subsection (a) by striking ``1998'' and inserting 
     ``2002'';
       (2) in subsection (b)(2) by striking ``1998'' and inserting 
     ``2002''; and
       (3) in subsection (c)--
       (A) by striking ``through 1998'' and inserting ``through 
     2002''; and
       (B) by adding at the end the following:
       ``(9) $119,000,000 in fiscal year 1999.
       ``(10) $119,000,000 in fiscal year 2000.
       ``(11) $119,000,000 in fiscal year 2001.
       ``(12) $119,000,000 in fiscal year 2002.''.
                     Subtitle C--GSA Property Sales

     SEC. 6021. SALE OF GOVERNORS ISLAND, NEW YORK.

       (a) In General.--Notwithstanding any other provision of 
     law, the Administrator of General Services shall dispose of 
     by sale at fair market value all rights, title, and interests 
     of the United States in and to the land of, and improvements 
     to, Governors Island, New York.
       (b) Right of First Refusal.--Before a sale is made under 
     subsection (a) to any other parties, the State of New York 
     and the city of New York shall be given the right of first 
     refusal to purchase all or part of Governors Island. Such 
     right may be exercised by either the State of New York or the 
     city of New York or by both parties acting jointly.
       (c) Proceeds.--Proceeds from the disposal of Governors 
     Island under subsection (a) shall be deposited in the general 
     fund of the Treasury and credited as miscellaneous receipts.

     SEC. 6022. SALE OF AIR RIGHTS.

       (a) In General.--Notwithstanding any other provision of 
     law, the Administrator of General Services shall sell, at 
     fair market value and in a manner to be determined by the 
     Administrator, the air rights adjacent to Washington Union 
     Station described in subsection (b), including air rights 
     conveyed to the Administrator under subsection (d). The 
     Administrator shall complete the sale by such date as is 
     necessary to ensure that the proceeds from the sale will be 
     deposited in accordance with subsection (c).
       (b) Description.--The air rights referred to in subsection 
     (a) total approximately 16.5 acres and are depicted on the 
     plat map of the District of Columbia as follows:
       (1) Part of lot 172, square 720.
       (2) Part of lots 172 and 823, square 720.
       (3) Part of lot 811, square 717.
       (c) Proceeds.--Before September 30, 1996, proceeds from the 
     sale of air rights under subsection (a) shall be deposited in 
     the general fund of the Treasury and credited as 
     miscellaneous receipts.
       (d) Conveyance of Amtrak Air Rights.--

[[Page H 12557]]

       (1) General rule.--As a condition of future Federal 
     financial assistance, Amtrak shall convey to the 
     Administrator of General Services on or before December 31, 
     1995, at no charge, all of the air rights of Amtrak described 
     in subsection (b).
       (2) Failure to comply.--If Amtrak does not meet the 
     condition established by paragraph (1), Amtrak shall be 
     prohibited from obligating Federal funds after March 1, 1996.

     SEC. 6023. AVAILABILITY OF SURPLUS PROPERTY FOR HOMELESS 
                   ASSISTANCE.

       (a) Repeal.--(1) Title V of the Stewart B. McKinney 
     Homeless Assistance Act (42 U.S.C. 11411 et seq.) is 
     repealed.
       (2) The table of contents in section 101(b) of that Act is 
     amended by striking the items relating to title V.
       (3) This subsection shall be effective October 1, 1995.
       (b) Authority To Transfer Surplus Real Property for Housing 
     Use.--Section 203 of the Federal Property and Administrative 
     Services Act of 1949 (40 U.S.C. 484) is amended by adding at 
     the end the following:
       ``(r) Under such regulations as the Administrator may 
     prescribe, and in consultation with appropriate local 
     governmental authorities, the Administrator may transfer to 
     any nonprofit organization which exists for the primary 
     purpose of providing housing or housing assistance for 
     homeless individuals or families, such surplus real property, 
     including buildings, fixtures, and equipment situated 
     thereon, as is needed for housing use.
       ``(s)(1) Under such regulations as the Administrator may 
     prescribe, and in consultation with appropriate local 
     governmental authorities, the Administrator may transfer to 
     any non-profit organization which exists for the primary 
     purpose of providing housing or housing assistance for low-
     income individuals or families such surplus real property, 
     including buildings, fixtures, and equipment situated 
     thereon, as is needed for housing use.
       ``(2) In making transfers under this subsection, the 
     Administrator shall take such actions, which may include 
     grant agreements with an organization receiving a grant, as 
     may be necessary to ensure that--
       ``(A) assistance provided under this subsection is used to 
     facilitate and encourage homeownership opportunities through 
     the construction of self-help housing, under terms which 
     require that the person receiving the assistance contribute a 
     significant amount of labor toward the construction; and
       ``(B) the dwellings constructed with property transferred 
     under this subsection shall be quality dwellings that comply 
     with local building and safety codes and standards and shall 
     be available at prices below the prevailing market prices.''.
           TITLE VII--TRANSFORMATION OF THE MEDICAID PROGRAM

     SEC. 7000. SHORT TITLE OF TITLE; TABLE OF CONTENTS OF TITLE.

       (a) Short Title of Title.--This title may be cited as the 
     ``Medicaid Transformation Act of 1995''.
       (b) Table of Contents of Title.--The table of contents of 
     this title is as follows:

Sec. 7000. Short title of title; table of contents of title.
Sec. 7001. Transformation of medicaid program.
Sec. 7002. Termination of current program and transition.
Sec. 7003. Medicare/MediGrant integration demonstration project.

     SEC. 7001. TRANSFORMATION OF MEDICAID PROGRAM.

       The Social Security Act is amended by adding at the end the 
     following new title:

 ``TITLE XXI--MEDIGRANT PROGRAM FOR LOW-INCOME INDIVIDUALS AND FAMILIES


                      ``table of contents of title

``Sec. 2100. Purpose; State MediGrant plans.

     ``Part A--Objectives, Goals, and Performance Under State Plans

``Sec. 2101. Description of strategic objectives and performance goals.
``Sec. 2102. Annual reports.
``Sec. 2103. Periodic, independent evaluations.
``Sec. 2104. Description of process for MediGrant plan development.
``Sec. 2105. Consultation in MediGrant plan development.

            ``Part B--Eligibility, Benefits, and Set-Asides

``Sec. 2111. Eligibility and benefits.
``Sec. 2112. Set-asides of funds.
``Sec. 2113. Premiums and cost-sharing.
``Sec. 2114. Description of process for developing capitation payment 
              rates.
``Sec. 2115. Preventing spousal impoverishment.
``Sec. 2116. State flexibility.

                      ``Part C--Payments to States

``Sec. 2121. Allotment of funds among States.
``Sec. 2122. Payments to States.
``Sec. 2123. Limitation on use of funds; disallowance.

                ``Part D--Program Integrity and Quality

``Sec. 2131. Use of audits to achieve fiscal integrity.
``Sec. 2132. Fraud prevention program.
``Sec. 2133. Information concerning sanctions taken by State licensing 
              authorities against health care practitioners and 
              providers.
``Sec. 2134. State MediGrant fraud control units.
``Sec. 2135. Recoveries from third parties and others.
``Sec. 2136. Assignment of rights of payment.
``Sec. 2137. Quality assurance requirements for nursing facilities.
``Sec. 2138. Other provisions promoting program integrity.

        ``Part E--Establishment and Amendment of MediGrant Plans

``Sec. 2151. Submittal and approval of MediGrant plans.
``Sec. 2152. Submittal and approval of plan amendments.
``Sec. 2153. Process for State withdrawal from program.
``Sec. 2154. Sanctions for noncompliance.
``Sec. 2155. Secretarial authority.

                      ``Part F--General Provisions

``Sec. 2171. Definitions.
``Sec. 2172. Treatment of territories.
``Sec. 2173. Description of treatment of Indian Health Service 
              facilities.
``Sec. 2174. Application of certain general provisions.
``Sec. 2175. MediGrant master drug rebate agreements.

     ``SEC. 2100. PURPOSE; STATE MEDIGRANT PLANS.

       ``(a) Purpose.--The purpose of this title is to provide 
     block grants to States to enable them to provide medical 
     assistance to low-income individuals and families in a more 
     effective, efficient, and responsive manner.
       ``(b) State Plan Required.--A State is not eligible for 
     payment under section 2122 of this title unless the State has 
     submitted to the Secretary under part E a plan (in this title 
     referred to as a `MediGrant plan') that--
       ``(1) sets forth how the State intends to use the funds 
     provided under this title to provide medical assistance to 
     needy individuals and families consistent with the provisions 
     of this title, and
       ``(2) is approved under such part.
       ``(c) Continued Approval.--An approved MediGrant plan shall 
     continue in effect unless and until--
       ``(1) the State amends the plan under section 2152,
       ``(2) the State terminates participation under this title 
     under section 2153, or
       ``(3) the Secretary finds substantial noncompliance of the 
     plan with the requirements of this title under section 2154.
       ``(d) State Entitlement.--This title constitutes budget 
     authority in advance of appropriations Acts, and represents 
     the obligation of the Federal Government to provide for the 
     payment to States of amounts provided under part C.

     ``Part A--Objectives, Goals, and Performance Under State Plans

     ``SEC. 2101. DESCRIPTION OF STRATEGIC OBJECTIVES AND 
                   PERFORMANCE GOALS.

       ``(a) Description.--A MediGrant plan shall include a 
     description of the strategic objectives and performance goals 
     the State has established for providing health care services 
     to low-income populations under this title, including a 
     general description of the manner in which the plan is 
     designed to meet these objectives and goals.
       ``(b) Certain Objectives and Goals Required.--A MediGrant 
     plan shall include strategic objectives and performance goals 
     relating to rates of childhood immunizations and reductions 
     in infant mortality and morbidity.
       ``(c) Considerations.--In specifying these objectives and 
     goals the State may consider factors such as the following:
       ``(1) The State's priorities with respect to providing 
     assistance to low-income populations.
       ``(2) The State's priorities with respect to the general 
     public health and the health status of individuals eligible 
     for assistance under the MediGrant plan.
       ``(3) The State's financial resources, the particular 
     economic conditions in the State, and relative adequacy of 
     the health care infrastructure in different regions of the 
     State.
       ``(d) Performance Measures.--To the extent practicable--
       ``(1) one or more performance goals shall be established by 
     the State for each strategic objective identified in the 
     MediGrant plan; and
       ``(2) the MediGrant plan shall describe, how program 
     performance will be--
       ``(A) measured through objective, independently verifiable 
     means, and
       ``(B) compared against performance goals, in order to 
     determine the State's performance under this title.
       ``(e) Period Covered.--
       ``(1) Strategic objectives.--The strategic objectives shall 
     cover a period of not less than 5 years and shall be updated 
     and revised at least every 3 years.
       ``(2) Performance goals.--The performance goals shall be 
     established for dates that are not more than 3 years apart.

     ``SEC. 2102. ANNUAL REPORTS.

       ``(a) In General.--In the case of a State with a MediGrant 
     plan that is in effect for part or all of a fiscal year, no 
     later than March 31 following such fiscal year (or March 31, 
     1998, in the case of fiscal year 1996) the State shall 
     prepare and submit to the Secretary and the Congress a report 
     on program activities and performance under this title for 
     such fiscal year.
       ``(b) Contents.--Each annual report under this section for 
     a fiscal year shall include the following:
       ``(1) Expenditure and beneficiary summary.--
       ``(A) Initial summary.--For the report for fiscal year 1997 
     (and, if applicable, fiscal year 1996), a summary of all 
     expenditures under the MediGrant plan during the fiscal year 
     (and during any portions of fiscal year 1996 during which the 
     MediGrant plan was in effect under this title) as follows:
       ``(i) Aggregate medical assistance expenditures, 
     disaggregated to the extent required to determine compliance 
     with the set-aside requirements of subsections (a) through 
     (d) of section 2112 and to compute the case mix index under 
     section 2121(d)(3).
       ``(ii) For each general category of eligible individuals 
     (specified in subsection (c)(1), aggregate medical assistance 
     expenditures and the total and average number of eligible 
     individuals under the MediGrant plan.

[[Page H 12558]]

       ``(iii) By each general category of eligible individuals, 
     total expenditures for each of the categories of health care 
     items and services (specified in subsection (c)(2)) which are 
     covered under the MediGrant plan and provided on a fee-for-
     service basis.
       ``(iv) By each general category of eligible individuals, 
     total expenditures for payments to capitated health care 
     organizations (as defined in section 2114(c)(1)).
       ``(v) Total administrative expenditures.
       ``(B) Subsequent summaries.--For reports for each 
     succeeding fiscal year, a summary of--
       ``(i) all expenditures under the MediGrant plan, and
       ``(ii) the total and average number of eligible individuals 
     under the MediGrant plan for each general category of 
     eligible individuals.
       ``(2) Utilization summary.--
       ``(A) Initial summary.--For the report for fiscal year 1997 
     (and, if applicable, fiscal year 1996), summary statistics on 
     the utilization of health care services under the MediGrant 
     plan during the year (and during any portions of fiscal year 
     1996 during which the MediGrant plan was in effect under this 
     title) as follows:
       ``(i) For each general category of eligible individuals and 
     for each of the categories of health care items and services 
     which are covered under the MediGrant plan and provided on a 
     fee-for-service basis, the number and percentage of persons 
     who received such a type of service or item during the period 
     covered by the report.
       ``(ii) Summary of health care utilization data reported to 
     the State by capitated health care organizations.
       ``(B) Subsequent summaries.--For reports for each 
     succeeding fiscal year, summary statistics on the utilization 
     of health care services under the MediGrant plan.
       ``(3) Achievement of performance goals.--With respect to 
     each performance goal established under section 2101 and 
     applicable to the year involved--
       ``(A) a brief description of the goal;
       ``(B) a description of the methods to be used to measure 
     the attainment of such goal;
       ``(C) data on the actual performance with respect to the 
     goal;
       ``(D) a review of the extent to which the goal was 
     achieved, based on such data; and
       ``(E) if a performance goal has not been met--
       ``(i) why the goal was not met, and
       ``(ii) actions to be taken in response to such performance, 
     including adjustments in performance goals or program 
     activities for subsequent years.
       ``(4) Program evaluations.--A summary of the findings of 
     evaluations under section 2103 completed during the fiscal 
     year covered by the report.
       ``(5) Fraud and abuse and quality control activities.--A 
     general description of the State's activities under part D to 
     detect and deter fraud and abuse and to assure quality of 
     services provided under the program.
       ``(6) Plan administration.--
       ``(A) A description of the administrative roles and 
     responsibilities of entities in the State responsible for 
     administration of this title.
       ``(B) Organizational charts for each entity in the State 
     primarily responsible for activities under this title.
       ``(C) A brief description of each interstate compact (if 
     any) the State has entered into with other States with 
     respect to activities under this title.
       ``(D) General citations to the State statutes and 
     administrative rules governing the State's activities under 
     this title.
       ``(c) Description of Categories.--In this section:
       ``(1) General categories of eligible individuals.--Each of 
     the following is a general category of eligible individuals:
       ``(A) Pregnant women.
       ``(B) Children.
       ``(C) Blind or disabled adults who are not elderly 
     individuals.
       ``(D) Elderly individuals.
       ``(E) Other adults.
       ``(2) Categories of health care items and services.--The 
     health care items and services described in each paragraph of 
     section 2171(a) shall be considered a separate category of 
     health care items and services.

     ``SEC. 2103. PERIODIC, INDEPENDENT EVALUATIONS.

       ``(a) In General.--During fiscal year 1998 and every third 
     fiscal year thereafter, each State shall provide for an 
     evaluation of the operation of its MediGrant plan under this 
     title.
       ``(b) Independent.--Each such evaluation with respect to an 
     activity under the MediGrant plan shall be conducted by an 
     entity that is neither responsible under State law for the 
     submission of the State MediGrant plan (or part thereof) nor 
     responsible for administering (or supervising the 
     administration of) the activity. If consistent with the 
     previous sentence, such an entity may be a college or 
     university, a State agency, a legislative branch agency in a 
     State, or an independent contractor.
       ``(c) Research Design.--Each such evaluation shall be 
     conducted in accordance with a research design that is based 
     on generally accepted models of survey design and sampling 
     and statistical analysis.

     ``SEC. 2104. DESCRIPTION OF PROCESS FOR MEDIGRANT PLAN 
                   DEVELOPMENT.

       ``Each MediGrant plan shall include a description of the 
     process under which the plan shall be developed and 
     implemented in the State (consistent with section 2105).

     ``SEC. 2105. CONSULTATION IN MEDIGRANT PLAN DEVELOPMENT.

       ``(a) Public Notice Process.--Before submitting a MediGrant 
     plan or a plan amendment described in subsection (c) to the 
     Secretary under part E, a State shall provide--
       ``(1) public notice respecting the submittal of the 
     proposed plan or amendment, including a general description 
     of the plan or amendment,
       ``(2) a means for the public to inspect or obtain a copy 
     (at reasonable charge) of the proposed plan or amendment,
       ``(3) an opportunity for submittal and consideration of 
     public comments on the proposed plan or amendment, and
       ``(4) for consultation with one or more advisory committees 
     established and maintained by the State.
     The previous sentence shall not apply to a revision of a 
     MediGrant plan (or revision of an amendment to a plan) made 
     by a State under section 2154(c)(1) or to a plan amendment 
     withdrawal described in section 2154(c)(4).
       ``(b) Contents of Notice.--A notice under subsection (a)(1) 
     for a proposed plan or amendment shall include a description 
     of--
       ``(1) the general purpose of the proposed plan or amendment 
     (including applicable effective dates),
       ``(2) where the public may inspect the proposed plan or 
     amendment,
       ``(3) how the public may obtain a copy of the proposed plan 
     or amendment and the applicable charge (if any) for the copy, 
     and
       ``(4) how the public may submit comments on the proposed 
     plan or amendment, including any deadlines applicable to 
     consideration of such comments.
       ``(c) Amendments Described.--An amendment to a MediGrant 
     plan described in this subsection is an amendment which makes 
     a material and substantial change in eligibility under the 
     MediGrant plan or the benefits provided under the plan.
       ``(d) Publication.--Notices under this section may be 
     published (as selected by the State) in one or more daily 
     newspapers of general circulation in the State or in any 
     publication used by the State to publish State statutes or 
     rules.
       ``(e) Comparable Process.--A separate notice, or notices, 
     shall not be required under this section for a State if 
     notice of the MediGrant plan or an amendment to the plan will 
     be provided under a process specified in State law that is 
     substantially equivalent to the notice process specified in 
     this section.

            ``Part B--Eligibility, Benefits, and Set-Asides

     ``SEC. 2111. ELIGIBILITY AND BENEFITS.

       ``(a) Description of General Eligibility and Benefits.--
     Each MediGrant plan shall include a description (consistent 
     with this title) of the following:
       ``(1) General eligibility standards.--The general 
     eligibility standards of the plan for eligible low-income 
     individuals (including individuals described in subsection 
     (b)), including--
       ``(A) any limitations as to the duration of eligibility,
       ``(B) any eligibility standards relating to age, income and 
     resources (including any standards relating to spenddowns and 
     disposition of resources), residency, disability status, 
     immigration status, or employment status of individuals,
       ``(C) methods of establishing and continuing eligibility 
     and enrollment, including the methodology for computing 
     family income,
       ``(D) the eligibility standards in the plan that protect 
     the income and resources of a married individual who is 
     living in the community and whose spouse is residing in an 
     institution in order to prevent the impoverishment of the 
     community spouse, and
       ``(E) any other standards relating to eligibility for 
     medical assistance under the plan.
       ``(2) Scope of assistance.--The amount, duration, and scope 
     of health care services and items covered under the plan, 
     including differences among different eligible population 
     groups.
       ``(3) Delivery method.--The State's approach to delivery of 
     medical assistance, including a general description of--
       ``(A) the use (or intended use) of vouchers, fee-for-
     service, or managed care arrangements (such as capitated 
     health care plans, case management, and case coordination); 
     and
       ``(B) utilization control systems.
       ``(4) Fee-for-service benefits.--To the extent that medical 
     assistance is furnished on a fee-for-service basis--
       ``(A) how the State determines the qualifications of health 
     care providers eligible to provide such assistance; and
       ``(B) how the State determines rates of reimbursement for 
     providing such assistance.
       ``(5) Cost-sharing.--Beneficiary cost-sharing (if any), 
     including variations in such cost-sharing by population group 
     or type of service and financial responsibilities of parents 
     of recipients who are children and the spouses of recipients.
       ``(6) Utilization incentives.--Incentives or requirements 
     (if any) to encourage the appropriate utilization of 
     services.
       ``(7) Support for certain hospitals.--
       ``(A) In general.--With respect to hospitals described in 
     subparagraph (B) located in the State, a description of the 
     extent to which provisions are made for expenditures for 
     items and services furnished by such hospitals and covered 
     under the MediGrant plan.
       ``(B) Hospitals described.--A hospital described in this 
     subparagraph is a short-term acute care general hospital or a 
     children's hospital, the low-income utilization rate of which 
     exceeds the lesser of--
       ``(i) 1 standard deviation above the mean low-income 
     utilization rate for hospitals receiving payments under a 
     MediGrant plan in the State in which such hospital is 
     located, or
       ``(ii) 1\1/4\ standard deviations above the mean low-income 
     utilization rate for hospitals receiving such payments in the 
     50 States and the District of Columbia.
       ``(C) Low-income utilization rate.--For purposes of 
     subparagraph (B), the term `low-income utilization rate' 
     means, for a hospital, a fraction (expressed as a 
     percentage), the numerator of which is the hospital's number 
     of patient 

[[Page H 12559]]
     days attributable to patients who (for such days) were eligible for 
     medical assistance under a MediGrant plan or were uninsured 
     in a period, and the denominator of which is the total number 
     of the hospital's patient days in that period.
       ``(D) Patient days.--For purposes of subparagraph (C), the 
     term `patient day' includes each day in which--
       ``(i) an individual, including a newborn, is an inpatient 
     in the hospital, whether or not the individual is in a 
     specialized ward and whether or not the individual remains in 
     the hospital for lack of suitable placement elsewhere; or
       ``(ii) an individual makes one or more outpatient visits to 
     the hospital.
       ``(b) Mandatory Coverage.--Each MediGrant plan shall 
     provide for making medical assistance available (subject to 
     the eligibility standards described under the plan pursuant 
     to subsection (a)(1) and State flexibility of benefits under 
     section 2116) to--
       ``(1) any pregnant woman or child under the age of 13 whose 
     family income does not exceed the poverty line applicable to 
     a family of the size involved, and
       ``(2) any individual who is disabled, as defined by the 
     State.
       ``(c) Immunizations for Children.--The MediGrant plan shall 
     provide medical assistance for immunizations for children 
     eligible for any medical assistance under the MediGrant plan, 
     in accordance with a schedule for immunizations established 
     by the Health Department of the State in consultation with 
     the individuals and entities in the State responsible for the 
     administration of the plan.
       ``(d) Family Planning Services.--The MediGrant plan shall 
     provide prepregnancy planning services and supplies as 
     specified by the State.
       ``(e) Preexisting Condition Exclusions.--Notwithstanding 
     any other provision of this title--
       ``(1) a MediGrant plan may not deny or exclude coverage of 
     any item or service for an eligible individual for benefits 
     under the MediGrant plan for such item or service on the 
     basis of a preexisting condition; and
       ``(2) if a State contracts or makes other arrangements 
     (through the eligible individual or through another entity) 
     with a capitated health care organization, insurer, or other 
     entity, for the provision of items or services to eligible 
     individuals under the MediGrant plan and the State permits 
     such organization, insurer, or other entity to exclude 
     coverage of a covered item or service on the basis of a 
     preexisting condition, the State shall provide, through its 
     MediGrant plan, for such coverage (through direct payment or 
     otherwise) for any such covered item or service denied or 
     excluded on the basis of a preexisting condition.
       ``(f) Family Responsibility.--A MediGrant plan may not 
     require an adult child with a family income below the State 
     median income (as determined by the State) applicable to a 
     family of the size involved to contribute to the cost of 
     covered nursing facility services and other long-term care 
     services for the child's parent under the plan.
       ``(g) Solvency Standards for Capitated Health Care 
     Organizations.--
       ``(1) In general.--A State may not contract with a 
     capitated health care organization, as defined in section 
     2114(c)(1), for the provision of medical assistance under a 
     MediGrant plan under which the organization is--
       ``(A) at full financial risk, as defined by the State, 
     unless the organization meets solvency standards established 
     by the State for private health maintenance organizations, or
       ``(B) is not at such risk, unless the organization meets 
     solvency standards that are established under the MediGrant 
     plan.
       ``(2) Treatment of public entities.--Paragraph (1) shall 
     not apply to an organization that is a public entity or if 
     the solvency of such organization is guaranteed by the State.
       ``(3) Transition.--In the case of a capitated health care 
     organization that as of the date of the enactment of this 
     title has entered into a contract with a State for the 
     provision of medical assistance under title XIX under which 
     the organization assumes full financial risk and is receiving 
     capitation payments, paragraph (1) shall not apply to such 
     organization until 3 years after the date of the enactment of 
     this title.

     ``SEC. 2112. SET-ASIDES OF FUNDS.

       ``(a) For Targeted Low-Income Families.--
       ``(1) In general.--Subject to subsection (f), a MediGrant 
     plan shall provide that the amount of funds expended under 
     the plan for medical assistance for targeted low-income 
     families (as defined in paragraph (3)) for a fiscal year 
     shall be not less than the minimum low-income-family 
     percentage specified in paragraph (2) of the total funds 
     expended under the plan for all medical assistance for the 
     fiscal year.
       ``(2) Minimum low-income-family percentage.--The minimum 
     low-income-family percentage specified in this paragraph for 
     a State is equal to 85 percent of the average percentage of 
     the expenditures under title XIX for medical assistance in 
     the State during Federal fiscal years 1992 through 1994 which 
     were attributable to expenditures for medical assistance for 
     mandated benefits (as defined in subsection (h)) furnished to 
     individuals--
       ``(A) who (at the time of furnishing the assistance) were 
     under 65 years of age;
       ``(B) whose coverage (at such time) under a State plan 
     under title XIX was required under Federal law; and
       ``(C) whose eligibility for such coverage (at such time) 
     was not on a basis directly related to disability status, 
     including being blind.
       ``(3) Targeted low-income family defined.--In this 
     subsection, the term `targeted low-income family' means a 
     family (which may be an individual)--
       ``(A) which includes a child or a pregnant woman; and
       ``(B) the income of which does not exceed 185 percent of 
     the poverty line applicable to a family of the size involved.
       ``(b) For Low-Income Elderly.--
       ``(1) Set-asides.--Subject to subsection (f)--
       ``(A) General set-aside.--A MediGrant plan shall provide 
     that the amount of funds expended under the plan for medical 
     assistance for eligible low-income elderly individuals for a 
     fiscal year shall be not less than the minimum low-income-
     elderly percentage specified in paragraph (2)(A) of the total 
     funds expended under the plan for all medical assistance for 
     the fiscal year.
       ``(B) Set-aside for medicare premium assistance.--A 
     MediGrant plan shall provide that the amount of funds 
     expended under the plan for medical assistance for medicare 
     cost-sharing described in section 2171(c)(1) for a fiscal 
     year shall be not less than the minimum medicare premium 
     assistance percentage specified in paragraph (2)(B) of the 
     total funds expended under the plan for all medical 
     assistance for the fiscal year. The MediGrant plan shall 
     provide priority for such making such assistance available 
     for targeted low-income elderly individuals (as defined in 
     paragraph (3)).
       ``(2) Minimum percentages.--
       ``(A) For general set-aside.--The minimum low-income-
     elderly percentage specified in this subparagraph for a State 
     is equal to 85 percent of the average percentage of the 
     expenditures under title XIX for medical assistance in the 
     State during Federal fiscal years 1992 through 1994 which was 
     attributable to expenditures for medical assistance for 
     mandated benefits furnished to individuals--
       ``(i) whose eligibility for such assistance was based on 
     their being 65 years of age or older; and
       ``(ii)(I) whose coverage (at such time) under a State plan 
     under title XIX was required under Federal law, or (II) who 
     (at such time) were residents of a nursing facility.
       ``(B) For set-aside for medicare premium assistance.--The 
     minimum medicare premium assistance percentage specified in 
     this subparagraph for a State is equal to 90 percent of the 
     average percentage of the expenditures under title XIX for 
     medical assistance in the State during Federal fiscal years 
     1993 through 1995 which was attributable to expenditures for 
     medical assistance for medicare premiums described in section 
     1905(p)(3)(A) for individuals whose coverage (at such time) 
     for such assistance for such premiums under a State plan 
     under title XIX was required under Federal law.
       ``(3) Targeted low-income elderly individual defined.--In 
     this subsection, the term `targeted low-income elderly 
     individual' means an elderly individual whose family income 
     does not exceed 100 percent of the poverty line applicable to 
     a family of the size involved.
       ``(c) For Low-Income Disabled Persons.--
       ``(1) In general.--Subject to subsection (f), a MediGrant 
     plan shall provide that the percentage of funds expended 
     under the plan for medical assistance for eligible low-income 
     individuals who are not elderly individuals and who are 
     eligible for such assistance on the basis of a disability, 
     including being blind, for a fiscal year is not less than the 
     minimum low-income-disabled percentage specified in paragraph 
     (2) of the total funds expended under the plan for medical 
     assistance for the fiscal year.
       ``(2) Minimum low-income-disabled percentage.--The minimum 
     low-income-disabled percentage specified in this paragraph 
     for a State is equal to 85 percent of the average percentage 
     of the expenditures under title XIX for medical assistance in 
     the State during Federal fiscal years 1992 through 1994 which 
     was attributable to expenditures for medical assistance for 
     mandated benefits furnished to individuals--
       ``(A) whose coverage (at such time) under a State plan 
     under title XIX was required under Federal law; and
       ``(B) whose coverage (at such time) was on a basis directly 
     related to disability status, including being blind.
       ``(d) For Services Provided at Federally-Qualified Health 
     Centers and Rural Health Clinics.--Subject to subsection (f), 
     a MediGrant plan shall provide that the amount of funds 
     expended under the plan for medical assistance for services 
     provided at rural health clinics (as defined in section 
     1861(aa)(2)) and Federally-qualified health centers (as 
     defined in section 1861(aa)(4)), for eligible low-income 
     individuals for a fiscal year is not less than 85 percent of 
     the average annual expenditures under title XIX for medical 
     assistance in the State during Federal fiscal years 1992 
     through 1994 which were attributable to expenditures for 
     medical assistance for rural health clinic services and 
     Federally-qualified health center services (as defined in 
     section 1905(l)).
       ``(e) Use of Residual Funds.--
       ``(1) In general.--Subject to limitations on payment under 
     section 2123, any funds not required to be expended under the 
     set-asides under the previous subsections may be expended 
     under the MediGrant plan for any of the following:
       ``(A) Additional medical assistance.--Medical assistance 
     for eligible low-income individuals (as defined in section 
     2171(b)), in addition to any medical assistance made 
     available under a previous subsection.
       ``(B) Medically-related services.--Payment for medically-
     related services (as defined in paragraph (2)).
       ``(C) Administration.--Payment for the administration of 
     the MediGrant plan.
       ``(2) Medically-related services defined.--In this title, 
     the term `medically-related services' means services 
     reasonably related to, or in direct support of, the State's 
     attainment of one or more of the strategic objectives and 
     performance goals established under section 2101, but does 
     not include items and services included on the list 

[[Page H 12560]]
     under section 2171(a) (relating to the definition of medical 
     assistance).
       ``(f) Exceptions to Minimum Set-Asides.--
       ``(1) Alternative minimum set-asides.--
       ``(A) In general.--A State may provide in its MediGrant 
     plan (through an amendment to the plan) for a lower 
     percentage of expenditures than the minimum percentages 
     specified in any (or all) of paragraphs (2) of subsections 
     (a), (b), (c), and (d) if the State determines (and certifies 
     to the Secretary) that--
       ``(i) the health care needs of the low-income populations 
     described in paragraph (1) of the subsections (a), (b), (c), 
     or (d) who are eligible for medical assistance under the plan 
     during the previous fiscal year (or medicare premium 
     assistance needs described in subsection (b)(1)(B)) can be 
     reasonably met without the expenditure of the percentages 
     otherwise required to be expended,
       ``(ii) the performance goals established under section 2101 
     relating to the respective population can reasonably be met 
     with the expenditure of such lower percentage of funds, and
       ``(iii) in the case of subsection (d) with respect to rural 
     health clinic services and Federally-qualified health center 
     services, the health care needs of eligible low-income 
     individuals residing in medically underserved rural areas can 
     reasonably be met without the level of expenditure for such 
     services otherwise required and the performance goals 
     established under section 2101 relating to such individuals 
     can reasonably be met with such lower level of expenditures.
       ``(B) Period of application.--The determination and 
     certification under subparagraph (A) shall be made for such 
     period as a State may request, but may not be made for a 
     period of more than 3 consecutive Federal fiscal years 
     (beginning with the first fiscal year for which the lower 
     percentage is sought). A new determination and certification 
     must be made under such clause for any subsequent period.
       ``(C) No exception permitted before fiscal year 1998.--This 
     paragraph may not apply with respect to the percentages 
     described in paragraphs (2) of subsections (a), (b), and (c) 
     for a fiscal year before fiscal year 1998.
       ``(2) Independent certification of compliance with goals.--
       ``(A) In general.--For purposes of section 2151(c), a 
     MediGrant plan shall not be considered to be in substantial 
     violation of the requirements of this section if the amount 
     of actual State expenditures specified in any (or all) of 
     paragraphs (1) of subsections (a), (b), (c), and (d) is lower 
     than the minimum percentages specified in any (or all) of 
     paragraphs (2) of such subsections if an independent actuary 
     determines and certifies to the State that the MediGrant plan 
     is reasonably designed to result in a level of expenditures 
     which is consistent with the requirements of such 
     subsections.
       ``(B) Limit on variation.--Subparagraph (A) shall not apply 
     in the case of a MediGrant plan for which the actual State 
     expenditures described in any (or all) of paragraphs (1) of 
     subsections (a), (b), (c), and (d) are less than 95 percent 
     of the expenditures which would be made if the amount of 
     State expenditures specified in any (or all) of such 
     paragraphs was equal to the applicable minimum percentage 
     specified in any (or all) of paragraphs (2) of such 
     subsections.
       ``(g) Computations.--States shall calculate the minimum 
     percentages under paragraphs (2) of subsections (a), (b), 
     (c), and (d) in a reasonable manner consistent with reports 
     submitted to the Secretary for the fiscal years involved and 
     medical assistance attributable to the exception provided 
     under section 1903(v)(2) shall not be considered to be 
     expenditures for medical assistance.
       ``(h) Benefits Included for Purposes of Computing Set-
     Asides.--In this section, the term `mandated benefits'--
       ``(1) means medical assistance for items and services 
     described in section 1905(a) to the extent such assistance 
     with respect to such items and services was required to be 
     provided under title XIX,
       ``(2) includes medical assistance for medicare cost-sharing 
     only to the extent such assistance was required to be 
     provided under section 1902(a)(10)(E), and
       ``(3) does not include medical assistance attributable to 
     disproportionate share payment adjustments described in 
     section 1923.

     ``SEC. 2113. PREMIUMS AND COST-SHARING.

       ``(a) In General.--Subject to subsection (b), if any 
     charges are imposed under the MediGrant plan for cost-sharing 
     (as defined in subsection (d)), such cost-sharing shall be 
     pursuant to a public cost-sharing schedule.
       ``(b) Limitation on Premium and Certain Cost-Sharing for 
     Low-Income Families Including Children or Pregnant Women.--
       ``(1) In general.--In the case of a pregnant woman or a 
     child who is a member of a family described in paragraph 
     (2)--
       ``(A) the plan shall not impose any premium, and
       ``(B) the plan shall not (except as provided in subsection 
     (c)(1)) impose any cost-sharing with respect to primary and 
     preventive care services (as defined by the State) covered 
     under the MediGrant plan for children or pregnant women 
     unless such cost-sharing is nominal in nature.
       ``(2) Family described.--A family described in this 
     paragraph is a family (which may be an individual) which--
       ``(A) includes a child or a pregnant woman,
       ``(B) is made eligible for medical assistance under the 
     MediGrant plan, and
       ``(C) the income of which does not exceed 100 percent of 
     the poverty line applicable to a family of the size involved.
       ``(c) Certain Cost-Sharing Permitted.--Nothing in this 
     section shall be construed as preventing a MediGrant plan 
     (consistent with subsection (b))--
       ``(1) from imposing cost-sharing to discourage the 
     inappropriate use of emergency medical services delivered 
     through a hospital emergency room, a medical transportation 
     provider, or otherwise,
       ``(2) from imposing premiums and cost-sharing 
     differentially in order to encourage the use of primary and 
     preventive care and discourage unnecessary or less economical 
     care,
       ``(3) from scaling cost-sharing in a manner that reflects 
     economic factors, employment status, and family size,
       ``(4) from scaling cost-sharing based on the availability 
     to the individual or family of other health insurance 
     coverage, or
       ``(5) from scaling cost-sharing based on participation in 
     employment training programs, drug or alcohol abuse 
     treatment, counseling programs, or other programs promoting 
     personal responsibility.
       ``(d) Cost-Sharing Defined.--In this section, the term 
     `cost-sharing' includes copayments, deductibles, coinsurance, 
     and other charges for the provision of health care services.

     ``SEC. 2114. DESCRIPTION OF PROCESS FOR DEVELOPING CAPITATION 
                   PAYMENT RATES.

       ``(a) In General.--If a State contracts (or intends to 
     contract) with a capitated health care organization (as 
     defined in subsection (c)(1)) under which the State makes a 
     capitation payment (as defined in subsection (c)(2)) to the 
     organization for providing or arranging for the provision of 
     medical assistance under the MediGrant plan for a group of 
     services, including at least inpatient hospital services and 
     physicians' services, the plan shall include a description of 
     the following:
       ``(1) Use of actuarial science.--The extent and manner in 
     which the State uses actuarial science--
       ``(A) to analyze and project health care expenditures and 
     utilization for individuals enrolled (or to be enrolled) in 
     such an organization under the MediGrant plan, and
       ``(B) to develop capitation payment rates, including a 
     brief description of the general methodologies used by 
     actuaries.
       ``(2) Qualifications of organizations.--The general 
     qualifications, including any accreditation, State licensure 
     or certification, or provider network standards, required by 
     the State for participation of capitated health care 
     organizations under the MediGrant plan.
       ``(3) Dissemination process.--The process used by the State 
     under subsection (b) and otherwise to disseminate, before 
     entering into contracts with capitated health care 
     organizations, actuarial information to such organizations on 
     the historical fee-for-service costs (or, if not available, 
     other recent financial data associated with providing covered 
     services) and utilization associated with individuals 
     described in paragraph (1)(A).
       ``(b) Public Notice and Comment.--Under the MediGrant plan 
     the State shall provide a process for providing, before the 
     beginning of each contract year--
       ``(1) public notice of--
       ``(A) the amounts of the capitation payments (if any) made 
     under the plan for the contract year preceding the public 
     notice, and
       ``(B)(i) the information described under subsection (a)(1) 
     with respect to capitation payments for the contract year 
     involved, or (ii) amounts of the capitation payments the 
     State expects to make for the contract year involved,
     unless such information is designated as proprietary and not 
     subject to public disclosure under State law, and
       ``(2) an opportunity for receiving public comment on the 
     amounts and information for which notice is provided under 
     paragraph (1).
       ``(c) Definitions.--In this title:
       ``(1) Capitated health care organization.--The term 
     `capitated health care organization' means a health 
     maintenance organization or any other entity (including a 
     health insuring organization, managed care organization, 
     prepaid health plan, integrated service network, or similar 
     entity) which under State law is permitted to accept 
     capitation payments for providing (or arranging for the 
     provision of) a group of items and services including at 
     least inpatient hospital services and physicians' services.
       ``(2) Capitation payment.--The term `capitation payment' 
     means, with respect to payment, payment on a prepaid 
     capitation basis or any other risk basis to an entity for the 
     entity's provision (or arranging for the provision) of a 
     group of items and services, including at least inpatient 
     hospital services and physicians' services.

     ``SEC. 2115. PREVENTING SPOUSAL IMPOVERISHMENT.

       ``(a) Special Treatment for Institutionalized Spouses.--
       ``(1) Supersedes other provisions.--In determining the 
     eligibility for medical assistance of an institutionalized 
     spouse (as defined in subsection (h)(1)), the provisions of 
     this section supersede any other provision of this title 
     which is inconsistent with them.
       ``(2) Does not affect certain determinations.--Except as 
     this section specifically provides, this section does not 
     apply to--
       ``(A) the determination of what constitutes income or 
     resources, or
       ``(B) the methodology and standards for determining and 
     evaluating income and resources.
       ``(3) No application in commonwealths and territories.--
     This section shall only apply to a State that is one of the 
     50 States or the District of Columbia.
       ``(b) Rules for Treatment of Income.--
       ``(1) Separate treatment of income.--During any month in 
     which an institutionalized spouse is in the institution, 
     except as provided in paragraph (2), no income of the 
     community spouse shall be deemed available to the 
     institutionalized spouse.
       ``(2) Attribution of income.--In determining the income of 
     an institutionalized spouse or 

[[Page H 12561]]
     community spouse for purposes of the post-eligibility income 
     determination described in subsection (d), except as 
     otherwise provided in this section and regardless of any 
     State laws relating to community property or the division of 
     marital property, the following rules apply:
       ``(A) Non-trust property.--Subject to subparagraphs (C) and 
     (D), in the case of income not from a trust, unless the 
     instrument providing the income otherwise specifically 
     provides--
       ``(i) if payment of income is made solely in the name of 
     the institutionalized spouse or the community spouse, the 
     income shall be considered available only to that respective 
     spouse,
       ``(ii) if payment of income is made in the names of the 
     institutionalized spouse and the community spouse, \1/2\ of 
     the income shall be considered available to each of them, and
       ``(iii) if payment of income is made in the names of the 
     institutionalized spouse or the community spouse, or both, 
     and to another person or persons, the income shall be 
     considered available to each spouse in proportion to the 
     spouse's interest (or, if payment is made with respect to 
     both spouses and no such interest is specified, \1/2\ of the 
     joint interest shall be considered available to each spouse).
       ``(B) Trust property.--In the case of a trust--
       ``(i) except as provided in clause (ii), income shall be 
     attributed in accordance with the provisions of this title; 
     and
       ``(ii) income shall be considered available to each spouse 
     as provided in the trust, or, in the absence of a specific 
     provision in the trust--

       ``(I) if payment of income is made solely to the 
     institutionalized spouse or the community spouse, the income 
     shall be considered available only to that respective spouse,
       ``(II) if payment of income is made to both the 
     institutionalized spouse and the community spouse, \1/2\ of 
     the income shall be considered available to each of them, and
       ``(III) if payment of income is made to the 
     institutionalized spouse or the community spouse, or both, 
     and to another person or persons, the income shall be 
     considered available to each spouse in proportion to the 
     spouse's interest (or, if payment is made with respect to 
     both spouses and no such interest is specified, \1/2\ of the 
     joint interest shall be considered available to each spouse).

       ``(C) Property with no instrument.--In the case of income 
     not from a trust in which there is no instrument establishing 
     ownership, subject to subparagraph (D), \1/2\ of the income 
     shall be considered to be available to the institutionalized 
     spouse and \1/2\ to the community spouse.
       ``(D) Rebutting ownership.--The rules of subparagraphs (A) 
     and (C) are superseded to the extent that an 
     institutionalized spouse can establish, by a preponderance of 
     the evidence, that the ownership interests in income are 
     other than as provided under such subparagraphs.
       ``(c) Rules for Treatment of Resources.--
       ``(1) Computation of spousal share at time of 
     institutionalization.--
       ``(A) Total joint resources.--There shall be computed (as 
     of the beginning of the first continuous period of 
     institutionalization of the institutionalized spouse)--
       ``(i) the total value of the resources to the extent either 
     the institutionalized spouse or the community spouse has an 
     ownership interest, and
       ``(ii) a spousal share which is equal to \1/2\ of such 
     total value.
       ``(B) Assessment.--At the request of an institutionalized 
     spouse or community spouse, at the beginning of the first 
     continuous period of institutionalization of the 
     institutionalized spouse and upon the receipt of relevant 
     documentation of resources, the State shall promptly assess 
     and document the total value described in subparagraph (A)(i) 
     and shall provide a copy of such assessment and documentation 
     to each spouse and shall retain a copy of the assessment for 
     use under this section. If the request is not part of an 
     application for medical assistance under this title, the 
     State may, at its option as a condition of providing the 
     assessment, require payment of a fee not exceeding the 
     reasonable expenses of providing and documenting the 
     assessment. At the time of providing the copy of the 
     assessment, the State shall include a notice indicating that 
     the spouse will have a right to a fair hearing under 
     subsection (e)(2).
       ``(2) Attribution of resources at time of initial 
     eligibility determination.--In determining the resources of 
     an institutionalized spouse at the time of application for 
     medical assistance under this title, regardless of any State 
     laws relating to community property or the division of 
     marital property--
       ``(A) except as provided in subparagraph (B), all the 
     resources held by either the institutionalized spouse, 
     community spouse, or both, shall be considered to be 
     available to the institutionalized spouse, and
       ``(B) resources shall be considered to be available to an 
     institutionalized spouse, but only to the extent that the 
     amount of such resources exceeds the amount computed under 
     subsection (f)(2)(A) (as of the time of application for 
     medical assistance).
       ``(3) Assignment of support rights.--The institutionalized 
     spouse shall not be ineligible by reason of resources 
     determined under paragraph (2) to be available for the cost 
     of care where--
       ``(A) the institutionalized spouse has assigned to the 
     State any rights to support from the community spouse,
       ``(B) the institutionalized spouse lacks the ability to 
     execute an assignment due to physical or mental impairment 
     but the State has the right to bring a support proceeding 
     against a community spouse without such assignment, or
       ``(C) the State determines that denial of eligibility would 
     work an undue hardship.
       ``(4) Separate treatment of resources after eligibility for 
     medical assistance established.--During the continuous period 
     in which an institutionalized spouse is in an institution and 
     after the month in which an institutionalized spouse is 
     determined to be eligible for medical assistance under this 
     title, no resources of the community spouse shall be deemed 
     available to the institutionalized spouse.
       ``(5) Resources defined.--In this section, the term 
     `resources' does not include--
       ``(A) resources excluded under subsection (a) or (d) of 
     section 1613, and
       ``(B) resources that would be excluded under section 
     1613(a)(2)(A) but for the limitation on total value described 
     in such section.
       ``(d) Protecting Income for Community Spouse.--
       ``(1) Allowances to be offset from income of 
     institutionalized spouse.--After an institutionalized spouse 
     is determined or redetermined to be eligible for medical 
     assistance, in determining the amount of the spouse's income 
     that is to be applied monthly to payment for the costs of 
     care in the institution, there shall be deducted from the 
     spouse's monthly income the following amounts in the 
     following order:
       ``(A) A personal needs allowance (described in paragraph 
     (2)(A)), in an amount not less than the amount specified in 
     paragraph (2)(C).
       ``(B) A community spouse monthly income allowance (as 
     defined in paragraph (3)), but only to the extent income of 
     the institutionalized spouse is made available to (or for the 
     benefit of) the community spouse.
       ``(C) A family allowance, for each family member, equal to 
     at least \1/3\ of the amount by which the amount described in 
     paragraph (4)(A)(i) exceeds the amount of the monthly income 
     of that family member.
       ``(D) Amounts for incurred expenses for medical or remedial 
     care for the institutionalized spouse as provided under 
     paragraph (6).
     In subparagraph (C), the term `family member' only includes 
     minor or dependent children, dependent parents, or dependent 
     siblings of the institutionalized or community spouse who are 
     residing with the community spouse.
       ``(2) Personal needs allowance.--
       ``(A) In general.--The MediGrant plan must provide that, in 
     the case of an institutionalized individual or couple 
     described in subparagraph (B), in determining the amount of 
     the individual's or couple's income to be applied monthly to 
     payment for the cost of care in an institution, there shall 
     be deducted from the monthly income (in addition to other 
     allowances otherwise provided under the plan) a monthly 
     personal needs allowance--
       ``(i) which is reasonable in amount for clothing and other 
     personal needs of the individual (or couple) while in an 
     institution, and
       ``(ii) which is not less (and may be greater) than the 
     minimum monthly personal needs allowance described in 
     subparagraph (C).
       ``(B) Institutionalized individual or couple defined.--In 
     this paragraph, the term `institutionalized individual or 
     couple' means an individual or married couple--
       ``(i) who is an inpatient (or who are inpatients) in a 
     medical institution or nursing facility for which payments 
     are made under this title throughout a month, and
       ``(ii) who is or are determined to be eligible for medical 
     assistance under the State MediGrant plan.
       ``(C) Minimum allowance.--The minimum monthly personal 
     needs allowance described in this subparagraph is $40 for an 
     institutionalized individual and $80 for an institutionalized 
     couple (if both are aged, blind, or disabled, and their 
     incomes are considered available to each other in determining 
     eligibility).
       ``(3) Community spouse monthly income allowance defined.--
       ``(A) In general.--In this section (except as provided in 
     subparagraph (B)), the community spouse monthly income 
     allowance for a community spouse is an amount by which--
       ``(i) except as provided in subsection (e), the minimum 
     monthly maintenance needs allowance (established under and in 
     accordance with paragraph (4)) for the spouse, exceeds
       ``(ii) the amount of monthly income otherwise available to 
     the community spouse (determined without regard to such an 
     allowance).
       ``(B) Court ordered support.--If a court has entered an 
     order against an institutionalized spouse for monthly income 
     for the support of the community spouse, the community spouse 
     monthly income allowance for the spouse shall be not less 
     than the amount of the monthly income so ordered.
       ``(4) Establishment of minimum monthly maintenance needs 
     allowance.--
       ``(A) In general.--Each State shall establish a minimum 
     monthly maintenance needs allowance for each community spouse 
     which, subject to subparagraph (B), is equal to or exceeds--
       ``(i) 150 percent of \1/12\ of the poverty line applicable 
     to a family unit of 2 members, plus
       ``(ii) an excess shelter allowance (as defined in paragraph 
     (4)).
     A revision of the poverty line referred to in clause (i) 
     shall apply to medical assistance furnished during and after 
     the second calendar quarter that begins after the date of 
     publication of the revision.
       ``(B) Cap on minimum monthly maintenance needs allowance.--
     The minimum monthly maintenance needs allowance established 
     under subparagraph (A) may not exceed $1,500 (subject to 
     adjustment under subsections (e) and (g)).
       ``(5) Excess shelter allowance defined.--In paragraph 
     (4)(A)(ii), the term `excess shelter allowance' means, for a 
     community spouse, the amount by which the sum of--
       ``(A) the spouse's expenses for rent or mortgage payment 
     (including principal and interest), taxes and insurance and, 
     in the case of a condominium or cooperative, required 
     maintenance charge, for the community spouse's principal 
     residence, and
       ``(B) the standard utility allowance (used by the State 
     under section 5(e) of the Food Stamp Act of 1977) or, if the 
     State does not use such an allowance, the spouse's actual 
     utility expenses,

[[Page H 12562]]

     exceeds 30 percent of the amount described in paragraph 
     (4)(A)(i), except that, in the case of a condominium or 
     cooperative, for which a maintenance charge is included under 
     subparagraph (A), any allowance under subparagraph (B) shall 
     be reduced to the extent the maintenance charge includes 
     utility expenses.
       ``(6) Treatment of incurred expenses.--With respect to the 
     post-eligibility treatment of income under this section, 
     there shall be disregarded reparation payments made by the 
     Federal Republic of Germany and, there shall be taken into 
     account amounts for incurred expenses for medical or remedial 
     care that are not subject to payment by a third party, 
     including--
       ``(A) medicare and other health insurance premiums, 
     deductibles, or coinsurance, and
       ``(B) necessary medical or remedial care recognized under 
     State law but not covered under the State MediGrant plan 
     under this title, subject to reasonable limits the State may 
     establish on the amount of these expenses.
       ``(e) Notice and Hearing.--
       ``(1) Notice.--Upon--
       ``(A) a determination of eligibility for medical assistance 
     of an institutionalized spouse, or
       ``(B) a request by either the institutionalized spouse, or 
     the community spouse, or a representative acting on behalf of 
     either spouse,
     each State shall notify both spouses (in the case described 
     in subparagraph (A)) or the spouse making the request (in the 
     case described in subparagraph (B)) of the amount of the 
     community spouse monthly income allowance (described in 
     subsection (d)(1)(B)), of the amount of any family allowances 
     (described in subsection (d)(1)(C)), of the method for 
     computing the amount of the community spouse resources 
     allowance permitted under subsection (f), and of the spouse's 
     right to a hearing under the MediGrant plan respecting 
     ownership or availability of income or resources, and the 
     determination of the community spouse monthly income or 
     resource allowance.
       ``(2) Results of hearing.--
       ``(A) Revision of minimum monthly maintenance needs 
     allowance.--If either such spouse establishes in a hearing 
     under this subsection that the community spouse needs income, 
     above the level otherwise provided by the minimum monthly 
     maintenance needs allowance, due to exceptional circumstances 
     resulting in significant financial duress, there shall be 
     substituted, for the minimum monthly maintenance needs 
     allowance in subsection (d)(2)(A), an amount adequate to 
     provide such additional income as is necessary.
       ``(B) Revision of community spouse resource allowance.--If 
     either such spouse establishes in such a hearing that the 
     community spouse resource allowance (in relation to the 
     amount of income generated by such an allowance) is 
     inadequate to raise the community spouse's income to the 
     minimum monthly maintenance needs allowance, there shall be 
     substituted, for the community spouse resource allowance 
     under subsection (f)(2), an amount adequate to provide such a 
     minimum monthly maintenance needs allowance.
       ``(f) Permitting Transfer of Resources to Community 
     Spouse.--
       ``(1) In general.--An institutionalized spouse may, without 
     regard to any other provision of the MediGrant plan to the 
     contrary, transfer an amount equal to the community spouse 
     resource allowance (as defined in paragraph (2)), but only to 
     the extent the resources of the institutionalized spouse are 
     transferred to, or for the sole benefit of, the community 
     spouse. The transfer under the preceding sentence shall be 
     made as soon as practicable after the date of the initial 
     determination of eligibility, taking into account such time 
     as may be necessary to obtain a court order under paragraph 
     (3).
       ``(2) Community spouse resource allowance defined.--In 
     paragraph (1), the `community spouse resource allowance' for 
     a community spouse is an amount (if any) by which--
       ``(A) the greatest of--
       ``(i) $12,000 (subject to adjustment under subsection (g)), 
     or, if greater (but not to exceed the amount specified in 
     clause (ii)(II)) an amount specified under the State 
     MediGrant plan,
       ``(ii) the lesser of (I) the spousal share computed under 
     subsection (c)(1), or (II) $60,000 (subject to adjustment 
     under subsection (g)), or
       ``(iii) the amount established under subsection (e)(2);
     exceeds
       ``(B) the amount of the resources otherwise available to 
     the community spouse (determined without regard to such an 
     allowance).
       ``(g) Indexing Dollar Amounts.--For services furnished 
     during a calendar year after 1989, the dollar amounts 
     specified in subsections (d)(3)(C), (f)(2)(A)(i), and 
     (f)(2)(A)(ii)(II) shall be increased by the same percentage 
     as the percentage increase in the consumer price index for 
     all urban consumers (all items; U.S. city average) between 
     September 1988 and the September before the calendar year 
     involved.
       ``(h) Definitions.--In this section:
       ``(1) Institutionalized spouse.--The term 
     `institutionalized spouse' means an individual--
       ``(A)(i) who is in a medical institution or nursing 
     facility, or
       ``(ii) at the option of the State (I) who would be eligible 
     under the MediGrant plan under this title if such individual 
     was in a medical institution, (II) with respect to whom there 
     has been a determination that but for the provision of home 
     or community-based services such individual would require the 
     level of care provided in a hospital, nursing facility or 
     intermediate care facility for the mentally retarded the cost 
     of which could be reimbursed under the plan, and (III) who 
     will receive home or community-based services pursuant the 
     plan; and
       ``(B) is married to a spouse who is not in a medical 
     institution or nursing facility;
     but does not include any such individual who is not likely to 
     meet the requirements of subparagraph (A) for at least 30 
     consecutive days.
       ``(2) Community spouse.--The term `community spouse' means 
     the spouse of an institutionalized spouse.

     ``SEC. 2116. STATE FLEXIBILITY.

       ``(a) State Flexibility in Benefits, Provider Payments, 
     Geographical Coverage Area, and Selection of Providers.--
     Nothing in this title (other than subsections (c) and (d) of 
     section 2111) shall be construed as requiring a State--
       ``(1) to provide medical assistance for any particular 
     items or services,
       ``(2) to provide for any payments with respect to any 
     specific health care providers or any level of payments for 
     any services,
       ``(3) to provide for the same medical assistance in all 
     geographical areas or political subdivisions of the State, so 
     long as medical assistance is made available in all such 
     areas or subdivisions,
       ``(4) to provide that the medical assistance made available 
     to any individual eligible for medical assistance must not be 
     less in amount, duration, or scope than the medical 
     assistance made available to any other such individual, or
       ``(5) to provide that any individual eligible for medical 
     assistance with respect to an item or service may choose to 
     obtain such assistance from any institution, agency, or 
     person qualified to provide the item or service.
       ``(b) State Flexibility With Respect to Managed Care.--
     Nothing in this title shall be construed--
       ``(1) to limit a State's ability to contract with, on a 
     capitated basis or otherwise, health care plans or individual 
     health care providers for the provision or arrangement of 
     medical assistance,
       ``(2) to limit a State's ability to contract with health 
     care plans or other entities for case management services or 
     for coordination of medical assistance, or
       ``(3) to restrict a State from establishing capitation 
     rates on the basis of competition among health care plans or 
     negotiations between the State and one or more health care 
     plans.

                      ``Part C--Payments to States

     ``SEC. 2121. ALLOTMENT OF FUNDS AMONG STATES.

       ``(a) Allotments.--
       ``(1) Computation.--The Secretary shall provide for the 
     computation of State obligation and outlay allotments in 
     accordance with this section for each fiscal year beginning 
     with fiscal year 1996.
       ``(2) Limitation on obligations.--
       ``(A) In general.--Subject to subparagraph (B), the 
     Secretary shall not enter into obligations with any State 
     under this title for a fiscal year in excess of the 
     obligation allotment for that State for the fiscal year under 
     paragraph (4). The sum of such obligation allotments for all 
     States in any fiscal year (excluding amounts carried over 
     under subparagraph (B) and excluding changes in allotments 
     effected under paragraph (4)(D)) shall not exceed the 
     aggregate limit on new obligation authority specified in 
     paragraph (3) for that fiscal year.
       ``(B) Adjustments.--
       ``(i) Carryover of allotment permitted.--If the amount of 
     obligations entered into under this part with a State for 
     quarters in a fiscal year is less than the amount of the 
     obligation allotment under this section to the State for the 
     fiscal year, the amount of the difference shall be added to 
     the amount of the State obligation allotment otherwise 
     provided under this section for the succeeding fiscal year. 
     This clause shall be applied separately with respect to the 
     portion of the obligation allotment that is attributable to 
     the supplemental outlay allotment under subsection (f).
       ``(ii) Reduction for post-enactment new obligations under 
     title xix in fiscal year 1996.--The amount of the obligation 
     allotment otherwise provided under this section for fiscal 
     year 1996 for a State shall be reduced by the amount of the 
     obligations entered into with respect to the State under 
     section 1903(a) after the date of the enactment of this 
     title.
       ``(C) No effect on prior year obligations.--Subparagraph 
     (A) shall not apply to or affect obligations for a fiscal 
     year prior to fiscal year 1996.
       ``(D) Obligation.--For purposes of this section, the 
     Secretary's establishment of an estimate under section 
     2123(b) of the amount a State is entitled to receive for a 
     quarter (taking into account any adjustments described in 
     such subsection) shall be treated as the obligation of such 
     amount for the State as of the first day of the quarter.
       ``(3) Aggregate limit on new obligation authority.--
       ``(A) In general.--For purposes of this subsection, subject 
     to subparagraph (C), the `aggregate limit on new obligation 
     authority', for a fiscal year, is the pool amount under 
     subsection (b) for the fiscal year, divided by the payout 
     adjustment factor (described in subparagraph (B)) for the 
     fiscal year.
       ``(B) Payout adjustment factor.--For purposes of this 
     subsection, the `payout adjustment factor'--
       ``(i) for fiscal year 1996 is 0.950,
       ``(ii) for fiscal year 1997 is 0.986, and
       ``(iii) for a subsequent fiscal year is 0.998.
       ``(C) Transitional adjustment for pre-enactment-obligation 
     outlays.--In order to account for pre-enactment-obligation 
     outlays described in paragraph (4)(C)(iv), in determining the 
     aggregate limit on new obligation authority under 
     subparagraph (A) for fiscal year 1996, the pool amount for 
     such fiscal year is equal to--
       ``(i) the pool amount for such year, reduced by
       ``(ii) $24,624,000,000.
       ``(4) Obligation allotments.--
       ``(A) General rule for 50 states and the district of 
     columbia.--Except as provided in this paragraph, the 
     `obligation allotment' for 

[[Page H 12563]]
     any of the 50 States or the District of Columbia for a fiscal year 
     (beginning with fiscal year 1997) is an amount that bears the 
     same ratio to the outlay allotment under subsection (c)(2) 
     for such State or District (not taking into account any 
     adjustment due to an election under paragraph (4)) for the 
     fiscal year as the ratio of--
       ``(i) the aggregate limit on new obligation authority (less 
     the total of the obligation allotments under subparagraph 
     (B)) for the fiscal year, to
       ``(ii) the pool amount (less the sum of the outlay 
     allotments for the territories) for such fiscal year.
       ``(B) Territories.--The obligation allotment for each of 
     the Commonwealths and territories for a fiscal year is the 
     outlay allotment for such Commonwealth or territory (as 
     determined under subsection (c)(5)) for the fiscal year 
     divided by the payout adjustment factor for the fiscal year 
     (as defined in paragraph (3)(B)).
       ``(C) Transitional rule for fiscal year 1996.--
       ``(i) In general.--The obligation amount for fiscal year 
     1996 for any State (including the District of Columbia, a 
     Commonwealth, or territory) is determined according to the 
     formula: A=(B-C)/D, where--

       ``(I) `A' is the obligation amount for such State,
       ``(II) `B' is the outlay allotment of such State for fiscal 
     year 1996, as determined under subsection (c),
       ``(III) `C' is the amount of the pre-enactment-obligation 
     outlays (as established for such State under clause (ii)), 
     and
       ``(IV) `D' is the payout adjustment factor for such fiscal 
     year (as defined in paragraph (3)(B)).

       ``(ii) Pre-enactment-obligation outlay amounts.--Within 30 
     days after the date of the enactment of this title, the 
     Secretary shall estimate (based on the best data available) 
     and publish in the Federal Register the amount of the pre-
     enactment-obligation outlays (as defined in clause (iv)) for 
     each State (including the District of Columbia, 
     Commonwealths, and territories). The total of such amounts 
     shall equal the dollar amount specified in paragraph 
     (3)(C)(ii).
       ``(iii) Agreement.--The submission of a MediGrant plan by a 
     State under this title is deemed to constitute the State's 
     acceptance of the obligation allotment limitations under this 
     subsection, including the formula for computing the amount of 
     such obligation allotment.
       ``(iv) Pre-enactment-obligation outlays defined.--In this 
     subsection, the term `pre-enactment-obligation outlays' 
     means, for a State, the outlays of the Federal Government 
     that result from obligations that have been incurred under 
     title XIX with respect to the State before the date of the 
     enactment of this title, but for which payments to States 
     have not been made as of such date of enactment.
       ``(D) Adjustment to reflect adoption of alternative growth 
     formula.--Any State that has elected an alternative growth 
     formula under subsection (c)(4) which increases or decreases 
     the dollar amount of an outlay allotment for a fiscal year is 
     deemed to have increased or decreased, respectively, its 
     obligation amount for such fiscal year by the amount of such 
     increase or decrease.
       ``(E) Transitional correction for fiscal year 1997.--
       ``(i) In general.--The obligation amount for fiscal year 
     1997 for any State described in clause (ii) shall be 
     increased by 90 percent of the amount by which 90 percent of 
     the amount described in clause (ii)(I) exceeds the amount 
     described in clause (ii)(II), divided by the payout 
     adjustment factor specified in paragraph (3)(B) for fiscal 
     year 1996. The increase under this clause shall be paid to a 
     State in the first quarter of fiscal year 1997.
       ``(ii) States described.--A State described in this clause 
     is a State for which--

       ``(I) the amount of the pre-enactment-obligation outlays 
     (as established for such State under subparagraph (C)(ii)), 
     exceeded
       ``(II) the outlays of the Federal Government during fiscal 
     year 1996 that are attributable to obligations that were 
     incurred under title XIX with respect to the State before the 
     date of the enactment of this title, but for which payments 
     to States had not been made as of such date of enactment,

     by at least 10 percent of the amount described in subclause 
     (I).
       ``(b) Pool of Available Funds.--
       ``(1) In general.--For purposes of this section, the `pool 
     amount' under this subsection for--
       ``(A) fiscal year 1996 is $96,386,037,894,
       ``(B) fiscal year 1997 is $103,233,603,164,
       ``(C) fiscal year 1998 is $107,907,625,827,
       ``(D) fiscal year 1999 is $112,644,040,408,
       ``(E) fiscal year 2000 is $117,359,685,046,
       ``(F) fiscal year 2001 is $122,284,072,525,
       ``(G) fiscal year 2002 is $127,418,239,580, and
       ``(H) each subsequent fiscal year is the pool amount under 
     this paragraph for the previous fiscal year increased by the 
     lesser of 4.2 percent or the annual percentage increase in 
     the gross domestic product for the 12-month period ending in 
     June before the beginning of that subsequent fiscal year.
       ``(2) National medigrant growth percentage.--For purposes 
     of this section for a fiscal year (beginning with fiscal year 
     1997), the `national MediGrant growth percentage' is the 
     percentage by which--
       ``(A) the pool amount under paragraph (1) for the fiscal 
     year, exceeds
       ``(B) such pool amount for the previous fiscal year.
       ``(c) State Outlay Allotments.--
       ``(1) Fiscal year 1996.--
       ``(A) In general.--For each of the 50 States and the 
     District of Columbia, the amount of the State outlay 
     allotment under this subsection for fiscal year 1996 is, 
     subject to paragraph (4), determined in accordance with the 
     following table:

Outlay allotment (in dollars):
1,517,652,207..........................................................
204,933,213............................................................
1,370,781,297..........................................................
1,011,457,933..........................................................
8,946,838,461..........................................................
757,492,679............................................................
1,463,011,635..........................................................
212,327,763............................................................
501,412,091 Columbia...................................................
3,715,624,180..........................................................
2,426,320,602..........................................................
323,124,375............................................................
278,329,686............................................................
3,467,274,342..........................................................
1,952,467,267..........................................................
835,235,895............................................................
713,700,869............................................................
1,577,828,832..........................................................
2,622,000,000..........................................................
694,220,790............................................................
1,369,699,847..........................................................
2,870,346,862..........................................................
3,465,182,886..........................................................
1,793,776,356..........................................................
1,261,781,330..........................................................
1,849,248,945..........................................................
312,212,472............................................................
463,900,417............................................................
257,896,453............................................................
360,000,000re..........................................................
2,854,621,241..........................................................
634,756,945............................................................
12,901,793,038.........................................................
2,587,883,809a.........................................................
241,168,563a...........................................................
4,034,049,690..........................................................
911,198,775............................................................
1,088,670,440..........................................................
4,454,423,400..........................................................
545,686,262d...........................................................
1,621,021,815a.........................................................
262,804,959a...........................................................
2,519,934,251..........................................................
6,351,909,343..........................................................
484,274,254............................................................
248,158,729............................................................
1,144,962,509..........................................................
1,763,460,996..........................................................
1,156,813,157..........................................................
1,709,500,642..........................................................
132,925,390............................................................
       ``(2) Computation of state outlay allotments.--
       ``(A) In general.--Subject to the succeeding provisions of 
     this subsection, the amount of the State outlay allotment 
     under this subsection for one of the 50 States and the 
     District of Columbia for a fiscal year (beginning with fiscal 
     year 1997) is equal to the product of--
       ``(i) the needs-based amount determined under subparagraph 
     (B) for such State or District for the fiscal year, and
       ``(ii) the scalar factor described in subparagraph (C) for 
     the fiscal year.
       ``(B) Needs-based amount.--The needs-based amount under 
     this subparagraph for a State or the District of Columbia for 
     a fiscal year is equal to the product of--
       ``(i) the State's or District's aggregate expenditure need 
     for the fiscal year (as determined under subsection (d)), and
       ``(ii) the State's or District's old Federal medical 
     assistance percentage (as defined in section 2122(d)) for the 
     fiscal year (or, in the case of fiscal year 1997, the Federal 
     medical assistance percentage determined under section 
     1905(b) for fiscal year 1996).
       ``(C) Scalar factor.--The scalar factor under this 
     subparagraph for a fiscal year is such proportion so that, 
     when it is applied under subparagraph (A)(ii) for the fiscal 
     year (taking into account the floors and ceilings under 
     paragraph (3)), the total of the outlay allotments under this 
     subsection for all the 50 States and the District of Columbia 
     for the fiscal year (not taking into account any increase in 
     an outlay allotment for a fiscal year attributable to the 
     election of an alternative growth formula under paragraph 
     (4)) is equal to the amount by which (i) the pool amount for 
     the fiscal year (as determined under subsection (b)), exceeds 
     (ii) the sum of the outlay allotments provided under 
     paragraph (5) for the Commonwealths and territories for the 
     fiscal year.
       ``(3) Floors and ceilings.--
       ``(A) Floors.--Subject to the ceiling established under 
     subparagraph (B), in no case shall the amount of the State 
     outlay allotment under paragraph (2) for a fiscal year be 
     less than the greatest of the following:
       ``(i) In general.--Beginning with fiscal year 1998, 0.24 
     percent of the pool amount for the fiscal year.
       ``(ii) Floor based on previous year's outlay allotment.--
     Subject to clause (iii)--

       ``(I) Fiscal year 1997.--For fiscal year 1997, 103.5 
     percent of the amount of the State outlay allotment under 
     this subsection for fiscal year 1996.
       ``(II) Fiscal year 1998.--For fiscal year 1998, 103 percent 
     of the amount of the State outlay allotment under this 
     subsection for fiscal year 1997.
       ``(III) Subsequent fiscal years.--For a fiscal year after 
     1998, 102 percent of the amount of the State outlay allotment 
     under this subsection for the previous fiscal year.

       ``(iii) Floor based on outlay allotment growth rate in 
     first year.--Beginning with fiscal year 1998, in the case of 
     a State for which the outlay allotment under this subsection 
     for fiscal year 1997 exceeded its outlay allotment under this 
     subsection for the previous fiscal year by more than the 
     national MediGrant growth percentage for fiscal year 1997, 
     104 percent of the amount of the State outlay allotment under 
     this subsection for the previous fiscal year (or, if less, 
     beginning with fiscal year 2003, 95 percent of the national 
     MediGrant growth percentage for the year).
       ``(B) Ceilings.--

[[Page H 12564]]

       ``(i) In general.--Subject to clause (ii), in no case shall 
     the amount of the State outlay allotment under paragraph (2) 
     for a fiscal year be greater than the product of--

       ``(I) the State outlay allotment under this subsection for 
     the State for the preceding fiscal year, and
       ``(II) the applicable percent (specified in clause (ii) or 
     (iii)) for the fiscal year involved.

       ``(ii) General rule for applicable percent.--For purposes 
     of clause (i), subject to clause (iii), the `applicable 
     percent'--

       ``(I) for fiscal year 1997 is 109 percent, and
       ``(II) for a subsequent fiscal year is 105.33 percent.

       ``(iii) Special rule.--For a fiscal year after fiscal year 
     1997, in the case of a State (among the 50 States and the 
     District of Columbia) that is one of the 10 States with the 
     lowest Federal MediGrant spending per resident-in-poverty 
     rates (as determined under clause (iv)) for the fiscal year, 
     the `applicable percent' is 107 percent.
       ``(iv) Determination of federal medigrant spending per 
     resident-in-poverty rate.--For purposes of clause (iii), the 
     `Federal MediGrant spending per resident-in-poverty rate' for 
     a State for a fiscal year is equal to--

       ``(I) the State's outlay allotment under this subsection 
     for the previous fiscal year (determined without regard to 
     paragraph (4)), divided by
       ``(II) the average annual number of residents of the State 
     in poverty (as defined in subsection (d)(2)) with respect to 
     the fiscal year.

       ``(C) Special rule.--
       ``(i) In general.--Notwithstanding the preceding 
     subparagraphs of this paragraph, the State outlay allotment 
     for--

       ``(I) New Hampshire for each of the fiscal years 1997 
     through 2000, is $360,000,000,
       ``(II) Louisiana, subject to subclause (III), for each of 
     the fiscal years 1997 through 2000, is $2,622,000,000, and
       ``(III) Louisiana and Nebraska for fiscal year 1997, as 
     otherwise determined, shall be increased by $37,048,207 and 
     $106,132,408, respectively.
       ``(IV) Nevada for each of fiscal years 1996, 1997, and 
     1998, as otherwise determined, shall be increased by 
     $90,000,000.

       ``(ii) Exception.--A State described in subclause (I) or 
     (II) of clause (i) may apply to the Secretary for use of the 
     State outlay allotment otherwise determined under this 
     subsection for any fiscal year, if such State notifies the 
     Secretary not later than March 1 preceding such fiscal year 
     that such State will be able to expend sufficient State funds 
     in such fiscal year to qualify for such allotment.
       ``(iii) Treatment of increase as supplemental allotment.--
     Any increase in an outlay allotment under clause (i)(III) or 
     (i)(IV) shall not be taken into account for purposes of 
     determining the scalar factor under paragraph (2) for fiscal 
     year 1997, any State outlay allotment for a fiscal year after 
     fiscal year 1997, the pool amount for a fiscal year after 
     fiscal year 1997, or determination of the national MediGrant 
     growth percentage for any fiscal year.
       ``(4) Election of alternative growth formula.--
       ``(A) Election.--In order to reduce variations in increases 
     in outlay allotments over time, any of the 50 States or the 
     District of Columbia may elect (by notice provided to the 
     Secretary by not later than April 1, 1996) to adopt an 
     alternative growth rate formula under this paragraph for the 
     determination of the State's outlay allotment in fiscal year 
     1996 and for the increase in the amount of such allotment in 
     subsequent fiscal years.
       ``(B) Formula.--The alternative growth formula under this 
     paragraph may be any formula under which a portion of the 
     State outlay allotment for fiscal year 1996 under paragraph 
     (1) is deferred and applied to increase the amount of its 
     outlay allotment for one or more subsequent fiscal years, so 
     long as the total amount of such increases for all such 
     subsequent fiscal years does not exceed the amount of the 
     outlay allotment deferred from fiscal year 1996.
       ``(5) Commonwealths and territories.--
       ``(A) In general.--The outlay allotment for each of the 
     Commonwealths and territories for a fiscal year is the 
     maximum amount that could have been certified under section 
     1108(c) (as in effect on the day before the date of the 
     enactment of this title) with respect to the Commonwealth or 
     territory for the fiscal year with respect to title XIX, if 
     the national MediGrant growth percentage (as determined under 
     subsection (b)(2)) for the fiscal year had been substituted 
     (beginning with fiscal year 1997) for the percentage increase 
     referred to in section 1108(c)(1)(B) (as so in effect).
       ``(B) Disregard of rounding requirements.--For purposes of 
     subparagraph (A), the rounding requirements under section 
     1108(c) shall not apply.
       ``(C) Limitation on total amount for fiscal year 1996.--
     Notwithstanding the provisions of subparagraph (A), the total 
     amount of the outlay allotments for the Commonwealths and 
     territories for fiscal year 1996 may not exceed $139,950,000.
       ``(d) State Aggregate Expenditure Need Determined.--
       ``(1) In general.--For purposes of subsection (c), the 
     `State aggregate expenditure need' for a State or the 
     District of Columbia for a fiscal year is equal to the 
     product of the following 4 factors:
       ``(A) Residents in poverty.--The average annual number of 
     residents in poverty of such State or District with respect 
     to the fiscal year (as determined under paragraph (2)).
       ``(B) Case mix index.--The case mix index for such State or 
     District (as determined under paragraph (3)) for the most 
     recent fiscal year for which data are available, but in no 
     case less than 0.9 or greater than 1.15.
       ``(C) Input cost index.--The input cost index for the State 
     (as determined under paragraph (4)) for the most recent 
     fiscal year for which data are available.
       ``(D) National average spending per resident in poverty.--
     The national average spending per resident in poverty (as 
     determined under paragraph (5)).
       ``(2) Residents in poverty.--In this section--
       ``(A) In general.--The term `average annual number of 
     residents in poverty' means, with respect to a State or the 
     District of Columbia and a fiscal year, the average annual 
     number of residents in poverty (as defined in subparagraph 
     (B)) in such State or District (based on data made generally 
     available by the Bureau of the Census from the Current 
     Population Survey) for the most recent 3-calendar-year period 
     (ending before the fiscal year) for which such data are 
     available.
       ``(B) Resident in poverty defined.--The term `resident in 
     poverty' means an individual whose family income does not 
     exceed the poverty threshold (as such terms are defined by 
     the Office of Management and Budget and are generally 
     interpreted and applied by the Bureau of the Census for the 
     year involved).
       ``(3) Case mix index.--
       ``(A) In general.--In this subsection, the `case mix index' 
     for a State or the District of Columbia for a fiscal year is 
     equal to--
       ``(i) the sum of--

       ``(I) the projected per recipient expenditures with respect 
     to elderly individuals in such State or District for the 
     fiscal year (determined under subparagraph (B)),
       ``(II) the projected per recipient expenditures with 
     respect to the blind and disabled individuals in such State 
     or District for the fiscal year (determined under 
     subparagraph (C)), and
       ``(III) the projected per recipient expenditures with 
     respect to other individuals in such State or District 
     (determined under subparagraph (D));

     divided by--
       ``(ii) the national average spending per recipient 
     determined under subparagraph (E) for the fiscal year 
     involved.
       ``(B) Projected per recipient expenditures for the 
     elderly.--For purposes of subparagraph (A)(i)(I), the 
     `projected per recipient expenditures with respect to elderly 
     individuals' in a State or the District of Columbia for a 
     fiscal year is equal to the product of--
       ``(i) the national average per recipient expenditures under 
     this title in the 50 States and the District of Columbia for 
     the most recent fiscal year for which data are available for 
     elderly individuals, and
       ``(ii) the proportion, of all individuals who received 
     medical assistance under this title in such State or District 
     in the most recent fiscal year referred to in clause (i), 
     that were individuals described in such clause.
       ``(C) Projected per recipient expenditures for the blind 
     and disabled.--For purposes of subparagraph (A)(i)(II), the 
     `projected per recipient expenditures with respect to blind 
     and disabled individuals' in a State or the District of 
     Columbia for a fiscal year is equal to the product of--
       ``(i) the national average per recipient expenditures under 
     this title in the 50 States and the District of Columbia for 
     the most recent fiscal year for which data are available for 
     individuals who are eligible for medical assistance because 
     such individuals are blind or disabled and are not elderly 
     individuals, and
       ``(ii) the proportion, of all individuals who received 
     medical assistance under this title in the State in the most 
     recent fiscal year referred to in clause (i), that were 
     individuals described in such clause.
       ``(D) Projected per recipient expenditures for other 
     individuals.--For purposes of subparagraph (A)(i)(III), the 
     `projected per recipient expenditures with respect to other 
     individuals' in a State or the District of Columbia for a 
     fiscal year is equal to the product of--
       ``(i) the national average per recipient expenditures under 
     this title in the 50 States and the District of Columbia for 
     the most recent fiscal year for which data are available for 
     individuals who are not described in subparagraph (B)(i) or 
     (C)(i), and
       ``(ii) the proportion, of all individuals who received 
     medical assistance under this title in such State or District 
     in the most recent fiscal year referred to in clause (i), 
     that were individuals described in such clause.
       ``(E) National average spending per recipient.--For 
     purposes of this paragraph, the `national average 
     expenditures per recipient' for a fiscal year is equal to the 
     sum of--
       ``(i) the product of (I) the national average described in 
     subparagraph (B)(i), and (II) the proportion, of all 
     individuals who received medical assistance under this title 
     in any of the 50 States or the District of Columbia in the 
     fiscal year referred to in such subparagraph, who are 
     described in such subparagraph,
       ``(ii) the product of (I) the national average described in 
     subparagraph (C)(i), and (II) the proportion, of all 
     individuals who received medical assistance under this title 
     in any of the 50 States or the District of Columbia in the 
     fiscal year referred to in such subparagraph, who are 
     described in such subparagraph, and
       ``(iii) the product of (I) the national average described 
     in subparagraph (D)(i), and (II) the proportion, of all 
     individuals who received medical assistance under this title 
     in any of the 50 States or the District of Columbia in the 
     fiscal year referred to in such subparagraph, who are 
     described in such subparagraph.
       ``(F) Determination of national averages and proportions.--
       ``(i) In general.--The national averages per recipient and 
     the proportions referred to in clauses (i) and (ii), 
     respectively, of subparagraphs (B), (C), and (D) and 
     subparagraph (E) shall be determined by the Secretary using 
     the most recent data available.

[[Page H 12565]]

       ``(ii) Use of medicaid data.--If for a fiscal year there is 
     inadequate data to compute such averages and proportions 
     based on expenditures and numbers of individuals receiving 
     medical assistance under this title, the Secretary may 
     compute such averages based on expenditures and numbers of 
     such individuals under title XIX for the most recent fiscal 
     year for which data are available and, for this purpose--

       ``(I) any reference in subparagraph (B)(i) to `elderly 
     individuals' is deemed a reference to `individuals whose 
     eligibility for medical assistance is based on being 65 years 
     of age or older',
       ``(II) the reference in subparagraph (C)(i) to `and are not 
     elderly individuals' shall be considered to be deleted, and
       ``(III) individuals whose basis for eligibility for medical 
     assistance was reported as unknown shall not be counted as 
     individuals under subparagraph (D)(i).

       ``(iii) Expenditure defined.--For purposes of this 
     paragraph, the term `expenditure' means medical vendor 
     payments by basis of eligibility as reported by HCFA Form 
     2082.
       ``(4) Input cost index.--
       ``(A) In general.--In this section, the `input cost index' 
     for a State or the District of Columbia for a fiscal year is 
     the sum of--
       ``(i) 0.15, and
       ``(ii) 0.85 multiplied by the ratio of (I) the annual 
     average wages for hospital employees in such State or 
     District for the fiscal year (as determined under 
     subparagraph (B)), to (II) the annual average wages for 
     hospital employees in the 50 States and the District of 
     Columbia for such year (as determined under such 
     subparagraph).
       ``(B) Determination of annual average wages of hospital 
     employees.--The Secretary shall provide for the determination 
     of annual average wages for hospital employees in a State or 
     the District of Columbia and, collectively, in the 50 States 
     and the District of Columbia for a fiscal year based on the 
     area wage data applicable to hospitals under section 
     1886(d)(2)(E) (or, if such data no longer exists, comparable 
     data of hospital wages) for discharges occurring during the 
     fiscal year involved.
       ``(5) National average spending per resident in poverty.--
     For purposes of this subsection, the `national average 
     spending per resident in poverty'--
       ``(A) for fiscal year 1997 is equal to--
       ``(i) the sum (for each of the 50 States and the District 
     of Columbia) of the total of the Federal and State 
     expenditures under title XIX for calendar quarters in fiscal 
     year 1994, increased by the percentage by which (I) the pool 
     amount for fiscal year 1997, exceeds (II) $83,213,431,458 
     (which represents Federal medicaid expenditures for such 
     States and District for fiscal year 1994); divided by
       ``(ii) the sum of the number of residents in poverty (as 
     defined in paragraph (2)(A)) for all of the 50 States and the 
     District of Columbia for fiscal year 1994; and
       ``(B) for a succeeding fiscal year is equal to the national 
     average spending per resident in poverty under this paragraph 
     for the preceding fiscal year increased by the national 
     MediGrant growth percentage (as defined in subsection (b)(2)) 
     for the fiscal year involved.
       ``(e) Publication of Obligation and Outlay Allotments.--
       ``(1) Notice of preliminary allotments.--Not later than 
     April 1 before the beginning of each fiscal year (beginning 
     with fiscal year 1997), the Secretary shall initially 
     compute, after consultation with the Comptroller General, and 
     publish in the Federal Register notice of the proposed 
     obligation and outlay allotments for each State under this 
     section (not taking into account subsection (a)(2)(B)) for 
     the fiscal year. The Secretary shall include in the notice a 
     description of the methodology and data used in deriving such 
     allotments for the year.
       ``(2) Review by gao.--The Comptroller General shall submit 
     to Congress by not later than May 15 of each such fiscal 
     year, a report analyzing such allotments and the extent to 
     which they comply with the precise requirements of this 
     section.
       ``(3) Notice of final allotments.--Not later than July 1 
     before the beginning of each such fiscal year, the Secretary, 
     taking into consideration the analysis contained in the 
     report of the Comptroller General under paragraph (2), shall 
     compute and publish in the Federal Register notice of the 
     final allotments under this section (both taking into account 
     and not taking into account subsection (a)(2)(B)) for the 
     fiscal year. The Secretary shall include in the notice a 
     description of any changes in such allotments from the 
     initial allotments published under paragraph (1) for the 
     fiscal year and the reasons for such changes. Once published 
     under this paragraph, the Secretary is not authorized to 
     change such allotments.
       ``(4) GAO report on final allotments.--The Comptroller 
     General shall submit to Congress by not later than August 1 
     of each such fiscal year, a report analyzing the final 
     allotments under paragraph (3) and the extent to which they 
     comply with the precise requirements of this section.
       ``(f) Supplemental Allotment for Emergency Health Care 
     Services to Certain Aliens.--
       ``(1) In general.--Notwithstanding the previous provisions 
     of this section, the amount of the State outlay allotment for 
     each of fiscal years 1996 through 2000 for each supplemental 
     allotment eligible State shall be increased by the amount of 
     the supplemental outlay allotment provided under paragraph 
     (2) for the State for that year. The amount of such increased 
     allotment may only be used for the purpose of providing 
     medical assistance for care and services for aliens described 
     in paragraph (1) of section 2123(e) and for which the 
     exception described in paragraph (2) of such section applies. 
     Section 2122(f)(3) shall apply to such assistance in the same 
     manner as it applies to medical assistance described in such 
     section.
       ``(2) Supplemental outlay allotment.--
       ``(A) In general.--For purposes of paragraph (1), the 
     amount of the supplemental outlay allotment for a 
     supplemental allotment eligible State for a fiscal year is 
     equal to the supplemental allotment ratio (as defined in 
     subparagraph (C)) multiplied by the supplemental pool amount 
     (specified in subparagraph (D)) for the fiscal year.
       ``(B) Supplemental allotment eligible state.--In this 
     subsection, the term `supplemental allotment eligible State' 
     means one of the 15 States with the highest number of 
     undocumented alien residents of all the States.
       ``(C) Supplemental allotment ratio.--In this paragraph, the 
     `supplemental allotment ratio' for a State is the ratio of--
       ``(i) the number of undocumented aliens residing in the 
     State, to
       ``(ii) the sum of such numbers for all supplemental 
     allotment eligible States.
       ``(D) Supplemental pool amount.--In this paragraph, the 
     `supplemental pool amount'--
       ``(i) for fiscal year 1996 is $627,325,551,
       ``(ii) for fiscal year 1997 is $673,388,855,
       ``(iii) for fiscal year 1998 is $702,313,450,
       ``(iv) for fiscal year 1999 is $733,140,258, and
       ``(v) for fiscal year 2000 is $763,831,886.
       ``(E) Determination of number.--
       ``(i) In general.--The number of undocumented aliens 
     residing in a State under this paragraph--

       ``(I) for fiscal year 1996 shall be determined based on 
     estimates of the resident illegal alien population residing 
     in each State prepared by the Statistics Division of the 
     Immigration and Naturalization Service as of October 1992, 
     and
       ``(II) for a subsequent fiscal year shall be determined 
     based on the most recent updated estimate made under clause 
     (ii).

       ``(ii) Updating estimate.--For each fiscal year beginning 
     with fiscal year 1997, the Secretary, in consultation with 
     the Commission of the Immigration and Naturalization Service, 
     States, and outside experts, shall estimate the number of 
     undocumented aliens residing in each of the 50 States and the 
     District of Columbia.
       ``(3) Treatment for obligation purposes.--For purposes of 
     computing obligation allotments under subsection (a)--
       ``(A) the amount of the supplemental pool amount for a 
     fiscal year shall be added to the pool amount under 
     subsection (b) for that fiscal year, and
       ``(B) the amount of the supplemental allotment to a State 
     provided under paragraph (1) shall be added to the outlay 
     allotment of the State for that fiscal year.
       ``(4) Sequence of obligations.--For purposes of carrying 
     out this title, payments to a supplemental allotment eligible 
     State under section 2122 that are attributable to 
     expenditures for medical assistance described in the second 
     sentence of paragraph (1) shall first be counted toward the 
     supplemental outlay allotment provided under this subsection, 
     rather than toward the outlay allotment otherwise provided 
     under this section.

     ``SEC. 2122. PAYMENTS TO STATES.

       ``(a) Amount of Payment.--From the allotment of a State 
     under section 2121 for a fiscal year, subject to the 
     succeeding provisions of this title, the Secretary shall pay 
     to each State which has a MediGrant plan approved under part 
     E, for each quarter in the fiscal year--
       ``(1) an amount equal to the applicable Federal medical 
     assistance percentage (as defined in subsection (c)) of the 
     total amount expended during such quarter as medical 
     assistance under the plan; plus
       ``(2) an amount equal to the applicable Federal medical 
     assistance percentage of the total amount expended during 
     such quarter for medically-related services (as defined in 
     section 2112(e)(2)); plus
       ``(3) subject to section 2123(c)--
       ``(A) an amount equal to 90 percent of the amounts expended 
     during such quarter for the design, development, and 
     installation of information systems and for providing 
     incentives to promote the enforcement of medical support 
     orders, plus
       ``(B) an amount equal to 75 percent of the amounts expended 
     during such quarter for medical personnel, administrative 
     support of medical personnel, operation and maintenance of 
     information systems, modification of information systems, 
     quality assurance activities, utilization review, medical and 
     peer review, anti-fraud activities, independent evaluations, 
     coordination of benefits, and meeting reporting requirements 
     under this title, plus
       ``(C) an amount equal to 50 percent of so much of the 
     remainder of the amounts expended during such quarter as are 
     expended by the State in the administration of the State 
     MediGrant plan.
       ``(b) Payment Process.--
       ``(1) Quarterly estimates.--Prior to the beginning of each 
     quarter, the Secretary shall estimate the amount to which a 
     State will be entitled under subsection (a) for such quarter, 
     such estimates to be based on (A) a report filed by the State 
     containing its estimate of the total sum to be expended in 
     such quarter in accordance with the provisions of such 
     subsections, and stating the amount appropriated or made 
     available by the State and its political subdivisions for 
     such expenditures in such quarter, and if such amount is less 
     than the State's proportionate share of the total sum of such 
     estimated expenditures, the source or sources from which the 
     difference is expected to be derived, and (B) such other 
     investigation as the Secretary may find necessary.
       ``(2) Payment.--
       ``(A) In general.--The Secretary shall then pay to the 
     State, in such installments as the Secretary may determine 
     and in accordance 

[[Page H 12566]]
     with section 6503(a) of title 31, United States Code, the amount so 
     estimated, reduced or increased to the extent of any 
     overpayment or underpayment which the Secretary determines 
     was made under this section (or section 1903) to such State 
     for any prior quarter and with respect to which adjustment 
     has not already been made under this subsection (or under 
     section 1903(d)).
       ``(B) Treatment as overpayments.--Expenditures for which 
     payments were made to the State under subsection (a) shall be 
     treated as an overpayment to the extent that the State or 
     local agency administering such plan has been reimbursed for 
     such expenditures by a third party pursuant to the provisions 
     of its plan in compliance with section 2135.
       ``(C) Recovery of overpayments.--For purposes of this 
     subsection, when an overpayment is discovered, which was made 
     by a State to a person or other entity, the State shall have 
     a period of 60 days in which to recover or attempt to recover 
     such overpayment before adjustment is made in the Federal 
     payment to such State on account of such overpayment. Except 
     as otherwise provided in subparagraph (D), the adjustment in 
     the Federal payment shall be made at the end of the 60 days, 
     whether or not recovery was made.
       ``(D) No adjustment for uncollectables.--In any case where 
     the State is unable to recover a debt which represents an 
     overpayment (or any portion thereof) made to a person or 
     other entity on account of such debt having been discharged 
     in bankruptcy or otherwise being uncollectable, no adjustment 
     shall be made in the Federal payment to such State on account 
     of such overpayment (or portion thereof).
       ``(3) Federal share of recoveries.--The pro rata share to 
     which the United States is equitably entitled, as determined 
     by the Secretary, of the net amount recovered during any 
     quarter by the State or any political subdivision thereof 
     with respect to medical assistance furnished under the State 
     MediGrant plan shall be considered an overpayment to be 
     adjusted under this subsection.
       ``(4) Timing of obligation of funds.--Upon the making of 
     any estimate by the Secretary under this subsection, any 
     appropriations available for payments under this section 
     shall be deemed obligated.
       ``(5) Disallowances.--In any case in which the Secretary 
     estimates that there has been an overpayment under this 
     section to a State on the basis of a claim by such State that 
     has been disallowed by the Secretary under section 1116(d), 
     and such State disputes such disallowance, the amount of the 
     Federal payment in controversy shall, at the option of the 
     State, be retained by such State or recovered by the 
     Secretary pending a final determination with respect to such 
     payment amount. If such final determination is to the effect 
     that any amount was properly disallowed, and the State chose 
     to retain payment of the amount in controversy, the Secretary 
     shall offset, from any subsequent payments made to such State 
     under this title, an amount equal to the proper amount of the 
     disallowance plus interest on such amount disallowed for the 
     period beginning on the date such amount was disallowed and 
     ending on the date of such final determination at a rate 
     (determined by the Secretary) based on the average of the 
     bond equivalent of the weekly 90-day treasury bill auction 
     rates during such period.
       ``(c) Applicable Federal Medical Assistance Percentage 
     Defined.--In this section, except as provided in subsection 
     (f), the term `applicable Federal medical assistance 
     percentage' means, with respect to one of the 50 States or 
     the District of Columbia, at the State's or District's 
     option--
       ``(1) the old Federal medical assistance percentage (as 
     determined in subsection (d));
       ``(2) the lesser of--
       ``(A) new Federal medical assistance percentage (as 
     determined under subsection (e)) or
       ``(B) the old Federal medical assistance percentage plus 10 
     percentage points; or
       ``(3) 60 percent.
       ``(d) Old Federal Medical Assistance Percentage.--
       ``(1) In general.--Except as provided in paragraph (2) and 
     subsection (f), the term `old Federal medical assistance 
     percentage' for any State is 100 percent less the State 
     percentage; and the State percentage is that percentage which 
     bears the same ratio to 45 percent as the square of the per 
     capita income of such State bears to the square of the per 
     capita income of the continental United States (including 
     Alaska) and Hawaii.
       ``(2) Limitation on range.--In no case shall the old 
     Federal medical assistance percentage be less than 50 percent 
     or more than 83 percent.
       ``(3) Promulgation.--The old Federal medical assistance 
     percentage for any State shall be determined and promulgated 
     in accordance with the provisions of section 1101(a)(8)(B).
       ``(e) New Federal Medical Assistance Percentage Defined.--
       ``(1) In general.--
       ``(A) Term defined.--Except as provided in paragraph (3) 
     and subsection (f), the term `new Federal medical assistance 
     percentage' means, for each of the 50 States and the District 
     of Columbia, 100 percent reduced by the product 0.39 and the 
     ratio of--
       ``(i)(I) for each of the 50 States, the total taxable 
     resources (TTR) ratio of the State specified in subparagraph 
     (B), or
       ``(II) for the District of Columbia, the per capita income 
     ratio specified in subparagraph (C),
     to--
       ``(ii) the aggregate expenditure need ratio of the State or 
     District, as described in subparagraph (D).
       ``(B) Total taxable resources (ttr) ratio.--For purposes of 
     subparagraph (A)(i)(I), the total taxable resources (TTR) 
     ratio for each of the 50 States is--
       ``(i) an amount equal to the most recent 3-year average of 
     the total taxable resources (TTR) of the State, as determined 
     by the Secretary of the Treasury, divided by
       ``(ii) an amount equal to the sum of the 3-year averages 
     determined under clause (i) for each of the 50 States.
       ``(C) Per capita income ratio.--For purposes of 
     subparagraph (A)(i)(II), the per capita income ratio of the 
     District of Columbia is--
       ``(i) an amount equal to the most recent 3-year average of 
     the total personal income of the District of Columbia, as 
     determined in accordance with the provisions of section 
     1101(a)(8)(B), divided by
       ``(ii) an amount equal to the total personal income of the 
     continental United States (including Alaska) and Hawaii, as 
     determined under section 1101(a)(8)(B).
       ``(D) Aggregate expenditure need ratio.--For purposes of 
     subparagraph (A), with respect to each of the 50 States and 
     the District of Columbia for a fiscal year, the aggregate 
     expenditure need ratio is--
       ``(i) the State aggregate expenditure need (as defined in 
     section 2121(d)) for the State for the fiscal year, divided 
     by
       ``(ii) the such of such State aggregate expenditure needs 
     for the 50 States and the District of Columbia for the fiscal 
     year.
       ``(2) Limitation on range.--Except as provided in 
     subsection (f), the new Federal medical assistance percentage 
     shall in no case be less than 40 percent or greater than 83 
     percent.
       ``(3) Promulgation.--The new Federal medical assistance 
     percentage for any State shall be promulgated in a timely 
     manner consistent with the promulgation of the old Federal 
     medical assistance percentage under section 1101(a)(8)(B).
       ``(f) Special Rules.--For purposes of this title--
       ``(1) Commonwealths and territories.--In the case of Puerto 
     Rico, the Virgin Islands, Guam, the Northern Mariana Islands, 
     and American Samoa, the old and new Federal medical 
     assistance percentages are 50 percent.
       ``(2) Alaska.--In the case of Alaska, the old Federal 
     medical assistance percentage is that percentage which bears 
     the same ratio to 45 percent as the square of the adjusted 
     per capita income of such State bears to the square of the 
     per capita income of the continental United States. For 
     purposes of the preceding sentence, the adjusted per capita 
     income for Alaska shall be determined by dividing the State's 
     most recent 3-year average per capita by the input cost index 
     for such State (as determined under section 2121(d)(4)).
       ``(3) Indian health service facilities.--
       ``(A) In general.--The old and new Federal medical 
     assistance percentages shall be 100 percent with respect to 
     the amounts expended as medical assistance for services which 
     are received through a facility described in subparagraph (B) 
     of an Indian tribe or tribal organization or through an 
     Indian Health Service facility whether operated by the Indian 
     Health Service or by an Indian tribe or tribal organization 
     (as defined in section 4 of the Indian Health Care 
     Improvement Act).
       ``(B) Facility described.--For purposes of subparagraph 
     (A), a facility described in this subparagraph is a facility 
     of an Indian tribe if--
       ``(i) the facility is located in a State which, as of the 
     date of the enactment of this title, was not operating its 
     State plan under title XIX pursuant to a Statewide waiver 
     approved under section 1115,
       ``(ii) the facility is not an Indian Health Service 
     facility,
       ``(iii) the tribe owns at least 2 such facilities, and
       ``(iv) the tribe has at least 50,000 members (as of the 
     date of the enactment of this title).
       ``(4) No state matching required for certain 
     expenditures.--In applying subsection (a)(1) with respect to 
     medical assistance provided to unlawful aliens pursuant to 
     the exception specified in section 2123(f)(2), payment shall 
     be made for the amount of such assistance without regard to 
     any need for a State match.
       ``(5) Special transitional rule.--
       ``(A) In general.--Notwithstanding subsections (a) and (f), 
     in order to receive the full State outlay allotment described 
     in section 2121(c)(3)(C)(i), a State described in 
     subparagraph (C) shall expend State funds in a fiscal year 
     (before fiscal year 2000) under a MediGrant plan under this 
     title in an amount not less than the adjusted base year State 
     expenditures, plus the applicable percentage of the 
     difference between such expenditures and the amount necessary 
     to qualify for the full State outlay allotment so described 
     in such fiscal year as determined under this section without 
     regard to this paragraph.
       ``(B) Reduction in allotment if expenditure not met.--In 
     the event a State described in subparagraph (C) fails to 
     expend State funds in an amount required by subparagraph (A) 
     for a fiscal year, the outlay allotment described in section 
     2121(c)(3)(C)(i) for such year for such State shall be 
     reduced by an amount which bears the same ratio to such 
     outlay allotment as the State funds expended in such fiscal 
     year bears to the amount required by subparagraph (A).
       ``(C) Adjusted base year state expenditures.--For purposes 
     of this paragraph, the term `adjusted base year State 
     expenditures' means--
       ``(i) for New Hampshire, $203,000,000, and
       ``(ii) for Louisiana, $355,000,000.
       ``(D) Applicable percentage.--For purposes of this 
     paragraph, the applicable percentage for a fiscal year is 
     specified in the following table:

                                                             Applicable
``Fiscal year:                                              Percentage:
  1996..........................................................20 ....

  1997..........................................................40 ....

[[Page H 12567]]


  1998..........................................................60 ....

  1999..........................................................80.....

       ``(g) State Financial Participation.--Each MediGrant plan 
     shall provide for financial participation by the State equal 
     to not less than 40 percent of the non-Federal share of the 
     expenditures under the plan with respect to which payments 
     may be made under this section.

     ``SEC. 2123. LIMITATION ON USE OF FUNDS; DISALLOWANCE.

       ``(a) In General.--Funds provided to a State under this 
     title shall only be used to carry out the purposes of this 
     title.
       ``(b) Disallowances for Excluded Providers.--
       ``(1) In general.--Payment shall not be made to a State 
     under this part for expenditures for items and services 
     furnished--
       ``(A) by a provider who was excluded from participation 
     under title V, XVIII, or XX or under this title pursuant to 
     section 1128, 1128A, 1156, or 1842(j)(2), or
       ``(B) under the medical direction or on the prescription of 
     a physician who was so excluded, if the provider of the 
     services knew or had reason to know of the exclusion.
       ``(2) Exception for emergency services.--Paragraph (1) 
     shall not apply to emergency items or services, not including 
     hospital emergency room services.
       ``(c) Limitations.--
       ``(1) In general.--No Federal financial assistance is 
     available for expenditures under the MediGrant plan for--
       ``(A) medically-related services for a quarter to the 
     extent such expenditures exceed 5 percent of the total 
     expenditures under the plan for the quarter, or
       ``(B) total administrative expenses (other than expenses 
     described in paragraph (2) during the first 8 quarters in 
     which the plan is in effect under this title) for quarters in 
     a fiscal year to the extent such expenditures exceed the sum 
     of $20,000,000 plus 10 percent of the total expenditures 
     under the plan for the year.
       ``(2) Administrative expenses not subject to limitation.--
     The administrative expenses referred to in this paragraph are 
     expenditures under the MediGrant plan for the following 
     activities:
       ``(A) Quality assurance.
       ``(B) The development and operation of the certification 
     program for nursing facilities and intermediate care 
     facilities for the mentally retarded under section 2137.
       ``(C) Utilization review activities, including medical 
     activities and activities of peer review organizations.
       ``(D) Inspection and oversight of providers and capitated 
     health care organizations.
       ``(E) Anti-fraud activities.
       ``(F) Independent evaluations.
       ``(G) Activities required to meet reporting requirements 
     under this title.
       ``(d) Treatment of Third Party Liability.--No payment shall 
     be made to a State under this part for expenditures for 
     medical assistance provided for an individual under its 
     MediGrant plan to the extent that a private insurer (as 
     defined by the Secretary by regulation and including a group 
     health plan (as defined in section 607(1) of the Employee 
     Retirement Income Security Act of 1974), a service benefit 
     plan, and a health maintenance organization) would have been 
     obligated to provide such assistance but for a provision of 
     its insurance contract which has the effect of limiting or 
     excluding such obligation because the individual is eligible 
     for or is provided medical assistance under the plan.
       ``(e) MediGrant as Secondary Payer.--Except as otherwise 
     provided by law, no payment shall be made to a State under 
     this part for expenditures for medical assistance provided 
     for an individual under its MediGrant plan to the extent that 
     payment has been made or can reasonably be expected to be 
     made promptly (as determined in accordance with regulations) 
     under any other federally operated or financed health care 
     program, other than a program operated or financed by the 
     Indian Health Service, as identified by the Secretary. For 
     purposes of this subsection, rules similar to the rules for 
     overpayments under section 2122(b) shall apply.
       ``(f) Limitation on Payments to Emergency Services for 
     Nonlawful Aliens.--
       ``(1) In general.--Notwithstanding the preceding provisions 
     of this section, except as provided in paragraph (2), no 
     payment may be made to a State under this part for medical 
     assistance furnished to an alien who is not lawfully admitted 
     for permanent residence or otherwise permanently residing in 
     the United States under color of law.
       ``(2) Exception for emergency services.--Payment may be 
     made under this section for care and services that are 
     furnished to an alien described in paragraph (1) only if--
       ``(A) such care and services are necessary for the 
     treatment of an emergency medical condition of the alien,
       ``(B) such alien otherwise meets the eligibility 
     requirements for medical assistance under the MediGrant plan 
     (other than a requirement of the receipt of aid or assistance 
     under title IV, supplemental security income benefits under 
     title XVI, or a State supplementary payment), and
       ``(C) such care and services are not related to an organ 
     transplant procedure.
       ``(3) Emergency medical condition defined.--For purposes of 
     this subsection, the term `emergency medical condition' means 
     a medical condition (including emergency labor and delivery) 
     manifesting itself by acute symptoms of sufficient severity 
     (including severe pain) such that the absence of immediate 
     medical attention could reasonably be expected to result in--
       ``(A) placing the patient's health in serious jeopardy,
       ``(B) serious impairment to bodily functions, or
       ``(C) serious dysfunction of any bodily organ or part.
       ``(g) Limitation on Payment for Certain Outpatient 
     Prescription Drugs.--
       ``(1) In general.--No payment may be made to a State under 
     this part for medical assistance for covered outpatient drugs 
     (as defined in section 2175(i)(2)) of a manufacturer provided 
     under the MediGrant plan unless the manufacturer (as defined 
     in section 2175(i)(4)) of the drug--
       ``(A) has entered into a MediGrant master rebate agreement 
     with the Secretary under section 2175,
       ``(B) is otherwise complying with the provisions of such 
     section,
       ``(C) is complying with the provisions of section 8126 of 
     title 38, United States Code, including the requirement of 
     entering into a master agreement with the Secretary of 
     Veterans Affairs under such section, and
       ``(D) subject to paragraph (4), is complying with the 
     provisions of section 340B of the Public Health Service Act, 
     including the requirement of entering into an agreement with 
     the Secretary under such section.
       ``(2) Construction.--Nothing in this subsection shall be 
     construed as requiring a State to participate in the 
     MediGrant master rebate agreement under section 2175.
       ``(3) Effect of subsequent amendments.--For purposes of 
     subparagraphs (C) and (D), in determining whether a 
     manufacturer is in compliance with the requirements of 
     section 8126 of title 38, United States Code, or section 340B 
     of the Public Health Service Act--
       ``(A) the Secretary shall not take into account any 
     amendments to such sections that are enacted after the 
     enactment of title VI of the Veterans Health Care Act of 
     1992, and
       ``(B) a manufacturer is deemed to meet such requirements if 
     the manufacturer establishes to the satisfaction of the 
     Secretary that the manufacturer would comply (and has offered 
     to comply) with the provisions of such sections (as in effect 
     immediately after the enactment of the Veterans Health Care 
     Act of 1992) and would have entered into an agreement under 
     such section (as such section was in effect at such time), 
     but for a legislative change in such section after the date 
     of the enactment of the Veterans Health Care Act of 1992.
       ``(4) Effect of establishment of alternative mechanism 
     under public health service act.--If the Secretary does not 
     establish a mechanism to ensure against duplicate discounts 
     or rebates under section 340B(a)(5)(A) of the Public Health 
     Service Act within 12 months of the date of the enactment of 
     such section, the following requirements shall apply:
       ``(A) Each covered entity under such section shall inform 
     the State when it is seeking reimbursement from the MediGrant 
     plan for medical assistance with respect to a unit of any 
     covered outpatient drug which is subject to an agreement 
     under section 340B(a) of such Act.
       ``(B) Each such State shall provide a means by which such 
     an entity shall indicate on any drug reimbursement claims 
     form (or format, where electronic claims management is used) 
     that a unit of the drug that is the subject of the form is 
     subject to an agreement under section 340B of such Act, and 
     not submit to any manufacturer a claim for a rebate payment 
     with respect to such a drug.

                ``Part D--Program Integrity and Quality

     ``SEC. 2131. USE OF AUDITS TO ACHIEVE FISCAL INTEGRITY.

       ``(a) Financial Audits of Program.--
       ``(1) In general.--Each MediGrant plan shall provide for an 
     annual audit of the State's expenditures from amounts 
     received under this title, in compliance with chapter 75 of 
     title 31, United States Code.
       ``(2) Verification audits.--If, after consultation with the 
     State and the Comptroller General and after a fair hearing, 
     the Secretary determines that a State's audit under paragraph 
     (1) was performed in substantial violation of chapter 75 of 
     title 31, United States Code, the Secretary may--
       ``(A) require that the State provide for a verification 
     audit in compliance with such chapter, or
       ``(B) conduct such a verification audit.
       ``(3) Availability of audit reports.--Within 30 days after 
     completion of each audit or verification audit under this 
     subsection, the State shall--
       ``(A) provide the Secretary with a copy of the audit 
     report, including the State's response to any recommendations 
     of the auditor, and
       ``(B) make the audit report available for public inspection 
     in the same manner as proposed MediGrant plan amendments are 
     made available under section 2105.
       ``(b) Fiscal Controls.--
       ``(1) In general.--With respect to the accounting and 
     expenditure of funds under this title, each State shall adopt 
     and maintain such fiscal controls, accounting procedures, and 
     data processing safeguards as the State deems reasonably 
     necessary to assure the fiscal integrity of the State's 
     activities under this title.
       ``(2) Consistency with generally accepted accounting 
     principles.--Such controls and procedures shall be generally 
     consistent with generally accepted accounting principles as 
     recognized by the Governmental Accounting Standards Board or 
     the Comptroller General.
       ``(c) Audits of Providers.--Each MediGrant plan shall 
     provide that the records of any entity providing items or 
     services for which payment may be made under the plan may be 
     audited as necessary to ensure that proper payments are made 
     under the plan.

     ``SEC. 2132. FRAUD PREVENTION PROGRAM.

       ``(a) Establishment.--Each MediGrant plan shall provide for 
     the establishment and maintenance of an effective program for 
     the detection 

[[Page H 12568]]
     and prevention of fraud and abuse by beneficiaries, providers, and 
     others in connection with the operation of the program.
       ``(b) Program Requirements.--The program established 
     pursuant to subsection (a) shall include at least the 
     following requirements:
       ``(1) Disclosure of information.--Any disclosing entity (as 
     defined in section 1124(a)) receiving payments under the 
     MediGrant plan shall comply with the requirements of section 
     1124.
       ``(2) Supply of information.--An entity (other than an 
     individual practitioner or a group of practitioners) that 
     furnishes, or arranges for the furnishing of, an item or 
     service under the MediGrant plan shall supply upon request 
     specifically addressed to the entity by the Secretary or the 
     State agency the information described in section 1128(b)(9).
       ``(3) Exclusion.--
       ``(A) In general.--The MediGrant plan shall exclude any 
     specified individual or entity from participation in the plan 
     for the period specified by the Secretary when required by 
     the Secretary to do so pursuant to section 1128 or section 
     1128A, and provide that no payment may be made under the plan 
     with respect to any item or service furnished by such 
     individual or entity during such period.
       ``(B) Authority.--In addition to any other authority, a 
     State may exclude any individual or entity for purposes of 
     participating under the MediGrant plan for any reason for 
     which the Secretary could exclude the individual or entity 
     from participation in a program under title XVIII or under 
     section 1128, 1128A, or 1866(b)(2).
       ``(4) Notice.--The MediGrant plan shall provide that 
     whenever a provider of services or any other person is 
     terminated, suspended, or otherwise sanctioned or prohibited 
     from participating under the plan, the State agency 
     responsible for administering the plan shall promptly notify 
     the Secretary and, in the case of a physician, the State 
     medical licensing board of such action.
       ``(5) Access to information.--The MediGrant plan shall 
     provide that the State will provide information and access to 
     certain information respecting sanctions taken against health 
     care practitioners and providers by State licensing 
     authorities in accordance with section 2133.

     ``SEC. 2133. INFORMATION CONCERNING SANCTIONS TAKEN BY STATE 
                   LICENSING AUTHORITIES AGAINST HEALTH CARE 
                   PRACTITIONERS AND PROVIDERS.

       ``(a) Information Reporting Requirement.--The requirement 
     referred to in section 2132(b)(5) is that the State must 
     provide for the following:
       ``(1) Information reporting system.--The State must have in 
     effect a system of reporting the following information with 
     respect to formal proceedings (as defined by the Secretary in 
     regulations) concluded against a health care practitioner or 
     entity by any authority of the State (or of a political 
     subdivision thereof) responsible for the licensing of health 
     care practitioners (or any peer review organization or 
     private accreditation entity reviewing the services provided 
     by health care practitioners) or entities:
       ``(A) Any adverse action taken by such licensing authority 
     as a result of the proceeding, including any revocation or 
     suspension of a license (and the length of any such 
     suspension), reprimand, censure, or probation.
       ``(B) Any dismissal or closure of the proceedings by reason 
     of the practitioner or entity surrendering the license or 
     leaving the State or jurisdiction.
       ``(C) Any other loss of the license of the practitioner or 
     entity, whether by operation of law, voluntary surrender, or 
     otherwise.
       ``(D) Any negative action or finding by such authority, 
     organization, or entity regarding the practitioner or entity.
       ``(2) Access to documents.--The State must provide the 
     Secretary (or an entity designated by the Secretary) with 
     access to such documents of the authority described in 
     paragraph (1) as may be necessary for the Secretary to 
     determine the facts and circumstances concerning the actions 
     and determinations described in such paragraph for the 
     purpose of carrying out this Act.
       ``(b) Form of Information.--The information described in 
     subsection (a)(1) shall be provided to the Secretary (or to 
     an appropriate private or public agency, under suitable 
     arrangements made by the Secretary with respect to receipt, 
     storage, protection of confidentiality, and dissemination of 
     information) in such a form and manner as the Secretary 
     determines to be appropriate in order to provide for 
     activities of the Secretary under this Act and in order to 
     provide, directly or through suitable arrangements made by 
     the Secretary, information--
       ``(1) to agencies administering Federal health care 
     programs, including private entities administering such 
     programs under contract,
       ``(2) to licensing authorities described in subsection 
     (a)(1),
       ``(3) to State agencies administering or supervising the 
     administration of State health care programs (as defined in 
     section 1128(h)),
       ``(4) to utilization and quality control peer review 
     organizations described in part B of title XI and to 
     appropriate entities with contracts under section 
     1154(a)(4)(C) with respect to eligible organizations reviewed 
     under the contracts,
       ``(5) to State MediGrant fraud control units (as defined in 
     section 2134),
       ``(6) to hospitals and other health care entities (as 
     defined in section 431 of the Health Care Quality Improvement 
     Act of 1986), with respect to physicians or other licensed 
     health care practitioners that have entered (or may be 
     entering) into an employment or affiliation relationship 
     with, or have applied for clinical privileges or appointments 
     to the medical staff of, such hospitals or other health care 
     entities (and such information shall be deemed to be 
     disclosed pursuant to section 427 of, and be subject to the 
     provisions of, that Act),
       ``(7) to the Attorney General and such other law 
     enforcement officials as the Secretary deems appropriate, and
       ``(8) upon request, to the Comptroller General,
     in order for such authorities to determine the fitness of 
     individuals to provide health care services, to protect the 
     health and safety of individuals receiving health care 
     through such programs, and to protect the fiscal integrity of 
     such programs.
       ``(c) Confidentiality of Information Provided.--The 
     Secretary shall provide for suitable safeguards for the 
     confidentiality of the information furnished under subsection 
     (a). Nothing in this subsection shall prevent the disclosure 
     of such information by a party which is otherwise authorized, 
     under applicable State law, to make such disclosure.
       ``(d) Appropriate Coordination.--The Secretary shall 
     provide for the maximum appropriate coordination in the 
     implementation of subsection (a) of this section and section 
     422 of the Health Care Quality Improvement Act of 1986 and 
     section 1128E.

     ``SEC. 2134. STATE MEDIGRANT FRAUD CONTROL UNITS.

       ``(a) In General.--Each MediGrant plan shall provide for a 
     State MediGrant fraud control unit described in subsection 
     (b) that effectively carries out the functions and 
     requirements described in such subsection, unless the State 
     demonstrates to the satisfaction of the Secretary that the 
     effective operation of such a unit in the State would not be 
     cost-effective because minimal fraud exists in connection 
     with the provision of covered services to eligible 
     individuals under the plan, and that beneficiaries under the 
     plan will be protected from abuse and neglect in connection 
     with the provision of medical assistance under the plan 
     without the existence of such a unit.
       ``(b) Units Described.--For purposes of this section, the 
     term `State MediGrant fraud control unit' means a single 
     identifiable entity of the State government which meets the 
     following requirements:
       ``(1) Organization.--The entity--
       ``(A) is a unit of the office of the State Attorney General 
     or of another department of State government which possesses 
     statewide authority to prosecute individuals for criminal 
     violations;
       ``(B) is in a State the constitution of which does not 
     provide for the criminal prosecution of individuals by a 
     statewide authority and has formal procedures that--
       ``(i) assure its referral of suspected criminal violations 
     relating to the program under this title to the appropriate 
     authority or authorities in the State for prosecution, and
       ``(ii) assure its assistance of, and coordination with, 
     such authority or authorities in such prosecutions; or
       ``(C) has a formal working relationship with the office of 
     the State Attorney General and has formal procedures 
     (including procedures for its referral of suspected criminal 
     violations to such office) which provide effective 
     coordination of activities between the entity and such office 
     with respect to the detection, investigation, and prosecution 
     of suspected criminal violations relating to the program 
     under this title.
       ``(2) Independence.--The entity is separate and distinct 
     from any State agency that has principal responsibilities for 
     administering or supervising the administration of the 
     MediGrant plan.
       ``(3) Function.--The entity's function is conducting a 
     statewide program for the investigation and prosecution of 
     violations of all applicable State laws regarding any and all 
     aspects of fraud in connection with any aspect of the 
     provision of medical assistance and the activities of 
     providers of such assistance under the MediGrant plan.
       ``(4) Review of complaints.--The entity has procedures for 
     reviewing complaints of the abuse and neglect of patients of 
     health care facilities which receive payments under the 
     MediGrant plan under this title, and, where appropriate, for 
     acting upon such complaints under the criminal laws of the 
     State or for referring them to other State agencies for 
     action.
       ``(5) Overpayments.--
       ``(A) In general.--The entity provides for the collection, 
     or referral for collection to a single State agency, of 
     overpayments that are made under the MediGrant plan to health 
     care providers and that are discovered by the entity in 
     carrying out its activities.
       ``(B) Treatment of certain overpayments.--If an overpayment 
     is the direct result of the failure of the provider (or the 
     provider's billing agent) to adhere to a change in the 
     State's billing instructions, the entity may recover the 
     overpayment only if the entity demonstrates that the provider 
     (or the provider's billing agent) received prior written or 
     electronic notice of the change in the billing instructions 
     before the submission of the claims on which the overpayment 
     is based.
       ``(6) Personnel.--The entity employs such auditors, 
     attorneys, investigators, and other necessary personnel and 
     is organized in such a manner as is necessary to promote the 
     effective and efficient conduct of the entity's activities.

     ``SEC. 2135. RECOVERIES FROM THIRD PARTIES AND OTHERS.

       ``(a) Third Party Liability.--Each MediGrant plan shall 
     provide for reasonable steps--
       ``(1) to ascertain the legal liability of third parties to 
     pay for care and services available under the plan, including 
     the collection of sufficient information to enable States to 
     pursue claims against third parties, and
       ``(2) to seek reimbursement for medical assistance provided 
     to the extent legal liability is established where the amount 
     expected to be recovered exceeds the costs of the recovery.
       ``(b) Beneficiary Protection.--
       ``(1) In general.--Each MediGrant plan shall provide that 
     in the case of a person furnishing 

[[Page H 12569]]
     services under the plan for which a third party may be liable for 
     payment--
       ``(A) the person may not seek to collect from the 
     individual (or financially responsible relative) payment of 
     an amount for the service more than could be collected under 
     the plan in the absence of such third party liability, and
       ``(B) may not refuse to furnish services to such an 
     individual because of a third party's potential liability for 
     payment for the service.
       ``(2) Penalty.--A MediGrant plan may provide for a 
     reduction of any payment amount otherwise due with respect to 
     a person who furnishes services under the plan in an amount 
     equal to up to 3 times the amount of any payment sought to be 
     collected by that person in violation of paragraph (1)(A).
       ``(c) General Liability.--The State shall prohibit any 
     health insurer, including a group health plan as defined in 
     section 607 of the Employee Retirement Income Security Act of 
     1974, a service benefit plan, or a health maintenance 
     organization, in enrolling an individual or in making any 
     payments for benefits to the individual or on the 
     individual's behalf, from taking into account that the 
     individual is eligible for or is provided medical assistance 
     under a MediGrant plan for any State.
       ``(d) Acquisition of Rights of Beneficiaries.--To the 
     extent that payment has been made under a MediGrant plan in 
     any case where a third party has a legal liability to make 
     payment for such assistance, the State shall have in effect 
     laws under which, to the extent that payment has been made 
     under the plan for health care items or services furnished to 
     an individual, the State is considered to have acquired the 
     rights of such individual to payment by any other party for 
     such health care items or services.
       ``(e) Assignment of Medical Support Rights.--The MediGrant 
     plan shall provide for mandatory assignment of rights of 
     payment for medical support and other medical care owed to 
     recipients in accordance with section 2136.
       ``(f) Required Laws Relating to Medical Child Support.--
       ``(1) In general.--Each State with a MediGrant plan shall 
     have in effect the following laws:
       ``(A) A law that prohibits an insurer from denying 
     enrollment of a child under the health coverage of the 
     child's parent on the ground that--
       ``(i) the child was born out of wedlock,
       ``(ii) the child is not claimed as a dependent on the 
     parent's Federal income tax return, or
       ``(iii) the child does not reside with the parent or in the 
     insurer's service area.
       ``(B) In any case in which a parent is required by a court 
     or administrative order to provide health coverage for a 
     child and the parent is eligible for family health coverage 
     through an insurer, a law that requires such insurer--
       ``(i) to permit such parent to enroll under such family 
     coverage any such child who is otherwise eligible for such 
     coverage (without regard to any enrollment season 
     restrictions);
       ``(ii) if such a parent is enrolled but fails to make 
     application to obtain coverage of such child, to enroll such 
     child under such family coverage upon application by the 
     child's other parent or by the State agency administering the 
     program under this title or part D of title IV; and
       ``(iii) not to disenroll, or eliminate coverage of, such a 
     child unless the insurer is provided satisfactory written 
     evidence that--

       ``(I) such court or administrative order is no longer in 
     effect, or
       ``(II) the child is or will be enrolled in comparable 
     health coverage through another insurer which will take 
     effect not later than the effective date of such 
     disenrollment.

       ``(C) In any case in which a parent is required by a court 
     or administrative order to provide health coverage for a 
     child and the parent is eligible for family health coverage 
     through an employer doing business in the State, a law that 
     requires such employer--
       ``(i) to permit such parent to enroll under such family 
     coverage any such child who is otherwise eligible for such 
     coverage (without regard to any enrollment season 
     restrictions);
       ``(ii) if such a parent is enrolled but fails to make 
     application to obtain coverage of such child, to enroll such 
     child under such family coverage upon application by the 
     child's other parent or by the State agency administering the 
     program under this title or part D of title IV; and
       ``(iii) not to disenroll (or eliminate coverage of) any 
     such child unless--

       ``(I) the employer is provided satisfactory written 
     evidence that such court or administrative order is no longer 
     in effect, or the child is or will be enrolled in comparable 
     health coverage which will take effect not later than the 
     effective date of such disenrollment, or
       ``(II) the employer has eliminated family health coverage 
     for all of its employees; and

       ``(iv) to withhold from such employee's compensation the 
     employee's share (if any) of premiums for health coverage 
     (except that the amount so withheld may not exceed the 
     maximum amount permitted to be withheld under section 303(b) 
     of the Consumer Credit Protection Act), and to pay such share 
     of premiums to the insurer, except that the Secretary may 
     provide by regulation for appropriate circumstances under 
     which an employer may withhold less than such employee's 
     share of such premiums.
       ``(D) A law that prohibits an insurer from imposing 
     requirements on a State agency, which has been assigned the 
     rights of an individual eligible for medical assistance under 
     this title and covered for health benefits from the insurer, 
     that are different from requirements applicable to an agent 
     or assignee of any other individual so covered.
       ``(E) A law that requires an insurer, in any case in which 
     a child has health coverage through the insurer of a 
     noncustodial parent--
       ``(i) to provide such information to the custodial parent 
     as may be necessary for the child to obtain benefits through 
     such coverage,
       ``(ii) to permit the custodial parent (or provider, with 
     the custodial parent's approval) to submit claims for covered 
     services without the approval of the noncustodial parent, and
       ``(iii) to make payment on claims submitted in accordance 
     with clause (ii) directly to such custodial parent, the 
     provider, or the State agency.
       ``(F) A law that permits the State agency under this title 
     to garnish the wages, salary, or other employment income of, 
     and requires withholding amounts from State tax refunds to, 
     any person who--
       ``(i) is required by court or administrative order to 
     provide coverage of the costs of health services to a child 
     who is eligible for medical assistance under this title,
       ``(ii) has received payment from a third party for the 
     costs of such services to such child, but
       ``(iii) has not used such payments to reimburse, as 
     appropriate, either the other parent or guardian of such 
     child or the provider of such services,

     to the extent necessary to reimburse the State agency for 
     expenditures for such costs under its plan under this title, 
     but any claims for current or past-due child support shall 
     take priority over any such claims for the costs of such 
     services.
       ``(2) Definition.--For purposes of this subsection, the 
     term `insurer' includes a group health plan, as defined in 
     section 607(1) of the Employee Retirement Income Security Act 
     of 1974, a health maintenance organization, and an entity 
     offering a service benefit plan.
       ``(g) Estate Recoveries and Liens Permitted.--A State may 
     take such actions as it considers appropriate to adjust or 
     recover from the individual or the individual's estate any 
     amounts paid as medical assistance to or on behalf of the 
     individual under the MediGrant plan, including through the 
     imposition of liens against the property or estate of the 
     individual.

     ``SEC. 2136. ASSIGNMENT OF RIGHTS OF PAYMENT.

       ``(a) In General.--For the purpose of assisting in the 
     collection of medical support payments and other payments for 
     medical care owed to recipients of medical assistance under 
     the MediGrant plan, each MediGrant plan shall--
       ``(1) provide that, as a condition of eligibility for 
     medical assistance under the plan to an individual who has 
     the legal capacity to execute an assignment for himself, the 
     individual is required--
       ``(A) to assign the State any rights, of the individual or 
     of any other person who is eligible for medical assistance 
     under the plan and on whose behalf the individual has the 
     legal authority to execute an assignment of such rights, to 
     support (specified as support for the purpose of medical care 
     by a court or administrative order) and to payment for 
     medical care from any third party,
       ``(B) to cooperate with the State (i) in establishing the 
     paternity of such person (referred to in subparagraph (A)) if 
     the person is a child born out of wedlock, and (ii) in 
     obtaining support and payments (described in subparagraph 
     (A)) for himself and for such person, unless (in either case) 
     the individual is a pregnant woman or the individual is found 
     to have good cause for refusing to cooperate as determined by 
     the State, and
       ``(C) to cooperate with the State in identifying, and 
     providing information to assist the State in pursuing, any 
     third party who may be liable to pay for care and services 
     available under the plan, unless such individual has good 
     cause for refusing to cooperate as determined by the State; 
     and
       ``(2) provide for entering into cooperative arrangements, 
     including financial arrangements, with any appropriate agency 
     of any State (including, with respect to the enforcement and 
     collection of rights of payment for medical care by or 
     through a parent, with a State's agency established or 
     designated under section 454(3)) and with appropriate courts 
     and law enforcement officials, to assist the agency or 
     agencies administering the plan with respect to--
       ``(A) the enforcement and collection of rights to support 
     or payment assigned under this section, and
       ``(B) any other matters of common concern.
       ``(b) Use of Amounts Collected.--Such part of any amount 
     collected by the State under an assignment made under the 
     provisions of this section shall be retained by the State as 
     is necessary to reimburse it for medical assistance payments 
     made on behalf of an individual with respect to whom such 
     assignment was executed (with appropriate reimbursement of 
     the Federal Government to the extent of its participation in 
     the financing of such medical assistance), and the remainder 
     of such amount collected shall be paid to such individual.

     ``SEC. 2137. QUALITY ASSURANCE REQUIREMENTS FOR NURSING 
                   FACILITIES.

       ``(a) Nursing Facility Defined.--In this title, the term 
     `nursing facility' means an institution (or a distinct part 
     of an institution) which--
       ``(1) is primarily engaged in providing to residents--
       ``(A) skilled nursing care and related services for 
     residents who require medical or nursing care,
       ``(B) rehabilitation services for the rehabilitation of 
     injured, disabled, or sick persons, or
       ``(C) on a regular basis, health-related care and services 
     to individuals who because of their mental or physical 
     condition require care and services (above the level of room 
     and board) which can be made available to them only through 
     institutional facilities,


[[Page H 12570]]

     and is not primarily for the care and treatment of mental 
     diseases;
       ``(2) has in effect a transfer agreement (meeting the 
     requirements of section 1861(l)) with one or more hospitals 
     having agreements in effect under section 1866; and
       ``(3) meets the requirements for a nursing facility 
     described in subsections (b), (c), and (d) of this section.

     Such term also includes any facility which is located in a 
     State on an Indian reservation and is certified by the 
     Secretary as meeting the requirements of paragraph (1) and 
     subsections (b), (c), and (d).
       ``(b) Requirements Relating to Provision of Services.--
       ``(1) Quality of life.--
       ``(A) In general.--A nursing facility must care for its 
     residents in such a manner and in such an environment as will 
     reasonably promote maintenance or enhancement of the quality 
     of life of each resident.
       ``(B) Quality assessment and assurance.--A nursing facility 
     must maintain a quality assessment and assurance committee, 
     consisting of the director of nursing services, a physician 
     designated by the facility, and at least 3 other members of 
     the facility's staff, which (i) meets at least quarterly to 
     identify issues with respect to which quality assessment and 
     assurance activities are necessary and (ii) develops and 
     implements appropriate plans of action to correct identified 
     quality deficiencies. A State or the Secretary may not 
     require disclosure of the records of such committee except 
     insofar as such disclosure is related to the compliance of 
     such committee with the requirements of this subparagraph.
       ``(2) Scope of services and activities under plan of 
     care.--A nursing facility must provide services and 
     activities in accordance with a written plan of care which--
       ``(A) describes the medical, nursing, and psychosocial 
     needs of the resident and how such needs will be met;
       ``(B) is initially prepared, with the participation to the 
     extent practicable of the resident or the resident's family 
     or legal representative, by a team which includes the 
     resident's attending physician and a registered professional 
     nurse with responsibility for the resident; and
       ``(C) is periodically reviewed and revised by such team 
     after each assessment under paragraph (3).
       ``(3) Residents' assessment.--
       ``(A) Requirement.--A nursing facility must conduct a 
     comprehensive, accurate, standardized, reproducible 
     assessment of each resident's functional capacity, which 
     assessment--
       ``(i) describes the resident's capability to perform daily 
     life functions and significant impairments in functional 
     capacity;
       ``(ii) uses an instrument which is specified by the State 
     under subsection (e)(5); and
       ``(iii) includes the identification of medical problems.
       ``(B) Certification.--
       ``(i) In general.--Each such assessment must be conducted 
     or coordinated (with the appropriate participation of health 
     professionals) by a registered professional nurse who signs 
     and certifies the completion of the assessment. Each 
     individual who completes a portion of such an assessment 
     shall sign and certify as to the accuracy of that portion of 
     the assessment.
       ``(ii) Penalty for falsification.--

       ``(I) An individual who willfully and knowingly certifies 
     under clause (i) a material and false statement in a resident 
     assessment is subject to a civil money penalty of not more 
     than $1,000 with respect to each assessment.
       ``(II) An individual who willfully and knowingly causes 
     another individual to certify under clause (i) a material and 
     false statement in a resident assessment is subject to a 
     civil money penalty of not more than $5,000 with respect to 
     each assessment.
       ``(III) The provisions of section 1128A (other than 
     subsections (a) and (b)) shall apply to a civil money penalty 
     under this clause in the same manner as such provisions apply 
     to a penalty or proceeding under section 1128A(a).

       ``(iii) Use of independent assessors.--If a State 
     determines, under a survey under subsection (g) or otherwise, 
     that there has been a knowing and willful certification of 
     false assessments under this paragraph, the State may require 
     (for a period specified by the State) that resident 
     assessments under this paragraph be conducted and certified 
     by individuals who are independent of the facility and who 
     are approved by the State.
       ``(C) Frequency.--
       ``(i) In general.--Such an assessment must be conducted--

       ``(I) promptly upon (but no later than 14 days after the 
     date of) admission for each individual admitted;
       ``(II) promptly after a significant change in the 
     resident's physical or mental condition; and
       ``(III) in no case less often than once every 12 months.

       ``(ii) Resident review.--The nursing facility must examine 
     each resident no less frequently than once every 3 months 
     and, as appropriate, revise the resident's assessment to 
     assure the continuing accuracy of the assessment.
       ``(D) Use.--The results of such an assessment shall be used 
     in developing, reviewing, and revising the resident's plan of 
     care under paragraph (2).
       ``(E) Coordination.--Such assessments shall be coordinated 
     with any State-required preadmission screening program to the 
     maximum extent practicable in order to avoid duplicative 
     testing and effort. In addition, a nursing facility shall 
     notify the State mental health authority or State mental 
     retardation or developmental disability authority, as 
     applicable, promptly after a significant change in the 
     physical or mental condition of a resident who is mentally 
     ill or mentally retarded.
       ``(4) Provision of services and activities.--
       ``(A) In general.--To the extent needed to fulfill all 
     plans of care described in paragraph (2), a nursing facility 
     must provide (or arrange for the provision of)--
       ``(i) nursing and related services and specialized 
     rehabilitative services;
       ``(ii) medically-related social services to attain or 
     maintain the highest practicable physical, mental, and 
     psychosocial well-being of residents;
       ``(iii) pharmaceutical services (including procedures that 
     assure the accurate acquiring, receiving, dispensing, and 
     administering of all drugs and biologicals) to meet the needs 
     of residents;
       ``(iv) dietary services that assure that the meals meet the 
     daily nutritional and special dietary needs of residents;
       ``(v) an on-going program, directed by a qualified 
     professional, of activities designed to meet the interests 
     and the physical, mental, and psychosocial well-being of 
     residents; and
       ``(vi) routine dental services (to the extent covered under 
     the State MediGrant plan) and emergency dental services to 
     meet the needs of residents.

     The services provided or arranged by the facility must meet 
     professional standards of quality.
       ``(B) Qualified persons providing services.--Services 
     described in clauses (i), (ii), (iii), (iv), and (vi) of 
     subparagraph (A) must be provided by qualified persons in 
     accordance with each resident's written plan of care.
       ``(C) Required nursing care; facility waivers.--
       ``(i) General requirements.--A nursing facility--

       ``(I) except as provided in clause (ii), must provide 24-
     hour licensed nursing services which are sufficient to meet 
     the nursing needs of its residents, and
       ``(II) except as provided in clause (ii), must use the 
     services of a registered professional nurse for at least 8 
     consecutive hours a day, 7 days a week.

       ``(ii) Waiver by state.--To the extent that a facility is 
     unable to meet the requirements of clause (i), a State may 
     waive such requirements with respect to the facility if--

       ``(I) the facility demonstrates to the satisfaction of the 
     State that the facility has been unable, despite diligent 
     efforts (including offering wages at the community prevailing 
     rate for nursing facilities), to recruit appropriate 
     personnel,
       ``(II) the State determines that a waiver of the 
     requirement will not endanger the health or safety of 
     individuals staying in the facility,
       ``(III) the State finds that, for any such periods in which 
     licensed nursing services are not available, a registered 
     professional nurse or a physician is obligated to respond 
     immediately to telephone calls from the facility,
       ``(IV) the State agency granting a waiver of such 
     requirements provides notice of the waiver to the State long-
     term care ombudsman (established under section 307(a)(12) of 
     the Older Americans Act of 1965) and the protection and 
     advocacy system in the State for the mentally ill and the 
     mentally retarded, and
       ``(V) the nursing facility that is granted such a waiver by 
     a State notifies residents of the facility (or, where 
     appropriate, the guardians or legal representatives of such 
     residents) and members of their immediate families of the 
     waiver.

     A waiver under this clause shall be subject to annual review 
     and to the review of the Secretary and subject to clause 
     (iii) shall be accepted by the Secretary for purposes of this 
     title to the same extent as is the State's certification of 
     the facility. In granting or renewing a waiver, a State may 
     require the facility to use other qualified, licensed 
     personnel.
       ``(iii) Assumption of waiver authority by secretary.--If 
     the Secretary determines that a State has shown a clear 
     pattern and practice of allowing waivers in the absence of 
     diligent efforts by facilities to meet the staffing 
     requirements, the Secretary shall assume and exercise the 
     authority of the State to grant waivers.
       ``(5) Required training of nurse aides.--
       ``(A) In general.--(i) Except as provided in clause (ii), a 
     nursing facility must not use on a full-time basis any 
     individual as a nurse aide in the facility, for more than 4 
     months unless the individual--
       ``(I) has completed a training and competency evaluation 
     program, or a competency evaluation program, approved by the 
     State under subsection (e)(1)(A), and
       ``(II) is competent to provide nursing or nursing-related 
     services.
       ``(ii) A nursing facility must not use on a temporary, per 
     diem, leased, or on any other basis other than as a permanent 
     employee any individual as a nurse aide in the facility, 
     unless the individual meets the requirements described in 
     clause (i).
       ``(B) Offering competency evaluation programs for current 
     employees.--A nursing facility must provide, for individuals 
     used as a nurse aide by the facility, for a competency 
     evaluation program approved by the State under subsection 
     (e)(1) and such preparation as may be necessary for the 
     individual to complete such a program.
       ``(C) Competency.--The nursing facility must not permit an 
     individual, other than in a training and competency 
     evaluation program approved by the State, to serve as a nurse 
     aide or provide services of a type for which the individual 
     has not demonstrated competency and must not use such an 
     individual as a nurse aide unless the facility has inquired 
     of any State registry established under subsection (e)(2)(A) 
     that the facility believes will include information 
     concerning the individual.

[[Page H 12571]]

       ``(D) Re-training required.--For purposes of subparagraph 
     (A), if, since an individual's most recent completion of a 
     training and competency evaluation program, there has been a 
     continuous period of 24 consecutive months during none of 
     which the individual performed nursing or nursing-related 
     services for monetary compensation, such individual shall 
     complete a new training and competency evaluation program, or 
     a new competency evaluation program.
       ``(E) Regular in-service education.--The nursing facility 
     must provide such regular performance review and regular in-
     service education as assures that individuals used as nurse 
     aides are competent to perform services as nurse aides, 
     including training for individuals providing nursing and 
     nursing-related services to residents with cognitive 
     impairments.
       ``(F) Nurse aide defined.--In this paragraph, the term 
     `nurse aide' means any individual providing nursing or 
     nursing-related services to residents in a nursing facility, 
     but does not include an individual--
       ``(i) who is a licensed health professional (as defined in 
     subparagraph (G)) or a registered dietician,
       ``(ii) who volunteers to provide such services without 
     monetary compensation, or
       ``(iii) who is trained, whether compensated or not, to 
     perform a task-specific function which assists residents in 
     their daily activities.
       ``(G) Licensed health professional defined.--In this 
     paragraph, the term `licensed health professional' means a 
     physician, physician assistant, nurse practitioner, physical, 
     speech, or occupational therapist, physical or occupational 
     therapy assistant, registered professional nurse, licensed 
     practical nurse, or licensed or certified social worker.
       ``(6) Physician supervision and clinical records.--A 
     nursing facility must--
       ``(A) require that the health care of every resident be 
     provided under the supervision of a physician (or, at the 
     option of a State, under the supervision of a nurse 
     practitioner, clinical nurse specialist, or physician 
     assistant who is not an employee of the facility but who is 
     working in collaboration with a physician);
       ``(B) provide for having a physician available to furnish 
     necessary medical care in case of emergency; and
       ``(C) maintain clinical records on all residents, which 
     records include the plans of care (described in paragraph 
     (2)) and the residents' assessments (described in paragraph 
     (3)).
       ``(c) Requirements Relating to Residents' Rights.--
       ``(1) General rights.--
       ``(A) Specified rights.--A nursing facility must protect 
     and promote the rights of each resident, including each of 
     the following rights:
       ``(i) Free choice.--The right to choose a personal 
     attending physician, to be fully informed in advance about 
     care and treatment, to be fully informed in advance of any 
     changes in care or treatment that may affect the resident's 
     well-being, and (except with respect to a resident adjudged 
     incompetent) to participate in planning care and treatment or 
     changes in care and treatment.
       ``(ii) Free from restraints.--The right to be free from 
     physical or mental abuse, corporal punishment, involuntary 
     seclusion, and any physical or chemical restraints imposed 
     for purposes of discipline or convenience and not required to 
     treat the resident's medical symptoms. Restraints may only be 
     imposed--

       ``(I) to ensure the physical safety of the resident or 
     other residents, and
       ``(II) only upon the written order of a physician that 
     specifies the duration and circumstances under which the 
     restraints are to be used (except in emergency circumstances 
     specified by the Secretary until such an order could 
     reasonably be obtained).

       ``(iii) Privacy.--The right to privacy with regard to 
     accommodations, medical treatment, written and telephonic 
     communications, visits, and meetings of family and of 
     resident groups.
       ``(iv) Confidentiality.--The right to confidentiality of 
     personal and clinical records and to access to current 
     clinical records of the resident upon request by the resident 
     or the resident's legal representative, within 24 hours 
     (excluding hours occurring during a weekend or holiday) after 
     making such a request.
       ``(v) Accommodation of needs.--The right--

       ``(I) to reside and receive services with reasonable 
     accommodation of individual needs and preferences, except 
     where the health or safety of the individual or other 
     residents would be endangered, and
       ``(II) to receive notice before the room or roommate of the 
     resident in the facility is changed unless a delay in 
     changing the room or roommate while notice is given would 
     endanger the resident or others.

       ``(vi) Grievances.--The right to voice grievances with 
     respect to treatment or care that is (or fails to be) 
     furnished, without discrimination or reprisal for voicing the 
     grievances and the right to prompt efforts by the facility to 
     resolve grievances the resident may have, including those 
     with respect to the behavior of other residents.
       ``(vii) Participation in resident and family groups.--The 
     right of the resident to organize and participate in resident 
     groups in the facility and the right of the resident's family 
     to meet in the facility with the families of other residents 
     in the facility.
       ``(viii) Participation in other activities.--The right of 
     the resident to participate in social, religious, and 
     community activities that do not interfere with the rights of 
     other residents in the facility.
       ``(ix) Examination of survey results.--The right to 
     examine, upon reasonable request, the results of the most 
     recent survey of the facility conducted by the Secretary or a 
     State with respect to the facility and any plan of correction 
     in effect with respect to the facility.
       ``(x) Other rights.--Any other right established by the 
     Secretary.

     Clause (iii) shall not be construed as requiring the 
     provision of a private room.
       ``(B) Notice of rights.--A nursing facility must--
       ``(i) inform each resident, orally and in writing at the 
     time of admission to the facility, of the resident's legal 
     rights during the stay at the facility and of the 
     requirements and procedures for establishing eligibility for 
     medical assistance under this title, including the right to 
     request an assessment under section 2115(c)(1)(B);
       ``(ii) make available to each resident, upon reasonable 
     request, a written statement of such rights (which statement 
     is updated upon changes in such rights) including the notice 
     (if any) of the State developed under subsection (e)(6);
       ``(iii) inform each resident who is entitled to medical 
     assistance under this title--

       ``(I) at the time of admission to the facility or, if 
     later, at the time the resident becomes eligible for such 
     assistance, of the items and services that are included in 
     nursing facility services under the State MediGrant plan and 
     for which the resident may not be charged, and of those other 
     items and services that the facility offers and for which the 
     resident may be charged and the amount of the charges for 
     such items and services, and
       ``(II) of changes in the items and services described in 
     subclause (I) and of changes in the charges imposed for items 
     and services described in that subclause; and

       ``(iv) inform each other resident, in writing before or at 
     the time of admission and periodically during the resident's 
     stay, of services available in the facility and of related 
     charges for such services, including any charges for services 
     not covered under title XVIII or by the facility's basic per 
     diem charge.

     The written description of legal rights under this 
     subparagraph shall include a description of the protection of 
     personal funds under paragraph (6) and a statement that a 
     resident may file a complaint with a State survey and 
     certification agency respecting resident abuse and neglect 
     and misappropriation of resident property in the facility.
       ``(C) Rights of incompetent residents.--In the case of a 
     resident adjudged incompetent under the laws of a State, the 
     rights of the resident under this title shall devolve upon, 
     and, to the extent judged necessary by a court of competent 
     jurisdiction, be exercised by, the person appointed under 
     State law to act on the resident's behalf.
       ``(D) Use of psychopharmacologic drugs.--
     Psychopharmacologic drugs may be administered only on the 
     orders of a physician and only as part of a plan (included in 
     the written plan of care described in paragraph (2)) designed 
     to eliminate or modify the symptoms for which the drugs are 
     prescribed and only if, at least annually an independent, 
     external consultant reviews the appropriateness of the drug 
     plan of each resident receiving such drugs.
       ``(2) Transfer and discharge rights.--
       ``(A) In general.--A nursing facility must permit each 
     resident to remain in the facility and must not transfer or 
     discharge the resident from the facility unless--
       ``(i) the transfer or discharge is necessary to meet the 
     resident's welfare and the resident's welfare cannot be met 
     in the facility;
       ``(ii) the transfer or discharge is appropriate because the 
     resident's health has improved sufficiently so the resident 
     no longer needs the services provided by the facility;
       ``(iii) the safety of individuals in the facility is 
     endangered;
       ``(iv) the health of individuals in the facility would 
     otherwise be endangered;
       ``(v) the resident has failed, after reasonable and 
     appropriate notice, to pay (or to have paid under this title 
     or title XVIII on the resident's behalf) for a stay at the 
     facility; or
       ``(vi) the facility ceases to operate.

     In each of the cases described in clauses (i) through (iv), 
     the basis for the transfer or discharge must be documented in 
     the resident's clinical record. In the cases described in 
     clauses (i) and (ii), the documentation must be made by the 
     resident's physician, and in the case described in clause 
     (iv) the documentation must be made by a physician. For 
     purposes of clause (v), in the case of a resident who becomes 
     eligible for assistance under this title after admission to 
     the facility, only charges which may be imposed under this 
     title shall be considered to be allowable.
       ``(B) Pre-transfer and pre-discharge notice.--
       ``(i) In general.--Before effecting a transfer or discharge 
     of a resident, a nursing facility must--

       ``(I) notify the resident (and, if known, an immediate 
     family member of the resident or legal representative) of the 
     transfer or discharge and the reasons therefor,
       ``(II) record the reasons in the resident's clinical record 
     (including any documentation required under subparagraph 
     (A)), and
       ``(III) include in the notice the items described in clause 
     (iii).

       ``(ii) Timing of notice.--The notice under clause (i)(I) 
     must be made at least 30 days in advance of the resident's 
     transfer or discharge except--

       ``(I) in a case described in clause (iii) or (iv) of 
     subparagraph (A);
       ``(II) in a case described in clause (ii) of subparagraph 
     (A), where the resident's health improves sufficiently to 
     allow a more immediate transfer or discharge;
       ``(III) in a case described in clause (i) of subparagraph 
     (A), where a more immediate transfer or discharge is 
     necessitated by the resident's urgent medical needs;
       ``(IV) in a case where a resident has not resided in the 
     facility for 30 days; or

[[Page H 12572]]

       ``(V) in a case where the provision of a 30-day notice 
     would be impossible or impracticable.

     In the case of such exceptions, notice must be given as many 
     days before the date of the transfer or discharge as is 
     practicable.
       ``(iii) Items included in notice.--Each notice under clause 
     (i) must include--

       ``(I) notice of the resident's right to appeal the transfer 
     or discharge under the State process established under 
     subsection (e)(3);
       ``(II) the name, mailing address, and telephone number of 
     the State long-term care ombudsman (established under title 
     III or VII of the Older Americans Act of 1965);
       ``(III) in the case of residents with developmental 
     disabilities, the mailing address and telephone number of the 
     agency responsible for the protection and advocacy system for 
     developmentally disabled individuals established under part C 
     of the Developmental Disabilities Assistance and Bill of 
     Rights Act; and
       ``(IV) in the case of mentally ill residents (as defined in 
     subsection (e)(7)(G)(i)), the mailing address and telephone 
     number of the agency responsible for the protection and 
     advocacy system for mentally ill individuals established 
     under the Protection and Advocacy for Mentally Ill 
     Individuals Act.

       ``(iv) Exception.--This subparagraph shall not apply to a 
     voluntary transfer or discharge or a transfer or discharge 
     necessitated by a medical emergency.
       ``(C) Orientation.--A nursing facility must provide 
     reasonable preparation and orientation to residents to 
     promote safe and orderly transfer or discharge from the 
     facility.
       ``(D) Notice on bed-hold policy and readmission.--
       ``(i) Notice before transfer.--Before a resident of a 
     nursing facility is transferred for hospitalization or 
     therapeutic leave, a nursing facility must provide written 
     information to the resident and an immediate family member or 
     legal representative concerning--

       ``(I) the provisions of the State MediGrant plan under this 
     title regarding the period (if any) during which the resident 
     will be permitted under the State MediGrant plan to return 
     and resume residence in the facility, and
       ``(II) the policies of the facility regarding such a 
     period, which policies must be consistent with clause (iii).

       ``(ii) Notice upon transfer.--At the time of transfer of a 
     resident to a hospital or for therapeutic leave, a nursing 
     facility must provide written notice to the resident and an 
     immediate family member or legal representative of the 
     duration of any period described in clause (i).
       ``(iii) Permitting resident to return.--A nursing facility 
     must establish and follow a written policy under which a 
     resident--

       ``(I) who is eligible for medical assistance for nursing 
     facility services under a State MediGrant plan,
       ``(II) who is transferred from the facility for 
     hospitalization or therapeutic leave, and
       ``(III) whose hospitalization or therapeutic leave exceeds 
     a period paid for under the State MediGrant plan for the 
     holding of a bed in the facility for the resident,

     will be permitted to be readmitted to the facility 
     immediately upon the first availability of a bed in a room 
     (not including a private room) in the facility if, at the 
     time of readmission, the resident requires the services 
     provided by the facility.
       ``(3) Access and visitation rights.--A nursing facility 
     must--
       ``(A) permit immediate access to any resident by any 
     representative of the Secretary, by any representative of the 
     State, by an ombudsman or agency described in subclause (II), 
     (III), or (IV) of paragraph (2)(B)(iii), or by the resident's 
     individual physician;
       ``(B) permit immediate access to a resident, subject to the 
     resident's right to deny or withdraw consent at any time, by 
     immediate family or other relatives of the resident;
       ``(C) permit immediate access to a resident, subject to 
     reasonable restrictions and the resident's right to deny or 
     withdraw consent at any time, by others who are visiting with 
     the consent of the resident, unless such access would 
     endanger the health or safety of the resident or others in 
     the facility;
       ``(D) permit reasonable access to a resident by any entity 
     or individual that provides health, social, legal, or other 
     services to the resident, subject to the resident's right to 
     deny or withdraw consent at any time; and
       ``(E) permit representatives of the State ombudsman 
     (described in paragraph (2)(B)(iii)(II)), with the permission 
     of the resident (or the resident's legal representative) and 
     consistent with State law, to examine a resident's clinical 
     records.
       ``(4) Equal access to quality care.--
       ``(A) In general.--A nursing facility must establish and 
     maintain identical policies and practices regarding transfer, 
     discharge, and the provision of services required under the 
     State MediGrant plan for all individuals regardless of source 
     of payment.
       ``(B) Construction.--
       ``(i) Nothing prohibiting any charges for non-medigrant 
     patients.--Subparagraph (A) shall not be construed as 
     prohibiting a nursing facility from charging any amount for 
     services furnished, consistent with the notice in paragraph 
     (1)(B) describing such charges.
       ``(ii) No additional services required.--Subparagraph (A) 
     shall not be construed as requiring a State to offer 
     additional services on behalf of a resident than are 
     otherwise provided under the State MediGrant plan.
       ``(5) Protection of resident funds.--
       ``(A) In general.--The nursing facility--
       ``(i) may not require residents to deposit their personal 
     funds with the facility, and
       ``(ii) upon the written authorization of the resident, must 
     hold, safeguard, and account for such personal funds under a 
     system established and maintained by the facility in 
     accordance with this paragraph.
       ``(B) Management of personal funds.--Upon written 
     authorization of a resident under subparagraph (A)(ii), the 
     facility must manage and account for the personal funds of 
     the resident deposited with the facility as follows:
       ``(i) Deposit.--The facility must deposit any amount of 
     personal funds in excess of $250 with respect to a resident 
     in an interest bearing account (or accounts) that is separate 
     from any of the facility's operating accounts and credits all 
     interest earned on such separate account to such account. 
     With respect to any other personal funds, the facility must 
     maintain such funds in a non-interest bearing account or 
     petty cash fund.
       ``(ii) Accounting and records.--The facility must assure a 
     full and complete accounting of each such resident's personal 
     funds, maintain a written record of all financial 
     transactions involving the personal funds of a resident 
     deposited with the facility, and afford the resident (or a 
     legal representative of the resident) reasonable access to 
     such record.
       ``(iii) Conveyance upon death.--Upon the death of a 
     resident with such an account, the facility must convey 
     promptly the resident's personal funds (and a final 
     accounting of such funds) to the individual administering the 
     resident's estate. All other personal property, including 
     medical records, shall be considered part of the resident's 
     estate and shall only be released to the administrator of the 
     estate.
       ``(C) Assurance of financial security.--The facility must 
     purchase a surety bond, or otherwise provide assurance 
     satisfactory to the State, to assure the security of all 
     personal funds of residents deposited with the facility.
       ``(D) Limitation on charges to personal funds.--The 
     facility may not impose a charge against the personal funds 
     of a resident for any item or service for which payment is 
     made under this title or title XVIII.
       ``(6) Limitation on charges in case of medigrant-eligible 
     individuals.--A nursing facility may not impose charges, for 
     certain MediGrant-eligible individuals for nursing facility 
     services covered by the State under its plan under this 
     title, that exceed the payment amounts established by the 
     State for such services under this title.
       ``(7) Posting of survey results.--A nursing facility must 
     post in a place readily accessible to residents, and family 
     members and legal representatives of residents, the results 
     of the most recent survey of the facility conducted under 
     subsection (g).
       ``(d) Requirements Relating to Administration and Other 
     Matters.--
       ``(1) Administration.--
       ``(A) In general.--A nursing facility must be administered 
     in a manner that enables it to use its resources effectively 
     and efficiently to attain or maintain the highest practicable 
     physical, mental, and psychosocial well-being of each 
     resident (consistent with requirements established under 
     subsection (f)(5)).
       ``(B) Required notices.--If a change occurs in--
       ``(i) the persons with an ownership or control interest (as 
     defined in section 1124(a)(3)) in the facility,
       ``(ii) the persons who are officers, directors, agents, or 
     managing employees (as defined in section 1126(b)) of the 
     facility,
       ``(iii) the corporation, association, or other company 
     responsible for the management of the facility, or
       ``(iv) the individual who is the administrator or director 
     of nursing of the facility,

     the nursing facility must provide notice to the State agency 
     responsible for the licensing of the facility, at the time of 
     the change, of the change and of the identity of each new 
     person, company, or individual described in the respective 
     clause.
       ``(C) Nursing facility administrator.--The administrator of 
     a nursing facility, whether freestanding or hospital-based, 
     must meet such standards as are established by the Secretary.
       ``(2) Licensing and life safety code.--
       ``(A) Licensing.--A nursing facility must be licensed under 
     applicable State and local law.
       ``(B) Life safety code.--A nursing facility must meet such 
     provisions of such edition (as specified by the Secretary in 
     regulation) of the Life Safety Code of the National Fire 
     Protection Association as are applicable to nursing homes; 
     except that--
       ``(i) the Secretary may waive, for such periods as he deems 
     appropriate, specific provisions of such Code which if 
     rigidly applied would result in unreasonable hardship upon a 
     facility, but only if such waiver would not adversely affect 
     the health and safety of residents or personnel, and
       ``(ii) the provisions of such Code shall not apply in any 
     State if the Secretary finds that in such State there is in 
     effect a fire and safety code, imposed by State law, which 
     adequately protects residents of and personnel in nursing 
     facilities.
       ``(3) Sanitary and infection control and physical 
     environment.--A nursing facility must--
       ``(A) establish and maintain an infection control program 
     designed to provide a safe, sanitary, and comfortable 
     environment in which residents reside and to help prevent the 
     development and transmission of disease and infection, and
       ``(B) be designed, constructed, equipped, and maintained in 
     a manner to protect the health and safety of residents, 
     personnel, and the general public.
       ``(4) Miscellaneous.--
       ``(A) Compliance with federal, state, and local laws and 
     professional standards.--A nursing facility, whether 
     freestanding or hospital-based, must operate and provide 
     services in 

[[Page H 12573]]
     compliance with all applicable Federal, State, and local laws and 
     regulations (including the requirements of section 1124) and 
     with accepted professional standards and principles which 
     apply to professionals providing services in such a facility.
       ``(B) Other.--A nursing facility must meet such other 
     requirements relating to the health and safety of residents 
     or relating to the physical facilities thereof as the 
     Secretary may find necessary.
       ``(e) State Requirements Relating to Nursing Facility 
     Requirements.--A State with a MediGrant plan shall provide 
     for the following:
       ``(1) Specification and review of nurse aide training and 
     competency evaluation programs and of nurse aide competency 
     evaluation programs.--The State must--
       ``(A) specify those training and competency evaluation 
     programs, and those competency evaluation programs, that the 
     State approves for purposes of subsection (b)(5) and that 
     meet the requirements established under subsection (f)(2), 
     and
       ``(B) provide for the review and reapproval of such 
     programs, at a frequency and using a methodology consistent 
     with the requirements established under subsection 
     (f)(2)(A)(iii).
       ``(2) Nurse aide registry.--
       ``(A) In general.--The State shall establish and maintain a 
     registry of all individuals who have satisfactorily completed 
     a nurse aide training and competency evaluation program, or a 
     nurse aide competency evaluation program, approved under 
     paragraph (1) in the State, or any individual described in 
     subsection (f)(2)(B)(ii) or in subparagraph (B), (C), or (D) 
     of section 6901(b)(4) of the Omnibus Budget Reconciliation 
     Act of 1989.
       ``(B) Information in registry.--The registry under 
     subparagraph (A) shall provide for the inclusion of specific 
     documented findings by a State under subsection (g)(1)(C) of 
     resident neglect or abuse or misappropriation of resident 
     property involving an individual listed in the registry, as 
     well as any brief statement of the individual disputing the 
     findings. The State shall make available to the public 
     information in the registry. In the case of inquiries to the 
     registry concerning an individual listed in the registry, any 
     information disclosed concerning such a finding shall also 
     include disclosure of any such statement in the registry 
     relating to the finding or a clear and accurate summary of 
     such a statement.
       ``(C) Prohibition against charges.--A State may not impose 
     any charges on a nurse aide relating to the registry 
     established and maintained under subparagraph (A).
       ``(3) State appeals process for transfers and discharges.--
     The State must provide for a fair mechanism, meeting the 
     guidelines established under subsection (f)(3), for hearing 
     appeals on transfers and discharges of residents of such 
     facilities.
       ``(4) Nursing facility administrator standards.--The State 
     must implement and enforce the nursing facility administrator 
     standards developed under subsection (f)(4) respecting the 
     qualification of administrators of nursing facilities. Any 
     such standards promulgated shall apply to administrators of 
     hospital-based facilities as well as administrators of 
     freestanding facilities.
       ``(5) Specification of resident assessment instrument.--The 
     State shall specify the instrument to be used by nursing 
     facilities in the State in complying with the requirement of 
     subsection (b)(3)(A)(iii).
       ``(6) Notice of medigrant rights.--Each State shall develop 
     (and periodically update) a written notice of the rights and 
     obligations of residents of nursing facilities (and spouses 
     of such residents) under this title.
       ``(7) State requirements for preadmission screening and 
     resident review.--
       ``(A) Preadmission screening.--
       ``(i) In general.--The State must have in effect a 
     preadmission screening program, for identifying mentally ill 
     and mentally retarded individuals (as defined in subparagraph 
     (B)) who are admitted to nursing facilities.
       ``(ii) State requirement for resident review.--The State 
     shall notify the State mental health authority or the State 
     mental retardation or developmental disability authority, as 
     appropriate, of the individuals so identified.
       ``(B) Definitions.--In this paragraph:
       ``(i) An individual is considered to be `mentally ill' if 
     the individual has a serious mental illness (as defined by 
     the Secretary in consultation with the National Institute of 
     Mental Health) and does not have a primary diagnosis of 
     dementia (including Alzheimer's disease or a related 
     disorder) or a diagnosis (other than a primary diagnosis) of 
     dementia and a primary diagnosis that is not a serious mental 
     illness.
       ``(ii) An individual is considered to be `mentally 
     retarded' if the individual is mentally retarded or a person 
     with a related condition.
       ``(f) Responsibilities Relating to Nursing Facility 
     Requirements.--
       ``(1) General responsibility.--It is the duty and 
     responsibility of a State with a MediGrant plan under this 
     title to assure that requirements which govern the provision 
     of care in nursing facilities under the plan, and the 
     enforcement of such requirements, are adequate to protect the 
     health, safety, welfare, and rights of residents and to 
     promote the effective and efficient use of public moneys.
       ``(2) Requirements for nurse aide training and competency 
     evaluation programs and for nurse aide competency evaluation 
     programs.--For purposes of subsections (b)(5) and (e)(1)(A), 
     the State shall establish--
       ``(A) requirements for the approval of nurse aide training 
     and competency evaluation programs, including requirements 
     relating to (i) the areas to be covered in such a program 
     (including at least basic nursing skills, personal care 
     skills, recognition of mental health and social service 
     needs, care of cognitively impaired residents, basic 
     restorative services, and residents' rights) and content of 
     the curriculum, (ii) minimum hours of initial and ongoing 
     training and retraining, (iii) qualifications of instructors, 
     and (iv) procedures for determination of competency;
       ``(B) requirements for the approval of nurse aide 
     competency evaluation programs, including requirement 
     relating to the areas to be covered in such a program, 
     including at least basic nursing skills, personal care 
     skills, recognition of mental health and social service 
     needs, care of cognitively impaired residents, basic 
     restorative services, and residents' rights, and procedures 
     for determination of competency;
       ``(C) requirements respecting the minimum frequency and 
     methodology to be used by a State in reviewing such programs' 
     compliance with the requirements for such programs; and
       ``(D) requirements, under both such programs, that--
       ``(i) provide procedures for determining competency that 
     permit a nurse aide, at the nurse aide's option, to establish 
     competency through procedures or methods other than the 
     passing of a written examination and to have the competency 
     evaluation conducted at the nursing facility at which the 
     aide is (or will be) employed, and
       ``(ii) prohibit the imposition on a nurse aide who is 
     employed by (or who has received an offer of employment from) 
     a facility on the date on which the aide begins either such 
     program of any charges (including any charges for textbooks 
     and other required course materials and any charges for the 
     competency evaluation) for either such program.
       ``(3) Qualification of administrators.--For purposes of 
     subsections (d)(1)(C) and (e)(4), the State shall develop 
     standards to be applied in assuring the qualifications of 
     administrators of nursing facilities. Any such standards must 
     apply to administrators of hospital-based facilities as well 
     as administrators of freestanding facilities.
       ``(g) Survey and Certification Process.--
       ``(1) State and federal responsibility.--
       ``(A) In general.--Under each State MediGrant plan under 
     this title, the State shall be responsible for certifying, in 
     accordance with surveys conducted under paragraph (2), the 
     compliance of nursing facilities with the requirements of 
     subsections (b), (c), and (d). The Secretary shall be 
     responsible for certifying, in accordance with surveys 
     conducted under paragraph (2), the compliance of State 
     nursing facilities with the requirements of such subsections.
       ``(B) Investigation of allegations of resident neglect and 
     abuse and misappropriation of resident property.--The State 
     shall provide, through the agency responsible for surveys and 
     certification of nursing facilities under this subsection, 
     for a process for the receipt and timely review and 
     investigation of allegations of neglect and abuse and 
     misappropriation of resident property by a nurse aide of a 
     resident in a nursing facility or by another individual used 
     by the facility in providing services to such a resident. The 
     State shall, after notice to the individual involved and a 
     reasonable opportunity for a hearing for the individual to 
     rebut allegations, make a finding as to the accuracy of the 
     allegations. If the State finds that a nurse aide has 
     neglected or abused a resident or misappropriated resident 
     property in a facility, the State shall notify the nurse aide 
     and the registry of such finding. If the State finds that any 
     other individual used by the facility has neglected or abused 
     a resident or misappropriated resident property in a 
     facility, the State shall notify the appropriate licensure 
     authority. A State shall not make a finding that an 
     individual has neglected a resident if the individual 
     demonstrates that such neglect was caused by factors beyond 
     the control of the individual.
       ``(2) Surveys.--
       ``(A) Annual standard survey.--
       ``(i) In general.--Each nursing facility shall be subject 
     to a standard survey, to be conducted without any prior 
     notice to the facility. Any individual who notifies (or 
     causes to be notified) a nursing facility of the time or date 
     on which such a survey is scheduled to be conducted is 
     subject to a civil money penalty of not to exceed $2,000. The 
     provisions of section 1128A (other than subsections (a) and 
     (b)) shall apply to a civil money penalty under the previous 
     sentence in the same manner as such provisions apply to a 
     penalty or proceeding under section 1128A(a). The State shall 
     take all reasonable steps to avoid giving notice of such a 
     survey through the scheduling procedures and the conduct of 
     the surveys themselves.
       ``(ii) Contents.--Each standard survey shall include, for a 
     case-mix stratified sample of residents--

       ``(I) a survey of the quality of care furnished, as 
     measured by indicators of medical, nursing, and 
     rehabilitative care, dietary and nutrition services, 
     activities and social participation, and sanitation, 
     infection control, and the physical environment,
       ``(II) written plans of care provided under subsection 
     (b)(2) and an audit of the residents' assessments under 
     subsection (b)(3) to determine the accuracy of such 
     assessments and the adequacy of such plans of care, and
       ``(III) a review of compliance with residents' rights under 
     subsection (c).

       ``(iii) Frequency.--

       ``(I) In general.--Each nursing facility shall be subject 
     to a standard survey not later than 24 months after the date 
     of the previous standard survey conducted under this 
     subparagraph, except that in the case of a facility which has 
     been subjected to an extended survey under subparagraph (B), 
     a standard survey shall be conducted not later than 12 months 
     after the date of the preceding extended survey.
       ``(II) Special surveys.--If not otherwise conducted under 
     subclause (I), a standard survey 

[[Page H 12574]]
     (or an abbreviated standard survey) may be conducted within 4 months of 
     any change of ownership, administration, management of a 
     nursing facility, or director of nursing in order to 
     determine whether the change has resulted in any decline in 
     the quality of care furnished in the facility.

       ``(B) Extended surveys.--
       ``(i) In general.--Each nursing facility which is found, 
     under a standard survey, to have provided substandard quality 
     of care shall be subject to an extended survey. Any other 
     facility may, at the State's discretion, be subject to such 
     an extended survey (or a partial extended survey).
       ``(ii) Timing.--The extended survey shall be conducted 
     immediately after the standard survey (or, if not 
     practicable, not later than 2 weeks after the date of 
     completion of the standard survey).
       ``(iii) Contents.--In such an extended survey, the survey 
     team shall review and identify the policies and procedures 
     which produced such substandard quality of care and shall 
     determine whether the facility has complied with all the 
     requirements described in subsections (b), (c), and (d). Such 
     review shall include an expansion of the size of the sample 
     of residents' assessments reviewed and a review of the 
     staffing, of in-service training, and, if appropriate, of 
     contracts with consultants.
       ``(iv) Construction.--Nothing in this paragraph shall be 
     construed as requiring an extended or partial extended survey 
     as a prerequisite to imposing a sanction against a facility 
     under subsection (h) on the basis of findings in a standard 
     survey.
       ``(C) Survey protocol.--Standard and extended surveys shall 
     be conducted--
       ``(i) based upon the protocol which the Secretary has 
     developed, tested, and validated, as of the date of the 
     enactment of this title, and
       ``(ii) by individuals, of a survey team, who meet such 
     minimum qualifications as the State establishes.
       ``(D) Consistency of surveys.--Each State shall implement 
     programs to measure and reduce inconsistency in the 
     application of survey results among surveyors.
       ``(E) Survey teams.--
       ``(i) In general.--Surveys under this subsection shall be 
     conducted by a multidisciplinary team of professionals 
     (including a registered professional nurse).
       ``(ii) Prohibition of conflicts of interest.--A State may 
     not use as a member of a survey team under this subsection an 
     individual who is serving (or has served within the previous 
     2 years) as a member of the staff of, or as a consultant to, 
     the facility surveyed respecting compliance with the 
     requirements of subsections (b), (c), and (d), or who has a 
     personal or familial financial interest in the facility being 
     surveyed.
       ``(3) Validation surveys.--
       ``(A) In general.--The Secretary shall conduct onsite 
     surveys of a representative sample of nursing facilities in 
     each State, within 4 months of the date of surveys conducted 
     under paragraph (2) by the State, in a sufficient number to 
     allow inferences about the adequacies of each State's surveys 
     conducted under paragraph (2). In conducting such surveys, 
     the Secretary shall use the same survey protocols as the 
     State is required to use under paragraph (2). If the State 
     has determined that an individual nursing facility meets the 
     requirements of subsections (b), (c), and (d), but the 
     Secretary determines that the facility does not meet such 
     requirements, the Secretary's determination as to the 
     facility's noncompliance with such requirements is binding 
     and supersedes that of the State survey.
       ``(B) Scope.--With respect to each State, the Secretary 
     shall conduct surveys under subparagraph (A) at least every 
     third year with respect to at least 5 percent of the number 
     of nursing facilities surveyed by the State in the year, but 
     in no case less than 5 nursing facilities in the State.
       ``(C) Special surveys of compliance.--Where the Secretary 
     has found substantial evidence of a pattern of noncompliance 
     by a nursing facility with any of the requirements of 
     subsections (b), (c), and (d), the Secretary may conduct a 
     survey of the facility and, on the basis of that survey, make 
     determinations concerning the extent to which the nursing 
     facility meets such requirements.
       ``(4) Investigation of complaints and monitoring nursing 
     facility compliance.--Each State shall maintain procedures 
     and adequate staff to--
       ``(A) investigate complaints of violations of requirements 
     by nursing facilities, and
       ``(B) monitor, on-site, on a regular, as needed basis, a 
     nursing facility's compliance with the requirements of 
     subsections (b), (c), and (d), if--
       ``(i) the facility has been found not to be in compliance 
     with such requirements and is in the process of correcting 
     deficiencies to achieve such compliance;
       ``(ii) the facility was previously found not to be in 
     compliance with such requirements, has corrected deficiencies 
     to achieve such compliance, and verification of continued 
     compliance is indicated; or
       ``(iii) the State has reason to question the compliance of 
     the facility with such requirements.
       ``(5) Disclosure of results of inspections and 
     activities.--
       ``(A) Public information.--Each State, and the Secretary, 
     shall make available to the public--
       ``(i) information respecting all surveys and certifications 
     made respecting nursing facilities, including statements of 
     deficiencies, within a reasonable time after such information 
     is made available to those facilities, and approved plans of 
     correction,
       ``(ii) copies of cost reports of such facilities filed 
     under this title or under title XVIII,
       ``(iii) copies of statements of ownership under section 
     1124, and
       ``(iv) information disclosed under section 1126.
       ``(B) Notice to ombudsman.--Each State shall notify the 
     State long-term care ombudsman (established under title III 
     or VII of the Older Americans Act of 1965 in accordance with 
     section 712 of the Act) of the State's findings of 
     noncompliance with any of the requirements of subsections 
     (b), (c), and (d), or of any adverse action taken against a 
     nursing facility under paragraphs (1), (2), or (3) of 
     subsection (h), with respect to a nursing facility in the 
     State.
       ``(C) Notice to physicians and nursing facility 
     administrator licensing board.--If a State finds that a 
     nursing facility has provided substandard quality of care, 
     the State shall notify--
       ``(i) the attending physician of each resident with respect 
     to which such finding is made, and
       ``(ii) any State board responsible for the licensing of the 
     nursing facility administrator of the facility.
       ``(D) Access to fraud control units.--Each State shall 
     provide its State MediGrant fraud and abuse control unit 
     (established under section 2134) with access to all 
     information of the State agency responsible for surveys and 
     certifications under this subsection.
       ``(h) Enforcement Process.--
       ``(1) In general.--If a State finds, on the basis of a 
     standard, extended, or partial extended survey under 
     subsection (g)(2) or otherwise, that a nursing facility no 
     longer meets a requirement of subsection (b), (c), or (d)--
       ``(A) the State shall require the facility to correct the 
     deficiency involved;
       ``(B) if the State finds that the facility's deficiencies 
     immediately jeopardize the health or safety of its residents, 
     the State shall take immediate action to remove the jeopardy 
     and correct the deficiencies through the remedy specified in 
     paragraph (2)(A)(iii), or terminate the facility's 
     participation under the State MediGrant plan and may provide, 
     in addition, for one or more of the other remedies described 
     in paragraph (2); and
       ``(C) if the State finds that the facility's deficiencies 
     do not immediately jeopardize the health or safety of its 
     residents, the State may--
       ``(i) terminate the facility's participation under the 
     State MediGrant plan,
       ``(ii) provide for one or more of the remedies described in 
     paragraph (2), or
       ``(iii) do both.
       ``(2) Specified remedies.--
       ``(A) Listing.--Except as provided in subparagraph (B), 
     each State shall establish by law (whether statute or 
     regulation) at least the following remedies:
       ``(i) Denial of payment under the State MediGrant plan with 
     respect to any individual admitted to the nursing facility 
     involved after such notice to the public and to the facility 
     as may be provided for by the State.
       ``(ii) A civil money penalty assessed and collected, with 
     interest, for each day in which the facility is or was out of 
     compliance with a requirement of subsection (b), (c), or (d).
       ``(iii) The appointment of temporary management to oversee 
     the operation of the facility and to assure the health and 
     safety of the facility's residents, where there is a need for 
     temporary management while--

       ``(I) there is an orderly closure of the facility, or
       ``(II) improvements are made in order to bring the facility 
     into compliance with all the requirements of subsections (b), 
     (c), and (d).

     The temporary management under this clause shall not be 
     terminated under subclause (II) until the State has 
     determined that the facility has the management capability to 
     ensure continued compliance with all the requirements of 
     subsections (b), (c), and (d).
       ``(iv) The authority, in the case of an emergency, to close 
     the facility, to transfer residents in that facility to other 
     facilities, or both.

     The State also shall specify criteria, as to when and how 
     each of such remedies is to be applied, the amounts of any 
     fines, and the severity of each of these remedies, to be used 
     in the imposition of such remedies.
       ``(B) Alternative remedies.--A State may establish 
     alternative remedies to the remedies described in 
     subparagraph (A), if the State demonstrates to the 
     Secretary's satisfaction that the alternative remedies are as 
     effective in deterring noncompliance and correcting 
     deficiencies as those described in such subparagraph.
       ``(C) Assuring prompt compliance.--If a nursing facility 
     has not complied with any of the requirements of subsections 
     (b), (c), and (d), within 3 months after the date the 
     facility is found to be out of compliance with such 
     requirements, the State may impose the remedy described in 
     subparagraph (A)(i) for all individuals who are admitted to 
     the facility after such date.
       ``(D) Repeated noncompliance.--In the case of a nursing 
     facility which, on 3 consecutive standard surveys conducted 
     under subsection (g)(2), has been found to have provided 
     substandard quality of care, the State shall (regardless of 
     what other remedies are provided)--
       ``(i) impose the remedy described in subparagraph (A)(i), 
     and
       ``(ii) monitor the facility under subsection (g)(4)(B),

     until the facility has demonstrated, to the satisfaction of 
     the State, that it is in compliance with the requirements of 
     subsections (b), (c), and (d), and that it will remain in 
     compliance with such requirements.
       ``(3) Secretarial authority.--
       ``(A) For state nursing facilities.--With respect to a 
     State nursing facility, the Secretary shall have the 
     authority and duties of a State under this subsection. 
     Nothing in this subparagraph shall be construed as 
     restricting the remedies available to the Secretary to remedy 
     a nursing facility's deficiencies. 

[[Page H 12575]]

       ``(B) Other nursing facilities.--With respect to any other 
     nursing facility in a State, if the Secretary finds that a 
     nursing facility no longer meets a requirement of subsection 
     (b), (c), or (d), the Secretary shall notify the State of 
     such deficiency. If, after a reasonable period of time after 
     such notification is given, the Secretary finds that the 
     State has failed to carry out the requirements of paragraph 
     (1)(A) or paragraph (1)(B) (if appropriate) with respect to 
     the deficiency involved, or that the deficiency remains 
     uncorrected--
       ``(i) the Secretary shall require the facility to correct 
     the deficiency involved;
       ``(ii) if the Secretary finds that the deficiency involved 
     immediately jeopardizes the health or safety of its 
     residents, the Secretary shall, in consultation with the 
     State, take action to remove the jeopardy and correct the 
     deficiencies through the remedy specified in subparagraph 
     (C)(iii), or terminate the facility's participation under the 
     State MediGrant plan and may provide, in addition, for one or 
     more of the other remedies described in subparagraph (C); and
       ``(iii) in the case of a deficiency that remains 
     uncorrected, if the Secretary finds that the deficiency 
     involved does not immediately jeopardize the health or safety 
     of its residents, the Secretary may impose any of the 
     remedies described in subparagraph (C).
       ``(C) Specified remedies.--The remedies specified in this 
     subparagraph are as follows:
       ``(i) Denial of payment.--Denial of any further payments to 
     the State in accordance with section 2154(f) for medical 
     assistance furnished by the facility to all individuals in 
     the facility or to individuals admitted to the facility after 
     the effective date of the finding.
       ``(ii) Authority with respect to civil money penalties.--
     Imposition of a civil money penalty against the facility in 
     an amount not to exceed $5,000 for each day of noncompliance. 
     The provisions of section 1128A (other than subsections (a) 
     and (b)) shall apply to a civil money penalty under the 
     previous sentence in the same manner as such provisions apply 
     to a penalty or proceeding under section 1128A(a).
       ``(iii) Appointment of temporary management.--Appointment 
     of temporary management (in consultation with the State) to 
     oversee the operation of the facility and to assure the 
     health and safety of the facility's residents, where there is 
     a need for temporary management while--

       ``(I) there is an orderly closure of the facility, or
       ``(II) improvements are made in order to bring the facility 
     into compliance with all the requirements of subsections (b), 
     (c), and (d).

     The temporary management under this clause shall not be 
     terminated under subclause (II) until the Secretary has 
     determined that the facility has the management capability to 
     ensure continued compliance with all the requirements of 
     subsections (b), (c), and (d).
     The Secretary shall specify criteria, as to when and how each 
     of such remedies is to be applied, the amounts of any fines, 
     and the severity of each of these remedies, to be used in the 
     imposition of such remedies.
       ``(4) Special rules regarding payments to facilities.--
       ``(A) Continuation of payments pending remediation.--The 
     State or the Secretary, as appropriate, may continue 
     payments, over a period of not longer than 6 months after the 
     effective date of the findings, under this title with respect 
     to a nursing facility not in compliance with a requirement of 
     subsection (b), (c), or (d).
       ``(B) Effective period of denial of payment.--A finding to 
     deny payment under this subsection shall terminate when the 
     State or Secretary (as the case may be) finds that the 
     facility is in substantial compliance with all the 
     requirements of subsections (b), (c), and (d).
       ``(5) Construction.--The remedies provided under this 
     subsection are in addition to those otherwise available under 
     Federal or State law and shall not be construed as limiting 
     such other remedies, including any remedy available to an 
     individual at common law. The provisions of this subsection 
     shall apply to a nursing facility (or portion thereof) 
     notwithstanding that the facility (or portion thereof) also 
     is a skilled nursing facility for purposes of title XVIII or 
     is accredited by an entity pursuant to subsection (i)(2).
       ``(6) Sharing of information.--Notwithstanding any other 
     provision of law, all information concerning nursing 
     facilities required by this section to be filed with the 
     Secretary or a State agency shall be made available by such 
     facilities to Federal or State employees for purposes 
     consistent with the effective administration of programs 
     established under this title and title XVIII, including 
     investigations by State MediGrant fraud control units.
       ``(i) Construction.--
       ``(1) Medicare requirements.--Where requirements or 
     obligations under this section are identical to those 
     provided under section 1819 of this Act, the fulfillment of 
     those requirements or obligations under section 1819 shall be 
     considered to be the fulfillment of the corresponding 
     requirements or obligations under this section.
       ``(2) Effect of accreditation.--
       ``(A) In general.--At the option of a State, or the 
     Secretary, as appropriate, if a nursing facility in the State 
     is accredited by a national accrediting entity meeting such 
     standards as the State or the Secretary may impose, such 
     facility shall be deemed to have met the requirements of this 
     section and the State shall be deemed to have met the survey 
     and certification requirements under subsection (g).
       ``(B) Requirement for accrediting entity.--A State or the 
     Secretary, as appropriate, may not find that an accrediting 
     entity meets standards under subparagraph (A) unless such 
     entity applies standards for accreditation for facilities 
     that meet or exceed the requirements of this section.

     ``SEC. 2138. OTHER PROVISIONS PROMOTING PROGRAM INTEGRITY.

       ``(a) Public Access to Survey Results.--Each MediGrant plan 
     shall provide that upon completion of a survey of any health 
     care facility or organization by a State agency to carry out 
     the plan, the agency shall make public in readily available 
     form and place the pertinent findings of the survey relating 
     to the compliance of the facility or organization with 
     requirements of law.
       ``(b) Record Keeping.--Each MediGrant plan shall provide 
     for agreements with persons or institutions providing 
     services under the plan under which the person or institution 
     agrees--
       ``(1) to keep such records, including ledgers, books, and 
     original evidence of costs, as are necessary to fully 
     disclose the extent of the services provided to individuals 
     receiving assistance under the plan, and
       ``(2) to furnish the State agency with such information 
     regarding any payments claimed by such person or institution 
     for providing services under the plan, as the State agency 
     may from time to time request.
       ``(c) Quality Assurance.--Each MediGrant plan shall provide 
     a program to assure the quality of services provided under 
     the plan, including such services provided to individuals 
     with chronic mental or physical illness.

        ``Part E--Establishment and Amendment of MediGrant Plans

     ``SEC. 2151. SUBMITTAL AND APPROVAL OF MEDIGRANT PLANS.

       ``(a) Submittal.--As a condition of receiving funding under 
     part C, each State shall submit to the Secretary a MediGrant 
     plan that meets the applicable requirements of this title.
       ``(b) Approval.--Except as the Secretary may provide under 
     section 2154, a MediGrant plan submitted under subsection 
     (a)--
       ``(1) shall be approved for purposes of this title, and
       ``(2) shall be effective beginning with a calendar quarter 
     that is specified in the plan, but in no case earlier than 
     the first calendar quarter that begins at least 60 days after 
     the date the plan is submitted.

     ``SEC. 2152. SUBMITTAL AND APPROVAL OF PLAN AMENDMENTS.

       ``(a) Submittal of Amendments.--A State may amend, in whole 
     or in part, its MediGrant plan at any time through 
     transmittal of a plan amendment under this section.
       ``(b) Approval.--Except as the Secretary may provide under 
     section 2154, an amendment to a MediGrant plan submitted 
     under subsection (a)--
       ``(1) shall be approved for purposes of this title, and
       ``(2) shall be effective as provided in subsection (c).
       ``(c) Effective Dates for Amendments.--
       ``(1) In general.--Subject to the succeeding provisions of 
     this subsection, an amendment to a MediGrant plan shall take 
     effect on one or more effective dates specified in the 
     amendment.
       ``(2) Amendments relating to eligibility or benefits.--
     Except as provided in paragraph (4)--
       ``(A) Notice requirement.--Any plan amendment that 
     eliminates or restricts eligibility or benefits under the 
     plan may not take effect unless the State certifies that it 
     has provided prior or contemporaneous public notice of the 
     change, in a form and manner provided under applicable State 
     law.
       ``(B) Timely transmittal.--Any plan amendment that 
     eliminates or restricts eligibility or benefits under the 
     plan shall not be effective for longer than a 60 day period 
     unless the amendment has been transmitted to the Secretary 
     before the end of such period.
       ``(3) Other amendments.--Subject to paragraph (4), any plan 
     amendment that is not described in paragraph (2) becomes 
     effective in a State fiscal year may not remain in effect 
     after the end of such fiscal year (or, if later, the end of 
     the 90-day period on which it becomes effective) unless the 
     amendment has been transmitted to the Secretary.
       ``(4) Exception.--The requirements of paragraphs (2) and 
     (3) shall not apply to a plan amendment that is submitted on 
     a timely basis pursuant to a court order or an order of the 
     Secretary.

     ``SEC. 2153. PROCESS FOR STATE WITHDRAWAL FROM PROGRAM.

       ``(a) In General.--A State may rescind its MediGrant plan 
     and discontinue participation in the program under this title 
     at any time after providing--
       ``(1) the public with 90 days prior notice in a publication 
     in one or more daily newspapers of general circulation in the 
     State or in any publication used by the State to publish 
     State statutes or rules, and
       ``(2) the Secretary with 90 days prior written notice.
       ``(b) Effective Date.--Such discontinuation shall not apply 
     to payments under part C for expenditures made for items and 
     services furnished under the MediGrant plan before the 
     effective date of the discontinuation.
       ``(c) Proration of Allotments.--In the case of any 
     withdrawal under this section other than at the end of a 
     Federal fiscal year, notwithstanding any provision of section 
     2121 to the contrary, the Secretary shall provide for such 
     appropriate proration of the application of allotments under 
     section 2121 as is appropriate.

     ``SEC. 2154. SANCTIONS FOR NONCOMPLIANCE.

       ``(a) Prompt Review of Plan Submittals.--The Secretary 
     shall promptly review MediGrant plans and plan amendments 
     submitted under this part to determine if they substantially 
     comply with the requirements of this title.
       ``(b) Determinations of Substantial Noncompliance.--
       ``(1) At time of plan or amendment submittal.--

[[Page H 12576]]

       ``(A) In general.--If the Secretary, during the 30-day 
     period beginning on the date of submittal of a MediGrant plan 
     or plan amendment--
       ``(i) determines that the plan or amendment substantially 
     violates (within the meaning of subsection (c)) a requirement 
     of this title, and
       ``(ii) provides written notice of such determination to the 
     State,
     the Secretary shall issue an order specifying that the plan 
     or amendment, insofar as it is in substantial violation of 
     such a requirement, shall not be effective, except as 
     provided in subsection (c), beginning at the end of a period 
     of not less than 30 days (or 120 days in the case of the 
     initial submission of the MediGrant plan) specified in the 
     order beginning on the date of the notice of the 
     determination.
       ``(B) Extension of time periods.--The time periods 
     specified in subparagraph (A) may be extended by written 
     agreement of the Secretary and the State involved.
       ``(2) Violations in administration of plan.--
       ``(A) In general.--If the Secretary determines, after 
     reasonable notice and opportunity for a hearing for the 
     State, that in the administration of a MediGrant plan there 
     is a substantial violation of a requirement of this title, 
     the Secretary shall provide the State with written notice of 
     the determination and with an order to remedy such violation. 
     Such an order shall become effective prospectively, as 
     specified in the order, after the date of receipt of such 
     written notice. Such an order may include the withholding of 
     funds, consistent with subsection (f), for parts of the 
     MediGrant plan affected by such violation, until the 
     Secretary is satisfied that the violation has been corrected.
       ``(B) Effectiveness.--If the Secretary issues an order 
     under paragraph (1), the order shall become effective, except 
     as provided in subsection (c), beginning at the end of a 
     period (of not less than 30 days) specified in the order 
     beginning on the date of the notice of the determination to 
     the State.
       ``(C) Timeliness of determinations relating to report-based 
     compliance.--The Secretary shall make determinations under 
     this paragraph respecting violations relating to information 
     contained in an annual report under section 2102, an 
     independent evaluation under section 2103, or an audit report 
     under section 2131 not later than 30 days after the date of 
     transmittal of the report or evaluation to the Secretary.
       ``(3) Consultation with state.--Before making a 
     determination adverse to a State under this section, the 
     Secretary shall (within any time periods provided under this 
     section)--
       ``(A) reasonably consult with the State involved,
       ``(B) offer the State a reasonable opportunity to clarify 
     the submission and submit further information to substantiate 
     compliance with the requirements of this title, and
       ``(C) reasonably consider any such clarifications and 
     information submitted.
       ``(4) Justification of any inconsistencies in 
     determinations.--If the Secretary makes a determination under 
     this section that is, in whole or in part, inconsistent with 
     any previous determination issued by the Secretary under this 
     title, the Secretary shall include in the determination a 
     detailed explanation and justification for any such 
     difference.
       ``(5) Substantial violation defined.--For purposes of this 
     title, a MediGrant plan (or amendment to such a plan) or the 
     administration of the MediGrant plan is considered to 
     `substantially violate' a requirement of this title if a 
     provision of the plan or amendment (or an omission from the 
     plan or amendment) or the administration of the plan--
       ``(A) is material and substantial in nature and effect, and
       ``(B) is inconsistent with an express requirement of this 
     title.
     A failure to meet a strategic objective or performance goal 
     (as described in section 2101) shall not be considered to 
     substantially violate a requirement of this title.
       ``(c) State Response to Orders.--
       ``(1) State response by revising plan.--
       ``(A) In general.--Insofar as an order under subsection 
     (b)(1) relates to a substantial violation by a MediGrant plan 
     or plan amendment, a State may respond (before the date the 
     order becomes effective) to such an order by submitting a 
     written revision of the MediGrant plan or plan amendment to 
     substantially comply with the requirements of this part.
       ``(B) Review of revision.--In the case of submission of 
     such a revision, the Secretary shall promptly review the 
     submission and shall withhold any action on the order during 
     the period of such review.
       ``(C) Secretarial response.--The revision shall be 
     considered to have corrected the deficiency (and the order 
     rescinded insofar as it relates to such deficiency) unless 
     the Secretary determines and notifies the State in writing, 
     within 15 days after the date the Secretary receives the 
     revision, that the MediGrant plan or amendment, as proposed 
     to be revised, still substantially violates a requirement of 
     this title. In such case the State may respond by seeking 
     reconsideration or a hearing under paragraph (2).
       ``(D) Revision retroactive.--If the revision provides for 
     substantial compliance, the revision may be treated, at the 
     option of the State, as being effective either as of the 
     effective date of the provision to which it relates or such 
     later date as the State and Secretary may agree.
       ``(2) State response by seeking reconsideration or an 
     administrative hearing.--A State may respond to an order 
     under subsection (b) by filing a request with the Secretary 
     for--
       ``(A) a reconsideration of the determination, pursuant to 
     subsection (d)(1), or
       ``(B) a review of the determination through an 
     administrative hearing, pursuant to subsection (d)(2).
     In such case, the order shall not take effect before the 
     completion of the reconsideration or hearing.
       ``(3) State response by corrective action plan.--
       ``(A) In general.--In the case of an order described in 
     subsection (b)(2) that relates to a substantial violation in 
     the administration of the MediGrant plan, a State may respond 
     to such an order by submitting a corrective action plan with 
     the Secretary to correct deficiencies in the administration 
     of the plan which are the subject of the order.
       ``(B) Review of corrective action plan.--In such case, the 
     Secretary shall withhold any action on the order for a period 
     (not to exceed 30 days) during which the Secretary reviews 
     the corrective action plan.
       ``(C) Secretarial response.--The corrective action plan 
     shall be considered to have corrected the deficiency (and the 
     order rescinded insofar as it relates to such deficiency) 
     unless the Secretary determines and notifies the State in 
     writing, within 15 days after the date the Secretary receives 
     the corrective action plan, that the State's administration 
     of the MediGrant plan, as proposed to be corrected in the 
     plan, will still substantially violate a requirement of this 
     title. In such case the State may respond by seeking 
     reconsideration or a hearing under paragraph (2).
       ``(4) State response by withdrawal of plan amendment; 
     failure to respond.--Insofar as an order relates to a 
     substantial violation in a plan amendment submitted, a State 
     may respond to such an order by withdrawing the plan 
     amendment and the MediGrant plan shall be treated as though 
     the amendment had not been made.
       ``(d) Administrative Review and Hearing.--
       ``(1) Reconsideration.--Within 30 days after the date of 
     receipt of a request under subsection (b)(2)(A), the 
     Secretary shall notify the State of the time and place at 
     which a hearing will be held for the purpose of reconsidering 
     the Secretary's determination. The hearing shall be held not 
     less than 20 days nor more than 60 days after the date notice 
     of the hearing is furnished to the State, unless the 
     Secretary and the State agree in writing to holding the 
     hearing at another time. The Secretary shall affirm, modify, 
     or reverse the original determination within 60 days of the 
     conclusion of the hearing.
       ``(2) Administrative hearing.--Within 30 days after the 
     date of receipt of a request under subsection (b)(2)(B), an 
     administrative law judge shall schedule a hearing for the 
     purpose of reviewing the Secretary's determination. The 
     hearing shall be held not less than 20 days nor more than 60 
     days after the date notice of the hearing is furnished to the 
     State, unless the Secretary and the State agree in writing to 
     holding the hearing at another time. The administrative law 
     judge shall affirm, modify, or reverse the determination 
     within 60 days of the conclusion of the hearing.
       ``(e) Judicial Review.--
       ``(1) In general.--A State which is dissatisfied with a 
     final determination made by the Secretary under subsection 
     (d)(1) or a final determination of an administrative law 
     judge under subsection (d)(2) may, within 60 days after it 
     has been notified of such determination, file with the United 
     States court of appeals for the circuit in which the State is 
     located a petition for review of such determination. A copy 
     of the petition shall be forthwith transmitted by the clerk 
     of the court to the Secretary and, in the case of a 
     determination under subsection (d)(2), to the administrative 
     law judge involved. The Secretary (or judge involved) 
     thereupon shall file in the court the record of the 
     proceedings on which the final determination was based, as 
     provided in section 2112 of title 28, United States Code. 
     Only the Secretary, in accordance with this title, may compel 
     a State under Federal law to comply with the provisions of 
     this title or a MediGrant plan, or otherwise enforce a 
     provision of this title against a State, and no action may be 
     filed under Federal law against a State in relation to the 
     State's compliance, or failure to comply, with the provisions 
     of this title or of a MediGrant plan except by the Secretary 
     as provided under this subsection.
       ``(2) Standard for review.--The findings of fact by the 
     Secretary or administrative law judge, if supported by 
     substantial evidence, shall be conclusive, but the court, for 
     good cause shown, may remand the case to the Secretary or 
     judge to take further evidence, and the Secretary or judge 
     may thereupon make new or modified findings of fact and may 
     modify a previous determination, and shall certify to the 
     court the transcript and record of the further proceedings. 
     Such new or modified findings of fact shall likewise be 
     conclusive if supported by substantial evidence.
       ``(3) Jurisdiction of appellate court.--The court shall 
     have jurisdiction to affirm the action of the Secretary or 
     judge or to set it aside, in whole or in part. The judgment 
     of the court shall be subject to review by the Supreme Court 
     of the United States upon certiorari or certification as 
     provided in section 1254 of title 28, United States Code.
       ``(f) Withholding of Funds.--
       ``(1) In general.--Any order under this section relating to 
     the withholding of funds shall be effective not earlier than 
     the effective date of the order and shall only relate to the 
     portions of a MediGrant plan or administration thereof which 
     substantially violate a requirement of this title. In the 
     case of a failure to meet a set-aside requirement under 
     section 2112, any withholding shall only apply to the extent 
     of such failure.
       ``(2) Suspension of withholding.--The Secretary may suspend 
     withholding of funds under paragraph (1) during the period 
     reconsideration or administrative and judicial review is 
     pending under subsection (d) or (e).

[[Page H 12577]]

       ``(3) Restoration of funds.--Any funds withheld under this 
     subsection under an order shall be immediately restored to a 
     State--
       ``(A) to the extent and at the time the order is--
       ``(i) modified or withdrawn by the Secretary upon 
     reconsideration,
       ``(ii) modified or reversed by an administrative law judge, 
     or
       ``(iii) set aside (in whole or in part) by an appellate 
     court; or
       ``(B) when the Secretary determines that the deficiency 
     which was the basis for the order is corrected;
       ``(C) when the Secretary determines that violation which 
     was the basis for the order is resolved or the amendment 
     which was the basis for the order is withdrawn; or
       ``(D) at any time upon the initiative of the Secretary.
       ``(g) Individual Complaint Process.--The Secretary shall 
     provide for a process under which an individual may notify 
     the Secretary concerning a State's failure to provide medical 
     assistance as required under the State MediGrant plan or 
     otherwise comply with the requirements of this title or such 
     plan. If the Secretary finds that there is a pattern of 
     complaints with respect to a State or that a particular 
     failure or finding of noncompliance is egregious, the 
     Secretary shall notify the chief executive officer of the 
     State of such finding and shall notify the Congress if the 
     State fails to respond to such notification within a 
     reasonable period of time.

     ``SEC. 2155. SECRETARIAL AUTHORITY.

       ``(a) Negotiated Agreement and Dispute Resolution.--
       ``(1) Negotiations.--Nothing in this part shall be 
     construed as preventing the Secretary and a State from at any 
     time negotiating a satisfactory resolution to any dispute 
     concerning the approval of a MediGrant plan (or amendments to 
     a MediGrant plan) or the compliance of a MediGrant plan 
     (including its administration) with requirements of this 
     title.
       ``(2) Cooperation.--The Secretary shall act in a 
     cooperative manner with the States in carrying out this 
     title. In the event of a dispute between a State and the 
     Secretary, the Secretary shall, whenever practicable, engage 
     in informal dispute resolution activities in lieu of formal 
     enforcement or sanctions under section 2154.
       ``(b) Limitations on Delegation of Decision-making 
     Authority.--The Secretary may not delegate (other than to the 
     Administrator of the Health Care Financing Administration) 
     the authority to make determinations or reconsiderations 
     respecting the approval of MediGrant plans (or amendments to 
     such plans) or the compliance of a MediGrant plan (including 
     its administration) with requirements of this title. Such 
     Administrator may not further delegate such authority to any 
     individual, including any regional official of such 
     Administration.
       ``(c) Requiring Formal Rulemaking for Changes in 
     Secretarial Administration.--The Secretary shall carry out 
     the administration of the program under this title only 
     through a prospective formal rulemaking process, including 
     issuing notices of proposed rulemaking, publishing proposed 
     rules or modifications to rules in the Federal Register, and 
     soliciting public comment.

                      ``Part F--General Provisions

     ``SEC. 2171. DEFINITIONS.

       ``(a) Medical Assistance.--For purposes of this title, the 
     term `medical assistance' means payment of part or all of the 
     cost of any of the following, or assistance in the purchase, 
     in whole or in part, of health benefit coverage that includes 
     any of the following, for eligible low-income individuals (as 
     defined in subsection (b)) as specified under the MediGrant 
     plan:
       ``(1) Inpatient hospital services.
       ``(2) Outpatient hospital services.
       ``(3) Physician services.
       ``(4) Surgical services.
       ``(5) Clinic services and other ambulatory health care 
     services.
       ``(6) Nursing facility services.
       ``(7) Intermediate care facility services for the mentally 
     retarded.
       ``(8) Prescription drugs and biologicals and the 
     administration of such drugs and biologicals, only if such 
     drugs and biologicals are not furnished for the purpose of 
     causing, or assisting in causing, the death, suicide, 
     euthanasia, or mercy killing of a person.
       ``(9) Over-the-counter medications.
       ``(10) Laboratory and radiological services.
       ``(11) Family planning services and supplies.
       ``(12) Inpatient mental health services, including services 
     furnished in a State-operated mental hospital and including 
     residential or other 24-hour therapeutically planned 
     structured services in the case of a child.
       ``(13) Outpatient mental health services, including 
     services furnished in a State-operated mental hospital and 
     including community-based services in the case of a child.
       ``(14) Durable medical equipment and other medically-
     related or remedial devices (such as prosthetic devices, 
     implants, eyeglasses, hearing aids, dental devices, and 
     adaptive devices).
       ``(15) Disposable medical supplies.
       ``(16) Home and community-based health care services and 
     related supportive services (such as home health nursing 
     services, home health aide services, personal care, 
     assistance with activities of daily living, chore services, 
     day care services, respite care services, training for family 
     members, and minor modifications to the home).
       ``(17) Community supported living arrangements.
       ``(18) Nursing care services (such as nurse practitioner 
     services, nurse midwife services, advanced practice nurse 
     services, private duty nursing care, pediatric nurse 
     services, and respiratory care services) in a home, school, 
     or other setting.
       ``(19) Abortion only if necessary to save the life of the 
     mother or if the pregnancy is the result of an act of rape or 
     incest.
       ``(20) Dental services.
       ``(21) Inpatient substance abuse treatment services and 
     residential substance abuse treatment services.
       ``(22) Outpatient substance abuse treatment services.
       ``(23) Case management services.
       ``(24) Care coordination services.
       ``(25) Physical therapy, occupational therapy, and services 
     for individuals with speech, hearing, and language disorders.
       ``(26) Hospice care.
       ``(27) Any other medical, diagnostic, screening, 
     preventive, restorative, remedial, therapeutic, or 
     rehabilitative services (whether in a facility, home, school, 
     or other setting) if recognized by State law and only if the 
     service is--
       ``(A) prescribed by or furnished by a physician or other 
     licensed or registered practitioner within the scope of 
     practice as defined by State law,
       ``(B) performed under the general supervision or at the 
     direction of a physician, or
       ``(C) furnished by a health care facility that is operated 
     by a State or local government or is licensed under State law 
     and operating within the scope of the license.
       ``(28) Premiums for private health care insurance coverage, 
     including private long-term care insurance coverage.
       ``(29) Medical transportation.
       ``(30) Medicare cost-sharing (as defined in subsection 
     (c)).
       ``(31) Enabling services (such as transportation, 
     translation, and outreach services) only if designed to 
     increase the accessibility of primary and preventive health 
     care services for eligible low-income individuals.
       ``(32) Any other health care services or items specified by 
     the Secretary and not excluded under this section.
       ``(b) Eligible Low-Income Individual.--
       ``(1) In general.--The term `eligible low-income 
     individual' means an individual--
       ``(A) who has been determined eligible by the State for 
     medical assistance under the MediGrant plan and is not an 
     inmate of a public institution (except as a patient in a 
     State psychiatric hospital), and
       ``(B) whose family income (as determined under the plan) 
     does not exceed a percentage (specified in the MediGrant plan 
     and not to exceed 275 percent) of the poverty line for a 
     family of the size involved.
       ``(2) Amount of income.--In determining the amount of 
     income under paragraph (1)(B), a State may exclude costs 
     incurred for medical care or other types of remedial care 
     recognized by the State.
       ``(c) Medicare Cost-Sharing.--For purposes of this title, 
     the term `medicare cost-sharing' means any of the following:
       ``(1)(A) Premiums under section 1839.
       ``(B) Premiums under section 1818 or 1818A.
       ``(2) Coinsurance under title XVIII (including coinsurance 
     described in section 1813).
       ``(3) Deductibles established under title XVIII (including 
     those described in sections 1813 and 1833(b)).
       ``(4) The difference between the amount that is paid under 
     section 1833(a) and the amount that would be paid under such 
     section if any reference to `80 percent' therein were deemed 
     a reference to `100 percent'.
       ``(5) Premiums for enrollment of an individual with an 
     eligible organization under section 1876 or with a 
     MedicarePlus organization under part C of title XVIII.
       ``(d) Additional Definitions.--For purposes of this title:
       ``(1) Child.--The term `child' means an individual under 19 
     years of age.
       ``(2) Elderly individual.--The term `elderly individual' 
     means an individual who has attained retirement age, as 
     defined under section 216(l)(1).
       ``(3) Poverty line defined.--The term `poverty line' has 
     the meaning given such term in section 673(2) of the 
     Community Services Block Grant Act (42 U.S.C. 9902(2)), 
     including any revision required by such section).
       ``(4) Pregnant woman.--The term `pregnant woman' includes a 
     woman during the 60-day period beginning on the last day of 
     the pregnancy.

     ``SEC. 2172. TREATMENT OF TERRITORIES.

       ``Notwithstanding any other requirement of this title, the 
     Secretary may waive or modify any requirement of this title 
     with respect to the medical assistance program for a State 
     other than the 50 States and the District of Columbia, other 
     than a waiver of--
       ``(1) the applicable Federal medical assistance percentage,
       ``(2) the limitation on total payments in a fiscal year to 
     the amount of the allotment under section 2121(c), or
       ``(3) the requirement that payment may be made for medical 
     assistance only with respect to amounts expended by the State 
     for care and services described in section 2171(a) and 
     medically-related services (as defined in section 
     2112(e)(2)).

     ``SEC. 2173. DESCRIPTION OF TREATMENT OF INDIAN HEALTH 
                   SERVICE FACILITIES.

       ``In the case of a State in which one or more facilities of 
     the Indian Health Service are located, the MediGrant plan 
     shall include a description of--
       ``(1) what provision (if any) has been made for payment for 
     items and services furnished by such facilities, and
       ``(2) the manner in which medical assistance for low-income 
     eligible individuals who are Indians will be provided, as 
     determined by the State in consultation with the appropriate 
     Indian tribes and tribal organizations.

     ``SEC. 2174. APPLICATION OF CERTAIN GENERAL PROVISIONS.

       ``The following sections in part A of title XI shall apply 
     to States under this title in the same 

[[Page H 12578]]
     manner as they applied to a State under title XIX:
       ``(1) Section 1101(a)(1) (relating to definition of State).
       ``(2) Section 1116 (relating to administrative and judicial 
     review), but only insofar as consistent with the provisions 
     of part C.
       ``(3) Section 1124 (relating to disclosure of ownership and 
     related information).
       ``(4) Section 1126 (relating to disclosure of information 
     about certain convicted individuals).
       ``(5) Section 1128B(d) (relating to criminal penalties for 
     certain additional charges).
       ``(6) Section 1132 (relating to periods within which claims 
     must be filed).

     ``SEC. 2175. MEDIGRANT MASTER DRUG REBATE AGREEMENTS.

       ``(a) Requirement for Manufacturer To Enter Into 
     Agreement.--
       ``(1) In general.--Pursuant to section 2123(f), in order 
     for payment to be made to a State under part C for medical 
     assistance for covered outpatient drugs of a manufacturer, 
     the manufacturer shall enter into and have in effect a 
     MediGrant master rebate agreement described in subsection (b) 
     with the Secretary on behalf of States electing to 
     participate in the agreement.
       ``(2) Coverage of drugs not covered under rebate 
     agreements.--Nothing in this section shall be construed to 
     prohibit a State in its discretion from providing coverage 
     under its MediGrant plan of a covered outpatient drug for 
     which no rebate agreement is in effect under this section.
       ``(3) Effect on existing agreements.--If a State has a 
     rebate agreement in effect with a manufacturer on the date of 
     the enactment of this section which provides for a minimum 
     aggregate rebate equal to or greater than the minimum 
     aggregate rebate which would otherwise be paid under the 
     MediGrant master agreement under this section, at the option 
     of the State--
       ``(A) such agreement shall be considered to meet the 
     requirements of the MediGrant master rebate agreement, and
       ``(B) the State shall be considered to have elected to 
     participate in the MediGrant master rebate agreement.
       ``(4) Limitation on prices of drugs purchased by covered 
     entities.--
       ``(A) Agreement with secretary.--A manufacturer meets the 
     requirements of this paragraph if the manufacturer has 
     entered into an agreement with the Secretary that meets the 
     requirements of section 340B of the Public Health Service Act 
     with respect to covered outpatient drugs purchased by a 
     covered entity on or after the first day of the first month 
     that begins after the date of the enactment of title VI of 
     the Veterans Health Care Act of 1992.
       ``(B) Covered entity defined.--In this subsection, the term 
     `covered entity' means an entity described in section 
     340B(a)(4) of the Public Health Service Act provided that--
       ``(i) an entity is licensed by the State to purchase and 
     take possession of covered outpatient drugs and furnishes the 
     drugs to patients at a cost no greater than acquisition plus 
     such dispensing fee as may be allowable under a State 
     pharmaceutical assistance program, and
       ``(ii) such entity is certified pursuant to section 
     340B(a)(7) of such Act.
       ``(C) Establishment of alternative mechanism to ensure 
     against duplicate discounts or rebates.--If the Secretary 
     does not establish a mechanism under section 340B(a)(5)(A) of 
     the Public Health Service Act within 12 months of the date of 
     the enactment of such section, the following requirements 
     shall apply:
       ``(i) Each covered entity shall inform the single State 
     agency under this title when it is seeking reimbursement from 
     the medicaid plan for medical assistance with respect to a 
     unit of any covered outpatient drug which is subject to an 
     agreement under section 340B(a) of such Act.
       ``(ii) Each such single State agency shall provide a means 
     by which a covered entity shall indicate on any drug 
     reimbursement claims form (or format, where electronic claims 
     management is used) that a unit of the drug that is the 
     subject of the form is subject to an agreement under section 
     340B of such Act, and not submit to any manufacturer a claim 
     for a rebate payment under subsection (b) with respect to 
     such a drug.
       ``(D) Effect of subsequent amendments.--In determining 
     whether an agreement under subparagraph (A) meets the 
     requirements of section 340B of the Public Health Service 
     Act, the Secretary shall not take into account any amendments 
     to such section that are enacted after the enactment of title 
     VI of the Veterans Health Care Act of 1992.
       ``(E) Determination of compliance.--A manufacturer is 
     deemed to meet the requirements of this paragraph if the 
     manufacturer establishes to the satisfaction of the Secretary 
     that the manufacturer would comply (and has offered to 
     comply) with the provisions of section 340B of the Public 
     Health Service Act (as in effect immediately after the 
     enactment title VI of the Veterans Health Care Act of 1992, 
     and would have entered into an agreement under such section 
     (as such section was in effect at such time), but for a 
     legislative change in such section after such enactment.
       ``(b) Terms of Rebate Agreement.--
       ``(1) Periodic rebates.--The MediGrant master rebate 
     agreement under this section shall require the manufacturer 
     to provide, to the MediGrant plan of each State participating 
     in the agreement, a rebate for a rebate period in an amount 
     specified in subsection (c) for covered outpatient drugs of 
     the manufacturer dispensed after the effective date of the 
     agreement, for which payment was made under the plan for such 
     period. Such rebate shall be paid by the manufacturer not 
     later than 30 days after the date of receipt of the 
     information described in paragraph (2) for the period 
     involved.
       ``(2) State provision of information.--
       ``(A) State responsibility.--Each State participating in 
     the MediGrant master rebate agreement shall report to each 
     manufacturer not later than 60 days after the end of each 
     rebate period and in a form consistent with a standard 
     reporting format established by the Secretary, information on 
     the total number of units of each dosage form and strength 
     and package size of each covered outpatient drug, for which 
     payment was made under the MediGrant plan for the period, and 
     shall promptly transmit a copy of such report to the 
     Secretary.
       ``(B) Audits.--A manufacturer may audit the information 
     provided (or required to be provided) under subparagraph (A). 
     Adjustments to rebates shall be made to the extent that 
     information indicates that utilization was greater or less 
     than the amount previously specified.
       ``(3) Manufacturer provision of price information.--
       ``(A) In general.--Each manufacturer which is subject to 
     the MediGrant master rebate agreement under this section 
     shall report to the Secretary--
       ``(i) not later than 30 days after the last day of each 
     rebate period under the agreement, on the average 
     manufacturer price (as defined in subsection (i)(1)) and, for 
     single source drugs and innovator multiple source drugs, the 
     manufacturer's best price (as defined in subsection 
     (c)(1)(C)) for each covered outpatient drug for the rebate 
     period under the agreement, and
       ``(ii) not later than 30 days after the date of entering 
     into an agreement under this section, on the average 
     manufacturer price (as defined in subsection (i)(1)) as of 
     October 1, 1990, for each of the manufacturer's covered 
     outpatient drugs.
       ``(B) Verification surveys of average manufacturer price.--
     The Secretary may survey wholesalers and manufacturers that 
     directly distribute their covered outpatient drugs, when 
     necessary, to verify manufacturer prices reported under 
     subparagraph (A). The Secretary may impose a civil monetary 
     penalty in an amount not to exceed $10,000 on a wholesaler, 
     manufacturer, or direct seller, if the wholesaler, 
     manufacturer, or direct seller of a covered outpatient drug 
     refuses a request for information by the Secretary in 
     connection with a survey under this subparagraph. The 
     provisions of section 1128A (other than subsections (a) (with 
     respect to amounts of penalties or additional assessments) 
     and (b)) shall apply to a civil money penalty under this 
     subparagraph in the same manner as such provisions apply to a 
     penalty or proceeding under section 1128A(a).
       ``(C) Penalties.--
       ``(i) Failure to provide timely information.--In the case 
     of a manufacturer which is subject to the MediGrant master 
     rebate agreement that fails to provide information required 
     under subparagraph (A) on a timely basis, the amount of the 
     penalty shall be $10,000 for each day in which such 
     information has not been provided and such amount shall be 
     paid to the Treasury. If such information is not reported 
     within 90 days of the deadline imposed, the agreement shall 
     be suspended for services furnished after the end of such 90-
     day period and until the date such information is reported 
     (but in no case shall such suspension be for a period of less 
     than 30 days).
       ``(ii) False information.--Any manufacturer which is 
     subject to the MediGrant master rebate agreement, or a 
     wholesaler or direct seller, that knowingly provides false 
     information under subparagraph (A) or (B) is subject to a 
     civil money penalty in an amount not to exceed $100,000 for 
     each item of false information. Any such civil money penalty 
     shall be in addition to other penalties as may be prescribed 
     by law. The provisions of section 1128A (other than 
     subsections (a) and (b)) shall apply to a civil money penalty 
     under this subparagraph in the same manner as such provisions 
     apply to a penalty or proceeding under section 1128A(a).
       ``(D) Confidentiality of information.--Notwithstanding any 
     other provision of law, information disclosed by 
     manufacturers or wholesalers under this paragraph or under an 
     agreement with the Secretary of Veterans Affairs described in 
     section 2123(f) is confidential and shall not be disclosed by 
     the Secretary or the Secretary of Veterans Affairs or a State 
     agency (or contractor therewith) in a form which discloses 
     the identity of a specific manufacturer or wholesaler or the 
     prices charged for drugs by such manufacturer or wholesaler, 
     except--
       ``(i) as the Secretary determines to be necessary to carry 
     out this section,
       ``(ii) to permit the Comptroller General to review the 
     information provided, and
       ``(iii) to permit the Director of the Congressional Budget 
     Office to review the information provided.
       ``(4) Length of agreement.--
       ``(A) In general.--The MediGrant master rebate agreement 
     under this section shall be effective for an initial period 
     of not less than 1 year and shall be automatically renewed 
     for a period of not less than one year unless terminated 
     under subparagraph (B).
       ``(B) Termination.--
       ``(i) By the secretary.--The Secretary may provide for 
     termination of the MediGrant master rebate agreement with 
     respect to a manufacturer for violation of the requirements 
     of the agreement or other good cause shown. Such termination 
     shall not be effective earlier than 60 days after the date of 
     notice of such termination. The Secretary shall provide, upon 
     request, a manufacturer with a hearing concerning such a 
     termination, but such hearing shall not delay the effective 
     date of the termination. Failure of a State to provide any 
     advance notice of such a termination as required by 
     regulation shall not affect the State's right to terminate 
     coverage of the drugs affected by such termination as of the 
     effective date of such termination.
       ``(ii) By a manufacturer.--A manufacturer may terminate its 
     participation in the MediGrant master rebate agreement under 
     this 

[[Page H 12579]]
     section for any reason. Any such termination shall not be effective 
     until the calendar quarter beginning at least 60 days after 
     the date the manufacturer provides notice to the Secretary.
       ``(iii) Effectiveness of termination.--Any termination 
     under this subparagraph shall not affect rebates due under 
     the agreement before the effective date of its termination.
       ``(iv) Notice to states.--In the case of a termination 
     under this subparagraph, the Secretary shall provide notice 
     of such termination to the States within not less than 30 
     days before the effective date of such termination.
       ``(v) Application to terminations of other agreements.--The 
     provisions of this subparagraph shall apply to the 
     terminations of master agreements described in section 
     8126(a) of title 38, United States Code.
       ``(C) Delay before reentry.--In the case of any rebate 
     agreement with a manufacturer under this section which is 
     terminated, another such agreement with the manufacturer (or 
     a successor manufacturer) may not be entered into until a 
     period of 1 calendar quarter has elapsed since the date of 
     the termination, unless the Secretary finds good cause for an 
     earlier reinstatement of such an agreement.
       ``(5) Settlement of disputes.--
       ``(A) Secretary.--The Secretary shall have the authority to 
     resolve, settle, and compromise disputes regarding the 
     amounts of rebates owed under this section and section 1927.
       ``(B) State.--Each State, with respect to covered 
     outpatient drugs paid for under the State's MediGrant plan, 
     shall have authority, independent of the Secretary' authority 
     under subparagraph (A), to resolve, settle, and compromise 
     disputes regarding the amounts of rebates owed under this 
     section. Any such action shall be deemed to comply with the 
     requirements of this title, and such covered outpatient drugs 
     shall be eligible for payment under the MediGrant plan under 
     this title.
       ``(C) Amount of rebate.--The Secretary shall limit the 
     amount of the rebate payable in any case in which the 
     Secretary determines that, because of unusual circumstances 
     or questionable data, the provisions of subsection (c) result 
     in a rebate amount that is inequitable or otherwise 
     inconsistent with the purposes of this section.
       ``(c) Determination of Amount of Rebate.--
       ``(1) Basic rebate for single source drugs and innovator 
     multiple source drugs.--
       ``(A) In general.--Except as provided in paragraph (2), the 
     amount of the rebate specified in this subsection with 
     respect to a State participating in the MediGrant master 
     rebate agreement for a rebate period (as defined in 
     subsection (i)(7)) with respect to each dosage form and 
     strength of a single source drug or an innovator multiple 
     source drug shall be equal to the product of--
       ``(i) the total number of units of each dosage form and 
     strength paid for under the State MediGrant plan in the 
     rebate period (as reported by the State); and
       ``(ii) the greater of--

       ``(I) the difference between the average manufacturer price 
     and the best price (as defined in subparagraph (C)) for the 
     dosage form and strength of the drug, or
       ``(II) the minimum rebate percentage (specified in 
     subparagraph (B)) of such average manufacturer price,

     for the rebate period.
       ``(B) Minimum rebate percentage.--For purposes of 
     subparagraph (A)(ii)(II), the `minimum rebate percentage' is 
     15 percent.
       ``(C) Best price defined.--For purposes of this section--
       ``(i) In general.--The term `best price' means, with 
     respect to a single source drug or innovator multiple source 
     drug of a manufacturer, the lowest price available from the 
     manufacturer during the rebate period to any wholesaler, 
     retailer, provider, health maintenance organization, 
     nonprofit entity, or governmental entity within the United 
     States, excluding--

       ``(I) any prices charged on or after October 1, 1992, to 
     the Indian Health Service, the Department of Veterans 
     Affairs, a State home receiving funds under section 1741 of 
     title 38, United States Code, the Department of Defense, the 
     Public Health Service, or a covered entity described in 
     section 340B(a)(4) of the Public Health Service Act,
       ``(II) any prices charged under the Federal Supply Schedule 
     of the General Services Administration,
       ``(III) any prices used under a State pharmaceutical 
     assistance program, and
       ``(IV) any depot prices and single award contract prices, 
     as defined by the Secretary, of any agency of the Federal 
     Government.

       ``(ii) Special rules.--The term `best price'--

       ``(I) shall be inclusive of cash discounts, free goods that 
     are contingent on any purchase requirement, volume discounts, 
     and rebates (other than rebates under this section),
       ``(II) shall be determined without regard to special 
     packaging, labeling, or identifiers on the dosage form or 
     product or package,
       ``(III) shall not take into account prices that are merely 
     nominal in amount, and
       ``(IV) shall exclude rebates paid under this section or any 
     other rebates paid to a State participating in the MediGrant 
     master rebate agreement.

       ``(2) Additional rebate for single source and innovator 
     multiple source drugs.--
       ``(A) In general.--The amount of the rebate specified in 
     this subsection with respect to a State participating in the 
     MediGrant master rebate agreement for a rebate period, with 
     respect to each dosage form and strength of a single source 
     drug or an innovator multiple source drug, shall be increased 
     by an amount equal to the product of--
       ``(i) the total number of units of such dosage form and 
     strength dispensed after December 31, 1990, for which payment 
     was made under the MediGrant plan for the rebate period; and
       ``(ii) the amount (if any) by which--

       ``(I) the average manufacturer price for the dosage form 
     and strength of the drug for the period, exceeds
       ``(II) the average manufacturer price for such dosage form 
     and strength for the calendar quarter beginning July 1, 1990 
     (without regard to whether or not the drug has been sold or 
     transferred to an entity, including a division or subsidiary 
     of the manufacturer, after the first day of such quarter), 
     increased by the percentage by which the Consumer Price Index 
     for All Urban Consumers (United States city average) for the 
     month before the month in which the rebate period begins 
     exceeds such index for September 1990.

       ``(B) Treatment of subsequently approved drugs.--In the 
     case of a covered outpatient drug approved by the Food and 
     Drug Administration after October 1, 1990, clause (ii)(II) of 
     subparagraph (A) shall be applied by substituting `the first 
     full calendar quarter after the day on which the drug was 
     first marketed' for `the calendar quarter beginning July 1, 
     1990' and `the month prior to the first month of the first 
     full calendar quarter after the day on which the drug was 
     first marketed' for `September 1990'.
       ``(3) Rebate for other drugs.--
       ``(A) In general.--The amount of the rebate paid to a State 
     participating in the MediGrant master rebate agreement for a 
     rebate period with respect to each dosage form and strength 
     of covered outpatient drugs (other than single source drugs 
     and innovator multiple source drugs) shall be equal to the 
     product of--
       ``(i) the applicable percentage (as described in 
     subparagraph (B)) of the average manufacturer price for the 
     dosage form and strength for the rebate period, and
       ``(ii) the total number of units of such dosage form and 
     strength dispensed after December 31, 1990, for which payment 
     was made under the MediGrant plan for the rebate period.
       ``(B) Applicable percentage defined.--For purposes of 
     subparagraph (A)(i), the `applicable percentage' is 11 
     percent.
       ``(4) Limitation on amount of rebate to amounts paid for 
     certain drugs.--
       ``(A) In general.--Upon request of the manufacturer of a 
     covered outpatient drug, the Secretary shall limit, in 
     accordance with subparagraph (B), the amount of the rebate 
     under this subsection with respect to a dosage form and 
     strength of such drug if the majority of the estimated number 
     of units of such dosage form and strength that are subject to 
     rebates under this section were dispensed to inpatients of 
     nursing facilities.
       ``(B) Amount of rebate.--In the case of a covered 
     outpatient drug subject to subparagraph (A), the amount of 
     the rebate specified in this subsection for a rebate period, 
     with respect to each dosage form and strength of such drug, 
     shall not exceed the amount paid under the MediGrant plan 
     with respect to such dosage form and strength of the drug in 
     the rebate period (without consideration of any dispensing 
     fees paid).
       ``(5) Supplemental rebates prohibited.--No rebates shall be 
     required to be paid by manufacturers with respect to covered 
     outpatient drugs furnished to individuals in any State that 
     provides for the collection of such rebates in excess of the 
     rebate amount payable under this section.
       ``(d) Limitations on Coverage of Drugs by States 
     Participating in Master Agreement.--
       ``(1) Permissible restrictions.--A State participating in 
     the MediGrant master rebate agreement under this section 
     may--
       ``(A) subject to prior authorization under its MediGrant 
     plan any covered outpatient drug so long as any such prior 
     authorization program complies with the requirements of 
     paragraph (5); and
       ``(B) exclude or otherwise restrict coverage under its plan 
     of a covered outpatient drug if--
       ``(i) the drug is contained in the list referred to in 
     paragraph (2);
       ``(ii) the drug is subject to such restrictions pursuant to 
     the MediGrant master rebate agreement or any agreement 
     described in subsection (a)(4); or
       ``(iii) the State has excluded coverage of the drug from 
     its formulary established in accordance with paragraph (4).
       ``(2) List of drugs subject to restriction.--The following 
     drugs or classes of drugs, or their medical uses, may be 
     excluded from coverage or otherwise restricted by a State 
     participating in the MediGrant master rebate agreement:
       ``(A) Agents when used for anorexia, weight loss, or weight 
     gain.
       ``(B) Agents when used to promote fertility.
       ``(C) Agents when used for cosmetic purposes or hair 
     growth.
       ``(D) Agents when used for the symptomatic relief of cough 
     and colds.
       ``(E) Agents when used to promote smoking cessation.
       ``(F) Prescription vitamins and mineral products, except 
     prenatal vitamins and fluoride preparations.
       ``(G) Nonprescription drugs.
       ``(H) Covered outpatient drugs which the manufacturer seeks 
     to require as a condition of sale that associated tests or 
     monitoring services be purchased exclusively from the 
     manufacturer or its designee.
       ``(I) Barbiturates.
       ``(J) Benzodiazepines.
       ``(3) Additions to drug listings.--The Secretary shall, by 
     regulation, periodically update the list of drugs or classes 
     of drugs described in paragraph (2), or their medical uses, 
     which the Secretary has determined to be subject to clinical 
     abuse or inappropriate use.
       ``(4) Requirements for formularies.--A State participating 
     in the MediGrant master rebate agreement may establish a 
     formulary if the formulary meets the following requirements:

[[Page H 12580]]

       ``(A) The formulary is developed by a committee consisting 
     of physicians, pharmacists, and other appropriate individuals 
     appointed by the Governor of the State.
       ``(B) Except as provided in subparagraph (C), the formulary 
     includes the covered outpatient drugs of any manufacturer 
     which has entered into and complies with the agreement under 
     subsection (a) (other than any drug excluded from coverage or 
     otherwise restricted under paragraph (2)).
       ``(C) A covered outpatient drug may be excluded with 
     respect to the treatment of a specific disease or condition 
     for an identified population (if any) only if, based on the 
     drug's labeling (or, in the case of a drug the prescribed use 
     of which is not approved under the Federal Food, Drug, and 
     Cosmetic Act but is a medically accepted indication, based on 
     information from the appropriate compendia described in 
     subsection (i)(5)), the excluded drug does not have a 
     significant, clinically meaningful therapeutic advantage in 
     terms of safety, effectiveness, or clinical outcome of such 
     treatment for such population over other drugs included in 
     the formulary and there is a written explanation (available 
     to the public) of the basis for the exclusion.
       ``(D) The State MediGrant plan permits coverage of a drug 
     excluded from the formulary (other than any drug excluded 
     from coverage or otherwise restricted under paragraph (2)) 
     pursuant to a prior authorization program that is consistent 
     with paragraph (5).
       ``(E) The formulary meets such other requirements as the 
     Secretary may impose in order to achieve program savings 
     consistent with protecting the health of program 
     beneficiaries.
     A prior authorization program established by a State under 
     paragraph (5) is not a formulary subject to the requirements 
     of this paragraph.
       ``(5) Requirements of prior authorization programs.--The 
     MediGrant plan of a State participating in the MediGrant 
     master rebate agreement may require, as a condition of 
     coverage or payment for a covered outpatient drug for which 
     Federal financial participation is available in accordance 
     with this section, the approval of the drug before its 
     dispensing for any medically accepted indication (as defined 
     in subsection (i)(5)) only if the system providing for such 
     approval--
       ``(A) provides response by telephone or other 
     telecommunication device within 24 hours of a request for 
     prior authorization, and
       ``(B) except with respect to the drugs on the list referred 
     to in paragraph (2), provides for the dispensing of at least 
     a 72-hour supply of a covered outpatient prescription drug in 
     an emergency situation (as defined by the Secretary).
       ``(6) Other permissible restrictions.--A State 
     participating in the MediGrant master rebate agreement may 
     impose limitations, with respect to all such drugs in a 
     therapeutic class, on the minimum or maximum quantities per 
     prescription or on the number of refills, if such limitations 
     are necessary to discourage waste, and may address instances 
     of fraud or abuse by individuals in any manner authorized 
     under this Act.
       ``(e) Drug Use Review.--
       ``(1) In general.--A State participating in the MediGrant 
     master rebate agreement may provide for a drug use review 
     program to educate physicians and pharmacists to identify and 
     reduce the frequency of patterns of fraud, abuse, gross 
     overuse, or inappropriate or medically unnecessary care, 
     among physicians, pharmacists, and patients, or associated 
     with specific drugs or groups of drugs, as well as potential 
     and actual severe adverse reactions to drugs.
       ``(2) Application of state standards.--Except as provided 
     in subparagraph (B), a State with a drug use review program 
     under this subsection shall establish and operate the program 
     under such standards as it may establish.
       ``(f) Electronic Claims Management.--In accordance with 
     chapter 35 of title 44, United States Code (relating to 
     coordination of Federal information policy), the Secretary 
     shall encourage each State to establish, as its principal 
     means of processing claims for covered outpatient drugs under 
     its MediGrant plan, a point-of-sale electronic claims 
     management system, for the purpose of performing on-line, 
     real time eligibility verifications, claims data capture, 
     adjudication of claims, and assisting pharmacists (and other 
     authorized persons) in applying for and receiving payment.
       ``(g) Annual Report.--
       ``(1) In general.--Not later than May 1 of each year, the 
     Secretary shall transmit to the Committee on Finance of the 
     Senate, and the Committee on Commerce of the House of 
     Representatives, a report on the operation of this section in 
     the preceding fiscal year.
       ``(2) Details.--Each report shall include information on--
       ``(A) ingredient costs paid under this title for single 
     source drugs, multiple source drugs, and nonprescription 
     covered outpatient drugs,
       ``(B) the total value of rebates received and number of 
     manufacturers providing such rebates,
       ``(C) the effect of inflation on the value of rebates 
     required under this section,
       ``(D) trends in prices paid under this title for covered 
     outpatient drugs, and
       ``(E) Federal and State administrative costs associated 
     with compliance with the provisions of this title.
       ``(h) Exemption for Capitated Health Care Organizations, 
     Hospitals, and Nursing Facilities.--
       ``(1) In general.--Except as provided in paragraph (2), the 
     requirements of the MediGrant master rebate agreement under 
     this section shall not apply with respect to covered 
     outpatient drugs dispensed by or through--
       ``(A) a capitated health care organization (as defined in 
     section 2114(c)(1)), or
       ``(B) a hospital or nursing facility that dispenses covered 
     outpatient drugs using a drug formulary system and bills the 
     State no more than the hospital's or facility's purchasing 
     costs for covered outpatient drugs.
       ``(2) Construction in determining best price.--Nothing in 
     paragraph (1) shall be construed as excluding amounts paid by 
     the entities described in such paragraph for covered 
     outpatient drugs from the determination of the best price (as 
     defined in subsection (c)(1)(C)) for such drugs.
       ``(i) Definitions.--In the section--
       ``(1) Average manufacturer price.--The term `average 
     manufacturer price' means, with respect to a covered 
     outpatient drug of a manufacturer for a rebate period, the 
     average price paid to the manufacturer for the drug in the 
     United States by wholesalers for drugs distributed to the 
     retail pharmacy class of trade, after deducting customary 
     prompt pay discounts.
       ``(2) Covered outpatient drug.--Subject to the exceptions 
     in paragraph (3), the term `covered outpatient drug' means--
       ``(A) of those drugs which are treated as prescribed drugs 
     for purposes of section 2171(a)(8), a drug which may be 
     dispensed only upon prescription (except as provided in 
     subparagraph (D)), and--
       ``(i) which is approved as a prescription drug under 
     section 505 or 507 of the Federal Food, Drug, and Cosmetic 
     Act;
       ``(ii)(I) which was commercially used or sold in the United 
     States before the date of the enactment of the Drug 
     Amendments of 1962 or which is identical, similar, or related 
     (within the meaning of section 310.6(b)(1) of title 21 of the 
     Code of Federal Regulations) to such a drug, and (II) which 
     has not been the subject of a final determination by the 
     Secretary that it is a `new drug' (within the meaning of 
     section 201(p) of the Federal Food, Drug, and Cosmetic Act) 
     or an action brought by the Secretary under section 301, 
     302(a), or 304(a) of such Act to enforce section 502(f) or 
     505(a) of such Act; or
       ``(iii)(I) which is described in section 107(c)(3) of the 
     Drug Amendments of 1962 and for which the Secretary has 
     determined there is a compelling justification for its 
     medical need, or is identical, similar, or related (within 
     the meaning of section 310.6(b)(1) of title 21 of the Code of 
     Federal Regulations) to such a drug, and (II) for which the 
     Secretary has not issued a notice of an opportunity for a 
     hearing under section 505(e) of the Federal Food, Drug, and 
     Cosmetic Act on a proposed order of the Secretary to withdraw 
     approval of an application for such drug under such section 
     because the Secretary has determined that the drug is less 
     than effective for some or all conditions of use prescribed, 
     recommended, or suggested in its labeling;
       ``(B) a biological product, other than a vaccine which--
       ``(i) may only be dispensed upon prescription,
       ``(ii) is licensed under section 351 of the Public Health 
     Service Act, and
       ``(iii) is produced at an establishment licensed under such 
     section to produce such product;
       ``(C) insulin certified under section 506 of the Federal 
     Food, Drug, and Cosmetic Act; and
       ``(D) a drug which may be sold without a prescription 
     (commonly referred to as an `over-the-counter drug'), if the 
     drug is prescribed by a physician (or other person authorized 
     to prescribe under State law).
       ``(3) Limiting definition.--The term `covered outpatient 
     drug' does not include any drug, biological product, or 
     insulin provided as part of, or as incident to and in the 
     same setting as, any of the following (and for which payment 
     may be made under a MediGrant plan as part of payment for the 
     following and not as direct reimbursement for the drug):
       ``(A) Inpatient hospital services.
       ``(B) Hospice services.
       ``(C) Dental services, except that drugs for which the 
     MediGrant plan authorizes direct reimbursement to the 
     dispensing dentist are covered outpatient drugs.
       ``(D) Physicians' services.
       ``(E) Outpatient hospital services.
       ``(F) Nursing facility services and services provided by an 
     intermediate care facility for the mentally retarded.
       ``(G) Other laboratory and x-ray services.
       ``(H) Renal dialysis services.
     Such term also does not include any such drug or product for 
     which a National Drug Code number is not required by the Food 
     and Drug Administration or a drug or biological used for a 
     medical indication which is not a medically accepted 
     indication. Any drug, biological product, or insulin excluded 
     from the definition of such term as a result of this 
     paragraph shall be treated as a covered outpatient drug for 
     purposes of determining the best price (as defined in 
     subsection (c)(1)(C)) for such drug, biological product, or 
     insulin.
       ``(4) Manufacturer.--The term `manufacturer' means, with 
     respect to a covered outpatient drug, the entity holding 
     legal title to or possession of the National Drug Code number 
     for such drug.
       ``(5) Medically accepted indication.--The term `medically 
     accepted indication' means any use for a covered outpatient 
     drug which is approved under the Federal Food, Drug, and 
     Cosmetic Act, or the use of which is supported by one or more 
     citations included or approved for inclusion in any of the 
     following compendia:
       ``(A) American Hospital Formulary Service Drug Information.
       ``(B) United States Pharmacopeia-Drug Information.
       ``(C) American Medical Association Drug Evaluations.
       ``(D) The DRUGDEX Information System.
       ``(E) The peer-reviewed medical literature.
       ``(6) Multiple source drug; innovator multiple source drug; 
     noninnovator multiple source drug; single source drug.--
       ``(A) Defined.--
       ``(i) Multiple source drug.--The term `multiple source 
     drug' means, with respect to a rebate period, a covered 
     outpatient drug (not including any drug described in 
     paragraph (2)(D)) 

[[Page H 12581]]
     for which there are 2 or more drug products which--

       ``(I) are rated as therapeutically equivalent (under the 
     Food and Drug Administration's most recent publication of 
     `Approved Drug Products with Therapeutic Equivalence 
     Evaluations'),
       ``(II) except as provided in subparagraph (B), are 
     pharmaceutically equivalent and bioequivalent, as defined in 
     subparagraph (C) and as determined by the Food and Drug 
     Administration, and
       ``(III) are sold or marketed in the State during the 
     period.

       ``(ii) Innovator multiple source drug.--The term `innovator 
     multiple source drug' means a multiple source drug that was 
     originally marketed under an original new drug application or 
     product licensing application approved by the Food and Drug 
     Administration.
       ``(iii) Noninnovator multiple source drug.--The term 
     `noninnovator multiple source drug' means a multiple source 
     drug that is not an innovator multiple source drug.
       ``(iv) Single source drug.--The term `single source drug' 
     means a covered outpatient drug which is produced or 
     distributed under an original new drug application approved 
     by the Food and Drug Administration, including a drug product 
     marketed by any cross-licensed producers or distributors 
     operating under the new drug application or product licensing 
     application.
       ``(B) Exception.--Subparagraph (A)(i)(II) shall not apply 
     if the Food and Drug Administration changes by regulation the 
     requirement that, for purposes of the publication described 
     in subparagraph (A)(i)(I), in order for drug products to be 
     rated as therapeutically equivalent, they must be 
     pharmaceutically equivalent and bioequivalent, as defined in 
     subparagraph (C).
       ``(C) Definitions.--For purposes of this paragraph--
       ``(i) drug products are pharmaceutically equivalent if the 
     products contain identical amounts of the same active drug 
     ingredient in the same dosage form and meet compendial or 
     other applicable standards of strength, quality, purity, and 
     identity,
       ``(ii) drugs are bioequivalent if they do not present a 
     known or potential bioequivalence problem, or, if they do 
     present such a problem, they are shown to meet an appropriate 
     standard of bioequivalence, and
       ``(iii) a drug product is considered to be sold or marketed 
     in a State if it appears in a published national listing of 
     average wholesale prices selected by the Secretary, if the 
     listed product is generally available to the public through 
     retail pharmacies in that State.
       ``(7) Rebate period.--The term `rebate period' means, with 
     respect to an agreement under subsection (a), a calendar 
     quarter or other period specified by the Secretary with 
     respect to the payment of rebates under such agreement.''.

     SEC. 7002. TERMINATION OF CURRENT PROGRAM AND TRANSITION.

       (a) Termination of Current Program; Limitation on Medicaid 
     Payments in Fiscal Year 1996.--
       (1) Repeal of title.--Title XIX of the Social Security Act 
     is repealed effective October 1, 1996, except that the repeal 
     of section 1928 of such Act is effective on the date of the 
     enactment of this Act and the succeeding two sections of such 
     title shall be effective during fiscal year 1996 in the same 
     manner and to the same extent as such sections were effective 
     during fiscal year 1995.
       (2) Limitation on obligation authority.--Notwithstanding 
     any other provision of such title--
       (A) Post-enactment, pre-medigrant.--Subject to subparagraph 
     (B), the Secretary of Health and Human Services (in this 
     section referred to as the ``Secretary'') may enter into 
     obligations under such title with any State (as defined for 
     purposes of such title) for expenses incurred after the date 
     of the enactment of this Act and during fiscal year 1996, but 
     not in excess of the obligation allotment for that State for 
     fiscal year 1996 under section 2121(a)(4) of the Social 
     Security Act (as added by section 7001).
       (B) None after medigrant.--The Secretary is not authorized 
     to enter into any obligation with any State under title XIX 
     of such Act for expenses incurred on or after the earlier 
     of--
       (i) October 1, 1996, or
       (ii) the first day of the first quarter on which the State 
     MediGrant plan under title XXI of such Act (as added by 
     section 7001) is first effective.
       (C) Agreement.--A State's submission of claims for payment 
     under section 1903 of such Act after the date of the 
     enactment of this Act with respect to which the limitation 
     described in subparagraph (A) applies is deemed to constitute 
     the State's acceptance of the obligation limitation under 
     such subparagraph (including the formula for computing the 
     amount of such obligation limitation).
       (D) Effect on medical assistance.--Effective on the date of 
     the enactment of this section--
       (i) except as provided in this paragraph, the Federal 
     Government has no obligation to provide payment with respect 
     to items and services provided under title XIX of the Social 
     Security Act, and
       (ii) such title and title XXI of such Act shall not be 
     construed as providing for an entitlement, under Federal law 
     in relation to the Federal Government, in an individual or 
     person (including any provider) at the time of provision or 
     receipt of services.
       (3) Requirement for timely submittal of claims.--No payment 
     shall be made to a State under title XIX of such Act with 
     respect to an obligation incurred before the date of the 
     enactment of this Act, unless the State has submitted to the 
     Secretary, by not later than June 30, 1996, a claim for 
     Federal financial participation for expenses paid by the 
     State with respect to such obligations. Nothing in paragraph 
     (2) shall be construed as affecting the obligation of the 
     Federal Government to pay claims described in the previous 
     sentence.
       (b) Medicaid-to-MediGrant Transition Provisions.--
       (1) Notwithstanding any provision of law, in the case where 
     payment has been made under section 1903(a) of the Social 
     Security Act to a State before October 1, 1995, and for which 
     a disallowance has not been taken as of such date (or, if so 
     taken, has not been completed, including judicial review, by 
     such date), the Secretary of Health and Human Services shall 
     discontinue the disallowance proceeding and, if such 
     disallowance has been taken as of the date of the enactment 
     of this Act, any payment reductions effected shall be 
     rescinded and the payments returned to the State.
       (2) The repeal under subsection (a)(1) of section 1928 of 
     the Social Security Act shall not affect the distribution of 
     vaccines purchased and delivered to the States before the 
     date of the enactment of this Act. No vaccine may be 
     purchased after such date by the Federal Government or any 
     State under any contract under section 1928(d) of the Social 
     Security Act.
       (3) No judicial or administrative decision rendered 
     regarding requirements imposed under title XIX of the Social 
     Security Act with respect to a State shall have any 
     application to the MediGrant plan of the State title under 
     XXI of such Act. A State may, pursuant to the previous 
     sentence, seek the abrogation or modification of any such 
     decision after the date of termination of the State plan 
     under title XIX of such Act.
       (4) No cause of action under title XIX of the Social 
     Security Act which seeks to require a State to establish or 
     maintain minimum payment rates under such title or claim 
     which seeks reimbursement for any period before the date of 
     the enactment of this Act based on the alleged failure of the 
     State to comply with such title and which has not become 
     final as of such date shall be brought or continued.
       (5) Section 6408(a)(3) of the Omnibus Budget Reconciliation 
     Act of 1989 (as amended by section 13642 of the Omnibus 
     Budget Reconciliation Act of 1993) and section 2 of Public 
     Law 102-276 (as amended by section 13644 of the Omnibus 
     Budget Reconciliation Act of 1993) are each amended by 
     striking ``December 31, 1995'' and inserting ``October 1, 
     1996''.
       (c) Anti-Fraud Provisions.--Section 1128(h)(1) of the 
     Social Security Act (42 U.S.C. 1320a-7(h)(1)) is amended by 
     inserting ``or a MediGrant plan under title XXI'' after 
     ``title XIX''.
       (d) Technical and Conforming Amendments.--
       (1) Secretarial submission of legislative proposal.--Not 
     later than 90 days after the date of the enactment of this 
     Act, the Secretary of Health and Human Services, in 
     consultation, as appropriate, with heads of other Federal 
     agencies and the States (as defined in section 1101(a)(8) of 
     the Social Security Act for purposes of title XIX of such 
     Act), shall submit to the appropriate committees of Congress 
     a legislative proposal providing for such technical and 
     conforming amendments in the law as are required by the 
     provisions of, and amendments made by, this title.
       (2) Transitional rule.--Any reference in any provision of 
     law to title XIX of the Social Security Act or any provision 
     thereof shall be deemed to be a reference to such title or 
     provision as in effect on the day before the date of the 
     enactment of this Act.

     SEC. 7003. MEDICARE/MEDIGRANT INTEGRATION DEMONSTRATION 
                   PROJECT.

       (a) Description of Projects.--
       (1) In general.--The Secretary of Health and Human Services 
     (in this section referred to as the ``Secretary'') shall 
     conduct demonstration projects under this section to 
     demonstrate the manner in which States may use funds from the 
     medicare program under title XVIII of the Social Security Act 
     and the MediGrant program under title XXI of such Act (in 
     this section referred to as the ``medicare and MediGrant 
     programs'') for the purpose of providing a more cost-
     effective full continuum of care for delivering services to 
     meet the needs of chronically-ill elderly and disabled 
     beneficiaries who are eligible for items and services under 
     such programs, through integrated systems of care, with an 
     emphasis on case management, prevention, and interventions 
     designed to avoid institutionalization whenever possible. The 
     Secretary shall use funds from the amounts appropriated for 
     the medicare and MediGrant programs to make the payments 
     required under subsection (d)(1).
       (2) Option to participate.--A State may not require an 
     individual eligible to receive items and services under the 
     medicare and MediGrant programs to participate in a 
     demonstration project under this section.
       (b) Establishment.--The Secretary shall make payments in 
     accordance with subsection (d) for the conduct of 
     demonstration projects that provide for integrated systems of 
     care in accordance with subsection (a). Not more than 10 
     demonstration projects shall be conducted under this section.
       (c) Applications.--Each State, or a coalition of States, 
     desiring to conduct a demonstration project under this 
     section shall prepare and submit to the Secretary an 
     application at such time, in such manner, and containing such 
     information as the Secretary may require, including an 
     explanation of a plan for evaluating the project. The 
     Secretary shall approve or deny an application not later than 
     90 days after the receipt of such application.
       (d) Payments.--
       (1) In general.--For each calendar quarter occurring during 
     a demonstration project conducted under this section, the 
     Secretary shall pay to each entity designated under paragraph 
     (3) an amount equal to the Federal capitated payment rate 
     determined under paragraph (2).

[[Page H 12582]]

       (2) Federal capitated payment rate.--The Secretary shall 
     determine the Federal capitated payment rate for purposes of 
     this section based on the anticipated Federal quarterly cost 
     of providing care to chronically-ill elderly and disabled 
     beneficiaries who are eligible for items and services under 
     the medicare and MediGrant programs and who have elected to 
     participate in a demonstration project under this section.
       (3) Designation of entity.--
       (A) In general.--Each State, or coalition of States, shall 
     designate entities to directly receive the payments described 
     in paragraph (1).
       (B) Requirement.--A State, or a coalition of States, may 
     not designate an entity under subparagraph (A) unless such 
     entity meets the quality, solvency, and coverage standards 
     applicable to providers of items and services under the 
     medicare and MediGrant programs.
       (4) State payments.--Each State conducting, or in the case 
     of a coalition of States, participating in a demonstration 
     project under this section shall pay to the entities 
     designated under paragraph (3) an amount equal to the product 
     of (A) 100 percent minus the applicable Federal medical 
     assistance percentage (as defined in section 2122(e) of the 
     Social Security Act) for the State, and (B) the expenditures 
     under the project attributable to the MediGrant program for 
     items and services provided to chronically-ill elderly and 
     disabled beneficiaries who have elected to participate in the 
     demonstration.
       (5) Budget neutrality.--The aggregate amount of Federal 
     payments to entities designated by a State, or coalition of 
     States, under paragraph (3) for a fiscal year shall not 
     exceed the aggregate amount of such payments that would 
     otherwise have been made under the medicare and MediGrant 
     programs for such fiscal year for items and services provided 
     to beneficiaries under such programs but for the election of 
     such beneficiaries to participate in a demonstration project 
     under this section.
       (e) Duration.--
       (1) In general.--The demonstration projects conducted under 
     this section shall be conducted for a 5-year period, subject 
     to annual review and approval by the Secretary.
       (2) Termination.--The Secretary may, with 90 days' notice, 
     terminate any demonstration project conducted under this 
     section that is not in substantial compliance with the terms 
     of the application approved by the Secretary under this 
     section.
       (f) Oversight.--The Secretary shall establish quality 
     standards for evaluating and monitoring the demonstration 
     projects conducted under this section. Such quality standards 
     shall include reporting requirements which contain the 
     following:
       (1) A description of the demonstration project.
       (2) An analysis of beneficiary satisfaction under such 
     project.
       (3) An analysis of the quality of the services delivered 
     under the project.
       (4) A description of the savings to the MediGrant and 
     medicare programs as a result of the demonstration project.
                          TITLE VIII--MEDICARE

     SEC. 8000. SHORT TITLE OF TITLE; AMENDMENTS AND REFERENCES TO 
                   OBRA; TABLE OF CONTENTS OF TITLE.

       (a) Short Title.--This title may be cited as the ``Medicare 
     Preservation Act of 1995''.
       (b) Amendments to Social Security Act.--Except as otherwise 
     specifically provided, whenever in this title an amendment is 
     expressed in terms of an amendment to or repeal of a section 
     or other provision, the reference shall be considered to be 
     made to that section or other provision of the Social 
     Security Act.
       (c) References to OBRA.--In this title, the terms ``OBRA-
     1986'', ``OBRA-1987'', ``OBRA-1989'', ``OBRA-1990'', and 
     ``OBRA-1993'' refer to the Omnibus Budget Reconciliation Act 
     of 1986 (Public Law 99-509), the Omnibus Budget 
     Reconciliation Act of 1987 (Public Law 100-203), the Omnibus 
     Budget Reconciliation Act of 1989 (Public Law 101-239), the 
     Omnibus Budget Reconciliation Act of 1990 (Public Law 101-
     508), and the Omnibus Budget Reconciliation Act of 1993 
     (Public Law 103-66), respectively.
       (d) Table of Contents of Title.--The table of contents of 
     this title is as follows:

Sec. 8000. Short title of title; amendments and references to OBRA; 
              table of contents of title.

                    Subtitle A--MedicarePlus Program

                     ``Part C--MedicarePlus Program

                    Chapter 1--MedicarePlus Program

Sec. 8001. Establishment of MedicarePlus program.

                     ``Part C--MedicarePlus Program

``Sec. 1851. Eligibility, election, and enrollment.
``Sec. 1852. Benefits and beneficiary protections.
``Sec. 1853. Organizational and financial requirements for MedicarePlus 
              organizations; provider-sponsored organizations.
``Sec. 1854. Payments to MedicarePlus organizations.
``Sec. 1855. Premiums and rebates.
``Sec. 1856. Establishment of standards; certification of organizations 
              and plans.
``Sec. 1857. Contracts with MedicarePlus organizations.
``Sec. 1858. Standards for MedicarePlus and medicare information 
              transactions and data elements.
``Sec. 1859. Definitions; miscellaneous provisions.
Sec. 8002. Duplication and coordination of medicare-related plans.
Sec. 8003. Transitional rules for current medicare HMO program.

   Chapter 2--Special Rules for MedicarePlus Medical Savings Accounts

Sec. 8011. MedicarePlus MSA.
Sec. 8012. Certain rebates excluded from gross income.

             Chapter 3--Medicare Payment Review Commission

Sec. 8021. Medicare Payment Review Commission.

    Chapter 4--Treatment Of Hospitals Which Participate in Provider-
                        Sponsored Organizations

Sec. 8031. Treatment of hospitals which participate in provider-
              sponsored organizations.

           Subtitle B--Health Care Fraud and Abuse Prevention

               Chapter 1--Fraud And Abuse Control Program

Sec. 8101. Fraud and abuse control program.
Sec. 8102. Medicare integrity program.
Sec. 8103. Beneficiary incentive programs.
Sec. 8104. Application of certain health anti-fraud and abuse sanctions 
              to fraud and abuse against Federal health care programs.
Sec. 8105. Guidance regarding application of health care fraud and 
              abuse sanctions.

     Chapter 2--Revisions To Current Sanctions for Fraud and Abuse

Sec. 8111. Mandatory exclusion from participation in medicare and State 
              health care programs.
Sec. 8112. Establishment of minimum period of exclusion for certain 
              individuals and entities subject to permissive exclusion 
              from medicare and State health care programs.
Sec. 8113. Permissive exclusion of individuals with ownership or 
              control interest in sanctioned entities.
Sec. 8114. Sanctions against practitioners and persons for failure to 
              comply with statutory obligations.
Sec. 8115. Intermediate sanctions for medicare health maintenance 
              organizations.
Sec. 8116. Additional exception to anti-kickback penalties for 
              discounting and managed care arrangements.
Sec. 8117. Penalties for the fraudulent conversion of assets in order 
              to obtain State health care program benefits.
Sec. 8118. Effective date.

         Chapter 3--Administrative And Miscellaneous Provisions

Sec. 8121. Establishment of the health care fraud and abuse data 
              collection program.

                  Chapter 4--Civil Monetary Penalties

Sec. 8131. Social Security Act civil monetary penalties.
Sec. 8132. Clarification of level of intent required for imposition of 
              sanctions.
Sec. 8133. Penalty for false certification for home health services.

                 Chapter 5--Amendments To Criminal Law

Sec. 8141. Health care fraud.
Sec. 8142. Forfeitures for Federal health care offenses.
Sec. 8143. Injunctive relief relating to Federal health care offenses.
Sec. 8144. False Statements.
Sec. 8145. Obstruction of criminal investigations of Federal health 
              care offenses.
Sec. 8146. Theft or embezzlement.
Sec. 8147. Laundering of monetary instruments.
Sec. 8148. Authorized investigative demand procedures.

            Chapter 6--State Health Care Fraud Control Units

Sec. 8151. State health care fraud control units.

                     Subtitle C--Regulatory Relief

Sec. 8201. Repeal of physician ownership referral prohibitions based on 
              compensation arrangements.
Sec. 8202. Revision of designated health services subject to ownership 
              referral prohibition.
Sec. 8203. Delay in implementation of 1993 ownership referral changes 
              until promulgation of regulations.
Sec. 8204. Exceptions to ownership referral prohibitions.
Sec. 8205. Effective date.

Subtitle D--Modification in Payment Policies Regarding Graduate Medical 
                               Education

Sec. 8301. Indirect medical education payments.
Sec. 8302. Direct graduate medical education.

               Subtitle E--Provisions Relating to Part A

            Chapter 1--General Provisions Relating to Part A

Sec. 8401. PPS hospital payment update.
Sec. 8402. PPS-exempt hospital payments.
Sec. 8403. Reductions in disproportionate share payment adjustments.
Sec. 8404. Capital payments for PPS hospitals.
Sec. 8405. Reduction in payments to hospitals for enrollees' bad debts.
Sec. 8406. Increase in update for certain hospitals with a high 
              proportion of medicare patients.

           Chapter 2--Payments To Skilled Nursing Facilities


                 SUBCHAPTER A--PROSPECTIVE PAYMENT SYSTEM

Sec. 8410. Prospective payment system for skilled nursing facilities.


                   SUBCHAPTER B--INTERIM PAYMENT SYSTEM

Sec. 8411. Payments for routine service costs.
Sec. 8412. Cost-effective management of covered non-routine services.
Sec. 8413. Payments for routine service costs.
Sec. 8414. Reductions in payment for capital-related costs.

[[Page H 12583]]

Sec. 8415. Treatment of items and services paid for under part B.
Sec. 8416. Medical review process.
Sec. 8417. Report by medicare payment review commission.
Sec. 8418. Effective date.

             Chapter 3--Other Provisions Relating to Part A

Sec. 8421. Payments for hospice services.
Sec. 8422. Permanent extension of hemophilia pass-through.

               Subtitle F--Provisions Relating to Part B

                       Chapter 1--Payment Reforms

Sec. 8501. Payments for physicians' services.
Sec. 8502. Elimination of formula-driven overpayments for certain 
              outpatient hospital services.
Sec. 8503. Extension of reductions in payments for costs of hospital 
              outpatient services.
Sec. 8504. Reduction in updates to payment amounts for clinical 
              diagnostic laboratory tests.
Sec. 8505. Payments for durable medical equipment.
Sec. 8506. Updates for ambulatory surgical services.
Sec. 8507. Payments for ambulance services.
Sec. 8508. Ensuring payment for physician and nurse for jointly 
              furnished anesthesia services.

                       Chapter 2--Part B Premium

Sec. 8511. Promoting solvency of part a trust fund through part b 
              premium.
Sec. 8512. Income-related reduction in medicare subsidy.

            Subtitle G--Provisions Relating to Parts A and B

              Chapter 1--Payments For Home Health Services

Sec. 8601. Payment for home health services.
Sec. 8602. Maintaining savings resulting from temporary freeze on 
              payment increases for home health services.
Sec. 8603. Extension of waiver of presumption of lack of knowledge of 
              exclusion from coverage for home health agencies.
Sec. 8604. Extension of period of home health agency certification.

             Part 2--Medicare Secondary Payer Improvements

Sec. 8611. Extension and expansion of existing requirements.
Sec. 8612. Improvements in recovery of payments.

        Chapter 3--Other Items and Services Under Parts A and B

Sec. 8621. Medicare coverage of certain anti-cancer drug treatments.
Sec. 8622. Administrative provisions.

                          Chapter 4--Failsafe

Sec. 8631. Failsafe budget mechanism.

                        Subtitle H--Rural Areas

Sec. 8701. Medicare-dependent, small, rural hospital payment extension.
Sec. 8702. Medicare rural hospital flexibility program.
Sec. 8703. Establishment of rural emergency access care hospitals.
Sec. 8704. Classification of rural referral centers.
Sec. 8705. Floor on area wage index.
Sec. 8706. Additional payments for physicians' services furnished in 
              shortage areas.
Sec. 8707. Payments to physician assistants and nurse practitioners for 
              services furnished in outpatient or home settings.
Sec. 8708. Expanding access to nurse aide training in underserved 
              areas.
                    Subtitle A--MedicarePlus Program

                    CHAPTER 1--MEDICAREPLUS PROGRAM

     SEC. 8001. ESTABLISHMENT OF MEDICAREPLUS PROGRAM.

       (a) In General.--Title XVIII is amended by redesignating 
     part C as part D and by inserting after part B the following 
     new part:

                     ``Part C--MedicarePlus Program


                ``eligibility, election, and enrollment

       ``Sec. 1851. (a) Choice of Medicare Benefits Through 
     MedicarePlus Plans.--
       ``(1) In general.--Subject to the provisions of this 
     section, every MedicarePlus eligible individual (as defined 
     in paragraph (3)) is entitled to elect to receive benefits 
     under this title--
       ``(A) through the Medicare fee-for-service program under 
     parts A and B, or
       ``(B) through enrollment in a MedicarePlus plan under this 
     part.
       ``(2) Types of medicareplus plans that may be available.--A 
     MedicarePlus plan may be any of the following types of plans 
     of health insurance:
       ``(A) Coordinated care plans.--Private coordinated care 
     plans which provide health care services, including health 
     maintenance organization plans and preferred provider 
     organization plans.
       ``(B) Combination of high deductible plan and contributions 
     to high deductible medicare msa.--A high deductible plan, as 
     defined in section 1859(b)(2), and a contribution into a High 
     Deductible MedicarePlus medical savings account (MSA).
       ``(C) Plans offered by provider-sponsored organization.--A 
     MedicarePlus plan offered by a provider-sponsored 
     organization, as defined in section 1853(i).
       ``(D) Union, taft-hartley, and association plans.--A 
     MedicarePlus organization plan offered by a MedicarePlus 
     organization that is a union sponsor, Taft-Hartley sponsor, 
     or qualified association sponsor, as defined in section 
     1859(a).
       ``(E) Fee-for-service plans.--Plans that reimburse 
     hospitals, physicians, and other providers on the basis of a 
     privately determined fee schedule or other basis.
       ``(F) Other health care plans.--Any other private plan for 
     the delivery of health care items and services that is not 
     described in a previous subparagraph.
       ``(3) MedicarePlus eligible individual.--
       ``(A) In general.--In this title, subject to subparagraph 
     (B), the term `MedicarePlus eligible individual' means an 
     individual who is entitled to benefits under part A and 
     enrolled under part B.
       ``(B) Special rule for end-stage renal disease.--Such term 
     shall not include an individual medically determined to have 
     end-stage renal disease, except that an individual who 
     develops end-stage renal disease while enrolled in a 
     MedicarePlus plan may continue to be enrolled in that plan.
       ``(b) Special Rules.--
       ``(1) Residence requirement.--
       ``(A) In general.--Except as the Secretary may otherwise 
     provide, an individual is eligible to elect a MedicarePlus 
     plan offered by a MedicarePlus organization only if the 
     organization serves the geographic area in which the 
     individual resides under the plan.
       ``(B) Continuation of enrollment permitted.--Pursuant to 
     rules specified by the Secretary, the Secretary shall provide 
     that an individual may continue enrollment in a plan, 
     notwithstanding that the individual no longer resides in the 
     service area of the plan, so long as the plan provides 
     benefits for providers located in the area in which the 
     individual resides.
       ``(2) Affiliation requirements for certain plans.--
       ``(A) In general.--Subject to subparagraph (B), an 
     individual is eligible to elect a MedicarePlus plan offered 
     by--
       ``(i) a union sponsor only if (I) the individual is a 
     member of the sponsor and affiliated with the sponsor through 
     an employment relationship with any employer or is the spouse 
     of such a member, and (II) the individual elected under this 
     section a MedicarePlus plan offered by the sponsor during the 
     first enrollment period in which the individual was eligible 
     to make such election with respect to such sponsor;
       ``(ii) a Taft-Hartley sponsor only if (I) the individual is 
     entitled to obtain benefits through such plans under the 
     terms of an applicable collective bargaining agreement, and 
     (II) the individual elected under this section a MedicarePlus 
     plan offered by the sponsor during the first enrollment 
     period in which the individual was eligible to make such 
     election with respect to such sponsor; and
       ``(iii) a qualified association sponsor only if the 
     individual is a member of the association (or is a spouse of 
     such a member).
       ``(B) Limitation on enrollment.--Subject to subparagraph 
     (C)--
       ``(i) a union sponsor may not enroll an individual under 
     this part unless the individual is described in subparagraph 
     (A)(i)(I),
       ``(ii) a Taft-Hartley sponsor may not enroll an individual 
     under this part unless the individual is described in 
     subparagraph (A)(ii)(I), and
       ``(iii) a qualified association sponsor may not enroll an 
     individual under this part unless the individual is described 
     in subparagraph (A)(iii).
       ``(C) Limitation on termination of coverage.--A qualified 
     association sponsor offering a MedicarePlus plan to an 
     individual may not terminate coverage of the individual on 
     the basis that the individual is no longer a member of the 
     association except pursuant to a change of election during an 
     open election period occurring on or after the date of the 
     termination of membership.
       ``(3) Special rules for union, taft-hartley, and qualified 
     association sponsors.--
       ``(A) Unions.--Subject to subparagraph (D), a union sponsor 
     (as defined in section 1859(a)(5)) shall limit eligibility of 
     enrollees under this part for MedicarePlus plans it offers to 
     individuals who are members of the sponsor and affiliated 
     with the sponsor through an employment relationship with any 
     employer or are the spouses of such members.
       ``(B) Taft-hartley sponsors.--Subject to subparagraph (D), 
     a MedicarePlus organization that is a Taft-Hartley sponsor 
     (as defined in section 1859(a)(4)) shall limit eligibility of 
     enrollees under this part for MedicarePlus plans it offers to 
     individuals who are entitled to obtain benefits through such 
     plans under the terms of an applicable collective bargaining 
     agreement.
       ``(C) Qualified association sponsors.--
       ``(i) In general.--Subject to subparagraph (D), a 
     MedicarePlus organization that is a qualified association 
     sponsor (as defined in section 1859(a)(3)) shall limit 
     eligibility of individuals under this part for plans it 
     offers to individuals who are members of the association (or 
     who are spouses of such individuals).
       ``(ii) Limitation on termination of coverage.--Such a 
     qualifying association sponsor offering a MedicarePlus plan 
     to an individual may not terminate coverage of the individual 
     on the basis that the individual is no longer a member of the 
     association except pursuant to a change of election during an 
     open election period occurring on or after the date of the 
     termination of membership.
       ``(D) Limitation.--Rules of eligibility to carry out the 
     previous subparagraphs of this paragraph shall not have the 
     effect of denying eligibility to individuals on the basis of 
     health status, claims experience, receipt of health care, 
     medical history, or lack of evidence of insurability.
       ``(E) No reelection after disenrollment for certain 
     plans.--An individual is not eligible to elect a MedicarePlus 
     plan offered by a MedicarePlus organization that is a union 
     sponsor or a Taft-Hartley sponsor if the individual 
     previously had elected a MedicarePlus plan offered by the 
     organization and had subsequently 

[[Page H 12584]]
     discontinued election of such a plan offered by the organization.
       ``(4) Special rule for certain individuals covered under 
     fehbp.--An individual who is enrolled in a health benefit 
     plan under chapter 89 of title 5, United States Code, is not 
     eligible to enroll in a high deductible plan until such time 
     as the Director of the Office of Management and Budget 
     certifies to the Secretary that the Office of Personnel 
     Management has adopted policies which will ensure that the 
     enrollment of such individuals in such plans will not result 
     in increased expenditures for the Federal Government for 
     health benefit plans under such chapter.
       ``(c) Process for Exercising Choice.--
       ``(1) In general.--The Secretary shall establish a process 
     through which elections described in subsection (a) are made 
     and changed, including the form and manner in which such 
     elections are made and changed. Such elections shall be made 
     or changed only during coverage election periods specified 
     under subsection (e) and shall become effective as provided 
     in subsection (f).
       ``(2) Expedited implementation.--The Secretary shall 
     establish the process of electing coverage under this section 
     during the transition period (as defined in subsection 
     (e)(1)(B)) in such an expedited manner as will permit such an 
     election for MedicarePlus plans in an area as soon as such 
     plans become available in that area.
       ``(3) Coordination through medicareplus organizations.--
       ``(A) Enrollment.--Such process shall permit an individual 
     who wishes to elect a MedicarePlus plan offered by a 
     MedicarePlus organization to make such election through the 
     filing of an appropriate election form with the organization.
       ``(B) Disenrollment.--Such process shall permit an 
     individual, who has elected a MedicarePlus plan offered by a 
     MedicarePlus organization and who wishes to terminate such 
     election, to terminate such election through the filing of an 
     appropriate election form with the organization.
       ``(4) Default.--
       ``(A) Initial election.--
       ``(i) In general.--Subject to clause (ii), an individual 
     who fails to make an election during an initial election 
     period under subsection (e)(1) is deemed to have chosen the 
     Medicare fee-for-service program option.
       ``(ii) Seamless continuation of coverage.--The Secretary 
     shall establish procedures under which individuals who are 
     enrolled with a MedicarePlus organization at the time of the 
     initial election period and who fail to elect to receive 
     coverage other than through the organization are deemed to 
     have elected the MedicarePlus plan offered by the 
     organization (or, if the organization offers more than one 
     such plan, the MedicarePlus plan offered by the organization 
     with the lowest net monthly premium).
       ``(B) Continuing periods.--An individual who has made (or 
     is deemed to have made) an election under this section is 
     considered to have continued to make such election until such 
     time as--
       ``(i) the individual changes the election under this 
     section, or
       ``(ii) a MedicarePlus plan is discontinued, if the 
     individual had elected such plan at the time of the 
     discontinuation.
       ``(d) Providing Information To Promote Informed Choice.--
       ``(1) In general.--The Secretary shall provide for 
     activities under this subsection to broadly disseminate 
     information to medicare beneficiaries (and prospective 
     medicare beneficiaries) on the coverage options provided 
     under this section in order to promote an active, informed 
     selection among such options.
       ``(2) Provision of notice.--
       ``(A) Open season notification.--At least 15 days before 
     the beginning of each annual, coordinated election period, 
     the Secretary shall mail to each MedicarePlus eligible 
     individual residing in an area the following:
       ``(i) General election information and information about 
     medicare fee-for-service program.--The general information 
     regarding election, benefits coverage, and procedures 
     described in paragraph (3).
       ``(ii) List of plans and comparison of plan options.--A 
     list identifying the MedicarePlus plans that are (or will be) 
     available to residents of the area (and their service areas) 
     and information, described in paragraph (4) and in 
     comparative form, concerning such plans.
       ``(iii) Medicareplus monthly capitation rate.--The amount 
     of the monthly MedicarePlus capitation rate for the area.
       ``(iv) Additional information.--Any other information that 
     the Secretary determines will assist the individual in making 
     the election under this section.
     The mailing of such information shall be coordinated with the 
     mailing of any annual notice under section 1804.
       ``(B) Notification to newly medicareplus eligible 
     individuals.--To the extent practicable, the Secretary shall, 
     not later than 2 months before the beginning of the initial 
     MedicarePlus enrollment period for an individual described in 
     subsection (e)(1)(A), mail to the individual the information 
     described in subparagraph (A).
       ``(C) Form.--The information disseminated under this 
     paragraph shall be written and formatted in the most easily 
     understandable manner possible.
       ``(D) Periodic updating.--The information described in 
     subparagraph (A) shall be updated on at least an annual basis 
     to reflect changes in the availability of MedicarePlus plans 
     and the benefits and monthly premiums (and net monthly 
     premiums) for such plans.
       ``(3) General election information and information about 
     medicare fee-for-service program.--General information under 
     this paragraph, with respect to coverage under this part 
     during a year, shall include the following:
       ``(A) Benefits.--A general description of the benefits 
     covered (and not covered) under the medicare fee-for-service 
     program under parts A and B, including--
       ``(i) covered items and services, and
       ``(ii) beneficiary cost sharing, such as deductibles, 
     coinsurance, and copayment amounts, and the beneficiary 
     liability for balance billing.
       ``(B) Part b premium.--The part B premium rates that will 
     be charged for part B coverage.
       ``(C) Election procedures.--Information and instructions on 
     how to exercise election options under this section.
       ``(D) Procedural rights.--The general description of 
     procedural rights (including grievance procedures) of 
     beneficiaries under the medicare fee-for-service program and 
     the MedicarePlus program.
       ``(E) Right of organization to terminate contract.--The 
     right of each MedicarePlus organization by law to terminate 
     or refuse to renew its contract and the effect the 
     termination or nonrenewal of its contract may have on 
     individuals enrolled with the MedicarePlus plan under this 
     part.
       ``(F) Use of 911 emergency number.--A statement that the 
     use of the 911 emergency telephone number is appropriate in 
     emergency situations and an explanation of what constitutes 
     an emergency situation.
       ``(4) Information comparing plan options.--Information 
     under this paragraph, with respect to a MedicarePlus plan for 
     a year, shall include the following:
       ``(A) Benefits.--The benefits covered under the plan, 
     including covered items and services beyond those provided 
     under the medicare fee-for-service program, any reductions in 
     beneficiary cost sharing, and any maximum limitations on out-
     of-pocket losses.
       ``(B) Premiums.--The monthly premium (and net monthly 
     premium, including any rebate) for the plan.
       ``(C) Quality.--(i) To the extent available, quality 
     indicators for the benefits under the plan (in comparison 
     with quality indicators under the Medicare fee-for-service 
     program under parts A and B in the area involved), 
     including--
       ``(I) disenrollment rates for medicare enrollees electing 
     to receive benefits through the plan for the previous 2 years 
     (excluding disenrollment due to death or moving outside the 
     plan's service area),
       ``(II) information on medicare enrollee satisfaction and 
     health outcomes, and
       ``(III) whether the plan is out of compliance with any 
     requirements of this part (as determined by the Secretary).
       ``(D) Supplemental coverage options.--Whether the 
     organization offering the plan offers optional supplemental 
     coverage.
       ``(5) Maintaining a toll-free number.--The Secretary shall 
     maintain a toll-free number for inquiries regarding 
     MedicarePlus options and the operation of part C in all areas 
     in which MedicarePlus plans are offered.
       ``(6) Use of nonfederal entities.--The Secretary shall, to 
     the maximum extent feasible, enter into contracts with 
     appropriate non-Federal entities to carry out activities 
     under this subsection.
       ``(7) Provision of information.--A MedicarePlus 
     organization shall provide the Secretary with such 
     information on the organization and each MedicarePlus plan it 
     offers as may be required for the preparation of the 
     information referred to in paragraph (2)(A).
       ``(e) Coverage Election Periods.--
       ``(1) Initial choice upon eligibility to make election.--
       ``(A) In general.--In the case of an individual who first 
     becomes entitled to benefits under part A and enrolled under 
     part B after the beginning of the transition period (as 
     defined in subparagraph (B)), the individual shall make the 
     election under this section during a period (of a duration 
     and beginning at a time specified by the Secretary) at the 
     first time the individual both is entitled to benefits under 
     part A and enrolled under part B. Such period shall be 
     specified in a manner so that, in the case of an individual 
     who elects a MedicarePlus plan during the period, coverage 
     under the plan becomes effective as of the first date on 
     which the individual may receive such coverage.
       ``(B) Transition period defined.--In this subsection, the 
     term `transition period' means, with respect to an individual 
     in an area, the period beginning on the first day of the 
     first month in which a MedicarePlus plan is first made 
     available to individuals in the area and ending with the 
     month preceding the beginning of the first annual, 
     coordinated election period under paragraph (3).
       ``(2) During transition period.--Subject to paragraph (6)--
       ``(A) Continuous open enrollment into a medicareplus 
     option.--During the transition period, a MedicarePlus 
     eligible individual who has elected the Medicare fee-for-
     service program option described in subsection (a)(1)(A) may 
     change such election to a MedicarePlus option described in 
     subsection (a)(1)(B) at any time.
       ``(B) Open disenrollment before end of transition period.--
       ``(i) In general.--During the transition period, an 
     individual who has elected a MedicarePlus option described in 
     subsection (a)(1)(B) for a MedicarePlus plan may change such 
     election to another MedicarePlus plan or to the Medicare fee-
     for-service program option described in subsection (a)(1)(A).
       ``(ii) Special rule.--During the transition period, an 
     individual who has elected a high deductible plan may not 
     change such election to a MedicarePlus plan that is not a 
     high deductible plan unless the individual has had such 
     election in effect for 12 consecutive months.

[[Page H 12585]]

       ``(3) Annual, coordinated election period.--
       ``(A) In general.--Subject to paragraph (5), each 
     individual who is eligible to make an election under this 
     section may change such election during an annual, 
     coordinated election period.
       ``(B) Annual, coordinated election period.--For purposes of 
     this section, the term `annual, coordinated election period' 
     means, with respect to a calendar year (beginning with 1998), 
     the month of October before such year.
       ``(C) Medicareplus health fair during october, 1996.--In 
     the month of October, 1996, the Secretary shall provide for a 
     nationally coordinated educational and publicity campaign to 
     inform MedicarePlus eligible individuals about such plans and 
     the election process provided under this section (including 
     the annual, coordinated election periods that occur in 
     subsequent years).
       ``(4) Special 90-day disenrollment option.--
       ``(A) In general.--In the case of the first time an 
     individual elects any MedicarePlus plan (other than a high 
     deductible plan) offered by a particular MedicarePlus 
     organization under this section, the individual may change 
     such election through the filing of an appropriate notice 
     during the 90-day period beginning on the first day on which 
     the individual's coverage under the MedicarePlus plan under 
     such option becomes effective.
       ``(B) Limitation.--Subparagraph (A)--
       ``(i) shall only apply once for an individual with respect 
     to any particular organization, and
       ``(ii) may not apply more than twice for any individual in 
     a calendar year.
       ``(C) Effect of discontinuation of election.--An individual 
     who discontinues an election under subparagraph (A) may, 
     during the period specified by the Secretary, make a new 
     election under this subsection (a) (or, in the absence of 
     such an election, is deemed at the time of such 
     discontinuation to have elected the Medicare fee-for-service 
     program option described in subsection (a)(1)(A)).
       ``(5) Special election periods.--An individual may 
     discontinue an election of a MedicarePlus plan offered by a 
     MedicarePlus organization other than during an annual, 
     coordinated election period and make a new election under 
     this section if--
       ``(A) the organization's or plan's certification under part 
     C has been terminated or the organization has terminated or 
     otherwise discontinued providing the plan;
       ``(B) the individual is no longer eligible to elect the 
     plan because of a change in the individual's place of 
     residence or other change in circumstances (specified by the 
     Secretary, but not including termination of membership in a 
     qualified association in the case of a plan offered by a 
     qualified association sponsor or termination of the 
     individual's enrollment on the basis described in clause (i) 
     or (ii) section 1851(g)(3)(B));
       ``(C) the individual demonstrates (in accordance with 
     guidelines established by the Secretary) that--
       ``(i) the organization offering the plan substantially 
     violated a material provision of the organization's contract 
     under part C in relation to the individual and the plan; or
       ``(ii) the organization (or an agent or other entity acting 
     on the organization's behalf) materially misrepresented the 
     plan's provisions in marketing the plan to the individual; or
       ``(D) the individual meets such other conditions as the 
     Secretary may provide.
       ``(6) Special rule for high deductible plans.--
     Notwithstanding the previous provisions of this subsection, 
     an individual may elect a high deductible plan only during an 
     annual, coordinated election period described in paragraph 
     (3)(B) or during the month of October, 1996.
       ``(f) Effectiveness of Elections.--
       ``(1) During initial coverage election period.--An election 
     of coverage made during the initial coverage election period 
     under subsection (e)(1)(A) shall take effect upon the date 
     the individual becomes entitled to benefits under part A and 
     enrolled under part B, except as the Secretary may provide 
     (consistent with section 1838) in order to prevent 
     retroactive coverage.
       ``(2) During transition; 90-day disenrollment option.--An 
     election of coverage made under subsection (e)(2) and an 
     election to discontinue a MedicarePlus option under 
     subsection (e)(4) at any time shall take effect with the 
     first calendar month following the date on which the election 
     is made.
       ``(3) Annual, coordinated election period and high 
     deductible plan election.--An election of coverage made 
     during an annual, coordinated election period (as defined in 
     subsection (e)(3)(B)) in a year or for a high deductible plan 
     shall take effect as of the first day of the following year.
       ``(4) Other periods.--An election of coverage made during 
     any other period under subsection (e)(5) shall take effect in 
     such manner as the Secretary provides in a manner consistent 
     (to the extent practicable) with protecting continuity of 
     health benefit coverage.
       ``(g) Guaranteed Issue and Renewal.--
       ``(1) In general.--Except as provided in this subsection, a 
     MedicarePlus organization shall provide that at any time 
     during which elections are accepted under this section with 
     respect to a MedicarePlus plan offered by the organization, 
     the organization will accept without restrictions individuals 
     who are eligible to make such election.
       ``(2) Priority.--If the Secretary determines that a 
     MedicarePlus organization, in relation to a MedicarePlus plan 
     it offers, has a capacity limit and the number of 
     MedicarePlus eligible individuals who elect the plan under 
     this section exceeds the capacity limit, the organization may 
     limit the election of individuals of the plan under this 
     section but only if priority in election is provided--
       ``(A) first to such individuals as have elected the plan at 
     the time of the determination, and
       ``(B) then to other such individuals in such a manner that 
     does not discriminate among the individuals (who seek to 
     elect the plan) on a basis described in section 1852(b).
     The preceding sentence shall not apply if it would result in 
     the enrollment of enrollees substantially nonrepresentative, 
     as determined in accordance with regulations of the 
     Secretary, of the medicare population in the service area of 
     the plan.
       ``(3) Limitation on termination of election.--
       ``(A) In general.--Subject to subparagraph (B), a 
     MedicarePlus organization may not for any reason terminate 
     the election of any individual under this section for a 
     MedicarePlus plan it offers.
       ``(B) Basis for termination of election.--A MedicarePlus 
     organization may terminate an individual's election under 
     this section with respect to a MedicarePlus plan it offers 
     if--
       ``(i) any net monthly premiums required with respect to 
     such plan are not paid on a timely basis (consistent with 
     standards under section 1856 that provide for a grace period 
     for late payment of net monthly premiums),
       ``(ii) the individual has engaged in disruptive behavior 
     (as specified in such standards), or
       ``(iii) the plan is terminated with respect to all 
     individuals under this part.
     Any individual whose election is so terminated is deemed to 
     have elected the Medicare fee-for-service program option 
     described in subsection (a)(1)(A).
       ``(C) Limitation on termination of coverage.--A qualified 
     association sponsor offering a MedicarePlus plan to an 
     individual may not terminate coverage of the individual on 
     the basis that the individual is no longer a member of the 
     association except pursuant to a change of election during an 
     open election period occurring on or after the date of the 
     termination of membership.
       ``(D) Organization obligation with respect to election 
     forms.--Pursuant to a contract under section 1857, each 
     MedicarePlus organization receiving an election form under 
     subsection (c)(3) shall transmit to the Secretary (at such 
     time and in such manner as the Secretary may specify) a copy 
     of such form or such other information respecting the 
     election as the Secretary may specify.
       ``(h) Approval of Marketing Materials.--
       ``(1) Submission.--No marketing materials may be 
     distributed by a MedicarePlus organization to (or for the use 
     of) MedicarePlus eligible individuals unless--
       ``(A) at least 45 days before the date of distribution the 
     organization has submitted the material to the Secretary for 
     review, and
       ``(B) the Secretary has not disapproved the distribution of 
     such material.
       ``(2) Review.--The standards established under section 1856 
     shall include guidelines for the review of all such material 
     submitted and under such guidelines the Secretary shall 
     disapprove such material if the material is materially 
     inaccurate or misleading or otherwise makes a material 
     misrepresentation.
       ``(3) Deemed approval (1-stop shopping).--In the case of 
     material that is submitted under paragraph (1)(A) to the 
     Secretary or a regional office of the Department of Health 
     and Human Services and the Secretary or the office has not 
     disapproved the distribution of marketing materials under 
     paragraph (1)(B) with respect to a MedicarePlus plan in an 
     area, the Secretary is deemed not to have disapproved such 
     distribution in all other areas covered by the plan and 
     organization.
       ``(4) Prohibition of certain marketing practices.--Each 
     MedicarePlus organization shall conform to fair marketing 
     standards in relation to MedicarePlus plans offered under 
     this part, included in the standards established under 
     section 1856. Such standards shall include a prohibition 
     against an organization (or agent of such an organization) 
     completing any portion of any election form used to carry out 
     elections under this section on behalf of any individual.
       ``(i) Effect of Election of MedicarePlus Plan Option.--
     Subject to section 1852(a)(5)--
       ``(1) payments under a contract with a MedicarePlus 
     organization under section 1854(a) with respect to an 
     individual electing a MedicarePlus plan offered by the 
     organization shall be instead of the amounts which (in the 
     absence of the contract) would otherwise be payable under 
     parts A and B for items and services furnished to the 
     individual, and
       ``(2) subject to subsections (e) and (f) of section 1854, 
     only the MedicarePlus organization shall be entitled to 
     receive payments from the Secretary under this title for 
     services furnished to the individual.
       ``(j) Administration.--
       ``(1) In general.--This part and section 1876 shall be 
     administered through an operating division (A) that is 
     established or identified by the Secretary and is in the 
     Department of Health and Human Services, (B) that is separate 
     from the Health Care Financing Administration, and (C) the 
     primary function of which is the administration of this part 
     and such section. The director of such division shall be of 
     equal pay and rank to that of the individual responsible for 
     overall administration of parts A and B.
       ``(2) Transfer authority.--The Secretary shall transfer 
     such personnel, administrative support systems, assets, 
     records, funds, and other resources in the Health Care 
     Financing Administration to the operating division referred 
     to in paragraph (1) as are used in the administration of 
     section 1876 and as may be required to implement the 
     provisions of this part promptly and efficiently.


                 ``benefits and beneficiary protections

       ``Sec. 1852. (a) Basic Benefits.--
       ``(1) In general.--Except as provided in section 1859(b)(2) 
     for high deductible plans, each 

[[Page H 12586]]
     MedicarePlus plan shall provide to members enrolled under this part, 
     through providers and other persons that meet the applicable 
     requirements of this title and part A of title XI--
       ``(A) those items and services for which benefits are 
     available under parts A and B to individuals residing in the 
     area served by the plan, and
       ``(B) additional health services as the Secretary may 
     approve.
     The Secretary shall approve any such additional health care 
     services which the plan proposes to offer to such members, 
     unless the Secretary determines that including such 
     additional services will substantially discourage enrollment 
     by MedicarePlus eligible individuals with the plan.
       ``(2) Satisfaction of requirement.--A MedicarePlus plan 
     (other than a high deductible plan) offered by a MedicarePlus 
     organization satisfies paragraph (1)(A) with respect to 
     benefits for items and services if the following requirements 
     are met:
       ``(A) Fee for service providers.--In the case of benefits 
     furnished through a provider that does not have a contract 
     with the organization, the plan provides for at least the 
     dollar amount of payment for such items and services as would 
     otherwise be provided under parts A and B.
       ``(B) Participating providers.--In the case of benefits 
     furnished through a provider that has such a contract, the 
     individual's liability for payment for such items and 
     services does not exceed (after taking into account any 
     deductible, which does not exceed any deductible under parts 
     A and B) the lesser of the following:
       ``(i) Individual's liability under medicare fee-for-service 
     program.--The amount of the liability that the individual 
     would have had (based on the provider being a participating 
     provider) if the individual had not elected coverage under a 
     MedicarePlus plan.
       ``(ii) Medicare coinsurance applied to plan payment 
     rates.--The applicable coinsurance or copayment rate (that 
     would have applied under the Medicare fee-for-service program 
     option described in section 1851(a)(1)(A)) of the payment 
     rate provided under the contract.
       ``(3) Supplemental optional benefits.--Each MedicarePlus 
     organization may offer under a MedicarePlus plan optional 
     supplemental benefits to each individual enrolled in the plan 
     under this part for an additional premium amount. If the 
     supplemental benefits are offered only to individuals 
     enrolled in the sponsor's plan under this part, the 
     additional premium amount shall be the same for all enrolled 
     individuals in the MedicarePlus payment area. Such benefits 
     may be marketed and sold by the MedicarePlus organization 
     outside of the enrollment process described in section 
     1851(c).
       ``(4) Organization as secondary payer.--Notwithstanding any 
     other provision of law, a MedicarePlus organization may (in 
     the case of the provision of items and services to an 
     individual under a MedicarePlus plan under circumstances in 
     which payment under this title is made secondary pursuant to 
     section 1862(b)(2)) charge or authorize the provider of such 
     services to charge, in accordance with the charges allowed 
     under such a law, plan, or policy--
       ``(A) the insurance carrier, employer, or other entity 
     which under such law, plan, or policy is to pay for the 
     provision of such services, or
       ``(B) such individual to the extent that the individual has 
     been paid under such law, plan, or policy for such services.
       ``(5) National coverage determinations.--If there is a 
     national coverage determination made in the period beginning 
     on the date of an announcement under section 1854(b) and 
     ending on the date of the next announcement under such 
     section and the Secretary projects that the determination 
     will result in a significant change in the costs to a 
     MedicarePlus organization of providing the benefits that are 
     the subject of such national coverage determination and that 
     such change in costs was not incorporated in the 
     determination of the annual MedicarePlus capitation rate 
     under section 1854 included in the announcement made at the 
     beginning of such period--
       ``(A) such determination shall not apply to contracts under 
     this part until the first contract year that begins after the 
     end of such period, and
       ``(B) if such coverage determination provides for coverage 
     of additional benefits or coverage under additional 
     circumstances, section 1851(i) shall not apply to payment for 
     such additional benefits or benefits provided under such 
     additional circumstances until the first contract year that 
     begins after the end of such period,
     unless otherwise required by law.
       ``(b) Antidiscrimination.--A MedicarePlus organization may 
     not deny, limit, or condition the coverage or provision of 
     benefits under this part based on the health status, claims 
     experience, receipt of health care, medical history, or lack 
     of evidence of insurability, of an individual. A MedicarePlus 
     organization shall notify each enrollee under this part of 
     provisions of this subsection at the time of the individual's 
     enrollment.
       ``(c) Detailed Description of Plan Provisions.--A 
     MedicarePlus organization shall disclose, in clear, accurate, 
     and standardized form to each enrollee with a MedicarePlus 
     plan offered by the organization under this part at the time 
     of enrollment and at least annually thereafter, the following 
     information regarding such plan:
       ``(1) Service area.--The plan's service area.
       ``(2) Benefits.--Benefits under the plan offered, including 
     information described in section 1851(d)(3)(A) and exclusions 
     from coverage and, if it is a high deductible plan, a 
     comparison of benefits under such a plan with benefits under 
     other MedicarePlus plans.
       ``(3) Access.--The number, mix, and distribution of 
     participating providers.
       ``(4) Out-of-area coverage.-- Out-of-area coverage provided 
     by the plan.
       ``(5) Emergency coverage.--Coverage of emergency services 
     and urgently needed care.
       ``(6) Optional supplemental coverage.-- Optional 
     supplemental coverage available from the organization 
     offering the plan, including--
       ``(A) supplemental items and services covered, and
       ``(B) the premium price for the optional supplemental 
     benefits.
       ``(7) Prior authorization rules.--Rules regarding prior 
     authorization or other review requirements that could result 
     in nonpayment.
       ``(8) Plan grievance procedures.-- Any plan-specific appeal 
     or grievance rights and procedures.
       ``(9) Quality assurance program.--A description of the 
     organization's quality assurance program under subsection 
     (e).
       ``(d) Access to Services.--
       ``(1) In general.--A MedicarePlus organization offering a 
     MedicarePlus plan may restrict the providers from whom the 
     benefits under the plan are provided so long as--
       ``(A) the organization makes such benefits available and 
     accessible to each individual electing the plan within the 
     plan service area with reasonable promptness and in a manner 
     which assures continuity in the provision of benefits;
       ``(B) when medically necessary the organization makes such 
     benefits available and accessible 24 hours a day and 7 days a 
     week;
       ``(C) the plan provides for reimbursement with respect to 
     services which are covered under subparagraphs (A) and (B) 
     and which are provided to such an individual other than 
     through the organization, if--
       ``(i) the services were medically necessary and immediately 
     required because of an unforeseen illness, injury, or 
     condition, and
       ``(ii) it was not reasonable given the circumstances to 
     obtain the services through the organization;
       ``(D) the organization provides access to appropriate 
     providers, including credentialed specialists, for medically 
     necessary treatment and services, and
       ``(E) coverage is provided for emergency services (as 
     defined in paragraph (3)) without regard to prior 
     authorization or the emergency care provider's contractual 
     relationship with the organization.
       ``(2) Protection of enrollees for certain emergency 
     services.--
       ``(A) Participating providers.--In the case of emergency 
     services described in subparagraph (C) which are furnished by 
     a participating physician or provider of services to an 
     individual enrolled with a MedicarePlus organization under 
     this section, the applicable participation agreement is 
     deemed to provide that the physician or provider of services 
     will accept as payment in full from the organization for such 
     emergency services described in subparagraph (C) the amount 
     that would be payable to the physician or provider of 
     services under part B and from the individual under such 
     part, if the individual were not enrolled with such an 
     organization under this part.
       ``(B) Nonparticipating providers.--In the case of emergency 
     services described in subparagraph (C) which are furnished by 
     a nonparticipating physician, the limitations on actual 
     charges for such services otherwise applicable under part B 
     (to services furnished by individuals not enrolled with a 
     MedicarePlus organization under this section) shall apply in 
     the same manner as such limitations apply to services 
     furnished to individuals not enrolled with such an 
     organization.
       ``(C) Emergency services described.--The emergency services 
     described in this subparagraph are emergency services which 
     are furnished to an enrollee of a MedicarePlus organization 
     under this part by a physician or provider of services that 
     is not under a contract with the organization.
       ``(D) Exception for unrestricted fee-for-service plans.--
     The previous provisions of this paragraph shall not apply in 
     the case of a MedicarePlus organization in relation to a 
     MedicarePlus unrestricted fee-for-service plan (as defined in 
     section 1859(b)(3)).
       ``(3) Definition of emergency services.--In this 
     subsection, the term `emergency services' means, with respect 
     to an individual enrolled with an organization, covered 
     inpatient and outpatient services that--
       ``(A) are furnished by an appropriate source other than the 
     organization,
       ``(B) are needed immediately because of an injury or sudden 
     illness, and
       ``(C) are needed because the time required to reach the 
     organization's providers or suppliers would have meant risk 
     of serious damage to the patient's health.
       ``(e) Quality Assurance Program.--
       ``(1) In general.--Each MedicarePlus organization must have 
     arrangements, established in accordance with regulations of 
     the Secretary, for an ongoing quality assurance program for 
     health care services it provides to individuals enrolled with 
     MedicarePlus plans of the organization.
       ``(2) Elements of program.--The quality assurance program 
     shall--
       ``(A) stress health outcomes;
       ``(B) provide for the establishment of written protocols 
     for utilization review, based on current standards of medical 
     practice;
       ``(C) provide review by physicians and other health care 
     professionals of the process followed in the provision of 
     such health care services;
       ``(D) monitor and evaluate high volume and high risk 
     services and the care of acute and chronic conditions;
       ``(E) evaluate the continuity and coordination of care that 
     enrollees receive;
       ``(F) have mechanisms to detect both underutilization and 
     overutilization of services;
       ``(G) after identifying areas for improvement, establish or 
     alter practice parameters;

[[Page H 12587]]

       ``(H) take action to improve quality and assesses the 
     effectiveness of such action through systematic follow-up;
       ``(I) make available information on quality and outcomes 
     measures to facilitate beneficiary comparison and choice of 
     health coverage options (in such form and on such quality and 
     outcomes measures as the Secretary determines to be 
     appropriate); and
       ``(J) be evaluated on an ongoing basis as to its 
     effectiveness.
       ``(3) External review.--Each MedicarePlus organization 
     shall, for each MedicarePlus plan it operates, have an 
     agreement with an independent quality review and improvement 
     organization approved by the Secretary.
       ``(4) Exception for unrestricted fee-for-service plans.--
     Paragraphs (1) and (3) and subsection (h)(2) (relating to 
     maintaining medical records) shall not apply in the case of a 
     MedicarePlus organization in relation to a MedicarePlus 
     unrestricted fee-for-service plan.
       ``(5) Treatment of accreditation.--The Secretary shall 
     provide that a MedicarePlus organization is deemed to meet 
     the requirements of paragraphs (1) through (3) of this 
     subsection and subsection (h) (relating to confidentiality 
     and accuracy of medical records) if the organization is 
     accredited (and periodically reaccredited) by a private 
     organization under a process that the Secretary has 
     determined assures that the organization meets standards that 
     are no less stringent than the standards established under 
     section 1856 to carry out this subsection and such 
     subsection.
       ``(f) Coverage Determinations.--
       ``(1) Decisions on nonemergency care.--A MedicarePlus 
     organization shall make determinations regarding 
     authorization requests for nonemergency care on a timely 
     basis, depending on the urgency of the situation.
       ``(2) Appeals.--
       ``(A) In general.--Appeals from a determination of an 
     organization denying coverage shall be decided within 30 days 
     of the date of receipt of medical information, but not later 
     than 60 days after the date of the decision.
       ``(B) Physician decision on certain appeals.--Appeal 
     decisions relating to a determination to deny coverage based 
     on a lack of medical necessity shall be made only by a 
     physician.
       ``(C) Emergency cases.--Appeals from such a determination 
     involving a life-threatening or emergency situation shall be 
     decided on an expedited asis.
       ``(g) Grievances and Appeals.--
       ``(1) Grievance mechanism.--Each MedicarePlus organization 
     must provide meaningful procedures for hearing and resolving 
     grievances between the organization (including any entity or 
     individual through which the organization provides health 
     care services) and enrollees with MedicarePlus plans of the 
     organization under this part.
       ``(2) Appeals.--An enrollee with a MedicarePlus plan of a 
     MedicarePlus organization under this part who is dissatisfied 
     by reason of the enrollee's failure to receive any health 
     service to which the enrollee believes the enrollee is 
     entitled and at no greater charge than the enrollee believes 
     the enrollee is required to pay is entitled, if the amount in 
     controversy is $100 or more, to a hearing before the 
     Secretary to the same extent as is provided in section 
     205(b), and in any such hearing the Secretary shall make the 
     organization a party. If the amount in controversy is $1,000 
     or more, the individual or organization shall, upon notifying 
     the other party, be entitled to judicial review of the 
     Secretary's final decision as provided in section 205(g), and 
     both the individual and the organization shall be entitled to 
     be parties to that judicial review. In applying sections 
     205(b) and 205(g) as provided in this subparagraph, and in 
     applying section 205(l) thereto, any reference therein to the 
     Commissioner of Social Security or the Social Security 
     Administration shall be considered a reference to the 
     Secretary or the Department of Health and Human Services, 
     respectively.
       ``(3) Independent review of certain coverage denials.--The 
     Secretary shall contract with an independent, outside entity 
     to review and resolve appeals of denials of coverage related 
     to urgent or emergency services with respect to MedicarePlus 
     plans.
       ``(4) Coordination with secretary of labor.--The Secretary 
     shall consult with the Secretary of Labor so as to ensure 
     that the requirements of this subsection, as they apply in 
     the case of grievances referred to in paragraph (1) to which 
     section 503 of the Employee Retirement Income Security Act of 
     1974 applies, are applied in a manner consistent with the 
     requirements of such section 503, so long as such 
     requirements provide at least as much protection for 
     beneficiaries as would apply if this paragraph did not apply.
       ``(h) Confidentiality and Accuracy of Enrollee Records.--
     Each MedicarePlus organization shall establish procedures--
       ``(1) to safeguard the privacy of individually identifiable 
     enrollee information, and
       ``(2) to maintain accurate and timely medical records for 
     enrollees.
       ``(i) Information on Advance Directives.--Each MedicarePlus 
     organization shall meet the requirement of section 1866(f) 
     (relating to maintaining written policies and procedures 
     respecting advance directives).
       ``(j) Rules Regarding Physician Participation.--
       ``(1) Procedures.--Each MedicarePlus organization shall 
     establish reasonable procedures relating to the participation 
     (under an agreement etween a physician and the organization) 
     of physicians under MedicarePlus plans offered by the 
     organization under this part. Such procedures shall include--
       ``(A) providing notice of the rules regarding 
     participation,
       ``(B) providing written notice of participation decisions 
     that are adverse to physicians, and
       ``(C) providing a process within the organization for 
     appealing adverse decisions, including the presentation of 
     information and views of the physician regarding such 
     decision.
       ``(2) Consultation in medical policies.--A MedicarePlus 
     organization shall consult with physicians who have entered 
     into participation agreements with the organization regarding 
     the organization's medical policy, quality, and medical 
     management procedures.
       ``(3) Limitations on physician incentive plans.--
       ``(A) In general.--No MedicarePlus organization may operate 
     any physician incentive plan (as defined in subparagraph (B)) 
     unless the following requirements are met:
       ``(i) No specific payment is made directly or indirectly 
     under the plan to a physician or physician group as an 
     inducement to reduce or limit medically necessary services 
     provided with respect to a specific individual enrolled with 
     the organization.I26  ``(ii) If the plan places a physician 
     or physician group at substantial financial risk (as 
     determined by the Secretary) for services not provided by the 
     physician or physician group, the organization--

       ``(I) provides stop-loss protection for the physician or 
     group that is adequate and appropriate, based on standards 
     developed by the Secretary that take into account the number 
     of physicians placed at such substantial financial risk in 
     the group or under the plan and the number of individuals 
     enrolled with the organization who receive services from the 
     physician or the physician group, and
       ``(II) conducts periodic surveys of both individuals 
     enrolled and individuals previously enrolled with the 
     organization to determine the degree of access of such 
     individuals to services provided by the organization and 
     satisfaction with the quality of such services.

       ``(iii) The organization provides the Secretary with 
     descriptive information regarding the plan, sufficient to 
     permit the Secretary to determine whether the plan is in 
     compliance with the requirements of this subparagraph.
       ``(B) Physician incentive plan defined.--In this paragraph, 
     the term `physician incentive plan' means any compensation 
     arrangement between a MedicarePlus organization and a 
     physician or physician group that may directly or indirectly 
     have the effect of reducing or limiting services provided 
     with respect to individuals enrolled with the organization 
     under this part.
       ``(4) Limitation on provider indemnification.--A 
     MedicarePlus organization may not provide (directly or 
     indirectly) for a provider (or group of providers) to 
     indemnify the organization against any liability resulting 
     from a civil action brought by or on behalf of an enrollee 
     under this part for any damage caused to an enrollee with a 
     MedicarePlus plan of the organization by the organization's 
     denial of medically necessary care.
       ``(5) Exception for unrestricted fee-for-service plans.--
     The previous provisions of this subsection shall not apply in 
     the case of a MedicarePlus organization in relation to a 
     MedicarePlus unrestricted fee-for-service plan.


     ``organizational and financial requirements for medicareplus 
            organizations; provider-sponsored organizations

       ``Sec. 1853. (a) Organized and Licensed Under State Law.--
       ``(1) In general.--A MedicarePlus organization shall be 
     organized and licensed under State law as a risk-bearing 
     entity eligible to offer health insurance or health benefits 
     coverage in each State in which it offers a MedicarePlus 
     plan.
       ``(2) Exception for certain union sponsors and taft-hartley 
     sponsors.--Paragraph (1) shall not apply to a MedicarePlus 
     organization that is a union sponsor or Taft-Hartley sponsor.
       ``(3) Exception for qualified associations sponsor.--
     Paragraph (1) shall not apply to a MedicarePlus organization 
     that is a qualified association sponsor.
       ``(4) Special rules for provider-sponsored organizations.--
       ``(A) In general.--A provider-sponsored organization that 
     seeks to offer a MedicarePlus plan in a State may apply for a 
     waiver of the requirement of paragraph (1) for that 
     organization operating in that State.
       ``(B) Standard.--The Secretary shall act on such an 
     application within 60 days after the date it is filed and 
     shall grant such a waiver for an organization with respect to 
     a State if the Secretary determines that--
       ``(i) the State has failed to complete action on a 
     licensing application of the organization within 90 days of 
     the date of the State's receipt of the completed application; 
     or
       ``(ii) the State denied such a licensing application and--

       ``(I) the State's licensing standards or review process 
     imposes any requirements, procedures, or other standards to 
     such organizations that are not generally applicable to any 
     other entities engaged in substantially similar business,
       ``(II) such standards or review process applies solvency 
     standards for the organization and the State is not approved 
     under subsection (e)(2)(B), or
       ``(III) the State has used solvency standards to deny or 
     discriminate against such an organization that has been 
     provided a certificate of solvency under subsection (e)(2).

     No period before the date of the enactment of this section 
     shall be included in determining the 90-day period described 
     in clause (i).
       ``(C) Treatment of waiver.--In the case of a waiver granted 
     under this paragraph for a provider-sponsored organization--
       ``(i) the waiver shall be effective for a 36-month period, 
     except it may be renewed based on a subsequent application 
     filed during the last 6 months of such period,
       ``(ii) the waiver is conditioned upon the pendency of the 
     licensure application during the period the waiver is in 
     effect, and

[[Page H 12588]]

       ``(iii) any provisions of State law which relate to the 
     licensing of the organization and which prohibit the 
     organization from providing coverage pursuant to a contract 
     under this part shall be superseded.
     Nothing in this subparagraph shall be construed as limiting 
     the number of times such a waiver may be renewed.
       ``(D) Construction.--Nothing in this paragraph shall be 
     construed as affecting the operation of section 514 of the 
     Employee Retirement Income Security Act of 1974.
       ``(5) Exception if required to offer more than medicareplus 
     plans.--Paragraph (1) shall not apply to a MedicarePlus 
     organization in a State if the State requires the 
     organization, as a condition of licensure, to offer any 
     product or plan other than a MedicarePlus plan.
       ``(6) Exception in cases of unreasonable barriers to market 
     entry.--
       ``(A) In general.--A MedicarePlus organization that seeks 
     to offer a MedicarePlus plan in a State may apply for a 
     waiver of the requirement of paragraph (1) for that 
     organization operating in that State.
       ``(B) Standard.--The Secretary shall act on such an 
     application within 60 days after the date it is filed and 
     shall grant such a waiver for an organization with respect to 
     a State if the Secretary determines that--
       ``(i) the State (I) denied such a licensing application or 
     (II) unreasonably delayed in acting upon the application, and
       ``(ii) the State's licensing standards or review process 
     imposes unreasonable barriers to market entry, including 
     through the imposition of any requirements, procedures, or 
     other standards to such organizations that are not generally 
     applicable to any other entities engaged in substantially 
     similar business.
       ``(C) Application of certain rules.--The provisions of 
     subparagraphs (C) and (D) of paragraph (4) shall apply to 
     this paragraph in the same manner as they apply under such 
     paragraph, except that for this purpose any reference in 
     paragraph (4)(C)(i) to 36-month period is deemed a reference 
     to a 24-month period.
       ``(b) Prepaid Payment.--A MedicarePlus organization shall 
     be compensated (except for deductibles, coinsurance, and 
     copayments) for the provision of health care services to 
     enrolled members by a payment which is paid on a periodic 
     basis without regard to the date the health care services are 
     provided and which is fixed without regard to the frequency, 
     extent, or kind of health care service actually provided to a 
     member.
       ``(c) Assumption of Full Financial Risk.--The MedicarePlus 
     organization shall assume full financial risk on a 
     prospective basis for the provision of the health care 
     services (except, at the election of the organization, 
     hospice care) for which benefits are required to be provided 
     under section 1852(a)(1), except that the organization--
       ``(1) may obtain insurance or make other arrangements for 
     the cost of providing to any enrolled member such services 
     the aggregate value of which exceeds $5,000 in any year,
       ``(2) may obtain insurance or make other arrangements for 
     the cost of such services provided to its enrolled members 
     other than through the organization because medical necessity 
     required their provision before they could be secured through 
     the organization,
       ``(3) may obtain insurance or make other arrangements for 
     not more than 90 percent of the amount by which its costs for 
     any of its fiscal years exceed 115 percent of its income for 
     such fiscal year, and
       ``(4) may make arrangements with physicians or other health 
     professionals, health care institutions, or any combination 
     of such individuals or institutions to assume all or part of 
     the financial risk on a prospective basis for the provision 
     of basic health services by the physicians or other health 
     professionals or through the institutions.
     In the case of a MedicarePlus organization that is a union 
     sponsor, Taft-Hartley sponsor, or a qualified association 
     sponsor, this subsection shall not apply with respect to 
     MedicarePlus plans offered by such organization and issued by 
     an organization to which subsection (b)(1) applies or by a 
     provider-sponsored organization (as defined in section 
     1854(a)).
       ``(d) Provision Against Risk of Insolvency.--
       ``(1) In general.--Each MedicarePlus organization shall 
     meet standards under section 1856 relating to the financial 
     solvency and capital adequacy of the organization and 
     including provision to prevent enrollees from being held 
     liable to any person or entity for the plan sponsor's debts 
     in the event of the plan sponsor's insolvency. Such standards 
     shall take into account the nature and type of MedicarePlus 
     plans offered by the organization.
       ``(2) Treatment of provider-sponsored organizations.--
       ``(A) In general.--In the case of an entity that is a 
     provider-sponsored organization that is operating--
       ``(i) in a State approved under subparagraph (B), the 
     organization shall meet the standards described in paragraph 
     (1) through licensure by the State, or
       ``(ii) in a State that is not so approved, the organization 
     shall meet the standards described in paragraph (1) through 
     application and certification licensure by the Secretary.
       ``(B) Approved states.--
       ``(i) Application process.--For purposes of subparagraph 
     (A), the Secretary shall establish a process under which a 
     State may apply to the Secretary for a determination that the 
     State is applying to provider-sponsored organizations, 
     through its process for licensing provider-sponsored 
     organizations, solvency standards that are identical with the 
     solvency standards established under section 1856(c) for such 
     organizations.
       ``(ii) Determination.--The Secretary shall approve such a 
     State if the Secretary determines that the State is so 
     applying such standards. If the Secretary denies such an 
     approval, the State may reapply for such a determination.
       ``(iii) Publication.--The Secretary shall publish a list of 
     States that are approved under this subparagraph.
       ``(3) Treatment of union and taft-hartley sponsors.--An 
     entity that is a union sponsor or a Taft-Hartley sponsor is 
     deemed to meet the requirement of paragraph (1).
       ``(4) Treatment of certain qualified association 
     sponsors.--An entity that is a qualified association sponsor 
     is deemed to meet the requirement of paragraph (1) with 
     respect to MedicarePlus plans offered by such association and 
     issued by an organization to which subsection (b)(1) applies 
     or by a provider-sponsored organization.
       ``(e) Provider-Sponsored Organization Defined.--
       ``(1) In general.--In this part, the term `provider-
     sponsored organization' means a public or private entity--
       ``(A) that is established or organized by a health care 
     provider, or group of affiliated health care providers,
       ``(B) that provides a substantial proportion (as defined by 
     the Secretary) of the health care items and services under 
     the contract under this part directly through the provider or 
     affiliated group of providers, and
       ``(C) with respect to which those affiliated providers that 
     share, directly or indirectly, substantial financial risk 
     with respect to the provision of such items and services have 
     at least a majority financial interest in the entity.
       ``(2) Substantial proportion.--In defining what is a 
     `substantial proportion' for purposes of paragraph (1)(A), 
     the Secretary--
       ``(A) shall take into account the need for such an 
     organization to assume responsibility for a substantial 
     proportion of services in order to assure financial stability 
     and the practical difficulties in such an organization 
     integrating a very wide range of service providers; and
       ``(B) may vary such proportion based upon relevant 
     differences among organizations, such as their location in an 
     urban or rural area.
       ``(3) Affiliation.--For purposes of this subsection, a 
     provider is `affiliated' with another provider if, through 
     contract, ownership, or otherwise--
       ``(A) one provider, directly or indirectly, controls, is 
     controlled by, or is under common control with the other,
       ``(B) both providers are part of a controlled group of 
     corporations under section 1563 of the Internal Revenue Code 
     of 1986, or
       ``(C) both providers are part of an affiliated service 
     group under section 414 of such Code.
       ``(4) Control.--For purposes of paragraph (3), control is 
     presumed to exist if one party, directly or indirectly, owns, 
     controls, or holds the power to vote, or proxies for, not 
     less than 51 percent of the voting rights or governance 
     rights of another.
       ``(5) Health care provider defined.--In this subsection and 
     subsection (f), the term `health care provider' means--
       ``(A) any individual who is engaged in the delivery of 
     health care services in a State and who is required by State 
     law or regulation to be licensed or certified by the State to 
     engage in the delivery of such services in the State, and
       ``(B) any entity that is engaged in the delivery of health 
     care services in a State and that, if it is required by State 
     law or regulation to be licensed or certified by the State to 
     engage in the delivery of such services in the State, is so 
     licensed.
       ``(6) Regulations.--The Secretary shall issue regulations 
     to carry out this subsection.
       ``(f) Application of Antitrust Rule of Reason to Provider-
     Sponsored Organizations.--
       ``(1) Rule of reason standard.--In any action under the 
     antitrust laws, or under any law of a State (as defined in 
     section 4G(2) of the Clayton Act) similar to the antitrust 
     laws, the following conduct shall not be deemed illegal per 
     se:
       ``(A) The conduct of a provider-sponsored organization, and 
     affiliated providers of the organization, in negotiating, 
     making, or performing a contract (including the establishment 
     and modification of a fee schedule and the development of a 
     panel of physicians), to the extent such contract is for the 
     purpose of providing health care services to individuals 
     under the terms of a MedicarePlus plan offered by such an 
     organization.
       ``(B) The exchange of information among health care 
     providers relating to costs, sales, profitability, marketing, 
     prices, or fees of any health care product or service if--
       ``(i) the exchange of such information was solely for the 
     purpose of establishing a provider-sponsored organization and 
     was reasonably required for such purpose, and
       ``(ii) such information was not used for any other purpose.
     Such conduct shall be judged on the basis of its 
     reasonableness, taking into account all relevant factors 
     affecting competition, including the effects on competition 
     in properly defined markets.
       ``(C) The conduct of a group of health care providers, and 
     provider members of such a group, in negotiating, making, or 
     performing a contract (including the establishment and 
     modification of a fee schedule and the development of a panel 
     of physicians) with a provider-sponsored organization, to the 
     extent such contract is for the purpose of providing health 
     care services to individuals under the terms of a 
     MedicarePlus plan of the organization, but only if the group 
     meets the requirements of paragraph (2).
     Such conduct shall be judged on the basis of its 
     reasonableness, taking into account all relevant factors 
     affecting competition, including the effects on competition 
     in properly defined markets. 

[[Page H 12589]]

       ``(2) Requirements for group.--A group of health care 
     providers meets the requirements of this paragraph with 
     respect to a MedicarePlus plan of a provider-sponsored 
     organization if the group--
       ``(i) is not a provider-sponsored organization,
       ``(ii) is organized by, operated by, and composed only of 
     members who are health care providers and for purposes that 
     include providing health care services,
       ``(iii) is funded in part by capital contributions made by 
     the members of such group,
       ``(iv) with respect to each contract made by such group for 
     the purpose of providing a type of health care service to 
     individuals under the terms of the plan--

       ``(I) requires all members of such group who engage in 
     providing such type of health care service to agree to 
     provide health care services of such type under such 
     contract,
       ``(II) receives the compensation paid for the health care 
     services of such type provided under such contract by such 
     members, and
       ``(III) provides for the distribution of such compensation,

       ``(v) has established, consistent with the requirements of 
     this part, a program to review, pursuant to written 
     guidelines, the quality, efficiency, and appropriateness of 
     treatment methods and setting of services for all health care 
     providers and all patients participating in the plan, along 
     with internal procedures to correct identified deficiencies 
     relating to such methods and such services,
       ``(vi) has established, consistent with the requirements of 
     this part, a program to monitor and control utilization of 
     health care services provided under the plan, for the purpose 
     of improving efficient, appropriate care and eliminating the 
     provision of unnecessary health care services,
       ``(vii) has established a management program to coordinate 
     the delivery of health care services for all health care 
     providers and all patients participating in the plan, for the 
     purpose of achieving efficiencies and enhancing the quality 
     of health care services provided, and
       ``(viii) has established, consistent with the requirements 
     of this part, a grievance and appeal process for such group 
     designed to review and promptly resolve beneficiary or 
     patient grievances and complaints.
       ``(3) Definitions.--For purposes of this subsection:
       ``(A) Antitrust laws.--The term `antitrust laws' has the 
     meaning given it in subsection (a) of the first section of 
     the Clayton Act (15 U.S.C. 12), except that such term 
     includes section 5 of the Federal Trade Commission Act (15 
     U.S.C. 45) to the extent that such section 5 applies to 
     unfair methods of competition.
       ``(B) Health care service.--The term `health care service' 
     means any service for which payment may be made under a 
     MedicarePlus plan including services related to the delivery 
     or administration of such service.
       ``(3) Issuance of guidelines.--Not later than 120 days 
     after the date of the enactment of this part, the Attorney 
     General and the Federal Trade Commission shall issue jointly 
     guidelines specifying the enforcement policies and analytical 
     principles that will be applied by the Department of Justice 
     and the Commission with respect to the operation of this 
     subsection.
       ``(g) Organizations Treated as MedicarePlus Organizations 
     During Transition.--Any of the following organizations shall 
     be considered to qualify as a MedicarePlus organization for 
     contract years beginning before January 1, 1998:
       ``(1) Health maintenance organizations.--An organization 
     that is organized under the laws of any State and that is a 
     qualified health maintenance organization (as defined in 
     section 1310(d) of the Public Health Service Act), an 
     organization recognized under State law as a health 
     maintenance organization, or a similar organization regulated 
     under State law for solvency in the same manner and to the 
     same extent as such a health maintenance organization.
       ``(2) Licensed insurers.--An organization that is organized 
     under the laws of any State and--
       ``(A) is licensed by a State agency as an insurer for the 
     offering of health benefit coverage, or
       ``(B) is licensed by a State agency as a service benefit 
     plan,
     but only for individuals residing in an area in which the 
     organization is licensed to offer health insurance coverage.
       ``(3) Current risk-contractors.--An organization that is an 
     eligible organization (as defined in section 1876(b)) and 
     that has a risk-sharing contract in effect under section 1876 
     as of the date of the enactment of this section.


                ``payments to medicareplus organizations

       ``Sec. 1854. (a) Payments to Organizations.--
       ``(1) Monthly payments.--
       ``(A) In general.--Under a contract under section 1857 and 
     subject to subsections (e) and (f), the Secretary shall make 
     monthly payments under this section in advance to each 
     MedicarePlus organization, with respect to coverage of an 
     individual under this part in a MedicarePlus payment area for 
     a month, in an amount equal to \1/12\ of the annual 
     MedicarePlus capitation rate (as calculated under subsection 
     (c)) with respect to that individual for that area, adjusted 
     for such risk factors as age, disability status, gender, 
     institutional status, and such other factors as the Secretary 
     determines to be appropriate, so as to ensure actuarial 
     equivalence. The Secretary may add to, modify, or substitute 
     for such factors, if such changes will improve the 
     determination of actuarial equivalence.
       ``(B) Special rule for end-stage renal disease.--The 
     Secretary shall establish a separate rate of payment to a 
     MedicarePlus organization with respect to any individual 
     determined to have end-stage renal disease and enrolled in a 
     MedicarePlus plan of the organization. Such rate of payment 
     shall be actuarially equivalent to rates paid to other 
     enrollees in the MedicarePlus payment area (or such other 
     area as specified by the Secretary).
       ``(2) Adjustment to reflect number of enrollees.--
       ``(A) In general.--The amount of payment under this 
     subsection may be retroactively adjusted to take into account 
     any difference between the actual number of individuals 
     enrolled with an organization under this part and the number 
     of such individuals estimated to be so enrolled in 
     determining the amount of the advance payment.
       ``(B) Special rule for certain enrollees.--
       ``(i) In general.--Subject to clause (ii), the Secretary 
     may make retroactive adjustments under subparagraph (A) to 
     take into account individuals enrolled during the period 
     beginning on the date on which the individual enrolls with a 
     MedicarePlus organization under a plan operated, sponsored, 
     or contributed to by the individual's employer or former 
     employer (or the employer or former employer of the 
     individual's spouse) and ending on the date on which the 
     individual is enrolled in the organization under this part, 
     except that for purposes of making such retroactive 
     adjustments under this subparagraph, such period may not 
     exceed 90 days.
       ``(ii) Exception.--No adjustment may be made under clause 
     (i) with respect to any individual who does not certify that 
     the organization provided the individual with the disclosure 
     statement described in section 1852(c) at the time the 
     individual enrolled with the organization.
       ``(b) Annual Announcement of Payment Rates.--
       ``(1) Annual announcement.--The Secretary shall annually 
     determine, and shall announce (in a manner intended to 
     provide notice to interested parties) not later than August 1 
     before the calendar year concerned--
       ``(A) the annual MedicarePlus capitation rate for each 
     MedicarePlus payment area for the year, and
       ``(B) the risk and other factors to be used in adjusting 
     such rates under subsection (a)(1)(A) for payments for months 
     in that year.
       ``(2) Advance notice of methodological changes.--At least 
     45 days before making the announcement under paragraph (2) 
     for a year, the Secretary shall provide for notice to 
     MedicarePlus organizations of proposed changes to be made in 
     the methodology from the methodology and assumptions used in 
     the previous announcement and shall provide such 
     organizations an opportunity to comment on such proposed 
     changes.
       ``(3) Explanation of assumptions.--In each announcement 
     made under paragraph (1) for a year, the Secretary shall 
     include an explanation of the assumptions and changes in 
     methodology used in the announcement in sufficient detail so 
     that MedicarePlus organizations can compute monthly adjusted 
     MedicarePlus capitation rates for individuals in each 
     MedicarePlus payment area which is in whole or in part within 
     the service area of such an organization.
       ``(c) Calculation of Annual MedicarePlus Capitation 
     Rates.--
       ``(1) In General.--For purposes of this part, the annual 
     MedicarePlus capitation rate, for a MedicarePlus payment area 
     for a contract year consisting of a calendar year, is equal 
     to the greatest of the following:
       ``(A) Blended capitation rate.--The sum of--
       ``(i) area-specific percentage for the year (as specified 
     under paragraph (2) for the year) of the annual area-specific 
     MedicarePlus capitation rate for the year for the 
     MedicarePlus payment area, as determined under paragraph (3), 
     and
       ``(ii) national percentage (as specified under paragraph 
     (2) for the year) of the input-price-adjusted annual national 
     MedicarePlus capitation rate for the year, as determined 
     under paragraph (4),
     multiplied by a budget neutrality adjustment factor 
     determined under paragraph (5).
       ``(B) Minimum amount.--
       ``(i) For 1996, $300.
       ``(ii) For 1997, $350.
       ``(iii) For a succeeding year, is the minimum amount 
     specified in this subparagraph for the preceding year 
     increased by national average per capita growth percentage, 
     specified under paragraph (6) for that succeeding year.
       ``(C) Minimum increase of 2 percent over previous year's 
     rate.--
       ``(i) For 1996, 102 percent of the annual per capita rate 
     of payment for 1995 determined under section 1876(a)(1)(C) 
     for the MedicarePlus payment area.
       ``(ii) For a subsequent year, 102 percent of the annual 
     MedicarePlus capitation rate under this subsection for the 
     area for the previous year.
       ``(2) Area-specific and national percentages.--For purposes 
     of paragraph (1)(A)--
       ``(A) for 1996 and 1997, the `area-specific percentage' is 
     90 percent and the `national percentage' is 10 percent,
       ``(B) for 1998, the `area-specific percentage' is 85 
     percent and the `national percentage' is 15 percent,
       ``(C) for 1999, the `area-specific percentage' is 80 
     percent and the `national percentage' is 20 percent,
       ``(D) for 2000, the `area-specific percentage' is 75 
     percent and the `national percentage' is 25 percent, and
       ``(E) for a year after 2000, the `area-specific percentage' 
     is 70 percent and the `national percentage' is 30 percent.
       ``(3) Annual area-specific medicareplus capitation rate.--
     For purposes of paragraph (1)(A), the annual area-specific 
     MedicarePlus capitation rate for a MedicarePlus payment 
     area--
       ``(A) for 1996 is the annual per capita rate of payment for 
     1995 determined under section 

[[Page H 12590]]
     1876(a)(1)(C) for the MedicarePlus payment area, increased by the 
     national average per capita growth percentage for 1996 (as 
     defined in paragraph (6)); or
       ``(B) for a subsequent year is the annual area-specific 
     MedicarePlus capitation rate for the previous year determined 
     under this paragraph for the MedicarePlus payment area, 
     increased by the national average per capita growth 
     percentage for such subsequent year.
       ``(4) Input-price-adjusted annual national MedicarePlus 
     capitation rate.--
       ``(A) In general.--For purposes of paragraph (1)(A), the 
     input-price-adjusted annual national MedicarePlus capitation 
     rate for a MedicarePlus payment area for a year is equal to 
     the sum, for all the types of medicare services (as 
     classified by the Secretary), of the plan (for each such 
     type) of--
       ``(i) the national standardized annual MedicarePlus 
     capitation rate (determined under subparagraph (B)) for the 
     year,
       ``(ii) the proportion of such rate for the year which is 
     attributable to such type of services, and
       ``(iii) an index that reflects (for that year and that type 
     of services) the relative input price of such services in the 
     area compared to the national average input price of such 
     services.
     In applying clause (iii), the Secretary shall, subject to 
     subparagraph (C), apply those indices under this title that 
     are used in applying (or updating) national payment rates for 
     specific areas and localities.
       ``(B) National standardized annual medicareplus capitation 
     rate.--In subparagraph (A)(i), the `national standardized 
     annual MedicarePlus capitation rate' for a year is equal to--
       ``(i) the sum (for all MedicarePlus payment areas) of the 
     product of (I) the annual area-specific MedicarePlus 
     capitation rate for that year for the area under paragraph 
     (3), and (II) the average number of medicare beneficiaries 
     residing in that area in the year; divided by
       ``(ii) the total average number of medicare beneficiaries 
     residing in all the MedicarePlus payment areas for that year.
       ``(C) Special rules for 1996.--In applying this paragraph 
     for 1996--
       ``(i) medicare services shall be divided into 2 types of 
     services: part A services and part B services;
       ``(ii) the proportions described in subparagraph (A)(ii) 
     for such types of services shall be--

       ``(I) for part A services, the ratio (expressed as a 
     percentage) of the average annual per capita rate of payment 
     for the area for part A for 1995 to the total average annual 
     per capita rate of payment for the area for parts A and B for 
     1995, and
       ``(II) for part B services, 100 percent minus the ratio 
     described in subclause (I);

       ``(iii) for the part A services, 70 percent of payments 
     attributable to such services shall be adjusted by the index 
     used under section 1886(d)(3)(E) to adjust payment rates for 
     relative hospital wage levels for hospitals located in the 
     payment area involved;
       ``(iv) for part B services--

       ``(I) 66 percent of payments attributable to such services 
     shall be adjusted by the index of the geographic area factors 
     under section 1848(e) used to adjust payment rates for 
     physicians' services furnished in the payment area, and
       ``(II) of the remaining 34 percent of the amount of such 
     payments, 70 percent shall be adjusted by the index described 
     in clause (iii);

       ``(v) the index values shall be computed based only on the 
     beneficiary population who are 65 years of age or older who 
     are not determined to have end stage renal disease.
     The Secretary may continue to apply the rules described in 
     this subparagraph (or similar rules) for 1997.
       ``(5) Budget neutrality adjustment factor.--For each year, 
     the Secretary shall compute a budget neutrality adjustment 
     factor so that the aggregate of the payments under this part 
     shall not exceed the aggregate payments that would have been 
     made under this part if the area-specific percentage for the 
     year had been 100 percent and the national percentage had 
     been 0 percent.
       ``(6) National average per capita growth percentage 
     defined.--In this part, the `national average per capita 
     growth percentage' for--
       ``(A) 1996 is 8.0 percent,
       ``(B) 1997 is 3.8 percent,
       ``(C) 1998 is 4.6 percent,
       ``(D) 1999 is 4.3 percent,
       ``(E) 2000 is 3.8 percent,
       ``(F) 2001 is 5.5 percent,
       ``(G) 2002 is 5.6 percent, and
       ``(H) each subsequent year is 5.0 percent.
       ``(d) Medicareplus Payment Area Defined.--
       ``(1) In general.--In this part, except as provided in 
     paragraph (3), the term `MedicarePlus payment area' means a 
     county, or equivalent area specified by the Secretary.
       ``(2) Rule for esrd beneficiaries.--In the case of 
     individuals who are determined to have end stage renal 
     disease, the MedicarePlus payment area shall be each State.
       ``(3) Geographic adjustment.--
       ``(A) In general.--Upon request of a State for a contract 
     year (beginning after 1996) made at least 7 months before the 
     beginning of the year, the Secretary shall make a geographic 
     adjustment to a MedicarePlus payment areas in the State 
     otherwise determined under paragraph (1)--
       ``(i) to a single statewide MedicarePlus payment area,
       ``(ii) to the metropolitan based system described in 
     subparagraph (C), or
       ``(iii) to consolidating into a single MedicarePlus payment 
     area noncontinuous counties (or equivalent areas described in 
     paragraph (1)) within a State.
     Such adjustment shall be effective for payments for months 
     beginning with January of the year following the year in 
     which the request is received.
       ``(B) Budget neutrality adjustment.--In the case of a State 
     requesting an adjustment under this paragraph, the Secretary 
     shall adjust the payment rates otherwise established under 
     this paragraph for MedicarePlus payment areas in the State in 
     a manner so that the aggregate of the payments under this 
     section in the State shall not exceed the aggregate payments 
     that would have been made under this section for MedicarePlus 
     payment areas in the State in the absence of the adjustment 
     under this paragraph.
       ``(C) Metropolitan based system.--The metropolitan based 
     system described in this subparagraph is one in which--
       ``(i) all the portions of each metropolitan statistical 
     area in the State or in the case of a consolidated 
     metropolitan statistical area, all of the portions of each 
     primary metropolitan statistical area within the consolidated 
     area within the State, are treated as a single MedicarePlus 
     payment area, and
       ``(ii) all areas in the State that do not fall within a 
     metropolitan statistical area are treated as a single 
     MedicarePlus payment area.
       ``(D) Areas.--In subparagraph (C), the terms `metropolitan 
     statistical area', `consolidated metropolitan statistical 
     area', and `primary metropolitan statistical area' mean any 
     area designated as such by the Secretary of Commerce.
       ``(e) Special Rules for Individuals Electing High 
     Deductible Plans.--
       ``(1) In general.--In the case of an individual who has 
     elected a high deductible plan, notwithstanding the preceding 
     provisions of this section--
       ``(A) the amount of the monthly payment to the MedicarePlus 
     organization offering the high deductible plan shall not 
     exceed the monthly premium for the plan, and
       ``(B) subject to paragraph (2), the difference between the 
     amount of payment that would otherwise be made and the amount 
     of payment to such organization shall be made directly into a 
     High Deductible MedicarePlus MSA established (and, if 
     applicable, designated) by the individual under paragraph 
     (2).
       ``(2) Establishment and designation of medicareplus medical 
     savings account as requirement for payment of contribution.--
     In the case of an individual who has elected coverage under a 
     high deductible plan, no payment shall be made under 
     paragraph (1)(B) on behalf of an individual for a month 
     unless the individual--
       ``(A) has established before the beginning of the month (or 
     by such other deadline as the Secretary may specify) a High 
     Deductible MedicarePlus MSA (as defined in section 137(b)(2) 
     of the Internal Revenue Code of 1986), and
       ``(B) if the individual has established more than one High 
     Deductible MedicarePlus MSA, has designated one of such 
     accounts as the individual's High Deductible MedicarePlus MSA 
     for purposes of this part.
     Under rules under this section, such an individual may change 
     the designation of such account under subparagraph (B) for 
     purposes of this part.
       ``(3) Lump sum deposit of medical savings account 
     contribution.--In the case of an individual electing a high 
     deductible plan effective beginning with a month in a year, 
     the amount of the contribution to the High Deductible 
     MedicarePlus MSA on behalf of the individual for that month 
     and all successive months in the year shall be deposited 
     during that first month. In the case of a termination of such 
     an election as of a month before the end of a year, the 
     Secretary shall provide for a procedure for the recovery of 
     deposits attributable to the remaining months in the year.
       ``(4) Permitting contributions into medicareplus msa.--
     Effective January 1, 1997, if a member of a Federally-
     qualified health maintenance organization certifies that a 
     Rebate MedicarePlus MSA (as defined in section 137(c) of the 
     Internal Revenue Code of 1986) has been established for the 
     benefit of such member, the health maintenance organization 
     may reduce the basic health services payment otherwise 
     determined under otherwise applicable law by requiring the 
     payment of a deductible by the member for basic health 
     services.
       ``(f) Payments of Rebates.--
       ``(1) In general.--If the amount of the monthly premium for 
     a MedicarePlus plan (other than a high deductible plan) for 
     an MedicarePlus payment area for a year is less than \1/12\ 
     of the annual MedicarePlus capitation rate applied under this 
     section 1854 for the area and year involved, at the election 
     of an individual enrolled under the plan the Secretary shall 
     either--
       ``(A) in the case of an individual who has a Rebate 
     MedicarePlus MSA account (as defined in section 137(b)(3) of 
     the Internal Revenue Code of 1986), to deposit 100 percent of 
     such difference in such an account specified by the 
     individual; or
       ``(B)(i) pay to the MedicarePlus organization on behalf of 
     such individual the monthly amount equal to 100 percent of 
     such difference up to the amount of the premium amount of 
     such individual for supplemental benefits described in 
     section 1895H(b),
       ``(ii) pay to such individual an amount equal to 75 percent 
     of the remainder of such difference, and
       ``(iii) deposit any remainder of such difference in the 
     Federal Hospital Insurance Trust Fund.
       ``(2) Time for payment.--
       ``(A) In general.--Subject to subparagraph (B), payments 
     and deposits described in paragraph (1) shall be made on a 
     monthly basis.
       ``(B) Cash rebates.--A rebate under paragraph (1)(B)(ii) 
     shall be paid as of the close of 

[[Page H 12591]]
     the calendar year to which the enrollment applied.
       ``(g) Payments From Trust Fund.--The payment to a 
     MedicarePlus organization under this section for individuals 
     enrolled under this part with the organization, and payments 
     to a High Deductible or Rebate MedicarePlus MSA under 
     subsection (e)(1)(B) or subsection (f), shall be made from 
     the Federal Hospital Insurance Trust Fund and the Federal 
     Supplementary Medical Insurance Trust Fund in such proportion 
     as the Secretary determines reflects the relative weight that 
     benefits under part A and under part B represents of the 
     actuarial value of the total benefits under this title.
       ``(h) Special Rule for Certain Inpatient Hospital Stays.--
     In the case of an individual who is receiving inpatient 
     hospital services from a subsection (d) hospital (as defined 
     in section 1886(d)(1)(B)) as of the effective date of the 
     individual's--
       ``(1) election under this part of a MedicarePlus plan 
     offered by a MedicarePlus organization--
       ``(A) payment for such services until the date of the 
     individual's discharge shall be made under this title through 
     the MedicarePlus plan or the Medicare fee-for-service program 
     option described in section 1851(a)(1)(A) (as the case may 
     be) elected before the election with such organization,
       ``(B) the elected organization shall not be financially 
     responsible for payment for such services until the date 
     after the date of the individual's discharge, and
       ``(C) the organization shall nonetheless be paid the full 
     amount otherwise payable to the organization under this part; 
     or
       ``(2) termination of election with respect to a 
     MedicarePlus organization under this part--
       ``(A) the organization shall be financially responsible for 
     payment for such services after such date and until the date 
     of the individual's discharge,
       ``(B) payment for such services during the stay shall not 
     be made under section 1886(d) or by any succeeding 
     MedicarePlus organization, and
       ``(C) the terminated organization shall not receive any 
     payment with respect to the individual under this part during 
     the period the individual is not enrolled.


                         ``premiums and rebates

       ``Sec. 1855. (a) Submission and Charging of Premiums.--
       ``(1) In general.--Subject to paragraph (3), each 
     MedicarePlus organization shall file with the Secretary each 
     year, in a form and manner and at a time specified by the 
     Secretary--
       ``(A) the amount of the monthly premium for coverage for 
     services under section 1852(a) under each MedicarePlus plan 
     it offers under this part in each MedicarePlus payment area 
     (as defined in section 1854(d)) in which the plan is being 
     offered; and
       ``(B) the enrollment capacity in relation to the plan in 
     each such area.
       ``(2) Terminology.--In this part--
       ``(A) the term `monthly premium' means, with respect to a 
     MedicarePlus plan offered by a MedicarePlus organization, the 
     monthly premium filed under paragraph (1), not taking into 
     account the amount of any payment made toward the premium 
     under section 1854; and
       ``(B) the term `net monthly premium' means, with respect to 
     such a plan and an individual enrolled with the plan, the 
     premium (as defined in subparagraph (A)) for the plan reduced 
     by the amount of payment made toward such premium under 
     section 1854.
       ``(3) Limitation on portion of monthly premium attributable 
     to required coverage.--In no case may the portion of the 
     monthly premium for a MedicarePlus plan for an area and year 
     attributable to required services under section 1852(a)(1) 
     exceed the adjusted community rate for the plan (as defined 
     in subsection (f)(5)).
       ``(b) Net Monthly Premium.--The amount of the net monthly 
     premium charged by a MedicarePlus organization for a 
     MedicarePlus plan offered in a MedicarePlus payment area to 
     an individual under this part shall be equal to the amount 
     (if any) by which--
       ``(1) the amount of the monthly premium for the plan for 
     the period involved, exceeds
       ``(2) \1/12\ of the annual MedicarePlus capitation rate 
     applied under section 1854 for the area and year involved.
       ``(c) Uniform Premium.--The monthly premium and net monthly 
     premium (including rebates offered) by a MedicarePlus 
     organization under this part may not vary among individuals 
     who reside in the same MedicarePlus payment area.
       ``(d) Terms and Conditions of Imposing Premiums.--Each 
     MedicarePlus organization shall permit the payment of net 
     monthly premiums on a monthly basis and may terminate 
     election of individuals for a MedicarePlus plan for failure 
     to make premium payments only in accordance with section 
     1851(g)(3)(B)(i).
       ``(e) Relation of Premiums and Cost-sharing to Benefits.--
     In no case may the portion of a MedicarePlus organization's 
     monthly premium and the actuarial value of its deductibles, 
     coinsurance, and copayments charged for (to the extent 
     attributable to the required benefits described in section 
     1852(a)(1) and not counting any amount attributable to 
     balance billing) to individuals who are enrolled under this 
     part with the organization exceed the actuarial value of the 
     coinsurance and deductibles that would be applicable on the 
     average to individuals enrolled under this part with the 
     organization (or, if the Secretary finds that adequate data 
     are not available to determine that actuarial value, the 
     actuarial value of the coinsurance and deductibles applicable 
     on the average to individuals in the area, in the State, or 
     in the United States, eligible to enroll under this part with 
     the organization, or other appropriate data) and entitled to 
     benefits under part A and enrolled under part B if they were 
     not members of a MedicarePlus organization.
       ``(f) Requirement for Additional Benefits, Rebates, or 
     Both.--
       ``(1) Requirement.--
       ``(A) In general.--Each MedicarePlus organization (in 
     relation to a MedicarePlus plan it offers) shall provide that 
     if there is an excess amount (as defined in subparagraph (B)) 
     for the plan for a contract year, subject to the succeeding 
     provisions of this subsection, the organization shall provide 
     to individuals such additional benefits (as the organization 
     may specify), a monetary rebate (paid on a monthly basis), or 
     a combination thereof, in a total value which is at least 
     equal to the adjusted excess amount (as defined in 
     subparagraph (C)).
       ``(B) Excess amount.--For purposes of this paragraph, the 
     `excess amount', for an organization for a plan, is the 
     amount (if any) by which--
       ``(i) the average of the capitation payments made to the 
     organization under section 1854 for the plan at the beginning 
     of contract year, exceeds
       ``(ii) the actuarial value of the required benefits 
     described in section 1852(a)(1) under the plan for 
     individuals under this part, as determined based upon an 
     adjusted community rate described in paragraph (5) (as 
     reduced for the actuarial value of the coinsurance and 
     deductibles under parts A and B).
       ``(C) Adjusted excess amount.--For purposes of this 
     paragraph, the `adjusted excess amount', for an organization 
     for a plan, is the excess amount reduced to reflect any 
     amount withheld and reserved for the organization for the 
     year under paragraph (3).
       ``(D) No application to high deductible plans.--
     Subparagraph (A) shall not apply to a high deductible plan.
       ``(E) Uniform application.--This paragraph shall be applied 
     uniformly for all enrollees for a plan in a MedicarePlus 
     payment area.
       ``(F) Construction.--Nothing in this subsection shall be 
     construed as preventing a MedicarePlus organization from 
     providing health care benefits that are in addition to the 
     benefits otherwise required to be provided under this 
     paragraph and from imposing a premium for such additional 
     benefits.
       ``(2) Rules in relation to rebates.--To the extent that the 
     adjusted excess amount for a plan exceeds the value of 
     additional benefits provided under subparagraph (A) by the 
     MedicarePlus organization in relation to the plan for a 
     month, then the organization shall provide for payment of the 
     amount of such excess as follows:
       ``(A) Rebate medicareplus msa.--If the individual has a 
     Rebate MedicarePlus MSA and elects treatment under this 
     subparagraph, the organization shall provide for payment of 
     such excess into such MSA.
       ``(B) Additional amount.--The organization shall provide 
     for payment of the amount of any additional excess as 
     follows:
       ``(i) 75 percent of such excess to the individual.
       ``(ii) 25 percent to the Federal Hospital Insurance Trust 
     Fund.
       ``(3) Stabilization fund.--A MedicarePlus organization may 
     provide that a part of the value of an excess actuarial 
     amount described in paragraph (1) be withheld and reserved in 
     the Federal Hospital Insurance Trust Fund and in the Federal 
     Supplementary Medical Insurance Trust Fund (in such 
     proportions as the Secretary determines to be appropriate) by 
     the Secretary for subsequent annual contract periods, to the 
     extent required to stabilize and prevent undue fluctuations 
     in the additional benefits and rebates offered in those 
     subsequent periods by the organization in accordance with 
     such paragraph. Any of such value of the amount reserved 
     which is not provided as additional benefits described in 
     paragraph (1)(A) to individuals electing the MedicarePlus 
     plan of the organization in accordance with such paragraph 
     prior to the end of such periods, shall revert for the use of 
     such trust funds.
       ``(4) Determination based on insufficient data.--For 
     purposes of this subsection, if the Secretary finds that 
     there is insufficient enrollment experience (including no 
     enrollment experience in the case of a provider-sponsored 
     organization) to determine an average of the capitation 
     payments to be made under this part at the beginning of a 
     contract period, the Secretary may determine such an average 
     based on the enrollment experience of other contracts entered 
     into under this part.
       ``(5) Adjusted community rate.--
       ``(A) In general.--For purposes of this subsection, subject 
     to subparagraph (B), the term `adjusted community rate' for a 
     service or services means, at the election of a MedicarePlus 
     organization, either--
       ``(i) the rate of payment for that service or services 
     which the Secretary annually determines would apply to an 
     individual electing a MedicarePlus plan under this part if 
     the rate of payment were determined under a `community rating 
     system' (as defined in section 1302(8) of the Public Health 
     Service Act, other than subparagraph (C)), or
       ``(ii) such portion of the weighted aggregate premium, 
     which the Secretary annually estimates would apply to such an 
     individual, as the Secretary annually estimates is 
     attributable to that service or services,
     but adjusted for differences between the utilization 
     characteristics of the individuals electing coverage under 
     this part and the utilization characteristics of the other 
     enrollees with the organization (or, if the Secretary finds 
     that adequate data are not available to adjust for those 
     differences, the differences between the utilization 
     characteristics of individuals selecting other MedicarePlus 
     coverage, or MedicarePlus eligible individuals in the area, 
     in the State, or in the United States, eligible to elect 

[[Page H 12592]]
     MedicarePlus coverage under this part and the utilization 
     characteristics of the rest of the population in the area, in 
     the State, or in the United States, respectively).
       ``(B) Special rule for provider-sponsored organizations.--
     In the case of a MedicarePlus organization that is a 
     provider-sponsored organization, the adjusted community rate 
     under subparagraph (A) for a MedicarePlus plan of the 
     organization may be computed (in a manner specified by the 
     Secretary) using data in the general commercial marketplace 
     or (during a transition period) based on the costs incurred 
     by the organization in providing such a plan.
       ``(g) Transitional File and Use for Certain Requirements.--
       ``(1) In general.--In the case of a MedicarePlus plan 
     proposed to be offered before the end of the transition 
     period (as defined in section 1851(e)(1)(B)) by a 
     MedicarePlus organization described in section 1853(f)(3) or 
     by a MedicarePlus organization with a contract in effect 
     under section 1857, if the organization submits complete 
     information to the Secretary regarding the plan demonstrating 
     that the plan meets the requirements and standards under 
     section 1852(a) and subsections (a) through (f) of this 
     section (relating to benefits and premiums), the plan shall 
     be deemed as meeting such requirements and standards under 
     such provisions unless the Secretary disapproves the plan 
     within 60 days after the date of submission of the complete 
     information.
       ``(2) Construction.--Nothing in paragraph (1) shall be 
     construed as waiving the requirement of a contract under 
     section 1857 or waiving requirements and standards not 
     referred to in paragraph (1).


 ``establishment of standards; certification of organizations and plans

       ``Sec. 1856. (a) Establishment of Standards.--
       ``(1)  Standards applicable to state-regulated 
     organizations and plans and non-solvency standards for 
     provider-Sponsored organizations.--
       ``(A) Recommendations of naic.--The Secretary shall request 
     the National Association of Insurance Commissioners to 
     develop and submit to the Secretary, not later than 12 months 
     after the date of the enactment of the Medicare Preservation 
     Act of 1995, proposed standards consistent with the 
     requirements of this part for MedicarePlus organizations 
     (other than union sponsors and Taft-Hartley sponsors, and 
     other than solvency standards described in subsection (b) for 
     provider-sponsored organizations) and MedicarePlus plans 
     offered by such organizations, except that such proposed 
     standards may relate to MedicarePlus organizations that are 
     qualified association sponsors only with respect to 
     MedicarePlus plans offered by them and only if such plans are 
     issued by organizations to which section 1853(a)(1) applies.
       ``(B) Review.--If the Association submits such standards on 
     a timely basis, the Secretary shall review such standards to 
     determine if the standards meet the requirements of this 
     part. The Secretary shall complete the review of the 
     standards not later than 90 days after the date of their 
     submission. The Secretary shall promulgate such proposed 
     standards to apply to organizations and plans described in 
     subparagraph (A) except to the extent that the Secretary 
     modifies such proposed standards because they do not meet 
     such requirements.
       ``(C) Failure to submit.--If the Association does not 
     submit such standards on a timely basis, the Secretary shall 
     promulgate such standards by not later than the date the 
     Secretary would otherwise have been required to promulgate 
     standards under subparagraph (B).
       ``(D) Use of interim rules.--For the period in which this 
     part is in effect and standards are being developed and 
     established under the preceding provisions of this 
     subsection, the Secretary shall provide by not later than 
     June 1, 1996, for the application of such interim standards 
     (without regard to any requirements for notice and public 
     comment) as may be appropriate to provide for the expedited 
     implementation of this part. Such interim standards shall not 
     apply after the date standards are established under the 
     preceding provisions of this paragraph.
       ``(2) Establishment of standards for union and taft-hartley 
     sponsors, qualified association sponsors, and plans.--
       ``(A) In general.--The Secretary shall develop and 
     promulgate by regulation standards consistent with the 
     requirements of this part for union and Taft-Hartley 
     sponsors, for qualified association sponsors, and for 
     MedicarePlus plans offered by such organizations (other than 
     MedicarePlus plans offered by qualified association sponsors 
     that are issued by organizations to which section 1853(a)(1) 
     applies).
       ``(B) Consultation with secretary of labor.--The Secretary 
     shall consult with the Secretary of Labor with respect to 
     such standards for such sponsors and plans.
       ``(C) Timing.--Standards under this paragraph shall be 
     promulgated at or about the time standards are promulgated 
     under paragraph (1).
       ``(3) Coordination among final standards.--In establishing 
     standards (other than on an interim basis) under this 
     subsection and subsection (b), the Secretary shall seek to 
     provide for consistency (as appropriate) across the different 
     types of MedicarePlus organizations, in order to promote 
     equitable treatment of different types of organizations and 
     consistent protection for individuals who elect plans offered 
     by the different types of MedicarePlus organizations.
       ``(4) Use of current standards for interim standards.--To 
     the extent practicable and consistent with the requirements 
     of this part, standards established on an interim basis to 
     carry out requirements of this part may be based on currently 
     applicable standards, such as the rules established under 
     section 1876 (as in effect as of the date of the enactment of 
     this section) to carry out analogous provisions of such 
     section or standards established or developed for application 
     in the private health insurance market.
       ``(5) Application of new standards to entities with a 
     contract.--In the case of a MedicarePlus organization with a 
     contract in effect under this part at the time standards 
     applicable to the organization under this section are 
     changed, the organization may elect not to have such changes 
     apply to the organization until the end of the current 
     contract year (or, if there is less than 6 months remaining 
     in the contract year, until 1 year after the end of the 
     current contract year).
       ``(6) Relation to state laws.--The standards established 
     under this subsection shall supersede any State law or 
     regulation with respect to MedicarePlus plans which are 
     offered by MedicarePlus organizations under this part and are 
     issued by organizations to which section 1853(a)(1) applies, 
     to the extent such law or regulation is inconsistent with 
     such standards.
       ``(b) Establishment of Solvency Standards for Provider-
     Sponsored Organizations.--
       ``(1) Establishment.--
       ``(A) In general.--The Secretary shall establish, on an 
     expedited basis and using a negotiated rulemaking process 
     under subchapter 3 of chapter 5 of title 5, United States 
     Code, standards described in section 1853(e) (relating to the 
     financial solvency and capital adequacy of the organization) 
     that entities must meet to qualify as provider-sponsored 
     organizations under this part.
       ``(B) Factors to consider.--In establishing solvency 
     standards under subparagraph (A) for provider-sponsored 
     organizations, the Secretary shall consult with interested 
     parties and shall take into account--
       ``(i) the delivery system assets of such an organization 
     and ability of such an organization to provide services 
     directly to enrollees through affiliated providers, and
       ``(ii) alternative means of protecting against insolvency, 
     including reinsurance, unrestricted surplus, letters of 
     credit, guarantees, organizational insurance coverage, 
     partnerships with other licensed entities, and valuation 
     attributable to the ability of such an organization to meet 
     its service obligations through direct delivery of care.
       ``(2) Publication of notice.--In carrying out the 
     rulemaking process under this subsection, the Secretary, 
     after consultation with the National Association of Insurance 
     Commissioners, the American Academy of Actuaries, 
     organizations representative of medicare beneficiaries, and 
     other interested parties, shall publish the notice provided 
     for under section 564(a) of title 5, United States Code, by 
     not later than 45 days after the date of the enactment of 
     Medicare Preservation Act of 1995.
       ``(3) Target date for publication of rule.--As part of the 
     notice under paragraph (2), and for purposes of this 
     subsection, the `target date for publication' (referred to in 
     section 564(a)(5) of such title) shall be September 1, 1996.
       ``(4) Abbreviated period for submission of comments.--In 
     applying section 564(c) of such title under this subsection, 
     `15 days' shall be substituted for `30 days'.
       ``(5) Appointment of negotiated rulemaking committee and 
     facilitator.--The Secretary shall provide for--
       ``(A) the appointment of a negotiated rulemaking committee 
     under section 565(a) of such title by not later than 30 days 
     after the end of the comment period provided for under 
     section 564(c) of such title (as shortened under paragraph 
     (4)), and
       ``(B) the nomination of a facilitator under section 566(c) 
     of such title by not later than 10 days after the date of 
     appointment of the committee.
       ``(6) Preliminary committee report.--The negotiated 
     rulemaking committee appointed under paragraph (5) shall 
     report to the Secretary, by not later than June 1, 1996, 
     regarding the committee's progress on achieving a consensus 
     with regard to the rulemaking proceeding and whether such 
     consensus is likely to occur before one month before the 
     target date for publication of the rule. If the committee 
     reports that the committee has failed to make significant 
     progress towards such consensus or is unlikely to reach such 
     consensus by the target date, the Secretary may terminate 
     such process and provide for the publication of a rule under 
     this subsection through such other methods as the Secretary 
     may provide.
       ``(7) Final committee report.--If the committee is not 
     terminated under paragraph (6), the rulemaking committee 
     shall submit a report containing a proposed rule by not later 
     than one month before the target publication date.
       ``(8) Interim, final effect.--The Secretary shall publish a 
     rule under this subsection in the Federal Register by not 
     later than the target publication date. Such rule shall be 
     effective and final immediately on an interim basis, but is 
     subject to change and revision after public notice and 
     opportunity for a period (of not less than 60 days) for 
     public comment. In connection with such rule, the Secretary 
     shall specify the process for the timely review and approval 
     of applications of entities to be certified as provider-
     sponsored organizations pursuant to such rules and consistent 
     with this subsection.
       ``(9) Publication of rule after public comment.--The 
     Secretary shall provide for consideration of such comments 
     and republication of such rule by not later than 1 year after 
     the target publication date.
       ``(10) Process for approval of applications for 
     certification of solvency.--
       ``(A) In general.--The Secretary shall establish a process 
     for the receipt and approval of applications of entities for 
     certification of solvency of provider-sponsored organizations 
     under this part. Under such process, the Secretary shall act 
     upon a complete application submitted within 60 days after 
     the date it is received.

[[Page H 12593]]

       ``(B) Circulation of proposed application form.--By March 
     1, 1996, the Secretary, after consultation with the 
     negotiated rulemaking committee, shall circulate a proposed 
     application form that could be used by entities considering 
     being certified for solvency under this part.
       ``(c) Certification Process.--
       ``(1) State certification process for state-regulated 
     organizations and non-solvency standards for provider-
     sponsored organizations.--
       ``(A) Approval of state process.--The Secretary shall 
     approve a MedicarePlus certification and enforcement program 
     established by a State for applying the standards established 
     under this section to MedicarePlus organizations (other than 
     union sponsors and Taft-Hartley sponsors and other than 
     solvency standards for provider-sponsored organizations) and 
     MedicarePlus plans offered by such organizations if the 
     Secretary determines that the program effectively provides 
     for the application and enforcement of such standards in the 
     State with respect to such organizations and plans and does 
     not discriminate in its application by type of organization 
     or plan. Such program shall provide for certification of 
     compliance of MedicarePlus organizations and plans with the 
     applicable requirements of this part not less often than once 
     every 3 years.
       ``(B) Effect of certification under state process.--A 
     MedicarePlus organization and MedicarePlus plan offered by 
     such an organization that is certified under such program is 
     considered to have been certified under this paragraph with 
     respect to the offering of the plan to individuals residing 
     in the State.
       ``(C) User fees.--The State may impose user fees on 
     organizations seeking certification under this paragraph in 
     such amounts as the State deems sufficient to finance the 
     costs of such certification. Nothing in this subparagraph 
     shall be construed as restricting a State's authority to 
     impose premium taxes, other taxes, or other levies.
       ``(D) Review.--The Secretary periodically shall review 
     State programs approved under subparagraph (A) to determine 
     if they continue to provide for certification and enforcement 
     described in such paragraph. If the Secretary finds that a 
     State program no longer so provides, before making a final 
     determination, the Secretary shall provide the State an 
     opportunity to adopt such a plan of correction as would 
     permit the State program to meet the requirements of 
     paragraph (1). If the Secretary makes a final determination 
     that the State program, after such an opportunity, fails to 
     meet such requirements, the provisions of subsection (b) 
     shall apply to MedicarePlus organizations and plans in the 
     State.
       ``(E) Effect of no state program.--Beginning on the date 
     standards are established under section 1856, in the case of 
     organizations and plans in States in which a certification 
     program has not been approved and in operation under 
     subparagraph (A), the Secretary shall establish a process for 
     the certification of MedicarePlus organizations (other than 
     union sponsors and Taft-Hartley sponsors and other than 
     solvency standards for provider-sponsored organizations) and 
     plans of such organizations as meeting such standards.
       ``(F) Publication of list of approved state programs.--The 
     Secretary shall publish (and periodically update) a list of 
     those State programs which are approved for purposes of this 
     paragraph.
       ``(2) Federal certification process for union sponsors and 
     taft-hartley sponsors.--
       ``(A) Establishment.--The Secretary shall establish a 
     process for the certification of union sponsors and Taft-
     Hartley sponsors and MedicarePlus plans offered by such 
     sponsors and organizations as meeting the applicable 
     standards established under this section.
       ``(B) Involvement of secretary of labor.--Such process 
     shall be established and operated in cooperation with the 
     Secretary of Labor with respect to union sponsors and Taft-
     Hartley sponsors.
       ``(C) Use of state licensing and private accreditation 
     processes.--
       ``(i) In general.--The process under this paragraph shall, 
     to the maximum extent practicable, provide that MedicarePlus 
     organizations and plans that are licensed or certified 
     through a qualified private accreditation process that the 
     Secretary finds applies standards that are no less stringent 
     than the requirements of this part are deemed to meet the 
     corresponding requirements of this part for such an 
     organization or plan.
       ``(ii) Periodic accreditation.--The use of an accreditation 
     under clause (i) shall be valid only for such period as the 
     Secretary specifies.
       ``(D) User fees.--The Secretary may impose user fees on 
     entities seeking certification under this paragraph in such 
     amounts as the Secretary deems sufficient to finance the 
     costs of such certification.
       ``(3) Notice to enrollees in case of decertification.--If a 
     MedicarePlus organization or plan is decertified under this 
     subsection, the organization shall notify each enrollee with 
     the organization and plan under this part of such 
     decertification.
       ``(4) Qualified association sponsors.--In the case of 
     MedicarePlus plans offered by a MedicarePlus organization 
     that is a qualified association sponsor and issued by an 
     organization to which section 1853(a)(1) applies or by a 
     provider-sponsored organization, nothing in this subsection 
     shall be construed as limiting the authority of States to 
     regulate such plans.


              ``contracts with medicareplus organizations

       ``Sec. 1857. (a) In General.--The Secretary shall not 
     permit the election under section 1851 of a MedicarePlus plan 
     offered by a MedicarePlus organization under this part, and 
     no payment shall be made under section 1854 to an 
     organization, unless the Secretary has entered into a 
     contract under this section with an organization with respect 
     to the offering of such plan. Such a contract with an 
     organization may cover more than one MedicarePlus plan. Such 
     contract shall provide that the organization agrees to comply 
     with the applicable requirements and standards of this part 
     and the terms and conditions of payment as provided for in 
     this part.
       ``(b) Minimum Enrollment Requirements.--
       ``(1) In general.--Subject to paragraphs (2) and (3), the 
     Secretary may not enter into a contract under this section 
     with a MedicarePlus organization (other than a union sponsor 
     or Taft-Hartley sponsor) unless the organization has at least 
     5,000 individuals (or 1,500 individuals in the case of an 
     organization that is a provider-sponsored organization) who 
     are receiving health benefits through the organization, 
     except that the standards under section 1856 may permit the 
     organization to have a lesser number of beneficiaries (but 
     not less than 500 in the case of an organization that is a 
     provider-sponsored organization) if the organization 
     primarily serves individuals residing outside of urbanized 
     areas.
       ``(2) Exception for high deductible plan.--Paragraph (1) 
     shall not apply with respect to a contract that relates only 
     to a high deductible plan.
       ``(3) Allowing transition.--The Secretary may waive the 
     requirement of paragraph (1) during the first 3 contract 
     years with respect to an organization.
       ``(c) Contract Period and Effectiveness.--
       ``(1) Period.--Each contract under this section shall be 
     for a term of at least one year, as determined by the 
     Secretary, and may be made automatically renewable from term 
     to term in the absence of notice by either party of intention 
     to terminate at the end of the current term.
       ``(2) Termination authority.--In accordance with procedures 
     established under subsection (h), the Secretary may at any 
     time terminate any such contract or may impose the 
     intermediate sanctions described in an applicable paragraph 
     of subsection (g) on the MedicarePlus organization if the 
     Secretary determines that the organization--
       ``(A) has failed substantially to carry out the contract;
       ``(B) is carrying out the contract in a manner inconsistent 
     with the efficient and effective administration of this part; 
     and
       ``(C) no longer substantially meets the applicable 
     conditions of this part.
       ``(3) Effective date of contracts.--The effective date of 
     any contract executed pursuant to this section shall be 
     specified in the contract, except that in no case shall a 
     contract under this section which provides for coverage under 
     a high deductible account be effective before January 1997 
     with respect to such coverage.
       ``(4) Previous terminations.--The Secretary may not enter 
     into a contract with a MedicarePlus organization if a 
     previous contract with that organization under this section 
     was terminated at the request of the organization within the 
     preceding five-year period, except in circumstances which 
     warrant special consideration, as determined by the 
     Secretary.
       ``(5) No contracting authority.--The authority vested in 
     the Secretary by this part may be performed without regard to 
     such provisions of law or regulations relating to the making, 
     performance, amendment, or modification of contracts of the 
     United States as the Secretary may determine to be 
     inconsistent with the furtherance of the purpose of this 
     title.
       ``(d) Protections Against Fraud and Beneficiary 
     Protections.--
       ``(1) Inspection and audit.--Each contract under this 
     section shall provide that the Secretary, or any person or 
     organization designated by the Secretary--
       ``(A) shall have the right to inspect or otherwise evaluate 
     (i) the quality, appropriateness, and timeliness of services 
     performed under the contract and (ii) the facilities of the 
     organization when there is reasonable evidence of some need 
     for such inspection, and
       ``(B) shall have the right to audit and inspect any books 
     and records of the MedicarePlus organization that pertain (i) 
     to the ability of the organization to bear the risk of 
     potential financial losses, or (ii) to services performed or 
     determinations of amounts payable under the contract.
       ``(2) Enrollee notice at time of termination.--Each 
     contract under this section shall require the organization to 
     provide (and pay for) written notice in advance of the 
     contract's termination, as well as a description of 
     alternatives for obtaining benefits under this title, to each 
     individual enrolled with the organization under this part.
       ``(3) Disclosure.--
       ``(A) In general.--Each MedicarePlus organization shall, in 
     accordance with regulations of the Secretary, report to the 
     Secretary financial information which shall include the 
     following:
       ``(i) Such information as the Secretary may require 
     demonstrating that the organization has a fiscally sound 
     operation.
       ``(ii) A copy of the report, if any, filed with the Health 
     Care Financing Administration containing the information 
     required to be reported under section 1124 by disclosing 
     entities.
       ``(iii) A description of transactions, as specified by the 
     Secretary, between the organization and a party in interest. 
     Such transactions shall include--

       ``(I) any sale or exchange, or leasing of any property 
     between the organization and a party in interest;
       ``(II) any furnishing for consideration of goods, services 
     (including management services), or facilities between the 
     organization and a party in interest, but not including 
     salaries paid to employees for services provided in the 
     normal course of their employment and health services 

[[Page H 12594]]
     provided to members by hospitals and other providers and by staff, 
     medical group (or groups), individual practice association 
     (or associations), or any combination thereof; and
       ``(III) any lending of money or other extension of credit 
     between an organization and a party in interest.

     The Secretary may require that information reported 
     respecting an organization which controls, is controlled by, 
     or is under common control with, another entity be in the 
     form of a consolidated financial statement for the 
     organization and such entity.
       ``(B) Party in interest defined.--For the purposes of this 
     paragraph, the term `party in interest' means--
       ``(i) any director, officer, partner, or employee 
     responsible for management or administration of a 
     MedicarePlus organization, any person who is directly or 
     indirectly the beneficial owner of more than 5 percent of the 
     equity of the organization, any person who is the beneficial 
     owner of a mortgage, deed of trust, note, or other interest 
     secured by, and valuing more than 5 percent of the 
     organization, and, in the case of a MedicarePlus organization 
     organized as a nonprofit corporation, an incorporator or 
     member of such corporation under applicable State corporation 
     law;
       ``(ii) any entity in which a person described in clause 
     (i)--

       ``(I) is an officer or director;
       ``(II) is a partner (if such entity is organized as a 
     partnership);
       ``(III) has directly or indirectly a beneficial interest of 
     more than 5 percent of the equity; or
       ``(IV) has a mortgage, deed of trust, note, or other 
     interest valuing more than 5 percent of the assets of such 
     entity;

       ``(iii) any person directly or indirectly controlling, 
     controlled by, or under common control with an organization; 
     and
       ``(iv) any spouse, child, or parent of an individual 
     described in clause (i).
       ``(C) Access to information.--Each MedicarePlus 
     organization shall make the information reported pursuant to 
     subparagraph (A) available to its enrollees upon reasonable 
     request.
       ``(4) Loan information.--The contract shall require the 
     organization to notify the Secretary of loans and other 
     special financial arrangements which are made between the 
     organization and subcontractors, affiliates, and related 
     parties.
       ``(e) Additional Contract Terms.--The contract shall 
     contain such other terms and conditions not inconsistent with 
     this part (including requiring the organization to provide 
     the Secretary with such information) as the Secretary may 
     find necessary and appropriate.
       ``(f) Intermediate Sanctions.--
       ``(1) In general.--If the Secretary determines that a 
     MedicarePlus organization with a contract under this 
     section--
       ``(A) fails substantially to provide medically necessary 
     items and services that are required (under law or under the 
     contract) to be provided to an individual covered under the 
     contract, if the failure has adversely affected (or has 
     substantial likelihood of adversely affecting) the 
     individual;
       ``(B) imposes net monthly premiums on individuals enrolled 
     under this part in excess of the net monthly premiums 
     permitted;
       ``(C) acts to expel or to refuse to re-enroll an individual 
     in violation of the provisions of this part;
       ``(D) engages in any practice that would reasonably be 
     expected to have the effect of denying or discouraging 
     enrollment (except as permitted by this part) by eligible 
     individuals with the organization whose medical condition or 
     history indicates a need for substantial future medical 
     services;
       ``(E) misrepresents or falsifies information that is 
     furnished--
       ``(i) to the Secretary under this part, or
       ``(ii) to an individual or to any other entity under this 
     part;
       ``(F) fails to comply with the requirements of section 
     1852(j)(3); or
       ``(G) employs or contracts with any individual or entity 
     that is excluded from participation under this title under 
     section 1128 or 1128A for the provision of health care, 
     utilization review, medical social work, or administrative 
     services or employs or contracts with any entity for the 
     provision (directly or indirectly) through such an excluded 
     individual or entity of such services;
     the Secretary may provide, in addition to any other remedies 
     authorized by law, for any of the remedies described in 
     paragraph (2).
       ``(2) Remedies.--The remedies described in this paragraph 
     are--
       ``(A) civil money penalties of not more than $25,000 for 
     each determination under paragraph (1) or, with respect to a 
     determination under subparagraph (D) or (E)(i) of such 
     paragraph, of not more than $100,000 for each such 
     determination, plus, with respect to a determination under 
     paragraph (1)(B), double the excess amount charged in 
     violation of such paragraph (and the excess amount charged 
     shall be deducted from the penalty and returned to the 
     individual concerned), and plus, with respect to a 
     determination under paragraph (1)(D), $15,000 for each 
     individual not enrolled as a result of the practice involved,
       ``(B) suspension of enrollment of individuals under this 
     part after the date the Secretary notifies the organization 
     of a determination under paragraph (1) and until the 
     Secretary is satisfied that the basis for such determination 
     has been corrected and is not likely to recur, or
       ``(C) suspension of payment to the organization under this 
     part for individuals enrolled after the date the Secretary 
     notifies the organization of a determination under paragraph 
     (1) and until the Secretary is satisfied that the basis for 
     such determination has been corrected and is not likely to 
     recur.
       ``(3) Other intermediate sanctions.--In the case of a 
     MedicarePlus organization for which the Secretary makes a 
     determination under subsection (c)(2) the basis of which is 
     not described in paragraph (1), the Secretary may apply the 
     following intermediate sanctions:
       ``(A) civil money penalties of not more than $25,000 for 
     each determination under subsection (c)(2) if the deficiency 
     that is the basis of the determination has directly adversely 
     affected (or has the substantial likelihood of adversely 
     affecting) an individual covered under the organization's 
     contract;
       ``(B) civil money penalties of not more than $10,000 for 
     each week beginning after the initiation of procedures by the 
     Secretary under subsection (h) during which the deficiency 
     that is the basis of a determination under subsection (c)(2) 
     exists; and
       ``(C) suspension of enrollment of individuals under this 
     part after the date the Secretary notifies the organization 
     of a determination under subsection (c)(2) and until the 
     Secretary is satisfied that the deficiency that is the basis 
     for the determination has been corrected and is not likely to 
     recur.
       ``(4) Proceedings.--The provisions of section 1128A (other 
     than subsections (a) and (b)) shall apply to a civil money 
     penalty under paragraph (1) or (2) in the same manner as they 
     apply to a civil money penalty or proceeding under section 
     1128A(a).
       ``(g) Procedures for Imposing Sanctions.--The Secretary may 
     terminate a contract with a MedicarePlus organization under 
     this section or may impose the intermediate sanctions 
     described in subsection (f) on the organization in accordance 
     with formal investigation and compliance procedures 
     established by the Secretary under which--
       ``(1) the Secretary provides the organization with the 
     reasonable opportunity to develop and implement a corrective 
     action plan to correct the deficiencies that were the basis 
     of the Secretary's determination under subsection (c)(2);
       ``(2) the Secretary shall impose more severe sanctions on 
     organizations that have a history of deficiencies or that 
     have not taken steps to correct deficiencies the Secretary 
     has brought to their attention;
       ``(3) there are no unreasonable or unnecessary delays 
     between the finding of a deficiency and the imposition of 
     sanctions; and
       ``(4) the Secretary provides the organization with 
     reasonable notice and opportunity for hearing (including the 
     right to appeal an initial decision) before imposing any 
     sanction or terminating the contract.


``standards for medicareplus and medicare information transactions and 
                             data elements

       ``Sec. 1858. (a) Adoption of Standards for Data Elements.--
       ``(1) In general.--Pursuant to subsection (b), the 
     Secretary shall adopt standards for information transactions 
     and data elements of MedicarePlus and medicare information 
     and modifications to the standards under this section that 
     are--
       ``(A) consistent with the objective of reducing the 
     administrative costs of providing and paying for health care; 
     and
       ``(B) developed or modified by a standard setting 
     organization (as defined in subsection (h)(8)).
       ``(2) Special rule relating to data elements.--The 
     Secretary may adopt or modify a standard relating to data 
     elements that is different from the standard developed by a 
     standard setting organization, if--
       ``(A) the different standard or modification will 
     substantially reduce administrative costs to health care 
     providers and health plans compared to the alternative; and
       ``(B) the standard or modification is promulgated in 
     accordance with the rulemaking procedures of subchapter III 
     of chapter 5 of title 5, United States Code.
       ``(3) Security standards for health information network.--
       ``(A) In general.--Each person, who maintains or transmits 
     MedicarePlus and medicare information or data elements of 
     MedicarePlus and medicare information and is subject to this 
     section, shall maintain reasonable and appropriate 
     administrative, technical, and physical safeguards--
       ``(i) to ensure the integrity and confidentiality of the 
     information;
       ``(ii) to protect against any reasonably anticipated--

       ``(I) threats or hazards to the security or integrity of 
     the information; and
       ``(II) unauthorized uses or disclosures of the information; 
     and

       ``(iii) to otherwise ensure compliance with this section by 
     the officers and employees of such person.
       ``(B) Security standards.--The Secretary shall establish 
     security standards and modifications to such standards with 
     respect to MedicarePlus and medicare information network 
     services, health plans, and health care providers that--
       ``(i) take into account--

       ``(I) the technical capabilities of record systems used to 
     maintain MedicarePlus and medicare information;
       ``(II) the costs of security measures;
       ``(III) the need for training persons who have access to 
     MedicarePlus and medicare information; and
       ``(IV) the value of audit trails in computerized record 
     systems; and

       ``(ii) ensure that a MedicarePlus and medicare information 
     network service, if it is part of a larger organization, has 
     policies and security procedures which isolate the activities 
     of such service with respect to processing information in a 
     manner that prevents unauthorized access to such information 
     by such larger organization.

[[Page H 12595]]

     The security standards established by the Secretary shall be 
     based on the standards developed or modified by standard 
     setting organizations. If such standards do not exist, the 
     Secretary shall rely on the recommendations of the 
     MedicarePlus and Medicare Information Advisory Committee 
     (established under subsection (g)) and shall consult with 
     appropriate government agencies and private organizations in 
     accordance with paragraph (5).
       ``(4) Implementation specifications.--The Secretary shall 
     establish specifications for implementing each of the 
     standards and the modifications to the standards adopted 
     pursuant to paragraph (1) or (3).
       ``(5) Assistance to the secretary.--In complying with the 
     requirements of this section, the Secretary shall rely on 
     recommendations of the MedicarePlus and Medicare Information 
     Advisory Committee established under subsection (g) and shall 
     consult with appropriate Federal and State agencies and 
     private organizations. The Secretary shall publish in the 
     Federal Register the recommendations of the MedicarePlus and 
     Medicare Information Advisory Committee regarding the 
     adoption of a standard under this section.
       ``(b) Standards for Information Transactions and Data 
     Elements.--
       ``(1) In general.--The Secretary shall adopt standards for 
     transactions and data elements to make MedicarePlus and 
     medicare information uniformly available to be exchanged 
     electronically, that is--
       ``(A) appropriate for the following financial and 
     administrative transactions: claims (including coordination 
     of benefits) or equivalent encounter information, enrollment 
     and disenrollment, eligibility, premium payments, and 
     referral certification and authorization; and
       ``(B) related to other financial and administrative 
     transactions determined appropriate by the Secretary 
     consistent with the goals of improving the operation of the 
     health care system and reducing administrative costs.
       ``(2) Unique health identifiers.--
       ``(A) Adoption of standards.--The Secretary shall adopt 
     standards providing for a standard unique health identifier 
     for each individual, employer, health plan, and health care 
     provider for use in the MedicarePlus and medicare information 
     system. In developing unique health identifiers for each 
     health plan and health care provider, the Secretary shall 
     take into account multiple uses for identifiers and multiple 
     locations and specialty classifications for health care 
     providers.
       ``(B) Penalty for improper disclosure.--A person who 
     knowingly uses or causes to be used a unique health 
     identifier under subparagraph (A) for a purpose that is not 
     authorized by the Secretary shall--
       ``(i) be fined not more than $50,000, imprisoned not more 
     than 1 year, or both; or
       ``(ii) if the offense is committed under false pretenses, 
     be fined not more than $100,000, imprisoned not more than 5 
     years, or both.
       ``(3) Code sets.--
       ``(A) In general.--The Secretary, in consultation with the 
     MedicarePlus and Medicare Information Advisory Committee, 
     experts from the private sector, and Federal and State 
     agencies, shall--
       ``(i) select code sets for appropriate data elements from 
     among the code sets that have been developed by private and 
     public entities; or
       ``(ii) establish code sets for such data elements if no 
     code sets for the data elements have been developed.
       ``(B) Distribution.--The Secretary shall establish 
     efficient and low-cost procedures for distribution (including 
     electronic distribution) of code sets and modifications made 
     to such code sets under subsection (c)(2).
       ``(4) Electronic signature.--
       ``(A) In general.--The Secretary, after consultation with 
     the MedicarePlus and Medicare Information Advisory Committee, 
     shall promulgate regulations specifying procedures for the 
     electronic transmission and authentication of signatures, 
     compliance with which will be deemed to satisfy Federal and 
     State statutory requirements for written signatures with 
     respect to information transactions required by this section 
     and written signatures on enrollment and disenrollment forms.
       ``(B) Payments for services and premiums.--Nothing in this 
     section shall be construed to prohibit the payment of health 
     care services or health plan premiums by debit, credit, 
     payment card or numbers, or other electronic means.
       ``(5) Transfer of information between health plans.--The 
     Secretary shall develop rules and procedures--
       ``(A) for determining the financial liability of health 
     plans when health care benefits are payable under two or more 
     health plans; and
       ``(B) for transferring among health plans appropriate 
     standard data elements needed for the coordination of 
     benefits, the sequential processing of claims, and other data 
     elements for individuals who have more than one health plan.
       ``(6) Coordination of benefits.--If, at the end of the 5-
     year period beginning on the date of the enactment of this 
     section, the Secretary determines that additional transaction 
     standards for coordinating benefits are necessary to reduce 
     administrative costs or duplicative (or inappropriate) 
     payment of claims, the Secretary shall establish further 
     transaction standards for the coordination of benefits 
     between health plans.
       ``(7) Protection of trade secrets.--Except as otherwise 
     required by law, the standards adopted under this section 
     shall not require disclosure of trade secrets or confidential 
     commercial information by an entity operating a MedicarePlus 
     and medicare information network.
       ``(c) Timetables for Adoption of Standards.--
       ``(1) Initial standards.--Not later than 18 months after 
     the date of the enactment of this section, the Secretary 
     shall adopt standards relating to the information 
     transactions, data elements of MedicarePlus and medicare 
     information and security described in subsections (a) and 
     (b).
       ``(2) Additions and modifications to standards.--
       ``(A) In general.--The Secretary shall review the standards 
     adopted under this section and shall adopt additional or 
     modified standards, that have been developed or modified by a 
     standard setting organization, as determined appropriate, but 
     not more frequently than once every 12 months. Any addition 
     or modification to such standards shall be completed in a 
     manner which minimizes the disruption and cost of compliance.
       ``(B) Additions and modifications to code sets.--
       ``(i) In general.--The Secretary shall ensure that 
     procedures exist for the routine maintenance, testing, 
     enhancement, and expansion of code sets.
       ``(ii) Additional rules.--If a code set is modified under 
     this paragraph, the modified code set shall include 
     instructions on how data elements of MedicarePlus and 
     medicare information that were encoded prior to the 
     modification may be converted or translated so as to preserve 
     the informational value of the data elements that existed 
     before the modification. Any modification to a code set under 
     this paragraph shall be implemented in a manner that 
     minimizes the disruption and cost of complying with such 
     modification.
       ``(d) Requirements for Health Plans.--
       ``(1) In general.--If a person desires to conduct any of 
     the information transactions described in subsection (b)(1) 
     with a health plan as a standard transaction, the health plan 
     shall conduct such standard transaction in a timely manner 
     and the information transmitted or received in connection 
     with such transaction shall be in the form of standard data 
     elements of MedicarePlus and medicare information.
       ``(2) Satisfaction of requirements.--A health plan may 
     satisfy the requirement imposed on such plan under paragraph 
     (1) by directly transmitting standard data elements of 
     MedicarePlus and medicare information or submitting 
     nonstandard data elements to a MedicarePlus and medicare 
     information network service for processing into standard data 
     elements and transmission.
       ``(3) Timetables for compliance with requirements.--Not 
     later than 24 months after the date on which standards are 
     adopted under subsections (a) and (b) with respect to any 
     type of information transaction or data element of 
     MedicarePlus and medicare information or with respect to 
     security, a health plan shall comply with the requirements of 
     this section with respect to such transaction or data 
     element.
       ``(4) Compliance with modified standards.--If the Secretary 
     adopts a modified standard under subsection (a) or (b), a 
     health plan shall be required to comply with the modified 
     standard at such time as the Secretary determines appropriate 
     taking into account the time needed to comply due to the 
     nature and extent of the modification. However, the time 
     determined appropriate under the preceding sentence shall be 
     not earlier than the last day of the 180-day period beginning 
     on the date such modified standard is adopted. The Secretary 
     may extend the time for compliance for small health plans, if 
     the Secretary determines such extension is appropriate.
       ``(e) General Penalty for Failure To Comply With 
     Requirements and Standards.--
       ``(1) General penalty.--
       ``(A) In general.--Except as provided in paragraph (2), the 
     Secretary shall impose on any person that violates a 
     requirement or standard--
       ``(i) with respect to MedicarePlus and medicare information 
     transactions, data elements of MedicarePlus and medicare 
     information, or security imposed under subsection (a) or (b); 
     or
       ``(ii) with respect to health plans imposed under 
     subsection (d);
     a penalty of not more than $100 for each such violation of a 
     specific standard or requirement, but the total amount 
     imposed for all such violations of a specific standard or 
     requirement during the calendar year shall not exceed 
     $25,000.
       ``(B) Procedures.--The provisions of section 1128A (other 
     than subsections (a) and (b) and the second sentence of 
     subsection (f)) shall apply to the imposition of a civil 
     money penalty under this paragraph in the same manner as such 
     provisions apply to the imposition of a penalty under such 
     section 1128A.
       ``(C) Denial of payment.--Except as provided in paragraph 
     (2), the Secretary may deny payment under this title for an 
     item or service furnished by a person if the person fails to 
     comply with an applicable requirement or standard for 
     MedicarePlus and medicare information relating to that item 
     or service.
       ``(2) Limitations.--
       ``(A) Noncompliance not discovered.--A penalty may not be 
     imposed under paragraph (1) if it is established to the 
     satisfaction of the Secretary that the person liable for the 
     penalty did not know, and by exercising reasonable diligence 
     would not have known, that such person failed to comply with 
     the requirement or standard described in paragraph (1).
       ``(B) Failures due to reasonable cause.--
       ``(i) In general.--Except as provided in clause (ii), a 
     penalty may not be imposed under paragraph (1) if--

       ``(I) the failure to comply was due to reasonable cause and 
     not to willful neglect; and
       ``(II) the failure to comply is corrected during the 30-day 
     period beginning on the first date the person liable for the 
     penalty knew, or by exercising reasonable diligence would 
     have known, that the failure to comply occurred.

[[Page H 12596]]


       ``(ii) Extension of period.--

       ``(I) No penalty.--The period referred to in clause (i)(II) 
     may be extended as determined appropriate by the Secretary 
     based on the nature and extent of the failure to comply.
       ``(II) Assistance.--If the Secretary determines that a 
     health plan failed to comply because such plan was unable to 
     comply, the Secretary may provide technical assistance to 
     such plan during the period described in clause (i)(II). Such 
     assistance shall be provided in any manner determined 
     appropriate by the Secretary.

       ``(C) Reduction.--In the case of a failure to comply which 
     is due to reasonable cause and not to willful neglect, any 
     penalty under paragraph (1) that is not entirely waived under 
     subparagraph (B) may be waived to the extent that the payment 
     of such penalty would be excessive relative to the compliance 
     failure involved.
       ``(f) Effect on State Law.--
       ``(1) General effect.--
       ``(A) General rule.--Except as provided in subparagraph 
     (B), a provision, requirement, or standard under this section 
     shall supersede any contrary provision of State law, 
     including a provision of State law that requires medical or 
     health plan records (including billing information) to be 
     maintained or transmitted in written rather than electronic 
     form.
       ``(B) Exceptions.--A provision, requirement, or standard 
     under this section shall not supersede a contrary provision 
     of State law if the Secretary determines that the provision 
     of State law should be continued for any reason, including 
     for reasons relating to prevention of fraud and abuse or 
     regulation of controlled substances.
       ``(2) Public health reporting.--Nothing in this section 
     shall be construed to invalidate or limit the authority, 
     power, or procedures established under any law providing for 
     the reporting of disease or injury, child abuse, birth, or 
     death, public health surveillance, or public health 
     investigation or intervention.
       ``(g) MedicarePlus and Medicare Information Advisory 
     Committee.--
       ``(1) Establishment.--There is established a committee to 
     be known as the MedicarePlus and Medicare Information 
     Advisory Committee (in this subsection referred to as the 
     `committee').
       ``(2) Duties.--The committee shall--
       ``(A) advise the Secretary in the development of standards 
     under this section; and
       ``(B) be generally responsible for advising the Secretary 
     and the Congress on the status and the future of the 
     MedicarePlus and medicare information network.
       ``(3) Membership.--
       ``(A) In general.--The committee shall consist of 9 members 
     of whom--
       ``(i) 3 shall be appointed by the President;
       ``(ii) 3 shall be appointed by the Speaker of the House of 
     Representatives after consultation with the minority leader 
     of the House of Representatives; and
       ``(iii) 3 shall be appointed by the President pro tempore 
     of the Senate after consultation with the minority leader of 
     the Senate.
     The appointments of the members shall be made not later than 
     60 days after the date of the enactment of this section. The 
     President shall designate 1 member as the Chair.
       ``(B) Expertise.--The membership of the committee shall 
     consist of individuals who are of recognized standing and 
     distinction in the areas of information systems, information 
     networking and integration, consumer health, or health care 
     financial management, and who possess the demonstrated 
     capacity to discharge the duties imposed on the committee.
       ``(C) Terms.--Each member of the committee shall be 
     appointed for a term of 5 years, except that the members 
     first appointed shall serve staggered terms such that the 
     terms of not more than 3 members expire at one time.
       ``(D) Initial meeting.--Not later than 30 days after the 
     date on which a majority of the members have been appointed, 
     the committee shall hold its first meeting.
       ``(4) Reports.--Not later than 1 year after the date of the 
     enactment of this section, and annually thereafter, the 
     committee shall submit to Congress and the Secretary a report 
     regarding--
       ``(A) the extent to which entities using the MedicarePlus 
     and medicare information network are meeting the standards 
     adopted under this section and working together to form an 
     integrated network that meets the needs of its users;
       ``(B) the extent to which such entities are meeting the 
     security standards established pursuant to this section and 
     the types of penalties assessed for noncompliance with such 
     standards;
       ``(C) any problems that exist with respect to 
     implementation of the MedicarePlus and medicare information 
     network; and
       ``(D) the extent to which timetables under this section are 
     being met.
     Reports made under this subsection shall be made available to 
     health care providers, health plans, and other entities that 
     use the MedicarePlus and medicare information network to 
     exchange MedicarePlus and medicare information.
       ``(h) Definitions.--For purposes of this section:
       ``(1) Code set.--The term `code set' means any set of codes 
     used for encoding data elements, such as tables of terms, 
     enrollment information, and encounter data.
       ``(2) Coordination of benefits.--The term `coordination of 
     benefits' means determining and coordinating the financial 
     obligations of health plans when health care benefits are 
     payable under such a plan and under this title (including 
     under a MedicarePlus plan).
       ``(3) MedicarePlus and medicare information.--The term 
     `MedicarePlus and medicare information' means any information 
     that relates to the enrollment of individuals under this 
     title (including information relating to elections of 
     MedicarePlus plans under section 1851) and the provision of 
     health benefits (including benefits provided under such 
     plans) under this title.
       ``(4) MedicarePlus and medicare information network.--The 
     term `MedicarePlus and medicare information network' means 
     the MedicarePlus and medicare information system that is 
     formed through the application of the requirements and 
     standards established under this section.
       ``(5) MedicarePlus and medicare information network 
     service.--The term `MedicarePlus and medicare information 
     network service' means a public or private entity that--
       ``(A) processes or facilitates the processing of 
     nonstandard data elements of MedicarePlus and medicare 
     information into standard data elements;
       ``(B) provides the means by which persons may meet the 
     requirements of this section; or
       ``(C) provides specific information processing services.
       ``(6) Health plan.--The term `health plan' means a plan 
     which provides, or pays the cost of, health benefits. Such 
     term includes the following, or any combination thereof:
       ``(A) Part A or part B of this title, and includes a 
     MedicarePlus plan.
       ``(B) The medicaid program under title XIX and the 
     MediGrant program under title XXI.
       ``(C) A medicare supplemental policy (as defined in section 
     1882(g)(1)).
       ``(D) Worker's compensation or similar insurance.
       ``(E) Automobile or automobile medical-payment insurance.
       ``(F) A long-term care policy, other than a fixed indemnity 
     policy.
       ``(G) The Federal Employees Health Benefit Plan under 
     chapter 89 of title 5, United States Code.
       ``(H) An employee welfare benefit plan, as defined in 
     section 3(1) of the Employee Retirement Income Security Act 
     of 1974 (29 U.S.C. 1002(1)), but only to the extent the plan 
     is established or maintained for the purpose of providing 
     health benefits.
       ``(7) Individually identifiable MedicarePlus and medicare 
     information.--The term `individually identifiable 
     MedicarePlus and medicare information' means MedicarePlus and 
     medicare enrollment information, including demographic 
     information collected from an individual, that--
       ``(A) is created or received by a health care provider, 
     health plan, employer, or MedicarePlus and medicare 
     information network service, and
       ``(B) identifies an individual.
       ``(8) Standard setting organization.--The term `standard 
     setting organization' means a standard setting organization 
     accredited by the American National Standards Institute and 
     includes the National Council for Prescription Drug Program.
       ``(9) Standard transaction.--The term `standard 
     transaction' means, when referring to an information 
     transaction or to data elements of MedicarePlus and medicare 
     information, any transaction that meets the requirements and 
     implementation specifications adopted by the Secretary under 
     subsections (a) and (b).


                ``definitions; miscellaneous provisions

       ``Sec. 1859. (a) Definitions Relating to MedicarePlus 
     Organizations.--In this part--
       ``(1) MedicarePlus organization.--The term `MedicarePlus 
     organization' means a public or private entity that is 
     certified under section 1857 as meeting the requirements and 
     standards of this part for such an organization.
       ``(2) Provider-sponsored organization.--The term `provider-
     sponsored organization' is defined in section 1853(e).
       ``(3) Qualified association sponsor.--The term `qualified 
     association sponsor' means an association, religious 
     fraternal organization, or other organization (which may be a 
     trade, industry, or professional association, a chamber of 
     commerce, or a public entity association) that the Secretary 
     finds--
       ``(A) is organized for purposes other than to market a 
     health plan,
       ``(B) may not condition its membership on health status, 
     health claims experience, receipt of health care, medical 
     history, or lack of evidence of insurability of a potential 
     member,
       ``(C) may not exclude a member or spouse of a member from 
     health plan coverage based on factors described in clause 
     (ii);
       ``(D) does not exist solely or principally for the purpose 
     of selling insurance,
       ``(E) has at least 1,000 individual members or 200 employer 
     members,
       ``(F) is a permanent entity which receives a substantial 
     proportion of its financial support from active members; and
       ``(G) is not owned or controlled by an insurance company.
     Such term includes a subsidiary or corporation that is wholly 
     owned by one or more qualified organizations.
       ``(4) Taft-hartley sponsor.--The term `Taft-Hartley 
     sponsor' means, in relation to a group health plan that is 
     established or maintained by two or more employers or jointly 
     by one or more employers and one or more employee 
     organizations, the association, committee, joint board of 
     trustees, or other similar group of representatives of 
     parties who establish or maintain the plan.
       ``(5) Union sponsor.--The term `union sponsor' means an 
     employee organization in relation to a group health plan that 
     is established or maintained by the organization other than 
     pursuant to a collective bargaining agreement.
       ``(6) Employer, etc.--In this subsection and section 
     1851(b), the terms `employer', `employee organization', and 
     `group health plan' have the meanings given such terms for 
     purposes of part 6 of subtitle B of title I of the Employee 
     Retirement Income Security Act of 1974.

[[Page H 12597]]

       ``(b) Definitions Relating to MedicarePlus Plans.--
       ``(1) MedicarePlus plan.--The term `MedicarePlus plan' 
     means health benefits coverage offered under a policy, 
     contract, or plan by a MedicarePlus organization pursuant to 
     and in accordance with a contract under section 1857.
       ``(2) High deductible plan.--
       ``(A) In general.--The term `high deductible plan' means a 
     MedicarePlus plan that--
       ``(i) provides reimbursement for at least the items and 
     services described in section 1852(a)(1) in a year but only 
     after the enrollee incurs countable expenses (as specified 
     under the plan) equal to the amount of a deductible 
     (described in subparagraph (B));
       ``(ii) counts as such expenses (for purposes of such 
     deductible) at least all amounts that would have been payable 
     under parts A and B or by the enrollee if the enrollee had 
     elected to receive benefits through the provisions of such 
     parts; and
       ``(iii) provides, after such deductible is met for a year 
     and for all subsequent expenses for benefits referred to in 
     clause (i) in the year, for a level of reimbursement that is 
     not less than--

       ``(I) 100 percent of such expenses, or
       ``(II) 100 percent of the amounts that would have been paid 
     (without regard to any deductibles or coinsurance) under 
     parts A and B with respect to such expenses,

     whichever is less.
       ``(B) Deductible.--The amount of deductible under a high 
     deductible plan--
       ``(i) for contract year 1997 shall be not more than $6,000; 
     and
       ``(ii) for a subsequent contract year shall be not more 
     than the maximum amount of such deductible for the previous 
     contract year under this subparagraph increased by the 
     national average per capita growth percentage under section 
     1854(c)(6) for the year.
     If the amount of the deductible under clause (ii) is not a 
     multiple of $50, the amount shall be rounded to the nearest 
     multiple of $50.
       ``(3) MedicarePlus unrestricted fee-for-service plan.--The 
     term `MedicarePlus unrestricted fee-for-service plan' means a 
     MedicarePlus plan that provides for coverage of benefits 
     without restrictions relating to utilization and without 
     regard to whether the provider has a contract or other 
     arrangement with the organization offering the plan for the 
     provision of such benefits.
       ``(c) Other References to Other Terms.--
       ``(1) MedicarePlus eligible individual.--The term 
     `MedicarePlus eligible individual' is defined in section 
     1851(a)(3).
       ``(2) MedicarePlus payment area.--The term `MedicarePlus 
     payment area' is defined in section 1854(d).
       ``(3) National average per capita growth percentage.--The 
     `national average per capita growth percentage' is defined in 
     section 1854(c)(6).
       ``(4) Monthly premium; net monthly premium.--The terms 
     `monthly premium' and `net monthly premium' are defined in 
     section 1855(a)(2).
       ``(d) Coordinated Acute and Long-term Care Benefits Under a 
     MedicarePlus Plan.--Nothing in this part shall be construed 
     as preventing a State from coordinating benefits under its 
     MediGrant program under title XXI with those provided under a 
     MedicarePlus plan in a manner that assures continuity of a 
     full-range of acute care and long-term care services to poor 
     elderly or disabled individuals eligible for benefits under 
     this title and under such program.''.
       (b) Conforming References to Previous Part C.--Any 
     reference in law (in effect before the date of the enactment 
     of this Act) to part C of title XVIII of the Social Security 
     Act is deemed a reference to part D of such title (as in 
     effect after such date).
       (c) Use of Interim, Final Regulations.--In order to carry 
     out the amendment made by subsection (a) in a timely manner, 
     the Secretary of Health and Human Services may promulgate 
     regulations that take effect on an interim basis, after 
     notice and pending opportunity for public comment.
       (d) Advance Directives.--Section 1866(f)(1) (42 U.S.C. 
     1395cc(f)(1)) is amended--
       (1) by inserting ``1853(g),'' after ``1833(s),'', and
       (2) by inserting ``, MedicarePlus organization,'' after 
     ``provider of services''.
       (e) Conforming Amendment.--Section 1866(a)(1)(O) (42 U.S.C. 
     1395cc(a)(1)(O)) is amended by inserting before the semicolon 
     at the end the following: ``and in the case of hospitals to 
     accept as payment in full for inpatient hospital services 
     that are emergency services (as defined in section 
     1853(b)(4)) that are covered under this title and are 
     furnished to any individual enrolled under part C with a 
     MedicarePlus organization which does not have a contract 
     establishing payment amounts for services furnished to 
     members of the organization the amounts that would be made as 
     a payment in full under this title if the individuals were 
     not so enrolled''.
       (f) Secretarial Submission of Legislative Proposal.--Not 
     later than 90 days after the date of the enactment of this 
     Act, the Secretary of Health and Human Services shall submit 
     to the appropriate committees of Congress a legislative 
     proposal providing for such technical and conforming 
     amendments in the law as are required by the provisions of 
     this chapter.

     SEC. 8002. DUPLICATION AND COORDINATION OF MEDICARE-RELATED 
                   PLANS.

       (a) Treatment of Certain Health Insurance Policies as 
     Nonduplicative.--
       (1) In general.--Section 1882(d)(3)(A) (42 U.S.C. 
     1395ss(d)(3)(A)) is amended--
       (A) by amending clause (i) to read as follows:
       ``(i) It is unlawful for a person to sell or issue to an 
     individual entitled to benefits under part A or enrolled 
     under part B of this title or electing a MedicarePlus plan 
     under section 1851--
       ``(I) a health insurance policy (other than a medicare 
     supplemental policy) with knowledge that the policy 
     duplicates health benefits to which the individual is 
     otherwise entitled under this title or title XIX,
       ``(II) in the case of an individual not electing a 
     MedicarePlus plan, a medicare supplemental policy with 
     knowledge that the individual is entitled to benefits under 
     another medicare supplemental policy, or
       ``(III) in the case of an individual electing a 
     MedicarePlus plan, a medicare supplemental policy with 
     knowledge that the policy duplicates health benefits to which 
     the individual is otherwise entitled under this title or 
     under another medicare supplemental policy.'';
       (B) in clause (iii), by striking ``clause (i)'' and 
     inserting ``clause (i)(II)''; and
       (C) by adding at the end the following new clauses:
       ``(iv) For purposes of this subparagraph a health insurance 
     policy shall be considered to `duplicate' benefits under this 
     title only when, under its terms, the policy provides 
     specific reimbursement for identical items and services to 
     the extent paid for under this title, and a health insurance 
     policy providing for benefits which are payable to or on 
     behalf of an individual without regard to other health 
     benefit coverage of such individual is not considered to 
     `duplicate' any health benefits under this title.
       ``(v) For purposes of this subparagraph, a health insurance 
     policy (or a rider to an insurance contract which is not a 
     health insurance policy), including a policy (such as a 
     qualified long-term care insurance contract described in 
     section 7702B(b) of the Internal Revenue Code of 1986, as 
     added by the Revenue Reconciliation Act of 1995) providing 
     benefits for long-term care, nursing home care, home health 
     care, or community-based care, that coordinates against or 
     excludes items and services available or paid for under this 
     title and (for policies sold or issued after January 1, 1996) 
     that discloses such coordination or exclusion in the policy's 
     outline of coverage, is not considered to `duplicate' health 
     benefits under this title. For purposes of this clause, the 
     terms `coordinates' and `coordination' mean, with respect to 
     a policy in relation to health benefits under this title, 
     that the policy under its terms is secondary to, or excludes 
     from payment, items and services to the extent available or 
     paid for under this title.
       ``(vi) A State may not impose, with respect to the sale or 
     issuance of a policy (or rider) that meets the requirements 
     of this title pursuant to clause (iv) or (v) to an individual 
     entitled to benefits under part A or enrolled under part B or 
     enrolled under a MedicarePlus plan under part C, any 
     requirement based on the premise that such a policy or rider 
     duplicates health benefits to which the individual is 
     otherwise entitled under this title.''.
       (2) Conforming amendments.--Section 1882(d)(3) (42 U.S.C. 
     1395ss(d)(3)) is amended--
       (A) in subparagraph (B), by inserting ``(including any 
     MedicarePlus plan)'' after ``health insurance policies'';
       (B) in subparagraph (C)--
       (i) by striking ``with respect to (i)'' and inserting 
     ``with respect to'', and
       (ii) by striking ``, (ii) the sale'' and all that follows 
     up to the period at the end; and
       (C) by striking subparagraph (D).
       (3) Medicareplus plans not treated as medicare 
     supplementary policies.--Section 1882(g)(1) (42 U.S.C. 
     1395ss(g)(1)) is amended by inserting ``a MedicarePlus plan 
     or'' after ``and does not include''.
       (b) Additional Rules Relating to Individuals Enrolled in 
     MedicarePlus Plans.--Section 1882 (42 U.S.C. 1395ss) is 
     further amended by adding at the end the following new 
     subsection:
       ``(u)(1) Notwithstanding the previous provisions of this 
     section, this section shall not apply to the sale or issuance 
     of a medicare supplemental policy to an individual who has 
     elected to enroll in a MedicarePlus plan under section 1851.
       ``(2)(A) It is unlawful for a person to sell or issue a 
     policy described in subparagraph (B) to an individual with 
     knowledge that the individual has in effect under section 
     1851 an election of a high deductible plan.
       ``(B) A policy described in this subparagraph is a health 
     insurance policy that provides for coverage of expenses that 
     are otherwise required to be counted toward meeting the 
     annual deductible amount provided under the high deductible 
     plan.''.

     SEC. 8003. TRANSITIONAL RULES FOR CURRENT MEDICARE HMO 
                   PROGRAM.

       (a) In General.--Section 1876 (42 U.S.C. 1395mm) is 
     amended--
       (1) in subsection (c)(3)(A)(i), by striking ``would result 
     in failure to meet the requirements of subsection (f) or'';
       (2) by amending subsection (f) to read as follows:
       ``(f)(1) Except as provided in paragraph (3), the Secretary 
     shall not enter into, renew, or continue any risk-sharing 
     contract under this section with an eligible organization for 
     any contract year beginning on or after--
       ``(A) the date standards for MedicarePlus organizations and 
     plans are first established under section 1856(a) with 
     respect to MedicarePlus organizations that are insurers or 
     health maintenance organizations, or
       ``(B) in the case of in the case of such an organization 
     with such a contract in effect as of the date such standards 
     were first established, 1 year after such date.
       ``(2) The Secretary shall not enter into, renew, or 
     continue any risk-sharing contract under this section with an 
     eligible organization for any contract year beginning on or 
     after January 1, 2000.
       ``(3) An individual who is enrolled in part B only and is 
     enrolled in an eligible organization 

[[Page H 12598]]
     with a risk-sharing contract under this section on December 31, 1996, 
     may continue enrollment in such organization. Not later then 
     July 1, 1996, the Secretary shall issue regulations relating 
     to such individuals and such organizations.
       ``(4) Notwithstanding subsection (a), the Secretary shall 
     provide that payment amounts under risk-sharing contracts 
     under this section for months in a year (beginning with 
     January 1996) shall be computed--
       ``(A) with respect to individuals entitled to benefits 
     under both parts A and B, by substituting payment rates under 
     section 1854(a) for the payment rates otherwise established 
     under subsection 1876(a), and
       ``(B) with respect to individuals only entitled to benefits 
     under part B, by substituting an appropriate proportion of 
     such rates (reflecting the relative proportion of payments 
     under this title attributable to such part) for the payment 
     rates otherwise established under subsection (a).
     For purposes of carrying out this paragraph for payments for 
     months in 1996, the Secretary shall compute, announce, and 
     apply the payment rates under section 1854(a) 
     (notwithstanding any deadlines specified in such section) in 
     as timely a manner as possible and may (to the extent 
     necessary) provide for retroactive adjustment in payments 
     made under this section not in accordance with such rates.''; 
     and
       (3) in subsection (i)(1)(C), by striking ``(e), and (f)'' 
     and inserting ``and (e)''.

   CHAPTER 2--SPECIAL RULES FOR MEDICAREPLUS MEDICAL SAVINGS ACCOUNTS

     SEC. 8011. MEDICAREPLUS MSA.

       (a) In General.--Part III of subchapter B of chapter 1 of 
     the Internal Revenue Code of 1986 (relating to amounts 
     specifically excluded from gross income) is amended by 
     redesignating section 137 as section 138 and by inserting 
     after section 136 the following new section:

     ``SEC. 137. MEDICAREPLUS MSA.

       ``(a) Exclusion.--Gross income shall not include any 
     payment to the MedicarePlus MSA of an individual by the 
     Secretary of Health and Human Services under part C of title 
     XVIII of the Social Security Act.
       ``(b) MedicarePlus MSA.--For purposes of this section--
       ``(1) Medicareplus msa.--The term `MedicarePlus MSA' means 
     a medical savings account (as defined in section 222(d))--
       ``(A) which is designated as a MedicarePlus MSA,
       ``(B) notwithstanding section 222(f)(5), with respect to 
     which no contribution may be made other than--
       ``(i) a contribution made by the Secretary of Health and 
     Human Services pursuant to part C of title XVIII of the 
     Social Security Act, or
       ``(ii) a trustee-to-trustee transfer described in 
     subsection (c)(4), and
       ``(C) the governing instrument of which provides that 
     trustee-to-trustee transfers described in subsection (c)(4) 
     may be made to and from such account.
       ``(2) High deductible msa.--The term `High Deductible 
     MedicarePlus MSA' means a MedicarePlus MSA which is 
     established in connection with a high deductible plan 
     described in section 1859(b)(2) of the Social Security Act.
       ``(3) Rebate medicareplus msa.--The term `Rebate 
     MedicarePlus MSA' means a MedicarePlus MSA other than a High 
     Deductible MedicarePlus MSA.
       ``(c) Special Rules for Distributions.--
       ``(1) Distributions for qualified medical expenses.--In 
     applying section 222--
       ``(A) to a High Deductible MedicarePlus MSA, qualified 
     medical expenses shall include only expenses for medical care 
     of the account holder, and
       ``(B) to a Rebate MedicarePlus MSA, qualified medical 
     expenses shall include only expenses for medical care of the 
     account holder and of the spouse of the account holder if 
     such spouse is entitled to benefits under part A of title 
     XVIII of the Social Security Act and is enrolled under part B 
     of such title.
       ``(2) Penalty for distributions from high deductible msa 
     not used for qualified medical expenses if minimum balance 
     not maintained.--
       ``(A) In general.--The tax imposed by this chapter for any 
     taxable year in which there is a payment or distribution from 
     a High Deductible MedicarePlus MSA which is not used 
     exclusively to pay the qualified medical expenses of the 
     account holder shall be increased by 50 percent of the excess 
     (if any) of--
       ``(i) the amount of such payment or distribution, over
       ``(ii) the excess (if any) of--

       ``(I) the fair market value of the assets in such MSA as of 
     the close of the calendar year preceding the calendar year in 
     which the taxable year begins, over
       ``(II) an amount equal to 60 percent of the deductible 
     under the high deductible plan covering the account holder as 
     of January 1 of the calendar year in which the taxable year 
     begins.

     Section 222(f)(2) shall not apply to any payment or 
     distribution from a High Deductible MedicarePlus MSA.
       ``(B) Exceptions.--Subparagraph (A) shall not apply if the 
     payment or distribution is made on or after the date the 
     account holder--
       ``(i) becomes disabled within the meaning of section 
     72(m)(7), or
       ``(ii) dies.
       ``(C) Special rules.--For purposes of subparagraph (A)--
       ``(i) all High Deductible MedicarePlus MSAs of the account 
     holder shall be treated as 1 account,
       ``(ii) all payments and distributions not used exclusively 
     to pay the qualified medical expenses of the account holder 
     during any taxable year shall be treated as 1 distribution, 
     and
       ``(iii) any distribution of property shall be taken into 
     account at its fair market value on the date of the 
     distribution.
       ``(3) Withdrawal of erroneous contributions.--Section 
     222(f)(2) and paragraph (2) of this subsection shall not 
     apply to any payment or distribution from a MedicarePlus MSA 
     to the Secretary of Health and Human Services of an erroneous 
     contribution to such MSA and of the net income attributable 
     to such contribution.
       ``(4) Trustee-to-trustee transfers.--Section 222(f)(2) and 
     paragraph (2) of this subsection shall not apply to--
       ``(A) any trustee-to-trustee transfer from a High 
     Deductible MedicarePlus MSA of an account holder to another 
     High Deductible MedicarePlus MSA of such account holder, and
       ``(B) any trustee-to-trustee transfer from a Rebate 
     MedicarePlus MSA of an account holder to another Rebate 
     MedicarePlus MSA of such account holder.
       ``(d) Special Rules for Treatment of Account After Death of 
     Account Holder.--Notwithstanding section 222(f)(1)(B), if, as 
     of the date of the death of the account holder, the spouse of 
     such holder is not entitled to benefits under title XVIII of 
     the Social Security Act, then after the date of such death--
       ``(1) the Secretary of Health and Human Services may not 
     make any payments to such MedicarePlus MSA, other than 
     payments attributable to periods before such date, and
       ``(2) such MSA shall be treated as medical savings account 
     which is not a MedicarePlus MSA.
       ``(e) Reports.--In the case of a MedicarePlus MSA, the 
     report under section 222(h)--
       ``(1) shall include the fair market value of the assets in 
     such MedicarePlus MSA as of the close of each calendar year, 
     and
       ``(2) shall be furnished to the account holder--
       ``(A) not later than January 31 of the calendar year 
     following the calendar year to which such reports relate, and
       ``(B) in such manner as the Secretary prescribes in such 
     regulations.''
       (b) Conforming Amendments.--
       (1) The last sentence of section 4973(d) of such Code, as 
     added by section 11066(f)(4), is amended by ``or section 
     137(c)(3)'' after ``section 222(f)(3)''.
       (2) The table of sections for part III of subchapter B of 
     chapter 1 of such Code is amended by striking the last item 
     and inserting the following:

``Sec. 137. MedicarePlus MSA.
``Sec. 138. Cross references to other Acts.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1996.

     SEC. 8012. CERTAIN REBATES EXCLUDED FROM GROSS INCOME.

       (a) In General.--Section 105 of the Internal Revenue Code 
     of 1986 (relating to amounts received under accident and 
     health plans) is amended by adding at the end the following 
     new subsection:
       ``(j) Certain Rebates Under Social Security Act.--Gross 
     income does not include any rebate received under part C of 
     title XVIII of the Social Security Act during the taxable 
     year.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to amounts received after the date of the 
     enactment of this Act.

             CHAPTER 3--MEDICARE PAYMENT REVIEW COMMISSION

     SEC. 8021. MEDICARE PAYMENT REVIEW COMMISSION.

       (a) In General.--Title XVIII is amended by inserting after 
     section 1804 the following new section:


                  ``medicare payment review commission

       ``Sec. 1805. (a) Establishment.--There is hereby 
     established the Medicare Payment Review Commission (in this 
     section referred to as the `Commission').
       ``(b) Duties.--
       ``(1) General duties and reports.--
       ``(A) In general.--The Commission shall review, and make 
     recommendations to Congress concerning, payment policies 
     under this title.
       ``(B) Annual reports.--By not later than June 1 of each 
     year, the Commission shall submit a report to Congress 
     containing an examination of issues affecting the medicare 
     program, including the implications of changes in health care 
     delivery in the United States and in the market for health 
     care services on the medicare program.
       ``(C) Additional reports.--The Commission may submit to 
     Congress from time to time such other reports as the 
     Commission deems appropriate. By not later than May 1, 1997, 
     the Commission shall submit to Congress a report on the 
     matter described in paragraph (2)(G).
       ``(D) Availability of reports.--The Commission shall 
     transmit to the Secretary a copy of each report submitted to 
     Congress under this subsection and shall make such reports 
     available to the public.
       ``(2) Specific duties relating to medicareplus program.--
     Specifically, the Commission shall review, with respect to 
     the MedicarePlus program under part C--
       ``(A) the methodology for making payment to plans under 
     such program, including the making of differential payments 
     and the distribution of differential updates among different 
     payment areas);
       ``(B) the mechanisms used to adjust payments for risk and 
     the need to adjust such mechanisms to take into account 
     health status of beneficiaries;
       ``(C) the implications of risk selection both among 
     MedicarePlus organizations and between the MedicarePlus 
     option and the Medicare fee-for-service option;

[[Page H 12599]]

       ``(D) in relation to payment under part C, the development 
     and implementation of mechanisms to assure the quality of 
     care for those enrolled with MedicarePlus organizations;
       ``(E) the impact of the MedicarePlus program on access to 
     care for medicare beneficiaries;
       ``(F) the feasibility and desirability of extending the 
     rules for open enrollment that apply during the transition 
     period to apply in each county during the first 2 years in 
     which MedicarePlus plans are made available to individuals 
     residing in the county; and
       ``(G) other major issues in implementation and further 
     development of the MedicarePlus program.
       ``(3) Specific duties relating to the fee-for-service 
     system.--Specifically, the Commission shall review payment 
     policies under parts A and B, including--
       ``(A) the factors affecting expenditures for services in 
     different sectors, including the process for updating 
     hospital, physician, and other fees,
       ``(B) payment methodologies; and
       ``(C) the impact of payment policies on access and quality 
     of care for medicare beneficiaries.
       ``(4) Specific duties relating to interaction of payment 
     policies with health care delivery generally.--Specifically 
     the Commission shall review the effect of payment policies 
     under this title on the delivery of health care services 
     under this title and assess the implications of changes in 
     the health services market on the medicare program.
       ``(c) Membership.--
       ``(1) Number and appointment.--The Commission shall be 
     composed of 15 members appointed by the Comptroller General.
       ``(2) Qualifications.--The membership of the Commission 
     shall include individuals with national recognition for their 
     expertise in health finance and economics, actuarial science, 
     health facility management, health plans and integrated 
     delivery systems, reimbursement of health facilities, 
     allopathic and osteopathic physicians, and other providers of 
     services, and other related fields, who provide a mix of 
     different professionals, broad geographic representation, and 
     a balance between urban and rural representatives, including 
     physicians and other health professionals, employers, third 
     party payors, individuals skilled in the conduct and 
     interpretation of biomedical, health services, and health 
     economics research and expertise in outcomes and 
     effectiveness research and technology assessment. Such 
     membership shall also include representatives of consumers 
     and the elderly.
       ``(3) Terms.--
       ``(A) In general.--The terms of members of the Commission 
     shall be for 3 years except that the Comptroller General 
     shall designate staggered terms for the members first 
     appointed.
       ``(B) Vacancies.--Any member appointed to fill a vacancy 
     occurring before the expiration of the term for which the 
     member's predecessor was appointed shall be appointed only 
     for the remainder of that term. A member may serve after the 
     expiration of that member's term until a successor has taken 
     office. A vacancy in the Commission shall be filled in the 
     manner in which the original appointment was made.
       ``(4) Compensation.--While serving on the business of the 
     Commission (including traveltime), a member of the Commission 
     shall be entitled to compensation at the per diem equivalent 
     of the rate provided for level IV of the Executive Schedule 
     under section 5315 of title 5, United States Code; and while 
     so serving away from home and member's regular place of 
     business, a member may be allowed travel expenses, as 
     authorized by the Chairman of the Commission. Physicians 
     serving as personnel of the Commission may be provided a 
     physician comparability allowance by the Commission in the 
     same manner as Government physicians may be provided such an 
     allowance by an agency under section 5948 of title 5, United 
     States Code, and for such purpose subsection (i) of such 
     section shall apply to the Commission in the same manner as 
     it applies to the Tennessee Valley Authority. For purposes of 
     pay (other than pay of members of the Commission) and 
     employment benefits, rights, and privileges, all personnel of 
     the Commission shall be treated as if they were employees of 
     the United States Senate.
       ``(5) Chairman; vice chairman.--The Comptroller General 
     shall designate a member of the Commission, at the time of 
     appointment of the member, as Chairman and a member as Vice 
     Chairman for that term of appointment.
       ``(6) Meetings.--The Commission shall meet at the call of 
     the Chairman.
       ``(d) Director and Staff; Experts and Consultants.--Subject 
     to such review as the Comptroller General deems necessary to 
     assure the efficient administration of the Commission, the 
     Commission may--
       ``(1) employ and fix the compensation of an Executive 
     Director (subject to the approval of the Comptroller General) 
     and such other personnel as may be necessary to carry out its 
     duties (without regard to the provisions of title 5, United 
     States Code, governing appointments in the competitive 
     service);
       ``(2) seek such assistance and support as may be required 
     in the performance of its duties from appropriate Federal 
     departments and agencies;
       ``(3) enter into contracts or make other arrangements, as 
     may be necessary for the conduct of the work of the 
     Commission (without regard to section 3709 of the Revised 
     Statutes (41 U.S.C. 5));
       ``(4) make advance, progress, and other payments which 
     relate to the work of the Commission;
       ``(5) provide transportation and subsistence for persons 
     serving without compensation; and
       ``(6) prescribe such rules and regulations as it deems 
     necessary with respect to the internal organization and 
     operation of the Commission.
       ``(e) Powers.--
       ``(1) Obtaining official data.--The Commission may secure 
     directly from any department or agency of the United States 
     information necessary to enable it to carry out this section. 
     Upon request of the Chairman, the head of that department or 
     agency shall furnish that information to the Commission on an 
     agreed upon schedule.
       ``(2) Data collection.--In order to carry out its 
     functions, the Commission shall collect and assess 
     information to--
       ``(A) utilize existing information, both published and 
     unpublished, where possible, collected and assessed either by 
     its own staff or under other arrangements made in accordance 
     with this section,
       ``(B) carry out, or award grants or contracts for, original 
     research and experimentation, where existing information is 
     inadequate, and
       ``(C) adopt procedures allowing any interested party to 
     submit information for the Commission's use in making reports 
     and recommendations.
       ``(3) Access of gao to information.--The Comptroller 
     General shall have unrestricted access to all deliberations, 
     records, and data of the Commission, immediately upon 
     request.
       ``(4) Periodic audit.--The Commission shall be subject to 
     periodic audit by the General Accounting Office.
       ``(5) Open meetings, etc..--Pursuant to regulations of the 
     Comptroller General, rules based upon the requirements of 
     section 10 of the Federal Advisory Committee Act shall apply 
     with respect to the Commission.
       ``(f) Authorization of Appropriations.--
       ``(1) Request for appropriations.--The Commission shall 
     submit requests for appropriations in the same manner as the 
     Comptroller General submits requests for appropriations, but 
     amounts appropriated for the Commission shall be separate 
     from amounts appropriated for the Comptroller General.
       ``(2) Authorization.--There are authorized to be 
     appropriated such sums as may be necessary to carry out the 
     provisions of this section. 60 percent of such appropriation 
     shall be payable from the Federal Hospital Insurance Trust 
     Fund, and 40 percent of such appropriation shall be payable 
     from the Federal Supplementary Medical Insurance Trust 
     Fund.''.
       (b) Abolition of ProPAC and PPRC.--
       (1) Propac.--
       (A) In general.--Section 1886(e) (42 U.S.C. 1395ww(e)) is 
     amended--
       (i) by striking paragraphs (2) and (6); and
       (ii) in paragraph (3), by striking ``(A) The Commission'' 
     and all that follows through ``(B)''.
       (B) Conforming amendment.--Section 1862 (42 U.S.C. 1395y) 
     is amended by striking ``Prospective Payment Assessment 
     Commission'' each place it appears in subsection (a)(1)(D) 
     and subsection (i) and inserting ``Medicare Payment Review 
     Commission''.
       (2) PPRC.--
       (A) In general.--Title XVIII is amended by striking section 
     1845 (42 U.S.C. 1395w-1).
       (B) Conforming amendments.--
       (i) Section 1834(b)(2) (42 U.S.C. 1395m(b)(2)) is amended 
     by striking ``Physician Payment Review Commission'' and 
     inserting ``Medicare Payment Review Commission''.
       (ii) Section 1842(b) (42 U.S.C. 1395u(b)) is amended by 
     striking ``Physician Payment Review Commission'' each place 
     it appears in paragraphs (9)(D) and (14)(C)(i) and inserting 
     ``Medicare Payment Review Commission''.
       (iii) Section 1848 (42 U.S.C. 1395w-4) is amended by 
     striking ``Physician Payment Review Commission'' and 
     inserting ``Medicare Payment Review Commission'' each place 
     it appears in paragraph (2)(A)(ii), (2)(B)(iii), and (5) of 
     subsection (c), subsection (d)(2)(F), paragraphs (1)(B), (3), 
     and (4)(A) of subsection (f), and paragraphs (6)(C) and 
     (7)(C) of subsection (g).
       (c) Effective Date; Transition.--
       (1) In general.--The Comptroller General shall first 
     provide for appointment of members to the Medicare Payment 
     Review Commission (in this subsection referred to as 
     ``MPRC'') by not later than September 30, 1996.
       (2) Transition.--Effective January 1, 1997, the Prospective 
     Payment Assessment Commission (in this subsection referred to 
     as ``ProPAC'') and the Physician Payment Review Commission 
     (in this subsection referred to as ``PPRC'') are terminated 
     and amendments made by subsection (b) shall become effective. 
     The Comptroller General, to the maximum extent feasible, 
     shall provide for the transfer to the MPRC of assets and 
     staff of ProPAC and PPRC, without any loss of benefits or 
     seniority by virtue of such transfers. Fund balances 
     available to the ProPAC or PPRC for any period shall be 
     available to the MPRC for such period for like purposes.
       (3) Continuing responsibility for reports.--The MPRC shall 
     be responsible for the preparation and submission of reports 
     required by law to be submitted (and which have not been 
     submitted by the date of establishment of the MPRC) by the 
     ProPAC and PPRC, and, for this purpose, any reference in law 
     to either such Commission is deemed, after the appointment of 
     the MPRC, to refer to the MPRC.

    CHAPTER 4--TREATMENT OF HOSPITALS WHICH PARTICIPATE IN PROVIDER-
                        SPONSORED ORGANIZATIONS

     SEC. 8031. TREATMENT OF HOSPITALS WHICH PARTICIPATE IN 
                   PROVIDER-SPONSORED ORGANIZATIONS.

       (a) In General.--Section 501 of the Internal Revenue Code 
     of 1986 (relating to exemption from tax on corporations, 
     certain trusts, etc.), as amended by title XI, is amended by 
     redesignating subsection (o) as subsection (p) and by 
     inserting after subsection (n) the following new subsection:
       ``(o) Treatment of Hospitals Participating in Provider-
     Sponsored Organizations.--An organization shall not fail to 
     be treated as organized and operated exclusively for a 
     charitable 

[[Page H 12600]]
     purpose for purposes of subsection (c)(3) solely because a hospital 
     which is owned and operated by such organization participates 
     in a provider-sponsored organization (as defined in section 
     1853 of the Social Security Act), whether or not the 
     provider-sponsored organization is exempt from tax. For 
     purposes of subsection (c)(3), any person with a material 
     financial interest in such a provider-sponsored organization 
     shall be treated as a private shareholder or individual with 
     respect to the hospital.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of the enactment of this Act.
           Subtitle B--Health Care Fraud and Abuse Prevention

               CHAPTER 1--FRAUD AND ABUSE CONTROL PROGRAM

     SEC. 8101. FRAUD AND ABUSE CONTROL PROGRAM.

       (a) Establishment of Program.--Title XI (42 U.S.C. 1301 et 
     seq.) is amended by inserting after section 1128B the 
     following new section:


                   ``FRAUD AND ABUSE CONTROL PROGRAM

       ``Sec. 1128C. (a) Establishment of Program.--
       ``(1) In general.--Not later than January 1, 1996, the 
     Secretary, acting through the Office of the Inspector General 
     of the Department of Health and Human Services, and the 
     Attorney General shall establish a program--
       ``(A) to coordinate Federal, State, and local law 
     enforcement programs to control fraud and abuse with respect 
     to health plans,
       ``(B) to conduct investigations, audits, evaluations, and 
     inspections relating to the delivery of and payment for 
     health care in the United States,
       ``(C) to facilitate the enforcement of the provisions of 
     sections 1128, 1128A, and 1128B and other statutes applicable 
     to health care fraud and abuse,
       ``(D) to provide for the modification and establishment of 
     safe harbors and to issue interpretative rulings and special 
     fraud alerts pursuant to section 1128D, and
       ``(E) to provide for the reporting and disclosure of 
     certain final adverse actions against health care providers, 
     suppliers, or practitioners pursuant to the data collection 
     system established under section 1128E.
       ``(2) Coordination with health plans.--In carrying out the 
     program established under paragraph (1), the Secretary and 
     the Attorney General shall consult with, and arrange for the 
     sharing of data with representatives of health plans.
       ``(3) Guidelines.--
       ``(A) In general.--The Secretary and the Attorney General 
     shall issue guidelines to carry out the program under 
     paragraph (1). The provisions of sections 553, 556, and 557 
     of title 5, United States Code, shall not apply in the 
     issuance of such guidelines.
       ``(B) Information guidelines.--
       ``(i) In general.--Such guidelines shall include guidelines 
     relating to the furnishing of information by health plans, 
     providers, and others to enable the Secretary and the 
     Attorney General to carry out the program (including 
     coordination with health plans under paragraph (2)).
       ``(ii) Confidentiality.--Such guidelines shall include 
     procedures to assure that such information is provided and 
     utilized in a manner that appropriately protects the 
     confidentiality of the information and the privacy of 
     individuals receiving health care services and items.
       ``(iii) Qualified immunity for providing information.--The 
     provisions of section 1157(a) (relating to limitation on 
     liability) shall apply to a person providing information to 
     the Secretary or the Attorney General in conjunction with 
     their performance of duties under this section.
       ``(4) Ensuring access to documentation.--The Inspector 
     General of the Department of Health and Human Services is 
     authorized to exercise such authority described in paragraphs 
     (3) through (9) of section 6 of the Inspector General Act of 
     1978 (5 U.S.C. App.) as necessary with respect to the 
     activities under the fraud and abuse control program 
     established under this subsection.
       ``(5) Authority of inspector general.--Nothing in this Act 
     shall be construed to diminish the authority of any Inspector 
     General, including such authority as provided in the 
     Inspector General Act of 1978 (5 U.S.C. App.).
       ``(b) Additional Use of Funds by Inspector General.--
       ``(1) Reimbursements for investigations.--The Inspector 
     General of the Department of Health and Human Services is 
     authorized to receive and retain for current use 
     reimbursement for the costs of conducting investigations and 
     audits and for monitoring compliance plans when such costs 
     are ordered by a court, voluntarily agreed to by the payer, 
     or otherwise.
       ``(2) Crediting.--Funds received by the Inspector General 
     under paragraph (1) as reimbursement for costs of conducting 
     investigations shall be deposited to the credit of the 
     appropriation from which initially paid, or to appropriations 
     for similar purposes currently available at the time of 
     deposit, and shall remain available for obligation for 1 year 
     from the date of the deposit of such funds.
       ``(c) Health Plan Defined.--For purposes of this section, 
     the term `health plan' means a plan or program that provides 
     health benefits, whether directly, through insurance, or 
     otherwise, and includes--
       ``(1) a policy of health insurance;
       ``(2) a contract of a service benefit organization; and
       ``(3) a membership agreement with a health maintenance 
     organization or other prepaid health plan.''.
       (b) Establishment of Health Care Fraud and Abuse Control 
     Account in Federal Hospital Insurance Trust Fund.--Section 
     1817 (42 U.S.C. 1395i) is amended by adding at the end the 
     following new subsection:
       ``(k) Health Care Fraud and Abuse Control Account.--
       ``(1) Establishment.--There is hereby established in the 
     Trust Fund an expenditure account to be known as the `Health 
     Care Fraud and Abuse Control Account' (in this subsection 
     referred to as the `Account').
       ``(2) Appropriated amounts to trust fund.--
       ``(A) In general.--There are hereby appropriated to the 
     Trust Fund--
       ``(i) such gifts and bequests as may be made as provided in 
     subparagraph (B);
       ``(ii) such amounts as may be deposited in the Trust Fund 
     as provided in sections 8141(b) and 8142(c) of the Medicare 
     Preservation Act of 1995, and title XI; and
       ``(iii) such amounts as are transferred to the Trust Fund 
     under subparagraph (C).
       ``(B) Authorization to accept gifts.--The Trust Fund is 
     authorized to accept on behalf of the United States money 
     gifts and bequests made unconditionally to the Trust Fund, 
     for the benefit of the Account or any activity financed 
     through the Account.
       ``(C) Transfer of amounts.--The Managing Trustee shall 
     transfer to the Trust Fund, under rules similar to the rules 
     in section 9601 of the Internal Revenue Code of 1986, an 
     amount equal to the sum of the following:
       ``(i) Criminal fines recovered in cases involving a Federal 
     health care offense (as defined in section 982(a)(6)(B) of 
     title 18, United States Code).
       ``(ii) Civil monetary penalties and assessments imposed in 
     health care cases, including amounts recovered under titles 
     XI, XVIII, and XXI, and chapter 38 of title 31, United States 
     Code (except as otherwise provided by law).
       ``(iii) Amounts resulting from the forfeiture of property 
     by reason of a Federal health care offense.
       ``(iv) Penalties and damages obtained and otherwise 
     creditable to miscellaneous receipts of the general fund of 
     the Treasury obtained under sections 3729 through 3733 of 
     title 31, United States Code (known as the False Claims Act), 
     in cases involving claims related to the provision of health 
     care items and services (other than funds awarded to a 
     relator, for restitution or otherwise authorized by law).
       ``(3) Appropriated amounts to account for fraud and abuse 
     control program, etc.--
       ``(A) Departments of health and human services and 
     justice.--
       ``(i) In general.--There are hereby appropriated to the 
     Account from the Trust Fund such sums as the Secretary and 
     the Attorney General certify are necessary to carry out the 
     purposes described in subparagraph (C), to be available 
     without further appropriation, in an amount not to exceed--

       ``(I) for fiscal year 1996, $104,000,000, and
       ``(II) for each of the fiscal years 1997 through 2002, the 
     limit for the preceding fiscal year, increased by 15 percent; 
     and
       ``(III) for each fiscal year after fiscal year 2002, the 
     limit for fiscal year 2002.

       ``(ii) Medicare and medigrant activities.--For each fiscal 
     year, of the amount appropriated in clause (i), the following 
     amounts shall be available only for the purposes of the 
     activities of the Office of the Inspector General of the 
     Department of Health and Human Services with respect to the 
     medicare and MediGrant programs--

       ``(I) for fiscal year 1996, not less than $60,000,000 and 
     not more than $70,000,000;
       ``(II) for fiscal year 1997, not less than $80,000,000 and 
     not more than $90,000,000;
       ``(III) for fiscal year 1998, not less than $90,000,000 and 
     not more than $100,000,000;
       ``(IV) for fiscal year 1999, not less than $110,000,000 and 
     not more than $120,000,000;
       ``(V) for fiscal year 2000, not less than $120,000,000 and 
     not more than $130,000,000;
       ``(VI) for fiscal year 2001, not less than $140,000,000 and 
     not more than $150,000,000; and
       ``(VII) for each fiscal year after fiscal year 2001, not 
     less than $150,000,000 and not more than $160,000,000.

       ``(B) Federal bureau of investigations.--There are hereby 
     appropriated from the general fund of the United States 
     Treasury and hereby appropriated to the Account for transfer 
     to the Federal Bureau of Investigations to carry out the 
     purposes described in subparagraph (C)(i), to be available 
     without further appropriation--
       ``(i) for fiscal year 1996, $47,000,000;
       ``(ii) for fiscal year 1997, $56,000,000;
       ``(iii) for fiscal year 1998, $66,000,000;
       ``(iv) for fiscal year 1999, $76,000,000;
       ``(v) for fiscal year 2000, $88,000,000;
       ``(vi) for fiscal year 2001, $101,000,000; and
       ``(vii) for each fiscal year after fiscal year 2001, 
     $114,000,000.
       ``(C) Use of funds.--The purposes described in this 
     subparagraph are as follows:
       ``(i) General use.--To cover the costs (including 
     equipment, salaries and benefits, and travel and training) of 
     the administration and operation of the health care fraud and 
     abuse control program established under section 1128C(a), 
     including the costs of--

       ``(I) prosecuting health care matters (through criminal, 
     civil, and administrative proceedings);
       ``(II) investigations;
       ``(III) financial and performance audits of health care 
     programs and operations;
       ``(IV) inspections and other evaluations; and
       ``(V) provider and consumer education regarding compliance 
     with the provisions of title XI.

       ``(ii) Use by state medigrant fraud control units for 
     investigation reimbursements.--To reimburse the various State 
     MediGrant fraud control units established under section 
     2134(a) upon request to the Secretary for the costs of the 
     activities authorized under section 2134(b).
       ``(4) Appropriated amounts to account for medicare 
     integrity program.--
       ``(A) In general.--There are hereby appropriated to the 
     Account from the Trust Fund for 

[[Page H 12601]]
     each fiscal year such amounts as are necessary to carry out the 
     Medicare Integrity Program under section 1893, subject to 
     subparagraph (B) and to be available without further 
     appropriation.
       ``(B) Amounts specified.--The amount appropriated under 
     subparagraph (A) for a fiscal year is as follows:
       ``(i) For fiscal year 1996, such amount shall be not less 
     than $430,000,000 and not more than $440,000,000.
       ``(ii) For fiscal year 1997, such amount shall be not less 
     than $490,000,000 and not more than $500,000,000.
       ``(iii) For fiscal year 1998, such amount shall be not less 
     than $550,000,000 and not more than $560,000,000.
       ``(iv) For fiscal year 1999, such amount shall be not less 
     than $620,000,000 and not more than $630,000,000.
       ``(v) For fiscal year 2000, such amount shall be not less 
     than $670,000,000 and not more than $680,000,000.
       ``(vi) For fiscal year 2001, such amount shall be not less 
     than $690,000,000 and not more than $700,000,000.
       ``(vii) For each fiscal year after fiscal year 2001, such 
     amount shall be not less than $710,000,000 and not more than 
     $720,000,000.
       ``(5) Annual report.--The Secretary and the Attorney 
     General shall submit jointly an annual report to Congress on 
     the amount of revenue which is generated and disbursed, and 
     the justification for such disbursements, by the Account in 
     each fiscal year.''.

     SEC. 8102. MEDICARE INTEGRITY PROGRAM.

       (a) Establishment of Medicare Integrity Program.--Title 
     XVIII is amended by adding at the end the following new 
     section:


                      ``MEDICARE INTEGRITY PROGRAM

       ``Sec. 1893. (a) Establishment of Program.--There is hereby 
     established the Medicare Integrity Program (in this section 
     referred to as the `Program') under which the Secretary shall 
     promote the integrity of the medicare program by entering 
     into contracts in accordance with this section with eligible 
     private entities to carry out the activities described in 
     subsection (b).
       ``(b) Activities Described.--The activities described in 
     this subsection are as follows:
       ``(1) Review of activities of providers of services or 
     other individuals and entities furnishing items and services 
     for which payment may be made under this title (including 
     skilled nursing facilities and home health agencies), 
     including medical and utilization review and fraud review 
     (employing similar standards, processes, and technologies 
     used by private health plans, including equipment and 
     software technologies which surpass the capability of the 
     equipment and technologies used in the review of claims under 
     this title as of the date of the enactment of this section).
       ``(2) Audit of cost reports.
       ``(3) Determinations as to whether payment should not be, 
     or should not have been, made under this title by reason of 
     section 1862(b), and recovery of payments that should not 
     have been made.
       ``(4) Education of providers of services, beneficiaries, 
     and other persons with respect to payment integrity and 
     benefit quality assurance issues.
       ``(5) Developing (and periodically updating) a list of 
     items of durable medical equipment in accordance with section 
     1834(a)(15) which are subject to prior authorization under 
     such section.
       ``(c) Eligibility of Entities.--An entity is eligible to 
     enter into a contract under the Program to carry out any of 
     the activities described in subsection (b) if--
       ``(1) the entity has demonstrated capability to carry out 
     such activities;
       ``(2) in carrying out such activities, the entity agrees to 
     cooperate with the Inspector General of the Department of 
     Health and Human Services, the Attorney General of the United 
     States, and other law enforcement agencies, as appropriate, 
     in the investigation and deterrence of fraud and abuse in 
     relation to this title and in other cases arising out of such 
     activities;
       ``(3) the entity demonstrates to the Secretary that the 
     entity's financial holdings, interests, or relationships will 
     not interfere with its ability to perform the functions to be 
     required by the contract in an effective and impartial 
     manner; and
       ``(4) the entity meets such other requirements as the 
     Secretary may impose.
     In the case of the activity described in subsection (b)(5), 
     an entity shall be deemed to be eligible to enter into a 
     contract under the Program to carry out the activity if the 
     entity is a carrier with a contract in effect under section 
     1842.
       ``(d) Process for Entering Into Contracts.--The Secretary 
     shall enter into contracts under the Program in accordance 
     with such procedures as the Secretary shall by regulation 
     establish, except that such procedures shall include the 
     following:
       ``(1) The Secretary shall determine the appropriate number 
     of separate contracts which are necessary to carry out the 
     Program and the appropriate times at which the Secretary 
     shall enter into such contracts.
       ``(2)(A) Except as provided in subparagraph (B), the 
     provisions of section 1153(e)(1) shall apply to contracts and 
     contracting authority under this section.
       ``(B) Competitive procedures must be used when entering 
     into new contracts under this section, or at any other time 
     considered appropriate by the Secretary, except that the 
     Secretary may contract with entities that are carrying out 
     the activities described in this section pursuant to 
     agreements under section 1816 or contracts under section 1842 
     in effect on the date of the enactment of this section.
       ``(3) A contract under this section may be renewed without 
     regard to any provision of law requiring competition if the 
     contractor has met or exceeded the performance requirements 
     established in the current contract.
       ``(e) Limitation on Contractor Liability.--The Secretary 
     shall by regulation provide for the limitation of a 
     contractor's liability for actions taken to carry out a 
     contract under the Program, and such regulation shall, to the 
     extent the Secretary finds appropriate, employ the same or 
     comparable standards and other substantive and procedural 
     provisions as are contained in section 1157.''.
       (b) Elimination of FI and Carrier Responsibility for 
     Carrying Out Activities Subject to Program.--
       (1) Responsibilities of fiscal intermediaries under part 
     a.--Section 1816 (42 U.S.C. 1395h) is amended by adding at 
     the end the following new subsection:
       ``(l) No agency or organization may carry out (or receive 
     payment for carrying out) any activity pursuant to an 
     agreement under this section to the extent that the activity 
     is carried out pursuant to a contract under the Medicare 
     Integrity Program under section 1893.''.
       (2) Responsibilities of carriers under part b.--Section 
     1842(c) (42 U.S.C. 1395u(c)) is amended by adding at the end 
     the following new paragraph:
       ``(6) No carrier may carry out (or receive payment for 
     carrying out) any activity pursuant to a contract under this 
     subsection to the extent that the activity is carried out 
     pursuant to a contract under the Medicare Integrity Program 
     under section 1893. The previous sentence shall not apply 
     with respect to the activity described in section 1893(b)(5) 
     (relating to prior authorization of certain items of durable 
     medical equipment under section 1834(a)(15)).''.

     SEC. 8103. BENEFICIARY INCENTIVE PROGRAMS.

       (a) Clarification of Requirement to Provide Explanation of 
     Medicare Benefits.--The Secretary of Health and Human 
     Services (in this section referred to as the ``Secretary'') 
     shall provide an explanation of benefits under the medicare 
     program under title XVIII of the Social Security Act with 
     respect to each item or service for which payment may be made 
     under the program which is furnished to an individual, 
     without regard to whether or not a deductible or coinsurance 
     may be imposed against the individual with respect to the 
     item or service.
       (b) Program to Collect Information on Fraud and Abuse.--
       (1) Establishment of program.--Not later than 3 months 
     after the date of the enactment of this Act, the Secretary 
     shall establish a program under which the Secretary shall 
     encourage individuals to report to the Secretary information 
     on individuals and entities who are engaging or who have 
     engaged in acts or omissions which constitute grounds for the 
     imposition of a sanction under section 1128, section 1128A, 
     or section 1128B of the Social Security Act, or who have 
     otherwise engaged in fraud and abuse against the medicare 
     program for which there is a sanction provided under law. The 
     program shall discourage provision of, and not consider, 
     information which is frivolous or otherwise not relevant or 
     material to the imposition of such a sanction.
       (2) Payment of portion of amounts collected.--If an 
     individual reports information to the Secretary under the 
     program established under paragraph (1) which serves as the 
     basis for the collection by the Secretary or the Attorney 
     General of any amount of at least $100 (other than any amount 
     paid as a penalty under section 1128B of the Social Security 
     Act), the Secretary may pay a portion of the amount collected 
     to the individual (under procedures similar to those 
     applicable under section 7623 of the Internal Revenue Code of 
     1986 to payments to individuals providing information on 
     violations of such Code).
       (c) Program to Collect Information on Program Efficiency.--
       (1) Establishment of program.--Not later than 3 months 
     after the date of the enactment of this Act, the Secretary 
     shall establish a program under which the Secretary shall 
     encourage individuals to submit to the Secretary suggestions 
     on methods to improve the efficiency of the medicare program.
       (2) Payment of portion of program savings.--If an 
     individual submits a suggestion to the Secretary under the 
     program established under paragraph (1) which is adopted by 
     the Secretary and which results in savings to the program, 
     the Secretary may make a payment to the individual of such 
     amount as the Secretary considers appropriate.

     SEC. 8104. APPLICATION OF CERTAIN HEALTH ANTI-FRAUD AND ABUSE 
                   SANCTIONS TO FRAUD AND ABUSE AGAINST FEDERAL 
                   HEALTH CARE PROGRAMS.

       (a) In General.--Section 1128B (42 U.S.C. 1320a-7b) is 
     amended as follows:
       (1) In the heading, by striking ``medicare or state health 
     care programs'' and inserting ``federal health care 
     programs''.
       (2) In subsection (a)(1), by striking ``a program under 
     title XVIII or a State health care program (as defined in 
     section 1128(h))'' and inserting ``a Federal health care 
     program''.
       (3) In subsection (a)(5), by striking ``a program under 
     title XVIII or a State health care program'' and inserting 
     ``a Federal health care program''.
       (4) In the second sentence of subsection (a)--
       (A) by striking ``a State plan approved under title XIX'' 
     and inserting ``a Federal health care program'', and
       (B) by striking ``the State may at its option 
     (notwithstanding any other provision of that title or of such 
     plan)'' and inserting ``the administrator of such program may 
     at its option (notwithstanding any other provision of such 
     program)''.
       (5) In subsection (b), by striking ``title XVIII or a State 
     health care program'' each place it 

[[Page H 12602]]
     appears and inserting ``a Federal health care program''.
       (6) In subsection (c), by inserting ``(as defined in 
     section 1128(h))'' after ``a State health care program''.
       (7) By adding at the end the following new subsection:
       ``(f) For purposes of this section, the term `Federal 
     health care program' means--
       ``(1) any plan or program that provides health benefits, 
     whether directly, through insurance, or otherwise, which is 
     funded directly, in whole or in part, by the United States 
     Government; or
       ``(2) any State health care program, as defined in section 
     1128(h).''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect on January 1, 1996.

     SEC. 8105. GUIDANCE REGARDING APPLICATION OF HEALTH CARE 
                   FRAUD AND ABUSE SANCTIONS.

       Title XI (42 U.S.C. 1301 et seq.), as amended by section 
     8101, is amended by inserting after section 1128C the 
     following new section:


    ``GUIDANCE REGARDING APPLICATION OF HEALTH CARE FRAUD AND ABUSE 
                               SANCTIONS

       ``Sec. 1128D. (a) Solicitation and Publication of 
     Modifications to Existing Safe Harbors and New Safe 
     Harbors.--
       ``(1) In general.--
       ``(A) Solicitation of proposals for safe harbors.--Not 
     later than January 1, 1996, and not less than annually 
     thereafter, the Secretary shall publish a notice in the 
     Federal Register soliciting proposals, which will be accepted 
     during a 60-day period, for--
       ``(i) modifications to existing safe harbors issued 
     pursuant to section 14(a) of the Medicare and Medicaid 
     Patient and Program Protection Act of 1987 (42 U.S.C. 1320a-
     7b note);
       ``(ii) additional safe harbors specifying payment practices 
     that shall not be treated as a criminal offense under section 
     1128B(b) and shall not serve as the basis for an exclusion 
     under section 1128(b)(7);
       ``(iii) interpretive rulings to be issued pursuant to 
     subsection (b); and
       ``(iv) special fraud alerts to be issued pursuant to 
     subsection (c).
       ``(B) Publication of proposed modifications and proposed 
     additional safe harbors.--After considering the proposals 
     described in clauses (i) and (ii) of subparagraph (A), the 
     Secretary, in consultation with the Attorney General, shall 
     publish in the Federal Register proposed modifications to 
     existing safe harbors and proposed additional safe harbors, 
     if appropriate, with a 60-day comment period. After 
     considering any public comments received during this period, 
     the Secretary shall issue final rules modifying the existing 
     safe harbors and establishing new safe harbors, as 
     appropriate.
       ``(C) Report.--The Inspector General of the Department of 
     Health and Human Services (in this section referred to as the 
     `Inspector General') shall, in an annual report to Congress 
     or as part of the year-end semiannual report required by 
     section 5 of the Inspector General Act of 1978 (5 U.S.C. 
     App.), describe the proposals received under clauses (i) and 
     (ii) of subparagraph (A) and explain which proposals were 
     included in the publication described in subparagraph (B), 
     which proposals were not included in that publication, and 
     the reasons for the rejection of the proposals that were not 
     included.
       ``(2) Criteria for modifying and establishing safe 
     harbors.--In modifying and establishing safe harbors under 
     paragraph (1)(B), the Secretary may consider the extent to 
     which providing a safe harbor for the specified payment 
     practice may result in any of the following:
       ``(A) An increase or decrease in access to health care 
     services.
       ``(B) An increase or decrease in the quality of health care 
     services.
       ``(C) An increase or decrease in patient freedom of choice 
     among health care providers.
       ``(D) An increase or decrease in competition among health 
     care providers.
       ``(E) An increase or decrease in the ability of health care 
     facilities to provide services in medically underserved areas 
     or to medically underserved populations.
       ``(F) An increase or decrease in the cost to Federal health 
     care programs (as defined in section 1128B(f)).
       ``(G) An increase or decrease in the potential 
     overutilization of health care services.
       ``(H) The existence or nonexistence of any potential 
     financial benefit to a health care professional or provider 
     which may vary based on their decisions of--
       ``(i) whether to order a health care item or service; or
       ``(ii) whether to arrange for a referral of health care 
     items or services to a particular practitioner or provider.
       ``(I) Any other factors the Secretary deems appropriate in 
     the interest of preventing fraud and abuse in Federal health 
     care programs (as so defined).
       ``(b) Interpretive Rulings.--
       ``(1) In general.--
       ``(A) Request for interpretive ruling.--Any person may 
     present, at any time, a request to the Inspector General for 
     a statement of the Inspector General's current interpretation 
     of the meaning of a specific aspect of the application of 
     sections 1128A and 1128B (in this section referred to as an 
     `interpretive ruling').
       ``(B) Issuance and effect of interpretive ruling.--
       ``(i) In general.--If appropriate, the Inspector General 
     shall in consultation with the Attorney General, issue an 
     interpretive ruling not later than 90 days after receiving a 
     request described in subparagraph (A). Interpretive rulings 
     shall not have the force of law and shall be treated as an 
     interpretive rule within the meaning of section 553(b) of 
     title 5, United States Code. All interpretive rulings issued 
     pursuant to this clause shall be published in the Federal 
     Register or otherwise made available for public inspection.
       ``(ii) Reasons for denial.--If the Inspector General does 
     not issue an interpretive ruling in response to a request 
     described in subparagraph (A), the Inspector General shall 
     notify the requesting party of such decision not later than 
     60 days after receiving such a request and shall identify the 
     reasons for such decision.
       ``(2) Criteria for interpretive rulings.--
       ``(A) In general.--In determining whether to issue an 
     interpretive ruling under paragraph (1)(B), the Inspector 
     General may consider--
       ``(i) whether and to what extent the request identifies an 
     ambiguity within the language of the statute, the existing 
     safe harbors, or previous interpretive rulings; and
       ``(ii) whether the subject of the requested interpretive 
     ruling can be adequately addressed by interpretation of the 
     language of the statute, the existing safe harbor rules, or 
     previous interpretive rulings, or whether the request would 
     require a substantive ruling (as defined in section 552 of 
     title 5, United States Code) not authorized under this 
     subsection.
       ``(B) No rulings on factual issues.--The Inspector General 
     shall not give an interpretive ruling on any factual issue, 
     including the intent of the parties or the fair market value 
     of particular leased space or equipment.
       ``(c) Special Fraud Alerts.--
       ``(1) In general.--
       ``(A) Request for special fraud alerts.--Any person may 
     present, at any time, a request to the Inspector General for 
     a notice which informs the public of practices which the 
     Inspector General considers to be suspect or of particular 
     concern under the medicare program or a State health care 
     program, as defined in section 1128(h) (in this subsection 
     referred to as a `special fraud alert').
       ``(B) Issuance and publication of special fraud alerts.--
     Upon receipt of a request described in subparagraph (A), the 
     Inspector General shall investigate the subject matter of the 
     request to determine whether a special fraud alert should be 
     issued. If appropriate, the Inspector General shall issue a 
     special fraud alert in response to the request. All special 
     fraud alerts issued pursuant to this subparagraph shall be 
     published in the Federal Register.
       ``(2) Criteria for special fraud alerts.--In determining 
     whether to issue a special fraud alert upon a request 
     described in paragraph (1), the Inspector General may 
     consider--
       ``(A) whether and to what extent the practices that would 
     be identified in the special fraud alert may result in any of 
     the consequences described in subsection (a)(2); and
       ``(B) the volume and frequency of the conduct that would be 
     identified in the special fraud alert.''.

     CHAPTER 2--REVISIONS TO CURRENT SANCTIONS FOR FRAUD AND ABUSE

     SEC. 8111. MANDATORY EXCLUSION FROM PARTICIPATION IN MEDICARE 
                   AND STATE HEALTH CARE PROGRAMS.

       (a) Individual Convicted of Felony Relating to Health Care 
     Fraud.--
       (1) In general.--Section 1128(a) (42 U.S.C. 1320a-7(a)) is 
     amended by adding at the end the following new paragraph:
       ``(3) Felony conviction relating to health care fraud.--Any 
     individual or entity that has been convicted after the date 
     of the enactment of the Medicare Preservation Act of 1995, 
     under Federal or State law, in connection with the delivery 
     of a health care item or service or with respect to any act 
     or omission in a health care program (other than those 
     specifically described in paragraph (1)) operated by or 
     financed in whole or in part by any Federal, State, or local 
     government agency, of a criminal offense consisting of a 
     felony relating to fraud, theft, embezzlement, breach of 
     fiduciary responsibility, or other financial misconduct.''.
       (2) Conforming amendment.--Paragraph (1) of section 1128(b) 
     (42 U.S.C. 1320a-7(b)) is amended to read as follows:
       ``(1) Conviction relating to fraud.--Any individual or 
     entity that has been convicted after the date of the 
     enactment of the Medicare Preservation Act of 1995, under 
     Federal or State law--
       ``(A) of a criminal offense consisting of a misdemeanor 
     relating to fraud, theft, embezzlement, breach of fiduciary 
     responsibility, or other financial misconduct--
       ``(i) in connection with the delivery of a health care item 
     or service, or
       ``(ii) with respect to any act or omission in a health care 
     program (other than those specifically described in 
     subsection (a)(1)) operated by or financed in whole or in 
     part by any Federal, State, or local government agency; or
       ``(B) of a criminal offense relating to fraud, theft, 
     embezzlement, breach of fiduciary responsibility, or other 
     financial misconduct with respect to any act or omission in a 
     program (other than a health care program) operated by or 
     financed in whole or in part by any Federal, State, or local 
     government agency.''.
       (b) Individual Convicted of Felony Relating to Controlled 
     Substance.--
       (1) In general.--Section 1128(a) (42 U.S.C. 1320a-7(a)), as 
     amended by subsection (a), is amended by adding at the end 
     the following new paragraph:
       ``(4) Felony conviction relating to controlled substance.--
     Any individual or entity that has been convicted after the 
     date of the enactment of the Medicare Preservation Act of 
     1995, under Federal or State law, of a criminal offense 
     consisting of a felony relating to the unlawful manufacture, 
     distribution, prescription, or dispensing of a controlled 
     substance.''.
       (2) Conforming amendment.--Section 1128(b)(3) (42 U.S.C. 
     1320a-7(b)(3)) is amended--
       (A) in the heading, by striking ``Conviction'' and 
     inserting ``Misdemeanor conviction''; and

[[Page H 12603]]

       (B) by striking ``criminal offense'' and inserting 
     ``criminal offense consisting of a misdemeanor''.

     SEC. 8112. ESTABLISHMENT OF MINIMUM PERIOD OF EXCLUSION FOR 
                   CERTAIN INDIVIDUALS AND ENTITIES SUBJECT TO 
                   PERMISSIVE EXCLUSION FROM MEDICARE AND STATE 
                   HEALTH CARE PROGRAMS.

       Section 1128(c)(3) (42 U.S.C. 1320a-7(c)(3)) is amended by 
     adding at the end the following new subparagraphs:
       ``(D) In the case of an exclusion of an individual or 
     entity under paragraph (1), (2), or (3) of subsection (b), 
     the period of the exclusion shall be 3 years, unless the 
     Secretary determines in accordance with published regulations 
     that a shorter period is appropriate because of mitigating 
     circumstances or that a longer period is appropriate because 
     of aggravating circumstances.
       ``(E) In the case of an exclusion of an individual or 
     entity under subsection (b)(4) or (b)(5), the period of the 
     exclusion shall not be less than the period during which the 
     individual's or entity's license to provide health care is 
     revoked, suspended, or surrendered, or the individual or the 
     entity is excluded or suspended from a Federal or State 
     health care program.
       ``(F) In the case of an exclusion of an individual or 
     entity under subsection (b)(6)(B), the period of the 
     exclusion shall be not less than 1 year.''.

     SEC. 8113. PERMISSIVE EXCLUSION OF INDIVIDUALS WITH OWNERSHIP 
                   OR CONTROL INTEREST IN SANCTIONED ENTITIES.

       Section 1128(b) (42 U.S.C. 1320a-7(b)) is amended by adding 
     at the end the following new paragraph:
       ``(15) Individuals controlling a sanctioned entity.--(A) 
     Any individual--
       ``(i) who has a direct or indirect ownership or control 
     interest in a sanctioned entity and who knows or should know 
     (as defined in section 1128A(i)(6)) of the action 
     constituting the basis for the conviction or exclusion 
     described in subparagraph (B); or
       ``(ii) who is an officer or managing employee (as defined 
     in section 1126(b)) of such an entity.
       ``(B) For purposes of subparagraph (A), the term 
     `sanctioned entity' means an entity--
       ``(i) that has been convicted of any offense described in 
     subsection (a) or in paragraph (1), (2), or (3) of this 
     subsection; or
       ``(ii) that has been excluded from participation under a 
     program under title XVIII or under a State health care 
     program.''.

     SEC. 8114. SANCTIONS AGAINST PRACTITIONERS AND PERSONS FOR 
                   FAILURE TO COMPLY WITH STATUTORY OBLIGATIONS.

       (a) Minimum Period of Exclusion for Practitioners and 
     Persons Failing To Meet Statutory Obligations.--
       (1) In general.--The second sentence of section 1156(b)(1) 
     (42 U.S.C. 1320c-5(b)(1)) is amended by striking ``may 
     prescribe)'' and inserting ``may prescribe, except that such 
     period may not be less than 1 year)''.
       (2) Conforming amendment.--Section 1156(b)(2) (42 U.S.C. 
     1320c-5(b)(2)) is amended by striking ``shall remain'' and 
     inserting ``shall (subject to the minimum period specified in 
     the second sentence of paragraph (1)) remain''.
       (b) Repeal of ``Unwilling or Unable'' Condition for 
     Imposition of Sanction.--Section 1156(b)(1) (42 U.S.C. 1320c-
     5(b)(1)) is amended--
       (1) in the second sentence, by striking ``and determines'' 
     and all that follows through ``such obligations,''; and
       (2) by striking the third sentence.

     SEC. 8115. INTERMEDIATE SANCTIONS FOR MEDICARE HEALTH 
                   MAINTENANCE ORGANIZATIONS.

       (a) Application of Intermediate Sanctions for Any Program 
     Violations.--
       (1) In general.--Section 1876(i)(1) (42 U.S.C. 
     1395mm(i)(1)) is amended by striking ``the Secretary may 
     terminate'' and all that follows and inserting ``in 
     accordance with procedures established under paragraph (9), 
     the Secretary may at any time terminate any such contract or 
     may impose the intermediate sanctions described in paragraph 
     (6)(B) or (6)(C) (whichever is applicable) on the eligible 
     organization if the Secretary determines that the 
     organization--
       ``(A) has failed substantially to carry out the contract;
       ``(B) is carrying out the contract in a manner 
     substantially inconsistent with the efficient and effective 
     administration of this section; or
       ``(C) no longer substantially meets the applicable 
     conditions of subsections (b), (c), (e), and (f).''.
       (2) Other intermediate sanctions for miscellaneous program 
     violations.--Section 1876(i)(6) (42 U.S.C. 1395mm(i)(6)) is 
     amended by adding at the end the following new subparagraph:
       ``(C) In the case of an eligible organization for which the 
     Secretary makes a determination under paragraph (1) the basis 
     of which is not described in subparagraph (A), the Secretary 
     may apply the following intermediate sanctions:
       ``(i) Civil money penalties of not more than $25,000 for 
     each determination under paragraph (1) if the deficiency that 
     is the basis of the determination has directly adversely 
     affected (or has the substantial likelihood of adversely 
     affecting) an individual covered under the organization's 
     contract.
       ``(ii) Civil money penalties of not more than $10,000 for 
     each week beginning after the initiation of procedures by the 
     Secretary under paragraph (9) during which the deficiency 
     that is the basis of a determination under paragraph (1) 
     exists.
       ``(iii) Suspension of enrollment of individuals under this 
     section after the date the Secretary notifies the 
     organization of a determination under paragraph (1) and until 
     the Secretary is satisfied that the deficiency that is the 
     basis for the determination has been corrected and is not 
     likely to recur.''.
       (3) Procedures for imposing sanctions.--Section 1876(i) (42 
     U.S.C. 1395mm(i)) is amended by adding at the end the 
     following new paragraph:
       ``(9) The Secretary may terminate a contract with an 
     eligible organization under this section or may impose the 
     intermediate sanctions described in paragraph (6) on the 
     organization in accordance with formal investigation and 
     compliance procedures established by the Secretary under 
     which--
       ``(A) the Secretary first provides the organization with 
     the reasonable opportunity to develop and implement a 
     corrective action plan to correct the deficiencies that were 
     the basis of the Secretary's determination under paragraph 
     (1) and the organization fails to develop or implement such a 
     plan;
       ``(B) in deciding whether to impose sanctions, the 
     Secretary considers aggravating factors such as whether an 
     organization has a history of deficiencies or has not taken 
     action to correct deficiencies the Secretary has brought to 
     the organization's attention;
       ``(C) there are no unreasonable or unnecessary delays 
     between the finding of a deficiency and the imposition of 
     sanctions; and
       ``(D) the Secretary provides the organization with 
     reasonable notice and opportunity for hearing (including the 
     right to appeal an initial decision) before imposing any 
     sanction or terminating the contract.''.
       (4) Conforming amendments.--Section 1876(i)(6)(B) (42 
     U.S.C. 1395mm(i)(6)(B)) is amended by striking the second 
     sentence.
       (b) Agreements With Peer Review Organizations.--Section 
     1876(i)(7)(A) (42 U.S.C. 1395mm(i)(7)(A)) is amended by 
     striking ``an agreement'' and inserting ``a written 
     agreement''.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to contract years beginning on or 
     after January 1, 1996.

     SEC. 8116. ADDITIONAL EXCEPTION TO ANTI-KICKBACK PENALTIES 
                   FOR DISCOUNTING AND MANAGED CARE ARRANGEMENTS.

       (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-
     7b(b)(3)) is amended--
       (1) by striking ``and'' at the end of subparagraph (D);
       (2) by striking the period at the end of subparagraph (E) 
     and inserting ``; and''; and
       (3) by adding at the end the following new subparagraph:
       ``(F) any remuneration between an organization and an 
     individual or entity providing items or services, or a 
     combination thereof, pursuant to a written agreement between 
     the organization and the individual or entity if the 
     organization is a MedicarePlus organization under part C of 
     title XVIII or if the written agreement places the individual 
     or entity at substantial financial risk for the cost or 
     utilization of the items or services, or a combination 
     thereof, which the individual or entity is obligated to 
     provide, whether through a withhold, capitation, incentive 
     pool, per diem payment, or any other similar risk arrangement 
     which places the individual or entity at substantial 
     financial risk.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to written agreements entered into on or after 
     January 1, 1996.

     SEC. 8117. PENALTIES FOR THE FRAUDULENT CONVERSION OF ASSETS 
                   IN ORDER TO OBTAIN STATE HEALTH CARE PROGRAM 
                   BENEFITS.

       Section 1128B(a) (42 U.S.C. 1320a-7b(a)) is amended by 
     striking ``or'' at the end of paragraph (4), by inserting 
     ``or'' at the end of paragraph (5), and by inserting after 
     paragraph (5) the following new paragraph:
       ``(6) knowingly and willfully converts assets, by transfer 
     (including any transfer in trust), aiding in such a transfer, 
     or otherwise, in order for an individual to become eligible 
     for benefits under a State health care program,''.

     SEC. 8118. EFFECTIVE DATE.

       Except as otherwise provided, the amendments made by this 
     chapter shall take effect January 1, 1996.

         CHAPTER 3--ADMINISTRATIVE AND MISCELLANEOUS PROVISIONS

     SEC. 8121. ESTABLISHMENT OF THE HEALTH CARE FRAUD AND ABUSE 
                   DATA COLLECTION PROGRAM.

       (a) In General.--Title XI (42 U.S.C. 1301 et seq.), as 
     amended by sections 8101 and 8105, is amended by inserting 
     after section 1128D the following new section:


         ``HEALTH CARE FRAUD AND ABUSE DATA COLLECTION PROGRAM

       ``Sec. 1128E. (a) General Purpose.--Not later than January 
     1, 1996, the Secretary shall establish a national health care 
     fraud and abuse data collection program for the reporting of 
     final adverse actions (not including settlements in which no 
     findings of liability have been made) against health care 
     providers, suppliers, or practitioners as required by 
     subsection (b), with access as set forth in subsection (c).
       ``(b) Reporting of Information.--
       ``(1) In general.--Each government agency and health plan 
     shall report any final adverse action (not including 
     settlements in which no findings of liability have been made) 
     taken against a health care provider, supplier, or 
     practitioner.
       ``(2) Information to be reported.--The information to be 
     reported under paragraph (1) includes:
       ``(A) The name and TIN (as defined in section 7701(a)(41) 
     of the Internal Revenue Code of 1986) of any health care 
     provider, supplier, or practitioner who is the subject of a 
     final adverse action.
       ``(B) The name (if known) of any health care entity with 
     which a health care provider, supplier, or practitioner is 
     affiliated or associated.

[[Page H 12604]]

       ``(C) The nature of the final adverse action and whether 
     such action is on appeal.
       ``(D) A description of the acts or omissions and injuries 
     upon which the final adverse action was based, and such other 
     information as the Secretary determines by regulation is 
     required for appropriate interpretation of information 
     reported under this section.
       ``(3) Confidentiality.--In determining what information is 
     required, the Secretary shall include procedures to assure 
     that the privacy of individuals receiving health care 
     services is appropriately protected.
       ``(4) Timing and form of reporting.--The information 
     required to be reported under this subsection shall be 
     reported regularly (but not less often than monthly) and in 
     such form and manner as the Secretary prescribes. Such 
     information shall first be required to be reported on a date 
     specified by the Secretary.
       ``(5) To whom reported.--The information required to be 
     reported under this subsection shall be reported to the 
     Secretary.
       ``(c) Disclosure and Correction of Information.--
       ``(1) Disclosure.--With respect to the information about 
     final adverse actions (not including settlements in which no 
     findings of liability have been made) reported to the 
     Secretary under this section respecting a health care 
     provider, supplier, or practitioner, the Secretary shall, by 
     regulation, provide for--
       ``(A) disclosure of the information, upon request, to the 
     health care provider, supplier, or licensed practitioner, and
       ``(B) procedures in the case of disputed accuracy of the 
     information.
       ``(2) Corrections.--Each Government agency and health plan 
     shall report corrections of information already reported 
     about any final adverse action taken against a health care 
     provider, supplier, or practitioner, in such form and manner 
     that the Secretary prescribes by regulation.
       ``(d) Access to Reported Information.--
       ``(1) Availability.--The information in this database shall 
     be available to Federal and State government agencies and 
     health plans pursuant to procedures that the Secretary shall 
     provide by regulation.
       ``(2) Fees for disclosure.--The Secretary may establish or 
     approve reasonable fees for the disclosure of information in 
     this database (other than with respect to requests by Federal 
     agencies). The amount of such a fee shall be sufficient to 
     recover the full costs of operating the database. Such fees 
     shall be available to the Secretary or, in the Secretary's 
     discretion to the agency designated under this section to 
     cover such costs.
       ``(e) Protection From Liability for Reporting.--No person 
     or entity, including the agency designated by the Secretary 
     in subsection (b)(5) shall be held liable in any civil action 
     with respect to any report made as required by this section, 
     without knowledge of the falsity of the information contained 
     in the report.
       ``(f) Definitions and Special Rules.--For purposes of this 
     section:
       ``(1) Final adverse action.--
       ``(A) In general.--The term `final adverse action' 
     includes:
       ``(i) Civil judgments against a health care provider, 
     supplier, or practitioner in Federal or State court related 
     to the delivery of a health care item or service.
       ``(ii) Federal or State criminal convictions related to the 
     delivery of a health care item or service.
       ``(iii) Actions by Federal or State agencies responsible 
     for the licensing and certification of health care providers, 
     suppliers, and licensed health care practitioners, 
     including--

       ``(I) formal or official actions, such as revocation or 
     suspension of a license (and the length of any such 
     suspension), reprimand, censure or probation,
       ``(II) any other loss of license or the right to apply for, 
     or renew, a license of the provider, supplier, or 
     practitioner, whether by operation of law, voluntary 
     surrender, non-renewability, or otherwise, or
       ``(III) any other negative action or finding by such 
     Federal or State agency that is publicly available 
     information.

       ``(iv) Exclusion from participation in Federal or State 
     health care programs.
       ``(v) Any other adjudicated actions or decisions that the 
     Secretary shall establish by regulation.
       ``(B) Exception.--The term does not include any action with 
     respect to a malpractice claim.
       ``(2) Practitioner.--The terms `licensed health care 
     practitioner', `licensed practitioner', and `practitioner' 
     mean, with respect to a State, an individual who is licensed 
     or otherwise authorized by the State to provide health care 
     services (or any individual who, without authority holds 
     himself or herself out to be so licensed or authorized).
       ``(3) Government agency.--The term `Government agency' 
     shall include:
       ``(A) The Department of Justice.
       ``(B) The Department of Health and Human Services.
       ``(C) Any other Federal agency that either administers or 
     provides payment for the delivery of health care services, 
     including, but not limited to the Department of Defense and 
     the Veterans' Administration.
       ``(D) State law enforcement agencies.
       ``(E) State MediGrant fraud control units.
       ``(F) Federal or State agencies responsible for the 
     licensing and certification of health care providers and 
     licensed health care practitioners.
       ``(4) Health plan.--The term `health plan' has the meaning 
     given such term by section 1128C(c).
       ``(5) Determination of conviction.--For purposes of 
     paragraph (1), the existence of a conviction shall be 
     determined under paragraph (4) of section 1128(i).''.
       (b) Improved Prevention in Issuance of Medicare Provider 
     Numbers.--Section 1842(r) (42 U.S.C. 1395u(r)) is amended by 
     adding at the end the following new sentence: ``Under such 
     system, the Secretary may impose appropriate fees on such 
     physicians to cover the costs of investigation and 
     recertification activities with respect to the issuance of 
     the identifiers.''.

                  CHAPTER 4--CIVIL MONETARY PENALTIES

     SEC. 8131. SOCIAL SECURITY ACT CIVIL MONETARY PENALTIES.

       (a) General Civil Monetary Penalties.--Section 1128A (42 
     U.S.C. 1320a-7a) is amended as follows:
       (1) In the third sentence of subsection (a), by striking 
     ``programs under title XVIII'' and inserting ``Federal health 
     care programs (as defined in section 1128B(f)(1))''.
       (2) In subsection (f)--
       (A) by redesignating paragraph (3) as paragraph (4); and
       (B) by inserting after paragraph (2) the following new 
     paragraph:
       ``(3) With respect to amounts recovered arising out of a 
     claim under a Federal health care program (as defined in 
     section 1128B(f)), the portion of such amounts as is 
     determined to have been paid by the program shall be repaid 
     to the program, and the portion of such amounts attributable 
     to the amounts recovered under this section by reason of the 
     amendments made by the Medicare Preservation Act of 1995 (as 
     estimated by the Secretary) shall be deposited into the 
     Federal Hospital Insurance Trust Fund pursuant to section 
     1817(k)(2)(C).''.
       (3) In subsection (i)--
       (A) in paragraph (2), by striking ``title V, XVIII, XIX, or 
     XX of this Act'' and inserting ``a Federal health care 
     program (as defined in section 1128B(f))'',
       (B) in paragraph (4), by striking ``a health insurance or 
     medical services program under title XVIII or XIX of this 
     Act'' and inserting ``a Federal health care program (as so 
     defined)'', and
       (C) in paragraph (5), by striking ``title V, XVIII, XIX, or 
     XX'' and inserting ``a Federal health care program (as so 
     defined)''.
       (4) By adding at the end the following new subsection:
       ``(m)(1) For purposes of this section, with respect to a 
     Federal health care program not contained in this Act, 
     references to the Secretary in this section shall be deemed 
     to be references to the Secretary or Administrator of the 
     department or agency with jurisdiction over such program and 
     references to the Inspector General of the Department of 
     Health and Human Services in this section shall be deemed to 
     be references to the Inspector General of the applicable 
     department or agency.
       ``(2)(A) The Secretary and Administrator of the departments 
     and agencies referred to in paragraph (1) may include in any 
     action pursuant to this section, claims within the 
     jurisdiction of other Federal departments or agencies as long 
     as the following conditions are satisfied:
       ``(i) The case involves primarily claims submitted to the 
     Federal health care programs of the department or agency 
     initiating the action.
       ``(ii) The Secretary or Administrator of the department or 
     agency initiating the action gives notice and an opportunity 
     to participate in the investigation to the Inspector General 
     of the department or agency with primary jurisdiction over 
     the Federal health care programs to which the claims were 
     submitted.
       ``(B) If the conditions specified in subparagraph (A) are 
     fulfilled, the Inspector General of the department or agency 
     initiating the action is authorized to exercise all powers 
     granted under the Inspector General Act of 1978 with respect 
     to the claims submitted to the other departments or agencies 
     to the same manner and extent as provided in that Act with 
     respect to claims submitted to such departments or 
     agencies.''.
       (b) Excluded Individual Retaining Ownership or Control 
     Interest in Participating Entity.--Section 1128A(a) (42 
     U.S.C. 1320a-7a(a)) is amended--
       (1) by striking ``or'' at the end of paragraph (1)(D);
       (2) by striking ``, or'' at the end of paragraph (2) and 
     inserting a semicolon;
       (3) by striking the semicolon at the end of paragraph (3) 
     and inserting ``; or''; and
       (4) by inserting after paragraph (3) the following new 
     paragraph:
       ``(4) in the case of a person who is not an organization, 
     agency, or other entity, is excluded from participating in a 
     program under title XVIII or a State health care program in 
     accordance with this subsection or under section 1128 and 
     who, at the time of a violation of this subsection--
       ``(i) retains a direct or indirect ownership or control 
     interest in an entity that is participating in a program 
     under title XVIII or a State health care program, and who 
     knows or should know of the action constituting the basis for 
     the exclusion; or
       ``(ii) is an officer or managing employee (as defined in 
     section 1126(b)) of such an entity;''.
       (c) Modifications of Amounts of Penalties and 
     Assessments.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)), as 
     amended by subsection (b), is amended in the matter following 
     paragraph (4)--
       (1) by striking ``$2,000'' and inserting ``$10,000'';
       (2) by inserting ``; in cases under paragraph (4), $10,000 
     for each day the prohibited relationship occurs'' after 
     ``false or misleading information was given''; and
       (3) by striking ``twice the amount'' and inserting ``3 
     times the amount''.
       (d) Claim for Item or Service Based on Incorrect Coding or 
     Medically Unnecessary Services.--Section 1128A(a)(1) (42 
     U.S.C. 1320a-7a(a)(1)) is amended--
       (1) in subparagraph (A) by striking ``claimed,'' and 
     inserting ``claimed, including any person who engages in a 
     pattern or practice 

[[Page H 12605]]
     of presenting or causing to be presented a claim for an item or service 
     that is based on a code that the person knows or should know 
     will result in a greater payment to the person than the code 
     the person knows or should know is applicable to the item or 
     service actually provided,'';
       (2) in subparagraph (C), by striking ``or'' at the end;
       (3) in subparagraph (D), by striking ``; or'' and inserting 
     ``, or''; and
       (4) by inserting after subparagraph (D) the following new 
     subparagraph:
       ``(E) is for a medical or other item or service that a 
     person knows or should know is not medically necessary; or''.
       (e) Sanctions Against Practitioners and Persons for Failure 
     To Comply With Statutory Obligations.--Section 1156(b)(3) (42 
     U.S.C. 1320c-5(b)(3)) is amended by striking ``the actual or 
     estimated cost'' and inserting ``up to $10,000 for each 
     instance''.
       (f) Procedural Provisions.--Section 1876(i)(6) (42 U.S.C. 
     1395mm(i)(6)), as amended by section 8115(a)(2), is amended 
     by adding at the end the following new subparagraph:
       ``(D) The provisions of section 1128A (other than 
     subsections (a) and (b)) shall apply to a civil money penalty 
     under subparagraph (B)(i) or (C)(i) in the same manner as 
     such provisions apply to a civil money penalty or proceeding 
     under section 1128A(a).''.
       (g) Prohibition Against Offering Inducements to Individuals 
     Enrolled Under Programs or Plans.--
       (1) Offer of remuneration.--Section 1128A(a) (42 U.S.C. 
     1320a-7a(a)) is amended--
       (A) by striking ``or'' at the end of paragraph (1)(D);
       (B) by striking ``, or'' at the end of paragraph (2) and 
     inserting a semicolon;
       (C) by striking the semicolon at the end of paragraph (3) 
     and inserting ``; or''; and
       (D) by inserting after paragraph (3) the following new 
     paragraph:
       ``(4) offers to or transfers remuneration to any individual 
     eligible for benefits under title XVIII of this Act, or under 
     a State health care program (as defined in section 1128(h)) 
     that such person knows or should know is likely to influence 
     such individual to order or receive from a particular 
     provider, practitioner, or supplier any item or service for 
     which payment may be made, in whole or in part, under title 
     XVIII, or a State health care program (as so defined);''.
       (2) Remuneration defined.--Section 1128A(i) (42 U.S.C. 
     1320a-7a(i)) is amended by adding the following new 
     paragraph:
       ``(6) The term `remuneration' includes the waiver of 
     coinsurance and deductible amounts (or any part thereof), and 
     transfers of items or services for free or for other than 
     fair market value. The term `remuneration' does not include--
       ``(A) the waiver of coinsurance and deductible amounts by a 
     person, if--
       ``(i) the waiver is not offered as part of any 
     advertisement or solicitation;
       ``(ii) the person does not routinely waive coinsurance or 
     deductible amounts; and
       ``(iii) the person--

       ``(I) waives the coinsurance and deductible amounts after 
     determining in good faith that the individual is in financial 
     need;
       ``(II) fails to collect coinsurance or deductible amounts 
     after making reasonable collection efforts; or
       ``(III) provides for any permissible waiver as specified in 
     section 1128B(b)(3) or in regulations issued by the 
     Secretary;

       ``(B) differentials in coinsurance and deductible amounts 
     as part of a benefit plan design as long as the differentials 
     have been disclosed in writing to all beneficiaries, third 
     party payers, and providers, to whom claims are presented and 
     as long as the differentials meet the standards as defined in 
     regulations promulgated by the Secretary not later than 180 
     days after the date of the enactment of the Medicare 
     Preservation Act of 1995; or
       ``(C) incentives given to individuals to promote the 
     delivery of preventive care as determined by the Secretary in 
     regulations so promulgated.''.
       (h) Effective Date.--The amendments made by this section 
     shall take effect January 1, 1996.

     SEC. 8132. CLARIFICATION OF LEVEL OF INTENT REQUIRED FOR 
                   IMPOSITION OF SANCTIONS.

       (a) Clarification of Level of Knowledge Required for 
     Imposition of Civil Monetary Penalties.--
       (1) In general.--Section 1128A(a) (42 U.S.C. 1320a-7a(a)) 
     is amended--
       (A) in paragraphs (1) and (2), by inserting ``knowingly'' 
     before ``presents'' each place it appears; and
       (B) in paragraph (3), by striking ``gives'' and inserting 
     ``knowingly gives or causes to be given''.
       (2) Definition of standard.--Section 1128A(i) (42 U.S.C. 
     1320a-7a(i)) is amended by adding at the end the following 
     new paragraph:
       ``(6) The term `should know' means that a person, with 
     respect to information--
       ``(A) acts in deliberate ignorance of the truth or falsity 
     of the information; or
       ``(B) acts in reckless disregard of the truth or falsity of 
     the information,
     and no proof of specific intent to defraud is required.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to acts or omissions occurring on or after 
     January 1, 1996.

     SEC. 8133. PENALTY FOR FALSE CERTIFICATION FOR HOME HEALTH 
                   SERVICES.

       (a) In General.--Section 1128A(b) (42 U.S.C. 1320a-7a(b)) 
     is amended by adding at the end the following new paragraph:
       ``(3)(A) Any physician who executes a document described in 
     subparagraph (B) with respect to an individual knowing that 
     all of the requirements referred to in such subparagraph are 
     not met with respect to the individual shall be subject to a 
     civil monetary penalty of not more than the greater of--
       ``(i) $5,000, or
       ``(ii) three times the amount of the payments under title 
     XVIII for home health services which are made pursuant to 
     such certification.
       ``(B) A document described in this subparagraph is any 
     document that certifies, for purposes of title XVIII, that an 
     individual meets the requirements of section 1814(a)(2)(C) or 
     1835(a)(2)(A) in the case of home health services furnished 
     to the individual.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to certifications made on or after the date of 
     the enactment of this Act.

                 CHAPTER 5--AMENDMENTS TO CRIMINAL LAW

     SEC. 8141. HEALTH CARE FRAUD.

       (a) In General.--
       (1)  Fines and imprisonment for health care fraud 
     violations.--Chapter 63 of title 18, United States Code, is 
     amended by adding at the end the following new section:

     ``Sec. 1347. Health care fraud

       ``(a) Whoever knowingly and willfully executes, or attempts 
     to execute, a scheme or artifice--
       ``(1) to defraud any Federal health care program, in 
     connection with the delivery of or payment for health care 
     benefits, items, or services; or
       ``(2) to obtain, by means of false or fraudulent pretenses, 
     representations, or promises, any of the money or property 
     owned by, or under the custody or control of, any Federal 
     health care program in connection with the delivery of or 
     payment for health care benefits, items, or services;
     shall be fined under this title or imprisoned not more than 
     10 years, or both. If the violation results in serious bodily 
     injury (as defined in section 1365(g)(3) of this title), such 
     person may be imprisoned for any term of years.
       ``(b) For purposes of this section, the term `Federal 
     health care program' has the same meaning given such term in 
     section 1128B(f) of the Social Security Act.''.
       (2) Clerical amendment.--The table of sections at the 
     beginning of chapter 63 of title 18, United States Code, is 
     amended by adding at the end the following:

``1347. Health care fraud.''.
       (b) Criminal Fines Deposited in Federal Hospital Insurance 
     Trust Fund.--The Secretary of the Treasury shall deposit into 
     the Federal Hospital Insurance Trust Fund pursuant to section 
     1817(k)(2)(C) of the Social Security Act, as added by section 
     8101(b), an amount equal to the criminal fines imposed under 
     section 1347 of title 18, United States Code (relating to 
     health care fraud).

     SEC. 8142. FORFEITURES FOR FEDERAL HEALTH CARE OFFENSES.

       (a) In General.--Section 982(a) of title 18, United States 
     Code, is amended by adding after paragraph (5) the following 
     new paragraph:
       ``(6)(A) The court, in imposing sentence on a person 
     convicted of a Federal health care offense, shall order the 
     person to forfeit property, real or personal, that 
     constitutes or is derived, directly or indirectly, from gross 
     proceeds traceable to the commission of the offense.
       ``(B) For purposes of this paragraph, the term `Federal 
     health care offense' means a violation of, or a criminal 
     conspiracy to violate--
       ``(i) section 1347 of this title;
       ``(ii) section 1128B of the Social Security Act; and
       ``(iii) sections 287, 371, 664, 666, 669, 1001, 1027, 1341, 
     1343, 1920, or 1954 of this title if the violation or 
     conspiracy relates to health care fraud.''.
       (b) Conforming Amendment.--Section 982(b)(1)(A) of title 
     18, United States Code, is amended by inserting ``or (a)(6)'' 
     after ``(a)(1)''.
       (c) Property Forfeited Deposited in Federal Hospital 
     Insurance Trust Fund.--
       (1) In general.--After the payment of the costs of asset 
     forfeiture has been made, and notwithstanding any other 
     provision of law, the Secretary of the Treasury shall deposit 
     into the Federal Hospital Insurance Trust Fund pursuant to 
     section 1817(k)(2)(C) of the Social Security Act, as added by 
     section 8101(b), an amount equal to the net amount realized 
     from the forfeiture of property by reason of a Federal health 
     care offense pursuant to section 982(a)(6) of title 18, 
     United States Code.
       (2) Costs of asset forfeiture.--For purposes of paragraph 
     (1), the term ``payment of the costs of asset forfeiture'' 
     means--
       (A) the payment, at the discretion of the Attorney General, 
     of any expenses necessary to seize, detain, inventory, 
     safeguard, maintain, advertise, sell, or dispose of property 
     under seizure, detention, or forfeited, or of any other 
     necessary expenses incident to the seizure, detention, 
     forfeiture, or disposal of such property, including payment 
     for--
       (i) contract services,
       (ii) the employment of outside contractors to operate and 
     manage properties or provide other specialized services 
     necessary to dispose of such properties in an effort to 
     maximize the return from such properties; and
       (iii) reimbursement of any Federal, State, or local agency 
     for any expenditures made to perform the functions described 
     in this subparagraph;
       (B) at the discretion of the Attorney General, the payment 
     of awards for information or assistance leading to a civil or 
     criminal forfeiture involving any Federal agency 
     participating in the Health Care Fraud and Abuse Control 
     Account;
       (C) the compromise and payment of valid liens and mortgages 
     against property that has been forfeited, subject to the 
     discretion of the Attorney General to determine the validity 
     of any 

[[Page H 12606]]
     such lien or mortgage and the amount of payment to be made, and the 
     employment of attorneys and other personnel skilled in State 
     real estate law as necessary;
       (D) payment authorized in connection with remission or 
     mitigation procedures relating to property forfeited; and
       (E) the payment of State and local property taxes on 
     forfeited real property that accrued between the date of the 
     violation giving rise to the forfeiture and the date of the 
     forfeiture order.

     SEC. 8143. INJUNCTIVE RELIEF RELATING TO FEDERAL HEALTH CARE 
                   OFFENSES.

       (a) In General.--Section 1345(a)(1) of title 18, United 
     States Code, is amended--
       (1) by striking ``or'' at the end of subparagraph (A);
       (2) by inserting ``or'' at the end of subparagraph (B); and
       (3) by adding at the end the following new subparagraph:
       ``(C) committing or about to commit a Federal health care 
     offense (as defined in section 982(a)(6)(B) of this 
     title);''.
       (b) Freezing of Assets.--Section 1345(a)(2) of title 18, 
     United States Code, is amended by inserting ``or a Federal 
     health care offense (as defined in section 982(a)(6)(B))'' 
     after ``title)''.

     SEC. 8144. FALSE STATEMENTS.

       (a) In General.--Chapter 47 of title 18, United States 
     Code, is amended by adding at the end the following new 
     section:

     ``Sec. 1033. False statements relating to health care matters

       ``(a) Whoever, in any matter involving a Federal health 
     care program, knowingly and willfully--
       ``(1) falsifies, conceals, or covers up by any trick, 
     scheme, or device a material fact, or
       ``(2) makes any materially false, fictitious, or fraudulent 
     statement or representation, or makes or uses any materially 
     false writing or document knowing the same to contain any 
     materially false, fictitious, or fraudulent statement or 
     entry,
     shall be fined under this title or imprisoned not more than 5 
     years, or both.
       ``(b) For purposes of this section, the term `Federal 
     health care program' has the same meaning given such term in 
     section 1128B(f) of the Social Security Act.''.
       (b) Clerical Amendment.--The table of sections at the 
     beginning of chapter 47 of title 18, United States Code, in 
     amended by adding at the end the following:

``1033. False statements relating to health care matters.''.

     SEC. 8145. OBSTRUCTION OF CRIMINAL INVESTIGATIONS OF FEDERAL 
                   HEALTH CARE OFFENSES.

       (a) In General.--Chapter 73 of title 18, United States 
     Code, is amended by adding at the end the following new 
     section:

     ``Sec. 1518. Obstruction of criminal investigations of 
       Federal health care offenses

       ``(a) Whoever willfully prevents, obstructs, misleads, 
     delays or attempts to prevent, obstruct, mislead, or delay 
     the communication of information or records relating to a 
     Federal health care offense to a criminal investigator shall 
     be fined under this title or imprisoned not more than 5 
     years, or both.
       ``(b) As used in this section the term `Federal health care 
     offense' has the same meaning given such term in section 
     982(a)(6)(B) of this title.
       ``(c) As used in this section the term `criminal 
     investigator' means any individual duly authorized by a 
     department, agency, or armed force of the United States to 
     conduct or engage in investigations for prosecutions for 
     violations of health care offenses.''.
       (b) Clerical Amendment.--The table of sections at the 
     beginning of chapter 73 of title 18, United States Code, is 
     amended by adding at the end the following:

``1518. Obstruction of Criminal Investigations of Federal Health Care 
              Offenses.''.

     SEC. 8146. THEFT OR EMBEZZLEMENT.

       (a) In General.--Chapter 31 of title 18, United States 
     Code, is amended by adding at the end the following new 
     section:

     ``Sec. 669. Theft or embezzlement in connection with health 
       care

       ``(a) Whoever willfully embezzles, steals, or otherwise 
     willfully and unlawfully converts to the use of any person 
     other than the rightful owner, or intentionally misapplies 
     any of the moneys, funds, securities, premiums, credits, 
     property, or other assets of a Federal health care program, 
     shall be fined under this title or imprisoned not more than 
     10 years, or both.
       ``(b) As used in this section the term `Federal health care 
     program' has the same meaning given such term in section 
     1128B(f) of the Social Security Act.''.
       (b) Clerical Amendment.--The table of sections at the 
     beginning of chapter 31 of title 18, United States Code, is 
     amended by adding at the end the following:

``669. Theft or Embezzlement in Connection with Health Care.''.

     SEC. 8147. LAUNDERING OF MONETARY INSTRUMENTS.

       Section 1956(c)(7) of title 18, United States Code, is 
     amended by adding at the end the following new subparagraph:
       ``(F) Any act or activity constituting an offense involving 
     a Federal health care offense as that term is defined in 
     section 982(a)(6)(B) of this title.''.

     SEC. 8148. AUTHORIZED INVESTIGATIVE DEMAND PROCEDURES.

       (a) In General.--Chapter 233 of title 18, United States 
     Code, is amended by adding after section 3485 the following 
     new section:

     ``Sec. 3486. Authorized investigative demand procedures

       ``(a)(1)(A) In any investigation relating to functions set 
     forth in paragraph (2), the Attorney General or designee may 
     issue in writing and cause to be served a subpoena compelling 
     production of any records (including any books, papers, 
     documents, electronic media, or other objects or tangible 
     things), which may be relevant to an authorized law 
     enforcement inquiry, that a person or legal entity may 
     possess or have care, custody, or control.
       ``(B) A custodian of records may be required to give 
     testimony concerning the production and authentication of 
     such records.
       ``(C) The production of records may be required from any 
     place in any State or in any territory or other place subject 
     to the jurisdiction of the United States at any designated 
     place; except that such production shall not be required more 
     than 500 miles distant from the place where the subpoena is 
     served.
       ``(D) Witnesses summoned under this section shall be paid 
     the same fees and mileage that are paid witnesses in the 
     courts of the United States.
       ``(E) A subpoena requiring the production of records shall 
     describe the objects required to be produced and prescribe a 
     return date within a reasonable period of time within which 
     the objects can be assembled and made available.
       ``(2) Investigative demands utilizing an administrative 
     subpoena are authorized for any investigation with respect to 
     any act or activity constituting or involving health care 
     fraud, including a scheme or artifice--
       ``(A) to defraud any Federal health care program, in 
     connection with the delivery of or payment for health care 
     benefits, items, or services; or
       ``(B) to obtain, by means of false or fraudulent pretenses, 
     representations, or promises, any of the money or property 
     owned by, or under the custody or control or, any Federal 
     health care program in connection with the delivery of or 
     payment for health care benefits, items, or services.
       ``(b)(1) A subpoena issued under this section may be served 
     by any person designated in the subpoena to serve it.
       ``(2) Service upon a natural person may be made by personal 
     delivery of the subpoena to such person.
       ``(3) Service may be made upon a domestic or foreign 
     association which is subject to suit under a common name, by 
     delivering the subpoena to an officer, to a managing or 
     general agent, or to any other agent authorized by 
     appointment or by law to receive service of process.
       ``(4) The affidavit of the person serving the subpoena 
     entered on a true copy thereof by the person serving it shall 
     be proof of service.
       ``(c)(1) In the case of contumacy by or refusal to obey a 
     subpoena issued to any person, the Attorney General may 
     invoke the aid of any court of the United States within the 
     jurisdiction of which the investigation is carried on or of 
     which the subpoenaed person is an inhabitant, or in which 
     such person carries on business or may be found, to compel 
     compliance with the subpoena.
       ``(2) The court may issue an order requiring the subpoenaed 
     person to appear before the Attorney General to produce 
     records, if so ordered, or to give testimony required under 
     subsection (a)(1)(B).
       ``(3) Any failure to obey the order of the court may be 
     punished by the court as a contempt thereof.
       ``(4) All process in any such case may be served in any 
     judicial district in which such person may be found.
       ``(d) Notwithstanding any Federal, State, or local law, any 
     person, including officers, agents, and employees, receiving 
     a subpoena under this section, who complies in good faith 
     with the subpoena and thus produces the materials sought, 
     shall not be liable in any court of any State or the United 
     States to any customer or other person for such production or 
     for nondisclosure of that production to the customer.
       ``(e)(1) Health information about an individual that is 
     disclosed under this section may not be used in, or disclosed 
     to any person for use in, any administrative, civil, or 
     criminal action or investigation directed against the 
     individual who is the subject of the information unless the 
     action or investigation arises out of and is directly related 
     to receipt of health care or payment for health care or 
     action involving a fraudulent claim related to health; or if 
     authorized by an appropriate order of a court of competent 
     jurisdiction, granted after application showing good cause 
     therefore.
       ``(2) In assessing good cause, the court shall weigh the 
     public interest and the need for disclosure against the 
     injury to the patient, to the physician-patient relationship, 
     and to the treatment services.
       ``(3) Upon the granting of such order, the court, in 
     determining the extent to which any disclosure of all or any 
     part of any record is necessary, shall impose appropriate 
     safeguards against unauthorized disclosure.
       ``(f) As used in this section the term `Federal health care 
     program' has the same meaning given such term in section 
     1128B(f) of the Social Security Act.''.
       (b) Clerical Amendment.--The table of sections for chapter 
     223 of title 18, United States Code, is amended by inserting 
     after the item relating to section 3405 the following new 
     item:

     ``Sec. 3486. Authorized investigative demand procedures''.

       (c) Conforming Amendment.--Section 1510(b)(3)(B) of title 
     18, United States Code, is amended by inserting ``or a 
     Department of Justice subpoena (issued under section 3486),'' 
     after ``subpoena''.

            CHAPTER 6--STATE HEALTH CARE FRAUD CONTROL UNITS

     SEC. 8151. STATE HEALTH CARE FRAUD CONTROL UNITS.

       (a) Extension of Concurrent Authority To Investigate and 
     Prosecute Fraud in Other Federal Programs.--Paragraph (3) of 
     section 2134(b), as added by section 7001 of this Act, is 
     amended--

[[Page H 12607]]

       (1) by inserting ``(A)'' after ``in connection with''; and
       (2) by striking ``plan.'' and inserting ``plan; and (B) 
     upon the approval of the relevant Federal agency and the 
     chief executive officer of the State or such officer's 
     designee, any aspect of the provision of health care services 
     and activities of providers of such services under any 
     Federal health care program (as defined in section 
     1128B(f)(1)).''.
       (b) Extension of Authority To Investigate and Prosecute 
     Patient Abuse in Non-MediGrant Board and Care Facilities.--
     Paragraph (4) of section 2134(b), as added by section 7001 of 
     this Act, is amended to read as follows:
       ``(4)(A) The entity has--
       ``(i) procedures for reviewing complaints of abuse or 
     neglect of patients in health care facilities which receive 
     payments under the MediGrant plan funded under this title;
       ``(ii) at the option of the entity, procedures for 
     reviewing complaints of abuse or neglect of patients residing 
     in board and care facilities; and
       ``(iii) where appropriate, procedures for acting upon such 
     complaints under the criminal laws of the State or for 
     referring such complaints to other State agencies for action.
       ``(B) For purposes of this paragraph, the term `board and 
     care facility' means a residential setting which receives 
     payment from or on behalf of two or more unrelated adults who 
     reside in such facility, and for whom one or both of the 
     following is provided:
       ``(i) Nursing care services provided by, or under the 
     supervision of, a registered nurse, licensed practical nurse, 
     or licensed nursing assistant.
       ``(ii) Personal care services that assist residents with 
     the activities of daily living, including personal hygiene, 
     dressing, bathing, eating, toileting, ambulation, transfer, 
     positioning, self-medication, body care, travel to medical 
     services, essential shopping, meal preparation, laundry, and 
     housework.''.
                     Subtitle C--Regulatory Relief

     SEC. 8201. REPEAL OF PHYSICIAN OWNERSHIP REFERRAL 
                   PROHIBITIONS BASED ON COMPENSATION 
                   ARRANGEMENTS.

       (a) In General.--Section 1877(a)(2) (42 U.S.C. 
     1395nn(a)(2)) is amended by striking ``is--'' and all that 
     follows through ``equity,'' and inserting the following: ``is 
     (except as provided in subsection (c)) an ownership or 
     investment interest in the entity through equity,''.
       (b) Conforming Amendments.--Section 1877 (42 U.S.C. 1395nn) 
     is amended as follows:
       (1) In subsection (b)--
       (A) in the heading, by striking ``to Both Ownership and 
     Compensation Arrangement Prohibitions'' and inserting ``Where 
     Financial Relationship Exists''; and
       (B) by redesignating paragraph (4) as paragraph (7).
       (2) In subsection (c)--
       (A) by amending the heading to read as follows: ``Exception 
     for Ownership or Investment Interest in Publicly Traded 
     Securities and Mutual Funds''; and
       (B) in the matter preceding paragraph (1), by striking 
     ``subsection (a)(2)(A)'' and inserting ``subsection (a)(2)''.
       (3) In subsection (d)--
       (A) by striking the matter preceding paragraph (1);
       (B) in paragraph (3), by striking ``paragraph (1)'' and 
     inserting ``paragraph (4)''; and
       (C) by redesignating paragraphs (1), (2), and (3) as 
     paragraphs (4), (5), and (6), and by transferring and 
     inserting such paragraphs after paragraph (3) of subsection 
     (b).
       (4) By striking subsection (e).
       (5) In subsection (f)(2)--
       (A) in the matter preceding paragraph (1), by striking 
     ``ownership, investment, and compensation'' and inserting 
     ``ownership and investment'';
       (B) in paragraph (2), by striking ``subsection (a)(2)(A)'' 
     and all that follows through ``subsection (a)(2)(B)),'' and 
     inserting ``subsection (a)(2),''; and
       (C) in paragraph (2), by striking ``or who have such a 
     compensation relationship with the entity''.
       (6) In subsection (h)--
       (A) by striking paragraphs (1), (2), and (3);
       (B) in paragraph (4)(A), by striking clauses (iv) and (vi);
       (C) in paragraph (4)(B), by striking ``rules.--'' and all 
     that follows through ``(ii) Faculty'' and inserting ``rules 
     for faculty''; and
       (D) by adding at the end of paragraph (4) the following new 
     subparagraph:
       ``(C) Member of a group.--A physician is a `member' of a 
     group if the physician is an owner or a bona fide employee, 
     or both, of the group.''.

     SEC. 8202. REVISION OF DESIGNATED HEALTH SERVICES SUBJECT TO 
                   OWNERSHIP REFERRAL PROHIBITION.

       (a) In General.--Section 1877(h)(6) (42 U.S.C. 
     1395nn(h)(6)) is amended by striking subparagraphs (B) 
     through (K) and inserting the following:
       ``(B) Parenteral and enteral nutrients, equipment, and 
     supplies.
       ``(C) Radiology services, including magnetic resonance 
     imaging, computerized tomography, and ultrasound services.
       ``(D) Outpatient physical or occupational therapy 
     services.''.
       (b) Conforming Amendments.--
       (1) Section 1877(b)(2) (42 U.S.C. 1395nn(b)(2)) is amended 
     in the matter preceding subparagraph (A) by striking 
     ``services'' and all that follows through ``supplies)--'' and 
     inserting ``services--''.
       (2) Section 1877(h)(5)(C) (42 U.S.C. 1395nn(h)(5)(C)) is 
     amended--
       (A) by striking ``, a request by a radiologist for 
     diagnostic radiology services, and a request by a radiation 
     oncologist for radiation therapy,'' and inserting ``and a 
     request by a radiologist for magnetic resonance imaging or 
     for computerized tomography'', and
       (B) by striking ``radiologist, or radiation oncologist'' 
     and inserting ``or radiologist''.

     SEC. 8203. DELAY IN IMPLEMENTATION OF 1993 OWNERSHIP REFERRAL 
                   CHANGES UNTIL PROMULGATION OF REGULATIONS.

       (a) In General.--Section 13562(b) of OBRA-1993 (42 U.S.C. 
     1395nn note) is amended--
       (1) in paragraph (1), by striking ``paragraph (2)'' and 
     inserting ``paragraphs (2) and (3)''; and
       (2) by adding at the end the following new paragraph:
       ``(3) Promulgation of regulations.--Notwithstanding 
     paragraphs (1) and (2), the amendments made by this section 
     shall not apply to any referrals made before the effective 
     date of final regulations promulgated by the Secretary of 
     Health and Human Services to carry out such amendments.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall take effect as if included in the enactment of OBRA-
     1993.

     SEC. 8204. EXCEPTIONS TO OWNERSHIP REFERRAL PROHIBITIONS.

       (a) Revisions to Exception for In-office Ancillary 
     Services.--
       (1) Repeal of site-of-service requirement.--Section 1877 
     (42 U.S.C. 1395nn) is amended--
       (A) by amending subparagraph (A) of subsection (b)(2) to 
     read as follows:
       ``(A) that are furnished personally by the referring 
     physician, personally by a physician who is a member of the 
     same group practice as the referring physician, or personally 
     by individuals who are under the general supervision of the 
     physician or of another physician in the group practice, 
     and'', and
       (B) by adding at the end of subsection (h) the following 
     new paragraph:
       ``(7) General supervision.--An individual is considered to 
     be under the `general supervision' of a physician if the 
     physician (or group practice of which the physician is a 
     member) is legally responsible for the services performed by 
     the individual and for ensuring that the individual meets 
     licensure and certification requirements, if any, applicable 
     under other provisions of law, regardless of whether or not 
     the physician is physically present when the individual 
     furnishes an item or service.''.
       (2) Clarification of treatment of physician owners of group 
     practice.--Section 1877(b)(2)(B) (42 U.S.C. 1395nn(b)(2)(B)) 
     is amended by striking ``physician or such group practice'' 
     and inserting ``physician, such group practice, or the 
     physician owners of such group practice''.
       (3) Conforming amendment.--Section 1877(b)(2) (42 U.S.C. 
     1395nn(b)(2)) is amended by amending the heading to read as 
     follows: ``Ancillary services furnished personally or through 
     group practice.--''.
       (b) Clarification of Exception for Services Furnished in a 
     Rural Area.--Paragraph (5) of section 1877(b) (42 U.S.C. 
     1395nn(b)), as transferred by section 8201(b)(3)(C), is 
     amended by striking ``substantially all'' and inserting ``not 
     less than 75 percent''.
       (c) Revision of Exception for Certain Managed Care 
     Arrangements.--Section 1877(b)(3) (42 U.S.C. 1395nn(b)(3)) is 
     amended--
       (1) in the heading by inserting ``managed care 
     arrangements'' after ``Prepaid plans'';
       (2) in the matter preceding subparagraph (A), by striking 
     ``organization--'' and inserting ``organization, directly or 
     through contractual arrangements with other entities, to 
     individuals enrolled with the organization--'';
       (3) in subparagraph (A), by inserting ``or part C'' after 
     ``section 1876'';
       (4) by striking ``or'' at the end of subparagraph (C);
       (5) by striking the period at the end of subparagraph (D) 
     and inserting a comma; and
       (6) by adding at the end the following new subparagraphs:
       ``(E) with a contract with a State to provide services 
     under the State plan under title XIX (in accordance with 
     section 1903(m)) or a State MediGrant plan under title XXI; 
     or
       ``(F) which is a MedicarePlus organization under part C or 
     which provides or arranges for the provision of health care 
     items or services pursuant to a written agreement between the 
     organization and an individual or entity if the written 
     agreement places the individual or entity at substantial 
     financial risk for the cost or utilization of the items or 
     services which the individual or entity is obligated to 
     provide, whether through a withhold, capitation, incentive 
     pool, per diem payment, or any other similar risk arrangement 
     which places the individual or entity at substantial 
     financial risk.''.
       (d) New Exception for Shared Facility Services.--
       (1) In general.--Section 1877(b) (42 U.S.C. 1395nn(b)), as 
     amended by section 8201(b)(3)(C), is amended--
       (A) by redesignating paragraphs (4) through (7) as 
     paragraphs (5) through (8); and
       (B) by inserting after paragraph (3) the following new 
     paragraph:
       ``(4) Shared facility services.--In the case of a 
     designated health service consisting of a shared facility 
     service of a shared facility--
       ``(A) that is furnished--
       ``(i) personally by the referring physician who is a shared 
     facility physician or personally by an individual directly 
     employed or under the general supervision of such a 
     physician,
       ``(ii) by a shared facility in a building in which the 
     referring physician furnishes substantially all of the 
     services of the physician that are unrelated to the 
     furnishing of shared facility services, and
       ``(iii) to a patient of a shared facility physician; and

[[Page H 12608]]

       ``(B) that is billed by the referring physician or a group 
     practice of which the physician is a member.''.
       (2) Definitions.--Section 1877(h) (42 U.S.C. 1395nn(h)), as 
     amended by section 8201(b)(6), is amended by inserting before 
     paragraph (4) the following new paragraph:
       ``(1) Shared facility related definitions.--
       ``(A) Shared facility service.--The term `shared facility 
     service' means, with respect to a shared facility, a 
     designated health service furnished by the facility to 
     patients of shared facility physicians.
       ``(B) Shared facility.--The term `shared facility' means an 
     entity that furnishes shared facility services under a shared 
     facility arrangement.
       ``(C) Shared facility physician.--The term `shared facility 
     physician' means, with respect to a shared facility, a 
     physician (or a group practice of which the physician is a 
     member) who has a financial relationship under a shared 
     facility arrangement with the facility.
       ``(D) Shared facility arrangement.--The term `shared 
     facility arrangement' means, with respect to the provision of 
     shared facility services in a building, a financial 
     arrangement--
       ``(i) which is only between physicians who are providing 
     services (unrelated to shared facility services) in the same 
     building,
       ``(ii) in which the overhead expenses of the facility are 
     shared, in accordance with methods previously determined by 
     the physicians in the arrangement, among the physicians in 
     the arrangement, and
       ``(iii) which, in the case of a corporation, is wholly 
     owned and controlled by shared facility physicians.''.
       (e) New Exception for Services Furnished in Communities 
     With No Alternative Providers.--Section 1877(b) (42 U.S.C. 
     1395nn(b)), as amended by section 8201(b)(3)(C) and 
     subsection (d)(1), is amended--
       (1) by redesignating paragraphs (5) through (8) as 
     paragraphs (6) through (9); and
       (2) by inserting after paragraph (4) the following new 
     paragraph:
       ``(5) No alternative providers in area.--In the case of a 
     designated health service furnished in any area with respect 
     to which the Secretary determines that individuals residing 
     in the area do not have reasonable access to such a 
     designated health service for which subsection (a)(1) does 
     not apply.''.
       (f) New Exception for Services Furnished in Ambulatory 
     Surgical Centers.--Section 1877(b) (42 U.S.C. 1395nn(b)), as 
     amended by section 8201(b)(3)(C), subsection (d)(1), and 
     subsection (e)(1), is amended--
       (1) by redesignating paragraphs (6) through (9) as 
     paragraphs (7) through (10); and
       (2) by inserting after paragraph (5) the following new 
     paragraph:
       ``(6) Services furnished in ambulatory surgical centers.--
     In the case of a designated health service furnished in an 
     ambulatory surgical center described in section 
     1832(a)(2)(F)(i).''.
       (g) New Exception for Services Furnished in Renal Dialysis 
     Facilities.--Section 1877(b) (42 U.S.C. 1395nn(b)), as 
     amended by section 8201(b)(3)(C), subsection (d)(1), 
     subsection (e)(1), and subsection (f), is amended--
       (1) by redesignating paragraphs (7) through (10) as 
     paragraphs (8) through (11); and
       (2) by inserting after paragraph (6) the following new 
     paragraph:
       ``(7) Services furnished in renal dialysis facilities.--In 
     the case of a designated health service furnished in a renal 
     dialysis facility under section 1881.''.
       (h) New Exception for Services Furnished in a Hospice.--
     Section 1877(b) (42 U.S.C. 1395nn(b)), as amended by section 
     8201(b)(3)(C), subsection (d)(1), subsection (e)(1), 
     subsection (f), and subsection (g), is amended--
       (1) by redesignating paragraphs (8) through (11) as 
     paragraphs (9) through (12); and
       (2) by inserting after paragraph (7) the following new 
     paragraph:
       ``(8) Services furnished by a hospice program.--In the case 
     of a designated health service furnished by a hospice program 
     under section 1861(dd)(2).''.
       (i) New Exception for Services Furnished in a Comprehensive 
     Outpatient Rehabilitation Facility.--Section 1877(b) (42 
     U.S.C. 1395nn(b)), as amended by section 8201(b)(3)(C), 
     subsection (d)(1), subsection (e)(1), subsection (f), 
     subsection (g), and subsection (h), is amended--
       (1) by redesignating paragraphs (9) through (12) as 
     paragraphs (10) through (13); and
       (2) by inserting after paragraph (8) the following new 
     paragraph:
       ``(9) Services furnished in a comprehensive outpatient 
     rehabilitation facility.--In the case of a designated health 
     service furnished in a comprehensive outpatient 
     rehabilitation facility (as defined in section 
     1861(cc)(2)).''.
       (j) Definition of Referral.--Section 1877(h)(5)(A) (42 
     U.S.C. 1395nn(h)(5)(A)) is amended--
       (1) by striking ``an item or service'' and inserting ``a 
     designated health service'', and
       (2) by striking ``the item or service'' and inserting ``the 
     designated health service''.

     SEC. 8205. EFFECTIVE DATE.

       Except as provided in section 8203(b), the amendments made 
     by this subtitle shall apply to referrals made on or after 
     the date of the enactment of this Act, regardless of whether 
     or not regulations are promulgated to carry out such 
     amendments.
Subtitle D--Modification in Payment Policies Regarding Graduate Medical 
                               Education

     SEC. 8301. INDIRECT MEDICAL EDUCATION PAYMENTS.

       (a) Multiyear Transition Regarding Percentages; 6.7 for 
     1996 to 5.0 for 2001 and Afterwards.--Section 
     1886(D)(5)(B)(ii) (42 U.S.C. 1395ww(d)(5)(B)(ii)) us amended 
     to read as follows:
       ``(ii) For purposes of clause (i)(II), the indirect 
     teaching adjustment factor is equal to c (((1+r) to the nth 
     power)-1), where `r' is the ratio of the hospital's full-time 
     equivalent interns and residents to beds and `n' equal .405. 
     For discharges occurring on or after--
       ``(I) May 1, 1986, and before October 1, 1995, `c' is equal 
     to 1.89;
       ``(II) October 1, 1995, and before October 1, 1996, `c' is 
     equal to 1.654;
       ``(III) October 1, 1996, and before October 1, 1998, `c' is 
     equal to 1.481;
       ``(IV) October 1, 1998, and before October 1, 1999, `c' is 
     equal to 1.383;
       ``(V) October 1, 1999, and before October 1, 2000, `c' is 
     equal to 1.309; and
       ``(VI) October 1, 2000, `c' is equal to 1.235.''.
       (b) No Restandardization of Payment Amounts Required.--
     Section 1886(d)(2)(C)(i) (42 U.S.C. 1395ww(d)(2)(C)(i)) is 
     amended by striking ``of 1985'' and inserting ``of 1985, but 
     not taking into account the amendments made by section 
     8301(a) of Medicate Preservation Act of 1995''.

     SEC. 8302. DIRECT GRADUATE MEDICAL EDUCATION.

       (a) Weighting Factors For Residents.--
       (1) In general.--Section 1886(h)(4)(C)(iv) (42 U.S.C. 
     1395ww(h)(4)(C)(iv)) is amended by striking ``50'' and 
     inserting ``0.25''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply with respect to cost reporting periods beginning 
     on or after October 1, 1997.
       (b) Limitation on Aggregate Number of Full-Time 
     Residents.--
       Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is amended by 
     adding at the end the following new subparagraph:
       ``(F) Adjustments for certain fiscal years in payments for 
     programs in allopathic and osteopathic medicine.--
       ``(i) In general.--With respect to a cost reporting period, 
     the Secretary shall in accordance with clause (ii) adjust the 
     payments for approved medical residency training programs in 
     the fields of allopathic medicine and osteopathic medicine 
     if, in the fiscal year in which such cost reporting period 
     begins, the number of full-time-equivalent residents 
     determined under this paragraph with respect to all such 
     programs exceeds the number of full-time-equivalent residents 
     determined with respect to all such programs as of August 1, 
     1995.
       ``(ii) Adjustment described.--Adjustments under clause (i) 
     shall be made with respect to cost reporting periods such 
     that the total amount of payments under this subsection for 
     the fiscal year involved does not exceed the amount that 
     would have been paid under this subsection for such year if 
     the number of full-time-equivalent residents determined under 
     clause (i) for the year had not exceeded the number of full-
     time-equivalent residents with respect to all such programs 
     as of August 1, 1995.
       ``(iii) Hold harmless.--The Secretary may provide that 
     approved medical residency training programs that reduced or 
     did not expand the number of full-time-equivalent residents 
     determined under this paragraphs for a cost reporting period 
     shall not be subject to the adjustment described in clause 
     (i).
       ``(iv) Effective date.--The adjustment described in clause 
     (i) shall apply with respect to cost reporting periods 
     beginning on or after October 1, 1995, and on or before 
     September 30, 2002.''.
               Subtitle E--Provisions Relating to Part A

            CHAPTER 1--GENERAL PROVISIONS RELATING TO PART A

     SEC. 8401. PPS HOSPITAL PAYMENT UPDATE.

       Section 1886(b)(3)(B)(i) (42 U.S.C. 1395ww(b)(3)(B)(i)) is 
     amended by striking subclauses (XI), (XII), and (XIII) and 
     inserting the following new subclauses:
       ``(XI) for fiscal year 1996 for hospitals in all areas, the 
     market basket percentage increase minus 2.5 percentage 
     points,
       ``(XII) for fiscal years 1997 through 2002 for hospitals in 
     all areas, the market basket percentage increase minus 2.0 
     percentage points, and
       ``(XIII) for fiscal year 2003 and each subsequent fiscal 
     year for hospitals in all areas, the market basket percentage 
     increase.''.

     SEC. 8402. PPS-EXEMPT HOSPITAL PAYMENTS.

       (a) Update.--
       (1) In general.--Section 1886(b)(3)(B)(ii) (42 U.S.C. 
     1395ww(b)(3)(B)(ii)) is amended--
       (A) in subclause (V)--
       (i) by striking ``1997'' and inserting ``1995'', and
       (ii) by striking ``and'' at the end,
       (B) by redesignating subclause (VI) as subclause (VII); and
       (C) by inserting after subclause (V), the following 
     subclause:
       ``(VI) except as provided in clause (vi), for fiscal years 
     1996 through 2002, the market basket percentage increase 
     minus the applicable reduction (as defined in clause 
     (vii)(II)); and''.
       (2) Special rules for certain hospitals.--Section 
     1886(b)(3)(B) (42 U.S.C. 1395ww(b)(3)(B))) is amended by 
     adding at the end the following new clause:
       ``(vi) For purposes of clause (ii)(VI), the `applicable 
     percentage increase' for a hospital--
       ``(I) for a fiscal year for which the hospital's update 
     adjustment percentage (as defined in clause (vii)(I)) is at 
     least 10 percent, is the market basket percentage increase, 
     and
       ``(II) for which 150 percent of the hospital's allowable 
     operating costs of inpatient hospital services recognized 
     under this title for the most recent cost reporting period 
     for which information is available is less than the 
     hospital's target amount (as determined under subparagraph 
     (A)) for such cost reporting period, is 0 percent.''.

[[Page H 12609]]

       (3) Definitions.--Section 1886(b)(3)(B) (42 U.S.C. 
     1395ww(b)(3)(B)), as amended by paragraph (2), is amended by 
     adding at the end the following new clause:
       ``(vii) For purposes of clauses (ii)(VI) and (vi)--
       ``(I) a hospital's `update adjustment percentage' for a 
     fiscal year is the percentage by which the hospital's 
     allowable operating costs of inpatient hospital services 
     recognized under this title for the most recent cost 
     reporting period for which information is available exceeds 
     the hospital's target amount (as determined under 
     subparagraph (A)) for such cost reporting period, and
       ``(II) the `applicable reduction' with respect to a 
     hospital for a fiscal year is 2.5 percentage points, reduced 
     by 0.25 percentage point for each percentage point (if any) 
     the hospital's update adjustment percentage for the fiscal 
     year is less than 10 percentage points.''.
       (3) Effect of payment reduction on exceptions and 
     adjustments.--Section 1886(b)(4)(A)(ii) (42 U.S.C. 
     1395ww(b)(4)(A)(ii)) is amended by striking ``paragraph 
     (3)(B)(ii)(V)'' and inserting ``subclause (V) or (VI) of 
     paragraph (3)(B)(ii)''.
       (b) Target Amounts for Rehabilitation Hospitals and Long-
     Term Care Hospitals.--Section 1886(b)(3) (42 U.S.C. 
     1395ww(b)(3)) is amended--
       (1) in subparagraph (A), in the matter preceding clause 
     (i), by striking ``and (E)'' and inserting ``(E), (F), and 
     (G)''; and
       (2) by adding at the end the following new subparagraphs:
       ``(F) In the case of a rehabilitation hospital (or unit 
     thereof) (as described in clause (ii) of subsection 
     (d)(1)(B)), for cost reporting periods beginning on or after 
     October 1, 1995,--
       ``(i) in the case of a hospital which first receives 
     payments under this section before October 1, 1995, the 
     target amount determined under subparagraph (A) for such 
     hospital or unit for a cost reporting period beginning during 
     a fiscal year shall not be less than 50 percent of the 
     national mean of the target amounts determined under this 
     paragraph for all such hospitals for cost reporting periods 
     beginning during such fiscal year (determined without regard 
     to this subparagraph); and
       ``(ii) in the case of a hospital which first receives 
     payments under this section on or after October 1, 1995, such 
     target amount may not be greater than 130 percent of the 
     national mean of the target amounts for such hospitals (and 
     units thereof) for cost reporting periods beginning during 
     fiscal year 1991.
       ``(G) In the case of a hospital which has an average 
     inpatient length of stay of greater than 25 days (as 
     described in clause (iv) of subsection (d)(1)(B)), for cost 
     reporting periods beginning on or after October 1, 1995--
       ``(i) in the case of a hospital which first receives 
     payments under this section as a hospital that is not a 
     subsection (d) hospital or a subsection (d) Puerto Rico 
     hospital before October 1, 1995, the target amount determined 
     under subparagraph (A) for such hospital for a cost reporting 
     period beginning during a fiscal year shall not be less than 
     50 percent of the national mean of the target amounts 
     determined under such subparagraph for all such hospitals for 
     cost reporting periods beginning during such fiscal year 
     (determined without regard to this subparagraph); and
       ``(ii) in the case of any other hospital which first 
     receives payment under this section as a hospital described 
     in clause (i) on or after October 1, 1995, such target amount 
     may not be greater than 130 percent (or, if the Secretary 
     determines it is appropriate, such alternative percentage 
     based on case-mix and DRG category) of such national mean of 
     the target amounts for such hospitals for cost reporting 
     periods beginning during fiscal year 1991.''.
       (c) Rebasing for Certain Long-Term Care Hospitals.--
       (1) In general.--Section 1886(b)(3) (42 U.S.C. 
     1395ww(b)(3)), as amended by subsection (b), is amended--
       (A) in subparagraph (A) in the matter preceding clause (i), 
     by striking ``and (G)'' and inserting ``(G), and (H)'';
       (B) in subparagraph (B)(ii), by striking ``(A) and (E)'' 
     and inserting ``(A), (E), and (G)''; and
       (C) by adding at the end the following new subparagraph:
       ``(H)(i) In the case of a qualified long-term care hospital 
     (as defined in clause (ii)), the term `target amount' means--
       ``(I) with respect to the first 12-month cost reporting 
     period in which this subparagraph is applied to the hospital, 
     the allowable operating costs of inpatient hospital services 
     (as defined in subsection (a)(4)) recognized under this title 
     for the hospital for the 12-month cost reporting period 
     beginning during fiscal year 1994; or
       ``(II) with respect to a later cost reporting period, the 
     target amount for the preceding cost reporting period, 
     increased by the applicable percentage increase under 
     subparagraph (B)(ii) for that later cost reporting period.
       ``(ii) In clause (i), a `qualified long-term care hospital' 
     means, with respect to a cost reporting period, a hospital 
     described in clause (iv) of subsection (d)(1)(B) during 
     fiscal year 1995 for which the hospital's allowable operating 
     costs of inpatient hospital services recognized under this 
     title for each of the two most recent previous 12-month cost 
     reporting periods exceeded 115 percent of the hospital's 
     target amount determined under this paragraph for such cost 
     reporting periods, if the hospital has a disproportionate 
     patient percentage during such cost reporting period (as 
     determined by the Secretary under subsection (d)(5)(F)(vi) as 
     if the hospital were a subsection (d) hospital) of at least 
     70 percent.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to discharges occurring during cost reporting 
     periods beginning on or after October 1, 1995.
       (d) Treatment of Certain Long-Term Care Hospitals Located 
     Within Other Hospitals.--
       (1) In general.--Section 1886(d)(1)(B) (42 U.S.C. 
     1395ww(d)(1)(B)) is amended in the matter following clause 
     (v) by striking the period and inserting the following: ``, 
     or a hospital classified by the Secretary as a long-term care 
     hospital on or before September 30, 1995, and located in the 
     same building as, or on the same campus as, another 
     hospital.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to discharges occurring on or after October 1, 
     1995.
       (e) Capital Payments for PPS-Exempt Hospitals.--Section 
     1886(g) (42 U.S.C. 1395ww(g)) is amended by adding at the end 
     the following new paragraph:
       ``(4) In determining the amount of the payments that may be 
     made under this title with respect to all the capital-related 
     costs of inpatient hospital services furnished during fiscal 
     years 1996 through 2002 of a hospital which is not a 
     subsection (d) hospital or a subsection (d) Puerto Rico 
     hospital, the Secretary shall reduce the amounts of such 
     payments otherwise determined under this title by 10 
     percent.''.

     SEC. 8403. REDUCTIONS IN DISPROPORTIONATE SHARE PAYMENT 
                   ADJUSTMENTS.

       (a) In General.--Section 1886(d)(5)(F) (42 U.S.C. 
     1395ww(d)(5)(F)) is amended--
       (1) in clause (ii), by striking ``The amount'' and 
     inserting ``Subject to clause (ix), the amount''; and
       (2) by adding at the end the following new clause:
       ``(ix) In the case of discharges occurring on or after 
     October 1, 1995, the additional payment amount otherwise 
     determined under clause (ii) shall be reduced as follows:
       ``(I) For discharges occurring on or after October 1, 1995, 
     and on or before September 30, 1996, by 5 percent.
       ``(II) For discharges occurring on or after October 1, 
     1996, and on or before September 30, 1997, by 10 percent.
       ``(III) For discharges occurring on or after October 1, 
     1997, and on or before September 30, 1998, by 17.5 percent.
       ``(IV) For discharges occurring on or after October 1, 
     1998, and on or before September 30, 1999, by 25 percent.
       ``(V) For discharges occurring on or after October 1, 1999, 
     and on or before September 30, 2002, by 30 percent.
       (b) Conforming Amendment Relating to Determination of 
     Standardized Amounts.--Section 1886(d)(2)(C)(iv) (42 U.S.C. 
     1395ww(d)(2)(C)(iv)) is amended by striking the period at the 
     end and inserting the following: ``, and the Secretary shall 
     not take into account any reductions in the amount of such 
     additional payments resulting from the amendments made by 
     section 8403(a) of the Medicare Preservation Act of 1995.''.
       (c) Effective Date.--The amendments made by subsections (a) 
     and (b) shall apply to discharges occurring on or after 
     October 1, 1995.

     SEC. 8404. CAPITAL PAYMENTS FOR PPS HOSPITALS.

       (a) Reduction in Payments.--
       (1) Continuation of current reductions.--Section 
     1886(g)(1)(A) (42 U.S.C. 1395ww(g)(1)(A)) is amended in the 
     second sentence--
       (A) by striking ``through 1995'' and inserting ``through 
     2002''; and
       (B) by inserting after ``10 percent reduction'' the 
     following: ``(or a 15 percent reduction in the case of 
     payments during fiscal years 1996 through 2002)''.
       (2) Reduction in base payment rates.--Section 1886(g)(1)(A) 
     (42 U.S.C. 1395ww(g)(1)(A)) is amended by adding at the end 
     the following new sentence: ``In addition to the reduction 
     described in the preceding sentence, for discharges occurring 
     after September 30, 1995, the Secretary shall reduce by 7.47 
     percent the unadjusted standard Federal capital payment rate 
     (as described in 42 CFR 412.308(c), as in effect on the date 
     of the enactment of the Medicare Preservation Act of 1995) 
     and shall reduce by 8.27 percent the unadjusted hospital-
     specific rate (as described in 42 CFR 412.328(e)(1), as in 
     effect on such date of enactment).''.
       (b) Hospital-Specific Adjustment for Capital-Related Tax 
     Costs.--Section 1886(g)(1) (42 U.S.C. 1395ww(g)(1)) is 
     amended--
       (1) by redesignating subparagraph (C) as subparagraph (D), 
     and
       (2) by inserting after subparagraph (B) the following 
     subparagraph:
       ``(C)(i) For discharges occurring after September 30, 1995, 
     such system shall provide for an adjustment in an amount 
     equal to the amount determined under clause (iv) for capital-
     related tax costs for each hospital that is eligible for such 
     adjustment.
       ``(ii) Subject to clause (iii), a hospital is eligible for 
     an adjustment under this subparagraph, with respect to 
     discharges occurring in a fiscal year, if the hospital--
       ``(I) is a hospital that may otherwise receive payments 
     under this subsection,
       ``(II) is not a public hospital, and
       ``(III) incurs capital-related tax costs for the fiscal 
     year.
       ``(iii)(I) In the case of a hospital that first incurs 
     capital-related tax costs in a fiscal year after fiscal year 
     1992 because of a change from nonproprietary to proprietary 
     status or because the hospital commenced operation after such 
     fiscal year, the first fiscal year for which the hospital 
     shall be eligible for such adjustment is the second full 
     fiscal year following the fiscal year in which the hospital 
     first incurs such costs.
       ``(II) In the case of a hospital that first incurs capital-
     related tax costs in a fiscal year after fiscal year 1992 
     because of a change in State or local tax laws, the first 
     fiscal year for which the hospital shall be eligible for such 
     adjustment is the fourth full fiscal year following the 
     fiscal 

[[Page H 12610]]
     year in which the hospital first incurs such costs.
       ``(iv) The per discharge adjustment under this clause shall 
     be equal to the hospital-specific capital-related tax costs 
     per discharge of a hospital for fiscal year 1992 (or, in the 
     case of a hospital that first incurs capital-related tax 
     costs for a fiscal year after fiscal year 1992, for the first 
     full fiscal year for which such costs are incurred), updated 
     to the fiscal year to which the adjustment applies. Such per 
     discharge adjustment shall be added to the Federal capital 
     rate, after such rate has been adjusted as described in 42 
     CFR 412.312 (as in effect on the date of the enactment of the 
     Medicare Preservation Act of 1995), and before such rate is 
     multiplied by the applicable Federal rate percentage.
       ``(v) For purposes of this subparagraph, capital-related 
     tax costs include--
       ``(I) the costs of taxes on land and depreciable assets 
     owned by a hospital and used for patient care,
       ``(II) payments in lieu of such taxes (made by hospitals 
     that are exempt from taxation), and
       ``(III) the costs of taxes paid by a hospital as lessee of 
     land, buildings, or fixed equipment from a lessor that is 
     unrelated to the hospital under the terms of a lease that 
     requires the lessee to pay all expenses (including mortgage, 
     interest, and amortization) and leaves the lessor with an 
     amount free of all claims (sometimes referred to as a `net 
     net net' or `triple net' lease).
     In determining the adjustment required under clause (i), the 
     Secretary shall not take into account any capital-related tax 
     costs of a hospital to the extent that such costs are based 
     on tax rates and assessments that exceed those for similar 
     commercial properties.
       ``(vi) The system shall provide that the Federal capital 
     rate for any fiscal year after September 30, 1995, shall be 
     reduced by a percentage sufficient to ensure that the 
     adjustments required to be paid under clause (i) for a fiscal 
     year neither increase nor decrease the total amount that 
     would have been paid under this system but for the payment of 
     such adjustments for such fiscal year.''.
       (d) Revision of Exceptions Process Under Prospective 
     Payment System for Certain Projects.--
       (1) In general.--Section 1886(g)(1) (42 U.S.C. 
     1395ww(g)(1)), as amended by subsection (c), is amended--
       (A) by redesignating subparagraph (D) as subparagraph (E), 
     and
       (B) by inserting after subparagraph (C) the following 
     subparagraph:
       ``(D) The exceptions under the system provided by the 
     Secretary under subparagraph (B)(iii) shall include the 
     provision of exception payments under the special exceptions 
     process provided under 42 CFR 412.348(g) (as in effect on 
     September 1, 1995), except that the Secretary shall revise 
     such process as follows:
       ``(i) A hospital with at least 100 beds which is located in 
     an urban area shall be eligible under such process without 
     regard to its disproportionate patient percentage under 
     subsection (d)(5)(F) or whether it qualifies for additional 
     payment amounts under such subsection.
       ``(ii) The minimum payment level for qualifying hospitals 
     shall be 85 percent.
       ``(iii) A hospital shall be considered to meet the 
     requirement that it completes the project involved no later 
     than the end of the hospital's last cost reporting period 
     beginning after October 1, 2001, if--
       ``(I) the hospital has obtained a certificate of need for 
     the project approved by the State or a local planning 
     authority by September 1, 1995, and
       ``(II) by September 1, 1995, the hospital has expended on 
     the project at least $750,000 or 10 percent of the estimated 
     cost of the project.
       ``(iv) Offsetting amounts, as described in 42 CFR 
     412.348(g)(8)(ii), shall apply except that subparagraph (B) 
     of such section shall be revised to require that the 
     additional payment that would otherwise be payable for the 
     cost reporting period shall be reduced by the amount (if any) 
     by which the hospital's current year medicare capital 
     payments (excluding, if applicable, 75 percent of the 
     hospital's capital-related disproportionate share payments) 
     exceeds its medicare capital costs for such year.''.
       (2) Limit to additional payments.--The amendment made by 
     paragraph (1) shall not result in aggregate additional 
     payments under the special exception process described in 
     section 1886(b)(1)(D) for fiscal years 1996 through 2000 in 
     excess of an amount equal to the sum of $50,000,000 per year 
     more than would have been paid in such fiscal years if such 
     amendment had not been enacted.
       (3) Conforming amendment.--Section 1886(g)(1)(B)(iii) (42 
     U.S.C. 1395ww(g)(1)(B)(iii)) is amended by striking ``may 
     provide'' and inserting ``shall provide (in accordance with 
     subparagraph (D)''.

     SEC. 8405. REDUCTION IN PAYMENTS TO HOSPITALS FOR ENROLLEES' 
                   BAD DEBTS.

       (a) In General.--Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) 
     is amended by adding at the end the following new 
     subparagraph:
       ``(T)(i) In determining such reasonable costs for 
     hospitals, the amount of bad debts otherwise treated as 
     allowable costs which are attributable to the deductibles and 
     coinsurance amounts under this title shall be reduced by--
       ``(I) 75 percent for cost reporting periods beginning 
     during fiscal year 1996,
       ``(II) 60 percent for cost reporting periods beginning 
     during fiscal year 1997, and
       ``(III) 50 percent for subsequent cost reporting periods.
       ``(ii) Clause (i) shall not apply with respect to bad debt 
     of a hospital described in section 1886(d)(1)(B)(iv) if the 
     debt is attributable to uncollectable deductible and 
     coinsurance payments owed by individuals enrolled in a State 
     plan under title XIX or under the MediGrant program under 
     title XXI.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to hospital cost reporting periods beginning on 
     or after October 1, 1995.

     SEC. 8406. INCREASE IN UPDATE FOR CERTAIN HOSPITALS WITH A 
                   HIGH PROPORTION OF MEDICARE PATIENTS.

       Section 1886(b)(3) (42 U.S.C. 1395ww(b)(3)), as amended by 
     subsections (b) and (c)(1) of section 8402, is amended by 
     adding at the end the following new subparagraph:
       ``(I)(i) For purposes of subsection (d), in the case of a 
     medicare-dependent hospital described in clause (ii), the 
     applicable percentage increase otherwise determined under 
     subparagraph (B)(i) shall be increased by--
       ``(I) 0.5 percentage points for discharges occurring during 
     cost reporting periods beginning during fiscal year 1996, and
       ``(II) 0.3 percentage points for discharges occurring 
     during cost reporting periods beginning during fiscal year 
     1997.
       ``(ii) A hospital described in this clause with respect to 
     a cost reporting period is a subsection (d) hospital meeting 
     the following requirements:
       ``(I) Not less than 60 percent of the hospital's inpatient 
     days during the most recent cost reporting period for which 
     data is available were attributable to inpatients entitled to 
     benefits under part A.
       ``(II) The hospital does not receive any additional payment 
     amount under subsection (d)(5)(F) (relating to payments for 
     hospitals serving a disproportionate number of low-income 
     patients) with respect to discharges occurring during the 
     fiscal year.
       ``(III) The hospital does not receive any additional 
     payment amount under subsection (d)(5)(B) (relating to 
     payment for the indirect costs of medical education) or 
     subsection (h) (relating to payment for direct medical 
     education costs).
       ``(IV) In the case of a hospital located in a rural area, 
     the hospital has more than 100 beds.''.

           CHAPTER 2--PAYMENTS TO SKILLED NURSING FACILITIES

                Subchapter A--PROSPECTIVE PAYMENT SYSTEM

     SEC. 8410. PROSPECTIVE PAYMENT SYSTEM FOR SKILLED NURSING 
                   FACILITIES.

       Title XVIII (42 U.S.C. 1395 et seq.) is amended by adding 
     the following new section after section 1888:


      ``prospective payment system for skilled nursing facilities

       ``Sec. 1889. (a) Establishment of System.--Notwithstanding 
     any other provision of this title, the Secretary shall 
     establish a prospective payment system under which fixed 
     payments for episodes of care shall be made, instead of 
     payments determined under section 1861(v), section 1888, or 
     section 1888A, to skilled nursing facilities for all extended 
     care services furnished during the benefit period established 
     under section 1812(a)(2). Such payments shall constitute 
     payment for capital costs and all routine and non-routine 
     service costs covered under this title that are furnished to 
     individuals who are inpatients of skilled nursing facilities 
     during such benefit period, except for physicians' services. 
     The payment amounts shall vary depending on case-mix, patient 
     acuity, and such other factors as the Secretary determines 
     are appropriate. The prospective payment system shall apply 
     for cost reporting periods (or portions of cost reporting 
     periods) beginning on or after October 1, 1997.
       ``(b) 90 Percent of Levels Otherwise In Effect.--The 
     Secretary shall establish the prospective payment amounts 
     under subsection (a) at levels such that, in the Secretary's 
     estimation, the amount of total payments under this title 
     shall not exceed 90 percent of the amount of payments that 
     would have been made under this title for all routine and 
     non-routine services and capital expenditures if this section 
     had not been enacted.
       ``(c) Adjustment in Rates to Take Into Account Beneficiary 
     Cost-Sharing.--The Secretary shall reduce the prospective 
     payment rates established under this section to take into 
     account the beneficiary coinsurance amount required under 
     section 1813(a)(3).''.

                  Subchapter B--Interim Payment System

     SEC. 8411. PAYMENTS FOR ROUTINE SERVICE COSTS.

       (a) Clarification of Definition of Routine Service Costs.--
     Section 1888 (42 U.S.C. 1395yy) is amended by adding at the 
     end the following new subsection:
       ``(e) For purposes of this section, the `routine service 
     costs' of a skilled nursing facility are all costs which are 
     attributable to nursing services, room and board, 
     administrative costs, other overhead costs, and all other 
     ancillary services (including supplies and equipment), 
     excluding costs attributable to covered non-routine services 
     subject to payment amounts under section 1888A.''.
       (b) Conforming Amendment.--Section 1888 (42 U.S.C. 1395yy) 
     is amended in the heading by inserting ``and certain 
     ancillary'' after ``service''.

     SEC. 8412. COST-EFFECTIVE MANAGEMENT OF COVERED NON-ROUTINE 
                   SERVICES.

       (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.) is 
     amended by inserting after section 1888 the following new 
     section:


``cost-effective management of covered non-routine services of skilled 
                           nursing facilities

       ``Sec. 1888A. (a) Definitions.--For purposes of this 
     section:
       ``(1) Covered non-routine services.--The term `covered non-
     routine services' means post-hospital extended care services 
     consisting of any of the following:
       ``(A) Physical or occupational therapy or speech-language 
     pathology services, or respiratory therapy, including 
     supplies and support services directly related to such 
     services and therapy.

[[Page H 12611]]

       ``(B) Prescription drugs.
       ``(C) Complex medical equipment.
       ``(D) Intravenous therapy and solutions (including enteral 
     and parenteral nutrients, supplies, and equipment).
       ``(E) Radiation therapy.
       ``(F) Diagnostic services, including laboratory, radiology 
     (including computerized tomography services and imaging 
     services), and pulmonary services.
       ``(2) SNF market basket percentage increase.--The term `SNF 
     market basket percentage increase' for a fiscal year means a 
     percentage equal to input price changes in routine service 
     costs for the year under section 1888(a).
       ``(3) Stay.--The term `stay' means, with respect to an 
     individual who is a resident of a skilled nursing facility, a 
     period of continuous days during which the facility provides 
     extended care services for which payment may be made under 
     this title for the individual during the individual's spell 
     of illness.
       ``(b) New Payment Method for Covered Non-Routine Services 
     Beginning in Fiscal Year 1996.--
       ``(1) In general.--The payment method established under 
     this section shall apply with respect to covered non-routine 
     services furnished during cost reporting periods (or portions 
     of cost reporting periods) beginning on or after October 1, 
     1995.
       ``(2) Interim payments.--Subject to subsection (c), a 
     skilled nursing facility shall receive interim payments under 
     this title for covered non-routine services furnished to an 
     individual during cost reporting periods (or portions of cost 
     reporting periods) described in paragraph (1) in an amount 
     equal to the reasonable cost of providing such services in 
     accordance with section 1861(v). The Secretary may adjust 
     such payments if the Secretary determines (on the basis of 
     such estimated information as the Secretary considers 
     appropriate) that payments to the facility under this 
     paragraph for a cost reporting period would substantially 
     exceed the cost reporting period amount determined under 
     subsection (c)(2).
       ``(3) Responsibility of skilled nursing facility to manage 
     billings.--
       ``(A) Clarification relating to part a billing.--In the 
     case of a covered non-routine service furnished to an 
     individual who (at the time the service is furnished) is a 
     resident of a skilled nursing facility who is entitled to 
     coverage under section 1812(a)(2) for such service, the 
     skilled nursing facility shall submit a claim for payment 
     under this title for such service under part A (without 
     regard to whether or not the item or service was furnished by 
     the facility, by others under arrangement with them made by 
     the facility, under any other contracting or consulting 
     arrangement, or otherwise).
       ``(B) Part b billing.--In the case of a covered non-routine 
     service other than a portable X-ray or portable 
     electrocardiogram treated as a physician's service for 
     purposes of section 1848(j)(3)) furnished to an individual 
     who (at the time the service is furnished) is a resident of a 
     skilled nursing facility who is not entitled to coverage 
     under section 1812(a)(2) for such service but is entitled to 
     coverage under part B for such service, the skilled nursing 
     facility shall submit a claim for payment under this title 
     for such service under part B (without regard to whether or 
     not the item or service was furnished by the facility, by 
     others under arrangement with them made by the facility, 
     under any other contracting or consulting arrangement, or 
     otherwise). This subparagraph shall not apply to physician's 
     services furnished by a physician (as defined in section 
     1861(r)(1)) to a resident of a skilled nursing facility if 
     such services are not covered non-routine services (as 
     defined in section 1888A(a)(1)) or services for which routine 
     service costs (as defined in section 1888(e)) are determined.
       ``(C) Maintaining records on services furnished to 
     residents.--Each skilled nursing facility receiving payments 
     for extended care services under this title shall document on 
     the facility's cost report all covered non-routine services 
     furnished to all residents of the facility to whom the 
     facility provided extended care services for which payment 
     was made under part A or B (including a portable X-ray or 
     portable electrocardiogram treated as a physician's service 
     for purposes of section 1848(j)(3)) during a fiscal year 
     (beginning with fiscal year 1996) (without regard to whether 
     or not the services were furnished by the facility, by others 
     under arrangement with them made by the facility, under any 
     other contracting or consulting arrangement, or otherwise).
       ``(c) No Payment in Excess of Product of Per Stay Amount 
     and Number of Stays.--
       ``(1) In general.--If a skilled nursing facility has 
     received aggregate payments under subsection (b) for covered 
     non-routine services during a cost reporting period beginning 
     during a fiscal year in excess of an amount equal to the cost 
     reporting period amount determined under paragraph (2), the 
     Secretary shall reduce the payments made to the facility with 
     respect to such services for cost reporting periods beginning 
     during the following fiscal year in an amount equal to such 
     excess. The Secretary shall reduce payments under this 
     subparagraph at such times and in such manner during a fiscal 
     year as the Secretary finds necessary to meet the requirement 
     of this subparagraph.
       ``(2) Cost reporting period amount.--The cost reporting 
     period amount determined under this subparagraph is an amount 
     equal to the product of--
       ``(A) the per stay amount applicable to the facility under 
     subsection (d) for the period; and
       ``(B) the number of stays beginning during the period for 
     which payment was made to the facility for such services.
       ``(3) Prospective reduction in payments.--In addition to 
     the process for reducing payments described in paragraph (1), 
     the Secretary may reduce payments made to a facility under 
     this section during a cost reporting period if the Secretary 
     determines (on the basis of such estimated information as the 
     Secretary considers appropriate) that payments to the 
     facility under this section for the period will substantially 
     exceed the cost reporting period amount for the period 
     determined under this paragraph.
       ``(d) Determination of Facility Per Stay Amount.--
       ``(1) Amount for fiscal year 1996.--
       ``(A) In general.--
       ``(i) Establishment.--Except as provided in subparagraph 
     (B) and clause (ii), the Secretary shall establish a per stay 
     amount for each nursing facility for the 12-month cost 
     reporting period beginning during fiscal year 1996 that is 
     the facility-specific stay amount for the facility (as 
     determined under subsection (e)) for the last 12-month cost 
     reporting period ending on or before December 31, 1994, 
     increased (in a compounded manner) by the SNF market basket 
     percentage increase (as defined in subsection (a)(2)) for 
     each fiscal year through fiscal year 1996.
       ``(ii) Adjustment if implementation delayed.--If the amount 
     under clause (i) is not established prior to the cost 
     reporting period described in clause (i), the Secretary shall 
     adjust such amount for stays after such amount is established 
     in such a manner so as to recover any amounts in excess of 
     the amounts which would have been paid for stays before such 
     date if the amount had been in effect for such stays.
       ``(B) Facilities not having 1994 cost reporting period.--In 
     the case of a skilled nursing facility for which payments 
     were not made under this title for covered non-routine 
     services for the last 12-month cost reporting period ending 
     on or before December 31, 1994, the per stay amount for the 
     12-month cost reporting period beginning during fiscal year 
     1996 shall be the average of all per stay amounts determined 
     under subparagraph (A).
       ``(2) Amount for fiscal year 1997 and subsequent fiscal 
     years.--The per stay amount for a skilled nursing facility 
     for a 12-month cost reporting period beginning during a 
     fiscal year after 1996 is equal to the per stay amount 
     established under this subsection for the 12-month cost 
     reporting period beginning during the preceding fiscal year 
     (without regard to any adjustment under paragraph 
     (1)(A)(ii)), increased by the SNF market basket percentage 
     increase for such subsequent fiscal year minus 2.0 percentage 
     points.
       ``(e) Determination of Facility-Specific Stay Amounts.--The 
     `facility-specific stay amount' for a skilled nursing 
     facility for a cost reporting period is--
       ``(1) the sum of--
       ``(A) the amount of payments made to the facility under 
     part A during the period which are attributable to covered 
     non-routine services furnished during a stay; and
       ``(B) the Secretary's best estimate of the amount of 
     payments made under part B during the period for covered non-
     routine services furnished to all residents of the facility 
     to whom the facility provided extended care services for 
     which payment was made under part A during the period 
     (without regard to whether or not the services were furnished 
     by the facility, by others under arrangement with them made 
     by the facility under any other contracting or consulting 
     arrangement, or otherwise), as estimated by the Secretary; 
     divided by
       ``(2) the average number of days per stay for all residents 
     of the skilled nursing facility receiving extended care 
     services furnished during the benefit period established 
     under section 1812(a)(2).
       ``(f) Intensive Nursing or Therapy Needs.--
       ``(1) In general.--In applying subsection (b) to covered 
     non-routine services furnished during a stay beginning during 
     a cost reporting period to a resident of a skilled nursing 
     facility who requires intensive nursing or therapy services, 
     the per stay amount for such resident shall be the per stay 
     amount developed under paragraph (2) instead of the per stay 
     amount determined under subsection (d)(1)(A).
       ``(2) Per stay amount for intensive need residents.--Upon 
     the implementation of the payment method established under 
     this section, the Secretary, after consultation with the 
     Medicare Payment Review Commission and skilled nursing 
     facility experts, shall develop and publish a per stay amount 
     for residents of a skilled nursing facility who require 
     intensive nursing or therapy services..
       ``(3) Budget neutrality.--The Secretary shall adjust 
     payments under subsection (b) in a manner that ensures that 
     total payments for covered non-routine services under this 
     section are not greater or less than total payments for such 
     services would have been but for the application of paragraph 
     (1).
       ``(g) Exceptions and Adjustments to Amounts.--
       ``(1) In general.--The Secretary may make exceptions and 
     adjustments to the cost reporting period amounts applicable 
     to a skilled nursing facility under subsection (c)(2) for a 
     cost reporting period, except that the total amount of any 
     additional payments made under this section for covered non-
     routine services during the cost reporting period as a result 
     of such exceptions and adjustments may not exceed 5 percent 
     of the aggregate payments made to all skilled nursing 
     facilities for covered non-routine services during the cost 
     reporting period (determined without regard to this 
     paragraph).
       ``(2) Budget neutrality.--The Secretary shall adjust 
     payments under subsection (b) in a manner that ensures that 
     total payments for covered non-routine services under this 
     section are not greater or less than total payments for such 
     services would have been but for the application of paragraph 
     (1).
       ``(h) Special Treatment for Medicare Low Volume Skilled 
     Nursing Facilities.--The Secretary shall determine an 
     appropriate manner in which to apply this section, taking 
     into 

[[Page H 12612]]
     account the purposes of this section, to non-routine costs of a skilled 
     nursing facility for which payment is made for routine 
     service costs during a cost reporting period on the basis of 
     prospective payments under section 1888(d).
       ``(i) Special Rule for X-Ray Services.--Before furnishing a 
     covered non-routine service consisting of an X-ray service 
     for which payment may be made under part A or part B to a 
     resident, a skilled nursing facility shall consider whether 
     furnishing the service through a provider of portable X-ray 
     service services would be appropriate, taking into account 
     the cost effectiveness of the service and the convenience to 
     the resident.
       ``(j) Maintaining Savings From Payment System.--The 
     prospective payment system established under section 1889 
     shall reflect the payment methodology established under this 
     section for covered non-routine services.''.
       (b) Conforming Amendment.--Section 1814(b) (42 U.S.C. 
     1395f(b)) is amended in the matter preceding paragraph (1) by 
     striking ``1813 and 1886'' and inserting ``1813, 1886, 1888, 
     1888A, and 1889''.

     SEC. 8413. PAYMENTS FOR ROUTINE SERVICE COSTS.

       (a) Maintaining Savings Resulting From Temporary Freeze on 
     Payment Increases.--
       (1) Basing updates to per diem cost limits on limits for 
     fiscal year 1993.--
       (A) In general.--The last sentence of section 1888(a) (42 
     U.S.C. 1395yy(a)) is amended by adding at the end the 
     following: ``(except that such updates may not take into 
     account any changes in the routine service costs of skilled 
     nursing facilities occurring during cost reporting periods 
     which began during fiscal year 1994 or fiscal year 1995).''.
       (B) No exceptions permitted based on amendment.--The 
     Secretary of Health and Human Services shall not consider the 
     amendment made by subparagraph (A) in making any adjustments 
     pursuant to section 1888(c) of the Social Security Act.
       (2) Payments to low medicare volume skilled nursing 
     facilities.--Any change made by the Secretary of Health and 
     Human Services in the amount of any prospective payment paid 
     to a skilled nursing facility under section 1888(d) of the 
     Social Security Act for cost reporting periods beginning on 
     or after October 1, 1995, may not take into account any 
     changes in the costs of services occurring during cost 
     reporting periods which began during fiscal year 1994 or 
     fiscal year 1995.
       (b) Basing 1996 Limits on New Definition of Routine 
     Costs.--The Secretary of Health and Human Services shall take 
     into account the new definition of routine service costs 
     under section 1888(e) of the Social Security Act, as added by 
     section 8411, in determining the routine per diem cost limits 
     under section 1888(a) for fiscal year 1996 and each fiscal 
     year thereafter.
       (c) Establishment of Schedule for Making Adjustments to 
     Limits.--Section 1888(c) (42 U.S.C. 1395yy(c)) is amended by 
     striking the period at the end of the second sentence and 
     inserting ``, and may only make adjustments under this 
     subsection with respect to a facility which applies for an 
     adjustment during an annual application period established by 
     the Secretary.''.
       (d) Limitation to Exceptions Process of the Secretary.--
     Section 1888(c) (42 U.S.C. 1395yy(c)) is amended--
       (1) by striking ``(c) The Secretary'' and inserting 
     ``(c)(1) Subject to paragraph (2), the Secretary''; and
       (2) by adding at the end the following new paragraph:
       ``(2) The Secretary may not make any adjustments under this 
     subsection in the limits set forth in subsection (a) for a 
     cost reporting period beginning during a fiscal year to the 
     extent that the total amount of the additional payments made 
     under this title as a result of such adjustments is greater 
     than an amount equal to--
       ``(A) for cost reporting periods beginning during fiscal 
     year 1996, the total amount of the additional payments made 
     under this title as a result of adjustments under this 
     subsection for cost reporting periods beginning during fiscal 
     year 1994 increased (on a compounded basis) by the SNF market 
     basket percentage increase (as defined in section 
     1888A(a)(2)) for each fiscal year; and
       ``(B) for cost reporting periods beginning during a 
     subsequent fiscal year, the amount determined under this 
     paragraph for the preceding fiscal year, increased by the SNF 
     market basket percentage increase (as defined in section 
     1888A(a)(2)) for each fiscal year.''.
       (e) Maintaining Savings From Payment System.--The 
     prospective payment system established under section 1889 of 
     the Social Security Act, as added by section 8410, shall 
     reflect the routine per diem cost limits under section 
     1888(a) of such Act.

     SEC. 8414. REDUCTIONS IN PAYMENT FOR CAPITAL-RELATED COSTS.

       (a) In General.--Section 1861(v)(1) (42 U.S.C. 
     1395x(v)(1)), as amended by section 8405(a), is amended by 
     adding at the end the following new subparagraph:
       ``(U) Such regulations shall provide that, in determining 
     the amount of the payments that may be made under this title 
     with respect to all the capital-related costs of skilled 
     nursing facilities, the Secretary shall reduce the amounts of 
     such payments otherwise established under this title by 10 
     percent for payments attributable to portions of cost 
     reporting periods occurring beginning in fiscal years 1996 
     through 2002.''.
       (b) Maintaining Savings Resulting From 10 Percent Capital 
     Reduction.--The prospective payment system established under 
     section 1889 of the Social Security Act, as added by section 
     8410 of this Act, shall reflect the 10 percent reduction in 
     payments for capital-related costs of skilled nursing 
     facilities as such reduction is in effect under section 
     1861(v)(1)(U) of the Social Security Act, as added by 
     subsection (a).

     SEC. 8415. TREATMENT OF ITEMS AND SERVICES PAID FOR UNDER 
                   PART B.

       (a) Requiring Payment for All Items and Services To Be Made 
     to Facility.--
       (1) In general.--The first sentence of section 1842(b)(6) 
     (42 U.S.C. 1395u(b)(6)) is amended--
       (A) by striking ``and (D)'' and inserting ``(D)''; and
       (B) by striking the period at the end and inserting the 
     following: ``, and (E) in the case of an item or service 
     (other than a portable X-ray or portable electrocardiogram 
     treated as a physician's service for purposes of section 
     1848(j)(3)) furnished to an individual who (at the time the 
     item or service is furnished) is a resident of a skilled 
     nursing facility, payment shall be made to the facility 
     (without regard to whether or not the item or service was 
     furnished by the facility, by others under arrangement with 
     them made by the facility, under any other contracting or 
     consulting arrangement, or otherwise), except that this 
     subparagraph shall not preclude a physician (as defined in 
     section 1861(r)(1)) from receiving payment for physician's 
     services provided to a resident of a skilled nursing facility 
     if such services are not covered non-routine services (as 
     defined in section 1888A(a)(1)) or services for which routine 
     service costs (as defined in section 1888(e)) are 
     determined.''.
       (2) Exclusion for items and services not billed by 
     facility.--Section 1862(a) (42 U.S.C. 1395y(a)) is amended--
       (A) by striking ``or'' at the end of paragraph (14);
       (B) by striking the period at the end of paragraph (15) and 
     inserting ``; or''; and
       (C) by inserting after paragraph (15) the following new 
     paragraph:
       ``(16) where such expenses are for covered non-routine 
     services (as defined in section 1888A(a)(1)) (other than a 
     portable X-ray or portable electrocardiogram treated as a 
     physician's service for purposes of section 1848(j)(3)) 
     furnished to an individual who is a resident of a skilled 
     nursing facility and for which the claim for payment under 
     this title is not submitted by the facility.''.
       (3) Conforming amendment.--Section 1832(a)(1) (42 U.S.C. 
     1395k(a)(1)) is amended by striking ``(2);'' and inserting 
     ``(2) and section 1842(b)(6)(E);''.
       (b) Reduction in Payments for Items and Services Furnished 
     by or Under Arrangements With Facilities.--Section 1861(v)(1) 
     (42 U.S.C. 1395x(v)(1)), as amended by section 8405(a) and 
     section 8414(a), is amended by adding at the end the 
     following new subparagraph:
       ``(V) In the case of an item or service furnished by a 
     skilled nursing facility (or by others under arrangement with 
     them made by a skilled nursing facility or under any other 
     contracting or consulting arrangement or otherwise) for which 
     payment is made under part B in an amount determined in 
     accordance with section 1833(a)(2)(B), the Secretary shall 
     reduce the reasonable cost for such item or service otherwise 
     determined under clause (i)(I) of such section by 5.8 percent 
     for payments attributable to portions of cost reporting 
     periods occurring during fiscal years 1996 through 2002.''.

     SEC. 8416. MEDICAL REVIEW PROCESS.

       In order to ensure that medicare beneficiaries are 
     furnished appropriate extended care services, the Secretary 
     of Health and Human Services shall establish and implement a 
     thorough medical review process to examine the effects of the 
     amendments made by this subchapter on the quality of extended 
     care services furnished to medicare beneficiaries. In 
     developing such a medical review process, the Secretary shall 
     place a particular emphasis on the quality of non-routine 
     covered services for which payment is made under section 
     1888A of the Social Security Act.

     SEC. 8417. REPORT BY MEDICARE PAYMENT REVIEW COMMISSION.

       Not later than October 1, 1997, the Medicare Payment Review 
     Commission shall submit to Congress a report on the system 
     under which payment is made under the medicare program for 
     extended care services furnished by skilled nursing 
     facilities, and shall include in the report the following:
       (1) An analysis of the effect of the methodology 
     established under section 1888A of the Social Security Act 
     (as added by section 8412) on the payments for, and the 
     quality of, extended care services under the medicare 
     program.
       (2) An analysis of the advisability of determining the 
     amount of payment for covered non-routine services of 
     facilities (as described in such section) on the basis of the 
     amounts paid for such services when furnished by suppliers 
     under part B of the medicare program.
       (3) An analysis of the desirability of maintaining separate 
     routine cost-limits for hospital-based and freestanding 
     facilities in the costs of extended care services recognized 
     as reasonable under the medicare program.
       (4) An analysis of the quality of services furnished by 
     skilled nursing facilities.
       (5) An analysis of the adequacy of the process and 
     standards used to provide exceptions to the limits described 
     in paragraph (3).
       (6) An analysis of the effect of the prospective payment 
     methodology established under section 1889 of the Social 
     Security Act (as added by section 8410) on the payments for, 
     and the quality of, extended care services under the medicare 
     program, including an evaluation of the baseline used in 
     establishing a system for payment for extended care services 
     furnished by skilled nursing facilities.

     SEC. 8418. EFFECTIVE DATE.

       Except as otherwise provided in this subchapter, the 
     amendments made by this subchapter shall apply to services 
     furnished during cost reporting periods (or portions of cost 
     reporting periods) beginning on or after October 1, 1995.

[[Page H 12613]]


             CHAPTER 3--OTHER PROVISIONS RELATING TO PART A

     SEC. 8421. PAYMENTS FOR HOSPICE SERVICES.

       Section 1814(i)(1)(C)(ii) (42 U.S.C. 1395f(i)(1)(C)(ii)) is 
     amended by striking subclauses (IV), (V), and (VI), and 
     inserting the following subclauses:
       ``(IV) for fiscal years 1996 through 2002, the market 
     basket percentage increase for the fiscal year minus 2.0 
     percentage points; and
       ``(V) for a subsequent fiscal year, the market basket 
     percentage increase for the fiscal year.''.

     SEC. 8422. PERMANENT EXTENSION OF HEMOPHILIA PASS-THROUGH.

       Effective as if included in the enactment of OBRA-1989, 
     section 6011(d) of such Act (as amended by section 13505 of 
     OBRA-1993) is amended by striking ``and shall expire 
     September 30, 1994''.
               Subtitle F--Provisions Relating to Part B

                       CHAPTER 1--PAYMENT REFORMS

     SEC. 8501. PAYMENTS FOR PHYSICIANS' SERVICES.

       (a) Establishing Update to Conversion Factor To Match 
     Spending Under Sustainable Growth Rate.--
       (1) Update.--
       (A) In general.--Section 1848(d)(3) (42 U.S.C. 1395w-
     4(d)(3)) is amended to read as follows:
       ``(3) Update.--
       ``(A) In general.--Unless Congress otherwise provides, 
     subject to subparagraph (E), for purposes of this section the 
     update for a year (beginning with 1997) is equal to the 
     product of--
       ``(i) 1 plus the Secretary's estimate of the percentage 
     increase in the medicare economic index (described in the 
     fourth sentence of section 1842(b)(3)) for the year (divided 
     by 100), and
       ``(ii) 1 plus the Secretary's estimate of the update 
     adjustment factor for the year (divided by 100),
     minus 1 and multiplied by 100.
       ``(B) Update adjustment factor.--The `update adjustment 
     factor' for a year is equal to the quotient of--
       ``(i) the difference between (I) the sum of the allowed 
     expenditures for physicians' services furnished during each 
     of the years 1995 through the year involved and (II) the sum 
     of the amount of actual expenditures for physicians' services 
     furnished during each of the years 1995 through the previous 
     year; divided by
       ``(ii) the Secretary's estimate of allowed expenditures for 
     physicians' services furnished during the year.
       ``(C) Determination of allowed expenditures.--For purposes 
     of subparagraph (B), allowed expenditures for physicians' 
     services shall be determined as follows (as estimated by the 
     Secretary):
       ``(i) In the case of allowed expenditures for 1995, such 
     expenditures shall be equal to actual expenditures for 
     services furnished during the 12-month period ending with 
     June 30, 1995.
       ``(ii) In the case of allowed expenditures for 1996 and 
     each subsequent year, such expenditures shall be equal to 
     allowed expenditures for the previous year, increased by the 
     sustainable growth rate under subsection (f) for the fiscal 
     year which begins during the year.
       ``(D) Determination of actual expenditures.--For purposes 
     of subparagraph (B), the amount of actual expenditures for 
     physicians' services furnished during a year shall be equal 
     to the amount of expenditures for such services during the 
     12-month period ending with June of the previous year.
       ``(E) Restriction on variation from medicare economic 
     index.--Notwithstanding the amount of the update adjustment 
     factor determined under subparagraph (B) for a year, the 
     update in the conversion factor under this paragraph for the 
     year may not be--
       ``(i) greater than 103 percent of 1 plus the Secretary's 
     estimate of the percentage increase in the medicare economic 
     index (described in the fourth sentence of section 
     1842(b)(3)) for the year (divided by 100), minus 1 and 
     multiplied by 100; or
       ``(ii) less than 93 percent of 1 plus the Secretary's 
     estimate of the percentage increase in the medicare economic 
     index (described in the fourth sentence of section 
     1842(b)(3)) for the year (divided by 100), minus 1 and 
     multiplied by 100.''.
       (B) Effective date.--The amendments made by subparagraph 
     (A) shall apply to physicians' services furnished on or after 
     January 1, 1997.
       (2) Conforming amendments.--(A) Section 1848(d)(2)(A) (42 
     U.S.C. 1395w-4(d)(2)(A)) is amended--
       (i) in the matter preceding clause (i)--
       (I) by striking ``(or updates) in the conversion factor (or 
     factors)'' and inserting ``in the conversion factor'';
       (II) by striking ``(beginning with 1991)'' and inserting 
     ``(beginning with 1996)''; and
       (III) by striking the second sentence;
       (ii) by amending clause (ii) to read as follows:
       ``(ii) such factors as enter into the calculation of the 
     update adjustment factor as described in paragraph (3)(B); 
     and'';
       (iii) by amending clause (iii) to read as follows:
       ``(iii) access to services.'';
       (iv) by striking clauses (iv), (v), and (vi); and
       (v) by striking the last sentence.
       (B) Section 1848(d)(2)(B) (42 U.S.C. 1395w-4(d)(2)(B)) is 
     amended--
       (i) by striking ``and'' at the end of clause (iii);
       (ii) by striking the period at the end of clause (iv) and 
     inserting ``; and''; and
       (iii) by adding at the end the following new clause:
       ``(v) changes in volume or intensity of services.''.
       (C) Section 1848(d)(2) (42 U.S.C. 1395w4-(d)(2)) is further 
     amended--
       (i) by striking subparagraphs (C), (D), and (E);
       (ii) by redesignating subparagraph (F) as subparagraph (C); 
     and
       (iii) in subparagraph (C), as redesignated, by striking 
     ``(or updates) in the conversion factor (or factors)'' and 
     inserting ``in the conversion factor''.
       (b) Replacement of Volume Performance Standard With 
     Sustainable Growth Rate.--
       (1) In general.--Section 1848(f) (42 U.S.C. 1395w-4(f)) is 
     amended by striking paragraphs (2) through (5) and inserting 
     the following:
       ``(2) Specification of growth rate.--
       ``(A) Fiscal year 1996.--The sustainable growth rate for 
     all physicians' services for fiscal year 1996 shall be equal 
     to the product of--
       ``(i) 1 plus the Secretary's estimate of the percentage 
     change in the medicare economic index for 1996 (described in 
     the fourth sentence of section 1842(b)(3)) (divided by 100),
       ``(ii) 1 plus the Secretary's estimate of the percentage 
     change (divided by 100) in the average number of individuals 
     enrolled under this part (other than private plan enrollees) 
     from fiscal year 1995 to fiscal year 1996,
       ``(iii) 1 plus the Secretary's estimate of the projected 
     percentage growth in real gross domestic product per capita 
     (divided by 100) from fiscal year 1995 to fiscal year 1996, 
     plus 2 percentage points, and
       ``(iv) 1 plus the Secretary's estimate of the percentage 
     change (divided by 100) in expenditures for all physicians' 
     services in fiscal year 1996 (compared with fiscal year 1995) 
     which will result from changes in law (including the Medicare 
     Preservation Act of 1995), determined without taking into 
     account estimated changes in expenditures due to changes in 
     the volume and intensity of physicians' services or changes 
     in expenditures resulting from changes in the update to the 
     conversion factor under subsection (d),
     minus 1 and multiplied by 100.
       ``(B) Subsequent fiscal years.--The sustainable growth rate 
     for all physicians' services for fiscal year 1997 and each 
     subsequent fiscal year shall be equal to the product of--
       ``(i) 1 plus the Secretary's estimate of the percentage 
     change in the medicare economic index for the fiscal year 
     involved (described in the fourth sentence of section 
     1842(b)(3)) (divided by 100),
       ``(ii) 1 plus the Secretary's estimate of the percentage 
     change (divided by 100) in the average number of individuals 
     enrolled under this part (other than private plan enrollees) 
     from the previous fiscal year to the fiscal year involved,
       ``(iii) 1 plus the Secretary's estimate of the projected 
     percentage growth in real gross domestic product per capita 
     (divided by 100) from the previous fiscal year to the fiscal 
     year involved, plus 2 percentage points, and
       ``(iv) 1 plus the Secretary's estimate of the percentage 
     change (divided by 100) in expenditures for all physicians' 
     services in the fiscal year (compared with the previous 
     fiscal year) which will result from changes in law (including 
     changes made by the Secretary in response to section 1895), 
     determined without taking into account estimated changes in 
     expenditures due to changes in the volume and intensity of 
     physicians' services or changes in expenditures resulting 
     from changes in the update to the conversion factor under 
     subsection (d)(3),
     minus 1 and multiplied by 100.
       ``(3) Definitions.--In this subsection:
       ``(A) Services included in physicians' services.--The term 
     `physicians' services' includes other items and services 
     (such as clinical diagnostic laboratory tests and radiology 
     services), specified by the Secretary, that are commonly 
     performed or furnished by a physician or in a physician's 
     office, but does not include services furnished to a private 
     plan enrollee.
       ``(B) Private plan enrollee.--The term `private plan 
     enrollee' means, with respect to a fiscal year, an individual 
     enrolled under this part who has elected to receive benefits 
     under this title for the fiscal year through a MedicarePlus 
     plan offered under part C or through enrollment with an 
     eligible organization with a risk-sharing contract under 
     section 1876.''.
       (2) Conforming amendments.--Section 1848(f) (42 U.S.C. 
     1395w-4(f)) is amended--
       (A) in the heading, by striking ``Volume Performance 
     Standard Rates of Increase'' and inserting ``Sustainable 
     Growth Rate'';
       (B) in paragraph (1)--
       (i) in the heading, by striking ``volume performance 
     standard rates of increase'' and inserting ``Sustainable 
     Growth Rate'';
       (ii) in subparagraph (A), in the matter preceding clause 
     (i), by striking ``performance standard rates of increase'' 
     and inserting ``sustainable growth rate''; and
       (iii) in subparagraph (A), by striking ``HMO enrollees'' 
     each place such term appears and inserting ``private plan 
     enrollees'';
       (C) in subparagraph (B), by striking ``performance standard 
     rates of increase'' and inserting ``sustainable growth 
     rate''; and
       (D) in subparagraph (C)--
       (i) in the heading, by striking ``performance standard 
     rates of increase'' and inserting ``sustainable growth 
     rate'';
       (ii) in the first sentence, by striking ``with 1991), the 
     performance standard rates of increase'' and all that follows 
     through the first period and inserting ``with 1997), the 
     sustainable growth rate for the fiscal year beginning in that 
     year.''; and
       (iii) in the second sentence, by striking ``January 1, 
     1990, the performance standard rate of increase under 
     subparagraph (D) for fiscal year 1990'' and inserting 
     ``January 1, 1997, the sustainable growth rate for fiscal 
     year 1997''.
       (c) Establishment of Single Conversion Factor for 1996.--
       (1) In general.--Section 1848(d)(1) (42 U.S.C. 1395w-
     4(d)(1)) is amended--
       (A) by redesignating subparagraph (C) as subparagraph (D); 
     and
       (B) by inserting after subparagraph (B) the following new 
     subparagraph:

[[Page H 12614]]

       ``(C) Special rule for 1996.--For 1996, the conversion 
     factor under this subsection shall be $35.42 for all 
     physicians' services.''.
       (2) Conforming amendments.--Section 1848 (42 U.S.C. 1395w-
     4) is amended--
       (A) by striking ``(or factors)'' each place it appears in 
     subsection (d)(1)(A) and (d)(1)(D)(ii) (as redesignated by 
     paragraph (1)(a));
       (B) in subsection (d)(1)(A), by striking ``or updates'';
       (C) in subsection (d)(1)(D)(ii) (as redesignated by 
     paragraph (1)(a)), by striking ``(or updates)''; and
       (D) in subsection (i)(1)(C), by striking ``conversion 
     factors'' and inserting ``the conversion factor''.

     SEC. 8502. ELIMINATION OF FORMULA-DRIVEN OVERPAYMENTS FOR 
                   CERTAIN OUTPATIENT HOSPITAL SERVICES.

       (a) Ambulatory Surgical Center Procedures.--Section 
     1833(i)(3)(B)(i)(II) (42 U.S.C. 1395l(i)(3)(B)(i)(II)) is 
     amended--
       (1) by striking ``of 80 percent''; and
       (2) by striking the period at the end and inserting the 
     following: ``, less the amount a provider may charge as 
     described in clause (ii) of section 1866(a)(2)(A).''.
       (b) Radiology Services and Diagnostic Procedures.--Section 
     1833(n)(1)(B)(i)(II) (42 U.S.C. 1395l(n)(1)(B)(i)(II)) is 
     amended--
       (1) by striking ``of 80 percent''; and
       (2) by striking the period at the end and inserting the 
     following: ``, less the amount a provider may charge as 
     described in clause (ii) of section 1866(a)(2)(A).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to services furnished during portions of cost 
     reporting periods occurring on or after October 1, 1995.

     SEC. 8503. EXTENSION OF REDUCTIONS IN PAYMENTS FOR COSTS OF 
                   HOSPITAL OUTPATIENT SERVICES.

       (a) Reduction in Payments for Capital-Related Costs.--
     Section 1861(v)(1)(S)(ii)(I) (42 U.S.C. 
     1395x(v)(1)(S)(ii)(I)) is amended by striking ``through 
     1998'' and inserting ``through 2002''.
       (b) Reduction in Payments for Other Costs.--Section 
     1861(v)(1)(S)(ii)(II) (42 U.S.C. 1395x(v)(1)(S)(ii)(II)) is 
     amended by striking ``through 1998'' and inserting ``through 
     2002''.

     SEC. 8504. REDUCTION IN UPDATES TO PAYMENT AMOUNTS FOR 
                   CLINICAL DIAGNOSTIC LABORATORY TESTS.

       (a) Change in Update.--Section 1833(h)(2)(A)(ii)(IV) (42 
     U.S.C. 1395l(h)(2)(A)(ii)(IV)) is amended by striking ``1994 
     and 1995'' and inserting ``1994 through 2002''.
       (b) Lowering Cap on Payment Amounts.--Section 1833(h)(4)(B) 
     (42 U.S.C. 1395l(h)(4)(B)) is amended--
       (1) in clause (vi), by striking ``and'' at the end;
       (2) in clause (vii)--
       (A) by inserting ``and before January 1, 1997,'' after 
     ``1995,'', and
       (B) by striking the period at the end and inserting ``, 
     and''; and
       (3) by adding at the end the following new clause:
       ``(viii) after December 31, 1996, is equal to 65 percent of 
     such median.''.

     SEC. 8505. PAYMENTS FOR DURABLE MEDICAL EQUIPMENT.

       (a) Reduction in Payment Amounts for Items of Durable 
     Medical Equipment.--
       (1) Freeze in update for covered items.--Section 
     1834(a)(14) (42 U.S.C. 1395m(a)(14)) is amended--
       (A) by striking ``and'' at the end of subparagraph (A);
       (B) in subparagraph (B)--
       (i) by striking ``a subsequent year'' and inserting ``1993, 
     1994, and 1995'', and
       (ii) by striking the period at the end and inserting a 
     semicolon; and
       (C) by adding at the end the following:
       ``(C) for each of the years 1996 through 2002, 0 percentage 
     points; and
       ``(D) for a subsequent year, the percentage increase in the 
     consumer price index for all urban consumers (U.S. urban 
     average) for the 12-month period ending with June of the 
     previous year.''.
       (2) Update for orthotics and prosthetics.--Section 
     1834(h)(4)(A) (42 U.S.C. 1395m(h)(4)(A)) is amended--
       (A) by striking ``and'' at the end of clause (iii);
       (B) by redesignating clause (iv) as clause (v); and
       (C) by inserting after clause (iii) the following new 
     clause:
       ``(iv) for each of the years 1996 through 2002, 1 percent, 
     and''.
       (b) Oxygen and Oxygen Equipment.--
       (1) In general.--Section 1834(a)(9)(C) (42 U.S.C. 
     1395m(a)(9)(C)) is amended--
       (A) by striking ``and'' at the end of clause (iii);
       (B) in clause (iv)--
       (i) by striking ``a subsequent year'' and inserting ``1993, 
     1994, and 1995'', and
       (ii) by striking the period at the end and inserting a 
     semicolon; and
       (C) by adding at the end the following new clauses:
       ``(v) in each of the years 1996 through 2002, is the 
     national limited monthly payment rate computed under 
     subparagraph (B) for the item for the year reduced by the 
     applicable percentage described in subparagraph (D) (but in 
     no case may the amount determined under this clause be less 
     than 70 percent of such national limited payment rate); and
       ``(vi) in a subsequent year, is the national limited 
     monthly payment rate computed under subparagraph (B) for the 
     item for the year.''.
       (2) Applicable percentage described.--Section 1834(a)(9) 
     (42 1395m(a)(9)) is amended by adding at the end the 
     following new subparagraph:
       ``(D) Applicable percentage described.--In clause (v) of 
     subparagraph (C), the `applicable percentage' with respect to 
     a year described in such clause is--
       ``(i) for 1996, 20 percent,
       ``(ii) for 1997, 21\2/3\ percent,
       ``(iii) for 1998, 23\1/3\ percent,
       ``(iv) for 1999, 25 percent,
       ``(v) for 2000, 26\2/3\ percent,
       ``(vi) for 2001, 28\1/3\ percent, and
       ``(vii) for 2002, 30 percent.''.
       (c) Payment Freeze for Parenteral and Enteral Nutrients, 
     Supplies, and Equipment.--In determining the amount of 
     payment under part B of title XVIII of the Social Security 
     Act with respect to parenteral and enteral nutrients, 
     supplies, and equipment during each of the years 1996 through 
     2002, the charges determined to be reasonable with respect to 
     such nutrients, supplies, and equipment may not exceed the 
     charges determined to be reasonable with respect to such 
     nutrients, supplies, and equipment during 1993.

     SEC. 8506. UPDATES FOR AMBULATORY SURGICAL SERVICES.

       Section 1833(i)(2)(C) (42 U.S.C. 1395l(i)(2)(C)) is 
     amended--
       (1) by striking ``1996'' and inserting ``2003''; and
       (2) by inserting before the first sentence the following 
     new sentence: ``Notwithstanding the second sentence of 
     subparagraph (A) or the second sentence of subparagraph (B), 
     the Secretary shall not update amounts established under such 
     subparagraphs for fiscal years 1996 through 2002.''

     SEC. 8507. PAYMENTS FOR AMBULANCE SERVICES.

       Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)), as amended by 
     section 8405(a), section 8414(a), and section 8415(b), is 
     amended by adding at the end the following new subparagraph:
       ``(W) In determining the reasonable cost or charge of 
     ambulance services for fiscal years 1996 through 2002, the 
     Secretary shall not recognize any costs in excess of costs 
     recognized as reasonable for fiscal year 1995.''.

     SEC. 8508. ENSURING PAYMENT FOR PHYSICIAN AND NURSE FOR 
                   JOINTLY FURNISHED ANESTHESIA SERVICES.

       (a) Payment for Jointly Furnished Single Case.--
       (1) Payment to physician.--Section 1848(a)(4) (42 U.S.C. 
     1395w-4(a)(4)) is amended by adding at the end the following 
     new subparagraph:
       ``(C) Payment for single case.--Notwithstanding section 
     1862(a)(1)(A), with respect to physicians' services 
     consisting of the furnishing of anesthesia services for a 
     single case that are furnished jointly with a certified 
     registered nurse anesthetist, if the carrier determines that 
     the use of both the physician and the nurse anesthetist to 
     furnish the anesthesia service was not medically necessary, 
     the fee schedule amount for the physicians' services shall be 
     equal to 50 percent (or 55 percent, in the case of services 
     furnished during 1996 or 1997) of the fee schedule amount 
     applicable under this section for anesthesia services 
     personally performed by the physician alone (without regard 
     to this subparagraph). Nothing in this subparagraph may be 
     construed to affect the application of any provision of law 
     regarding balance billing.''.
       (2) Payment to crna.--Section 1833(l)(4)(B) (42 U.S.C. 
     1395l(l)(4)(B)) is amended by adding at the end the following 
     new clause:
       ``(iv) Notwithstanding section 1862(a)(1)(A), in the case 
     of services of a certified registered nurse anesthetist 
     consisting of the furnishing of anesthesia services for a 
     single case that are furnished jointly with a physician, if 
     the carrier determines that the use of both the physician and 
     the nurse anesthetist to furnish the anesthesia service was 
     not medically necessary, the fee schedule amount for the 
     services furnished by the certified registered nurse 
     anesthetist shall be equal to 50 percent (or 40 percent, in 
     the case of services furnished during 1996 or 1997) of the 
     fee schedule amount applicable under section 1848 for 
     anesthesia services personally performed by the physician 
     alone (without regard to this clause).''.
       (b) Effective Date.--The amendments made by subsections (a) 
     shall apply to services furnished on or after July 1, 1996.

                       CHAPTER 2--PART B PREMIUM

     SEC. 8511. PROMOTING SOLVENCY OF PART A TRUST FUND THROUGH 
                   PART B PREMIUM.

       (a) In General.--Section 1839(e)(1) (42 U.S.C. 1395r(e)(1)) 
     is amended--
       (1) in subparagraph (A), by striking ``1999'' and inserting 
     ``2003'', and
       (2) by adding at the end the following new subparagraph:
       ``(C)(i) For each month beginning with January 1996 through 
     December 2002, the amount of the monthly premium under this 
     part shall be increased by an amount equal to 13 percent of 
     the monthly actuarial rate for enrollees age 65 and over, as 
     determined under subsection (a)(1) and applicable to such 
     month.
       ``(ii) The Secretary shall transfer amounts received 
     pursuant to clause (i) to the Federal Hospital Insurance 
     Trust Fund.
       ``(iii) In applying section 1844(a), amounts attributable 
     to clause (i) shall not be counted in determining the dollar 
     amount of the premium per enrollee under paragraph (1)(A) or 
     (1)(B).''.
       (b) Effective Date.--The amendments made by subsection (a) 
     apply to premiums for months beginning with January 1996.

     SEC. 8512. INCOME-RELATED REDUCTION IN MEDICARE SUBSIDY.

       (a) In General.--Section 1839 (42 U.S.C. 1395r) is amended 
     by adding at the end the following:
       ``(h)(1) Notwithstanding the previous subsections of this 
     section, in the case of an individual whose modified adjusted 
     gross income for 

[[Page H 12615]]
     a taxable year ending with or within a calendar year (as initially 
     determined by the Secretary in accordance with paragraph (3)) 
     exceeds the threshold amount described in paragraph (5)(B), 
     the Secretary shall increase the amount of the monthly 
     premium for months in the calendar year by an amount equal to 
     the difference between--
       ``(A) 200 percent of the monthly actuarial rate for 
     enrollees age 65 and over as determined under subsection 
     (a)(1) for that calendar year; and
       ``(B) the total of the monthly premiums paid by the 
     individual under this section (determined without regard to 
     subsection (b)) during such calendar year.
       ``(2) In the case of an individual described in paragraph 
     (1) whose modified adjusted gross income exceeds the 
     threshold amount by less than $50,000, the amount of the 
     increase in the monthly premium applicable under paragraph 
     (1) shall be an amount which bears the same ratio to the 
     amount of the increase described in paragraph (1) (determined 
     without regard to this paragraph) as such excess bears to 
     $50,000. In the case of a joint return filed under section 
     6013 of the Internal Revenue Code of 1986 by spouses both of 
     whom are enrolled under this part, the previous sentence 
     shall be applied by substituting `$60,000' for `$50,000'. The 
     preceding provisions of this paragraph shall not apply to any 
     individual whose threshold amount is zero.
       ``(3) The Secretary shall make an initial determination of 
     the amount of an individual's modified adjusted gross income 
     for a taxable year ending with or within a calendar year for 
     purposes of this subsection as follows:
       ``(A) Not later than September 1 of the year preceding the 
     year, the Secretary shall provide notice to each individual 
     whom the Secretary finds (on the basis of the individual's 
     actual modified adjusted gross income for the most recent 
     taxable year for which such information is available or other 
     information provided to the Secretary by the Secretary of the 
     Treasury) will be subject to an increase under this 
     subsection that the individual will be subject to such an 
     increase, and shall include in such notice the Secretary's 
     estimate of the individual's modified adjusted gross income 
     for the year.
       ``(B) If, during the 30-day period beginning on the date 
     notice is provided to an individual under subparagraph (A), 
     the individual provides the Secretary with information on the 
     individual's anticipated modified adjusted gross income for 
     the year, the amount initially determined by the Secretary 
     under this paragraph with respect to the individual shall be 
     based on the information provided by the individual.
       ``(C) If an individual does not provide the Secretary with 
     information under subparagraph (B), the amount initially 
     determined by the Secretary under this paragraph with respect 
     to the individual shall be the amount included in the notice 
     provided to the individual under subparagraph (A).
       ``(4)(A) If the Secretary determines (on the basis of final 
     information provided by the Secretary of the Treasury) that 
     the amount of an individual's actual modified adjusted gross 
     income for a taxable year ending with or within a calendar 
     year is less than or greater than the amount initially 
     determined by the Secretary under paragraph (3), the 
     Secretary shall increase or decrease the amount of the 
     individual's monthly premium under this section (as the case 
     may be) for months during the following calendar year by an 
     amount equal to \1/12\ of the difference between--
       ``(i) the total amount of all monthly premiums paid by the 
     individual under this section during the previous calendar 
     year; and
       ``(ii) the total amount of all such premiums which would 
     have been paid by the individual during the previous calendar 
     year if the amount of the individual's modified adjusted 
     gross income initially determined under paragraph (3) were 
     equal to the actual amount of the individual's modified 
     adjusted gross income determined under this paragraph.
       ``(B)(i) In the case of an individual for whom the amount 
     initially determined by the Secretary under paragraph (3) is 
     based on information provided by the individual under 
     subparagraph (B) of such paragraph, if the Secretary 
     determines under subparagraph (A) that the amount of the 
     individual's actual modified adjusted gross income for a 
     taxable year is greater than the amount initially determined 
     under paragraph (3), the Secretary shall increase the amount 
     otherwise determined for the year under subparagraph (A) by 
     interest in an amount equal to the sum of the amounts 
     determined under clause (ii) for each of the months described 
     in clause (ii).
       ``(ii) Interest shall be computed for any month in an 
     amount determined by applying the underpayment rate 
     established under section 6621 of the Internal Revenue Code 
     of 1986 (compounded daily) to any portion of the difference 
     between the amount initially determined under paragraph (3) 
     and the amount determined under subparagraph (A) for the 
     period beginning on the first day of the month beginning 
     after the individual provided information to the Secretary 
     under subparagraph (B) of paragraph (3) and ending 30 days 
     before the first month for which the individual's monthly 
     premium is increased under this paragraph.
       ``(iii) Interest shall not be imposed under this 
     subparagraph if the amount of the individual's modified 
     adjusted gross income provided by the individual under 
     subparagraph (B) of paragraph (3) was not less than the 
     individual's modified adjusted gross income determined on the 
     basis of information shown on the return of tax imposed by 
     chapter 1 of the Internal Revenue Code of 1986 for the 
     taxable year involved.
       ``(C) In the case of an individual who is not enrolled 
     under this part for any calendar year for which the 
     individual's monthly premium under this section for months 
     during the year would be increased pursuant to subparagraph 
     (A) if the individual were enrolled under this part for the 
     year, the Secretary may take such steps as the Secretary 
     considers appropriate to recover from the individual the 
     total amount by which the individual's monthly premium for 
     months during the year would have been increased under 
     subparagraph (A) if the individual were enrolled under this 
     part for the year.
       ``(D) In the case of a deceased individual for whom the 
     amount of the monthly premium under this section for months 
     in a year would have been decreased pursuant to subparagraph 
     (A) if the individual were not deceased, the Secretary shall 
     make a payment to the individual's surviving spouse (or, in 
     the case of an individual who does not have a surviving 
     spouse, to the individual's estate) in an amount equal to the 
     difference between--
       ``(i) the total amount by which the individual's premium 
     would have been decreased for all months during the year 
     pursuant to subparagraph (A); and
       ``(ii) the amount (if any) by which the individual's 
     premium was decreased for months during the year pursuant to 
     subparagraph (A).
       ``(5) In this subsection, the following definitions apply:
       ``(A) The term `modified adjusted gross income' means 
     adjusted gross income (as defined in section 62 of the 
     Internal Revenue Code of 1986)--
       ``(i) determined without regard to sections 135, 911, 931, 
     and 933 of such Code, and
       ``(ii) increased by the amount of interest received or 
     accrued by the taxpayer during the taxable year which is 
     exempt from tax under such Code.
       ``(B) The term `threshold amount' means--
       ``(i) except as otherwise provided in this paragraph, 
     $60,000,
       ``(ii) $90,000, in the case of a joint return (as defined 
     in section 7701(a)(38) of such Code), and
       ``(iii) zero in the case of a taxpayer who--
       ``(I) is married at the close of the taxable year but does 
     not file a joint return (as so defined) for such year, and
       ``(II) does not live apart from his spouse at all times 
     during the taxable year.
       ``(6)(A) The Secretary shall transfer amounts received 
     pursuant to this subsection to the Federal Hospital Insurance 
     Trust Fund.
       ``(B) In applying section 1844(a), amounts attributable to 
     clause (i) shall not be counted in determining the dollar 
     amount of the premium per enrollee under paragraph (1)(A) or 
     (1)(B).''.
       (b) Conforming Amendments.--(1) Section 1839 (42 U.S.C. 
     1395r) is amended--
       (A) in subsection (a)(2), by inserting ``or section 1839A'' 
     after ``subsections (b) and (e)'';
       (B) in subsection (a)(3) of section 1839(a), by inserting 
     ``or section 1839A'' after ``subsection (e)'';
       (C) in subsection (b), inserting ``(and as increased under 
     section 1839A)'' after ``subsection (a) or (e)''; and
       (D) in subsection (f), by striking ``if an individual'' and 
     inserting the following: ``if an individual (other than an 
     individual subject to an increase in the monthly premium 
     under this section pursuant to subsection (h))''.
       (2) Section 1840(c) (42 U.S.C. 1395r(c)) is amended by 
     inserting ``or an individual determines that the estimate of 
     modified adjusted gross income used in determining whether 
     the individual is subject to an increase in the monthly 
     premium under section 1839 pursuant to subsection (h) of such 
     section (or in determining the amount of such increase) is 
     too low and results in a portion of the premium not being 
     deducted,'' before ``he may''.
       (c) Reporting Requirements for Secretary of the Treasury.--
       (1) In general.--Subsection (l) of section 6103 of the 
     Internal Revenue Code of 1986 (relating to confidentiality 
     and disclosure of returns and return information) is amended 
     by adding at the end the following new paragraph:
       ``(15) Disclosure of return information to carry out 
     income-related reduction in medicare part b premium.--
       ``(A) In general.--The Secretary may, upon written request 
     from the Secretary of Health and Human Services, disclose to 
     officers and employees of the Health Care Financing 
     Administration return information with respect to a taxpayer 
     who is required to pay a monthly premium under section 1839 
     of the Social Security Act. Such return information shall be 
     limited to--
       ``(i) taxpayer identity information with respect to such 
     taxpayer,
       ``(ii) the filing status of such taxpayer,
       ``(iii) the adjusted gross income of such taxpayer,
       ``(iv) the amounts excluded from such taxpayer's gross 
     income under sections 135 and 911,
       ``(v) the interest received or accrued during the taxable 
     year which is exempt from the tax imposed by chapter 1 to the 
     extent such information is available, and
       ``(vi) the amounts excluded from such taxpayer's gross 
     income by sections 931 and 933 to the extent such information 
     is available.
       ``(B) Restriction on use of disclosed information.--Return 
     information disclosed under subparagraph (A) may be used by 
     officers and employees of the Health Care Financing 
     Administration only for the purposes of, and to the extent 
     necessary in, establishing the appropriate monthly premium 
     under section 1839 of the Social Security Act.''
       (2) Conforming amendment.--Paragraphs (3)(A) and (4) of 
     section 6103(p) of such Code are each amended by striking 
     ``or (14)'' each place it appears and inserting ``(14), or 
     (15)''.
       (d) Effective Date.--
       (1) In general.--The amendments made by subsections (a) and 
     (b) shall apply to the monthly premium under section 1839 of 
     the Social Security Act for months beginning with January 
     1997.

[[Page H 12616]]

       (2) Information for prior years.--The Secretary of Health 
     and Human Services may request information under section 
     6013(l)(15) of the Social Security Act (as added by 
     subsection (c)) for taxable years beginning after December 
     31, 1993.
            Subtitle G--Provisions Relating to Parts A and B

              CHAPTER 1--PAYMENTS FOR HOME HEALTH SERVICES

     SEC. 8601. PAYMENT FOR HOME HEALTH SERVICES.

       (a) In General.--Title XVIII (42 U.S.C. 1395x et seq.), as 
     amended by section 8102, is amended by adding at the end the 
     following new section:


                   ``payment for home health services

       ``Sec. 1894. (a) In General.--
       ``(1) Per visit payments.--Subject to subsection (c), the 
     Secretary shall make per visit payments beginning with fiscal 
     year 1997 to a home health agency in accordance with this 
     section for each type of home health service described in 
     paragraph (2) furnished to an individual who at the time the 
     service is furnished is under a plan of care by the home 
     health agency under this title (without regard to whether or 
     not the item or service was furnished by the agency or by 
     others under arrangement with them made by the agency, under 
     any other contracting or consulting arrangement, or 
     otherwise).
       ``(2) Types of services.--The types of home health services 
     described in this paragraph are the following:
       ``(A) Part-time or intermittent nursing care provided by or 
     under the supervision of a registered professional nurse.
       ``(B) Physical therapy.
       ``(C) Occupational therapy.
       ``(D) Speech-language pathology services.
       ``(E) Medical social services under the direction of a 
     physician.
       ``(F) To the extent permitted in regulations, part-time or 
     intermittent services of a home health aide who has 
     successfully completed a training program approved by the 
     Secretary.
       ``(b) Establishment of Per Visit Rate for Each Type of 
     Services.--
       ``(1) In general.--The Secretary shall, subject to 
     paragraph (3), establish a per visit payment rate for a home 
     health agency in an area (which shall be the same area used 
     to determine the area wage index applicable to hospitals 
     under section 1886(d)(3)(E)) for each type of home health 
     service described in subsection (a)(2). Such rate shall be 
     equal to the national per visit payment rate determined under 
     paragraph (2) for each such type, except that the labor-
     related portion of such rate shall be adjusted by the area 
     wage index applicable under section 1886(d)(3)(E) for the 
     area in which the agency is located (as determined without 
     regard to any reclassification of the area under section 
     1886(d)(8)(B) or a decision of the Medicare Geographic 
     Classification Review Board or the Secretary under section 
     1886(d)(10) for cost reporting periods beginning after 
     October 1, 1995).
       ``(2) National per visit payment rate.--The national per 
     visit payment rate for each type of service described in 
     subsection (a)(2)--
       ``(A) for fiscal year 1997, is an amount equal to the 
     national average amount paid per visit under this title to 
     home health agencies for such type of service during the most 
     recent 12-month cost reporting period ending on or before 
     June 30, 1994; and
       ``(B) for each subsequent fiscal year, is an amount equal 
     to the national per visit payment rate in effect for the 
     preceding fiscal year, increased by the home health market 
     basket percentage increase for such subsequent fiscal year 
     minus 2.0 percentage points.
       ``(3) Rebasing of rates.--The Secretary shall adjust the 
     national per visit payment rates under this subsection for 
     cost reporting periods beginning on or after October 1, 1999, 
     and every 5 years thereafter, to reflect the most recent 
     available data.
       ``(4) Home health market basket percentage increase.--For 
     purposes of this subsection, the term `home health market 
     basket percentage increase' means, with respect to a fiscal 
     year, a percentage (estimated by the Secretary before the 
     beginning of the fiscal year) determined and applied with 
     respect to the types of home health services described in 
     subsection (a)(2) in the same manner as the market basket 
     percentage increase under section 1886(b)(3)(B)(iii) is 
     determined and applied to inpatient hospital services for the 
     fiscal year.
       ``(c) Per Episode Limit.--
       ``(1) Aggregate limit.--
       ``(A) In general.--Except as provided in paragraph (2), a 
     home health agency may not receive aggregate per visit 
     payments under subsection (a) for a fiscal year in excess of 
     an amount equal to the sum of the following products 
     determined for each case-mix category for which the agency 
     receives payments:
       ``(i) The number of episodes of each such case-mix category 
     during the fiscal year; multiplied by
       ``(ii) the per episode limit determined for such case-mix 
     category for such fiscal year.
       ``(B) Establishment of per episode limits.--
       ``(i) In general.--The per episode limit for a fiscal year 
     for any case-mix category for the area in which a home health 
     agency is located (which shall be the same area used to 
     determine the area wage index applicable to hospitals under 
     section 1886(d)(3)(E)) is equal to--

       ``(I) the mean number of visits for each type of home 
     health service described in subsection (a)(2) furnished 
     during an episode of such case-mix category in such area 
     during fiscal year 1994, adjusted by the case-mix adjustment 
     factor determined in clause (ii) for the fiscal year 
     involved; multiplied by
       ``(II) the per visit payment rate established under 
     subsection (b) for such type of home health service for the 
     fiscal year for which the determination is being made.

       ``(ii) Case-mix adjustment factor.--For purposes of clause 
     (i), the case-mix adjustment factor for a year for--

       ``(I) each of fiscal years 1997 through 2000 is the factor 
     determined by the Secretary to assure that aggregate payments 
     for home health services under this section during the year 
     will not exceed the payment for such services during the 
     previous year as a result of changes in the number and type 
     of home health visits within case-mix categories over the 
     previous year; and
       ``(II) each subsequent fiscal year, is the factor 
     determined by the Secretary necessary to remove the effects 
     of case-mix increases due to reporting improvements instead 
     of real changes in patients' resource usage.

       ``(iii) Rebasing of per episode limits.--Beginning with 
     fiscal year 1999 and every 5 years thereafter, the Secretary 
     shall revise the mean number of home health visits determined 
     under clause (i)(I) for each type of home health service 
     visit described in subsection (a)(2) furnished during an 
     episode in a case-mix category to reflect the most recently 
     available data on the number of visits.
       ``(iv) Determination of area.--In the case of an area which 
     the Secretary determines has an insufficient number of home 
     health agencies to establish an appropriate per episode 
     limit, the Secretary may establish an area other than the 
     area used to determine the area wage under section 
     1886(d)(3)(E)) for purposes of establishing an appropriate 
     per episode limit.
       ``(C) Case-mix category.--For purposes of this paragraph, 
     the term `case-mix category' means each of the 18 case-mix 
     categories established under the Home Health Agency 
     Prospective Payment Demonstration Project conducted by the 
     Health Care Financing Administration. The Secretary may 
     develop an alternate methodology for determining case-mix 
     categories.
       ``(D) Episode.--
       ``(i) In general.--For purposes of this paragraph, the term 
     `episode' means the continuous 120-day period that--

       ``(I) begins on the date of an individual's first visit for 
     a type of home health service described in subsection (a)(2) 
     for a case-mix category, and
       ``(II) is immediately preceded by a 60-day period in which 
     the individual did not receive visits for a type of home 
     health service described in subsection (a)(2).

       ``(ii) Treatment of episodes spanning cost reporting 
     periods.--The Secretary shall provide for such rules as the 
     Secretary considers appropriate regarding the treatment of 
     episodes under this paragraph which begin during a cost 
     reporting period and end in a subsequent cost reporting 
     period.
       ``(E) Exemptions and exceptions.--The Secretary may provide 
     for exemptions and exceptions to the limits established under 
     this paragraph for a fiscal year as the Secretary deems 
     appropriate, to the extent such exemptions and exceptions do 
     not result in greater payments under this section than the 
     exemptions and exceptions provided under section 
     1861(v)(1)(L)(ii) in fiscal year 1994, increased by the home 
     health market basket percentage increase for the fiscal year 
     involved (as defined in subsection (b)(4)).
       ``(2) Reconciliation of amounts.--
       ``(A) Payments in excess of limits.--Subject to 
     subparagraph (B), if a home health agency has received 
     aggregate per visit payments under subsection (a) for a 
     fiscal year in excess of the amount determined under 
     paragraph (1) with respect to such home health agency for 
     such fiscal year, the Secretary shall reduce payments under 
     this section to the home health agency in the following 
     fiscal year in such manner as the Secretary considers 
     appropriate (including on an installment basis) to recapture 
     the amount of such excess.
       ``(B) Exception for home health services furnished over a 
     period greater than 165 days.--
       ``(i) In general.--For purposes of subparagraph (A), the 
     amount of aggregate per visit payments determined under 
     subsection (a) shall not include payments for home health 
     visits furnished to an individual on or after a continuous 
     period of more than 165 days after an individual begins an 
     episode described in subsection (c)(1)(D) (if such period is 
     not interrupted by the beginning of a new episode).
       ``(ii) Requirement of certification.--Clause (i) shall not 
     apply if the agency has not obtained a physician's 
     certification with respect to the individual requiring such 
     visits that includes a statement that the individual requires 
     such continued visits, the reason for the need for such 
     visits, and a description of such services furnished during 
     such visits.
       ``(C) Share of savings.--
       ``(i) Bonus payments.--If a home health agency has received 
     aggregate per visit payments under subsection (a) for a 
     fiscal year in an amount less than the amount determined 
     under paragraph (1) with respect to such home health agency 
     for such fiscal year, the Secretary shall pay such home 
     health agency a bonus payment equal to 50 percent of the 
     difference between such amounts in the following fiscal year, 
     except that the bonus payment may not exceed 5 percent of the 
     aggregate per visit payments made to the agency for the year.
       ``(ii) Installment bonus payments.--The Secretary may make 
     installment payments during a fiscal year to a home health 
     agency based on the estimated bonus payment that the agency 
     would be eligible to receive with respect to such fiscal 
     year.
       ``(d) Medical Review Process.--The Secretary shall 
     implement a medical review process (with a particular 
     emphasis on fiscal years 1997 and 1998) for the system of 
     payments described in this section that shall provide an 
     assessment of the pattern of care furnished to individuals 
     receiving home health services for which payments are made 
     under this section to ensure that 

[[Page H 12617]]
     such individuals receive appropriate home health services. Such review 
     process shall focus on low-cost episodes (as defined by the 
     Secretary under section (e)(3)(C)) and cases described in 
     subsection (c)(2)(B) and shall require recertification by 
     intermediaries at 60 and 165 days into an episode described 
     in subsection (c)(1)(D).
       ``(e) Adjustment of Payments to Avoid Circumvention of 
     Limits.--
       ``(1) In general.--The Secretary shall provide for 
     appropriate adjustments to payments to home health agencies 
     under this section to ensure that agencies do not circumvent 
     the purpose of this section by--
       ``(A) discharging patients to another home health agency or 
     similar provider;
       ``(B) altering corporate structure or name to avoid being 
     subject to this section or for the purpose of increasing 
     payments under this title; or
       ``(C) undertaking other actions considered unnecessary for 
     effective patient care and intended to achieve maximum 
     payments under this title.
       ``(2) Tracking of patients that switch home health agencies 
     during episode.--
       ``(A) Development of system.--The Secretary shall develop a 
     system that tracks home health patients that receive home 
     health services described in subsection (a)(2) from more than 
     1 home health agency during an episode described in 
     subsection (c)(1)(D).
       ``(B) Adjustment of payments.--The Secretary shall adjust 
     payments under this section to each home health agency that 
     furnishes an individual with a type of home health service 
     described in subsection (a)(2) to ensure that aggregate 
     payments on behalf of such individual during such episode do 
     not exceed the amount that would be paid under this section 
     if the individual received such services from a single home 
     health agency.
       ``(3) Low-cost cases.--
       ``(A) In general.--The Secretary shall develop and 
     implement a system designed to adjust payments to a home 
     health agency for a fiscal year to eliminate any increase in 
     growth of the percentage distribution of low-cost episodes 
     for which home health services are furnished by the agency 
     over such percentage distribution determined for the agency 
     under subparagraph (B).
       ``(B) Distribution.--The Secretary shall profile each home 
     health agency to determine the distribution of all episodes 
     by length of stay for each agency during the agency's first 
     12-month cost reporting period beginning during fiscal year 
     1994.
       ``(C) Low-cost episode.--For purposes of this paragraph, 
     the Secretary shall define a low-cost episode in a manner 
     that provides that a home health agency has an incentive to 
     be cost efficient in delivering home health services and that 
     the volume of such services does not increase as a result of 
     factors other than patient needs.
       ``(f) Special Rule for Christian Science Providers.--
       ``(1) Payment permitted for services.--Notwithstanding any 
     other provision of this title, payment shall be made under 
     this title for home health services furnished by Christian 
     Science providers who meet applicable requirements of the 
     First Church of Christ, Scientist, Boston, Massachusetts, and 
     are certified for purposes of this title under criteria 
     established by the Secretary, in accordance with a payment 
     methodology established by the Secretary.
       ``(2) Effective date.--Paragraph (1) shall apply to 
     services furnished during cost reporting periods which begin 
     after the earlier of--
       ``(A) the date on which the Secretary establishes the 
     payment methodology and the certification criteria described 
     in paragraph (1), or
       ``(B) July 1, 1996.
       ``(g) Report by Medicare Payment Review Commission.--During 
     the first 3 years in which payments are made under this 
     section, the Medicare Payment Review Commission shall 
     annually submit a report to Congress on the effectiveness of 
     the payment methodology established under this section that 
     shall include recommendations regarding the following:
       ``(1) Case-mix and volume increases.
       ``(2) Quality monitoring of home health agency practices.
       ``(3) Whether a capitated payment for home care patients 
     receiving care during a continuous period exceeding 165 days 
     is warranted.
       ``(4) Whether public providers of service are adequately 
     reimbursed.
       ``(5) On the adequacy of the exemptions and exceptions to 
     the limits provided under subsection (c)(1)(E).
       ``(6) The appropriateness of the methods provided under 
     this section to adjust the per episode limits and annual 
     payment updates to reflect changes in the mix of services, 
     number of visits, and assignment to case categories to 
     reflect changing patterns of home health care.
       ``(7) The geographic areas used to determine the per 
     episode limits.''.
       (b) Payment for Prosthetics and Orthotics Under Part A.--
     Section 1814(k) (42 U.S.C. 1395f(k)) is amended--
       (1) by inserting ``and prosthetics and orthotics'' after 
     ``durable medical equipment''; and
       (2) by inserting ``and 1834(h), respectively'' after 
     ``1834(a)(1)''.
       (c) Conforming Amendments.--
       (1) Payments under part a.--Section 1814(b) (42 U.S.C. 
     1395f(b)), as amended by section 8412(b), is amended in the 
     matter preceding paragraph (1) by striking ``1888 and 1888A'' 
     and inserting ``1888, 1888A, and 1894''.
       (2) Treatment of items and services paid under part b.--
       (A) Payments under part b.--Section 1833(a)(2) (42 U.S.C. 
     1395l(a)(2)) is amended--
       (i) by amending subparagraph (A) to read as follows:
       ``(A) with respect to home health services--
       ``(i) that are a type of home health service described in 
     section 1894(a)(2), and which are furnished to an individual 
     who (at the time the item or service is furnished) is under a 
     plan of care of a home health agency, the amount determined 
     under section 1894;
       ``(ii) that are not described in clause (i) (other than a 
     covered osteoporosis drug) (as defined in section 1861(kk)), 
     the lesser of--

       ``(I) the reasonable cost of such services, as determined 
     under section 1861(v), or
       ``(II) the customary charges with respect to such 
     services;''.

       (ii) by striking ``and'' at the end of subparagraph (E);
       (iii) by adding ``and'' at the end of subparagraph (F); and
       (iv) by adding at the end the following new subparagraph:
       ``(G) with respect to items and services described in 
     section 1861(s)(10)(A), the lesser of--
       ``(i) the reasonable cost of such services, as determined 
     under section 1861(v), or
       ``(ii) the customary charges with respect to such services,
     or, if such services are furnished by a public provider of 
     services, or by another provider which demonstrates to the 
     satisfaction of the Secretary that a significant portion of 
     its patients are low-income (and requests that payment be 
     made under this provision), free of charge or at nominal 
     charges to the public, the amount determined in accordance 
     with section 1814(b)(2);''.
       (B) Requiring payment for all items and services to be made 
     to agency.--
       (i) In general.--The first sentence of section 1842(b)(6) 
     (42 U.S.C. 1395u(b)(6)), as amended by section 8415(a)(1), is 
     amended--

       (I) by striking ``and (E)'' and inserting ``(E)''; and
       (II) by striking the period at the end and inserting the 
     following: ``, and (F) in the case of types of home health 
     services described in section 1894(a)(2) furnished to an 
     individual who (at the time the item or service is furnished) 
     is under a plan of care of a home health agency, payment 
     shall be made to the agency (without regard to whether or not 
     the item or service was furnished by the agency, by others 
     under arrangement with them made by the agency, or when any 
     other contracting or consulting arrangement, or 
     otherwise).''.

       (ii) Conforming amendment.--Section 1832(a)(1) (42 U.S.C. 
     1395k(a)(1)) is amended by striking ``(2);'' and inserting 
     ``(2) and section 1842(b)(6)(F);''.
       (C) Exclusions from coverage.--Section 1862(a) (42 U.S.C. 
     1395y(a)), as amended by section 8415(a)(2), is amended--
       (i) by striking ``or'' at the end of paragraph (15);
       (ii) by striking the period at the end of paragraph (16) 
     and inserting ``or''; and
       (iii) by adding at the end the following new paragraph:
       ``(17) where such expenses are for home health services 
     furnished to an individual who is under a plan of care of the 
     home health agency if the claim for payment for such services 
     is not submitted by the agency.''.
       (3) Sunset of reasonable cost limitations.--Section 
     1861(v)(1)(L) (42 U.S.C. 1395x(v)(1)(L)) is amended by adding 
     at the end the following new clause:
       ``(iv) This subparagraph shall apply only to services 
     furnished by home health agencies during cost reporting 
     periods ending on or before September 30, 1996.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to cost reporting periods beginning on or after 
     October 1, 1996.

     SEC. 8602. MAINTAINING SAVINGS RESULTING FROM TEMPORARY 
                   FREEZE ON PAYMENT INCREASES FOR HOME HEALTH 
                   SERVICES.

       (a) Basing Updates to Per Visit Cost Limits on Limits for 
     Fiscal Year 1993.--Section 1861(v)(1)(L)(iii) (42 U.S.C. 
     1395x(v)(1)(L)(iii)) is amended by adding at the end the 
     following sentence: ``In establishing limits under this 
     subparagraph, the Secretary may not take into account any 
     changes in the costs of the provision of services furnished 
     by home health agencies with respect to cost reporting 
     periods which began on or after July 1, 1994, and before July 
     1, 1996.''.
       (b) No Exceptions Permitted Based on Amendment.--The 
     Secretary of Health and Human Services shall not consider the 
     amendment made by subsection (a) in making any exemptions and 
     exceptions pursuant to section 1861(v)(1)(L)(ii) of the 
     Social Security Act.

     SEC. 8603. EXTENSION OF WAIVER OF PRESUMPTION OF LACK OF 
                   KNOWLEDGE OF EXCLUSION FROM COVERAGE FOR HOME 
                   HEALTH AGENCIES.

       Section 9305(g)(3) of OBRA-1986, as amended by section 
     426(d) of the Medicare Catastrophic Coverage Act of 1988 and 
     section 4207(b)(3) of the OBRA-1990 (as renumbered by section 
     160(d)(4) of the Social Security Act Amendments of 1994), is 
     amended by striking ``December 31, 1995'' and inserting 
     ``September 30, 1996.''.

     SEC. 8604. EXTENSION OF PERIOD OF HOME HEALTH AGENCY 
                   CERTIFICATION.

       Section 1891(c)(2)(A) (42 U.S.C. 1395bbb(c)(2)(A)) is 
     amended--
       (1) by striking ``15 months'' and inserting ``36 months''; 
     and
       (2) by striking the second sentence and inserting the 
     following: ``The Secretary shall establish a frequency for 
     surveys of home health agencies within this 36-month interval 
     commensurate with the need to assure the delivery of quality 
     home health services.''.

             PART 2--MEDICARE SECONDARY PAYER IMPROVEMENTS

     SEC. 8611. EXTENSION AND EXPANSION OF EXISTING REQUIREMENTS.

       (a) Data Match.--
       (1) Section 1862(b)(5)(C) (42 U.S.C. 1395y(b)(5)(C)) is 
     amended by striking clause (iii).

[[Page H 12618]]

       (2) Section 6103(l)(12) of the Internal Revenue Code of 
     1986 is amended by striking subparagraph (F).
       (b) Application to Disabled Individuals in Large Group 
     Health Plans.--
       (1) In general.--Section 1862(b)(1)(B) (42 U.S.C. 
     1395y(b)(1)(B)) is amended--
       (A) in clause (i), by striking ``clause (iv)'' and 
     inserting ``clause (iii)'',
       (B) by striking clause (iii), and
       (C) by redesignating clause (iv) as clause (iii).
       (2) Conforming amendments.--Paragraphs (1) through (3) of 
     section 1837(i) (42 U.S.C. 1395p(i)) and the second sentence 
     of section 1839(b) (42 U.S.C. 1395r(b)) are each amended by 
     striking ``1862(b)(1)(B)(iv)'' each place it appears and 
     inserting ``1862(b)(1)(B)(iii)''.
       (c) Individuals With End Stage Renal Disease.--Section 
     1862(b)(1)(C) (42 U.S.C. 1395y(b)(1)(C)) is amended--
       (1) in the last sentence by striking ``October 1, 1998'' 
     and inserting ``the date of the enactment of the Medicare 
     Preservation Act of 1995''; and
       (2) by adding at the end the following new sentence: 
     ``Effective for items and services furnished on or after the 
     date of the enactment of the Medicare Preservation Act of 
     1995, (with respect to periods beginning on or after the date 
     that is 18 months prior to such date), clauses (i) and (ii) 
     shall be applied by substituting `30-month' for `12-month' 
     each place it appears.''.

     SEC. 8612. IMPROVEMENTS IN RECOVERY OF PAYMENTS.

       (a) Permitting Recovery Against Third Party Administrators 
     of Primary Plans.--Section 1862(b)(2)(B)(ii) (42 U.S.C. 
     1395y(b)(2)(B)(ii)) is amended--
       (1) by striking ``under this subsection to pay'' and 
     inserting ``(directly, as a third-party administrator, or 
     otherwise) to make payment'', and
       (2) by adding at the end the following: ``The United States 
     may not recover from a third-party administrator under this 
     clause in cases where the third-party administrator would not 
     be able to recover the amount at issue from the employer or 
     group health plan for whom it provides administrative 
     services due to the insolvency or bankruptcy of the employer 
     or plan.''.
       (b) Extension of Claims Filing Period.--Section 
     1862(b)(2)(B) (42 U.S.C. 1395y(b)(2)(B)) is amended by adding 
     at the end the following new clause:
       ``(v) Claims-filing period.--Notwithstanding any other time 
     limits that may exist for filing a claim under an employer 
     group health plan, the United States may seek to recover 
     conditional payments in accordance with this subparagraph 
     where the request for payment is submitted to the entity 
     required or responsible under this subsection to pay with 
     respect to the item or service (or any portion thereof) under 
     a primary plan within the 3-year period beginning on the date 
     on which the item or service was furnished.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to items and services furnished on or after the 
     date of the enactment of this Act.

        CHAPTER 3--OTHER ITEMS AND SERVICES UNDER PARTS A AND B

     SEC. 8621. MEDICARE COVERAGE OF CERTAIN ANTI-CANCER DRUG 
                   TREATMENTS.

       (a) Coverage of Certain Self-Administered Anticancer 
     Drugs.--Section 1861(s)(2)(Q) (42 U.S.C. 1395x(s)(2)(Q)) is 
     amended--
       (1) by striking ``(Q)'' and inserting ``(Q)(i)''; and
       (2) by striking the semicolon at the end and inserting ``, 
     and''; and
       (3) by adding at the end the following:
       ``(ii) an oral drug (which is approved by the Federal Food 
     and Drug Administration) prescribed for use as an anticancer 
     nonsteroidal antiestrogen for the treatment of breast cancer, 
     but only if the manufacturer of such drug has in effect a 
     rebate agreement with the Secretary with respect to such drug 
     which has substantially similar terms and conditions to the 
     terms and conditions for such agreements under section 1927 
     (as such section is in effect on the date of the enactment of 
     this clause);''.
       (b) Uniform Coverage of Anticancer Drugs in All Settings.--
     Section 1861(t)(2)(A) (42 U.S.C. 1395x(t)(2)(A)) is amended 
     by inserting ``(including a nonsteroidal antiestrogen 
     regimen)'' after ``regimen''.
       (c) Conforming Amendment.--Section 1834(j)(5)(F)(iv) (42 
     U.S.C. 1395m(j)(5)(F)(iv)) is amended by striking 
     ``prescribed for use'' and all that follows through 
     ``1861(s)(2)(Q))'' and inserting ``described in section 
     1861(s)(2)(Q)''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to drugs furnished on or after January 1, 1996.

     SEC. 8622. ADMINISTRATIVE PROVISIONS.

       (a) Indian Health Service Facilities.--Nothing in this Act 
     shall be construed to change the status under title XVIII of 
     the Social Security Act (42 U.S.C. 1395 et seq.) of--
       (1) a Federally qualified health center (as defined in 
     section 1861(aa)(4) of such Act) which is an outpatient 
     health program or facility operated by a tribe or tribal 
     organization under the Indian Self-Determination Act or by an 
     urban Indian organization receiving funds under title V of 
     the Indian Health Care Improvement Act; or
       (2) hospitals or skilled nursing facilities of the Indian 
     Health Service, whether operated by such Service or by an 
     Indian tribe or tribal organization (as those terms are 
     defined in section 4 of the Indian Health Care Improvement 
     Act), that are eligible for payments under title XVIII of the 
     Social Security Act, in accordance with section 1880 of such 
     Act (42 U.S.C. 1395qq).
       (b) Conforming Amendment to Certification of Christian 
     Science Providers.--
       (1) Hospitals.--Section 1861(e) (42 U.S.C. 1395x(e)) is 
     amended in the sixth sentence by striking ``the First Church 
     of Christ, Scientist, Boston, Massachusetts,'' and inserting 
     ``the Commission for Accreditation of Christian Science 
     Nursing Organizations/Facilities, Inc.,''.
       (2) Skilled nursing facilities.--Section 1861(y)(1) (42 
     U.S.C. 1395x(y)(1)) is amended by striking ``the First Church 
     of Christ, Scientist, Boston, Massachusetts,'' and inserting 
     ``the Commission for Accreditation of Christian Science 
     Nursing Organizations/Facilities, Inc.,''.
       (3) General provisions.--
       (A) Uniform reporting systems.--Section 1122(h) (42 U.S.C. 
     1320a-1(h)) is amended by striking ``the First Church of 
     Christ, Scientist, Boston, Massachusetts'' and inserting 
     ``the Commission for Accreditation of Christian Science 
     Nursing Organizations/Facilities, Inc.''.
       (B) Peer review.--Section 1162 (42 U.S.C. 1320c-11) is 
     amended by striking ``the First Church of Christ, Scientist, 
     Boston, Massachusetts'' and inserting ``the Commission for 
     Accreditation of Christian Science Nursing Organizations/
     Facilities, Inc.''.
       (4) Effective date.--The amendments made by this subsection 
     shall take effect on January 1, 1997.

                          CHAPTER 4--FAILSAFE

     SEC. 8631. FAILSAFE BUDGET MECHANISM

       (a) In General.--Title XVIII, as amended by sections 
     8102(a) and 8601(a), is amended by adding at the end the 
     following new section:


                      ``failsafe budget mechanism

       ``Sec. 1895. (a) Requirement of Payment Adjustments To 
     Achieve Medicare Budget Targets.--
       ``(1) In general.--If the Secretary determines under 
     subsection (e)(3)(C) before a fiscal year (beginning with 
     fiscal year 1998) that--
       ``(A) the fee-for-service expenditures (as defined in 
     subsection (f) for all sectors of medicare services (as 
     defined in subsection (b)) for the fiscal year, will exceed
       ``(B) the sum of the allotments specified under subsection 
     (c)(2) for such fiscal year (taking into account any 
     adjustment in the allotment under subsection (g) for that 
     fiscal year) for all sectors,

     then, notwithstanding any other provisions of this title, 
     there shall be an adjustment (consistent with subsection (d)) 
     in applicable payment rates or payments for items and 
     services included in each excess spending sector in the 
     fiscal year. In this section, the term `aggregate excess 
     spending' means, for a fiscal year, the amount by which the 
     amount described in subparagraph (A) (for the fiscal year) 
     exceeds the amount described in subparagraph (B) for such 
     year.
       ``(2) Excess spending sector.--In this section, the term 
     `excess spending sector' means, for a fiscal year, a sector 
     of medicare services for which the Secretary determines under 
     subsection (e)(3)(C)--
       ``(A) the fee-for-service expenditures (as defined in 
     subsection (f)) for all the fiscal year, will exceed
       ``(B) the allotment specified under subsection (c)(2) for 
     such fiscal year (taking into account any adjustment in the 
     allotment under subsection (g) for that fiscal year).
     In this section, the term `excess spending means, for a 
     fiscal year with respect to such a sector, the amount by 
     which the amount described in subparagraph (A) (for the 
     fiscal year and sector) exceeds the amount described in 
     subparagraph (B) for such year and sector.
       ``(b) Sectors of Medicare Services Described--
       ``(1) In general.--For purposes of this section, items and 
     services included under each of the following subparagraphs 
     shall be considered to be a separate `sector' of medicare 
     services:
       ``(A) Inpatient hospital services.
       ``(B) Home health services.
       ``(C) Extended care services (for inpatients of skilled 
     nursing facilities).
       ``(D) Hospice care.
       ``(E) Physicians' services (including services and supplies 
     described in section 1861(s)(2)(A)) and services of other 
     health care professionals (including certified registered 
     nurse anesthetists, nurse practitioners, physician 
     assistants, and clinical psychologists) for which separate 
     payment is made under this title.
       ``(F) Outpatient hospital services and ambulatory facility 
     services.
       ``(G) Durable medical equipment and supplies, including 
     prosthetic devices and orthotics.
       ``(H) Diagnostic tests (including clinical laboratory 
     services and x-ray services).
       ``(I) Other items and services.
       ``(2) Classification of items and services.--The Secretary 
     shall classify each type of items and services covered and 
     paid for separately under this title into one of the sectors 
     specified in paragraph (1). After publication of such 
     classification under subsection (e)(1), the Secretary is not 
     authorized to make substantive changes in such 
     classification.
       ``(c) Allotment.--
       ``(1) Allotments for each sector.--For purposes of this 
     section, subject to subsection (g)(1), the allotment for a 
     sector of medicare services for a fiscal year is equal to the 
     product of--
       ``(A) the total allotment for the fiscal year established 
     under paragraph (2), and
       ``(B) the allotment proportion (specified under paragraph 
     (3)) for the sector and fiscal year involved.
       ``(2) Total allotment.--
       ``(A) In general.--For purposes of this section, the total 
     allotment for a fiscal year is equal to--
       ``(i) the medicare benefit budget for the fiscal year (as 
     specified under subparagraph (B)), reduced by
       ``(ii) the amount of payments the Secretary estimates will 
     be made in the fiscal year under the MedicarePlus program 
     under part C.
     In making the estimate under clause (ii), the Secretary shall 
     take into account estimated enrollment and demographic 
     profile of individuals electing MedicarePlus products.

[[Page H 12619]]

       ``(B) Medicare benefit budget.--For purposes of this 
     subsection, subject to subparagraph (C), the `medicare 
     benefit budget'--
       ``(i) for fiscal year 1996 is $194.2 billion;
       ``(i) for fiscal year 1997 is $206.3 billion;
       ``(ii) for fiscal year 1998 is $217.8 billion;
       ``(iii) for fiscal year 1999 is $229.2 billion;
       ``(iv) for fiscal year 2000 is $247.2 billion;
       ``(v) for fiscal year 2001 is $266.4 billion;
       ``(vi) for fiscal year 2002 is $289.0 billion; and
       ``(vii) for a subsequent fiscal year is equal to the 
     medicare benefit budget under this subparagraph for the 
     preceding fiscal year multiplied by the product of (I) 1.05, 
     and (II) 1 plus the annual percentage increase in the average 
     number of medicare beneficiaries from the previous fiscal 
     year to the fiscal year involved.
       ``(3) Medicare allotment proportions defined.--
       ``(A) In general.--For purposes of this section and with 
     respect to a sector of medicare services for a fiscal year, 
     the term `medicare allotment proportion' means the ratio of--
       ``(i) the baseline-projected medicare expenditures (as 
     determined under subparagraph (B)) for the sector for the 
     fiscal year, to
       ``(ii) the sum of such baseline expenditures for all such 
     sectors for the fiscal year.
       ``(B) Baseline-projected medicare expenditures.--In this 
     paragraph, the `baseline, projected medicare expenditures' 
     for a sector of medicare services--
       ``(i) for fiscal year 1996 is equal to fee-for-service 
     expenditures for such sector during fiscal year 1995, 
     increased by the baseline annual growth rate for such sector 
     of medicare services for fiscal year 1996 (as specified in 
     table in subparagraph (C)); and
       ``(ii) for a subsequent fiscal year is equal to the 
     baseline-projected medicare expenditures under this 
     subparagraph for the sector for the previous fiscal year 
     increased by the baseline annual growth rate for such sector 
     for the fiscal year involved (as specified in such table).
       ``(C) Baseline annual growth rates.--The following table 
     specifies the baseline annual growth rates for each of the 
     sectors for different fiscal years:

----------------------------------------------------------------------------------------------------------------
                                                               Baseline annual growth rates for fiscal year--   
                                                           -----------------------------------------------------
               ``For the following sector--                                                            2002 and 
                                                             1996   1997   1998   1999   2000   2001  thereafter
----------------------------------------------------------------------------------------------------------------
(A) Inpatient hospital services...........................    5.7    5.6    6.0    6.1    5.7    5.5       5.2  
(B) Home health services..................................   17.2   15.1   11.7    9.1    8.4    8.1       7.9  
(C) Extended care services................................   19.7   12.3    9.3    8.7    8.6    8.4       8.0  
(D) Hospice care..........................................   32.0   24.0   18.0   15.0   12.0   10.0       9.0  
(E) Physicians' services..................................   12.4    9.7    8.7    9.0    9.3    9.6      10.1  
(F) Outpatient hospital services..........................   14.7   13.9   14.5   15.0   14.1   13.9      14.0  
(G) Durable medical equipment and supplies................   16.1   15.5   13.7   12.4   13.2   13.9      14.5  
(H) Diagnostic tests......................................   13.1   11.3   11.0   11.4   11.4   11.5      11.9  
(I) Other items and services..............................   11.2   10.2   10.9   12.0   11.6   11.6      11.8  
----------------------------------------------------------------------------------------------------------------

       ``(d) Manner of Payment Adjustment.--
       (1) Payment reductions.--
       ``(A) In general.--Subject to the succeeding provisions of 
     this subsection, the Secretary shall apply a payment 
     reduction for each excess spending sector for a fiscal year 
     in such a manner as to--
       ``(i) make a change in payment rates (to the maximum extent 
     practicable) at the time payment rates are otherwise changed 
     or subject to change for that fiscal year; and
       ``(ii) provide for the full appropriate adjustments so that 
     the fee-for-service expenditures for the sector for the 
     fiscal year will be reduced by 133\1/3\ percent of the amount 
     of the sector reduction target for that sector.
       ``(B) Sector reduction target.--In paragraph (1), the 
     `sector reduction target' for an excess spending sector for a 
     fiscal year is equal to the product of--
       ``(i) the amount of the excess spending for such sector and 
     year (as defined in subsection (a)(2)); and
       ``(ii) the ratio of--

       ``(I) the aggregate excess spending for the year (as 
     defined in subsection (a)(1), to
       ``(II) the sum of the amounts of the excess spending for 
     all excess spending sectors.

       ``(2) Taking into account volume and cash flow.--In 
     providing for an adjustment in payments under this subsection 
     for a sector for a fiscal year, the Secretary shall take into 
     account (in a manner consistent with actuarial projections)--
       ``(A) the impact of such an adjustment on the volume or 
     type of services provided in such sector (and other sectors), 
     and
       ``(B) the fact that an adjustment may apply to items and 
     services furnished in a fiscal year (payment for which may 
     occur in a subsequent fiscal year),
     in a manner that is consistent with assuring that total fee-
     for-services expenditures for each sector for the fiscal year 
     will not exceed the allotment under subsection (c)(1) for 
     such sector for such year.
       ``(3) Proportionality of reductions within a sector.--In 
     making adjustments under this subsection in payment for items 
     and services included within a sector of medicare services 
     for a fiscal year, the Secretary shall provide for such an 
     adjustment that results (to the maximum extent feasible) in 
     the same percentage reductions in aggregate Federal payments 
     under parts A and B for the different classes of items and 
     services included within the sector for the fiscal year.
       ``(4) Application to payments made based on prospective 
     payment rates determined on a fiscal year basis.--
       ``(A) In general.--In applying subsection (a) with respect 
     to items and services for which payment is made under part A 
     or B on the basis of rates that are established on a 
     prospective basis for (and in advance of) a fiscal year, the 
     Secretary shall provide for the payment adjustment under such 
     subsection through an appropriate reduction in such rates 
     established for items and services furnished (or, in the case 
     of payment for operating costs of inpatient hospital services 
     of subsection (d) hospitals and subsection (d) Puerto Rico 
     hospitals (as defined in paragraphs (1)(B) and (9)(A) of 
     section 1886(d)), discharges occurring) during such year.
       ``(B) Description of application to specific services.--The 
     payment adjustment described in subparagraph (A) applies for 
     a fiscal year to at least the following:
       ``(i) Update factor for payment for operating costs of 
     inpatient hospital services of pps hospitals.--To the 
     computation of the applicable percentage increase specified 
     in section 1886(d)(3)(B)(i) for discharges occurring in the 
     fiscal year.
       ``(ii) Home health services.--To the extent payment amounts 
     for home health services are based on per visit payment rates 
     under section 1894, to the computation of the increase in the 
     national per visit payment rates established for the year 
     under section 1894(b)(2)(B).
       ``(iii) Hospice care.--To the update of payment rates for 
     hospice care under section 1814(i) for services furnished 
     during the fiscal year.
       ``(iv) Update factor for payment of operating costs of 
     inpatient hospital services of pps-exempt hospitals.--To the 
     computation of the target amount under section 1886(b)(3) for 
     discharges occurring during the fiscal year.
       ``(v) Covered non-routine services of skilled nursing 
     facilities.--To the computation of the facility per stay 
     limits for the year under section 1888A(d) for covered non-
     routine services of a skilled nursing facility (as described 
     in such section).
       ``(5) Application to payments made based on prospective 
     payment rates determined on a calendar year basis.--
       ``(A) In general.--In applying subsection (a) for a fiscal 
     year with respect to items and services for which payment is 
     made under part A or B on the basis of rates that are 
     established on a prospective basis for (and in advance of) a 
     calendar year, the Secretary shall provide for the payment 
     adjustment under such subsection through an appropriate 
     reduction in such rates established for items and services 
     furnished at any time during such calendar year as follows:
       ``(i) For fiscal year 1997, the reduction shall be made for 
     payment rates during calendar year 1997 in a manner so as to 
     achieve the necessary payment reductions for such fiscal year 
     for items and services furnished during the first 3 quarters 
     of calendar year 1997.
       ``(ii) For a subsequent fiscal year, the reduction shall be 
     made for payment rates during the calendar year in which the 
     fiscal year ends in a manner so as to achieve the necessary 
     payment reductions for such fiscal year for items and 
     services furnished during the first 3 quarters of the 
     calendar year, but also taking into account the payment 
     reductions made in the first quarter of the fiscal year 
     resulting from payment reductions made under this paragraph 
     for the previous calendar year.
       ``(iii) Payment rate reductions effected under this 
     subparagraph for a calendar year and applicable to the last 3 
     quarters of the fiscal year in which the calendar year ends 
     shall continue to apply during the first quarter of the 
     succeeding fiscal year.
       ``(B) Application in specific cases.--The payment 
     adjustment described in subparagraph (A) applies for a fiscal 
     year to at least the following:
       ``(i) Update in conversion factor for physicians' 
     services.--To the computation of the conversion factor under 
     subsection (d) of section 1848 used in the fee schedule 
     established under subsection (b) of such section for items 
     and services furnished during the calendar year in which the 
     fiscal year ends.
       ``(ii) Payment rates for other health care professionals.--
     To the computation of payments for professional services, 
     furnished during the calendar year in which the fiscal year 
     ends, of certified registered nurse anesthetists under 

[[Page H 12620]]
     section 1833(l), nurse midwives, physician assistants, nurse 
     practitioners and clinical nurse specialists under section 
     1833(r), clinical psychologists, clinical social workers, 
     physical or occupational therapists, and any other health 
     professionals for which payment rates are based (in whole or 
     in part) on payments for physicians' services.
       ``(iii) Update in lab fee schedule.--To the computation of 
     the fee schedule amount under section 1833(h)(2) for clinical 
     diagnostic laboratory services furnished during the calendar 
     year in which the fiscal year ends.
       ``(iv) UPdate in reasonable charges for vaccines.--To the 
     computation of the reasonable charge for vaccines described 
     in section 1861(s)(10) for vaccines furnished during the 
     calendar year in which the fiscal year ends.
       ``(v) DUrable medical equipment-related items.--To the 
     computation of the payment basis under section 1834(a)(1)(B) 
     for covered items described in section 1834(a)(13), for 
     services furnished during the calendar year in which the 
     fiscal year ends.
       ``(vi) Radiologist services.--To the computation of 
     conversion factors for radiologist services under section 
     1834(b), for services furnished during the calendar year in 
     which the fiscal year ends.
       ``(vii) Screening mammography.--To the computation of 
     payment rates for screening mammography under section 
     1834(c)(1)(C)(ii), for screening mammography performed during 
     the calendar year in which the fiscal year ends.
       ``(viii) Prosthetics and orthotics..--To the computation of 
     the amount to be recognized under section 1834(h) for payment 
     for prosthetic devices and orthotics and prosthetics, for 
     items furnished during the calendar year in which the fiscal 
     year ends.
       ``(ix) Surgical dressings.--To the computation of the 
     payment amount referred to in section 1834(i)(1)(B) for 
     surgical dressings, for items furnished during the calendar 
     year in which the fiscal year ends.
       ``(x) Parenteral and enteral nutrition.--To the computation 
     of reasonable charge screens for payment for parenteral and 
     enteral nutrition under section 1834(h), for nutrients 
     furnished during the calendar year in which the fiscal year 
     ends.
       ``(xi) Ambulance services.--To the computation of limits on 
     reasonable charges for ambulance services, for services 
     furnished during the calendar year in which the fiscal year 
     ends.
       ``(6) Application to payments made based on costs during a 
     cost reporting period.--
       ``(A) In general.--In applying subsection (a) for a fiscal 
     year with respect to items and services for which payment is 
     made under part A or B on the basis of costs incurred for 
     items and services in a cost reporting period, the Secretary 
     shall provide for the payment adjustment under such 
     subsection for a fiscal year through an appropriate 
     proportional reduction in the payment for costs for such 
     items and services incurred at any time during each cost 
     reporting period any part of which occurs during the fiscal 
     year involved, but only (for each such cost reporting period) 
     in the same proportion as the fraction of the cost reporting 
     period that occurs during the fiscal year involved.
       ``(B) Application in specific cases.--The payment 
     adjustment described in subparagraph (A) applies for a fiscal 
     year to at least the following:
       ``(i) Capital-related costs of hospital services.--To the 
     computation of payment amounts for inpatient and outpatient 
     hospital services under sections 1886(g) and 1861(v) for 
     portions of cost reporting periods occurring during the 
     fiscal year.
       ``(ii) Operating costs for pps-exempt hospitals.--To the 
     computation of payment amounts under section 1886(b) for 
     operating costs of inpatient hospital services of PPS-exempt 
     hospitals for portions of cost reporting periods occurring 
     during the fiscal year.
       ``(iii) Direct graduate medical education.--To the 
     computation of payment amounts under section 1886(h) for 
     reasonable costs of direct graduate medical education costs 
     for portions of cost reporting periods occurring during the 
     fiscal year.
       ``(iv) Inpatient rural primary care hospital services.--To 
     the computation of payment amounts under section 1814(j) for 
     inpatient rural primary care hospital services for portions 
     of cost reporting periods occurring during the fiscal year.
       ``(v) Extended care services of a skilled nursing 
     facility.--To the computation of payment amounts under 
     section 1861(v) for post-hospital extended care services of a 
     skilled nursing facility (other than covered non-routine 
     services subject to section 1888A) for portions of cost 
     reporting periods occurring during the fiscal year.
       ``(vi) Reasonable cost contracts.--To the computation of 
     payment amounts under section 1833(a)(1)(A) for organizations 
     for portions of cost reporting periods occurring during the 
     fiscal year.
       ``(vii) Home health services.--Subject to paragraph 
     (4)(B)(ii), for payment amounts for home health services, for 
     portions of cost reporting periods occurring during such 
     fiscal year.
       ``(7) Other.--In applying subsection (a) for a fiscal year 
     with respect to items and services for which payment is made 
     under part A or B on a basis not described in a previous 
     paragraph of this subsection, the Secretary shall provide for 
     the payment adjustment under such subsection through an 
     appropriate proportional reduction in the payments (or 
     payment bases for items and services furnished) during the 
     fiscal year.
       ``(8) Adjustment of payment limits.--The Secretary shall 
     provide for such proportional adjustment in any limits on 
     payment established under part A or B for items and services 
     within a sector as may be appropriate based on (and in order 
     to properly carry out) the adjustment to the amount of 
     payment under this subsection in the sector.
       ``(9) References to payment rates.--Except as the Secretary 
     may provide, any reference in this title (other than this 
     section) to a payment rate is deemed a reference to such a 
     rate as adjusted under this subsection.
       ``(e) Publication of Determinations; Judicial Review.--
       ``(1) One-time publication of sectors and general payment 
     adjustment methodology.--Not later than October 1, 1996, the 
     Secretary shall publish in the Federal Register the 
     classification of medicare items and services into the 
     sectors of medicare services under subsection (b) and the 
     general methodology to be used in applying payment 
     adjustments to the different classes of items and services 
     within the sectors.
       ``(2) Inclusion of information in president's budget.--
       ``(A) In general.--With respect to fiscal years beginning 
     with fiscal year 1999, the President shall include in the 
     budget submitted under section 1105 of title 31, United 
     States Code, information on--
       ``(i) the fee-for-service expenditures, within each sector, 
     for the second previous fiscal year, and how such 
     expenditures compare to the adjusted sector allotment for 
     that sector for that fiscal year, and
       ``(ii) actual annual growth rates for fee-for-service 
     expenditures in the different sectors in the second previous 
     fiscal year.
       ``(B) Recommendation regarding growth factors.--The 
     President may include in such budget for a fiscal year 
     (beginning with fiscal year 1998) recommendations regarding 
     percentages that should be applied (for one or more fiscal 
     years beginning with that fiscal year) instead of the 
     baseline annual growth rates under subsection (c)(3)(C). Such 
     recommendations shall take into account medically appropriate 
     practice patterns.
       ``(3) Determinations concerning payment adjustments.--
       ``(A) Recommendations of commission.--By not later than 
     March 1 of each year (beginning with 1997), the Medicare 
     Payment Review Commission shall submit to the Secretary and 
     the Congress a report that analyzes the previous operation 
     (if any) of this section and that includes recommendations 
     concerning the manner in which this section should be applied 
     for the following fiscal year:
       ``(B) Preliminary notice by secretary.--Not later than May 
     15 preceding the beginning of each fiscal year (beginning 
     with fiscal year 1998), the Secretary shall publish in the 
     Federal Register a notice containing the Secretary's 
     preliminary determination, for each sector of medicare 
     services, concerning the following:
       ``(i) the projected allotment under subsection (c) for such 
     sector for the fiscal year.
       ``(ii) Whether there will be a payment adjustment for items 
     and services included in such sector for the fiscal year 
     under subsection (a).
       ``(iii) If there will be such an adjustment, the size of 
     such adjustment and the methodology to be used in making such 
     a payment adjustment for classes of items and services 
     included in such sector.
       ``(iv) Beginning with fiscal year 1999, the fee-for-service 
     expenditures for such sector for the second preceding fiscal 
     year.
     Such notice shall include an explanation of the basis for 
     such determination. Determinations under this subparagraph 
     and subparagraph (C) shall be based on the best data 
     available at the time of such determinations.
       ``(C) Final determination.--Not later than September 1 
     preceding the beginning of each fiscal year (beginning with 
     fiscal year 1998), the Secretary shall publish in the Federal 
     Register a final determination, for each, sector of medicare 
     services, concerning the matters described in subparagraph 
     (B) and an explanation of the reasons for any differences 
     between such determination and the preliminary determination 
     for such fiscal year published under subparagraph (B).
       ``(4) Limitation on administrative or judicial review.--
     There shall be no administrative or judicial review under 
     section 1878 or otherwise of--
       ``(A) the classification of items and services among the 
     sectors of medicare services under subsection (b),
       ``(B) the determination of the amounts of allotments for 
     the different sectors of medicare services under subsection 
     (c),
       ``(C) the determination of the amount (or method of 
     application) of any payment adjustment under subsection (d), 
     or
       ``(D) any adjustment in an allotment effected under 
     subsection (g).
       ``(f) Fee-for-Service Expenditures Defined.--In this 
     section, the term ``fee-for-service expenditures', for items 
     and services within a sector of medicare services in a fiscal 
     year, means amounts payable for such items and services which 
     are furnished during the fiscal year, and--
       ``(1) includes types of expenses otherwise reimbursable 
     under parts A and B (including administrative costs incurred 
     by organizations described in sections 1816 and 1842) with 
     respect to such items and services, and
       ``(2) does not include amounts paid under part C.
       ``(g) Look-Back Adjustment in Allotments to Reflect Actual 
     Expenditures.--
       ``(1) Determinations.--
       ``(A) In general.--If the Secretary estimates under 
     subsection (e)(3)(B) with respect to a particular fiscal year 
     (beginning with fiscal year 1998) that--
       ``(i) the fee-for-service expenditures for all sectors of 
     medicare services for the second preceding fiscal year, 
     exceeded
       ``(ii) the sum of the adjusted allotments for all sectors 
     for such year (as defined in paragraph (2)), then the 
     allotment for each final excess 

[[Page H 12621]]
     spending sector (as defined in subparagraph (B)(i)) for the particular 
     fiscal year shall be reduced by the look-back sector 
     reduction amount determined under subparagraph (B)(ii) for 
     such sector and year.
       ``(B) Final excess spending sectors.--
       ``(i) In general.--In this paragraph, the term final excess 
     spending sector' means, for a fiscal year, a sector of 
     medicare services for which the Secretary determines under 
     subsection (e)(B) that--

       ``(I) the fee-for-service expenditures (as defined in 
     subsection (f) for the fiscal year, exceeded

       ``(II) the adjusted allotment for such fiscal year.

     For purposes of clause (ii), the term `final excess spending' 
     means, for a fiscal year with respect to such a sector, the 
     amount by which the amount described in subclause (I) (for 
     the fiscal year and sector) exceeds the amount described in 
     subclause (II) for such year and sector.
       ``(ii) Look back sector reduction amount.--In subparagraph 
     (A)(i), the `look back sector reduction amount' for a final 
     excess spending sector for a fiscal year is equal to the 
     product of--

       ``(I) the amount of the final excess spending for such 
     sector and year (as defined in clause (i)); and
       ``(II) the ratio of--

       ``(a) the aggregate final excess spending for the year 
     (described in subparagraph (A)(i)), to
       ``(b) the sum of the amounts of the final excess spending 
     for all final excess spending sectors.
       ``(2) Adjusted allotment.--The adjusted allotment under 
     this paragraph for a sector for a fiscal year is--
       ``(A) the amount that would be computed as the allotment 
     under subsection (c) for the sector for the fiscal year if 
     the actual amount of payments made in the fiscal year under 
     the MedicarePlus program under part C in the fiscal year were 
     substituted for the amount described in subsection 
     (c)(2)(A)(ii) for that fiscal year,
       ``(B) adjusted to take into account the amount of any 
     adjustment under paragraph (1) for that fiscal year (based on 
     expenditures in the second preceding fiscal year).''.
       (b) Report of Trustees on Growth Rate in Part A 
     Expenditures.--Section 1817 (42 U.S.C. 1395i) is amended by 
     adding at the end the following new subsection:
       ``(k) Each annual report provided in subsection (b)(2) 
     shall include information regarding the annual rate of growth 
     in program expenditures that would be required to maintain 
     the financial solvency of the Trust Fund and the extent to 
     which the provisions of section 1895 restrain the rate of 
     growth of expenditures under this part in order to achieve 
     such solvency.''.
                        Subtitle H--Rural Areas

     SEC. 8701. MEDICARE-DEPENDENT, SMALL, RURAL HOSPITAL PAYMENT 
                   EXTENSION.

       (a) Special Treatment Extended.--
       (1) Payment methodology.--Section 1886(d)(5)(G) (42 U.S.C. 
     1395ww(d)(5)(G)) is amended--
       (A) in clause (i), by striking ``October 1, 1994,'' and 
     inserting ``October 1, 1994, or beginning on or after 
     September 1, 1995, and before October 1, 2000,''; and
       (B) in clause (ii)(II), by striking ``October 1, 1994,'' 
     and inserting ``October 1, 1994, or beginning on or after 
     September 1, 1995, and before October 1, 2000,''.
       (2) Extension of target amount.--Section 1886(b)(3)(D) (42 
     U.S.C. 1395ww(b)(3)(D)) is amended--
       (A) in the matter preceding clause (i), by striking 
     ``September 30, 1994,'' and inserting ``September 30, 1994, 
     and for cost reporting periods beginning on or after 
     September 1, 1995, and before October 1, 2000,'';
       (B) in clause (ii), by striking ``and'' at the end;
       (C) in clause (iii), by striking the period at the end and 
     inserting ``, and''; and
       (D) by adding at the end the following new clause:
       ``(iv) with respect to discharges occurring during 
     September 1995 through fiscal year 1999, the target amount 
     for the preceding year increased by the applicable percentage 
     increase under subparagraph (B)(iv).''.
       (3) Permitting hospitals to decline reclassification.--
     Section 13501(e)(2) of OBRA-93 (42 U.S.C. 1395ww note) is 
     amended by striking ``or fiscal year 1994'' and inserting ``, 
     fiscal year 1994, fiscal year 1995, fiscal year 1996, fiscal 
     year 1997, fiscal year 1998, or fiscal year 1999''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply with respect to discharges occurring on or after 
     September 1, 1995.

     SEC. 8702. MEDICARE RURAL HOSPITAL FLEXIBILITY PROGRAM.

       (a) Medicare Rural Hospital Flexibility Program.--Section 
     1820 (42 U.S.C. 1395i-4) is amended to read as follows:


             ``medicare rural hospital flexibility program

       ``Sec. 1820. (a) Establishment.--Any State that submits an 
     application in accordance with subsection (b) may establish a 
     medicare rural hospital flexibility program described in 
     subsection (c).
       ``(b) Application.--A State may establish a medicare rural 
     hospital flexibility program described in subsection (c) if 
     the State submits to the Secretary at such time and in such 
     form as the Secretary may require an application containing--
       ``(1) assurances that the State--
       ``(A) has developed, or is in the process of developing, a 
     State rural health care plan that--
       ``(i) provides for the creation of one or more rural health 
     networks (as defined in subsection (d)) in the State,
       ``(ii) promotes regionalization of rural health services in 
     the State, and
       ``(iii) improves access to hospital and other health 
     services for rural residents of the State;
       ``(B) has developed the rural health care plan described in 
     subparagraph (A) in consultation with the hospital 
     association of the State, rural hospitals located in the 
     State, and the State Office of Rural Health (or, in the case 
     of a State in the process of developing such plan, that 
     assures the Secretary that the State will consult with its 
     State hospital association, rural hospitals located in the 
     State, and the State Office of Rural Health in developing 
     such plan);
       ``(2) assurances that the State has designated (consistent 
     with the rural health care plan described in paragraph 
     (1)(A)), or is in the process of so designating, rural 
     nonprofit or public hospitals or facilities located in the 
     State as critical access hospitals; and
       ``(3) such other information and assurances as the 
     Secretary may require.
       ``(c) Medicare Rural Hospital Flexibility Program 
     Described.--
       ``(1) In general.--A State that has submitted an 
     application in accordance with subsection (b), may establish 
     a medicare rural hospital flexibility program that provides 
     that--
       ``(A) the State shall develop at least one rural health 
     network (as defined in subsection (d)) in the State; and
       ``(B) at least one facility in the State shall be 
     designated as a critical access hospital in accordance with 
     paragraph (2).
       ``(2) State designation of facilities.--
       ``(A) In general.--A State may designate one or more 
     facilities as a critical access hospital in accordance with 
     subparagraph (B).
       ``(B) Criteria for designation as critical access 
     hospital.--A State may designate a facility as a critical 
     access hospital if the facility--
       ``(i) is located in a county (or equivalent unit of local 
     government) in a rural area (as defined in section 
     1886(d)(2)(D)) that--

       ``(I) is located more than a 35-mile drive from a hospital, 
     or another facility described in this subsection, or
       ``(II) is certified by the State as being a necessary 
     provider of health care services to residents in the area;

       ``(ii) makes available 24-hour emergency care services that 
     a State determines are necessary for ensuring access to 
     emergency care services in each area served by a critical 
     access hospital;
       ``(iii) provides not more than 6 acute care inpatient beds 
     (meeting such standards as the Secretary may establish) for 
     providing inpatient care for a period not to exceed 72 hours 
     (unless a longer period is required because transfer to a 
     hospital is precluded because of inclement weather or other 
     emergency conditions), except that a peer review organization 
     or equivalent entity may, on request, waive the 72-hour 
     restriction on a case-by-case basis;
       ``(iv) meets such staffing requirements as would apply 
     under section 1861(e) to a hospital located in a rural area, 
     except that--

       ``(I) the facility need not meet hospital standards 
     relating to the number of hours during a day, or days during 
     a week, in which the facility must be open and fully staffed, 
     except insofar as the facility is required to make available 
     emergency care services as determined under clause (ii) and 
     must have nursing services available on a 24-hour basis, but 
     need not otherwise staff the facility except when an 
     inpatient is present,
       ``(II) the facility may provide any services otherwise 
     required to be provided by a full-time, on-site dietitian, 
     pharmacist, laboratory technician, medical technologist, and 
     radiological technologist on a part-time, off-site basis 
     under arrangements as defined in section 1861(w)(1), and
       ``(III) the inpatient care described in clause (iii) may be 
     provided by a physician's assistant, nurse practitioner, or 
     clinical nurse specialist subject to the oversight of a 
     physician who need not be present in the facility; and

       ``(v) meets the requirements of subparagraph (I) of 
     paragraph (2) of section 1861(aa).
       ``(d) Rural Health Network Defined.--
       ``(1) In general.--For purposes of this section, the term 
     `rural health network' means, with respect to a State, an 
     organization consisting of--
       ``(A) at least 1 facility that the State has designated or 
     plans to designate as a critical access hospital, and
       ``(B) at least 1 hospital that furnishes acute care 
     services.
       ``(2) Agreements.--
       ``(A) In general.--Each critical access hospital that is a 
     member of a rural health network shall have an agreement with 
     respect to each item described in subparagraph (B) with at 
     least 1 hospital that is a member of the network.
       ``(B) Items described.--The items described in this 
     subparagraph are the following:
       ``(i) Patient referral and transfer.
       ``(ii) The development and use of communications systems 
     including (where feasible)--

       ``(I) telemetry systems, and
       ``(II) systems for electronic sharing of patient data.

       ``(iii) The provision of emergency and non-emergency 
     transportation among the facility and the hospital.
       ``(C) Credentialing and quality assurance.--Each critical 
     access hospital that is a member of a rural health network 
     shall have an agreement with respect to credentialing and 
     quality assurance with at least 1--
       ``(i) hospital that is a member of the network;
       ``(ii) peer review organization or equivalent entity; or
       ``(iii) other appropriate and qualified entity identified 
     in the State rural health care plan.
       ``(e) Certification by the Secretary.--The Secretary shall 
     certify a facility as a critical access hospital if the 
     facility--
       ``(1) is located in a State that has established a medicare 
     rural hospital flexibility program in accordance with 
     subsection (c);

[[Page H 12622]]

       ``(2) is designated as a critical access hospital by the 
     State in which it is located; and
       ``(3) meets such other criteria as the Secretary may 
     require.
       ``(f) Permitting Maintenance of Swing Beds.--Nothing in 
     this section shall be construed to prohibit a State from 
     designating or the Secretary from certifying a facility as a 
     critical access hospital solely because, at the time the 
     facility applies to the State for designation as a critical 
     access hospital, there is in effect an agreement between the 
     facility and the Secretary under section 1883 under which the 
     facility's inpatient hospital facilities are used for the 
     furnishing of extended care services, except that the number 
     of beds used for the furnishing of such services may not 
     exceed 12 beds (minus the number of inpatient beds used for 
     providing inpatient care in the facility pursuant to 
     subsection (c)(2)(B)(iii)). For purposes of the previous 
     sentence, the number of beds of the facility used for the 
     furnishing of extended care services shall not include any 
     beds of a unit of the facility that is licensed as a 
     distinct-part skilled nursing facility at the time the 
     facility applies to the State for designation as a critical 
     access hospital.
       ``(g) Waiver of Conflicting Part A Provisions.--The 
     Secretary is authorized to waive such provisions of this part 
     and part C as are necessary to conduct the program 
     established under this section.''.
       (b) Part A Amendments Relating to Rural Primary Care 
     Hospitals and Critical Access Hospitals.--
       (1) Definitions.--Section 1861(mm) (42 U.S.C. 1395x(mm)) is 
     amended to read as follows:


     ``critical access hospital; critical access hospital services

       ``(mm)(1) The term `critical access hospital' means a 
     facility certified by the Secretary as a critical access 
     hospital under section 1820(e).
       ``(2) The term `inpatient critical access hospital 
     services' means items and services, furnished to an inpatient 
     of a critical access hospital by such facility, that would be 
     inpatient hospital services if furnished to an inpatient of a 
     hospital by a hospital.''.
       (2) Coverage and payment.--(A) Section 1812(a)(1) (42 
     U.S.C. 1395d(a)(1)) is amended by striking ``or inpatient 
     rural primary care hospital services'' and inserting ``or 
     inpatient critical access hospital services''.
       (B) Sections 1813(a) and section 1813(b)(3)(A) (42 U.S.C. 
     1395e(a), 1395e(b)(3)(A)) are each amended by striking 
     ``inpatient rural primary care hospital services'' each place 
     it appears, and inserting ``inpatient critical access 
     hospital services''.
       (C) Section 1813(b)(3)(B) (42 U.S.C. 1395e(b)(3)(B)) is 
     amended by striking ``inpatient rural primary care hospital 
     services'' and inserting ``inpatient critical access hospital 
     services''.
       (D) Section 1814 (42 U.S.C. 1395f) is amended--
       (i) in subsection (a)(8) by striking ``rural primary care 
     hospital'' each place it appears and inserting ``critical 
     access hospital''; and
       (ii) in subsection (b), by striking ``other than a rural 
     primary care hospital providing inpatient rural primary care 
     hospital services,'' and inserting ``other than a critical 
     access hospital providing inpatient critical access hospital 
     services,''; and
       (iii) by amending subsection (l) to read as follows:
       ``(l) Payment for Inpatient Critical Access Hospital 
     Services.--The amount of payment under this part for 
     inpatient critical access hospital services is the reasonable 
     costs of the critical access hospital in providing such 
     services.''.
       (3) Treatment of critical access hospitals as providers of 
     services.--(A) Section 1861(u) (42 U.S.C. 1395x(u)) is 
     amended by striking ``rural primary care hospital'' and 
     inserting ``critical access hospital''.
       (B) The first sentence of section 1864(a) (42 U.S.C. 
     1395aa(a)) is amended by striking ``a rural primary care 
     hospital'' and inserting ``a critical access hospital''.
       (4) Conforming amendments.--(A) Section 1128A(b)(1) (42 
     U.S.C. 1320a-7a(b)(1)) is amended by striking ``rural primary 
     care hospital'' each place it appears and inserting 
     ``critical access hospital''.
       (B) Section 1128B(c) (42 U.S.C. 1320a-7b(c)) is amended by 
     striking ``rural primary care hospital'' and inserting 
     ``critical access hospital''.
       (C) Section 1134 (42 U.S.C. 1320b-4) is amended by striking 
     ``rural primary care hospitals'' each place it appears and 
     inserting ``critical access hospitals''.
       (D) Section 1138(a)(1) (42 U.S.C. 1320b-8(a)(1)) is 
     amended--
       (i) in the matter preceding subparagraph (A), by striking 
     ``rural primary care hospital'' and inserting ``critical 
     access hospital''; and
       (ii) in the matter preceding clause (i) of subparagraph 
     (A), by striking ``rural primary care hospital'' and 
     inserting ``critical access hospital''.
       (E) Section 1816(c)(2)(C) (42 U.S.C. 1395h(c)(2)(C)) is 
     amended by striking ``rural primary care hospital'' and 
     inserting ``critical access hospital''.
       (F) Section 1833 (42 U.S.C. 1395l) is amended--
       (i) in subsection (h)(5)(A)(iii), by striking ``rural 
     primary care hospital'' and inserting ``critical access 
     hospital'';
       (ii) in subsection (i)(1)(A), by striking ``rural primary 
     care hospital'' and inserting ``critical access hospital'';
       (iii) in subsection (i)(3)(A), by striking ``rural primary 
     care hospital services'' and inserting ``critical access 
     hospital services'';
       (iv) in subsection (l)(5)(A), by striking ``rural primary 
     care hospital'' each place it appears and inserting 
     ``critical access hospital''; and
       (v) in subsection (l)(5)(B), by striking ``rural primary 
     care hospital'' each place it appears and inserting 
     ``critical access hospital''.
       (G) Section 1835(c) (42 U.S.C. 1395n(c)) is amended by 
     striking ``rural primary care hospital'' each place it 
     appears and inserting ``critical access hospital''.
       (H) Section 1842(b)(6)(A)(ii) (42 U.S.C. 
     1395u(b)(6)(A)(ii)) is amended by striking ``rural primary 
     care hospital'' and inserting ``critical access hospital''.
       (I) Section 1861 (42 U.S.C. 1395x) is amended--
       (i) in subsection (a)--
       (I) in paragraph (1), by striking ``inpatient rural primary 
     care hospital services'' and inserting ``inpatient critical 
     access hospital services''; and
       (II) in paragraph (2), by striking ``rural primary care 
     hospital'' and inserting ``critical access hospital'';
       (ii) in the last sentence of subsection (e), by striking 
     ``rural primary care hospital'' and inserting ``critical 
     access hospital'';
       (iii) in subsection (v)(1)(S)(ii)(III), by striking ``rural 
     primary care hospital'' and inserting ``critical access 
     hospital'';
       (iv) in subsection (w)(1), by striking ``rural primary care 
     hospital'' and inserting ``critical access hospital''; and
       (v) in subsection (w)(2), by striking ``rural primary care 
     hospital'' each place it appears and inserting ``critical 
     access hospital''.
       (J) Section 1862(a)(14) (42 U.S.C. 1395y(a)(14)) is amended 
     by striking ``rural primary care hospital'' each place it 
     appears and inserting ``critical access hospital''.
       (K) Section 1866(a)(1) (42 U.S.C 1395cc(a)(1)) is amended--
       (i) in subparagraph (F)(ii), by striking ``rural primary 
     care hospitals'' and inserting ``critical access hospitals'';
       (ii) in subparagraph (H), in the matter preceding clause 
     (i), by striking ``rural primary care hospitals'' and ``rural 
     primary care hospital services'' and inserting ``critical 
     access hospitals'' and ``critical access hospital services'', 
     respectively;
       (iii) in subparagraph (I), in the matter preceding clause 
     (i), by striking ``rural primary care hospital'' and 
     inserting ``critical access hospital''; and
       (iv) in subparagraph (N)--
       (I) in the matter preceding clause (i), by striking ``rural 
     primary care hospitals'' and inserting ``critical access 
     hospitals'', and
       (II) in clause (i), by striking ``rural primary care 
     hospital'' and inserting ``critical access hospital''.
       (L) Section 1866(a)(3) (42 U.S.C 1395cc(a)(3)) is amended--
       (i) by striking ``rural primary care hospital'' each place 
     it appears in subparagraphs (A) and (B) and inserting 
     ``critical access hospital''; and
       (ii) in subparagraph (C)(ii)(II), by striking ``rural 
     primary care hospitals'' each place it appears and inserting 
     ``critical access hospitals''.
       (M) Section 1867(e)(5) (42 U.S.C. 1395dd(e)(5)) is amended 
     by striking ``rural primary care hospital'' and inserting 
     ``critical access hospital''.
       (c) Payment Continued to Designated EACHs.--Section 
     1886(d)(5)(D) (42 U.S.C. 1395ww(d)(5)(D)) is amended--
       (1) in clause (iii)(III), by inserting ``as in effect on 
     September 30, 1995'' before the period at the end; and
       (2) in clause (v)--
       (A) by inserting ``as in effect on September 30, 1995'' 
     after ``1820 (i)(1)''; and
       (B) by striking ``1820(g)'' and inserting ``1820(e)''.
       (d) Part B Amendments Relating to Critical Access 
     Hospitals.--
       (1) Coverage.--(A) Section 1861(mm) (42 U.S.C. 1395x(mm)) 
     as amended by subsection (d)(1), is amended by adding at the 
     end the following new paragraph:
       ``(3) The term `outpatient critical access hospital 
     services' means medical and other health services furnished 
     by a critical access hospital on an outpatient basis.''.
       (B) Section 1832(a)(2)(H) (42 U.S.C. 1395k(a)(2)(H)) is 
     amended by striking ``rural primary care hospital services'' 
     and inserting ``critical access hospital services''.
       (2) Payment.--(A) Section 1833(a) (42 U.S.C. 1395l(a)) is 
     amended in paragraph (6), by striking ``outpatient rural 
     primary care hospital services'' and inserting ``outpatient 
     critical access hospital services''.
       (B) Section 1834(g) (42 U.S.C. 1395m(g)) is amended to read 
     as follows:
       ``(g) Payment for Outpatient Critical Access Hospital 
     Services.--The amount of payment under this part for 
     outpatient critical access hospital services is the 
     reasonable costs of the critical access hospital in providing 
     such services.''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to services furnished on or after October 1, 
     1995.

     SEC. 8703. ESTABLISHMENT OF RURAL EMERGENCY ACCESS CARE 
                   HOSPITALS.

       (a) In General.--Section 1861 (42 U.S.C. 1395x) is amended 
     by adding at the end the following new subsection:

  ``Rural Emergency Access Care Hospital; Rural Emergency Access Care 
                           Hospital Services

       ``(oo)(1) The term `rural emergency access care hospital' 
     means, for a fiscal year, a facility with respect to which 
     the Secretary finds the following:
       ``(A) The facility is located in a rural area (as defined 
     in section 1886(d)(2)(D)).
       ``(B) The facility was a hospital under this title at any 
     time during the 5-year period that ends on the date of the 
     enactment of this subsection.
       ``(C) The facility is in danger of closing due to low 
     inpatient utilization rates and operating losses, and the 
     closure of the facility would limit the access to emergency 
     services of individuals residing in the facility's service 
     area.
       ``(D) The facility has entered into (or plans to enter 
     into) an agreement with a hospital with a participation 
     agreement in effect under section 1866(a), and under such 
     agreement the hospital 

[[Page H 12623]]
     shall accept patients transferred to the hospital from the facility and 
     receive data from and transmit data to the facility.
       ``(E) There is a practitioner who is qualified to provide 
     advanced cardiac life support services (as determined by the 
     State in which the facility is located) on-site at the 
     facility on a 24-hour basis.
       ``(F) A physician is available on-call to provide emergency 
     medical services on a 24-hour basis.
       ``(G) The facility meets such staffing requirements as 
     would apply under section 1861(e) to a hospital located in a 
     rural area, except that--
       ``(i) the facility need not meet hospital standards 
     relating to the number of hours during a day, or days during 
     a week, in which the facility must be open, except insofar as 
     the facility is required to provide emergency care on a 24-
     hour basis under subparagraphs (E) and (F); and
       ``(ii) the facility may provide any services otherwise 
     required to be provided by a full-time, on-site dietitian, 
     pharmacist, laboratory technician, medical technologist, or 
     radiological technologist on a part-time, off-site basis.
       ``(H) The facility meets the requirements applicable to 
     clinics and facilities under subparagraphs (C) through (J) of 
     paragraph (2) of section 1861(aa) and of clauses (ii) and 
     (iv) of the second sentence of such paragraph (or, in the 
     case of the requirements of subparagraph (E), (F), or (J) of 
     such paragraph, would meet the requirements if any reference 
     in such subparagraph to a `nurse practitioner' or to `nurse 
     practitioners' were deemed to be a reference to a `nurse 
     practitioner or nurse' or to `nurse practitioners or 
     nurses'); except that in determining whether a facility meets 
     the requirements of this subparagraph, subparagraphs (E) and 
     (F) of that paragraph shall be applied as if any reference to 
     a `physician' is a reference to a physician as defined in 
     section 1861(r)(1).
       ``(2) The term `rural emergency access care hospital 
     services' means the following services provided by a rural 
     emergency access care hospital and furnished to an individual 
     over a continuous period not to exceed 24 hours (except that 
     such services may be furnished over a longer period in the 
     case of an individual who is unable to leave the hospital 
     because of inclement weather):
       ``(A) An appropriate medical screening examination (as 
     described in section 1867(a)).
       ``(B) Necessary stabilizing examination and treatment 
     services for an emergency medical condition and labor (as 
     described in section 1867(b)).''.
       (b) Requiring Rural Emergency Access Care Hospitals To Meet 
     Hospital Anti-Dumping Requirements.--Section 1867(e)(5) (42 
     U.S.C. 1395dd(e)(5)) is amended by striking ``1861(mm)(1))'' 
     and inserting ``1861(mm)(1)) and a rural emergency access 
     care hospital (as defined in section 1861(oo)(1))''.
       (c) Coverage and Payment for Services.--
       (1) Coverage.--Section 1832(a)(2) (42 U.S.C. 1395k(a)(2)) 
     is amended--
       (A) by striking ``and'' at the end of subparagraph (I);
       (B) by striking the period at the end of subparagraph (J) 
     and inserting ``; and''; and
       (C) by adding at the end the following new subparagraph:
       ``(K) rural emergency access care hospital services (as 
     defined in section 1861(oo)(2)).''.
       (2) Payment based on payment for outpatient critical access 
     hospital services.--
       (A) In general.--Section 1833(a)(6) (42 U.S.C. 
     1395l(a)(6)), as amended by section 8702(f)(2), is amended by 
     striking ``services,'' and inserting ``services and rural 
     emergency access care hospital services,''.
       (B) Payment methodology described.--Section 1834(g) (42 
     U.S.C. 1395m(g)), as amended by section 8702(f)(2)(B), is 
     amended--
       (i) in the heading, by striking ``Services'' and inserting 
     ``Services and Rural Emergency Access Care Hospital 
     Services''; and
       (ii) by adding at the end the following new sentence: ``The 
     amount of payment for rural emergency access care hospital 
     services provided during a year shall be determined using the 
     applicable method provided under this subsection for 
     determining payment for outpatient rural primary care 
     hospital services during the year.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to fiscal years beginning on or after October 1, 
     1995.

     SEC. 8704. CLASSIFICATION OF RURAL REFERRAL CENTERS.

       (a) Prohibiting Denial of Request for Reclassification on 
     Basis of Comparability of Wages.--
       (1) In general.--Section 1886(d)(10)(D) (42 U.S.C. 
     1395ww(d)(10)(D)) is amended--
       (A) by redesignating clause (iii) as clause (iv); and
       (B) by inserting after clause (ii) the following new 
     clause:
       ``(iii) Under the guidelines published by the Secretary 
     under clause (i), in the case of a hospital which is 
     classified by the Secretary as a rural referral center under 
     paragraph (5)(C), the Board may not reject the application of 
     the hospital under this paragraph on the basis of any 
     comparison between the average hourly wage of the hospital 
     and the average hourly wage of hospitals in the area in which 
     it is located.''.
       (2) Effective date.--Notwithstanding section 
     1886(d)(10)(C)(ii) of the Social Security Act, a hospital may 
     submit an application to the Medicare Geographic 
     Classification Review Board during the 30-day period 
     beginning on the date of the enactment of this Act requesting 
     a change in its classification for purposes of determining 
     the area wage index applicable to the hospital under section 
     1886(d)(3)(D) of such Act for fiscal year 1997, if the 
     hospital would be eligible for such a change in its 
     classification under the standards described in section 
     1886(d)(10)(D) (as amended by paragraph (1)) but for its 
     failure to meet the deadline for applications under section 
     1886(d)(10)(C)(ii).
       (b) Continuing Treatment of Previously Designated 
     Centers.--Any hospital classified as a rural referral center 
     by the Secretary of Health and Human Services under section 
     1886(d)(5)(C) of the Social Security Act for fiscal year 1994 
     shall be classified as such a rural referral center for 
     fiscal year 1996 and each subsequent fiscal year.

     SEC. 8705. FLOOR ON AREA WAGE INDEX.

       (a) In General.--For purposes of section 1886(d)(3)(E) of 
     the Social Security Act for discharges occurring on or after 
     October 1, 1995, the area wage index applicable under such 
     section to any hospital which is not located in a rural area 
     (as defined in section 1886(d)(2)(D) of such Act) may not be 
     less than the average of the area wage indices applicable 
     under such section to hospitals located in rural areas in the 
     State in which the hospital is located.
       (b) Implementation.--The Secretary of Health and Human 
     Services shall adjust the area wage indices referred to in 
     subsection (a) for hospitals not described in such subsection 
     in a manner which assures that the aggregate payments made 
     under section 1886(d) of the Social Security Act in a fiscal 
     year for the operating costs of inpatient hospital services 
     are not greater or less than those which would have been made 
     in the year if this section did not apply.

     SEC. 8706. ADDITIONAL PAYMENTS FOR PHYSICIANS' SERVICES 
                   FURNISHED IN SHORTAGE AREAS.

       (a) Increase in Amount of Additional Payment.--Section 
     1833(m) (42 U.S.C. 1395l(m)) is amended by striking ``10 
     percent'' and inserting ``20 percent''.
       (b) Restriction to Primary Care Services.--Section 1833(m) 
     (42 U.S.C. 1395l(m)) is amended by inserting after 
     ``physicians' services'' the following: ``consisting of 
     primary care services (as defined in section 1842(i)(4))''.
       (c) Extension of Payment for Former Shortage Areas.--
       (1) In general.--Section 1833(m) (42 U.S.C. 1395l(m)) is 
     amended by striking ``area,'' and inserting ``area (or, in 
     the case of an area for which the designation as a health 
     professional shortage area under such section is withdrawn, 
     in the case of physicians' services furnished to such an 
     individual during the 3-year period beginning on the 
     effective date of the withdrawal of such designation),''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to physicians' services furnished in an area for 
     which the designation as a health professional shortage area 
     under section 332(a)(1)(A) of the Public Health Service Act 
     is withdrawn on or after January 1, 1996.
       (d) Requiring Carriers to Report on Services Provided.--
     Section 1842(b)(3) (42 U.S.C. 1395u(b)(3)) is amended--
       (1) by striking ``and'' at the end of subparagraph (I); and
       (2) by inserting after subparagraph (I) the following new 
     subparagraph:
       ``(J) will provide information to the Secretary (on such 
     periodic basis as the Secretary may require) on the types of 
     providers to whom the carrier makes additional payments for 
     certain physicians' services pursuant to section 1833(m), 
     together with a description of the services furnished by such 
     providers; and''.
       (e) Effective Date.--The amendments made by subsections 
     (a), (b), and (d) shall apply to physicians' services 
     furnished on or after October 1, 1995.

     SEC. 8707. PAYMENTS TO PHYSICIAN ASSISTANTS AND NURSE 
                   PRACTITIONERS FOR SERVICES FURNISHED IN 
                   OUTPATIENT OR HOME SETTINGS.

       (a) Coverage in Outpatient or Home Settings for Physician 
     Assistants and Nurse Practitioners.--Section 1861(s)(2)(K) 
     (42 U.S.C. 1395x(s)(2)(K)) is amended--
       (1) in clause (i)--
       (A) by striking ``or'' at the end of subclause (II); and
       (B) by inserting ``or (IV) in an outpatient or home setting 
     as defined by the Secretary'' following ``shortage area,''; 
     and
       (2) in clause (ii)--
       (A) by striking ``in a skilled'' and inserting ``in (I) a 
     skilled''; and
       (B) by inserting ``, or (II) in an outpatient or home 
     setting (as defined by the Secretary),'' after ``(as defined 
     in section 1919(a))''.
       (b) Payments to Physician Assistants and Nurse 
     Practitioners in Outpatient or Home Settings.--
       (1) In general.--Section 1833(r)(1) (42 U.S.C. 1395l(r)(1)) 
     is amended--
       (A) by inserting ``services described in section 
     1861(s)(2)(K)(ii)(II) (relating to nurse practitioner 
     services furnished in outpatient or home settings), and 
     services described in section 1861(s)(2)(K)(i)(IV) (relating 
     to physician assistant services furnished in an outpatient or 
     home setting'' after ``rural area),''; and
       (B) by striking ``or clinical nurse specialist'' and 
     inserting ``clinical nurse specialist, or physician 
     assistant''.
       (2) Conforming amendment.--Section 1842(b)(6)(C) (42 U.S.C. 
     1395u(b)(6)(C)) is amended by striking ``clauses (i), (ii), 
     or (iv)'' and inserting ``subclauses (I), (II), or (III) of 
     clause (i), clause (ii)(I), or clause (iv)''.
       (c) Payment Under the Fee Schedule to Physician Assistants 
     and Nurse Practitioners in Outpatient or Home Settings.--
       (1) Physician assistants.--Section 1842(b)(12) (42 U.S.C. 
     1395u(b)(12)) is amended by adding at the end the following 
     new subparagraph:
       ``(C) With respect to services described in clauses 
     (i)(IV), (ii)(II), and (iv) of section 1861(s)(2)(K) 
     (relating to physician assistants and nurse practitioners 
     furnishing services in outpatient or home settings)--
       ``(i) payment under this part may only be made on an 
     assignment-related basis; and

[[Page H 12624]]

       ``(ii) the amounts paid under this part shall be equal to 
     80 percent of (I) the lesser of the actual charge or 85 
     percent of the fee schedule amount provided under section 
     1848 for the same service provided by a physician who is not 
     a specialist; or (II) in the case of services as an assistant 
     at surgery, the lesser of the actual charge or 85 percent of 
     the amount that would otherwise be recognized if performed by 
     a physician who is serving as an assistant at surgery.''.
       (2) Conforming amendment.--Section 1842(b)(12)(A) (42 
     U.S.C. 1395u(b)(12)(A)) is amended in the matter preceding 
     clause (i) by striking ``(i), (ii),'' and inserting 
     ``subclauses (I), (II), or (III) of clause (i), or subclause 
     (I) of clause (ii)''.
       (3) Technical amendment.--Section 1842(b)(12)(A) (42 U.S.C. 
     1395u(b)(12)(A)) is amended in the matter preceding clause 
     (i) by striking ``a physician assistants'' and inserting 
     ``physician assistants''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to services furnished on or after October 1, 
     1995.

     SEC. 8708. EXPANDING ACCESS TO NURSE AIDE TRAINING IN 
                   UNDERSERVED AREAS.

       (a) In General.--Section 1819(f)(2)(B)(iii)(I) (42 U.S.C. 
     1396r(f)(2)(B)(iii)(I)) is amended in the matter preceding 
     item (a), by striking ``by or in a nursing facility'' and 
     inserting ``by a nursing facility (or in such a facility, 
     unless the State determines that there is no other such 
     program offered within a reasonable distance, provides notice 
     of the approval to the State long term care ombudsman, and 
     assures, through an oversight effort, that an adequate 
     environment exists for such a program)''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to nurse aide training and competency evaluation 
     programs under section 1819 of the Social Security Act which 
     are offered on or after October 1, 1995.
            TITLE IX--TRANSPORTATION AND RELATED PROVISIONS

     SEC. 9001. MINIMUM ALLOCATION FOR HIGHWAY PROGRAMS.

       (a) Technical Correction.--With respect to fiscal year 
     1996--
       (1) the Secretary of Transportation shall determine, in 
     accordance with the policies established by the Intermodal 
     Surface Transportation Efficiency Act of 1991 (105 Stat. 
     1914)--
       (A) which of the States will no longer require an 
     apportionment under section 157(a)(4) of title 23, United 
     States Code; and
       (B) which of the States will require decreased funding 
     under such section 157(a)(4);
     as a result of the termination of the Interstate construction 
     program; and
       (2) as a result of the reduced number of States that may 
     require an apportionment under such section 157(a)(4), and 
     the decrease in the amount of funds some States will require 
     under such section 157(a)(4), the maximum amount available 
     for apportionment under such section 157(a)(4) shall be 
     reduced from the amount apportioned under such section 
     157(a)(4) for fiscal year 1995 by 60.4 percent.
       (b) Effect on Certain Calculations.--The correction made by 
     subsection (a) shall be made after the reduction required 
     under section 1003(c) of the Intermodal Surface 
     Transportation Efficiency Act of 1991 (105 Stat. 1921) and 
     shall not be taken into account in making the calculations 
     under sections 1003(c), 1013(c), and 1015 of such Act (105 
     Stat. 1921, 1940, and 1943).

     SEC. 9002. EXTENSION OF HIGHER VESSEL TONNAGE DUTIES.

       (a) Extension of Duties.--Section 36 of the Act of August 
     5, 1909 (36 Stat. 111; 46 U.S.C. App. 121), is amended by 
     striking ``for fiscal years 1991, 1992, 1993, 1994, 1995, 
     1996, 1997, 1998,'' each place it appears and inserting ``for 
     fiscal years through fiscal year 2002,''.
       (b) Conforming Amendment.--The Act entitled ``An Act 
     concerning tonnage duties on vessels entering otherwise than 
     by sea'', approved March 8, 1910 (36 Stat. 234; 46 U.S.C. 
     App. 132), is amended by striking ``for fiscal years 1991, 
     1992, 1993, 1994, 1995, 1996, 1997, and 1998,'' and inserting 
     ``for fiscal years through fiscal year 2002,''.

     SEC. 9003. FEMA RADIOLOGICAL EMERGENCY PREPAREDNESS FEES.

       (a) In General.--The Director of the Federal Emergency 
     Management Agency may assess and collect fees applicable to 
     persons subject to radiological emergency preparedness 
     regulations issued by the Director.
       (b) Requirements.--The assessment and collection of fees by 
     the Director under subsection (a) shall be fair and equitable 
     and shall reflect the full amount of costs to the Agency of 
     providing radiological emergency planning, preparedness, 
     response, and associated services. Such fees shall be 
     assessed by the Director in a manner that reflects the use of 
     resources of the Agency for classes of regulated persons and 
     the administrative costs of collecting such fees.
       (c) Amount of Fees.--The aggregate amount of fees assessed 
     under subsection (a) in a fiscal year shall approximate, but 
     not be less than, 100 percent of the amounts anticipated by 
     the Director to be obligated for the radiological emergency 
     preparedness program of the Agency for such fiscal year.
       (d) Deposit of Fees in Treasury.--Fees received pursuant to 
     subsection (a) shall be deposited in the general fund of the 
     Treasury as offsetting receipts.
       (e) Expiration of Authority.--The authority of the Director 
     to assess and collect fees under subsection (a) shall expire 
     on September 30, 2002.
                TITLE X--VETERANS AND RELATED PROVISIONS

     SEC. 10001. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This title may be cited as the ``Veterans 
     Reconciliation Act of 1995''.
       (b) Table of Contents.--The table of contents for this 
     title is as follows:

Sec. 10001. Short title; table of contents.

             Subtitle A--Extension of Temporary Authorities

Sec. 10011. Authority to require that certain veterans make copayments 
              in exchange for receiving health-care benefits.
Sec. 10012. Medical care cost recovery authority.
Sec. 10013. Income verification authority.
Sec. 10014. Limitation on pension for certain recipients of medicaid-
              covered nursing home care.
Sec. 10015. Home loan fees.
Sec. 10016. Procedures applicable to liquidation sales on defaulted 
              home loans guaranteed by the Department of Veterans 
              Affairs.
Sec. 10017. Enhanced loan asset sale authority.

                       Subtitle B--Other Matters

Sec. 10021. Revision to prescription drug copayment.
Sec. 10022. Rounding down of cost-of-living adjustments in compensation 
              and DIC rates.
Sec. 10023. Revised standard for liability for injuries resulting from 
              Department of Veterans Affairs treatment.
Sec. 10024. Withholding of payments and benefits.
             Subtitle A--Extension of Temporary Authorities

     SEC. 10011. AUTHORITY TO REQUIRE THAT CERTAIN VETERANS MAKE 
                   COPAYMENTS IN EXCHANGE FOR RECEIVING HEALTH-
                   CARE BENEFITS.

       (a) Hospital and Medical Care.--Section 8013(e) of the 
     Omnibus Budget Reconciliation Act of 1990 (38 U.S.C. 1710 
     note) is amended by striking out ``September 30, 1998'' and 
     inserting in lieu thereof ``September 30, 2002''.
       (b) Outpatient Medications.--Section 1722A(c) of title 38, 
     United States Code, is amended by striking out ``September 
     30, 1998'' and inserting in lieu thereof ``September 30, 
     2002''.

     SEC. 10012. MEDICAL CARE COST RECOVERY AUTHORITY.

       Section 1729(a)(2)(E) of title 38, United States Code, is 
     amended by striking out ``before October 1, 1998,'' and 
     inserting ``before October 1, 2002,''.

     SEC. 10013. INCOME VERIFICATION AUTHORITY.

       Section 5317(g) of title 38, United States Code, is amended 
     by striking out ``September 30, 1998'' and inserting in lieu 
     thereof ``September 30, 2002''.

     SEC. 10014. LIMITATION ON PENSION FOR CERTAIN RECIPIENTS OF 
                   MEDICAID-COVERED NURSING HOME CARE.

       Section 5503(f)(7) of title 38, United States Code, is 
     amended by striking out ``September 30, 1998'' and inserting 
     in lieu thereof ``September 30, 2002''.

     SEC. 10015. HOME LOAN FEES.

       Section 3729(a) of title 38, United States Code, is 
     amended--
       (1) in paragraph (4), by striking out ``October 1, 1998'' 
     and inserting in lieu thereof ``October 1, 2002''; and
       (2) in paragraph (5)(C), by striking out ``October 1, 
     1998'' and inserting in lieu thereof ``October 1, 2002''.

     SEC. 10016. PROCEDURES APPLICABLE TO LIQUIDATION SALES ON 
                   DEFAULTED HOME LOANS GUARANTEED BY THE 
                   DEPARTMENT OF VETERANS AFFAIRS.

       Section 3732(c)(11) of title 38, United States Code, is 
     amended by striking out ``October 1, 1998'' and inserting 
     ``October 1, 2002''.

     SEC. 10017. ENHANCED LOAN ASSET SALE AUTHORITY.

       Section 3720(h)(2) of title 38, United States Code, is 
     amended by striking out ``December 31, 1995'' and inserting 
     in lieu thereof ``September 30, 2002''.
                       Subtitle B--Other Matters

     SEC. 10021. REVISION TO PRESCRIPTION DRUG COPAYMENT.

       (a) Increase in Amount of Copayment.--Section 1722A(a) of 
     title 38, United States Code, is amended--
       (1) in paragraph (1), by striking out ``$2'' and inserting 
     in lieu thereof ``$4'';
       (2) by striking out paragraph (2); and
       (3) by redesignating paragraph (3) as paragraph (2) and in 
     that paragraph--
       (A) striking out ``or'' at the end of subparagraph (A);
       (B) striking out the period at the end of subparagraph (B) 
     and inserting in lieu thereof ``; or''; and
       (C) adding at the end the following new subparagraph:
       ``(C) to a veteran who is a former prisoner of war.''.
       (b) Recovery of Indebtedness.--(1) Section 5302 of such 
     title is amended by adding at the end the following new 
     subsection:
       ``(f) The Secretary may not waive under this section the 
     recovery of any payment or the collection of any indebtedness 
     owed under section 1722A of this title.''.
       (2) The amendment made by paragraph (1) shall apply with 
     respect to amounts that become due to the United States under 
     section 1722A of title 38, United States Code, on or after 
     the date of the enactment of this Act.

     SEC. 10022. ROUNDING DOWN OF COST-OF-LIVING ADJUSTMENTS IN 
                   COMPENSATION AND DIC RATES.

       (a) Fiscal Year 1996 COLA.--(1) Effective as of December 1, 
     1995, the Secretary of Veterans Affairs shall recompute any 
     increase in an adjustment that is otherwise provided by law 
     to be effective during fiscal year 1996 in the rates of 
     disability compensation and dependency and indemnity 
     compensation paid by the Secretary as such rates were in 
     effect on November 30, 1995. 

[[Page H 12625]]
     The recomputation shall provide for the same percentage increase as 
     provided under such law, but with amounts so recomputed (if 
     not a whole dollar amount) rounded down to the next lower 
     whole dollar amount (rather than to the nearest whole dollar 
     amount) and with each old-law DIC rate increased by the 
     amount by which the new-law DIC rate is increased (rather 
     than by a uniform percentage).
       (2) For purposes of paragraph (1):
       (A) The term ``old-law DIC rate'' means a dollar amount in 
     effect under section 1311(a)(3) of title 38, United States 
     Code.
       (B) The term ``new-law DIC rate'' means the dollar amount 
     in effect under section 1311(a)(1) of title 38, United States 
     Code.
       (b) Out-Year Compensation COLAs.--(1) Chapter 11 of title 
     38, United States Code, is amended by inserting after section 
     1102 the following new section:

     ``Sec. 1103. Cost-of-living adjustments

       ``(a) In the computation of cost-of-living adjustments for 
     fiscal years 1997 through 2002 in the rates of, and dollar 
     limitations applicable to, compensation payable under this 
     chapter, such adjustments shall be made by a uniform 
     percentage that is no more than the percentage equal to the 
     social security increase for that fiscal year, with all 
     increased monthly rates and limitations (other than increased 
     rates or limitations equal to a whole dollar amount) rounded 
     down to the next lower whole dollar amount.
       ``(b) For purposes of this section, the term `social 
     security increase' means the percentage by which benefit 
     amounts payable under title II of the Social Security Act (42 
     U.S.C. 401 et seq.) are increased for any fiscal year as a 
     result of a determination under section 215(i) of such Act 
     (42 U.S.C. 415(i)).''.
       (2) The table of sections at the beginning of such chapter 
     is amended by inserting after the item relating to section 
     1102 the following new item:

``1103. Cost-of-living adjustments.''.
       (c) Out-Year DIC COLAs.--(1) Chapter 13 of title 38, United 
     States Code, is amended by inserting after section 1302 the 
     following new section:

     ``Sec. 1303. Cost-of-living adjustments

       ``(a) In the computation of cost-of-living adjustments for 
     fiscal years 1997 through 2002 in the rates of dependency and 
     indemnity compensation payable under this chapter, such 
     adjustments (except as provided in subsection (b)) shall be 
     made by a uniform percentage that is no more than the 
     percentage equal to the social security increase for that 
     fiscal year, with all increased monthly rates (other than 
     increased rates equal to a whole dollar amount) rounded down 
     to the next lower whole dollar amount.
       ``(b)(1) Cost-of-living adjustments for each of fiscal 
     years 1997 through 2002 in old-law DIC rates shall be in a 
     whole dollar amount that is no greater than the amount by 
     which the new-law DIC rate is increased for that fiscal year 
     as determined under subsection (a).
       ``(2) For purposes of paragraph (1):
       ``(A) The term `old-law DIC rates' means the dollar amounts 
     in effect under section 1311(a)(3) of this title.
       ``(B) The term `new-law DIC rate' means the dollar amount 
     in effect under section 1311(a)(1) of this title.
       ``(c) For purposes of this section, the term `social 
     security increase' means the percentage by which benefit 
     amounts payable under title II of the Social Security Act (42 
     U.S.C. 401 et seq.) are increased for any fiscal year as a 
     result of a determination under section 215(i) of such Act 
     (42 U.S.C. 415(i)).''.
       (2) The table of sections at the beginning of such chapter 
     is amended by inserting after the item relating to section 
     1302 the following new item:

``1303. Cost-of-living adjustments.''.

     SEC. 10023. REVISED STANDARD FOR LIABILITY FOR INJURIES 
                   RESULTING FROM DEPARTMENT OF VETERANS AFFAIRS 
                   TREATMENT.

       (a) Revised Standard.--Section 1151 of title 38, United 
     States Code, is amended--
       (1) by designating the second sentence as subsection (c);
       (2) by striking out the first sentence and inserting in 
     lieu thereof the following:
       ``(a) Compensation under this chapter and dependency and 
     indemnity compensation under chapter 13 of this title shall 
     be awarded for a qualifying additional disability of a 
     veteran or the qualifying death of a veteran in the same 
     manner as if such disability or death were service-connected.
       ``(b)(1) For purposes of this section, a disability or 
     death is a qualifying additional disability or a qualifying 
     death only if the disability or death--
       ``(A) was caused by Department health care and was a 
     proximate result of--
       ``(i) negligence on the part of the Department in 
     furnishing the Department health care; or
       ``(ii) an event not reasonably foreseeable; or
       ``(B) was incurred as a proximate result of the provision 
     of training and rehabilitation services by the Secretary 
     (including by a service-provider used by the Secretary for 
     such purpose under section 3115 of this title) as part of an 
     approved rehabilitation program under chapter 31 of this 
     title.
       ``(2) For purposes of this section, the term `Department 
     health care' means hospital care, medical or surgical 
     treatment, or an examination that is furnished under any law 
     administered by the Secretary to a veteran by a Department 
     employee or in a facility over which the Secretary has direct 
     jurisdiction.
       ``(3) A disability or death of a veteran which is the 
     result of the veteran's willful misconduct is not a 
     qualifying disability or death for purposes of this 
     section.''; and
       (3) by adding at the end the following:
       ``(d) Effective with respect to injuries, aggravations of 
     injuries, and deaths occurring after September 30, 2002, a 
     disability or death is a qualifying additional disability or 
     a qualifying death for purposes of this section 
     (notwithstanding the provisions of subsection (b)(1)) if the 
     disability or death--
       ``(1) was the result of Department health care; or
       ``(2) was the result of the pursuit of a course of 
     vocational rehabilitation under chapter 31 of this title.''.
       (b) Conforming Amendments.--Subsection (c) of such section, 
     as designated by subsection (a)(1), is amended--
       (1) by striking out ``, aggravation,'' both places it 
     appears; and
       (2) by striking out ``sentence'' and inserting in lieu 
     thereof ``subsection''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to any administrative or judicial determination 
     of eligibility for benefits under section 1151 of title 38, 
     United States Code, based on a claim that is received by the 
     Secretary on or after October 1, 1995, including any such 
     determination based on an original application or an 
     application seeking to reopen, revise, reconsider, or 
     otherwise readjudicate any claim for benefits under section 
     1151 of that title or any predecessor provision of law.

     SEC. 10024. WITHHOLDING OF PAYMENTS AND BENEFITS.

       (a) Notice Required in Lieu of Consent or Court Order.--
     Section 3726 of title 38, United States Code, is amended by 
     striking out ``unless'' and all that follows and inserting in 
     lieu thereof the following: ``unless the Secretary provides 
     such veteran or surviving spouse with notice by certified 
     mail with return receipt requested of the authority of the 
     Secretary to waive the payment of indebtedness under section 
     5302(b) of this title. If the Secretary does not waive the 
     entire amount of the liability, the Secretary shall then 
     determine whether the veteran or surviving spouse should be 
     released from liability under section 3713(b) of this title. 
     If the Secretary determines that the veteran or surviving 
     spouse should not be released from liability, the Secretary 
     shall notify the veteran or surviving spouse of that 
     determination and provide a notice of the procedure for 
     appealing that determination, unless the Secretary has 
     previously made such determination and notified the veteran 
     or surviving spouse of the procedure for appealing the 
     determination.''.
       (b) Conforming Amendment.--Section 5302(b) of such title is 
     amended by inserting ``with return receipt requested'' after 
     ``certified mail''.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to any indebtedness to the United 
     States arising pursuant to chapter 37 of title 38, United 
     States Code, before, on, or after the date of the enactment 
     of this Act.
                      TITLE XI--REVENUE PROVISIONS

     SEC. 11000. SHORT TITLES; AMENDMENT OF 1986 CODE; TABLE OF 
                   CONTENTS.

       (a) Revenue Reconciliation Act.--This title may be cited as 
     the ``Revenue Reconciliation Act of 1995''.
       (b) Contract With America.--Subtitles A, B, C, and D of 
     this title may be cited as the ``Contract With America Tax 
     Relief Act of 1995''.
       (c) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this title an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (d) Table of Contents.--The table of contents for this 
     title is as follows:


                      TITLE XI--REVENUE PROVISIONS

Sec. 11000. Short titles; amendment of 1986 Code; table of contents.

                     Subtitle A--Family Tax Relief

Sec. 11001. Child tax credit.
Sec. 11002. Reduction in marriage penalty.
Sec. 11003. Credit for adoption expenses.
Sec. 11004. Deduction for interest on education loans.
Sec. 11005. Deduction for taxpayers with certain persons requiring 
              custodial care in their households.

             Subtitle B--Savings and Investment Incentives

                Chapter 1--Retirement Savings Incentives


                SUBCHAPTER A--INDIVIDUAL RETIREMENT PLANS

                  Part I--Restoration of IRA Deduction

Sec. 11011. Restoration of IRA deduction.
Sec. 11012. Inflation adjustment for deductible amount.
Sec. 11013. Homemakers eligible for full IRA deduction.

                  Part II--Nondeductible Tax-Free IRAs

Sec. 11015. Establishment of American Dream IRA.


                 SUBCHAPTER B--PENALTY-FREE DISTRIBUTIONS

Sec. 11016. Distributions from certain plans may be used without 
              penalty to purchase first homes or to pay higher 
              education or financially devastating medical expenses.


                    SUBCHAPTER C--SIMPLE SAVINGS PLANS

Sec. 11018. Establishment of savings incentive match plans for 
              employees of small employers.
Sec. 11019. Extension of simple plan to 401(k) arrangements.

                    Chapter 2--Capital Gains Reform


             SUBCHAPTER A--TAXPAYERS OTHER THAN CORPORATIONS

Sec. 11021. Capital gains deduction.
Sec. 11022. Indexing of certain assets acquired after December 31, 
              2000, for purposes of determining gain.
Sec. 11023. Modifications to exclusion of gain on certain small 
              business stock.

[[Page H 12626]]



                  SUBCHAPTER B--CORPORATE CAPITAL GAINS

Sec. 11025. Reduction of alternative capital gain tax for corporations.


  SUBCHAPTER C--CAPITAL LOSS DEDUCTION ALLOWED WITH RESPECT TO SALE OR 
                    EXCHANGE OF PRINCIPAL RESIDENCE

Sec. 11026. Capital loss deduction allowed with respect to sale or 
              exchange of principal residence.

          Chapter 3--Corporate Alternative Minimum Tax Reform

Sec. 11031. Modification of depreciation rules under minimum tax.
Sec. 11032. Long-term unused credits allowed against minimum tax.

                  Chapter 4--Cost Recovery Provisions

Sec. 11035. Treatment of abandonment of lessor improvements at 
              termination of lease.
Sec. 11036. Increase in expense treatment for small businesses.

                 Subtitle C--Health Related Provisions

                  Chapter 1--Long-Term Care Provisions


           SUBCHAPTER A--LONG-TERM CARE SERVICES AND CONTRACTS

                       Part I--General Provisions

Sec. 11041. Treatment of long-term care insurance.
Sec. 11042. Qualified long-term care services treated as medical care.
Sec. 11043. Certain exchanges of life insurance contracts for qualified 
              long-term care insurance contracts not taxable.
Sec. 11044. Exception from penalty tax for amounts withdrawn from 
              certain retirement plans for qualified long-term care 
              insurance.
Sec. 11045. Reporting requirements.

                Part II--Consumer Protection Provisions

Sec. 11051. Policy requirements.
Sec. 11052. Requirements for issuers of long-term care insurance 
              policies.
Sec. 11053. Coordination with State requirements.
Sec. 11054. Effective dates.


          SUBCHAPTER B--TREATMENT OF ACCELERATED DEATH BENEFITS

Sec. 11061. Treatment of accelerated death benefits by recipient.
Sec. 11062. Tax treatment of companies issuing qualified accelerated 
              death benefit riders.

                  Chapter 2--Medical Savings Accounts

Sec. 11066. Medical savings accounts.

  Chapter 3--Increase in Deduction for Health Insurance Costs of Self-
                          Employed Individuals

Sec. 11068. Increase in deduction for health insurance costs of self-
              employed individuals.

                 Subtitle D--Estate and Gift Provisions

Sec. 11071. Cost-of-living adjustments relating to estate and gift tax 
              provisions.
Sec. 11072. Family-owned business exclusion.
Sec. 11073. Treatment of land subject to a qualified conservation 
              easement.
Sec. 11074. Expansion of exception from generation-skipping transfer 
              tax for transfers to individuals with deceased parents.
Sec. 11075. Extension of treatment of certain rents under section 2032A 
              to lineal descendants.

              Subtitle E--Extension of Expiring Provisions

                    Chapter 1--Temporary Extensions

Sec. 11111. Work opportunity tax credit.
Sec. 11112. Employer-provided educational assistance programs.
Sec. 11113. Research credit.
Sec. 11114. Orphan drug tax credit.
Sec. 11115. Contributions of stock to private foundations.
Sec. 11116. Delay of tax on fuel used in commercial aviation.
Sec. 11117. Extension of airport and airway trust fund excise taxes.
Sec. 11118. Extension of Internal Revenue Service user fees.

             Chapter 2--Sunset of Low-Income Housing Credit

Sec. 11121. Sunset of low-income housing credit.

    Chapter 3--Extensions of Superfund and Oil Spill Liability Taxes

Sec. 11131. Extension of Hazardous Substance Superfund taxes.
Sec. 11132. Extension of oil spill liability tax.

              Chapter 4--Extensions Relating to Fuel Taxes

Sec. 11141. Ethanol blender refunds.
Sec. 11142. Extension of binding contract date for biomass and coal 
              facilities.
Sec. 11143. Exemption from diesel fuel dyeing requirements with respect 
              to certain States.
Sec. 11144. Moratorium for excise tax on diesel fuel sold for use or 
              used in diesel-powered motorboats.

Chapter 5--Permanent Extension of FUTA Exemption for Alien Agricultural 
                                Workers

Sec. 11151. FUTA exemption for alien agricultural workers.

   Chapter 6--Disclosure of Return Information for Administration of 
                       Certain Veterans Programs

Sec. 11161. Disclosure of return information for administration of 
              certain veterans programs.

            Subtitle F--Taxpayer Bill of Rights 2 Provisions

Sec. 11201. Expansion of authority to abate interest.
Sec. 11202. Extension of interest-free period for payment of tax after 
              notice and demand.
Sec. 11203. Joint return may be made after separate returns without 
              full payment of tax.
Sec. 11204. Modifications to certain levy exemption amounts.
Sec. 11205. Offers-in-compromise.
Sec. 11206. Increased limit on attorney fees.
Sec. 11207. Award of litigation costs permitted in declaratory judgment 
              proceedings.
Sec. 11208. Increase in limit on recovery of civil damages for 
              unauthorized collection actions.
Sec. 11209. Enrolled agents included as third-party recordkeepers.
Sec. 11210. Annual reminders to taxpayers with outstanding delinquent 
              accounts.

       Subtitle G--Casualty and Involuntary Conversion Provisions

Sec. 11251. Basis adjustment to property held by corporation where 
              stock in corporation is replacement property under 
              involuntary conversion rules.
Sec. 11252. Expansion of requirement that involuntarily converted 
              property be replaced with property acquired from an 
              unrelated person.
Sec. 11253. Special rule for crop insurance proceeds and disaster 
              payments.
Sec. 11254. Application of involuntary exclusion rules to 
              presidentially declared disasters.

        Subtitle H--Exempt Organizations and Charitable Reforms

      Chapter 1--Excise Tax on Amounts of Private Excess Benefits

Sec. 11271. Excise taxes for failure by certain charitable 
              organizations to meet certain qualification requirements.
Sec. 11272. Reporting of certain excise taxes and other information.
Sec. 11273. Increase in penalties on exempt organizations for failure 
              to file complete and timely annual returns.

                      Chapter 2--Other Provisions

Sec. 11276. Cooperative service organizations for certain foundations.
Sec. 11277. Exclusion from unrelated business taxable income for 
              certain sponsorship payments.
Sec. 11278. Treatment of dues paid to agricultural or horticultural 
              organizations.
Sec. 11279. Repeal of credit for contributions to community development 
              corporations.

              Subtitle I--Tax Reform and Other Provisions

              Chapter 1--Provisions Relating to Businesses

Sec. 11301. Tax treatment of certain extraordinary dividends.
Sec. 11302. Registration of confidential corporate tax shelters.
Sec. 11303. Denial of deduction for interest on loans with respect to 
              company-owned insurance.
Sec. 11304. Termination of suspense accounts for family corporations 
              required to use accrual method of accounting.
Sec. 11305. Termination of Puerto Rico and possession tax credit.
Sec. 11306. Depreciation under income forecast method.
Sec. 11307. Transfers of excess pension assets.
Sec. 11308. Repeal of exclusion for interest on loans used to acquire 
              employer securities.

                        Chapter 2--Legal Reforms

Sec. 11311. Repeal of exclusion for punitive damages and for damages 
              not attributable to physical injuries or sickness.
Sec. 11312. Reporting of certain payments made to attorneys.

        Chapter 3--Reforms Relating to Nonrecognition Provisions

Sec. 11321. No rollover or exclusion of gain on sale of principal 
              residence which is attributable to depreciation 
              deductions.
Sec. 11322. Nonrecognition of gain on sale of principal residence by 
              noncitizens limited to new residences located in the 
              United States.

          Chapter 4--Excise Tax and Tax-Exempt Bond Provisions

Sec. 11331. Repeal of diesel fuel tax rebate to purchasers of diesel-
              powered automobiles and light trucks.
Sec. 11332. Modifications to excise tax on ozone-depleting chemicals.
Sec. 11333. Election to avoid tax-exempt bond penalties for local 
              furnishers of electricity and gas.
Sec. 11334. Tax-exempt bonds for sale of Alaska Power Administration 
              Facility.

                Chapter 5--Foreign Trust Tax Compliance

Sec. 11341. Improved information reporting on foreign trusts.
Sec. 11342. Modifications of rules relating to foreign trusts having 
              one or more United States beneficiaries.
Sec. 11343. Foreign persons not to be treated as owners under grantor 
              trust rules.
Sec. 11344. Information reporting regarding foreign gifts.
Sec. 11345. Modification of rules relating to foreign trusts which are 
              not grantor trusts.
Sec. 11346. Residence of estates and trusts, etc.

[[Page H 12627]]


 Chapter 6--Treatment of Individuals Who Lose United States Citizenship

Sec. 11348. Revision of income, estate, and gift taxes on individuals 
              who lose United States citizenship.
Sec. 11349. Information on individuals losing United States 
              citizenship.

         Chapter 7--Financial Asset Securitization Investments

Sec. 11351. Financial Asset Securitization Investment Trusts.

                   Chapter 8--Depreciation Provisions

Sec. 11361. Treatment of contributions in aid of construction.
Sec. 11362. Deduction for certain operating authority.
Sec. 11363. Class life for gas station convenience stores and similar 
              structures.

                      Chapter 9--Other Provisions

Sec. 11371. Application of failure-to-pay penalty to substitute 
              returns.
Sec. 11372. Extension of withholding to certain gambling winnings.
Sec. 11373. Losses from foreclosure property.
Sec. 11374. Nonrecognition treatment for certain transfers by common 
              trust funds to regulated investment companies.
Sec. 11375. Exclusion for energy conservation subsidies limited to 
              subsidies with respect to dwelling units.
Sec. 11376. Election to cease status as qualified scholarship funding 
              corporation.
Sec. 11377. Certain amounts derived from foreign corporations treated 
              as unrelated business taxable income.
Sec. 11378. Repeal of financial institution transition rule to interest 
              allocation rules.
Sec. 11379. Repeal of bad debt reserve method for thrift savings 
              associations.
Sec. 11380. Newspaper distributors treated as direct sellers.

                     Subtitle J--Tax Simplification

             Chapter 1--Provisions Relating to Individuals


    SUBCHAPTER A--PROVISIONS RELATING TO ROLLOVER OF GAIN ON SALE OF 
                          PRINCIPAL RESIDENCE

Sec. 11401. Multiple sales within rollover period.
Sec. 11402. Special rules in case of divorce.
Sec. 11403. One-time exclusion of gain from sale of principal residence 
              for certain spouses.


                      SUBCHAPTER B--OTHER PROVISIONS

Sec. 11411. Treatment of certain reimbursed expenses of rural mail 
              carriers.
Sec. 11412. Treatment of traveling expenses of certain Federal 
              employees engaged in criminal investigations.

                   Chapter 2--Pension Simplification


               SUBCHAPTER A--SIMPLIFIED DISTRIBUTION RULES

Sec. 11421. Repeal of 5-year income averaging for lump-sum 
              distributions.
Sec. 11422. Repeal of $5,000 exclusion of employees' death benefits.
Sec. 11423. Simplified method for taxing annuity distributions under 
              certain employer plans.
Sec. 11424. Required distributions.


             SUBCHAPTER B--INCREASED ACCESS TO PENSION PLANS

Sec. 11431. Tax-exempt organizations eligible under section 401(k).


                SUBCHAPTER C--NONDISCRIMINATION PROVISIONS

Sec. 11441. Definition of highly compensated employees; repeal of 
              family aggregation.
Sec. 11442. Modification of additional participation requirements.
Sec. 11443. Nondiscrimination rules for qualified cash or deferred 
              arrangements and matching contributions.
Sec. 11444. Definition of compensation for section 415 purposes.


                  SUBCHAPTER D--MISCELLANEOUS PROVISIONS

Sec. 11451. Plans covering self-employed individuals.
Sec. 11452. Elimination of special vesting rule for multiemployer 
              plans.
Sec. 11453. Distributions under rural cooperative plans.
Sec. 11454. Treatment of governmental plans under section 415.
Sec. 11455. Uniform retirement age.
Sec. 11456. Contributions on behalf of disabled employees.
Sec. 11457. Treatment of deferred compensation plans of State and local 
              governments and tax-exempt organizations.
Sec. 11458. Trust requirement for deferred compensation plans of State 
              and local governments.
Sec. 11459. Transition rule for computing maximum benefits under 
              section 415 limitations.
Sec. 11460. Modifications of section 403(b).
Sec. 11461. Waiver of minimum period for joint and survivor annuity 
              explanation before annuity starting date.
Sec. 11462. Repeal of limitation in case of defined benefit plan and 
              defined contribution plan for same employee; excess 
              distributions.
Sec. 11463. Tax on prohibited transactions.
Sec. 11464. Treatment of leased employees.

               Chapter 3--Treatment Of Large Partnerships

Sec. 11471. Simplified flow-through for electing large partnerships.
Sec. 11472. Returns may be required on magnetic media.

                     Chapter 4--Foreign Provisions


       SUBCHAPTER A--MODIFICATIONS TO TREATMENT OF PASSIVE FOREIGN 
                          INVESTMENT COMPANIES

Sec. 11481. United States shareholders of controlled foreign 
              corporations not subject to PFIC inclusion.
Sec. 11482. Election of mark to market for marketable stock in passive 
              foreign investment company.
Sec. 11483. Modifications to definition of passive income.
Sec. 11484. Effective date.


        SUBCHAPTER B--TREATMENT OF CONTROLLED FOREIGN CORPORATIONS

Sec. 11486. Gain on certain stock sales by controlled foreign 
              corporations treated as dividends.
Sec. 11487. Miscellaneous modifications to subpart F.
Sec. 11488. Indirect foreign tax credit allowed for certain lower tier 
              companies.
Sec. 11489. Repeal of inclusion of certain earnings invested in excess 
              passive assets.

                 Chapter 5--Other Income Tax Provisions


           SUBCHAPTER A--PROVISIONS RELATING TO S CORPORATIONS

Sec. 11501. S corporations permitted to have 75 shareholders.
Sec. 11502. Electing small business trusts.
Sec. 11503. Expansion of post-death qualification for certain trusts.
Sec. 11504. Financial institutions permitted to hold safe harbor debt.
Sec. 11505. Rules relating to inadvertent terminations and invalid 
              elections.
Sec. 11506. Agreement to terminate year.
Sec. 11507. Expansion of post-termination transition period.
Sec. 11508. S corporations permitted to hold subsidiaries.
Sec. 11509. Treatment of distributions during loss years.
Sec. 11510. Treatment of S corporations under subchapter C.
Sec. 11511. Elimination of certain earnings and profits.
Sec. 11512. Carryover of disallowed losses and deductions under at-risk 
              rules allowed.
Sec. 11513. Adjustments to basis of inherited S stock to reflect 
              certain items of income.
Sec. 11514. S corporations eligible for rules applicable to real 
              property subdivided for sale by noncorporate taxpayers.
Sec. 11515. Effective date.


      SUBCHAPTER B--REPEAL OF 30-PERCENT GROSS INCOME LIMITATION ON 
                     REGULATED INVESTMENT COMPANIES

Sec. 11521. Repeal of 30-percent gross income limitation.


                   SUBCHAPTER C--ACCOUNTING PROVISIONS

Sec. 11551. Modifications to look-back method for long-term contracts.
Sec. 11552. Application of mark to market accounting method to traders 
              in securities.
Sec. 11553. Modification of ruling amounts for nuclear decommissioning 
              costs.


                 SUBCHAPTER D--TAX-EXEMPT BOND PROVISION

Sec. 11561. Repeal of debt service-based limitation on investment in 
              certain nonpurpose investments.


                    SUBCHAPTER E--INSURANCE PROVISIONS

Sec. 11571. Treatment of certain insurance contracts on retired lives.
Sec. 11572. Treatment of modified guaranteed contracts.


                      SUBCHAPTER F--OTHER PROVISIONS

Sec. 11581. Closing of partnership taxable year with respect to 
              deceased partner, etc.
Sec. 11582. Credit for social security taxes paid with respect to 
              employee cash tips.
Sec. 11583. Due date for first quarter estimated tax payments by 
              private foundations.

                     Chapter 6--Estates and Trusts


                   SUBCHAPTER A--INCOME TAX PROVISIONS

Sec. 11601. Certain revocable trusts treated as part of estate.
Sec. 11602. Distributions during first 65 days of taxable year of 
              estate.
Sec. 11603. Separate share rules available to estates.
Sec. 11604. Executor of estate and beneficiaries treated as related 
              persons for disallowance of losses, etc.
Sec. 11605. Limitation on taxable year of estates.
Sec. 11606. Treatment of funeral trusts.


               SUBCHAPTER B--ESTATE AND GIFT TAX PROVISIONS

Sec. 11611. Clarification of waiver of certain rights of recovery.
Sec. 11612. Adjustments for gifts within 3 years of decedent's death.
Sec. 11613. Clarification of qualified terminable interest rules.
Sec. 11614. Transitional rule under section 2056A.
Sec. 11615. Opportunity to correct certain failures under section 
              2032A.
Sec. 11616. Gifts may not be revalued for estate tax purposes after 
              expiration of statute of limitations.
Sec. 11617. Clarifications relating to disclaimers.
Sec. 11618. Clarification of treatment of survivor annuities under 
              qualified terminable interest rules.
Sec. 11619. Treatment under qualified domestic trust rules of forms of 
              ownership which are not trusts.


             SUBCHAPTER C--GENERATION-SKIPPING TAX PROVISIONS

Sec. 11631. Taxable termination not to include direct skips.

                  Chapter 7--Excise Tax Simplification


    SUBCHAPTER A--PROVISIONS RELATED TO DISTILLED SPIRITS, WINES, AND 
                                  BEER

Sec. 11641. Credit or refund for imported bottled distilled spirits 
              returned to distilled spirits plant.

[[Page H 12628]]

Sec. 11642. Fermented material from any brewery may be received at a 
              distilled spirits plant.
Sec. 11643. Refund of tax on wine returned to bond not limited to 
              unmerchantable wine.
Sec. 11644. Beer may be withdrawn free of tax for destruction.
Sec. 11645. Transfer to brewery of beer imported in bulk without 
              payment of tax.


        SUBCHAPTER B--CONSOLIDATION OF TAXES ON AVIATION GASOLINE

Sec. 11651. Consolidation of taxes on aviation gasoline.


                SUBCHAPTER C--OTHER EXCISE TAX PROVISIONS

Sec. 11661. Certain combinations not treated as manufacture under 
              retail sales tax on heavy trucks.

                  Chapter 8--Administrative Provision

Sec. 11671. Certain notices disregarded under provision increasing 
              interest rate on large corporate underpayments.

                  Subtitle K--Miscellaneous Provisions

Sec. 11701. Treatment of storage of product samples.
Sec. 11702. Adjustment of death benefit limits for certain policies.
Sec. 11703. Organizations subject to section 833.
Sec. 11704. Correction of inflation adjustment in luxury excise tax on 
              automobiles.
Sec. 11705. Extension and phasedown of luxury passenger automobile tax.

             Subtitle L--Generalized System of Preferences

Sec. 11801. Short title.
Sec. 11802. Generalized System of Preferences.
Sec. 11803. Retroactive application for certain liquidations and 
              reliquidations.
Sec. 11804. Conforming amendments.

               Subtitle M--Increase in Public Debt Limit

Sec. 11901. Increase in public debt limit.
                     Subtitle A--Family Tax Relief

     SEC. 11001. CHILD TAX CREDIT.

       (a) In General.--Subpart A of part IV of subchapter A of 
     chapter 1 (relating to nonrefundable personal credits) is 
     amended by inserting after section 22 the following new 
     section:

     ``SEC. 23. CHILD TAX CREDIT.

       ``(a) Allowance of Credit.--There shall be allowed as a 
     credit against the tax imposed by this chapter for the 
     taxable year an amount equal to $500 multiplied by the number 
     of qualifying children of the taxpayer.
       ``(b) Limitation.--
       ``(1) In general.--The amount of the credit which would 
     (but for this subsection) be allowed by subsection (a) shall 
     be reduced (but not below zero) by $25 for each $1,000 (or 
     fraction thereof) by which the taxpayer's adjusted gross 
     income exceeds the threshold amount.
       ``(2) Threshold amount.--For purposes of paragraph (1), the 
     term `threshold amount' means--
       ``(A) $110,000 in the case of a joint return,
       ``(B) $75,000 in the case of an individual who is not 
     married, and
       ``(C) $55,000 in the case of a married individual filing a 
     separate return.
     For purposes of this paragraph, marital status shall be 
     determined under section 7703.
       ``(c) Qualifying Child.--For purposes of this section--
       ``(1) In general.--The term `qualifying child' means any 
     individual if--
       ``(A) the taxpayer is allowed a deduction under section 151 
     with respect to such individual for such taxable year,
       ``(B) such individual has not attained the age of 18 as of 
     the close of the calendar year in which the taxable year of 
     the taxpayer begins, and
       ``(C) such individual bears a relationship to the taxpayer 
     described in section 32(c)(3)(B) (determined without regard 
     to clause (ii) thereof).
       ``(2) Exception for certain noncitizens.--The term 
     `qualifying child' shall not include any individual who would 
     not be a dependent if the first sentence of section 152(b)(3) 
     were applied without regard to all that follows `resident of 
     the United States'.
       ``(d) Taxable Year Must Be Full Taxable Year.--Except in 
     the case of a taxable year closed by reason of the death of 
     the taxpayer, no credit shall be allowable under this section 
     in the case of a taxable year covering a period of less than 
     12 months.''.
       (b) Notice of Credit.--The Secretary of the Treasury shall 
     transmit to all individual taxpayers by a separate mailing 
     made on or before February 1, 1996, a notice which states 
     only the following: ``The Balanced Budget Act of 1995 was 
     recently passed by the Congress. The Act's child tax credit 
     allows taxpayers to reduce their taxes by $500 per child. The 
     credit is effective October 1, 1995. You may wish to check 
     with your employer about changing your tax withholding to 
     take immediate advantage of the credit to which you are 
     entitled for the current tax year. In addition, the Internal 
     Revenue Service will be sending you a form in June of this 
     year which you may use to claim the credit to which you are 
     entitled for the period from October 1 through December 31, 
     1995 ($125 per child for 1995). In order to obtain your 1995 
     credit, you should file this form by August 15, 1996. Your 
     refund will be sent to you sometime after October 1, 1996.''
       (c) Clerical Amendment.--The table of sections for subpart 
     A of part IV of subchapter A of chapter 1 is amended by 
     inserting after the item relating to section 22 the following 
     new item:

``Sec. 23. Child tax credit.''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.
       (e) Payment of 1995 Child Credit Amount.--
       (1) In general.--The Secretary shall take such actions as 
     are necessary to ensure that the 1995 child credit amount is 
     paid to taxpayers entitled to payment of such credit amount.
       (2) Payments generally during october 1996.--In the case of 
     taxpayers submitting the form referred to in paragraph (4) 
     before August 16, 1996, the Secretary shall take such actions 
     as are necessary to ensure that payments required by 
     paragraph (1) are mailed after September 30, 1996, and before 
     October 16, 1996.
       (3) 1995 child credit amount.--For purposes of paragraph 
     (1), the 1995 child credit amount is an amount equal to 25 
     percent of the amount of the credit which would be allowed to 
     the taxpayer under section 23 of the Internal Revenue Code of 
     1986 (as added by this section) if such section were in 
     effect for the taxpayer's taxable year beginning in 1995.
       (4) Entitlement to credit.--A taxpayer shall be entitled to 
     a 1995 child credit amount if (and only if) the taxpayer 
     submits to the Secretary a form which the Secretary shall 
     prescribe for purposes of determining such amount. The 
     Secretary shall mail such form to taxpayers on or before June 
     1, 1996.
       (5) Payment treated as overpayment.--The 1995 child credit 
     amount shall be treated for purposes of subtitle F of such 
     Code as a payment of tax for the taxpayer's taxable year 
     beginning in 1995 which was made on August 15, 1996, or, if 
     later, the date the form referred to in paragraph (4) is 
     filed, and shall be refunded or credited in the same manner 
     as if it were an overpayment of tax for such taxable year. No 
     interest shall be paid under section 6611 of such Code on 
     amounts paid under paragraph (1) before October 16, 1996.
       (6) Secretary.--For purposes of this subsection, the term 
     ``Secretary'' means the Secretary of the Treasury or his 
     delegate.

     SEC. 11002. REDUCTION IN MARRIAGE PENALTY.

       (a) Increase in Basic Standard Deduction for Married 
     Individuals.--Section 63(c) (relating to standard deduction) 
     is amended--
       (1) by striking ``$5,000'' in paragraph (2)(A) and 
     inserting ``the applicable dollar amount'',
       (2) by striking ``$2,500'' in paragraph (2)(D) and 
     inserting ``\1/2\ of the applicable dollar amount'', and
       (3) by inserting after paragraph (6) the following new 
     paragraph:
       ``(7) Applicable dollar amount.--For purposes of paragraph 
     (2), the applicable dollar amount for any taxable year shall 
     be the product of the dollar amount in effect under paragraph 
     (2)(C) for such year multiplied by the applicable factor 
     determined under the following table:

``For taxable years beginning in calendar year--         The applicable
                                                            factor is--
  1996........................................................1.68 ....

  1997........................................................1.71 ....

  1998........................................................1.72 ....

  1999........................................................1.73 ....

  2000........................................................1.75 ....

  2001........................................................1.77 ....

  2002........................................................1.78 ....

  2003........................................................1.88 ....

  2004........................................................1.91 ....

  2005 and thereafter.........................................2.00.....

     If the amount determined under the preceding sentence is not 
     a multiple of $50, such amount shall be rounded to the 
     nearest multiple of $50.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 11003. CREDIT FOR ADOPTION EXPENSES.

       (a) In General.--Subpart A of part IV of subchapter A of 
     chapter 1 (relating to nonrefundable personal credits), as 
     amended by section 11001, is amended by inserting after 
     section 23 the following new section:

     ``SEC. 24. ADOPTION EXPENSES.

       ``(a) Allowance of Credit.--In the case of an individual, 
     there shall be allowed as a credit against the tax imposed by 
     this chapter for the taxable year the amount of the qualified 
     adoption expenses paid or incurred by the taxpayer during 
     such taxable year.
       ``(b) Limitations.--
       ``(1) Dollar limitation.--The aggregate amount of qualified 
     adoption expenses which may be taken into account under 
     subsection (a) with respect to the adoption of a child shall 
     not exceed $5,000.
       ``(2) Income limitation.--The amount allowable as a credit 
     under subsection (a) for any taxable year shall be reduced 
     (but not below zero) by an amount which bears the same ratio 
     to the amount so allowable (determined without regard to this 
     paragraph but with regard to paragraph (1)) as--
       ``(A) the amount (if any) by which the taxpayer's adjusted 
     gross income (determined without regard to sections 911, 931, 
     and 933) exceeds $75,000, bears to
       ``(B) $40,000.
       ``(3) Denial of double benefit.--
       ``(A) In general.--No credit shall be allowed under 
     subsection (a) for any expense for which a deduction or 
     credit is allowable under any other provision of this 
     chapter.
       ``(B) Grants.--No credit shall be allowed under subsection 
     (a) for any expense to the extent that funds for such expense 
     are received under any Federal, State, or local program. The 
     preceding sentence shall not apply to expenses for the 
     adoption of a child with special needs.
       ``(C) Reimbursement.--No credit shall be allowed under 
     subsection (a) for any expense to the extent that such 
     expense is reimbursed and the reimbursement is excluded from 
     gross income under section 138.
       ``(c) Carryforwards of Unused Credit.--If the credit 
     allowable under subsection (a) for any taxable year exceeds 
     the limitation imposed by section 26(a) for such taxable year 
     reduced by the sum of the credits allowable under this 
     subpart (other than this section), such excess shall be 
     carried to the succeeding taxable year 

[[Page H 12629]]
     and added to the credit allowable under subsection (a) for such taxable 
     year. No credit may be carried forward under this subsection 
     to any taxable year following the fifth taxable year after 
     the taxable year in which the credit arose. For purposes of 
     the preceding sentence, credits shall be treated as used on a 
     first-in first-out basis.
       ``(d) Definitions.--For purposes of this section--
       ``(1) Qualified adoption expenses.--The term `qualified 
     adoption expenses' means reasonable and necessary adoption 
     fees, court costs, attorney fees, and other expenses--
       ``(A) which are directly related to, and the principal 
     purpose of which is for, the legal adoption of an eligible 
     child by the taxpayer, and
       ``(B) which are not incurred in violation of State or 
     Federal law or in carrying out any surrogate parenting 
     arrangement.
     Such term shall not include expenses for a foreign adoption 
     unless the child is actually adopted.
       ``(2) Expenses for adoption of spouse's child not 
     eligible.--The term `qualified adoption expenses' shall not 
     include any expenses in connection with the adoption by an 
     individual of a child who is the child of such individual's 
     spouse.
       ``(3) Eligible child.--The term `eligible child' means any 
     individual--
       ``(A) who has not attained age 18 as of the time of the 
     adoption, or
       ``(B) who is physically or mentally incapable of caring for 
     himself.
       ``(4) Child with special needs.--The term `child with 
     special needs' means any child if--
       ``(A) a State has determined that the child cannot or 
     should not be returned to the home of his parents, and
       ``(B) such State has determined that there exists with 
     respect to the child a specific factor or condition (such as 
     his ethnic background, age, or membership in a minority or 
     sibling group, or the presence of factors such as medical 
     conditions or physical, mental, or emotional handicaps) 
     because of which it is reasonable to conclude that such child 
     cannot be placed with adoptive parents without providing 
     adoption assistance.
       ``(e) Married Couples Must File Joint Returns.--Rules 
     similar to the rules of paragraphs (2), (3), and (4) of 
     section 21(e) shall apply for purposes of this section.''.
       (b) Exclusion of Amounts Received Under Employer's Adoption 
     Assistance Programs.--Part III of subchapter B of chapter 1 
     (relating to items specifically excluded from gross income), 
     as amended by title VIII, is amended by redesignating section 
     138 as section 139 and by inserting after section 137 the 
     following new section:

     ``SEC. 138. ADOPTION ASSISTANCE PROGRAMS.

       ``(a) In General.--Gross income of an employee does not 
     include amounts paid or expenses incurred by the employer for 
     qualified adoption expenses in connection with the adoption 
     of a child by an employee if such amounts are furnished 
     pursuant to an adoption assistance program.
       ``(b) Limitations.--
       ``(1) Dollar limitation.--The aggregate amount excludable 
     from gross income under subsection (a) for all taxable years 
     with respect to the adoption of any single child by the 
     taxpayer shall not exceed $5,000.
       ``(2) Income limitation.--The amount excludable from gross 
     income under subsection (a) for any taxable year shall be 
     reduced (but not below zero) by an amount which bears the 
     same ratio to the amount so excludable (determined without 
     regard to this paragraph but with regard to paragraph (1)) 
     as--
       ``(A) the amount (if any) by which the taxpayer's adjusted 
     gross income (determined without regard to this section and 
     sections 911, 931, and 933) exceeds $75,000, bears to
       ``(B) $40,000.
       ``(c) Adoption Assistance Program.--For purposes of this 
     section, an adoption assistance program is a plan of an 
     employer--
       ``(1) under which the employer provides employees with 
     adoption assistance, and
       ``(2) which meets requirements similar to the requirements 
     of paragraphs (2), (3), and (5) of section 127(b).
     An adoption reimbursement program operated under section 1052 
     of title 10, United States Code (relating to armed forces) or 
     section 514 of title 14, United States Code (relating to 
     members of the Coast Guard) shall be treated as an adoption 
     assistance program for purposes of this section.
       ``(d) Qualified Adoption Expenses.--For purposes of this 
     section, the term `qualified adoption expenses' has the 
     meaning given such term by section 24(d).''.
       (c) Conforming Amendments.--
       (1) The table of sections for subpart A of part IV of 
     subchapter A of chapter 1, as amended by section 11001, is 
     amended by inserting after the item relating to section 23 
     the following new item:

``Sec. 24. Adoption expenses.''.

       (2) The table of sections for part III of subchapter B of 
     chapter 1 is amended by striking the item relating to section 
     138 and inserting the following:

``Sec. 138. Adoption assistance programs.
``Sec. 139. Cross reference to other Acts.''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 11004. DEDUCTION FOR INTEREST ON EDUCATION LOANS.

       (a) In General.--Part VII of subchapter B of chapter 1 
     (relating to additional itemized deductions for individuals) 
     is amended by redesignating section 220 as section 221 and by 
     inserting after section 219 the following new section:

     ``SEC. 220. INTEREST ON EDUCATION LOANS.

       ``(a) Allowance of Deduction.--In the case of an 
     individual, there shall be allowed as a deduction for the 
     taxable year an amount equal to the interest paid by the 
     taxpayer during the taxable year on any qualified education 
     loan.
       ``(b) Maximum Deduction.--
       ``(1) In general.--Except as provided in paragraph (2), the 
     deduction allowed by subsection (a) for the taxable year 
     shall not exceed $2,500.
       ``(2) Limitation based on modified adjusted gross income.--
       ``(A) In general.--If the modified adjusted gross income of 
     the taxpayer for the taxable year exceeds $45,000 ($65,000 in 
     the case of a joint return), the amount which would (but for 
     this paragraph) be allowable as a deduction under this 
     section shall be reduced (but not below zero) by the amount 
     which bears the same ratio to the amount which would be so 
     allowable as such excess bears to $20,000.
       ``(B) Modified adjusted gross income.--The term `modified 
     adjusted gross income' means adjusted gross income 
     determined--
       ``(i) without regard to this section and sections 135, 911, 
     931, and 933, and
       ``(ii) after application of sections 86, 219, and 469.
     For purposes of sections 86, 135, 219, and 469, adjusted 
     gross income shall be determined without regard to the 
     deduction allowed under this section.
       ``(C) Inflation adjustment.--In the case of any taxable 
     year beginning after 1996, the $45,000 and $65,000 amounts 
     referred to in subparagraph (A) shall be increased by an 
     amount equal to--
       ``(i) such dollar amount, multiplied by
       ``(ii) the cost-of-living adjustment determined under 
     section (1)(f)(3) for the calendar year in which the taxable 
     year begins, by substituting `1995' for `1992'.
       ``(D) Rounding.--If any amount as adjusted under 
     subparagraph (C) is not a multiple of $50, such amount shall 
     be rounded to the nearest multiple of $50.
       ``(c) Dependents Not Eligible for Deduction.--No deduction 
     shall be allowed by this section to an individual for the 
     taxable year if a deduction under section 151 with respect to 
     such individual is allowed to another taxpayer for the 
     taxable year beginning in the calendar year in which such 
     individual's taxable year begins.
       ``(d) Limit on Period Deduction Allowed.--A deduction shall 
     be allowed under this section only with respect to interest 
     paid on any qualified education loan during the first 60 
     months (whether or not consecutive) in which interest 
     payments are required. For purposes of this paragraph, any 
     loan and all refinancings of such loan shall be treated as 1 
     loan.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Qualified education loan.--The term `qualified 
     education loan' means any indebtedness incurred to pay 
     qualified higher education expenses--
       ``(A) which are incurred on behalf of the taxpayer or the 
     taxpayer's spouse,
       ``(B) which are paid or incurred within a reasonable period 
     of time before or after the indebtedness is incurred, and
       ``(C) which are attributable to education furnished during 
     a period during which the recipient was at least a half-time 
     student.
     Such term includes indebtedness used to refinance 
     indebtedness which qualifies as a qualified education loan. 
     The term `qualified education loan' shall not include any 
     indebtedness owed to a person who is related (within the 
     meaning of section 267(b) or 707(b)(1)) to the taxpayer.
       ``(2) Qualified higher education expenses.--The term 
     `qualified higher education expenses' means the cost of 
     attendance (as defined in section 472 of the Higher Education 
     Act of 1965, 20 U.S.C. 1087ll, as in effect on the day before 
     the date of the enactment of this Act) of the taxpayer or the 
     taxpayer's spouse at an eligible educational institution, 
     reduced by the sum of--
       ``(A) the amount excluded from gross income under section 
     135 by reason of such expenses, and
       ``(B) the amount of the reduction described in section 
     135(d)(1).
     For purposes of the preceding sentence, the term `eligible 
     educational institution' has the same meaning given such term 
     by section 135(c)(3), except that such term shall also 
     include an institution conducting an internship or residency 
     program leading to a degree or certificate awarded by an 
     institution of higher education, a hospital, or a health care 
     facility which offers postgraduate training.
       ``(3) Half-time student.--The term `half-time student' 
     means any individual who would be a student as defined in 
     section 151(c)(4) if `half-time' were substituted for `full-
     time' each place it appears in such section.
       ``(4) Dependent.--The term `dependent' has the meaning 
     given such term by section 152.
       ``(f) Special Rules.--
       ``(1) Denial of double benefit.--No deduction shall be 
     allowed under this section for any amount for which a 
     deduction is allowable under any other provision of this 
     chapter.
       ``(2) Married couples must file joint return.--If the 
     taxpayer is married at the close of the taxable year, the 
     deduction shall be allowed under subsection (a) only if the 
     taxpayer and the taxpayer's spouse file a joint return for 
     the taxable year.
       ``(3) Marital status.--Marital status shall be determined 
     in accordance with section 7703.''.
       (b) Deduction Allowed Whether or Not Taxpayer Itemizes 
     Other Deductions.--Subsection (a) of section 62 is amended by 
     inserting after paragraph (15) the following new paragraph:

[[Page H 12630]]

       ``(16) Interest on education loans.--The deduction allowed 
     by section 220.''
       (c) Reporting Requirement.--
       (1) In general.--Subpart B of part III of subchapter A of 
     chapter 61 (relating to information concerning transactions 
     with other persons) is amended by inserting after section 
     6050P the following new section:

     ``SEC. 6050Q. RETURNS RELATING TO EDUCATION LOAN INTEREST 
                   RECEIVED IN TRADE OR BUSINESS FROM INDIVIDUALS.

       ``(a) Education Loan Interest of $600 or More.--Any 
     person--
       ``(1) who is engaged in a trade or business, and
       ``(2) who, in the course of such trade or business, 
     receives from any individual interest aggregating $600 or 
     more for any calendar year on 1 or more qualified education 
     loans,
     shall make the return described in subsection (b) with 
     respect to each individual from whom such interest was 
     received at such time as the Secretary may by regulations 
     prescribe.
       ``(b) Form and Manner of Returns.--A return is described in 
     this subsection if such return--
       ``(1) is in such form as the Secretary may prescribe,
       ``(2) contains--
       ``(A) the name, address, and TIN of the individual from 
     whom the interest described in subsection (a)(2) was 
     received,
       ``(B) the amount of such interest received for the calendar 
     year, and
       ``(C) such other information as the Secretary may 
     prescribe.
       ``(c) Application to Governmental Units.--For purposes of 
     subsection (a)--
       ``(1) Treated as persons.--The term `person' includes any 
     governmental unit (and any agency or instrumentality 
     thereof).
       ``(2) Special rules.--In the case of a governmental unit or 
     any agency or instrumentality thereof--
       ``(A) subsection (a) shall be applied without regard to the 
     trade or business requirement contained therein, and
       ``(B) any return required under subsection (a) shall be 
     made by the officer or employee appropriately designated for 
     the purpose of making such return.
       ``(d) Statements To Be Furnished to Individuals With 
     Respect to Whom Information Is Required.--Every person 
     required to make a return under subsection (a) shall furnish 
     to each individual whose name is required to be set forth in 
     such return a written statement showing--
       ``(1) the name and address of the person required to make 
     such return, and
       ``(2) the aggregate amount of interest described in 
     subsection (a)(2) received by the person required to make 
     such return from the individual to whom the statement is 
     required to be furnished.
     The written statement required under the preceding sentence 
     shall be furnished on or before January 31 of the year 
     following the calendar year for which the return under 
     subsection (a) was required to be made.
       ``(e) Qualified Education Loan Defined.--For purposes of 
     this section, except as provided in regulations prescribed by 
     the Secretary, the term `qualified education loan' has the 
     meaning given such term by section 220(e)(1).
       ``(f) Returns Which Would Be Required To Be Made by 2 or 
     More Persons.--Except to the extent provided in regulations 
     prescribed by the Secretary, in the case of interest received 
     by any person on behalf of another person, only the person 
     first receiving such interest shall be required to make the 
     return under subsection (a).''.
       (2) Assessable penalties.--Section 6724(d) (relating to 
     definitions) is amended--
       (A) by redesignating clauses (ix) through (xiv) as clauses 
     (x) through (xv), respectively, in paragraph (1)(B) and by 
     inserting after clause (viii) of such paragraph the following 
     new clause:
       ``(ix) section 6050Q (relating to returns relating to 
     education loan interest received in trade or business from 
     individuals),'', and
       (B) by redesignating subparagraphs (Q) through (T) as 
     subparagraphs (R) through (U), respectively, in paragraph (2) 
     and by inserting after subparagraph (P) of such paragraph the 
     following new subparagraph:
       ``(Q) section 6050Q (relating to returns relating to 
     education loan interest received in trade or business from 
     individuals),''.
       (d) Clerical Amendment.--The table of sections for part VII 
     of subchapter B of chapter 1 is amended by striking the last 
     item and inserting the following new items:

``Sec. 220. Interest on education loans.
``Sec. 221. Cross reference.''.

       (e) Effective Date.--The amendments made by this section 
     shall apply to any qualified education loan (as defined in 
     section 220(e)(1) of the Internal Revenue Code of 1986, as 
     added by this section) incurred on, before, or after the date 
     of the enactment of this Act, but only with respect to any 
     loan interest payment due after December 31, 1995.

     SEC. 11005. DEDUCTION FOR TAXPAYERS WITH CERTAIN PERSONS 
                   REQUIRING CUSTODIAL CARE IN THEIR HOUSEHOLDS.

       (a) In General.--Part VII of subchapter B of chapter 1 is 
     amended by redesignating section 221 as section 222 and by 
     inserting after section 220 the following new section:

     ``SEC. 221. TAXPAYERS WITH CERTAIN PERSONS REQUIRING 
                   CUSTODIAL CARE IN THEIR HOUSEHOLDS.

       ``(a) Allowance of Deduction.--In the case of an individual 
     who maintains a household which includes as a member one or 
     more qualified persons, there shall be allowed as a deduction 
     for the taxable year an amount equal to $1,000 for each such 
     person.
       ``(b) Qualified Person.--For purposes of this section, the 
     term `qualified person' means any individual--
       ``(1) who is a father or mother of the taxpayer, his 
     spouse, or his former spouse or who is an ancestor of such a 
     father or mother,
       ``(2) who is physically or mentally incapable of caring for 
     himself,
       ``(3) who has as his principal place of abode for more than 
     half of the taxable year the home of the taxpayer,
       ``(4) over half of whose support, for the calendar year in 
     which the taxable year of the taxpayer begins, was received 
     from the taxpayer, and
       ``(5) whose name and TIN are included on the taxpayer's 
     return for the taxable year.
     For purposes of paragraph (1), a stepfather or stepmother 
     shall be treated as a father or mother.
       ``(c) Special Rules.--For purposes of this section, rules 
     similar to the rules of paragraphs (1), (2), (3), and (4) of 
     section 21(e) shall apply.''
       (b) Deduction Allowed Whether or Not Taxpayer Itemizes 
     Other Deductions.--Subsection (a) of section 62 is amended by 
     inserting after paragraph (16) the following new paragraph:
       ``(17) Taxpayers with certain persons requiring custodial 
     care in their households.--The deduction allowed by section 
     221.''
       (c) Clerical Amendment.--The table of sections for part VII 
     of subchapter B of chapter 1 is amended by striking the last 
     item and inserting the following new items:

``Sec. 221. Taxpayers with certain persons requiring custodial care in 
              their households.
``Sec. 222. Cross reference.''

       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.
             Subtitle B--Savings and Investment Incentives

                CHAPTER 1--RETIREMENT SAVINGS INCENTIVES

               Subchapter A--Individual Retirement Plans

                  PART I--RESTORATION OF IRA DEDUCTION

     SEC. 11011. RESTORATION OF IRA DEDUCTION.

       (a) Increase in Income Limits for Active Participants.--
       (1) In general.--Subparagraph (B) of section 219(g)(3) 
     (relating to applicable dollar amount) is amended to read as 
     follows:
       ``(B) Applicable dollar amount.--The term `applicable 
     dollar amount' means the following:
       ``(i) In the case of a taxpayer filing a joint return:

                                                         The applicable
``For taxable years beginning in:                     dollar amount is:
  1996.....................................................$45,000 ....

  1997.....................................................$50,000 ....

  1998.....................................................$55,000 ....

  1999.....................................................$60,000 ....

  2000.....................................................$65,000 ....

  2001.....................................................$70,000 ....

  2002.....................................................$75,000 ....

  2003.....................................................$80,000 ....

  2004.....................................................$85,000 ....

  2005.....................................................$90,000 ....

  2006.....................................................$95,000 ....

  2007 and thereafter.......................................$100,00....

       ``(ii) In the case of any other taxpayer (other than a 
     married individual filing a separate return):

                                                         The applicable
``For taxable years beginning in:                     dollar amount is:
  1996.....................................................$30,000 ....

  1997.....................................................$35,000 ....

  1998.....................................................$40,000 ....

  1999.....................................................$45,000 ....

  2000.....................................................$50,000 ....

  2001.....................................................$55,000 ....

  2002.....................................................$60,000 ....

  2003.....................................................$65,000 ....

  2004.....................................................$70,000 ....

  2005.....................................................$75,000 ....

  2006.....................................................$80,000 ....

  2007 and thereafter......................................$85,000.....

       ``(iii) In the case of a married individual filing a 
     separate return, zero.''
       (2) Increase in phaseout range for joint returns.--
       (A) In general.--Clause (ii) of section 219(g)(2)(A) is 
     amended by inserting ``(the phaseout amount in the case of a 
     joint return)'' after ``$10,000''.
       (B) Phaseout amount.--Paragraph (3) of section 219(g) is 
     amended--
       (i) by adding at the end the following new subparagraph:
       ``(C) Phaseout amount.--The phaseout amount is:

                                                         The applicable
``For taxable years beginning in:                     dollar amount is:
  1996.....................................................$12,500 ....

  1997.....................................................$15,000 ....

  1998.....................................................$17,500 ....

  1999 and thereafter.......................................$20,000....

     and
       (ii) by inserting ``; phaseout amount'' after ``amount'' in 
     the heading.
       (3) Cost-of-living adjustments.--Section 219(h), as added 
     by section 11012(a), is amended--
       (A) by adding at the end the following new paragraph:
       ``(2) Phase-out ranges.--In the case of any taxable year 
     beginning in a calendar year after 2007, the $100,000 and 
     $85,000 amounts in clauses 

[[Page H 12631]]
     (i) and (ii) of subsection (g)(3)(B) shall each be increased by an 
     amount equal to the product of such dollar amount and the 
     cost-of-living adjustment determined under section 1(f)(3) 
     for the calendar year, except that subparagraph (B) thereof 
     shall be applied by substituting `2006' for `1992'. If any 
     amount to which either such amount is increased is not a 
     multiple of $1,000, such amount shall be rounded to the next 
     lower multiple of $1,000.'', and
       (B) by striking ``In the case'' and inserting:
       ``(1) Deductible amount.--In the case''.
       (b) Individual Not Disqualified by Spouse's 
     Participation.--Paragraph (1) of section 219(g) (relating to 
     limitation on deduction for active participants in certain 
     pension plans) is amended by striking ``or the individual's 
     spouse''.
       (c) Reporting Requirements.--Section 408(i) is amended by 
     striking ``under regulations'' and ``in such regulations'' 
     each place such terms appear.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 11012. INFLATION ADJUSTMENT FOR DEDUCTIBLE AMOUNT.

       (a) In General.--Section 219 is amended by redesignating 
     subsection (h) as subsection (i) and by inserting after 
     subsection (g) the following new subsection:
       ``(h) Cost-of-Living Adjustments.--In the case of any 
     taxable year beginning in a calendar year after 1996, the 
     $2,000 amount under subsection (b)(1)(A) shall be increased 
     by an amount equal to the product of $2,000 and the cost-of-
     living adjustment determined under section 1(f)(3) for the 
     calendar year in which the taxable year begins, except that 
     subparagraph (B) thereof shall be applied by substituting 
     `1995' for `1992'. If the amount to which $2,000 would be 
     increased under the preceding sentence is not a multiple of 
     $500, such amount shall be rounded to the next lower multiple 
     of $500.''
       (b) Conforming Amendments.--
       (1) Section 408(a)(1) is amended by striking ``in excess of 
     $2,000 on behalf of any individual'' and inserting ``on 
     behalf of any individual in excess of the amount in effect 
     for such taxable year under section 219(b)(1)(A)''.
       (2) Section 408(b)(2)(B) is amended by striking ``$2,000'' 
     and inserting ``the dollar amount in effect under section 
     219(b)(1)(A)''.
       (3) Section 408(j) is amended by striking ``$2,000''.

     SEC. 11013. HOMEMAKERS ELIGIBLE FOR FULL IRA DEDUCTION.

       (a) Spousal IRA Computed on Basis of Compensation of Both 
     Spouses.--Subsection (c) of section 219 (relating to special 
     rules for certain married individuals) is amended to read as 
     follows:
       ``(c) Special Rules for Certain Married Individuals.--
       ``(1) In general.--In the case of an individual to whom 
     this paragraph applies for the taxable year, the limitation 
     of paragraph (1) of subsection (b) shall be equal to the 
     lesser of--
       ``(A) the dollar amount in effect under subsection 
     (b)(1)(A) for the taxable year, or
       ``(B) the sum of--
       ``(i) the compensation includible in such individual's 
     gross income for the taxable year, plus
       ``(ii) the compensation includible in the gross income of 
     such individual's spouse for the taxable year reduced by--

       ``(I) the amount allowed as a deduction under subsection 
     (a) to such spouse for such taxable year, and
       ``(II) the amount of any contribution on behalf of such 
     spouse to an AD IRA under section 408A for such taxable year.

       ``(2) Individuals to whom paragraph (1) applies.--Paragraph 
     (1) shall apply to any individual if--
       ``(A) such individual files a joint return for the taxable 
     year, and
       ``(B) the amount of compensation (if any) includible in 
     such individual's gross income for the taxable year is less 
     than the compensation includible in the gross income of such 
     individual's spouse for the taxable year.''
       (b) Conforming Amendments.--
       (1) Paragraph (2) of section 219(f) (relating to other 
     definitions and special rules) is amended by striking 
     ``subsections (b) and (c)'' and inserting ``subsection (b)''.
       (2) Section 408(d)(5) is amended by striking ``$2,250'' and 
     inserting ``the dollar amount in effect under section 
     219(b)(1)(A)''.
       (3) Section 219(g)(1) is amended by striking ``(c)(2)'' and 
     inserting ``(c)(1)(A)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

                  PART II--NONDEDUCTIBLE TAX-FREE IRAS

     SEC. 11015. ESTABLISHMENT OF AMERICAN DREAM IRA.

       (a) In General.--Subpart A of part I of subchapter D of 
     chapter 1 (relating to pension, profit-sharing, stock bonus 
     plans, etc.) is amended by inserting after section 408 the 
     following new section:

     ``SEC. 408A. AMERICAN DREAM IRA.

       ``(a) General Rule.--Except as provided in this section, an 
     American Dream IRA shall be treated for purposes of this 
     title in the same manner as an individual retirement plan.
       ``(b) American Dream IRA.--For purposes of this title, the 
     term `American Dream IRA' or `AD IRA' means an individual 
     retirement plan (as defined in section 7701(a)(37)) which is 
     designated at the time of the establishment of the plan as an 
     American Dream IRA. Such designation shall be made in such 
     manner as the Secretary may prescribe.
       ``(c) Treatment of Contributions.--
       ``(1) No deduction allowed.--No deduction shall be allowed 
     under section 219 for a contribution to an AD IRA.
       ``(2) Contribution limit.--The aggregate amount of 
     contributions for any taxable year to all AD IRAs maintained 
     for the benefit of an individual shall not exceed the excess 
     (if any) of--
       ``(A) the maximum amount allowable as a deduction under 
     section 219 with respect to such individual for such taxable 
     year (computed without regard to subsection (g) of such 
     section), over
       ``(B) the amount so allowed.
       ``(3) Contributions permitted after age 70\1/2\.--
     Contributions to an AD IRA may be made even after the 
     individual for whom the account is maintained has attained 
     age 70\1/2\.
       ``(4) Mandatory distribution rules not to apply, etc.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     subsections (a)(6) and (b)(3) of section 408 (relating to 
     required distributions) and section 4974 (relating to excise 
     tax on certain accumulations in qualified retirement plans) 
     shall not apply to any AD IRA.
       ``(B) Post-death distributions.--Rules similar to the rules 
     of section 401(a)(9) (other than subparagraph (A) thereof) 
     shall apply for purposes of this section.
       ``(5) Rules relating to rollover contributions.--
       ``(A) In general.--No rollover contribution may be made to 
     an AD IRA unless it is a qualified rollover contribution.
       ``(B) Coordination with limit.--A qualified rollover 
     contribution shall not be taken into account for purposes of 
     paragraph (2).
       ``(6) Time when contributions made.--For purposes of this 
     section, the rule of section 219(f)(3) shall apply.
       ``(d) Distribution Rules.--For purposes of this title--
       ``(1) General rules.--
       ``(A) Exclusions from gross income.--Any qualified 
     distribution from an AD IRA shall not be includible in gross 
     income.
       ``(B) Nonqualified distributions.--In applying section 72 
     to any distribution from an AD IRA which is not a qualified 
     distribution, such distribution shall be treated as made from 
     contributions to the AD IRA to the extent that such 
     distribution, when added to all previous distributions from 
     the AD IRA, does not exceed the aggregate amount of 
     contributions to the AD IRA. For purposes of the preceding 
     sentence, all AD IRAs maintained for the benefit of an 
     individual shall be treated as 1 account.
       ``(C) Exception from penalty tax.--Section 72(t) shall not 
     apply to--
       ``(i) any qualified distribution from an AD IRA, and
       ``(ii) any qualified special purpose distribution (whether 
     or not a qualified distribution) from an AD IRA.
       ``(2) Qualified distribution.--For purposes of this 
     subsection--
       ``(A) In general.--The term `qualified distribution' means 
     any payment or distribution--
       ``(i) made on or after the date on which the individual 
     attains age 59\1/2\,
       ``(ii) made to a beneficiary (or to the estate of the 
     individual) on or after the death of the individual,
       ``(iii) attributable to the individual's being disabled 
     (within the meaning of section 72(m)(7)), or
       ``(iv) which is a qualified special purpose distribution.
       ``(B) Distributions within 5 years.--No payment or 
     distribution shall be treated as a qualified distribution 
     if--
       ``(i) it is made within the 5-taxable year period beginning 
     with the 1st taxable year for which the individual made a 
     contribution to an AD IRA (or such individual's spouse made a 
     contribution to an AD IRA) established for such individual, 
     or
       ``(ii) in the case of a payment or distribution properly 
     allocable (as determined in the manner prescribed by the 
     Secretary) to a qualified rollover contribution (or income 
     allocable thereto), it is made within the 5-taxable year 
     period beginning with the taxable year in which the rollover 
     contribution was made.
     Clause (ii) shall not apply to a qualified rollover 
     contribution from an AD IRA.
       ``(3) Rollovers.--
       ``(A) In general.--Paragraph (1) shall not apply to any 
     distribution which is transferred in a qualified rollover 
     contribution to an AD IRA.
       ``(B) Income inclusion for rollovers from non-ad iras.--In 
     the case of any qualified rollover contribution from an 
     individual retirement plan (other than an AD IRA) to an AD 
     IRA established for the benefit of the payee or distributee, 
     as the case may be--
       ``(i) sections 72(t) and 408(d)(3) shall not apply, and
       ``(ii) in any case where such contribution is made before 
     January 1, 1998, any amount required to be included in gross 
     income by reason of this paragraph shall be so included 
     ratably over the 4-taxable year period beginning with the 
     taxable year in which the payment or distribution is made.
       ``(C) Additional reporting requirements.--The Secretary 
     shall require that trustees of AD IRAs, trustees of 
     individual retirement plans, or both, whichever is 
     appropriate, shall include such additional information in 
     reports required under section 408(i) as is necessary to 
     ensure that amounts required to be included in gross income 
     under subparagraph (B) are so included.
       ``(4) Qualified special purpose distribution.--For purposes 
     of this section, the term `qualified special purpose 
     distribution' means any distribution to which subparagraph 
     (B), (D), or (E) of section 72(t)(2) applies.
       ``(e) Qualified Rollover Contribution.--For purposes of 
     this section--
       ``(1) In general.--The term `qualified rollover 
     contribution' means a rollover contribution to an AD IRA from 
     another such account, or from an individual retirement plan, 
     but only if such rollover contribution meets the requirements 
     of section 408(d)(3). For purposes of section 

[[Page H 12632]]
     408(d)(3)(B), there shall be disregarded any qualified rollover 
     contribution from an individual retirement plan to an AD IRA.
       ``(2) Conversions.--The conversion of an individual 
     retirement plan to an AD IRA shall be treated as if it were a 
     qualified rollover contribution.''
       (b) Repeal of Nondeductible Contributions.--
       (1) Subsection (f) of section 219 is amended by striking 
     paragraph (7).
       (2) Paragraph (5) of section 408(d) is amended by striking 
     the last sentence.
       (3) Section 408(o) is amended by adding at the end the 
     following new paragraph:
       ``(5) Termination.--This subsection shall not apply to any 
     designated nondeductible contribution for any taxable year 
     beginning after December 31, 1995.''
       (4) Subsection (b) of section 4973 is amended by striking 
     the last sentence.
       (c) Excess Distributions Tax Not To Apply.--Subparagraph 
     (B) of section 4980A(e)(1) is amended by inserting ``other 
     than an AD IRA (as defined in section 408A(b))'' after 
     ``retirement plan''.
       (d) Excess Contributions.--Section 4973(b) is amended to 
     read as follows:
       ``(b) Excess Contributions.--For purposes of this section--
       ``(1) In general.--In the case of individual retirement 
     accounts or individual retirement annuities, the term `excess 
     contributions' means the sum of--
       ``(A) the amount determined under paragraph (2) for the 
     taxable year, plus
       ``(B) the carryover amount determined under paragraph (3) 
     for the taxable year.
       ``(2) Current year.--The amount determined under this 
     paragraph for any taxable year is an amount equal to the sum 
     of--
       ``(A) the excess (if any) of--
       ``(i) the amount contributed for the taxable year to the 
     accounts or for the annuities or bonds (other than AD IRAs), 
     over
       ``(ii) the amount allowable as a deduction under section 
     219 for the taxable year, plus
       ``(B) the excess (if any) of--
       ``(i) the amount described in clause (i) (taking into 
     account contributions to AD IRAs) contributed for the taxable 
     year, over
       ``(ii) the amount allowable as a deduction under section 
     219 for the taxable year (computed without regard to section 
     219(g)).
       ``(3) Carryover amount.--The carryover amount determined 
     under this paragraph for any taxable year is the amount 
     determined under paragraph (2) for the preceding taxable 
     year, reduced by the sum of--
       ``(A) the distributions out of the account for the taxable 
     year which were included in the gross income of the payee 
     under section 408(d)(1),
       ``(B) the distributions out of the account for the taxable 
     year to which section 408(d)(5) applies, and
       ``(C) the excess (if any) of the amount determined under 
     paragraph (2)(B)(ii) over the amount determined under 
     paragraph (2)(B)(i).
       ``(4) Special rules.--For purposes of this subsection--
       ``(A) Rollover contributions.--Rollover distributions 
     described in sections 402(c), 403(a)(4), 403(b)(8), 
     408(d)(3), and 408A(e) shall not be taken into account.
       ``(B) Contributions returned before due date.--Any 
     contribution which is distributed from an individual 
     retirement plan in a distribution to which section 408(d)(4) 
     applies shall not be taken into account.
       ``(C) Excess contributions treated as contributions.--In 
     applying paragraph (3)(C), the determination as to amounts 
     contributed for a taxable year shall be made without regard 
     to section 219(f)(6).''
       (e) Clerical Amendment.--The table of sections for subpart 
     A of part I of subchapter D of chapter 1 is amended by 
     inserting after the item relating to section 408 the 
     following new item:

``Sec. 408A. American Dream IRA.''

       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

                Subchapter B--Penalty-Free Distributions

     SEC. 11016. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED 
                   WITHOUT PENALTY TO PURCHASE FIRST HOMES OR TO 
                   PAY HIGHER EDUCATION OR FINANCIALLY DEVASTATING 
                   MEDICAL EXPENSES.

       (a) In General.--Paragraph (2) of section 72(t) (relating 
     to exceptions to 10-percent additional tax on early 
     distributions from qualified retirement plans) is amended by 
     adding at the end the following new subparagraph:
       ``(D) Distributions from individual retirement plans for 
     first-time homebuyers or educational expenses.--Distributions 
     to an individual from an individual retirement plan--
       ``(i) which are qualified first-time homebuyer 
     distributions (as defined in paragraph (6)), or
       ``(ii) to the extent such distributions do not exceed the 
     qualified higher education expenses (as defined in paragraph 
     (7)) of the taxpayer for the taxable year.
       (b) Financially Devastating Medical Expenses.--
       (1) In general.--Section 72(t)(3)(A) is amended by striking 
     ``(B),''.
       (2) Certain lineal descendants and ancestors treated as 
     dependents.--Subparagraph (B) of section 72(t)(2) is amended 
     by striking ``medical care'' and all that follows and 
     inserting ``medical care determined--
       ``(i) without regard to whether the employee itemizes 
     deductions for such taxable year, and
       ``(ii) in the case of an individual retirement plan, by 
     treating such employee's dependents as including--

       ``(I) all children and grandchildren of the employee or 
     such employee's spouse, and
       ``(II) all ancestors of the employee or such employee's 
     spouse.''

       (3) Conforming amendment.--Subparagraph (B) of section 
     72(t)(2) is amended by striking ``or (C)'' and inserting ``, 
     (C), (D), or (E)''.
       (c) Definitions.--Section 72(t) is amended by adding at the 
     end the following new paragraphs:
       ``(6) Qualified first-time homebuyer distributions.--For 
     purposes of paragraph (2)(D)(i)--
       ``(A) In general.--The term `qualified first-time homebuyer 
     distribution' means any payment or distribution received by 
     an individual to the extent such payment or distribution is 
     used by the individual before the close of the 60th day after 
     the day on which such payment or distribution is received to 
     pay qualified acquisition costs with respect to a principal 
     residence of a first-time homebuyer who is such individual, 
     the spouse of such individual, or any child, grandchild, or 
     ancestor of such individual or the individual's spouse.
       ``(B) Lifetime dollar limitation.--The aggregate amount of 
     payments or distributions received by an individual which may 
     be treated as qualified first-time homebuyer distributions 
     for any taxable year shall not exceed the excess (if any) 
     of--
       ``(i) $10,000, over
       ``(ii) the aggregate amounts treated as qualified first-
     time homebuyer distributions with respect to such individual 
     for all prior taxable years.
       ``(C) Qualified acquisition costs.--For purposes of this 
     paragraph, the term `qualified acquisition costs' means the 
     costs of acquiring, constructing, or reconstructing a 
     residence. Such term includes any usual or reasonable 
     settlement, financing, or other closing costs.
       ``(D) First-time homebuyer; other definitions.--For 
     purposes of this paragraph--
       ``(i) First-time homebuyer.--The term `first-time 
     homebuyer' means any individual if--

       ``(I) such individual (and if married, such individual's 
     spouse) had no present ownership interest in a principal 
     residence during the 2-year period ending on the date of 
     acquisition of the principal residence to which this 
     paragraph applies, and
       ``(II) subsection (h) or (k) of section 1034 did not 
     suspend the running of any period of time specified in 
     section 1034 with respect to such individual on the day 
     before the date the distribution is applied pursuant to 
     subparagraph (A).

       ``(ii) Principal residence.--The term `principal residence' 
     has the same meaning as when used in section 1034.
       ``(iii) Date of acquisition.--The term `date of 
     acquisition' means the date--

       ``(I) on which a binding contract to acquire the principal 
     residence to which subparagraph (A) applies is entered into, 
     or
       ``(II) on which construction or reconstruction of such a 
     principal residence is commenced.

       ``(E) Special rule where delay in acquisition.--If any 
     distribution from any individual retirement plan fails to 
     meet the requirements of subparagraph (A) solely by reason of 
     a delay or cancellation of the purchase or construction of 
     the residence, the amount of the distribution may be 
     contributed to an individual retirement plan as provided in 
     section 408(d)(3)(A)(i) (determined by substituting `120 
     days' for `60 days' in such section), except that--
       ``(i) section 408(d)(3)(B) shall not be applied to such 
     contribution, and
       ``(ii) such amount shall not be taken into account in 
     determining whether section 408(d)(3)(A)(i) applies to any 
     other amount.
       ``(7) Qualified higher education expenses.--For purposes of 
     paragraph (2)(D)(ii)--
       ``(A) In general.--The term `qualified higher education 
     expenses' means tuition, fees, books, supplies, and equipment 
     required for the enrollment or attendance of--
       ``(i) the taxpayer,
       ``(ii) the taxpayer's spouse, or
       ``(iii) any child (as defined in section 151(c)(3)), 
     grandchild, or ancestor of the taxpayer or the taxpayer's 
     spouse,
     at an eligible educational institution (as defined in section 
     135(c)(3)).
       ``(B) Coordination with savings bond provisions.--The 
     amount of qualified higher education expenses for any taxable 
     year shall be reduced by any amount excludable from gross 
     income under section 135.''
       (d) Penalty-Free Distributions for Certain Unemployed 
     Individuals.--Paragraph (2) of section 72(t) is amended by 
     adding at the end the following new subparagraph:
       ``(E) Distributions to unemployed individuals.--A 
     distribution from an individual retirement plan to an 
     individual after separation from employment, if--
       ``(i) such individual has received unemployment 
     compensation for 12 consecutive weeks under any Federal or 
     State unemployment compensation law by reason of such 
     separation, and
       ``(ii) such distributions are made during any taxable year 
     during which such unemployment compensation is paid or the 
     succeeding taxable year.
     To the extent provided in regulations, a self-employed 
     individual shall be treated as meeting the requirements of 
     clause (i) if, under Federal or State law, the individual 
     would have received unemployment compensation but for the 
     fact the individual was self-employed.''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

                   Subchapter C--Simple Savings Plans

     SEC. 11018. ESTABLISHMENT OF SAVINGS INCENTIVE MATCH PLANS 
                   FOR EMPLOYEES OF SMALL EMPLOYERS.

       (a) In General.--Section 408 (relating to individual 
     retirement accounts) is amended by redesignating subsection 
     (p) as subsection (q) and by inserting after subsection (o) 
     the following new subsection:
       ``(p) Simple Retirement Accounts.--
       ``(1) In general.--For purposes of this title, the term 
     `simple retirement account' means an 

[[Page H 12633]]
     individual retirement plan (as defined in section 7701(a)(37))--
       ``(A) with respect to which the requirements of paragraphs 
     (3), (4), and (5) are met; and
       ``(B) with respect to which the only contributions allowed 
     are contributions under a qualified salary reduction 
     arrangement.
       ``(2) Qualified salary reduction arrangement.--
       ``(A) In general.--For purposes of this subsection, the 
     term `qualified salary reduction arrangement' means a written 
     arrangement of an eligible employer under which--
       ``(i) an employee eligible to participate in the 
     arrangement may elect to have the employer make payments--

       ``(I) as elective employer contributions to a simple 
     retirement account on behalf of the employee, or
       ``(II) to the employee directly in cash,

       ``(ii) the amount which an employee may elect under clause 
     (i) for any year is required to be expressed as a percentage 
     of compensation and may not exceed a total of $6,000 for any 
     year,
       ``(iii) the employer is required to make a matching 
     contribution to the simple retirement account for any year in 
     an amount equal to so much of the amount the employee elects 
     under clause (i)(I) as does not exceed the applicable 
     percentage of compensation for the year, and
       ``(iv) no contributions may be made other than 
     contributions described in clause (i) or (iii).
       ``(B) Definitions.--For purposes of this subsection--
       ``(i) Eligible employer.--The term `eligible employer' 
     means an employer who employs 100 or fewer employees on any 
     day during the year.
       ``(ii) Applicable percentage.--

       ``(I) In general.--The term `applicable percentage' means 3 
     percent.
       ``(II) Election of lower percentage.--An employer may elect 
     to apply a lower percentage (not less than 1 percent) for any 
     year for all employees eligible to participate in the plan 
     for such year if the employer notifies the employees of such 
     lower percentage within a reasonable period of time before 
     the 60-day election period for such year under paragraph 
     (5)(C). An employer may not elect a lower percentage under 
     this subclause for any year if that election would result in 
     the applicable percentage being lower than 3 percent in more 
     than 2 of the years in the 5-year period ending with such 
     year.
       ``(III) Special rule for years arrangement not in effect.--
     If any year in the 5-year period described in subclause (II) 
     is a year prior to the first year for which any qualified 
     salary reduction arrangement is in effect with respect to the 
     employer (or any predecessor), the employer shall be treated 
     as if the level of the employer matching contribution was at 
     3 percent of compensation for such prior year.

       ``(C) Arrangement may be only plan of employer.--
       ``(i) In general.--An arrangement shall not be treated as a 
     qualified salary reduction arrangement for any year if the 
     employer (or any predecessor employer) maintained a qualified 
     plan with respect to which contributions were made, or 
     benefits were accrued, for service in any year in the period 
     beginning with the year such arrangement became effective and 
     ending with the year for which the determination is being 
     made.
       ``(ii) Qualified plan.--For purposes of this subparagraph, 
     the term `qualified plan' means a plan, contract, pension, or 
     trust described in subparagraph (A) or (B) of section 
     219(g)(5).
       ``(D) Cost-of-living adjustment.--The Secretary shall 
     adjust the $6,000 amount under subparagraph (A)(ii) at the 
     same time and in the same manner as under section 415(d), 
     except that the base period taken into account shall be the 
     calendar quarter ending September 30, 1995, and any increase 
     under this subparagraph which is not a multiple of $500 shall 
     be rounded to the next lower multiple of $500.
       ``(3) Vesting requirements.--The requirements of this 
     paragraph are met with respect to a simple retirement account 
     if the employee's rights to any contribution to the simple 
     retirement account are nonforfeitable. For purposes of this 
     paragraph, rules similar to the rules of subsection (k)(4) 
     shall apply.
       ``(4) Participation requirements.--
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to any simple retirement account for a year 
     only if, under the qualified salary reduction arrangement, 
     all employees of the employer who--
       ``(i) received at least $5,000 in compensation from the 
     employer during any 2 preceding years, and
       ``(ii) are reasonably expected to receive at least $5,000 
     in compensation during the year,
     are eligible to make the election under paragraph (2)(A)(i).
       ``(B) Excludable employees.--An employer may elect to 
     exclude from the requirement under subparagraph (A) employees 
     described in section 410(b)(3).
       ``(5) Administrative requirements.--The requirements of 
     this paragraph are met with respect to any simplified 
     retirement account if, under the qualified salary reduction 
     arrangement--
       ``(A) an employer must--
       ``(i) make the elective employer contributions under 
     paragraph (2)(A)(i) not later than the close of the 30-day 
     period following the last day of the month with respect to 
     which the contributions are to be made, and
       ``(ii) make the matching contributions under  paragraph  
     (2)(A)(iii)  not  later than the date described in section 
     404(m)(2)(B),
       ``(B) an employee may elect to terminate participation in 
     such arrangement at any time during the year, except that if 
     an employee so terminates, the arrangement may provide that 
     the employee may not elect to resume participation until the 
     beginning of the next year, and
       ``(C) each employee eligible to participate may elect, 
     during the 60-day period before the beginning of any year, to 
     participate in the arrangement, or to modify the amounts 
     subject to such arrangement, for such year.
       ``(6) Definitions.--For purposes of this subsection--
       ``(A) Compensation.--
       ``(i) In general.--The term `compensation' means amounts 
     described in paragraphs (3) and (8) of section 6051(a).
       ``(ii) Self-employed.--In the case of an employee described 
     in subparagraph (B), the term `compensation' means net 
     earnings from self-employment determined under section 
     1402(a) without regard to any contribution under this 
     subsection.
       ``(B) Employee.--The term `employee' includes an employee 
     as defined in section 401(c)(1).
       ``(C) Year.--The term `year' means the calendar year.''
       (b) Tax Treatment of Simple Retirement Accounts.--
       (1) Deductibility of contributions by employees.--
       (A) Section 219(b) (relating to maximum amount of 
     deduction) is amended by adding at the end the following new 
     paragraph:
       ``(4) Special rule for simple retirement accounts.--This 
     section shall not apply with respect to any amount 
     contributed to a simple retirement account established under 
     section 408(p).''
       (B) Section 219(g)(5)(A) (defining active participant) is 
     amended by striking ``or'' at the end of clause (iv) and by 
     adding at the end the following new clause:
       ``(vi) any simple retirement account (within the meaning of 
     section 408(p)), or''.
       (2) Deductibility of employer contributions.--Section 404 
     (relating to deductions for contributions of an employer to 
     pension, etc. plans) is amended by adding at the end the 
     following new subsection:
       ``(m) Special Rules for Simple Retirement Accounts.--
       ``(1) In general.--Employer contributions to a simple 
     retirement account shall be treated as if they are made to a 
     plan subject to the requirements of this section.
       ``(2) Timing.--
       ``(A) Deduction.--Contributions described in paragraph (1) 
     shall be deductible in the taxable year of the employer with 
     or within which the calendar year for which the contributions 
     were made ends.
       ``(B) Contributions after end of year.--For purposes of 
     this subsection, contributions shall be treated as made for a 
     taxable year if they are made on account of the taxable year 
     and are made not later than the time prescribed by law for 
     filing the return for the taxable year (including extensions 
     thereof).''
       (3) Contributions and distributions.--
       (A) Section 402 (relating to taxability of beneficiary of 
     employees' trust) is amended by adding at the end the 
     following new subsection:
       ``(k) Treatment of Simple Retirement Accounts.--Rules 
     similar to the rules of paragraphs (1) and (3) of subsection 
     (h) shall apply to contributions and distributions with 
     respect to a simple retirement account under section 
     408(p).''
       (B) Section 408(d)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(G) Simple retirement accounts.--This paragraph shall not 
     apply to any amount paid or distributed out of a simple 
     retirement account (as defined in section 408(p)) unless--
       ``(i) it is paid into another simple retirement account, or
       ``(ii) in the case of any payment or distribution to which 
     section 72(t)(8) does not apply, it is paid into an 
     individual retirement plan.''
       (C) Clause (i) of section 457(c)(2)(B) is amended by 
     striking ``section 402(h)(1)(B)'' and inserting ``section 
     402(h)(1)(B) or (k)''.
       (4) Penalties.--
       (A) Early withdrawals.--Section 72(t) (relating to 
     additional tax in early distributions), as amended by this 
     Act, is amended by adding at the end the following new 
     paragraph:
       ``(8) Special rules for simple retirement accounts.--In the 
     case of any amount received from a simple retirement account 
     (within the meaning of section 408(p)) during the 2-year 
     period beginning on the date such individual first 
     participated in any qualified salary reduction arrangement 
     maintained by the individual's employer under section 
     408(p)(2), paragraph (1) shall be applied by substituting `25 
     percent' for `10 percent'.''
       (B) Failure to report.--Section 6693 is amended by 
     redesignating subsection (c) as subsection (d) and by 
     inserting after subsection (b) the following new subsection:
       ``(c) Penalties Relating to Simple Retirement Accounts.--
       ``(1) Employer penalties.--An employer who fails to provide 
     1 or more notices required by section 408(l)(2)(C) shall pay 
     a penalty of $50 for each day on which such failures 
     continue.
       ``(2) Trustee penalties.--A trustee who fails--
       ``(A) to provide 1 or more statements required by the last 
     sentence of section 408(i) shall pay a penalty of $50 for 
     each day on which such failures continue, or
       ``(B) to provide 1 or more summary descriptions required by 
     section 408(l)(2)(B) shall pay a penalty of $50 for each day 
     on which such failures continue.
       ``(3) Reasonable cause exception.--No penalty shall be 
     imposed under this subsection with respect to any failure 
     which the taxpayer shows was due to reasonable cause.''
       (5) Reporting requirements.--
       (A)(i) Section 408(l) is amended by adding at the end the 
     following new paragraph:
       ``(2) Simple retirement accounts.--

[[Page H 12634]]

       ``(A) No employer reports.--Except as provided in this 
     paragraph, no report shall be required under this section by 
     an employer maintaining a qualified salary reduction 
     arrangement under subsection (p).
       ``(B) Summary description.--The trustee of any simple 
     retirement account established pursuant to a qualified salary 
     reduction arrangement under subsection (p) shall provide to 
     the employer maintaining the arrangement, each year a 
     description containing the following information:
       ``(i) The name and address of the employer and the trustee.
       ``(ii) The requirements for eligibility for participation.
       ``(iii) The benefits provided with respect to the 
     arrangement.
       ``(iv) The time and method of making elections with respect 
     to the arrangement.
       ``(v) The procedures for, and effects of, withdrawals 
     (including rollovers) from the arrangement.
       ``(C) Employee notification.--The employer shall notify 
     each employee immediately before the period for which an 
     election described in subsection (p)(5)(C) may be made of the 
     employee's opportunity to make such election. Such notice 
     shall include a copy of the description described in 
     subparagraph (B).''
       (ii) Section 408(l) is amended by striking ``An employer'' 
     and inserting--
       ``(1) In general.--An employer''.
       (5) Reporting requirements.--Section 408(i) is amended by 
     adding at the end the following new flush sentence:
     ``In the case of a simple retirement account under subsection 
     (p), only one report under this subsection shall be required 
     to be submitted each calendar year to the Secretary (at the 
     time provided under paragraph (2)) but, in addition to the 
     report under this subsection, there shall be furnished, 
     within 30 days after each calendar year, to the individual on 
     whose behalf the account is maintained a statement with 
     respect to the account balance as of the close of, and the 
     account activity during, such calendar year.''
       (6) Exemption from top-heavy plan rules.--Section 416(g)(4) 
     (relating to special rules for top-heavy plans) is amended by 
     adding at the end the following new subparagraph:
       ``(G) Simple retirement accounts.--The term `top-heavy 
     plan' shall not include a simple retirement account under 
     section 408(p).''
       (7) Conforming amendments.--
       (A) Section 280G(b)(6) is amended by striking ``or'' at the 
     end of subparagraph (B), by striking the period at the end of 
     subparagraph (C) and inserting ``, or'' and by adding after 
     subparagraph (C) the following new subparagraph:
       ``(D) a simple retirement account described in section 
     408(p).''
       (B) Section 402(g)(3) is amended by striking ``and'' at the 
     end of subparagraph (B), by striking the period at the end of 
     subparagraph (C) and inserting ``, and'', and by adding after 
     subparagraph (C) the following new subparagraph:
       ``(D) any elective employer contribution under section 
     408(p)(2)(A)(i).''
       (C) Subsections (b), (c), (m)(4)(B), and (n)(3)(B) of 
     section 414 are each amended by inserting ``408(p),'' after 
     ``408(k),''.
       (D) Section 4972(d)(1)(A) is amended by striking ``and'' at 
     the end of clause (ii), by striking the period at the end of 
     clause (iii) and inserting ``, and'', and by adding after 
     clause (iii) the following new clause:
       ``(iv) any simple retirement account (within the meaning of 
     section 408(p)).''
       (c) Repeal of Simplified Employee Pensions.--Section 408(k) 
     is amended by adding at the end the following new paragraph:
       ``(10) Termination.--This subsection shall not apply to any 
     years beginning after December 31, 1995. This paragraph shall 
     not apply to a simplified employee pension established before 
     January 1, 1996.''
       (d) Modifications of ERISA.--
       (1) Reporting requirements.--Section 101 of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1021) is 
     amended by redesignating subsection (g) as subsection (h) and 
     by inserting after subsection (f) the following new 
     subsection:
       ``(g) Simple Retirement Accounts.--
       ``(1) No employer reports.--Except as provided in this 
     subsection, no report shall be required under this section by 
     an employer maintaining a qualified salary reduction 
     arrangement under section 408(p) of the Internal Revenue Code 
     of 1986.
       ``(2) Summary description.--The trustee of any simple 
     retirement account established pursuant to a qualified salary 
     reduction arrangement under section 408(p) of such Code shall 
     provide to the employer maintaining the arrangement each year 
     a description containing the following information:
       ``(A) The name and address of the employer and the trustee.
       ``(B) The requirements for eligibility for participation.
       ``(C) The benefits provided with respect to the 
     arrangement.
       ``(D) The time and method of making elections with respect 
     to the arrangement.
       ``(E) The procedures for, and effects of, withdrawals 
     (including rollovers) from the arrangement.
       ``(3) Employee notification.--The employer shall notify 
     each employee immediately before the period for which an 
     election described in section 408 (p)(5)(C) of such Code may 
     be made of the employee's opportunity to make such election. 
     Such notice shall include a copy of the description described 
     in paragraph (2).''
       (2) Fiduciary duties.--Section 404 (c) of such Act (29 
     U.S.C. 1104(c)) is amended by inserting ``(1)'' after 
     ``(c)'', by redesignating paragraphs (1) and (2) as 
     subparagraphs (A) and (B), respectively, and by adding at the 
     end the following new paragraph:
       ``(2) In the case of a simple retirement account 
     established pursuant to a qualified salary reduction 
     arrangement under section 408(p) of the Internal Revenue Code 
     of 1986, a participant or beneficiary shall, for purposes of 
     paragraph (1), be treated as exercising control over the 
     assets in the account upon the earliest of--
       ``(A) an affirmative election with respect to the initial 
     investment of any contribution,
       ``(B) a rollover to any other simple retirement account or 
     individual retirement plan, or
       ``(C) one year after the simple retirement account is 
     established.
     No reports, other than those required under section 101(g), 
     shall be required with respect to a simple retirement account 
     established pursuant to such a qualified salary reduction 
     arrangement.''
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 11019. EXTENSION OF SIMPLE PLAN TO 401(k) ARRANGEMENTS.

       (a) Alternative Method of Satisfying Section 401(k) 
     Nondiscrimination Tests.--Section 401(k) (relating to cash or 
     deferred arrangements) is amended by adding at the end the 
     following new paragraph:
       ``(11) Adoption of simple plan to meet nondiscrimination 
     tests.--
       ``(A) In general.--A cash or deferred arrangement 
     maintained by an eligible employer shall be treated as 
     meeting the requirements of paragraph (3)(A)(ii) if such 
     arrangement meets--
       ``(i) the contribution requirements of subparagraph (B),
       ``(ii) the exclusive benefit requirements of subparagraph 
     (C), and
       ``(iii) the vesting requirements of section 408(p)(3).
       ``(B) Contribution requirements.--The requirements of this 
     subparagraph are met if, under the arrangement--
       ``(i) an employee may elect to have the employer make 
     elective contributions for the year on behalf of the employee 
     to a trust under the plan in an amount which is expressed as 
     a percentage of compensation of the employee but which in no 
     event exceeds $6,000,
       ``(ii) the employer is required to make a matching 
     contribution to the trust for the year in an amount equal to 
     so much of the amount the employee elects under clause (i) as 
     does not exceed 3 percent of compensation for the year, and
       ``(iii) no other contributions may be made other than 
     contributions described in clause (i) or (ii).
       ``(C) Exclusive benefit.--The requirements of this 
     subparagraph are met for any year to which this paragraph 
     applies if no contributions were made, or benefits were 
     accrued, for services during such year under any qualified 
     plan of the employer on behalf of any employee eligible to 
     participate in the cash or deferred arrangement, other than 
     contributions described in subparagraph (B).
       ``(D) Definitions and special rule.--
       ``(i) Definitions.--For purposes of this paragraph, any 
     term used in this paragraph which is also used in section 
     408(p) shall have the meaning given such term by such 
     section.
       ``(ii) Coordination with top-heavy rules.--A plan meeting 
     the requirements of this paragraph for any year shall not be 
     treated as a top-heavy plan under section 416 for such 
     year.''
       (b) Alternative Methods of Satisfying Section 401(m) 
     Nondiscrimination Tests.--Section 401(m) (relating to 
     nondiscrimination test for matching contributions and 
     employee contributions) is amended by redesignating paragraph 
     (10) as paragraph (11) and by adding after paragraph (9) the 
     following new paragraph:
       ``(10) Alternative method of satisfying tests.--A defined 
     contribution plan shall be treated as meeting the 
     requirements of paragraph (2) with respect to matching 
     contributions if the plan--
       ``(A) meets the contribution requirements of subparagraph 
     (B) of subsection (k)(11),
       ``(B) meets the exclusive benefit requirements of 
     subsection (k)(11)(C), and
       ``(C) meets the vesting requirements of section 
     408(p)(3).''
       (c) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after December 31, 1995.

                    CHAPTER 2--CAPITAL GAINS REFORM

            Subchapter A--Taxpayers Other Than Corporations

     SEC. 11021. CAPITAL GAINS DEDUCTION.

       (a) In General.--Part I of subchapter P of chapter 1 
     (relating to treatment of capital gains) is amended by 
     redesignating section 1202 as section 1203 and by inserting 
     after section 1201 the following new section:

     ``SEC. 1202. CAPITAL GAINS DEDUCTION.

       ``(a) General Rule.--If for any taxable year a taxpayer 
     other than a corporation has a net capital gain, 50 percent 
     of such gain shall be a deduction from gross income.
       ``(b) Estates and Trusts.--In the case of an estate or 
     trust, the deduction shall be computed by excluding the 
     portion (if any) of the gains for the taxable year from sales 
     or exchanges of capital assets which, under sections 652 and 
     662 (relating to inclusions of amounts in gross income of 
     beneficiaries of trusts), is includible by the income 
     beneficiaries as gain derived from the sale or exchange of 
     capital assets.
       ``(c) Coordination With Treatment of Capital Gain Under 
     Limitation on Investment Interest.--For purposes of this 
     section, the net capital gain for any taxable year shall be 
     reduced (but not below zero) by the amount which the taxpayer 
     takes into account as investment income under section 
     163(d)(4)(B)(iii).
       ``(d) Special Rule for Collectibles.--
       ``(1) In general.--The rate of tax imposed by section 1 on 
     the excess of--

[[Page H 12635]]

       ``(A) the net capital gain for the taxable year determined 
     as if section 1222(12) had not applied to any collectible 
     which is sold or exchanged during the taxable year and the 
     basis of which was not adjusted under section 1022(a), over
       ``(B) the net capital gain for the taxable year,
     shall not exceed 28 percent.
       ``(2) Election.--A taxpayer may elect to treat any 
     collectible specified in such election as not being an 
     indexed asset for purposes of section 1022. Any such 
     election, and any specification therein, once made, shall be 
     irrevocable.
       ``(e) Transitional Rule.--
       ``(1) In general.--In the case of a taxable year which 
     includes January 1, 1995--
       ``(A) the amount taken into account as the net capital gain 
     under subsection (a) shall not exceed the net capital gain 
     determined by only taking into account gains and losses 
     properly taken into account for the portion of the taxable 
     year on or after January 1, 1995, and
       ``(B) the amount of the net capital gain taken into account 
     in applying section 1(h) for such year shall be reduced by 
     the amount taken into account under subparagraph (A) for such 
     year.
       ``(2) Special rules for pass-thru entities.--
       ``(A) In general.--In applying paragraph (1) with respect 
     to any pass-thru entity, the determination of when gains and 
     losses are properly taken into account shall be made at the 
     entity level.
       ``(B) Pass-thru entity defined.--For purposes of 
     subparagraph (A), the term `pass-thru entity' means--
       ``(i) a regulated investment company,
       ``(ii) a real estate investment trust,
       ``(iii) an S corporation,
       ``(iv) a partnership,
       ``(v) an estate or trust, and
       ``(vi) a common trust fund.''.
       (b) Deduction Allowable in Computing Adjusted Gross 
     Income.--Subsection (a) of section 62, as amended by sections 
     11004 and 11005, is amended by inserting after paragraph (17) 
     the following new paragraph:
       ``(18) Long-term capital gains.--The deduction allowed by 
     section 1202.''.
       (c) Treatment of Collectibles.--
       (1) In general.--Section 1222 is amended by inserting after 
     paragraph (11) the following new paragraph:
       ``(12) Special rule for collectibles.--
       ``(A) In general.--Any gain or loss from the sale or 
     exchange of a collectible shall be treated as a short-term 
     capital gain or loss (as the case may be), without regard to 
     the period such asset was held. The preceding sentence shall 
     apply only to the extent the gain or loss is taken into 
     account in computing taxable income.
       ``(B) Treatment of certain sales of interest in 
     partnership, etc.--For purposes of subparagraph (A), any gain 
     from the sale or exchange of an interest in a partnership, S 
     corporation, or trust which is attributable to unrealized 
     appreciation in the value of collectibles held by such entity 
     shall be treated as gain from the sale or exchange of a 
     collectible. Rules similar to the rules of section 751(f) 
     shall apply for purposes of the preceding sentence.
       ``(C) Collectible.--For purposes of this paragraph, the 
     term `collectible' means any capital asset which is a 
     collectible (as defined in section 408(m) without regard to 
     paragraph (3) thereof).''.
       (2) Charitable deduction not affected.--
       (A) Paragraph (1) of section 170(e) is amended by adding at 
     the end the following new sentence: ``For purposes of this 
     paragraph, section 1222 shall be applied without regard to 
     paragraph (12) thereof (relating to special rule for 
     collectibles).''.
       (B) Clause (iv) of section 170(b)(1)(C) is amended by 
     inserting before the period at the end the following: ``and 
     section 1222 shall be applied without regard to paragraph 
     (12) thereof (relating to special rule for collectibles)''.
       (d) Technical and Conforming Changes.--
       (1) Section 1 is amended by striking subsection (h).
       (2) Paragraph (1) of section 170(e) is amended by striking 
     ``the amount of gain'' in the material following subparagraph 
     (B)(ii) and inserting ``50 percent (80 percent in the case of 
     a corporation) of the amount of gain''.
       (3) Subparagraph (B) of section 172(d)(2) is amended to 
     read as follows:
       ``(B) the deduction under section 1202 shall not be 
     allowed.''.
       (4) The last sentence of section 453A(c)(3) is amended by 
     striking all that follows ``long-term capital gain,'' and 
     inserting ``the maximum rate on net capital gain under 
     section 1201 or the deduction under section 1202 (whichever 
     is appropriate) shall be taken into account.''.
       (5) Paragraph (4) of section 642(c) is amended to read as 
     follows:
       ``(4) Adjustments.--To the extent that the amount otherwise 
     allowable as a deduction under this subsection consists of 
     gain from the sale or exchange of capital assets held for 
     more than 1 year, proper adjustment shall be made for any 
     deduction allowable to the estate or trust under section 1202 
     (relating to capital gains deduction). In the case of a 
     trust, the deduction allowed by this subsection shall be 
     subject to section 681 (relating to unrelated business 
     income).''.
       (6) The last sentence of section 643(a)(3) is amended to 
     read as follows: ``The deduction under section 1202 (relating 
     to capital gains deduction) shall not be taken into 
     account.''.
       (7) Subparagraph (C) of section 643(a)(6) is amended by 
     inserting ``(i)'' before ``there shall'' and by inserting 
     before the period ``, and (ii) the deduction under section 
     1202 (relating to capital gains deduction) shall not be taken 
     into account''.
       (8)(A) Paragraph (2) of section 904(b) is amended by 
     striking subparagraph (A), by redesignating subparagraph (B) 
     as subparagraph (A), and by inserting after subparagraph (A) 
     (as so redesignated) the following new subparagraph:
       ``(B) Other taxpayers.--In the case of a taxpayer other 
     than a corporation, taxable income from sources outside the 
     United States shall include gain from the sale or exchange of 
     capital assets only to the extent of foreign source capital 
     gain net income.''.
       (B) Subparagraph (A) of section 904(b)(2), as so 
     redesignated, is amended--
       (i) by striking all that precedes clause (i) and inserting 
     the following:
       ``(A) Corporations.--In the case of a corporation--'', and
       (ii) by striking in clause (i) ``in lieu of applying 
     subparagraph (A),''.
       (C) Paragraph (3) of section 904(b) is amended by striking 
     subparagraphs (D) and (E) and inserting the following new 
     subparagraph:
       ``(D) Rate differential portion.--The rate differential 
     portion of foreign source net capital gain, net capital gain, 
     or the excess of net capital gain from sources within the 
     United States over net capital gain, as the case may be, is 
     the same proportion of such amount as the excess of the 
     highest rate of tax specified in section 11(b) over the 
     alternative rate of tax under section 1201(a) bears to the 
     highest rate of tax specified in section 11(b).''.
       (D) Clause (v) of section 593(b)(2)(D) is amended--
       (i) by striking ``if there is a capital gain rate 
     differential (as defined in section 904(b)(3)(D)) for the 
     taxable year,'', and
       (ii) by striking ``section 904(b)(3)(E)'' and inserting 
     ``section 904(b)(3)(D)''.
       (9) The last sentence of section 1044(d) is amended by 
     striking ``1202'' and inserting ``1203''.
       (10)(A) Paragraph (2) of section 1211(b) is amended to read 
     as follows:
       ``(2) the sum of--
       ``(A) the excess of the net short-term capital loss over 
     the net long-term capital gain, and
       ``(B) one-half of the excess of the net long-term capital 
     loss over the net short-term capital gain.''.
       (B) So much of paragraph (2) of section 1212(b) as precedes 
     subparagraph (B) thereof is amended to read as follows:
       ``(2) Special rules.--
       ``(A) Adjustments.--
       ``(i) For purposes of determining the excess referred to in 
     paragraph (1)(A), there shall be treated as short-term 
     capital gain in the taxable year an amount equal to the 
     lesser of--

       ``(I) the amount allowed for the taxable year under 
     paragraph (1) or (2) of section 1211(b), or
       ``(II) the adjusted taxable income for such taxable year.

       ``(ii) For purposes of determining the excess referred to 
     in paragraph (1)(B), there shall be treated as short-term 
     capital gain in the taxable year an amount equal to the sum 
     of--

       ``(I) the amount allowed for the taxable year under 
     paragraph (1) or (2) of section 1211(b) or the adjusted 
     taxable income for such taxable year, whichever is the least, 
     plus
       ``(II) the excess of the amount described in subclause (I) 
     over the net short-term capital loss (determined without 
     regard to this subsection) for such year.''.

       (C) Subsection (b) of section 1212 is amended by adding at 
     the end the following new paragraph:
       ``(3) Transitional rule.--In the case of any amount which, 
     under this subsection and section 1211(b) (as in effect for 
     taxable years beginning before January 1, 1996), is treated 
     as a capital loss in the first taxable year beginning after 
     December 31, 1995, paragraph (2) and section 1211(b) (as so 
     in effect) shall apply (and paragraph (2) and section 1211(b) 
     as in effect for taxable years beginning after December 31, 
     1995, shall not apply) to the extent such amount exceeds the 
     total of any capital gain net income (determined without 
     regard to this subsection) for taxable years beginning after 
     December 31, 1995.''.
       (11) Paragraph (1) of section 1402(i) is amended by 
     inserting ``, and the deduction provided by section 1202 
     shall not apply'' before the period at the end thereof.
       (12) Subsection (e) of section 1445 is amended--
       (A) in paragraph (1) by striking ``35 percent (or, to the 
     extent provided in regulations, 28 percent)'' and inserting 
     ``28 percent (or, to the extent provided in regulations, 19.8 
     percent)'', and
       (B) in paragraph (2) by striking ``35 percent'' and 
     inserting ``28 percent''.
       (13)(A) The second sentence of section 7518(g)(6)(A) is 
     amended--
       (i) by striking ``during a taxable year to which section 
     1(h) or 1201(a) applies'', and
       (ii) by striking ``28 percent (34 percent'' and inserting 
     ``19.8 percent (28 percent''.
       (B) The second sentence of section 607(h)(6)(A) of the 
     Merchant Marine Act, 1936 is amended--
       (i) by striking ``during a taxable year to which section 
     1(h) or 1201(a) of such Code applies'', and
       (ii) by striking ``28 percent (34 percent'' and inserting 
     ``19.8 percent (28 percent''.
       (e) Clerical Amendment.--The table of sections for part I 
     of subchapter P of chapter 1 is amended by striking the item 
     relating to section 1202 and by inserting after the item 
     relating to section 1201 the following new items:

``Sec. 1202. Capital gains deduction.
``Sec. 1203. Small business stock eligible for preferential rates.''.

       (f) Effective Date.--
       (1) In general.--Except as otherwise provided in this 
     subsection, the amendments made by this section shall apply 
     to taxable years ending after December 31, 1994.
       (2) Collectibles.--The amendments made by subsection (c) 
     shall apply to sales and exchanges after December 31, 1994.
       (3) Repeal of section 1(h).--The amendment made by 
     subsection (d)(1) shall apply to taxable years beginning 
     after January 1, 1995.

[[Page H 12636]]

       (4) Contributions.--The amendment made by subsection (d)(2) 
     shall apply to contributions after December 31, 1994.
       (5) Use of long-term losses.--The amendments made by 
     subsection (d)(10) shall apply to taxable years beginning 
     after December 31, 1995.
       (6) Withholding.--The amendment made by subsection (d)(12) 
     shall apply only to amounts paid after the date of the 
     enactment of this Act.

     SEC. 11022. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER 
                   DECEMBER 31, 2000, FOR PURPOSES OF DETERMINING 
                   GAIN.

       (a) In General.--Part II of subchapter O of chapter 1 
     (relating to basis rules of general application) is amended 
     by inserting after section 1021 the following new section:

     ``SEC. 1022. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER 
                   DECEMBER 31, 2000, FOR PURPOSES OF DETERMINING 
                   GAIN.

       ``(a) General Rule.--
       ``(1) Indexed basis substituted for adjusted basis.--Solely 
     for purposes of determining gain on the sale or other 
     disposition by a taxpayer (other than a corporation) of an 
     indexed asset which has been held for more than 3 years, the 
     indexed basis of the asset shall be substituted for its 
     adjusted basis.
       ``(2) Exception for depreciation, etc.--The deductions for 
     depreciation, depletion, and amortization shall be determined 
     without regard to the application of paragraph (1) to the 
     taxpayer or any other person.
       ``(b) Indexed Asset.--
       ``(1) In general.--For purposes of this section, the term 
     `indexed asset' means--
       ``(A) common stock in a C corporation (other than a foreign 
     corporation), and
       ``(B) tangible property,
     which is a capital asset or property used in the trade or 
     business (as defined in section 1231(b)).
       ``(2) Stock in certain foreign corporations included.--For 
     purposes of this section--
       ``(A) In general.--The term `indexed asset' includes common 
     stock in a foreign corporation which is regularly traded on 
     an established securities market.
       ``(B) Exception.--Subparagraph (A) shall not apply to--
       ``(i) stock of a foreign investment company (within the 
     meaning of section 1246(b)),
       ``(ii) stock in a passive foreign investment company (as 
     defined in section 1296),
       ``(iii) stock in a foreign corporation held by a United 
     States person who meets the requirements of section 
     1248(a)(2), and
       ``(iv) stock in a foreign personal holding company (as 
     defined in section 552).
       ``(C) Treatment of american depository receipts.--An 
     American depository receipt for common stock in a foreign 
     corporation shall be treated as common stock in such 
     corporation.
       ``(c) Indexed Basis.--For purposes of this section--
       ``(1) General rule.--The indexed basis for any asset is--
       ``(A) the adjusted basis of the asset, increased by
       ``(B) the applicable inflation adjustment.
       ``(2) Applicable inflation adjustment.--The applicable 
     inflation adjustment for any asset is an amount equal to--
       ``(A) the adjusted basis of the asset, multiplied by
       ``(B) the percentage (if any) by which--
       ``(i) the gross domestic product deflator for the last 
     calendar quarter ending before the asset is disposed of, 
     exceeds
       ``(ii) the gross domestic product deflator for the last 
     calendar quarter ending before the asset was acquired by the 
     taxpayer.
     The percentage under subparagraph (B) shall be rounded to the 
     nearest \1/10\ of 1 percentage point.
       ``(3) Gross domestic product deflator.--The gross domestic 
     product deflator for any calendar quarter is the implicit 
     price deflator for the gross domestic product for such 
     quarter (as shown in the last revision thereof released by 
     the Secretary of Commerce before the close of the following 
     calendar quarter).
       ``(d) Suspension of Holding Period Where Diminished Risk of 
     Loss; Treatment of Short Sales.--
       ``(1) In general.--If the taxpayer (or a related person) 
     enters into any transaction which substantially reduces the 
     risk of loss from holding any asset, such asset shall not be 
     treated as an indexed asset for the period of such reduced 
     risk.
       ``(2) Short sales.--
       ``(A) In general.--In the case of a short sale of an 
     indexed asset with a short sale period in excess of 3 years, 
     for purposes of this title, the amount realized shall be an 
     amount equal to the amount realized (determined without 
     regard to this paragraph) increased by the applicable 
     inflation adjustment. In applying subsection (c)(2) for 
     purposes of the preceding sentence, the date on which the 
     property is sold short shall be treated as the date of 
     acquisition and the closing date for the sale shall be 
     treated as the date of disposition.
       ``(B) Short sale period.--For purposes of subparagraph (A), 
     the short sale period begins on the day that the property is 
     sold and ends on the closing date for the sale.
       ``(e) Treatment of Regulated Investment Companies and Real 
     Estate Investment Trusts.--
       ``(1) Adjustments at entity level.--
       ``(A) In general.--Except as otherwise provided in this 
     paragraph, the adjustment under subsection (a) shall be 
     allowed to any qualified investment entity (including for 
     purposes of determining the earnings and profits of such 
     entity).
       ``(B) Exception for corporate shareholders.--Under 
     regulations--
       ``(i) in the case of a distribution by a qualified 
     investment entity (directly or indirectly) to a corporation--

       ``(I) the determination of whether such distribution is a 
     dividend shall be made without regard to this section, and
       ``(II) the amount treated as gain by reason of the receipt 
     of any capital gain dividend shall be increased by the 
     percentage by which the entity's net capital gain for the 
     taxable year (determined without regard to this section) 
     exceeds the entity's net capital gain for such year 
     determined with regard to this section, and

       ``(ii) there shall be other appropriate adjustments 
     (including deemed distributions) so as to ensure that the 
     benefits of this section are not allowed (directly or 
     indirectly) to corporate shareholders of qualified investment 
     entities.

     For purposes of the preceding sentence, any amount includible 
     in gross income under section 852(b)(3)(D) shall be treated 
     as a capital gain dividend and an S corporation shall not be 
     treated as a corporation.
       ``(C) Exception for qualification purposes.--This section 
     shall not apply for purposes of sections 851(b) and 856(c).
       ``(D) Exception for certain taxes imposed at entity 
     level.--
       ``(i) Tax on failure to distribute entire gain.--If any 
     amount is subject to tax under section 852(b)(3)(A) for any 
     taxable year, the amount on which tax is imposed under such 
     section shall be increased by the percentage determined under 
     subparagraph (B)(i)(II). A similar rule shall apply in the 
     case of any amount subject to tax under paragraph (2) or (3) 
     of section 857(b) to the extent attributable to the excess of 
     the net capital gain over the deduction for dividends paid 
     determined with reference to capital gain dividends only. The 
     first sentence of this clause shall not apply to so much of 
     the amount subject to tax under section 852(b)(3)(A) as is 
     designated by the company under section 852(b)(3)(D).
       ``(ii) Other taxes.--This section shall not apply for 
     purposes of determining the amount of any tax imposed by 
     paragraph (4), (5), or (6) of section 857(b).
       ``(2) Adjustments to interests held in entity.--
       ``(A) Regulated investment companies.--Stock in a regulated 
     investment company (within the meaning of section 851) shall 
     be an indexed asset for any calendar quarter in the same 
     ratio as--
       ``(i) the average of the fair market values of the indexed 
     assets held by such company at the close of each month during 
     such quarter, bears to
       ``(ii) the average of the fair market values of all assets 
     held by such company at the close of each such month.
       ``(B) Real estate investment trusts.--Stock in a real 
     estate investment trust (within the meaning of section 856) 
     shall be an indexed asset for any calendar quarter in the 
     same ratio as--
       ``(i) the fair market value of the indexed assets held by 
     such trust at the close of such quarter, bears to
       ``(ii) the fair market value of all assets held by such 
     trust at the close of such quarter.
       ``(C) Ratio of 80 percent or more.--If the ratio for any 
     calendar quarter determined under subparagraph (A) or (B) 
     would (but for this subparagraph) be 80 percent or more, such 
     ratio for such quarter shall be 100 percent.
       ``(D) Ratio of 20 percent or less.--If the ratio for any 
     calendar quarter determined under subparagraph (A) or (B) 
     would (but for this subparagraph) be 20 percent or less, such 
     ratio for such quarter shall be zero.
       ``(E) Look-thru of partnerships.--For purposes of this 
     paragraph, a qualified investment entity which holds a 
     partnership interest shall be treated (in lieu of holding a 
     partnership interest) as holding its proportionate share of 
     the assets held by the partnership.
       ``(3) Treatment of return of capital distributions.--Except 
     as otherwise provided by the Secretary, a distribution with 
     respect to stock in a qualified investment entity which is 
     not a dividend and which results in a reduction in the 
     adjusted basis of such stock shall be treated as allocable to 
     stock acquired by the taxpayer in the order in which such 
     stock was acquired.
       ``(4) Qualified investment entity.--For purposes of this 
     subsection, the term `qualified investment entity' means--
       ``(A) a regulated investment company (within the meaning of 
     section 851), and
       ``(B) a real estate investment trust (within the meaning of 
     section 856).
       ``(f) Other Pass-Thru Entities.--
       ``(1) Partnerships.--
       ``(A) In general.--In the case of a partnership, the 
     adjustment made under subsection (a) at the partnership level 
     shall be passed through to the partners.
       ``(B) Special rule in the case of section 754 elections.--
     In the case of a transfer of an interest in a partnership 
     with respect to which the election provided in section 754 is 
     in effect--
       ``(i) the adjustment under section 743(b)(1) shall, with 
     respect to the transferor partner, be treated as a sale of 
     the partnership assets for purposes of applying this section, 
     and
       ``(ii) with respect to the transferee partner, the 
     partnership's holding period for purposes of this section in 
     such assets shall be treated as beginning on the date of such 
     adjustment.
       ``(2) S corporations.--In the case of an S corporation, the 
     adjustment made under subsection (a) at the corporate level 
     shall be passed through to the shareholders. This section 
     shall not apply for purposes of determining the amount of any 
     tax imposed by section 1374 or 1375.
       ``(3) Common trust funds.--In the case of a common trust 
     fund, the adjustment made under subsection (a) at the trust 
     level shall be passed through to the participants.

[[Page H 12637]]

       ``(4) Indexing adjustment disregarded in determining loss 
     on sale of interest in entity.--Notwithstanding the preceding 
     provisions of this subsection, for purposes of determining 
     the amount of any loss on a sale or exchange of an interest 
     in a partnership, S corporation, or common trust fund, the 
     adjustment made under subsection (a) shall not be taken into 
     account in determining the adjusted basis of such interest.
       ``(g) Dispositions Between Related Persons.--
       ``(1) In general.--This section shall not apply to any sale 
     or other disposition of property between related persons 
     except to the extent that the basis of such property in the 
     hands of the transferee is a substituted basis.
       ``(2) Related persons defined.--For purposes of this 
     section, the term `related persons' means--
       ``(A) persons bearing a relationship set forth in section 
     267(b), and
       ``(B) persons treated as single employer under subsection 
     (b) or (c) of section 414.
       ``(h) Transfers To Increase Indexing Adjustment.--If any 
     person transfers cash, debt, or any other property to another 
     person and the principal purpose of such transfer is to 
     secure or increase an adjustment under subsection (a), the 
     Secretary may disallow part or all of such adjustment or 
     increase.
       ``(i) Special Rules.--For purposes of this section--
       ``(1) Treatment of improvements, etc.--If there is an 
     addition to the adjusted basis of any tangible property or of 
     any stock in a corporation during the taxable year by reason 
     of an improvement to such property or a contribution to 
     capital of such corporation--
       ``(A) such addition shall never be taken into account under 
     subsection (c)(1)(A) if the aggregate amount thereof during 
     the taxable year with respect to such property or stock is 
     less than $1,000, and
       ``(B) such addition shall be treated as a separate asset 
     acquired at the close of such taxable year if the aggregate 
     amount thereof during the taxable year with respect to such 
     property or stock is $1,000 or more.
     A rule similar to the rule of the preceding sentence shall 
     apply to any other portion of an asset to the extent that 
     separate treatment of such portion is appropriate to carry 
     out the purposes of this section.
       ``(2) Assets which are not indexed assets throughout 
     holding period.--The applicable inflation adjustment shall be 
     appropriately reduced for periods during which the asset was 
     not an indexed asset.
       ``(3) Treatment of certain distributions.--A distribution 
     with respect to stock in a corporation which is not a 
     dividend shall be treated as a disposition.
       ``(4) Acquisition date where there has been prior 
     application of subsection (a)(1) with respect to the 
     taxpayer.--If there has been a prior application of 
     subsection (a)(1) to an asset while such asset was held by 
     the taxpayer, the date of acquisition of such asset by the 
     taxpayer shall be treated as not earlier than the date of the 
     most recent such prior application.
       ``(5) Collapsible corporations.--The application of section 
     341(a) (relating to collapsible corporations) shall be 
     determined without regard to this section.
       ``(j) 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 part II 
     of subchapter O of chapter 1 is amended by inserting after 
     the item relating to section 1021 the following new item:

``Sec. 1022. Indexing of certain assets acquired after December 31, 
              2000, for purposes of determining gain.''

       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to the disposition of any property the holding period 
     of which begins after December 31, 2000.
       (2) Certain transactions between related persons.--The 
     amendments made by this section shall not apply to the 
     disposition of any property acquired after December 31, 2000, 
     from a related person (as defined in section 1022(g)(2) of 
     the Internal Revenue Code of 1986, as added by this section) 
     if--
       (A) such property was so acquired for a price less than the 
     property's fair market value, and
       (B) the amendments made by this section did not apply to 
     such property in the hands of such related person.
       (d) Election To Recognize Gain on Assets Held on January 1, 
     2001.--For purposes of the Internal Revenue Code of 1986--
       (1) In general.--A taxpayer other than a corporation may 
     elect to treat--
       (A) any readily tradable stock (which is an indexed asset) 
     held by such taxpayer on January 1, 2001, and not sold before 
     the next business day after such date, as having been sold on 
     such next business day for an amount equal to its closing 
     market price on such next business day (and as having been 
     reacquired on such next business day for an amount equal to 
     such closing market price), and
       (B) any other indexed asset held by the taxpayer on January 
     1, 2001, as having been sold on such date for an amount equal 
     to its fair market value on such date (and as having been 
     reacquired on such date for an amount equal to such fair 
     market value).
       (2) Treatment of gain or loss.--
       (A) Any gain resulting from an election under paragraph (1) 
     shall be treated as received or accrued on the date the asset 
     is treated as sold under paragraph (1) and shall be 
     recognized notwithstanding any provision of the Internal 
     Revenue Code of 1986.
       (B) Any loss resulting from an election under paragraph (1) 
     shall not be allowed for any taxable year.
       (3) Election.--An election under paragraph (1) shall be 
     made in such manner as the Secretary of the Treasury or his 
     delegate may prescribe and shall specify the assets for which 
     such election is made. Such an election, once made with 
     respect to any asset, shall be irrevocable.
       (4) Readily tradable stock.--For purposes of this 
     subsection, the term ``readily tradable stock'' means any 
     stock which, as of January 1, 2001, is readily tradable on an 
     established securities market or otherwise.
       (e) Treatment of Principal Residences.--Property held and 
     used by the taxpayer on January 1, 2001, as his principal 
     residence (within the meaning of section 1034 of the Internal 
     Revenue Code of 1986) shall be treated--
       (1) for purposes of subsection (c)(1) of this section and 
     section 1022 of such Code, as having a holding period which 
     begins on January 1, 2001, and
       (2) for purposes of section 1022(c)(2)(B)(ii) of such Code, 
     as having been acquired on January 1, 2001.

     Subsection (d) shall not apply to property to which this 
     subsection applies.

     SEC. 11023. MODIFICATIONS TO EXCLUSION OF GAIN ON CERTAIN 
                   SMALL BUSINESS STOCK.

       (a) Reduced Rate In Lieu of Exclusion.--
       (1) Section 1, as amended by section 11021, is amended by 
     adding at the end the following new subsection:
       ``(h) Maximum Capital Gains Rate for Certain Small Business 
     Stock.--
       ``(1) In general.--If for any taxable year a taxpayer has 
     gain from the sale or exchange of any qualified small 
     business stock held for more than 5 years, then the tax 
     imposed by this section shall not exceed the sum of--
       ``(A) a tax computed on the taxable income reduced by \1/2\ 
     the amount of the small business gain, at the rates and in 
     the manner as if this subsection had not been enacted, plus
       ``(B) a tax of 14 percent of the small business gain.
       ``(2) Small business gain.--For purposes of paragraph (1), 
     the term `small business gain' means the lesser of--
       ``(A) gain from the sale or exchange of any qualified small 
     business stock held for more than 5 years, or
       ``(B) the net capital gain taken into account under section 
     1202(a).
       ``(3) Qualified small business stock.--The term `qualified 
     small business stock' has the meaning given such term by 
     section 1203(c).''
       (2) Subsection (a) of section 1203, as redesignated by 
     section 11021, is amended to read as follows:
       ``(a) Application of Reduced Rates to Qualified Small 
     Business Stock Gains.--

  ``For treatment of gain on qualified small business stock held for 
more than 5 years, see sections 1(h) and 1201(b).''.

       (b) Repeal of Minimum Tax Preference.--
       (1) Subsection (a) of section 57 is amended by striking 
     paragraph (7).
       (2) Subclause (II) of section 53(d)(1)(B)(ii) is amended by 
     striking ``, (5), and (7)'' and inserting ``and (5)''.
       (c) Stock of Larger Businesses Eligible for Reduced 
     Rates.--Paragraph (1) of section 1203(d), as redesignated by 
     section 11021, is amended by striking ``$50,000,000'' each 
     place it appears and inserting ``$100,000,000''.
       (d) Repeal of Per-Issuer Limitation.--Section 1203, as so 
     redesignated, is amended by striking subsection (b).
       (e) Other Modifications.--
       (1) Repeal of working capital limitation.--Paragraph (6) of 
     section 1203(e), as so redesignated, is amended--
       (A) by striking ``2 years'' in subparagraph (B) and 
     inserting ``5 years'', and
       (B) by striking the last sentence.
       (2) Exception from redemption rules where business 
     purpose.--Paragraph (3) of section 1203(c), as so 
     redesignated, is amended by adding at the end the following 
     new subparagraph:
       ``(D) Waiver where business purpose.--A purchase of stock 
     by the issuing corporation shall be disregarded for purposes 
     of subparagraph (B) if the issuing corporation establishes 
     that there was a business purpose for such purchase and one 
     of the principal purposes of the purchase was not to avoid 
     the limitations of this section.''.
       (f) Clerical Amendment.--The section heading for section 
     1203, as redesignated by section 11021, is amended to read as 
     follows:

     ``SEC. 1203. SMALL BUSINESS STOCK ELIGIBLE FOR PREFERENTIAL 
                   RATES.''

       (g) Effective Dates.--
       (1) Reduced rates.--The amendments made by subsections (a) 
     and (b) shall apply to taxable years beginning after the date 
     of the enactment of this Act.
       (2) Increase in size.--The amendment made by subsection (c) 
     shall apply to stock issued after the date of the enactment 
     of this Act.
       (3) Other rules.--The amendments made by subsections (d) 
     and (e) shall apply to stock issued after August 10, 1993.

                 Subchapter B--Corporate Capital Gains

     SEC. 11025. REDUCTION OF ALTERNATIVE CAPITAL GAIN TAX FOR 
                   CORPORATIONS.

       (a) In General.--Section 1201 is amended to read as 
     follows:

     ``SEC. 1201. ALTERNATIVE TAX FOR CORPORATIONS.

       ``(a) General Rule.--If for any taxable year a corporation 
     has a net capital gain, then, in 

[[Page H 12638]]
     lieu of the tax imposed by sections 11, 511, and 831 (a) and (b) 
     (whichever is applicable), there is hereby imposed a tax (if 
     such tax is less than the tax imposed by such sections) which 
     shall consist of the sum of--
       ``(1) a tax computed on the taxable income reduced by the 
     amount of the net capital gain, at the rates and in the 
     manner as if this subsection had not been enacted, plus
       ``(2) a tax of 28 percent of the net capital gain.
       ``(b) Special Rules for Qualified Small Business Gain.--
       ``(1) In general.--If for any taxable year a corporation 
     has gain from the sale or exchange of any qualified small 
     business stock held for more than 5 years, the amount 
     determined under subsection (a)(2) for such taxable year 
     shall be equal to the sum of--
       ``(A) 21 percent of the lesser of such gain or the 
     corporation's net capital gain, plus
       ``(B) 28 percent of the net capital gain reduced by the 
     gain taken into account under subparagraph (A).
       ``(2) Qualified small business stock.--For purposes of 
     paragraph (1), the term `qualified small business stock' has 
     the meaning given such term by section 1203(c), except that 
     stock shall not be treated as qualified small business stock 
     if such stock was at any time held by a member of the parent-
     subsidiary controlled group (as defined in section 
     1203(d)(3)) which includes the qualified small business.
       ``(c) Transitional Rule.--
       ``(1) In general.--In applying this section, net capital 
     gain for any taxable year shall not exceed the net capital 
     gain determined by taking into account only gains and losses 
     properly taken into account for the portion of the taxable 
     year after December 31, 1994.
       ``(2) Special rule for pass-thru entities.--Section 
     1202(e)(2) shall apply for purposes of paragraph (1).
       ``(d) Cross References.--

  ``For computation of the alternative tax--
  ``(1) in the case of life insurance companies, see section 801(a)(2),
  ``(2) in the case of regulated investment companies and their 
shareholders, see section 852(b)(3)(A) and (D), and
  ``(3) in the case of real estate investment trusts, see section 
857(b)(3)(A).''.

       (b) Technical Amendment.--Clause (iii) of section 
     852(b)(3)(D) is amended by striking ``65 percent'' and 
     inserting ``72 percent''.
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years ending after December 31, 1994.
       (2) Qualified small business stock.--Section 1201(b) of the 
     Internal Revenue Code of 1986 (as added by subsection (a)) 
     shall apply to gain from qualified small business stock 
     acquired on or after the date of the enactment of this Act.

 Subchapter C--Capital Loss Deduction Allowed With Respect to Sale or 
                    Exchange of Principal Residence

     SEC. 11026. CAPITAL LOSS DEDUCTION ALLOWED WITH RESPECT TO 
                   SALE OR EXCHANGE OF PRINCIPAL RESIDENCE.

       (a) In General.--Subsection (c) of section 165 (relating to 
     limitation on losses of individuals) is amended by striking 
     ``and'' at the end of paragraph (2), by striking the period 
     at the end of paragraph (3) and inserting ``; and'', and by 
     adding at the end the following new paragraph:
       ``(4) losses arising from the sale or exchange of the 
     principal residence (within the meaning of section 1034) of 
     the taxpayer.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to sales and exchanges after December 31, 1994, 
     in taxable years ending after such date.

          CHAPTER 3--CORPORATE ALTERNATIVE MINIMUM TAX REFORM

     SEC. 11031. MODIFICATION OF DEPRECIATION RULES UNDER MINIMUM 
                   TAX.

       (a) In General.--Clause (i) of section 56(a)(1)(A) is 
     amended by inserting ``and before January 1, 1996,'' after 
     ``December 31, 1986,''.
       (b) Conforming Amendment.--Clause (ii) of section 
     56(a)(1)(A) is amended by striking ``The method'' and 
     inserting ``In the case of property placed in service before 
     January 1, 1996, the method''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after December 31, 1995.

     SEC. 11032. LONG-TERM UNUSED CREDITS ALLOWED AGAINST MINIMUM 
                   TAX.

       (a) In General.--Section 53(c) (relating to limitation) is 
     amended by adding at the end the following new paragraph:
       ``(2) Special rule for taxpayers with long-term unused 
     credits.--
       ``(A) In general.--If--
       ``(i) a corporation to which section 56(g) applies has a 
     long-term unused minimum tax credit for a taxable year, and
       ``(ii) no credit would be allowable under this section for 
     the taxable year by reason of paragraph (1),

     then there shall be allowed a credit under subsection (a) for 
     the taxable year in the amount determined under subparagraph 
     (B).
       ``(B) Amount of credit.--For purposes of subparagraph (A), 
     the amount of the credit shall be equal to the least of the 
     following for the taxable year:
       ``(i) The long-term unused minimum tax credit.
       ``(ii) 50 percent of the taxpayer's tentative minimum tax.
       ``(iii) The excess (if any) of the amount under paragraph 
     (1)(B) over the amount under paragraph (1)(A).
       ``(C) Long-term unused minimum tax credit.--For purposes of 
     this paragraph--
       ``(i) In general.--The long-term unused minimum tax credit 
     for any taxable year is the portion of the minimum tax credit 
     determined under subsection (b) attributable to the adjusted 
     net minimum tax for taxable years beginning after 1986 and 
     ending before the 7th taxable year immediately preceding the 
     taxable year for which the determination is being made.
       ``(ii) First-in, first-out ordering rule.--For purposes of 
     clause (i), credits shall be treated as allowed under 
     subsection (a) on a first-in, first-out basis.''.
       (b) Conforming Amendments.--(1) Section 53(c) (as in effect 
     before the amendment made by subsection (a)) is amended--
       (A) by striking ``The'' and inserting:
       ``(1) In general.--The'', and
       (B) by redesignating paragraphs (1) and (2) as 
     subparagraphs (A) and (B), respectively.
       (2) Subparagraph (C) of section 108(b)(4) is amended by 
     striking ``and (G)'' in the text and heading thereof and 
     inserting ``, (C), and (G)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

                  CHAPTER 4--COST RECOVERY PROVISIONS

     SEC. 11035. TREATMENT OF ABANDONMENT OF LESSOR IMPROVEMENTS 
                   AT TERMINATION OF LEASE.

       (a) In General.--Paragraph (8) of section 168(i) is amended 
     to read as follows:
       ``(8) Treatment of leasehold improvements.--
       ``(A) In general.--In the case of any building erected (or 
     improvements made) on leased property, if such building or 
     improvement is property to which this section applies, the 
     depreciation deduction shall be determined under the 
     provisions of this section.
       ``(B) Treatment of lessor improvements which are abandoned 
     at termination of lease.--An improvement--
       ``(i) which is made by the lessor of leased property for 
     the lessee of such property, and
       ``(ii) which is irrevocably disposed of or abandoned by the 
     lessor at the termination of the lease by such lessee,
     shall be treated for purposes of determining gain or loss 
     under this title as disposed of by the lessor when so 
     disposed of or abandoned.''
       (b) Effective Date.--Subparagraph (B) of section 168(i)(8) 
     of the Internal Revenue Code of 1986, as added by the 
     amendment made by subsection (a), shall apply to improvements 
     disposed of or abandoned after March 13, 1995.

     SEC. 11036. INCREASE IN EXPENSE TREATMENT FOR SMALL 
                   BUSINESSES.

       (a) General Rule.--Paragraph (1) of section 179(b) 
     (relating to dollar limitation) is amended to read as 
     follows:
       ``(1) Dollar limitation.--The aggregate cost which may be 
     taken into account under subsection (a) for any taxable year 
     shall not exceed the following applicable amount:

                                                  ``If thThe applicable
                                                             amount is:
      1996.....................................................$19,000 
      1997..................................................... 20,000 
      1998..................................................... 21,000 
      1999..................................................... 22,000 
      2000..................................................... 23,000 
      2001..................................................... 24,000 
      2002 or thereafter..................................... 25,000.''

       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     1995.
                 Subtitle C--Health Related Provisions

                  CHAPTER 1--LONG-TERM CARE PROVISIONS

          Subchapter A--Long-Term Care Services and Contracts

                       PART I--GENERAL PROVISIONS

     SEC. 11041. TREATMENT OF LONG-TERM CARE INSURANCE.

       (a) General Rule.--Chapter 79 (relating to definitions) is 
     amended by inserting after section 7702A the following new 
     section:

     ``SEC. 7702B. TREATMENT OF QUALIFIED LONG-TERM CARE 
                   INSURANCE.

       ``(a) In General.--For purposes of this title--
       ``(1) a qualified long-term care insurance contract shall 
     be treated as an accident and health insurance contract,
       ``(2) amounts (other than policyholder dividends, as 
     defined in section 808, or premium refunds) received under a 
     qualified long-term care insurance contract shall be treated 
     as amounts received for personal injuries and sickness and 
     shall be treated as reimbursement for expenses actually 
     incurred for medical care (as defined in section 213(d)),
       ``(3) any plan of an employer providing coverage under a 
     qualified long-term care insurance contract shall be treated 
     as an accident and health plan with respect to such coverage,
       ``(4) except as provided in subsection (d)(3), amounts paid 
     for a qualified long-term care insurance contract providing 
     the benefits described in subsection (b)(2)(A) shall be 
     treated as payments made for insurance for purposes of 
     section 213(d)(1)(D), and
       ``(5) a qualified long-term care insurance contract shall 
     be treated as a guaranteed renewable contract subject to the 
     rules of section 816(e).
       ``(b) Qualified Long-Term Care Insurance Contract.--For 
     purposes of this title--
       ``(1) In general.--The term `qualified long-term care 
     insurance contract' means any insurance contract if--
       ``(A) the only insurance protection provided under such 
     contract is coverage of qualified long-term care services,
       ``(B) such contract does not pay or reimburse expenses 
     incurred for services or items to the extent that such 
     expenses are reimbursable under title XVIII of the Social 
     Security Act or would be so reimbursable but for the 
     application of a deductible or coinsurance amount,

[[Page H 12639]]

       ``(C) such contract is guaranteed renewable,
       ``(D) such contract does not provide for a cash surrender 
     value or other money that can be--
       ``(i) paid, assigned, or pledged as collateral for a loan, 
     or
       ``(ii) borrowed,

     other than as provided in subparagraph (E) or paragraph 
     (2)(C),
       ``(E) all refunds of premiums, and all policyholder 
     dividends or similar amounts, under such contract are to be 
     applied as a reduction in future premiums or to increase 
     future benefits, and
       ``(F) such contract meets the requirements of subsection 
     (f).
       ``(2) Special rules.--
       ``(A) Per diem, etc. payments permitted.--A contract shall 
     not fail to be described in subparagraph (A) or (B) of 
     paragraph (1) by reason of payments being made on a per diem 
     or other periodic basis without regard to the expenses 
     incurred during the period to which the payments relate.
       ``(B) Special rules relating to medicare.--
       ``(i) Paragraph (1)(B) shall not apply to expenses which 
     are reimbursable under title XVIII of the Social Security Act 
     only as a secondary payor.
       ``(ii) No provision of law shall be construed or applied so 
     as to prohibit the offering of a qualified long-term care 
     insurance contract on the basis that the contract coordinates 
     its benefits with those provided under such title.
       ``(C) Refunds of premiums.--Paragraph (1)(E) shall not 
     apply to any refund on the death of the insured, or on a 
     complete surrender or cancellation of the contract, which 
     cannot exceed the aggregate premiums paid under the contract. 
     Any refund on a complete surrender or cancellation of the 
     contract shall be includible in gross income to the extent 
     that any deduction or exclusion was allowable with respect to 
     the premiums.
       ``(c) Qualified Long-Term Care Services.--For purposes of 
     this section--
       ``(1) In general.--The term `qualified long-term care 
     services' means necessary diagnostic, preventive, 
     therapeutic, curing, treating, mitigating, and rehabilitative 
     services, and maintenance or personal care services, which--
       ``(A) are required by a chronically ill individual, and
       ``(B) are provided pursuant to a plan of care prescribed by 
     a licensed health care practitioner.
       ``(2) Chronically ill individual.--
       ``(A) In general.--The term `chronically ill individual' 
     means any individual who has been certified by a licensed 
     health care practitioner as--
       ``(i) being unable to perform (without substantial 
     assistance from another individual) at least 2 activities of 
     daily living for a period of at least 90 days due to a loss 
     of functional capacity or to cognitive impairment, or
       ``(ii) having a level of disability similar (as determined 
     by the Secretary in consultation with the Secretary of Health 
     and Human Services) to the level of disability described in 
     clause (i).
     Such term shall not include any individual otherwise meeting 
     the requirements of the preceding sentence unless within the 
     preceding 12-month period a licensed health care practitioner 
     has certified that such individual meets such requirements.
       ``(B) Activities of daily living.--For purposes of 
     subparagraph (A), each of the following is an activity of 
     daily living:
       ``(i) Eating.
       ``(ii) Toileting.
       ``(iii) Transferring.
       ``(iv) Bathing.
       ``(v) Dressing.
       ``(vi) Continence.
     Nothing in this section shall be construed to require a 
     contract to take into account all of the preceding activities 
     of daily living.
       ``(3) Maintenance or personal care services.--The term 
     `maintenance or personal care services' means any care the 
     primary purpose of which is the provision of needed 
     assistance with any of the disabilities as a result of which 
     the individual is a chronically ill individual (including the 
     protection from threats to health and safety due to severe 
     cognitive impairment).
       ``(4) Licensed health care practitioner.--The term 
     `licensed health care practitioner' means any physician (as 
     defined in section 1861(r)(1) of the Social Security Act) and 
     any registered professional nurse, licensed social worker, or 
     other individual who meets such requirements as may be 
     prescribed by the Secretary.
       ``(d) Special Rules for Treatment of Insureds.--
       ``(1) Aggregate payments in excess of limits.--
       ``(A) In general.--If the aggregate amount of periodic 
     payments under all qualified long-term care insurance 
     contracts with respect to an insured for any period exceed 
     the dollar amount in effect for such period under 
     subparagraph (C), such excess payments shall be treated as 
     made for qualified long-term care services only to the extent 
     of the costs incurred by the payee (not otherwise compensated 
     for by insurance or otherwise) for qualified long-term care 
     services provided during such period for such insured.
       ``(B) Periodic payments.--For purposes of subparagraph (A), 
     the term `periodic payment' means any payment (whether on a 
     periodic basis or otherwise) made without regard to the 
     extent of the costs incurred by the payee for qualified long-
     term care services.
       ``(C) Dollar amount.--The dollar amount in effect under 
     this paragraph shall be $175 per day (or the equivalent 
     amount in the case of payments on another periodic basis).
       ``(D) Inflation adjustment.--In the case of a calendar year 
     after 1996, the dollar amount contained in subparagraph (C) 
     shall be increased at the same time and in the same manner as 
     amounts are increased pursuant to section 213(d)(11).
       ``(e) Treatment of Coverage Provided as Part of a Life 
     Insurance Contract.--Except as otherwise provided in 
     regulations prescribed by the Secretary, in the case of any 
     long-term care insurance coverage (whether or not qualified) 
     provided by a rider on a life insurance contract--
       ``(1) In general.--This section shall apply as if the 
     portion of the contract providing such coverage is a separate 
     contract.
       ``(2) Application of 7702.--Section 7702(c)(2) (relating to 
     the guideline premium limitation) shall be applied by 
     increasing the guideline premium limitation with respect to a 
     life insurance contract, as of any date--
       ``(A) by the sum of any charges (but not premium payments) 
     against the life insurance contract's cash surrender value 
     (within the meaning of section 7702(f)(2)(A)) for such 
     coverage made to that date under the contract, less
       ``(B) any such charges the imposition of which reduces the 
     premiums paid for the contract (within the meaning of section 
     7702(f)(1)).
       ``(3) Application of section 213.--No deduction shall be 
     allowed under section 213(a) for charges against the life 
     insurance contract's cash surrender value described in 
     paragraph (2), unless such charges are includible in income 
     as a result of the application of section 72(e)(10) and the 
     rider is a qualified long-term care insurance contract under 
     subsection (b).
       ``(4) Portion defined.--For purposes of this subsection, 
     the term `portion' means only the terms and benefits under a 
     life insurance contract that are in addition to the terms and 
     benefits under the contract without regard to the coverage 
     under a qualified long-term care insurance contract.''
       (b) Reserve Method.--Clause (iii) of section 807(d)(3)(A) 
     is amended by inserting ``(other than a qualified long-term 
     care insurance contract, as defined in section 7702B(b))'' 
     after ``insurance contract''.
       (c) Long-Term Care Insurance Not Permitted Under Cafeteria 
     Plans or Flexible Spending Arrangements.--
       (1) Cafeteria plans.--Section 125(f) is amended by adding 
     at the end the following new sentence: ``Such term shall not 
     include any long-term care insurance contract (as defined in 
     section 4980C).''
       (2) Flexible spending arrangements.--The text of section 
     106 (relating to contributions by employer to accident and 
     health plans) is amended to read as follows:
       ``(a) General Rule.--Except as provided in subsection (b), 
     gross income of an employee does not include employer-
     provided coverage under an accident or health plan.
       ``(b) Inclusion of Long-Term Care Benefits Provided Through 
     Flexible Spending Arrangements.--
       ``(1) In general.--Effective on and after January 1, 1996, 
     gross income of an employee shall include employer-provided 
     coverage for qualified long-term care services (as defined in 
     section 7702B(c)) to the extent that such coverage is 
     provided through a flexible spending or similar arrangement.
       ``(2) Flexible spending arrangement.--For purposes of this 
     subsection, a flexible spending arrangement is a benefit 
     program which provides employees with coverage under which--
       ``(A) specified incurred expenses may be reimbursed 
     (subject to reimbursement maximums and other reasonable 
     conditions), and
       ``(B) the maximum amount of reimbursement which is 
     reasonably available to a participant for such coverage is 
     less than 500 percent of the value of such coverage.

     In the case of an insured plan, the maximum amount reasonably 
     available shall be determined on the basis of the underlying 
     coverage.''
       (d) Continuation Coverage Excise Tax Not To Apply.--
     Subsection (f) of section 4980B is amended by adding at the 
     end the following new paragraph:
       ``(9) Continuation of long-term care coverage not 
     required.--A group health plan shall not be treated as 
     failing to meet the requirements of this subsection solely by 
     reason of failing to provide coverage under any qualified 
     long-term care insurance contract (as defined in section 
     7702B(b)).''
       (e) Amounts Paid to Relatives Treated as Not Paid for 
     Medical Care.--Section 213(d) is amended by adding at the end 
     the following new paragraph:
       ``(10) Certain payments to relatives treated as not paid 
     for medical care.--An amount paid for a qualified long-term 
     care service (as defined in section 7702B(c)) provided to an 
     individual shall be treated as not paid for medical care if 
     such service is provided--
       ``(A) by a relative (directly or through a partnership, 
     corporation, or other entity) unless the relative is a 
     licensed professional with respect to such services, or
       ``(B) by a corporation or partnership which is related 
     (within the meaning of section 267(b) or 707(b)) to the 
     individual.

     For purposes of this paragraph, the term `relative' means an 
     individual bearing a relationship to the individual which is 
     described in any of paragraphs (1) through (8) of section 
     152(a). This paragraph shall not apply for purposes of 
     section 105(b) with respect to reimbursements through 
     insurance.''
       (f) Clerical Amendment.--The table of sections for chapter 
     79 is amended by inserting after the item relating to section 
     7702A the following new item:

``Sec. 7702B. Treatment of qualified long-term care insurance.''.

       (g) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to contracts issued after December 31, 1995.

[[Page H 12640]]

       (2) Continuation of existing policies.--In the case of any 
     contract issued before January 1, 1996, which met the long-
     term care insurance requirements of the State in which the 
     contract was sitused at the time the contract was issued--
       (A) such contract shall be treated for purposes of the 
     Internal Revenue Code of 1986 as a qualified long-term care 
     insurance contract (as defined in section 7702B(b) of such 
     Code), and
       (B) services provided under, or reimbursed by, such 
     contract shall be treated for such purposes as qualified 
     long-term care services (as defined in section 7702B(c) of 
     such Code).
       (3) Exchanges of existing policies.--If, after the date of 
     enactment of this Act and before January 1, 1997, a contract 
     providing for long-term care insurance coverage is exchanged 
     solely for a qualified long-term care insurance contract (as 
     defined in section 7702B(b) of such Code), no gain or loss 
     shall be recognized on the exchange. If, in addition to a 
     qualified long-term care insurance contract, money or other 
     property is received in the exchange, then any gain shall be 
     recognized to the extent of the sum of the money and the fair 
     market value of the other property received. For purposes of 
     this paragraph, the cancellation of a contract providing for 
     long-term care insurance coverage and reinvestment of the 
     cancellation proceeds in a qualified long-term care insurance 
     contract within 60 days thereafter shall be treated as an 
     exchange.
       (4) Issuance of certain riders permitted.--For purposes of 
     applying sections 101(f), 7702, and 7702A of the Internal 
     Revenue Code of 1986 to any contract--
       (A) the issuance of a rider which is treated as a qualified 
     long-term care insurance contract under section 7702B, and
       (B) the addition of any provision required to conform any 
     other long-term care rider to be so treated,
     shall not be treated as a modification or material change of 
     such contract.

     SEC. 11042. QUALIFIED LONG-TERM CARE SERVICES TREATED AS 
                   MEDICAL CARE.

       (a) General Rule.--Paragraph (1) of section 213(d) 
     (defining medical care) is amended by striking ``or'' at the 
     end of subparagraph (B), by redesignating subparagraph (C) as 
     subparagraph (D), and by inserting after subparagraph (B) the 
     following new subparagraph:
       ``(C) for qualified long-term care services (as defined in 
     section 7702B(c)), or''.
       (b) Technical Amendments.--
       (1) Subparagraph (D) of section 213(d)(1) (as redesignated 
     by subsection (a)) is amended by striking ``subparagraphs (A) 
     and (B)'' and inserting ``subparagraphs (A), (B), and (C)''.
       (2)(A) Paragraph (1) of section 213(d) is amended by adding 
     at the end the following new flush sentence:

     ``In the case of a qualified long-term care insurance 
     contract (as defined in section 7702B(b)), only eligible 
     long-term care premiums (as defined in paragraph (11)) shall 
     be taken into account under subparagraph (D).''
       (B) Subsection (d) of section 213 is amended by adding at 
     the end the following new paragraph:
       ``(11) Eligible long-term care premiums.--
       ``(A) In general.--For purposes of this section, the term 
     `eligible long-term care premiums' means the amount paid 
     during a taxable year for any qualified long-term care 
     insurance contract (as defined in section 7702B(b)) covering 
     an individual, to the extent such amount does not exceed the 
     limitation determined under the following table:

      ``In the case of an individual                                   
        with an attained age before the                  The limitation
        close of the taxable year of:                           is:    
        40 or less..............................................$200   
        More than 40 but not more than 50........................375   
        More than 50 but not more than 60........................750   
        More than 60 but not more than 70......................2,000   
        More than 70...........................................2,500.  

       ``(B) Indexing.--
       ``(i) In general.--In the case of any taxable year 
     beginning in a calendar year after 1996, each dollar amount 
     contained in subparagraph (A) shall be increased by the 
     medical care cost adjustment of such amount for such calendar 
     year. If any increase determined under the preceding sentence 
     is not a multiple of $10, such increase shall be rounded to 
     the nearest multiple of $10.
       ``(ii) Medical care cost adjustment.--For purposes of 
     clause (i), the medical care cost adjustment for any calendar 
     year is the percentage (if any) by which--

       ``(I) the medical care component of the Consumer Price 
     Index (as defined in section 1(f)(5)) for August of the 
     preceding calendar year, exceeds
       ``(II) such component for August of 1995.

     The Secretary shall, in consultation with the Secretary of 
     Health and Human Services, prescribe an adjustment which the 
     Secretary determines is more appropriate for purposes of this 
     paragraph than the adjustment described in the preceding 
     sentence, and the adjustment so prescribed shall apply in 
     lieu of the adjustment described in the preceding sentence.''
       (3) Paragraph (6) of section 213(d) is amended--
       (A) by striking ``subparagraphs (A) and (B)'' and inserting 
     ``subparagraphs (A), (B), and (C)'', and
       (B) by striking ``paragraph (1)(C)'' in subparagraph (A) 
     and inserting ``paragraph (1)(D)''.
       (4) Paragraph (7) of section 213(d) is amended by striking 
     ``subparagraphs (A) and (B)'' and inserting ``subparagraphs 
     (A), (B), and (C)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 11043. CERTAIN EXCHANGES OF LIFE INSURANCE CONTRACTS FOR 
                   QUALIFIED LONG-TERM CARE INSURANCE CONTRACTS 
                   NOT TAXABLE.

       (a) In General.--Subsection (a) of section 1035 (relating 
     to certain exchanges of insurance contracts) is amended by 
     striking the period at the end of paragraph (3) and inserting 
     ``; or'', and by adding at the end the following new 
     paragraph:
       ``(4) a contract of life insurance or an endowment or 
     annuity contract for a qualified long-term care insurance 
     contract (as defined in section 7702B(b)).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 11044. EXCEPTION FROM PENALTY TAX FOR AMOUNTS WITHDRAWN 
                   FROM CERTAIN RETIREMENT PLANS FOR QUALIFIED 
                   LONG-TERM CARE INSURANCE.

       (a) In General.--Paragraph (2) of section 72(t) is amended 
     by adding at the end the following new subparagraph:
       ``(F) Premiums for qualified long-term care insurance 
     contracts.--Distributions to an individual from an individual 
     retirement plan, or from amounts attributable to employer 
     contributions made pursuant to elective deferrals described 
     in subparagraph (A) or (C) of section 402(g)(3), to the 
     extent such distributions do not exceed the premiums for a 
     qualified long-term care insurance contract (as defined in 
     section 7702B(b)) for such individual or the spouse of such 
     individual. In applying subparagraph (B), such premiums shall 
     be treated as amounts not paid for medical care.''
       (b) Distributions Permitted From Certain Plans To Pay Long-
     term Care Premiums.--
       (1) Section 401(k)(2)(B)(i) is amended by striking ``or'' 
     at the end of subclause (III), by striking ``and'' at the end 
     of subclause (IV) and inserting ``or'', and by inserting 
     after subclause (IV) the following new subclause:

       ``(V) the date distributions for premiums for a long-term 
     care insurance contract (as defined in section 7702B(b)) for 
     coverage of such individual or the spouse of such individual 
     are made, and''.

       (2) Section 403(b)(11) is amended by striking ``or'' at the 
     end of subparagraph (A), by striking the period at the end of 
     subparagraph (B) and inserting ``, or'', and by inserting 
     after subparagraph (B) the following new subparagraph:
       ``(C) for the payment of premiums for a long-term care 
     insurance contract (as defined in section 7702B(b)) for 
     coverage of the employee or the spouse of the employee.''
       (3) Subparagraph (A) of section 457(d)(1) is amended by 
     striking ``or'' at the end of clause (ii), by striking 
     ``and'' at the end of clause (iii) and inserting ``or'', and 
     by inserting after clause (iii) the following new clause:
       ``(iv) the date distributions for premiums for a long-term 
     care insurance contract (as defined in section 7702B(b)) for 
     coverage of such individual or the spouse of such individual 
     are made, and''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments and distributions after December 31, 
     1995.

     SEC. 11045. REPORTING REQUIREMENTS.

       (a) In General.--Subpart B of part III of subchapter A of 
     chapter 61, as amended by section 11004, is amended by adding 
     at the end the following new section:

     ``SEC. 6050R. CERTAIN LONG-TERM CARE BENEFITS.

       ``(a) Requirement of Reporting.--Any person who pays long-
     term care benefits shall make a return, according to the 
     forms or regulations prescribed by the Secretary, setting 
     forth--
       ``(1) the aggregate amount of such benefits paid by such 
     person to any individual during any calendar year, and
       ``(2) the name, address, and TIN of such individual.
       ``(b) Statements To Be Furnished to Persons With Respect to 
     Whom Information Is Required.--Every person required to make 
     a return under subsection (a) shall furnish to each 
     individual whose name is required to be set forth in such 
     return a written statement showing--
       ``(1) the name of the person making the payments, and
       ``(2) the aggregate amount of long-term care benefits paid 
     to the individual which are required to be shown on such 
     return.
     The written statement required under the preceding sentence 
     shall be furnished to the individual on or before January 31 
     of the year following the calendar year for which the return 
     under subsection (a) was required to be made.
       ``(c) Long-Term Care Benefits.--For purposes of this 
     section, the term `long-term care benefit' means any amount 
     paid under a long-term care insurance policy (within the 
     meaning of section 4980C(e)).''.
       (b) Penalties.--
       (1) Subparagraph (B) of section 6724(d)(1), as amended by 
     section 11004, is amended by redesignating clauses (x) 
     through (xv) as clauses (xi) through (xvi), respectively, and 
     by inserting after clause (ix) the following new clause:
       ``(x) section 6050R (relating to certain long-term care 
     benefits),''.
       (2) Paragraph (2) of section 6724(d), as amended by section 
     11004, is amended by redesignating subparagraphs (R) through 
     (U) as subparagraphs (S) through (V), respectively, and by 
     inserting after subparagraph (P) the following new 
     subparagraph:
       ``(R) section 6050R(b) (relating to certain long-term care 
     benefits),''.
       (c) Clerical Amendment.--The table of sections for subpart 
     B of part III of subchapter A 

[[Page H 12641]]
     of chapter 61 is amended by adding at the end the following new item:

``Sec. 6050R. Certain long-term care benefits.''

       (d) Effective Date.--The amendments made by this section 
     shall apply to benefits paid after December 31, 1995.

                PART II--CONSUMER PROTECTION PROVISIONS

     SEC. 11051. POLICY REQUIREMENTS.

       Section 7702B (as added by section 11041) is amended by 
     adding at the end the following new subsection:
       ``(f) Consumer Protection Provisions.--
       ``(1) In general.--The requirements of this subsection are 
     met with respect to any contract if any long-term care 
     insurance policy issued under the contract meets--
       ``(A) the requirements of the model regulation and model 
     Act described in paragraph (2),
       ``(B) the disclosure requirement of paragraph (3), and
       ``(C) the requirements relating to nonforfeitability under 
     paragraph (4).
       ``(2) Requirements of model regulation and act.--
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to any policy if such policy meets--
       ``(i) Model regulation.--The following requirements of the 
     model regulation:

       ``(I) Section 7A (relating to guaranteed renewal or 
     noncancellability), and the requirements of section 6B of the 
     model Act relating to such section 7A.
       ``(II) Section 7B (relating to prohibitions on limitations 
     and exclusions).
       ``(III) Section 7C (relating to extension of benefits).
       ``(IV) Section 7D (relating to continuation or conversion 
     of coverage).
       ``(V) Section 7E (relating to discontinuance and 
     replacement of policies).
       ``(VI) Section 8 (relating to unintentional lapse).
       ``(VII) Section 9 (relating to disclosure), other than 
     section 9F thereof.
       ``(VIII) Section 10 (relating to prohibitions against post-
     claims underwriting).
       ``(IX) Section 11 (relating to minimum standards).
       ``(X) Section 12 (relating to requirement to offer 
     inflation protection), except that any requirement for a 
     signature on a rejection of inflation protection shall permit 
     the signature to be on an application or on a separate form.
       ``(XI) Section 23 (relating to prohibition against 
     preexisting conditions and probationary periods in 
     replacement policies or certificates).

       ``(ii) Model act.--The following requirements of the model 
     Act:

       ``(I) Section 6C (relating to preexisting conditions).
       ``(II) Section 6D (relating to prior hospitalization).

       ``(B) Definitions.--For purposes of this paragraph--
       ``(i) Model provisions.--The terms `model regulation' and 
     `model Act' mean the long-term care insurance model 
     regulation, and the long-term care insurance model Act, 
     respectively, promulgated by the National Association of 
     Insurance Commissioners (as adopted as of January 1993).
       ``(ii) Coordination.--Any provision of the model regulation 
     or model Act listed under clause (i) or (ii) of subparagraph 
     (A) shall be treated as including any other provision of such 
     regulation or Act necessary to implement the provision.
       ``(3) Disclosure requirement.--The requirement of this 
     paragraph is met with respect to any policy if such policy 
     meets the requirements of section 4980C(d)(1).
       ``(4) Nonforfeiture requirements.--
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to any level premium long-term care 
     insurance policy, if the issuer of such policy offers to the 
     policyholder, including any group policyholder, a 
     nonforfeiture provision meeting the requirements of 
     subparagraph (B).
       ``(B) Requirements of provision.--The nonforfeiture 
     provision required under subparagraph (A) shall meet the 
     following requirements:
       ``(i) The nonforfeiture provision shall be appropriately 
     captioned.
       ``(ii) The nonforfeiture provision shall provide for a 
     benefit available in the event of a default in the payment of 
     any premiums and the amount of the benefit may be adjusted 
     subsequent to being initially granted only as necessary to 
     reflect changes in claims, persistency, and interest as 
     reflected in changes in rates for premium paying policies 
     approved by the Secretary for the same policy form.
       ``(iii) The nonforfeiture provision shall provide at least 
     one of the following:

       ``(I) Reduced paid-up insurance.
       ``(II) Extended term insurance.
       ``(III) Shortened benefit period.
       ``(IV) Other similar offerings approved by the Secretary.

       ``(5) Long-term care insurance policy defined.--For 
     purposes of this subsection, the term `long-term care 
     insurance policy' has the meaning given such term by section 
     4980C(e).''.

     SEC. 11052. REQUIREMENTS FOR ISSUERS OF LONG-TERM CARE 
                   INSURANCE POLICIES.

       (a) In General.--Chapter 43 is amended by adding at the end 
     the following new section:

     ``SEC. 4980C. REQUIREMENTS FOR ISSUERS OF LONG-TERM CARE 
                   INSURANCE POLICIES.

       ``(a) General Rule.--There is hereby imposed on any person 
     failing to meet the requirements of subsection (c) or (d) a 
     tax in the amount determined under subsection (b).
       ``(b) Amount.--
       ``(1) In general.--The amount of the tax imposed by 
     subsection (a) shall be $100 per policy for each day any 
     requirements of subsection (c) or (d) are not met with 
     respect to each long-term care insurance policy.
       ``(2) Waiver.--In the case of a failure which is due to 
     reasonable cause and not to willful neglect, the Secretary 
     may waive part or all of the tax imposed by subsection (a) to 
     the extent that payment of the tax would be excessive 
     relative to the failure involved.
       ``(c) Responsibilities.--The requirements of this 
     subsection are as follows:
       ``(1) Requirements of model provisions.--
       ``(A) Model regulation.--The following requirements of the 
     model regulation must be met:
       ``(i) Section 13 (relating to application forms and 
     replacement coverage).
       ``(ii) Section 14 (relating to reporting requirements), 
     except that the issuer shall also report at least annually 
     the number of claims denied during the reporting period for 
     each class of business (expressed as a percentage of claims 
     denied), other than claims denied for failure to meet the 
     waiting period or because of any applicable preexisting 
     condition.
       ``(iii) Section 20 (relating to filing requirements for 
     marketing).
       ``(iv) Section 21 (relating to standards for marketing), 
     including inaccurate completion of medical histories, other 
     than sections 21C(1) and 21C(6) thereof, except that--

       ``(I) in addition to such requirements, no person shall, in 
     selling or offering to sell a long-term care insurance 
     policy, misrepresent a material fact; and
       ``(II) no such requirements shall include a requirement to 
     inquire or identify whether a prospective applicant or 
     enrollee for long-term care insurance has accident and 
     sickness insurance.

       ``(v) Section 22 (relating to appropriateness of 
     recommended purchase).
       ``(vi) Section 24 (relating to standard format outline of 
     coverage).
       ``(vii) Section 25 (relating to requirement to deliver 
     shopper's guide).
       ``(B) Model act.--The following requirements of the model 
     Act must be met:
       ``(i) Section 6F (relating to right to return), except that 
     such section shall also apply to denials of applications and 
     any refund shall be made within 30 days of the return or 
     denial.
       ``(ii) Section 6G (relating to outline of coverage).
       ``(iii) Section 6H (relating to requirements for 
     certificates under group plans).
       ``(iv) Section 6I (relating to policy summary).
       ``(v) Section 6J (relating to monthly reports on 
     accelerated death benefits).
       ``(vi) Section 7 (relating to incontestability period).
       ``(C) Definitions.--For purposes of this paragraph, the 
     terms `model regulation' and `model Act' have the meanings 
     given such terms by section 7702B(f)(2)(B).
       ``(2) Delivery of policy.--If an application for a long-
     term care insurance policy (or for a certificate under a 
     group long-term care insurance policy) is approved, the 
     issuer shall deliver to the applicant (or policyholder or 
     certificateholder) the policy (or certificate) of insurance 
     not later than 30 days after the date of the approval.
       ``(3) Information on denials of claims.--If a claim under a 
     long-term care insurance policy is denied, the issuer shall, 
     within 60 days of the date of a written request by the 
     policyholder or certificateholder (or representative)--
       ``(A) provide a written explanation of the reasons for the 
     denial, and
       ``(B) make available all information directly relating to 
     such denial.
       ``(d) Disclosure.--The requirements of this subsection are 
     met if the issuer of a long-term care insurance policy 
     discloses in such policy and in the outline of coverage 
     required under subsection (c)(1)(B)(ii) that the policy is 
     intended to be a qualified long-term care insurance contract 
     under section 7702B(b).
       ``(e) Long-Term Care Insurance Policy Defined.--For 
     purposes of this section, the term `long-term care insurance 
     policy' means any product which is advertised, marketed, or 
     offered as long-term care insurance.''.
       (b) Conforming Amendment.--The table of sections for 
     chapter 43 is amended by adding at the end the following new 
     item:

``Sec. 4980C. Requirements for issuers of long-term care insurance 
              policies.''.

     SEC. 11053. COORDINATION WITH STATE REQUIREMENTS.

       Nothing in this part shall prevent a State from 
     establishing, implementing, or continuing in effect standards 
     related to the protection of policyholders of long-term care 
     insurance policies (as defined in section 4980C(e) of the 
     Internal Revenue Code of 1986), if such standards are not in 
     conflict with or inconsistent with the standards established 
     under such Code.

     SEC. 11054. EFFECTIVE DATES.

       (a) In General.--The provisions of, and amendments made by, 
     this part shall apply to contracts issued after December 31, 
     1995. The provisions of section 11041(g) of this Act 
     (relating to transition rule) shall apply to such contracts.
       (b) Issuers.--The amendments made by section 11052 shall 
     apply to actions taken after December 31, 1995.

         Subchapter B--Treatment of Accelerated Death Benefits

     SEC. 11061. TREATMENT OF ACCELERATED DEATH BENEFITS BY 
                   RECIPIENT.

       (a) In General.--Section 101 (relating to certain death 
     benefits) is amended by adding at the end the following new 
     subsection:
       ``(g) Treatment of Certain Accelerated Death Benefits.--
       ``(1) In general.--For purposes of this section, the 
     following amounts shall be treated as an amount paid by 
     reason of the death of an insured:

[[Page H 12642]]

       ``(A) Any amount received under a life insurance contract 
     on the life of an insured who is a terminally ill individual.
       ``(B) Any amount received under a life insurance contract 
     on the life of an insured who is a chronically ill individual 
     (as determined in such manner as the Secretary may prescribe) 
     but only if such amount is received under a rider or other 
     provision of such contract which is treated as a qualified 
     long-term care insurance contract under section 7702B.
       ``(2) Treatment of viatical settlements.--
       ``(A) In general.--In the case of a life insurance contract 
     on the life of an insured described in paragraph (1), if--
       ``(i) any portion of such contract is sold to any viatical 
     settlement provider, or
       ``(ii) any portion of the death benefit is assigned to such 
     a provider,
     the amount paid for such sale or assignment shall be treated 
     as an amount paid under the life insurance contract by reason 
     of the death of such insured.
       ``(B) Viatical settlement provider.--The term `viatical 
     settlement provider' means any person regularly engaged in 
     the trade or business of purchasing, or taking assignments 
     of, life insurance contracts on the lives of insureds 
     described in paragraph (1) if--
       ``(i) such person is licensed for such purposes in the 
     State in which the insured resides, or
       ``(ii) in the case of an insured who resides in a State not 
     requiring the licensing of such persons for such purposes--

       ``(I) such person meets the requirements of sections 8 and 
     9 of the Viatical Settlements Model Act of the National 
     Association of Insurance Commissioners, and
       ``(II) meets the requirements of the Model Regulations of 
     the National Association of Insurance Commissioners (relating 
     to standards for evaluation of reasonable payments) in 
     determining amounts paid by such person in connection with 
     such purchases or assignments.

       ``(3) Definitions.--For purposes of this subsection--
       ``(A) Terminally ill individual.--The term `terminally ill 
     individual' means an individual who has been certified by a 
     physician as having an illness or physical condition which 
     can reasonably be expected to result in death in 24 months or 
     less after the date of the certification.
       ``(B) Physician.--The term `physician' has the meaning 
     given to such term by section 1861(r)(1) of the Social 
     Security Act (42 U.S.C. 1395x(r)(1)).
       ``(4) Exception for business-related policies.--This 
     subsection shall not apply in the case of any amount paid to 
     any taxpayer other than the insured if such taxpayer has an 
     insurable interest with respect to the life of the insured by 
     reason of the insured being a director, officer, or employee 
     of the taxpayer or by reason of the insured being financially 
     interested in any trade or business carried on by the 
     taxpayer.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to amounts received after December 31, 1995.

     SEC. 11062. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED 
                   ACCELERATED DEATH BENEFIT RIDERS.

       (a) Qualified Accelerated Death Benefit Riders Treated as 
     Life Insurance.--Section 818 (relating to other definitions 
     and special rules) is amended by adding at the end the 
     following new subsection:
       ``(g) Qualified Accelerated Death Benefit Riders Treated as 
     Life Insurance.--For purposes of this part--
       ``(1) In general.--Any reference to a life insurance 
     contract shall be treated as including a reference to a 
     qualified accelerated death benefit rider on such contract.
       ``(2) Qualified accelerated death benefit riders.--For 
     purposes of this subsection, the term `qualified accelerated 
     death benefit rider' means any rider on a life insurance 
     contract if the only payments under the rider are payments 
     meeting the requirements of section 101(g).
       ``(3) Exception for long-term care riders.--Paragraph (1) 
     shall not apply to any rider which is treated as a long-term 
     care insurance contract under section 7702B.''
       (b) Effective Date.--
       (1) In general.--The amendment made by this section shall 
     take effect on January 1, 1996.
       (2) Issuance of rider not treated as material change.--For 
     purposes of applying sections 101(f), 7702, and 7702A of the 
     Internal Revenue Code of 1986 to any contract--
       (A) the issuance of a qualified accelerated death benefit 
     rider (as defined in section 818(g) of such Code (as added by 
     this Act)), and
       (B) the addition of any provision required to conform an 
     accelerated death benefit rider to the requirements of such 
     section 818(g),
     shall not be treated as a modification or material change of 
     such contract.

                  CHAPTER 2--MEDICAL SAVINGS ACCOUNTS

     SEC. 11066. MEDICAL SAVINGS ACCOUNTS.

       (a) In General.--Part VII of subchapter B of chapter 1 
     (relating to additional itemized deductions for individuals) 
     is amended by redesignating section 222 as section 223 and by 
     inserting after section 221 the following new section:

     ``SEC. 222. MEDICAL SAVINGS ACCOUNTS.

       ``(a) Deduction Allowed.--In the case of an individual who 
     is an eligible individual for any month during the taxable 
     year, there shall be allowed as a deduction for the taxable 
     year an amount equal to the aggregate amount paid in cash 
     during such taxable year by such individual to a medical 
     savings account of such individual.
       ``(b) Limitations.--
       ``(1) In general.--Except as otherwise provided in this 
     subsection, the amount allowable as a deduction under 
     subsection (a) to an individual for the taxable year shall 
     not exceed--
       ``(A) except as provided in subparagraph (B), the lesser 
     of--
       ``(i) $2,000, or
       ``(ii) the annual deductible limit for any individual 
     covered under the high deductible health plan, or
       ``(B) in the case of a high deductible health plan covering 
     the taxpayer and any other eligible individual who is the 
     spouse or any dependent (as defined in section 152) of the 
     taxpayer, the lesser of--
       ``(i) $4,000, or
       ``(ii) the annual limit under the plan on the aggregate 
     amount of deductibles required to be paid by all individuals.
     The preceding sentence shall not apply if the spouse of such 
     individual is covered under any other high deductible health 
     plan.
       ``(2) Special rule for married individuals.--
       ``(A) In general.--This subsection shall be applied 
     separately for each married individual.
       ``(B) Special rule.--If individuals who are married to each 
     other are covered under the same high deductible health plan, 
     then the amounts applicable under paragraph (1)(B) shall be 
     divided equally between them unless they agree on a different 
     division.
       ``(3) Coordination with exclusion for employer 
     contributions.--No deduction shall be allowed under this 
     section for any amount paid for any taxable year to a medical 
     savings account of an individual if--
       ``(A) any amount is paid to any medical savings account of 
     such individual which is excludable from gross income under 
     section 106(b) for such year, or
       ``(B) in a case described in paragraph (2), any amount is 
     paid to any medical savings account of either spouse which is 
     so excludable for such year.
       ``(4) Proration of limitation.--
       ``(A) In general.--The limitation under paragraph (1) shall 
     be the sum of the monthly limitations for months during the 
     taxable year that the individual is an eligible individual 
     if--
       ``(i) such individual is not an eligible individual for all 
     months of the taxable year,
       ``(ii) the deductible under the high deductible health plan 
     covering such individual is not the same throughout such 
     taxable year, or
       ``(iii) such limitation is determined under paragraph 
     (1)(B) for some but not all months during such taxable year.
       ``(B) Monthly limitation.--The monthly limitation for any 
     month shall be an amount equal to \1/12\ of the limitation 
     which would (but for this paragraph and paragraph (3)) be 
     determined under paragraph (1) if the facts and circumstances 
     as of the first day of such month that such individual is 
     covered under a high deductible health plan were true for the 
     entire taxable year.
       ``(5) Denial of deduction to dependents.--No deduction 
     shall be allowed under this section to any individual with 
     respect to whom a deduction under section 151 is allowable to 
     another taxpayer for a taxable year beginning in the calendar 
     year in which such individual's taxable year begins.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Eligible individual.--
       ``(A) In general.--The term `eligible individual' means, 
     with respect to any month, any individual--
       ``(i) who is covered under a high deductible health plan as 
     of the 1st day of such month, and
       ``(ii) who is not, while covered under a high deductible 
     health plan, covered under any health plan--

       ``(I) which is not a high deductible health plan, and
       ``(II) which provides coverage for any benefit which is 
     covered under the high deductible health plan.

       ``(B) Certain coverage disregarded.--Subparagraph (A)(ii) 
     shall be applied without regard to--
       ``(i) coverage for any benefit provided by permitted 
     insurance, and
       ``(ii) coverage (whether through insurance or otherwise) 
     for accidents, disability, dental care, vision care, or long-
     term care.
       ``(2) High deductible health plan.--The term `high 
     deductible health plan' means a health plan which--
       ``(A) has an annual deductible limit for each individual 
     covered by the plan which is not less than $1,500, and
       ``(B) has an annual limit on the aggregate amount of 
     deductibles required to be paid with respect to all 
     individuals covered by the plan which is not less than 
     $3,000.

     Such term does not include a health plan if substantially all 
     of its coverage is coverage described in paragraph (1)(B).
       ``(3) Permitted insurance.--The term `permitted insurance' 
     means--
       ``(A) Medicare supplemental insurance,
       ``(B) insurance if substantially all of the coverage 
     provided under such insurance relates to--
       ``(i) liabilities incurred under workers' compensation 
     laws,
       ``(ii) tort liabilities,
       ``(iii) liabilities relating to ownership or use of 
     property, or
       ``(iv) such other similar liabilities as the Secretary may 
     specify by regulations,
       ``(C) insurance for a specified disease or illness, and
       ``(D) insurance paying a fixed amount per day (or other 
     period) of hospitalization.
       ``(d) Medical Savings Account.--For purposes of this 
     section--
       ``(1) Medical savings account.--The term `medical savings 
     account' means a trust created or organized in the United 
     States exclusively for the purpose of paying the qualified 
     medical expenses of the account holder, but only if the 

[[Page H 12643]]
     written governing instrument creating the trust meets the following 
     requirements:
       ``(A) Except in the case of a rollover contribution 
     described in subsection (f)(5), no contribution will be 
     accepted--
       ``(i) unless it is in cash, or
       ``(ii) to the extent such contribution, when added to 
     previous contributions to the trust for the calendar year, 
     exceeds $4,000.
       ``(B) The trustee is a bank (as defined in section 408(n)), 
     an insurance company (as defined in section 816), or another 
     person who demonstrates to the satisfaction of the Secretary 
     that the manner in which such person will administer the 
     trust will be consistent with the requirements of this 
     section.
       ``(C) No part of the trust assets will be invested in life 
     insurance contracts.
       ``(D) The assets of the trust will not be commingled with 
     other property except in a common trust fund or common 
     investment fund.
       ``(E) The interest of an individual in the balance in his 
     account is nonforfeitable.
       ``(2) Qualified medical expenses.--
       ``(A) In general.--The term `qualified medical expenses' 
     means, with respect to an account holder, amounts paid by 
     such holder for medical care (as defined in section 213(d)) 
     for such individual, the spouse of such individual, and any 
     dependent (as defined in section 152) of such individual, but 
     only to the extent such amounts are not compensated for by 
     insurance or otherwise.
       ``(B) Health insurance may not be purchased from account.--
       ``(i) In general.--Subparagraph (A) shall not apply to any 
     payment for insurance.
       ``(ii) Exceptions.--Clause (i) shall not apply to any 
     expense for coverage under--

       ``(I) a health plan during any period of continuation 
     coverage required under any Federal law,
       ``(II) a qualified long-term care contract (as defined in 
     section 7702B), or
       ``(III) a health plan during a period in which the 
     individual is receiving unemployment compensation under any 
     Federal or State law.

       ``(3) Account holder.--The term `account holder' means the 
     individual on whose behalf the medical savings account was 
     established.
       ``(4) Certain rules to apply.--Rules similar to the 
     following rules shall apply for purposes of this section:
       ``(A) Section 219(d)(2) (relating to no deduction for 
     rollovers).
       ``(B) Section 219(f)(3) (relating to time when 
     contributions deemed made).
       ``(C) Except as provided in section 106(b), section 
     219(f)(5) (relating to employer payments).
       ``(D) Section 408(g) (relating to community property laws).
       ``(E) Section 408(h) (relating to custodial accounts).
       ``(e) Tax Treatment of Accounts.--
       ``(1) In general.--A medical savings account is exempt from 
     taxation under this subtitle unless such account has ceased 
     to be a medical savings account by reason of paragraph (2) or 
     (3). Notwithstanding the preceding sentence, any such account 
     is subject to the taxes imposed by section 511 (relating to 
     imposition of tax on unrelated business income of charitable, 
     etc. organizations).
       ``(2) Account terminations.--Rules similar to the rules of 
     paragraphs (2) and (4) of section 408(e) shall apply to 
     medical savings accounts, and any amount treated as 
     distributed under such rules shall be treated as not used to 
     pay qualified medical expenses.
       ``(f) Tax Treatment of Distributions.--
       ``(1) Amounts used for qualified medical expenses.--
       ``(A) In general.--Any amount paid or distributed out of a 
     medical savings account which is used exclusively to pay 
     qualified medical expenses of any account holder (or any 
     spouse or dependent of the holder) shall not be includible in 
     gross income.
       ``(B) Treatment after death of account holder.--
       ``(i) Treatment if holder is spouse.--If, after the death 
     of the account holder, the account holder's interest is 
     payable to (or for the benefit of) the holder's spouse, the 
     medical savings account shall be treated as if the spouse 
     were the account holder.
       ``(ii) Treatment if designated holder is not spouse.--In 
     the case of an account holder's interest in a medical savings 
     account which is payable to (or for the benefit of) any 
     person other than such holder's spouse upon the death of such 
     holder--

       ``(I) such account shall cease to be a medical savings 
     account as of the date of death, and
       ``(II) an amount equal to the fair market value of the 
     assets in such account on such date shall be includible if 
     such person is not the estate of such holder, in such 
     person's gross income for the taxable year which includes 
     such date, or if such person is the estate of such holder, in 
     such holder's gross income for the last taxable year of such 
     holder.

       ``(2) Inclusion of amounts not used for qualified medical 
     expenses.--
       ``(A) In general.--Any amount paid or distributed out of a 
     medical savings account which is not used exclusively to pay 
     the qualified medical expenses of the account holder or of 
     the spouse or dependents of such holder shall be included in 
     the gross income of such holder.
       ``(B) Special rules.--For purposes of subparagraph (A)--
       ``(i) all medical savings accounts of the account holder 
     shall be treated as 1 account,
       ``(ii) all payments and distributions during any taxable 
     year shall be treated as 1 distribution, and
       ``(iii) any distribution of property shall be taken into 
     account at its fair market value on the date of the 
     distribution.
       ``(3) Excess contributions returned before due date of 
     return.--Paragraph (2) shall not apply to the distribution of 
     any contribution paid during a taxable year to a medical 
     savings account to the extent that such contribution exceeds 
     the amount under subsection (d)(1)(A)(ii) if--
       ``(A) such distribution is received by the individual on or 
     before the last day prescribed by law (including extensions 
     of time) for filing such individual's return for such taxable 
     year, and
       ``(B) such distribution is accompanied by the amount of net 
     income attributable to such excess contribution.

     Any net income described in subparagraph (B) shall be 
     included in the gross income of the individual for the 
     taxable year in which it is received.
       ``(4) Penalty for distributions not used for qualified 
     medical expenses.--
       ``(A) In general.--The tax imposed by this chapter on the 
     account holder for any taxable year in which there is a 
     payment or distribution from a medical savings account of 
     such holder which is includible in gross income under 
     paragraph (2) shall be increased by 10 percent of the amount 
     which is so includible.
       ``(B) Exception for disability or death.--Subparagraph (A) 
     shall not apply if the payment or distribution is made after 
     the account holder becomes disabled within the meaning of 
     section 72(m)(7) or dies.
       ``(C) Exception for distributions after age 59\1/2\.--
     Subparagraph (A) shall not apply to any payment or 
     distribution after the date on which the account holder 
     attains age 59\1/2\.
       ``(5) Rollover contribution.--An amount is described in 
     this paragraph as a rollover contribution if it meets the 
     requirements of subparagraphs (A) and (B).
       ``(A) In general.--Paragraph (2) shall not apply to any 
     amount paid or distributed from a medical savings account to 
     the account holder to the extent the amount received is paid 
     into a medical savings account for the benefit of such holder 
     not later than the 60th day after the day on which the holder 
     receives the payment or distribution.
       ``(B) Limitation.--This paragraph shall not apply to any 
     amount described in subparagraph (A) received by an 
     individual from a medical savings account if, at any time 
     during the 1-year period ending on the day of such receipt, 
     such individual received any other amount described in 
     subparagraph (A) from a medical savings account which was not 
     includible in the individual's gross income because of the 
     application of this paragraph.
       ``(6) Coordination with medical expense deduction.--For 
     purposes of determining the amount of the deduction under 
     section 213, any payment or distribution out of a medical 
     savings account for qualified medical expenses shall not be 
     treated as an expense paid for medical care.
       ``(7)  Transfer of account incident to divorce.--The 
     transfer of an individual's interest in a medical savings 
     account to an individual's spouse or former spouse under a 
     divorce or separation instrument described in subparagraph 
     (A) of section 71(b)(2) shall not be considered a taxable 
     transfer made by such individual notwithstanding any other 
     provision of this subtitle, and such interest shall, after 
     such transfer, be treated as a medical savings account with 
     respect to which the spouse is the account holder.
       ``(g) Cost-of-Living Adjustment.--
       ``(1) In general.--In the case of any taxable year 
     beginning in a calendar year after 1996, each dollar amount 
     in subsection (b)(1), (c)(2), or (d)(1)(A) shall be increased 
     by an amount equal to--
       ``(A) such dollar amount, multiplied by
       ``(B) the medical care cost adjustment for such calendar 
     year.

     If any increase under the preceding sentence is not a 
     multiple of $50, such increase shall be rounded to the 
     nearest multiple of $50.
       ``(2) Medical care cost adjustment.--For purposes of 
     paragraph (1), the medical care cost adjustment for any 
     calendar year is the percentage (if any) by which--
       ``(A) the medical care component of the Consumer Price 
     Index (as defined in section 1(f)(5)) for August of the 
     preceding calendar year, exceeds
       ``(B) such component for August of 1995.
       ``(h) Reports.--The Secretary may require the trustee of a 
     medical savings account to make such reports regarding such 
     account to the Secretary and to the account holder with 
     respect to contributions, distributions, and such other 
     matters as the Secretary determines appropriate. The reports 
     required by this subsection shall be filed at such time and 
     in such manner and furnished to such individuals at such time 
     and in such manner as may be required by those regulations.''
       (b) Deduction Allowed Whether or Not Individual Itemizes 
     Other Deductions.--Subsection (a) of section 62 is amended by 
     inserting after paragraph (18) the following new paragraph:
       ``(19) Medical savings accounts.--The deduction allowed by 
     section 222.''
       (c) Exclusions for Employer Contributions to Medical 
     Savings Accounts.--
       (1) Exclusion from income tax.--Section 106 (relating to 
     contributions by employer to accident and health plans), as 
     amended by this Act, is amended--
       (A) by adding at the end the following new subsection:
       ``(c) Contributions to Medical Savings Accounts.--
       ``(1) In general.--In the case of an employee who is an 
     eligible individual, gross income does not include amounts 
     contributed by such employee's employer to any medical 
     savings account of such employee.
       ``(2) Coordination with deduction limitation.--The amount 
     excluded from the gross income of an employee under this 
     subsection for 

[[Page H 12644]]
     any taxable year shall not exceed the limitation under section 
     222(b)(1) (determined without regard to this subsection) 
     which is applicable to such employee for such taxable year.
       ``(3) No constructive receipt.--No amount shall be included 
     in the gross income of any employee solely because the 
     employee may choose between the contributions referred to in 
     paragraph (1) and employer contributions to another health 
     plan of the employer.
       ``(4) Special rule for deduction of employer 
     contributions.--Any employer contribution to a medical 
     savings account, if otherwise allowable as a deduction under 
     this chapter, shall be allowed only for the taxable year in 
     which paid.
       ``(5) Definitions.--For purposes of this subsection, the 
     terms `eligible individual' and `medical savings account' 
     have the respective meanings given to such terms by section 
     222'', and
       (B) by striking ``subsection (b)'' in subsection (a) and 
     inserting ``this subsection''.
       (2) Exclusion from withholding tax.--Subsection (a) of 
     section 3401 is amended by striking ``or'' at the end of 
     paragraph (19), by striking the period at the end of 
     paragraph (20) and inserting ``; or'', and by inserting after 
     paragraph (20) the following new paragraph:
       ``(21) any payment made to or for the benefit of an 
     employee if at the time of such payment it is reasonable to 
     believe that the employee will be able to exclude such 
     payment from income under section 106(b).''
       (d) Medical Savings Account Contributions Not Available 
     Under Cafeteria Plans.--Subsection (f) of section 125 is 
     amended by inserting ``106(b),'' before ``117''.
       (e) Exclusion of Medical Savings Accounts From Estate 
     Tax.--Part IV of subchapter A of chapter 11 is amended by 
     adding at the end the following new section:

     ``SEC. 2057. MEDICAL SAVINGS ACCOUNTS.

       ``For purposes of the tax imposed by section 2001, the 
     value of the taxable estate shall be determined by deducting 
     from the value of the gross estate an amount equal to the 
     value of any medical savings account (as defined in section 
     222(d)) included in the gross estate.''
       (f) Tax on Excess Contributions.--Section 4973 (relating to 
     tax on excess contributions to individual retirement 
     accounts, certain section 403(b) contracts, and certain 
     individual retirement annuities) is amended--
       (1) by inserting ``medical savings accounts,'' after 
     ``accounts,'' in the heading of such section,
       (2) by striking ``or'' at the end of paragraph (1) of 
     subsection (a),
       (3) by redesignating paragraph (2) of subsection (a) as 
     paragraph (3) and by inserting after paragraph (1) the 
     following:
       ``(2) a medical savings account (within the meaning of 
     section 222(d)), or'', and
       (4) by adding at the end the following new subsection:
       ``(d) Excess Contributions to Medical Savings Accounts.--
     For purposes of this section, in the case of a medical 
     savings account (within the meaning of section 222(d)), the 
     term `excess contributions' means the sum of--
       ``(1) the amount by which the amount contributed for the 
     taxable year to the account exceeds the amount which may be 
     contributed to the account under section 222(d)(1)(B)(ii) for 
     such taxable year, and
       ``(2) the amount determined under this subsection for the 
     preceding taxable year, reduced by the sum of distributions 
     out of the account included in gross income under section 
     222(f) (2) or (3) and the excess (if any) of the maximum 
     amount allowable as a deduction under section 222 for the 
     taxable year over the amount contributed.

     For purposes of this subsection, any contribution which is 
     distributed out of the medical savings account in a 
     distribution to which section 222(f)(3) applies shall be 
     treated as an amount not contributed.''
       (g) Tax on Prohibited Transactions.--
       (1) Section 4975 (relating to tax on prohibited 
     transactions) is amended by adding at the end of subsection 
     (c) the following new paragraph:
       ``(4) Special rule for medical savings accounts.--An 
     individual for whose benefit a medical savings account 
     (within the meaning of section 222(d)) is established shall 
     be exempt from the tax imposed by this section with respect 
     to any transaction concerning such account (which would 
     otherwise be taxable under this section) if, with respect to 
     such transaction, the account ceases to be a medical savings 
     account by reason of the application of section 222(e)(2) to 
     such account.''
       (2) Paragraph (1) of section 4975(e) is amended to read as 
     follows:
       ``(1) Plan.--For purposes of this section, the term `plan' 
     means--
       ``(A) a trust described in section 401(a) which forms a 
     part of a plan, or a plan described in section 403(a), which 
     trust or plan is exempt from tax under section 501(a),
       ``(B) an individual retirement account described in section 
     408(a),
       ``(C) an individual retirement annuity described in section 
     408(b),
       ``(D) a medical savings account described in section 
     220(d), or
       ``(E) a trust, plan, account, or annuity which, at any 
     time, has been determined by the Secretary to be described in 
     any preceding subparagraph of this paragraph.''
       (h) Failure To Provide Reports on MedicarePlus MSA's.--
       (1) Subsection (a) of section 6693 (relating to failure to 
     provide reports on individual retirement accounts or 
     annuities) is amended to read as follows:
       ``(a) Reports.--
       ``(1) In general.--If a person required to file a report 
     under a provision referred to in paragraph (2) fails to file 
     such report at the time and in the manner required by such 
     provision, such person shall pay a penalty of $50 for each 
     failure unless it is shown that such failure is due to 
     reasonable cause.
       ``(2) Provisions.--The provisions referred to in this 
     paragraph are--
       ``(A) subsections (i) and (l) of section 408 (relating to 
     individual retirement plans), and
       ``(B) section 222(h) (relating to medical savings 
     accounts).''
       (i) Exception From Capitalization of Policy Acquisition 
     Expenses.--Subparagraph (B) of section 848(e)(1) (defining 
     specified insurance contract) is amended by striking ``and'' 
     at the end of clause (ii), by striking the period at the end 
     of clause (iii) and inserting ``, and'', and by adding at the 
     end the following new clause:
       ``(iv) any contract which is a medical savings account (as 
     defined in section 222(d)).''.
       (j) Clerical Amendment.--The table of sections for part VII 
     of subchapter B of chapter 1 is amended by striking the last 
     item and inserting the following:

``Sec. 222. Medical savings accounts.
``Sec. 223. Cross reference.''

       (k) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

  CHAPTER 3--INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-
                          EMPLOYED INDIVIDUALS

     SEC. 11068. INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS 
                   OF SELF-EMPLOYED INDIVIDUALS.

       (a) In General.--Paragraph (1) of section 162(l) is amended 
     to read as follows:
       ``(1) Allowance of deduction.--
       ``(A) In general.--In the case of an individual who is an 
     employee within the meaning of section 401(c)(1), there shall 
     be allowed as a deduction under this section an amount equal 
     to the applicable percentage of the amount paid during the 
     taxable year for insurance which constitutes medical care for 
     the taxpayer, his spouse, and dependents.
       ``(B) Applicable percentage.--For purposes of subparagraph 
     (A), the applicable percentage shall be determined under the 
     following table:

                                                         The applicable
``For taxable years beginning in calendar year--        percentage is--
  1996 or 1997..................................................30 ....

  1998 or 1999..................................................35 ....

  2000 or 2001..................................................40 ....

  2002 or thereafter..........................................50.''....

       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.
                 Subtitle D--Estate and Gift Provisions

     SEC. 11071. COST-OF-LIVING ADJUSTMENTS RELATING TO ESTATE AND 
                   GIFT TAX PROVISIONS.

       (a) Increase in Unified Estate and Gift Tax Credit.--
       (1) Estate tax credit.--
       (A) Subsection (a) of section 2010 (relating to unified 
     credit against estate tax) is amended by striking 
     ``$192,800'' and inserting ``the applicable credit amount''.
       (B) Section 2010 is amended by redesignating subsection (c) 
     as subsection (d) and by inserting after subsection (b) the 
     following new subsection:
       ``(c) Applicable Credit Amount.--For purposes of this 
     section--
       ``(1) In general.--The applicable credit amount is the 
     amount of the tentative tax which would be determined under 
     the rate schedule set forth in section 2001(c) if the amount 
     with respect to which such tentative tax is to be computed 
     were the applicable exclusion amount determined in accordance 
     with the following table:

``In the case of estates of decedentThe applicable exclusion amount is:
      1996....................................................$625,000 
      1997....................................................$650,000 
      1998....................................................$675,000 
      1999....................................................$700,000 
      2000....................................................$725,000 
      2001 or thereafter......................................$750,000.

       ``(2) Cost-of-living adjustments.--In the case of any 
     decedent dying, and gift made, in a calendar year after 2001, 
     the $750,000 amount set forth in paragraph (1) shall be 
     increased by an amount equal to--
       ``(A) $750,000, multiplied by
       ``(B) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year by substituting 
     `calendar year 2000' for `calendar year 1992' in subparagraph 
     (B) thereof.

     If any amount as adjusted under the preceding sentence is not 
     a multiple of $10,000, such amount shall be rounded to the 
     nearest multiple of $10,000.''
       (C) Paragraph (1) of section 6018(a) is amended by striking 
     ``$600,000'' and inserting ``the applicable exclusion amount 
     in effect under section 2010(c) (as adjusted under paragraph 
     (2) thereof) for the calendar year which includes the date of 
     death''.
       (D) Paragraph (2) of section 2001(c) is amended by striking 
     ``$21,040,000'' and inserting ``the amount at which the 
     average tax rate under this section is 55 percent''.
       (E) Subparagraph (A) of section 2102(c)(3) is amended by 
     striking ``$192,800'' and inserting ``the applicable credit 
     amount in effect under section 2010(c) for the calendar year 
     which includes the date of death''.
       (2) Unified gift tax credit.--Paragraph (1) of section 
     2505(a) is amended by striking ``$192,800'' and inserting 
     ``the applicable credit amount in effect under section 
     2010(c) for such calendar year''.

[[Page H 12645]]

       (3) Effective date.--The amendments made by this subsection 
     shall apply to the estates of decedents dying, and gifts 
     made, after December 31, 1995.
       (b) Alternate Valuation of Certain Farm, Etc., Real 
     Property.--Subsection (a) of section 2032A is amended by 
     adding at the end the following new paragraph:
       ``(3) Inflation adjustment.--In the case of estates of 
     decedents dying in a calendar year after 2000, the $750,000 
     amount contained in paragraph (2) shall be increased by an 
     amount equal to--
       ``(A) $750,000, multiplied by
       ``(B) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year by substituting 
     `calendar year 1999' for `calendar year 1992' in subparagraph 
     (B) thereof.

     If any amount as adjusted under the preceding sentence is not 
     a multiple of $10,000, such amount shall be rounded to the 
     nearest multiple of $10,000.''
       (c) Annual Gift Tax Exclusion.--Subsection (b) of section 
     2503 is amended--
       (1) by striking the subsection heading and inserting the 
     following:
       ``(b) Exclusions From Gifts.--
       ``(1) In general.--'',
       (2) by moving the text 2 ems to the right, and
       (3) by adding at the end the following new paragraph:
       ``(2) Inflation adjustment.--In the case of gifts made in a 
     calendar year after 2000, the $10,000 amount contained in 
     paragraph (1) shall be increased by an amount equal to--
       ``(A) $10,000, multiplied by
       ``(B) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year by substituting 
     `calendar year 1999' for `calendar year 1992' in subparagraph 
     (B) thereof.

     If any amount as adjusted under the preceding sentence is not 
     a multiple of $1,000, such amount shall be rounded to the 
     nearest multiple of $1,000.''
       (d) Exemption From Generation-Skipping Tax.--Section 2631 
     (relating to GST exemption) is amended by adding at the end 
     the following new subsection:
       ``(c) Inflation Adjustment.--In the case of an individual 
     who dies in any calendar year after 2000, the $1,000,000 
     amount contained in subsection (a) shall be increased by an 
     amount equal to--
       ``(1) $1,000,000, multiplied by
       ``(2) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year by substituting 
     `calendar year 1999' for `calendar year 1992' in subparagraph 
     (B) thereof.

     If any amount as adjusted under the preceding sentence is not 
     a multiple of $10,000, such amount shall be rounded to the 
     nearest multiple of $10,000.''
       (e) Amount of Tax Eligible For 4 Percent Interest Rate on 
     Extension of Time for Payment of Estate Tax on Closely Held 
     Business.--
       (1) Subparagraph (A) of section 6601(j)(2) is amended by 
     striking ``$345,800'' and inserting ``the applicable 
     limitation amount''.
       (2) Subsection (j) of section 6601 is amended by 
     redesignating paragraph (3) as paragraph (4) and by inserting 
     after paragraph (2) the following new paragraph:
       ``(3) Applicable limitation amount.--
       ``(A) In general.--For purposes of paragraph (2), the 
     applicable limitation amount is the amount of the tentative 
     tax which would be determined under the rate schedule set 
     forth in section 2001(c) if the amount with respect to which 
     such tentative tax is to be computed were $1,000,000.
       ``(B) Inflation adjustment.--In the case of estates of 
     decedents dying in a calendar year after 2000, the $1,000,000 
     amount contained in subparagraph (A) shall be increased by an 
     amount equal to--
       ``(i) $1,000,000, multiplied by
       ``(ii) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year by substituting 
     `calendar year 1999' for `calendar year 1992' in subparagraph 
     (B) thereof.

     If any amount as adjusted under the preceding sentence is not 
     a multiple of $10,000, such amount shall be rounded to the 
     nearest multiple of $10,000.''

     SEC. 11072. FAMILY-OWNED BUSINESS EXCLUSION.

       (a) In General.--Part III of subchapter A of chapter 11 
     (relating to gross estate) is amended by inserting after 
     section 2033 the following new section:

     ``SEC. 2033A. FAMILY-OWNED BUSINESS EXCLUSION.

       ``(a) In General.--In the case of an estate of a decedent 
     to which this section applies, the value of the gross estate 
     shall not include the lesser of--
       ``(1) the adjusted value of the qualified family-owned 
     business interests of the decedent otherwise includible in 
     the estate, or
       ``(2) the sum of--
       ``(A) $1,000,000, plus
       ``(B) 50 percent of the excess (if any) of the adjusted 
     value of such interests over $1,000,000, but not over 
     $2,500,000.
       ``(b) Estates to Which Section Applies.--
       ``(1) In general.--This section shall apply to an estate 
     if--
       ``(A) the decedent was (at the date of the decedent's 
     death) a citizen or resident of the United States,
       ``(B) the sum of--
       ``(i) the adjusted value of the qualified family-owned 
     business interests described in paragraph (2), plus
       ``(ii) the amount of the gifts of such interests determined 
     under paragraph (3),

     exceeds 50 percent of the adjusted gross estate, and
       ``(C) during the 8-year period ending on the date of the 
     decedent's death there have been periods aggregating 5 years 
     or more during which--
       ``(i) such interests were owned by the decedent or a member 
     of the decedent's family, and
       ``(ii) there was material participation (within the meaning 
     of section 2032A(e)(6)) by the decedent or a member of the 
     decedent's family in the operation of the business to which 
     such interests relate.
       ``(2) Includible qualified family-owned business 
     interests.--The qualified family-owned business interests 
     described in this paragraph are the interests which--
       ``(A) are included in determining the value of the gross 
     estate (without regard to this section), and
       ``(B) are acquired by any qualified heir from, or passed to 
     any qualified heir from, the decedent (within the meaning of 
     section 2032A(e)(9)).
       ``(3) Includible gifts of interests.--The amount of the 
     gifts of qualified family-owned business interests determined 
     under this paragraph is the excess of--
       ``(A) the sum of--
       ``(i) the amount of such gifts from the decedent to members 
     of the decedent's family taken into account under subsection 
     2001(b)(1)(B), plus
       ``(ii) the amount of such gifts otherwise excluded under 
     section 2503(b),

     to the extent such interests are continuously held by members 
     of such family (other than the decedent's spouse) between the 
     date of the gift and the date of the decedent's death, over
       ``(B) the amount of such gifts from the decedent to members 
     of the decedent's family otherwise included in the gross 
     estate.

       ``(c) Adjusted Gross Estate.--For purposes of this section, 
     the term `adjusted gross estate' means the value of the gross 
     estate (determined without regard to this section)--
       ``(1) reduced by any amount deductible under paragraph (3) 
     or (4) of section 2053(a), and
       ``(2) increased by the excess of--
       ``(A) the sum of--
       ``(i) the amount of gifts determined under subsection 
     (b)(3), plus
       ``(ii) the amount (if more than de minimis) of other 
     transfers from the decedent to the decedent's spouse (at the 
     time of the transfer) within 10 years of the date of the 
     decedent's death, plus
       ``(iii) the amount of other gifts (not included under 
     clause (i) or (ii)) from the decedent within 3 years of such 
     date, other than gifts to members of the decedent's family 
     otherwise excluded under section 2503(b), over
       ``(B) the sum of the amounts described in clauses (i), 
     (ii), and (iii) of subparagraph (A) which are otherwise 
     includible in the gross estate.
     For purposes of the preceding sentence, the Secretary may 
     provide that de minimis gifts to persons other than members 
     of the decedent's family shall not be taken into account.
       ``(d) Adjusted Value of the Qualified Family-Owned Business 
     Interests.--For purposes of this section, the adjusted value 
     of any qualified family-owned business interest is the value 
     of such interest for purposes of this chapter (determined 
     without regard to this section), reduced by the excess of--
       ``(1) any amount deductible under paragraph (3) or (4) of 
     section 2053(a), over
       ``(2) the sum of--
       ``(A) any indebtedness on any qualified residence of the 
     decedent the interest on which is deductible under section 
     163(h)(3), plus
       ``(B) any indebtedness to the extent the taxpayer 
     establishes that the proceeds of such indebtedness were used 
     for the payment of educational and medical expenses of the 
     decedent, the decedent's spouse, or the decedent's dependents 
     (within the meaning of section 152), plus
       ``(C) any indebtedness not described in clause (i) or (ii), 
     to the extent such indebtedness does not exceed $10,000.
       ``(e) Qualified Family-Owned Business Interest.--
       ``(1) In general.--For purposes of this section, the term 
     `qualified family-owned business interest' means--
       ``(A) an interest as a proprietor in a trade or business 
     carried on as a proprietorship, or
       ``(B) an interest in an entity carrying on a trade or 
     business, if--
       ``(i) at least--

       ``(I) 50 percent of such entity is owned (directly or 
     indirectly) by the decedent and members of the decedent's 
     family,
       ``(II) 70 percent of such entity is so owned by members of 
     2 families, or
       ``(III) 90 percent of such entity is so owned by members of 
     3 families, and

       ``(ii) for purposes of subclause (II) or (III) of clause 
     (i), at least 30 percent of such entity is so owned by the 
     decedent and members of the decedent's family.
       ``(2) Limitation.--Such term shall not include--
       ``(A) any interest in a trade or business the principal 
     place of business of which is not located in the United 
     States,
       ``(B) any interest in an entity, if the stock or debt of 
     such entity or a controlled group (as defined in section 
     267(f)(1)) of which such entity was a member was readily 
     tradable on an established securities market or secondary 
     market (as defined by the Secretary) at any time within 3 
     years of the date of the decedent's death,
       ``(C) any interest in a trade or business not described in 
     section 542(c)(2), if more than 35 percent of the adjusted 
     ordinary gross income of such trade or business for the 
     taxable year which includes the date of the decedent's death 
     would qualify as personal holding company income (as defined 
     in section 543(a)),
       ``(D) that portion of an interest in a trade or business 
     that is attributable to--
       ``(i) cash or marketable securities, or both, in excess of 
     the reasonably expected day-to-day 

[[Page H 12646]]
     working capital needs of such trade or business, and
       ``(ii) any other assets of the trade or business (other 
     than assets used in the active conduct of a trade or business 
     described in section 542(c)(2)), the income of which is 
     described in section 543(a) or in subparagraph (B), (C), (D), 
     or (E) of section 954(c)(1) (determined by substituting 
     `trade or business' for `controlled foreign corporation').
       ``(3) Rules regarding ownership.--
       ``(A) Ownership of entities.--For purposes of paragraph 
     (1)(B)--
       ``(i) Corporations.--Ownership of a corporation shall be 
     determined by the holding of stock possessing the appropriate 
     percentage of the total combined voting power of all classes 
     of stock entitled to vote and the appropriate percentage of 
     the total value of shares of all classes of stock.
       ``(ii) Partnerships.--Ownership of a partnership shall be 
     determined by the owning of the appropriate percentage of the 
     capital interest in such partnership.
       ``(B) Ownership of tiered entities.--For purposes of this 
     section, if by reason of holding an interest in a trade or 
     business, a decedent, any member of the decedent's family, 
     any qualified heir, or any member of any qualified heir's 
     family is treated as holding an interest in any other trade 
     or business--
       ``(i) such ownership interest in the other trade or 
     business shall be disregarded in determining if the ownership 
     interest in the first trade or business is a qualified 
     family-owned business interest, and
       ``(ii) this section shall be applied separately in 
     determining if such interest in any other trade or business 
     is a qualified family-owned business interest.
       ``(C) Individual ownership rules.--For purposes of this 
     section, an interest owned, directly or indirectly, by or for 
     an entity described in paragraph (1)(B) shall be considered 
     as being owned proportionately by or for the entity's 
     shareholders, partners, or beneficiaries. A person shall be 
     treated as a beneficiary of any trust only if such person has 
     a present interest in such trust.
       ``(f) Tax Treatment of Failure To Materially Participate in 
     Business or Dispositions of Interests.--
       ``(1) In general.--There is imposed an additional estate 
     tax if, within 10 years after the date of the decedent's 
     death and before the date of the qualified heir's death--
       ``(A) the material participation requirements described in 
     section 2032A(c)(6)(B) are not met with respect to the 
     qualified family-owned business interest which was acquired 
     (or passed) from the decedent,
       ``(B) the qualified heir disposes of any portion of a 
     qualified family-owned business interest (other than by a 
     disposition to a member of the qualified heir's family or 
     through a qualified conservation contribution under section 
     170(h)),
       ``(C) the qualified heir loses United States citizenship 
     (within the meaning of section 877) or with respect to whom 
     an event described in subparagraph (A) or (B) of section 
     877(e)(1) occurs, and such heir does not comply with the 
     requirements of subsection (g), or
       ``(D) the principal place of business of a trade or 
     business of the qualified family-owned business interest 
     ceases to be located in the United States.
       ``(2) Additional estate tax.--
       ``(A) In general.--The amount of the additional estate tax 
     imposed by paragraph (1) shall be equal to--
       ``(i) the applicable percentage of the adjusted tax 
     difference attributable to the qualified family-owned 
     business interest (as determined under rules similar to the 
     rules of section 2032A(c)(2)(B)), plus
       ``(ii) interest on the amount determined under clause (i) 
     at the underpayment rate established under section 6621 for 
     the period beginning on the date the estate tax liability was 
     due under this chapter and ending on the date such additional 
     estate tax is due.
       ``(B) Applicable percentage.--For purposes of this 
     paragraph, the applicable percentage shall be determined 
     under the following table:

``If the event described in paragraph (1)                              
  occurs in the following year of             The applicable percentage
  material participation:                                           is:
  1 through 6..................................................100 ....

  7.............................................................80 ....

  8.............................................................60 ....

  9.............................................................40 ....

  10............................................................20.....

       ``(g) Security Requirements for Noncitizen Qualified 
     Heirs.--
       ``(1) In general.--Except upon the application of 
     subparagraph (F) or (M) of subsection (h)(3), if a qualified 
     heir is not a citizen of the United States, any interest 
     under this section passing to or acquired by such heir 
     (including any interest held by such heir at a time described 
     in subsection (f)(1)(C)) shall be treated as a qualified 
     family-owned business interest only if the interest passes or 
     is acquired (or is held) in a qualified trust.
       ``(2) Qualified trust.--The term `qualified trust' means a 
     trust--
       ``(A) which is organized under, and governed by, the laws 
     of the United States or a State, and
       ``(B) except as otherwise provided in regulations, with 
     respect to which the trust instrument requires that at least 
     1 trustee of the trust be an individual citizen of the United 
     States or a domestic corporation.
       ``(h) Other Definitions and Applicable Rules.--For purposes 
     of this section--
       ``(1) Qualified heir.--The term `qualified heir'--
       ``(A) has the meaning given to such term by section 
     2032A(e)(1), and
       ``(B) includes any active employee of the trade or business 
     to which the qualified family-owned business interest relates 
     if such employee has been employed by such trade or business 
     for a period of at least 10 years before the date of the 
     decedent's death.
       ``(2) Member of the family.--The term `member of the 
     family' has the meaning given to such term by section 
     2032A(e)(2).
       ``(3) Applicable rules.--Rules similar to the following 
     rules shall apply:
       ``(A) Section 2032A(b)(4) (relating to decedents who are 
     retired or disabled).
       ``(B) Section 2032A(b)(5) (relating to special rules for 
     surviving spouses).
       ``(C) Section 2032A(c)(2)(D) (relating to partial 
     dispositions).
       ``(D) Section 2032A(c)(3) (relating to only 1 additional 
     tax imposed with respect to any 1 portion).
       ``(E) Section 2032A(c)(4) (relating to due date).
       ``(F) Section 2032A(c)(5) (relating to liability for tax; 
     furnishing of bond).
       ``(G) Section 2032A(c)(7) (relating to no tax if use begins 
     within 2 years; active management by eligible qualified heir 
     treated as material participation).
       ``(H) Section 2032A(e)(10) (relating to community 
     property).
       ``(I) Section 2032A(e)(14) (relating to treatment of 
     replacement property acquired in section 1031 or 1033 
     transactions).
       ``(J) Section 2032A(f) (relating to statute of 
     limitations).
       ``(K) Section 6166(b)(3) (relating to farmhouses and 
     certain other structures taken into account).
       ``(L) Subparagraphs (B), (C), and (D) of section 6166(g)(1) 
     (relating to acceleration of payment).
       ``(M) Section 6324B (relating to special lien for 
     additional estate tax).
       ``(4) Coordination with other estate tax benefits.--If 
     there is a reduction in the value of the gross estate under 
     this section--
       ``(A) the dollar limitation applicable under section 
     2032A(a)(2), and
       ``(B) the $1,000,000 amount under section 6601(j)(3) (as 
     adjusted),

     shall each be reduced (but not below zero) by the amount of 
     such reduction.''.
       (b) Clerical Amendment.--The table of sections for part III 
     of subchapter A of chapter 11 is amended by inserting after 
     the item relating to section 2033 the following new item:

``Sec. 2033A. Family-owned business exclusion.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to estates of decedents dying after December 31, 
     1995.

     SEC. 11073. TREATMENT OF LAND SUBJECT TO A QUALIFIED 
                   CONSERVATION EASEMENT.

       (a) Estate Tax With Respect to Land Subject to a Qualified 
     Conservation Easement.--Section 2031 (relating to the 
     definition of gross estate) is amended by redesignating 
     subsection (c) as subsection (d) and by inserting after 
     subsection (b) the following new subsection:
       ``(c) Estate Tax With Respect to Land Subject to a 
     Qualified Conservation Easement.--
       ``(1) In general.--If the executor makes the election 
     described in paragraph (4), then, except as otherwise 
     provided in this subsection, there shall be excluded from the 
     gross estate the applicable percentage of the lesser of--
       ``(A) the value of land subject to a qualified conservation 
     easement, reduced by the amount of any deduction under 
     section 2055(f) with respect to such land, or
       ``(B) the excess (if any) of $5,000,000 over the lesser 
     of--
       ``(i) $2,500,000, or
       ``(ii) the adjusted value of the qualified family-owned 
     business interests of the decedent determined under section 
     2033A.
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the term `applicable percentage' means 40 percent 
     reduced (but not below zero) by 2 percentage points for each 
     percentage point (or fraction thereof) by which the value of 
     the qualified conservation easement is less than 30 percent 
     of the value of the land (determined without regard to the 
     value of such easement and reduced by the value of any 
     retained development right (as defined in paragraph (4)).
       ``(3) Treatment of certain indebtedness.--
       ``(A) In general.--The exclusion provided in paragraph (1) 
     shall not apply to the extent that the land is debt-financed 
     property.
       ``(B) Definitions.--For purposes of this paragraph--
       ``(i) Debt-financed property.--The term `debt-financed 
     property' means any property with respect to which there is 
     an acquisition indebtedness (as defined in clause (ii)) on 
     the date of the decedent's death.
       ``(ii) Acquisition indebtedness.--The term `acquisition 
     indebtedness' means, with respect to debt-financed property, 
     the unpaid amount of--

       ``(I) the indebtedness incurred by the donor in acquiring 
     such property,
       ``(II) the indebtedness incurred before the acquisition of 
     such property if such indebtedness would not have been 
     incurred but for such acquisition,
       ``(III) the indebtedness incurred after the acquisition of 
     such property if such indebtedness would not have been 
     incurred but for such acquisition and the incurrence of such 
     indebtedness was reasonably foreseeable at the time of such 
     acquisition, and
       ``(IV) the extension, renewal, or refinancing of an 
     acquisition indebtedness.

       ``(4) Treatment of retained development right.--

[[Page H 12647]]

       ``(A) In general.--Paragraph (1) shall not apply to the 
     value of any development right retained by the donor in the 
     conveyance of a qualified conservation easement.
       ``(B) Termination of retained development right.--If every 
     person in being who has an interest (whether or not in 
     possession) in the land executes an agreement to extinguish 
     permanently some or all of any development rights (as defined 
     in subparagraph (D)) retained by the donor on or before the 
     date for filing the return of the tax imposed by section 
     2001, then any tax imposed by section 2001 shall be reduced 
     accordingly. Such agreement shall be filed with the return of 
     the tax imposed by section 2001. The agreement shall be in 
     such form as the Secretary shall prescribe.
       ``(C) Additional tax.--Any failure to implement the 
     agreement described in subparagraph (B) not later than the 
     earlier of--
       ``(i) the date which is 2 years after the date of the 
     decedent's death, or
       ``(ii) the date of the sale of such land subject to the 
     qualified conservation easement,
     shall result in the imposition of an additional tax in the 
     amount of the tax which would have been due on the retained 
     development rights subject to such agreement. Such additional 
     tax shall be due and payable on the last day of the 6th month 
     following such date.
       ``(D) Development right defined.--For purposes of this 
     paragraph, the term `development right' means any right to 
     use the land subject to the qualified conservation easement 
     in which such right is retained for any commercial purpose 
     which is not subordinate to and directly supportive of the 
     use of such land as a farm for farming purposes (within the 
     meaning of section 6420(c)).
       ``(4) Election.--The election under this subsection shall 
     be made on the return of the tax imposed by section 2001. 
     Such an election, once made, shall be irrevocable.
       ``(5) Calculation of estate tax due.--An executor making 
     the election described in paragraph (4) shall, for purposes 
     of calculating the amount of tax imposed by section 2001, 
     include the value of any development right (as defined in 
     paragraph (3)) retained by the donor in the conveyance of 
     such qualified conservation easement. The computation of tax 
     on any retained development right prescribed in this 
     paragraph shall be done in such manner and on such forms as 
     the Secretary shall prescribe.
       ``(6) Definitions.--For purposes of this subsection--
       ``(A) Land subject to a qualified conservation easement.--
     The term `land subject to a qualified conservation easement' 
     means land--
       ``(i) which is located--

       ``(I) in or within 25 miles of an area which, on the date 
     of the decedent's death, is a metropolitan area (as defined 
     by the Office of Management and Budget),
       ``(II) in or within 25 miles of an area which, on the date 
     of the decedent's death, is a national park or wilderness 
     area designated as part of the National Wilderness 
     Preservation System (unless it is determined by the Secretary 
     that land in or within 25 miles of such a park or wilderness 
     area is not under significant development pressure), or
       ``(III) in or within 10 miles of an area which, on the date 
     of the decedent's death, is an Urban National Forest (as 
     designated by the Forest Service),

       ``(ii) which was owned by the decedent or a member of the 
     decedent's family at all times during the 3-year period 
     ending on the date of the decedent's death, and
       ``(iii) with respect to which a qualified conservation 
     easement has been made by the decedent or a member of the 
     decedent's family.
       ``(B) Qualified conservation easement.--The term `qualified 
     conservation easement' means a qualified conservation 
     contribution (as defined in section 170(h)(1)) of a qualified 
     real property interest (as defined in section 170(h)(2)(C)), 
     except that clause (iv) of section 170(h)(4)(A) shall not 
     apply, and the restriction on the use of such interest 
     described in section 170(h)(2)(C) shall include a prohibition 
     on commercial recreational activity.
       ``(C) Member of family.--The term `member of the decedent's 
     family' means any member of the family (as defined in section 
     2032A(e)(2)) of the decedent.
       ``(7) Application of this section to interests in 
     partnerships, corporations, and trusts.--This section shall 
     apply to an interest in a partnership, corporation, or trust 
     if at least 30 percent of the entity is owned (directly or 
     indirectly) by the decedent, as determined under the rules 
     described in section 2033A(e)(3).''.
       (b) Carryover Basis.--Section 1014(a) (relating to basis of 
     property acquired from a decedent) is amended by striking the 
     period at the end of paragraph (3) and inserting ``, or'' and 
     by adding after paragraph (3) the following new paragraph:
       ``(4) to the extent of the applicability of the exclusion 
     described in section 2031(c), the basis in the hands of the 
     decedent.''.
       (c) Qualified Conservation Contribution Is Not a 
     Disposition.--Subsection (c) of section 2032A (relating to 
     alternative valuation method) is amended by adding at the end 
     the following new paragraph:
       ``(8) Qualified conservation contribution is not a 
     disposition.--A qualified conservation contribution (as 
     defined in section 170(h)) by gift or otherwise shall not be 
     deemed a disposition under subsection (c)(1)(A).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to estates of decedents dying after December 31, 
     1995.

     SEC. 11074. EXPANSION OF EXCEPTION FROM GENERATION-SKIPPING 
                   TRANSFER TAX FOR TRANSFERS TO INDIVIDUALS WITH 
                   DECEASED PARENTS.

       (a) In General.--Section 2651 (relating to generation 
     assignment) is amended by redesignating subsection (e) as 
     subsection (f), and by inserting after subsection (d) the 
     following new subsection:
       ``(e) Special Rule for Persons With a Deceased Parent.--
       ``(1) In general.--For purposes of determining whether any 
     transfer is a generation-skipping transfer, if--
       ``(A) an individual is a descendant of a parent of the 
     transferor (or the transferor's spouse or former spouse), and
       ``(B) such individual's parent who is a lineal descendant 
     of the parent of the transferor (or the transferor's spouse 
     or former spouse) is dead at the time the transfer (from 
     which an interest of such individual is established or 
     derived) is subject to a tax imposed by chapter 11 or 12 upon 
     the transferor (and if there shall be more than 1 such time, 
     then at the earliest such time),

     such individual shall be treated as if such individual were a 
     member of the generation which is 1 generation below the 
     lower of the transferor's generation or the generation 
     assignment of the youngest living ancestor of such individual 
     who is also a descendant of the parent of the transferor (or 
     the transferor's spouse or former spouse), and the generation 
     assignment of any descendant of such individual shall be 
     adjusted accordingly.
       ``(2) Limited application of subsection to collateral 
     heirs.--This subsection shall not apply with respect to a 
     transfer to any individual who is not a lineal descendant of 
     the transferor (or the transferor's spouse or former spouse) 
     if, at the time of the transfer, such transferor has any 
     living lineal descendant.''
       (b) Conforming Amendments.--
       (1) Section 2612(c) (defining direct skip) is amended by 
     striking paragraph (2) and by redesignating paragraph (3) as 
     paragraph (2).
       (2) Section 2612(c)(2) (as so redesignated) is amended by 
     striking ``section 2651(e)(2)'' and inserting ``section 
     2651(f)(2)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to terminations, distributions, and transfers 
     occurring after December 31, 1994.

     SEC. 11075. EXTENSION OF TREATMENT OF CERTAIN RENTS UNDER 
                   SECTION 2032A TO LINEAL DESCENDANTS.

       (a) General Rule.--Paragraph (7) of section 2032A(c) 
     (relating to special rules for tax treatment of dispositions 
     and failures to use for qualified use) is amended by adding 
     at the end the following new subparagraph:
       ``(E) Certain rents treated as qualified use.--For purposes 
     of this subsection, a surviving spouse or lineal descendant 
     of the decedent shall not be treated as failing to use 
     qualified real property in a qualified use solely because 
     such spouse or descendant rents such property to a member of 
     the family of such spouse or descendant on a net cash basis. 
     For purposes of the preceding sentence, a legally adopted 
     child of an individual shall be treated as the child of such 
     individual by blood.''.
       (b) Conforming Amendment.--Section 2032A(b)(5)(A) is 
     amended by striking out the last sentence.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to leases entered into after 
     December 31, 1995.
              Subtitle E--Extension of Expiring Provisions

                    CHAPTER 1--TEMPORARY EXTENSIONS

     SEC. 11111. WORK OPPORTUNITY TAX CREDIT.

       (a) Amount of Credit.--Subsection (a) of section 51 
     (relating to amount of credit) is amended by striking ``40 
     percent'' and inserting ``35 percent''.
       (b) Members of Targeted Groups.--Subsection (d) of section 
     51 is amended to read as follows:
       ``(d) Members of Targeted Groups.--For purposes of this 
     subpart--
       ``(1) In general.--An individual is a member of a targeted 
     group if such individual is--
       ``(A) a qualified IV-A recipient,
       ``(B) a qualified veteran,
       ``(C) a qualified ex-felon,
       ``(D) a high-risk youth,
       ``(E) a vocational rehabilitation referral, or
       ``(F) a qualified summer youth employee.
       ``(2) Qualified IV-A recipient.--
       ``(A) In general.--The term `qualified IV-A recipient' 
     means any individual who is certified by the designated local 
     agency as being a member of a family receiving assistance 
     under a IV-A program for at least a 9-month period ending 
     during the 9-month period ending on the hiring date.
       ``(B) IV-A program.--For purposes of this paragraph, the 
     term `IV-A program' means any program providing assistance 
     under a State plan approved under part A of title IV of the 
     Social Security Act (relating to assistance for needy 
     families with minor children) and any successor of such 
     program.
       ``(3) Qualified veteran.--
       ``(A) In general.--The term `qualified veteran' means any 
     veteran who is certified by the designated local agency as 
     being--
       ``(i) a member of a family receiving assistance under a IV-
     A program (as defined in paragraph (2)(B)) for at least a 9-
     month period ending during the 12-month period ending on the 
     hiring date, or
       ``(ii) a member of a family receiving assistance under a 
     food stamp program under the Food Stamp Act of 1977 for at 
     least a 3-month period ending during the 12-month period 
     ending on the hiring date.
       ``(B) Veteran.--For purposes of subparagraph (A), the term 
     `veteran' means any individual who is certified by the 
     designated local agency as--
       ``(i)(I) having served on active duty (other than active 
     duty for training) in the Armed Forces of the United States 
     for a period of more than 180 days, or
       ``(II) having been discharged or released from active duty 
     in the Armed Forces of the United States for a service-
     connected disability, and

[[Page H 12648]]

       ``(ii) not having any day during the 60-day period ending 
     on the hiring date which was a day of extended active duty in 
     the Armed Forces of the United States.

     For purposes of clause (ii), the term `extended active duty' 
     means a period of more than 90 days during which the 
     individual was on active duty (other than active duty for 
     training).
       ``(4) Qualified ex-felon.--The term `qualified ex-felon' 
     means any individual who is certified by the designated local 
     agency--
       ``(A) as having been convicted of a felony under any 
     statute of the United States or any State,
       ``(B) as having a hiring date which is not more than 1 year 
     after the last date on which such individual was so convicted 
     or was released from prison, and
       ``(C) as being a member of a family which had an income 
     during the 6 months immediately preceding the earlier of the 
     month in which such income determination occurs or the month 
     in which the hiring date occurs, which, on an annual basis, 
     would be 70 percent or less of the Bureau of Labor Statistics 
     lower living standard.

     Any determination under subparagraph (C) shall be valid for 
     the 45-day period beginning on the date such determination is 
     made.
       ``(5) High-risk youth.--
       ``(A) In general.--The term `high-risk youth' means any 
     individual who is certified by the designated local agency--
       ``(i) as having attained age 18 but not age 25 on the 
     hiring date, and
       ``(ii) as having his principal place of abode within an 
     empowerment zone or enterprise community.
       ``(B) Youth must continue to reside in zone.--In the case 
     of a high-risk youth, the term `qualified wages' shall not 
     include wages paid or incurred for services performed while 
     such youth's principal place of abode is outside an 
     empowerment zone or enterprise community.
       ``(6) Vocational rehabilitation referral.--The term 
     `vocational rehabilitation referral' means any individual who 
     is certified by the designated local agency as--
       ``(A) having a physical or mental disability which, for 
     such individual, constitutes or results in a substantial 
     handicap to employment, and
       ``(B) having been referred to the employer upon completion 
     of (or while receiving) rehabilitative services pursuant to--
       ``(i) an individualized written rehabilitation plan under a 
     State plan for vocational rehabilitation services approved 
     under the Rehabilitation Act of 1973, or
       ``(ii) a program of vocational rehabilitation carried out 
     under chapter 31 of title 38, United States Code.
       ``(7) Qualified summer youth employee.--
       ``(A) In general.--The term `qualified summer youth 
     employee' means any individual--
       ``(i) who performs services for the employer between May 1 
     and September 15,
       ``(ii) who is certified by the designated local agency as 
     having attained age 16 but not 18 on the hiring date (or if 
     later, on May 1 of the calendar year involved),
       ``(iii) who has not been an employee of the employer during 
     any period prior to the 90-day period described in 
     subparagraph (B)(i), and
       ``(iv) who is certified by the designated local agency as 
     having his principal place of abode within an empowerment 
     zone or enterprise community.
       ``(B) Special rules for determining amount of credit.--For 
     purposes of applying this subpart to wages paid or incurred 
     to any qualified summer youth employee--
       ``(i) subsection (b)(2) shall be applied by substituting 
     `any 90-day period between May 1 and September 15' for `the 
     1-year period beginning with the day the individual begins 
     work for the employer', and
       ``(ii) subsection (b)(3) shall be applied by substituting 
     `$3,000' for `$6,000'.
     The preceding sentence shall not apply to an individual who, 
     with respect to the same employer, is certified as a member 
     of another targeted group after such individual has been a 
     qualified summer youth employee.
       ``(C) Youth must continue to reside in zone.--Paragraph 
     (5)(B) shall apply for purposes of this paragraph.
       ``(8) Hiring date.--The term `hiring date' means the day 
     the individual is hired by the employer.
       ``(9) Designated local agency.--The term `designated local 
     agency' means a State employment security agency established 
     in accordance with the Act of June 6, 1933, as amended (29 
     U.S.C. 49-49n).
       ``(10) Special rules for certifications.--
       ``(A) In general.--An individual shall not be treated as a 
     member of a targeted group unless--
       ``(i) on or before the day on which such individual begins 
     work for the employer, the employer has received a 
     certification from a designated local agency that such 
     individual is a member of a targeted group, or
       ``(ii)(I) on or before the day the individual is offered 
     employment with the employer, a pre-screening notice is 
     completed by the employer with respect to such individual, 
     and
       ``(II) not later than the 14th day after the individual 
     begins work for the employer, the employer submits such 
     notice, signed by the employer and the individual under 
     penalties of perjury, to the designated local agency as part 
     of a written request for such a certification from such 
     agency.
     For purposes of this paragraph, the term `pre-screening 
     notice' means a document (in such form as the Secretary shall 
     prescribe) which contains information provided by the 
     individual on the basis of which the employer believes that 
     the individual is a member of a targeted group.
       ``(B) Incorrect certifications.--If--
       ``(i) an individual has been certified by a designated 
     local agency as a member of a targeted group, and
       ``(ii) such certification is incorrect because it was based 
     on false information provided by such individual,

     the certification shall be revoked and wages paid by the 
     employer after the date on which notice of revocation is 
     received by the employer shall not be treated as qualified 
     wages.
       ``(C) Explanation of denial of request.--If a designated 
     local agency denies a request for certification of membership 
     in a targeted group, such agency shall provide to the person 
     making such request a written explanation of the reasons for 
     such denial.''
       (c) Minimum Employment Period.--Paragraph (3) of section 
     51(i) (relating to certain individuals ineligible) is amended 
     to read as follows:
       ``(3) Individuals not meeting minimum employment period.--
     No wages shall be taken into account under subsection (a) 
     with respect to any individual unless such individual 
     either--
       ``(A) is employed by the employer at least 180 days (20 
     days in the case of a qualified summer youth employee), or
       ``(B) has completed at least 500 hours (120 hours in the 
     case of a qualified summer youth employee) of services 
     performed for the employer.''
       (d) Termination.--Paragraph (4) of section 51(c) (relating 
     to wages defined) is amended to read as follows:
       ``(4) Termination.--The term `wages' shall not include any 
     amount paid or incurred to an individual who begins work for 
     the employer--
       ``(A) after December 31, 1994, and before January 1, 1996, 
     or
       ``(B) after December 31, 1996.''
       (e) Redesignation of Credit.--
       (1) Sections 38(b)(2) and 51(a) are each amended by 
     striking ``targeted jobs credit'' and inserting ``work 
     opportunity credit''.
       (2) The subpart heading for subpart F of part IV of 
     subchapter A of chapter 1 is amended by striking ``Targeted 
     Jobs Credit'' and inserting ``Work Opportunity Credit''.
       (3) The table of subparts for such part IV is amended by 
     striking ``targeted jobs credit'' and inserting ``work 
     opportunity credit''.
       (4) The heading for paragraph (3) of section 1396(c) is 
     amended by striking ``targeted jobs credit'' and inserting 
     ``work opportunity credit''.
       (f) Technical Amendments.--
       (1) Paragraph (1) of section 51(c) is amended by striking 
     ``, subsection (d)(8)(D),''.
       (2) Paragraph (3) of section 51(i) is amended by striking 
     ``(d)(12)'' each place it appears and inserting ``(d)(6)''.
       (g) Effective Date.--The amendments made by this section 
     shall apply to individuals who begin work for the employer 
     after December 31, 1995.

     SEC. 11112. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE 
                   PROGRAMS.

       (a) Extension.--Subsection (d) of section 127 (relating to 
     educational assistance programs) is amended by striking 
     ``December 31, 1994'' and inserting ``December 31, 1996''.
       (b) Limitation to Education Below Graduate Level.--The last 
     sentence of section 127(c)(1) is amended by inserting before 
     the period ``or at the graduate level''.
       (c) Effective Dates.--
       (1) Extension.--The amendment made by subsection (a) shall 
     apply to taxable years beginning after December 31, 1994.
       (2) Limitation.--The amendment made by subsection (b) shall 
     apply to taxable years beginning after December 31, 1995.

     SEC. 11113. RESEARCH CREDIT.

       (a) In General.--Subsection (h) of section 41 (relating to 
     credit for research activities) is amended--
       (1) by striking ``June 30, 1995'' each place it appears and 
     inserting ``December 31, 1996'', and
       (2) by striking ``July 1, 1995'' each place it appears and 
     inserting ``January 1, 1997''.
       (b) Base Amount for Start-up Companies.--Clause (i) of 
     section 41(c)(3)(B) (relating to start-up companies) is 
     amended to read as follows:
       ``(i)  Taxpayers to which subparagraph applies.--The fixed-
     base percentage shall be determined under this subparagraph 
     if--

       ``(I) the first taxable year in which a taxpayer had both 
     gross receipts and qualified research expenses begins after 
     December 31, 1983, or
       ``(II) there are fewer than 3 taxable years beginning after 
     December 31, 1983, and before January 1, 1989, in which the 
     taxpayer had both gross receipts and qualified research 
     expenses.''.

       (c) Election of Alternative Incremental Credit.--Subsection 
     (c) of section 41 is amended by redesignating paragraphs (4) 
     and (5) as paragraphs (5) and (6), respectively, and by 
     inserting after paragraph (3) the following new paragraph:
       ``(4) Election of alternative incremental credit.--
       ``(A) In general.--At the election of the taxpayer, the 
     credit determined under subsection (a)(1) shall be equal to 
     the sum of--
       ``(i) 1.65 percent of so much of the qualified research 
     expenses for the taxable year as exceeds 1 percent of the 
     average described in subsection (c)(1)(B) but does not exceed 
     1.5 percent of such average,
       ``(ii) 2.2 percent of so much of such expenses as exceeds 
     1.5 percent of such average but does not exceed 2 percent of 
     such average, and
       ``(iii) 2.75 percent of so much of such expenses as exceeds 
     2 percent of such average.
       ``(B) Election.--An election under this paragraph may be 
     made only for the first taxable year of the taxpayer 
     beginning after June 30, 1995. Such an election shall apply 
     to the taxable year for which made and all succeeding taxable 
     years unless revoked with the consent of the Secretary.''

[[Page H 12649]]

       (d) Increased Credit for Contract Research Expenses With 
     Respect to Certain Research Consortia.--Paragraph (3) of 
     section 41(b) is amended by adding at the end the following 
     new subparagraph:
       ``(C) Amounts paid to certain research consortia.--
       ``(i) In general.--Subparagraph (A) shall be applied by 
     substituting `75 percent' for `65 percent' with respect to 
     amounts paid or incurred by the taxpayer to a qualified 
     research consortium for qualified research.
       ``(ii) Qualified research consortium.--The term `qualified 
     research consortium' means any organization described in 
     subsection (e)(6)(B) if--

       ``(I) at least 15 unrelated taxpayers paid (during the 
     calendar year in which the taxable year of the taxpayer 
     begins) amounts to such organization for qualified research,
       ``(II) no 3 persons paid during such calendar year more 
     than 50 percent of the total amounts paid during such 
     calendar year for qualified research, and
       ``(III) no person contributed more than 20 percent of such 
     total amounts.

     For purposes of subclause (I), all persons treated as a 
     single employer under subsection (a) or (b) of section 52 
     shall be treated as related taxpayers.''
       (e)  Conforming amendment.--Subparagraph (D) of section 
     28(b)(1) is amended by striking ``June 30, 1995'' and 
     inserting ``December 31, 1996''.
       (f) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     ending after June 30, 1995.
       (2) Subsections (c) and (d).--The amendments made by 
     subsections (c) and (d) shall apply to taxable years 
     beginning after June 30, 1995.

     SEC. 11114. ORPHAN DRUG TAX CREDIT.

       (a) Recategorized as a Business Credit.--
       (1) In general.--Section 28 (relating to clinical testing 
     expenses for certain drugs for rare diseases or conditions) 
     is transferred to subpart D of part IV of subchapter A of 
     chapter 1, inserted after section 45B, and redesignated as 
     section 45C.
       (2) Conforming amendment.--Subsection (b) of section 38 
     (relating to general business credit) is amended by striking 
     ``plus'' at the end of paragraph (10), by striking the period 
     at the end of paragraph (11) and inserting ``, plus'', and by 
     adding at the end the following new paragraph:
       ``(12) the orphan drug credit determined under section 
     45C(a).''.
       (3) Clerical amendments.--
       (A) The table of sections for subpart B of such part IV is 
     amended by striking the item relating to section 28.
       (B) The table of sections for subpart D of such part IV is 
     amended by adding at the end the following new item:

``Sec. 45C. Clinical testing expenses for certain drugs for rare 
              diseases or conditions.''.

       (b) Credit Termination.--Subsection (e) of section 45C, as 
     redesignated by subsection (a)(1), is amended by striking 
     ``December 31, 1994'' and inserting ``December 31, 1996''.
       (c) No Pre-1995 Carrybacks.--Subsection (d) of section 39 
     (relating to carryback and carryforward of unused credits) is 
     amended by adding at the end the following new paragraph:
       ``(7) No carryback of section 45C credit before 1995.--No 
     portion of the unused business credit for any taxable year 
     which is attributable to the orphan drug credit determined 
     under section 45C may be carried back to a taxable year 
     beginning before January 1, 1995.''.
       (d) Additional Conforming Amendments.--
       (1) Section 45C(a), as redesignated by subsection (a)(1), 
     is amended by striking ``There shall be allowed as a credit 
     against the tax imposed by this chapter for the taxable 
     year'' and inserting ``For purposes of section 38, the credit 
     determined under this section for the taxable year is''.
       (2) Section 45C(d), as so redesignated, is amended by 
     striking paragraph (2) and by redesignating paragraphs (3), 
     (4), and (5) as paragraphs (2), (3), and (4).
       (3) Section 29(b)(6)(A) is amended by striking ``sections 
     27 and 28'' and inserting ``section 27''.
       (4) Section 30(b)(3)(A) is amended by striking ``sections 
     27, 28, and 29'' and inserting ``sections 27 and 29''.
       (5) Section 53(d)(1)(B) is amended--
       (A) by striking ``or not allowed under section 28 solely by 
     reason of the application of section 28(d)(2)(B),'' in clause 
     (iii), and
       (B) by striking ``or not allowed under section 28 solely by 
     reason of the application of section 28(d)(2)(B)'' in clause 
     (iv)(II).
       (6) Section 55(c)(2) is amended by striking ``28(d)(2),''.
       (7) Section 280C(b) is amended--
       (A) by striking ``section 28(b)'' in paragraph (1) and 
     inserting ``section 45C(b)'',
       (B) by striking ``section 28'' in paragraphs (1) and (2)(A) 
     and inserting ``section 45C(b)'', and
       (C) by striking ``subsection (d)(2) thereof'' in paragraphs 
     (1) and (2)(A) and inserting ``section 38(c)''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after December 31, 1994.

     SEC. 11115. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDATIONS.

       (a) In General.--Subparagraph (D) of section 170(e)(5) 
     (relating to special rule for contributions of stock for 
     which market quotations are readily available) is amended by 
     striking ``December 31, 1994'' and inserting ``December 31, 
     1996''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after December 31, 1994.

     SEC. 11116. DELAY OF TAX ON FUEL USED IN COMMERCIAL AVIATION.

       (a) In General.--Sections 4092(b)(2), 6421(f)(2)(B), and 
     6427(l)(4)(B) are each amended by striking ``September 30, 
     1995'' and inserting ``September 30, 1997''.
       (b) Conforming Amendment.--Section 13245 of the Omnibus 
     Budget Reconciliation Act of 1993 is hereby repealed.
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     take effect after September 30, 1995, but shall not take 
     effect if section 11117 does not take effect.
       (2) Cross reference.--

  For refund of tax paid on commercial aviation fuel before the date of 
the enactment of this Act, see section 6427(l) of the Internal Revenue 
Code of 1986.

       (d) Floor Stocks Tax.--
       (1) Imposition of tax.--In the case of commercial aviation 
     fuel which is held by any person on October 1, 1997, there is 
     hereby imposed a floor stocks tax equal to 4.3 cents per 
     gallon.
       (2) Liability for tax and method of payment.--
       (A) Liability for tax.--A person holding aviation fuel on 
     October 1, 1997, to which the tax imposed by paragraph (1) 
     applies shall be liable for such tax.
       (B) Method of payment.--The tax imposed by paragraph (1) 
     shall be paid in such manner as the Secretary shall 
     prescribe.
       (C) Time for payment.--The tax imposed by paragraph (1) 
     shall be paid on or before April 30, 1998.
       (3) Definitions.--For purposes of this subsection--
       (A) Held by a person.--Aviation fuel shall be considered as 
     ``held by a person'' if title thereto has passed to such 
     person (whether or not delivery to the person has been made).
       (B) Commercial aviation fuel.--The term ``commercial 
     aviation fuel'' means aviation fuel (as defined in section 
     4093 of such Code) which is held on October 1, 1997, for sale 
     or use in commercial aviation (as defined in section 4092(b) 
     of such Code).
       (C) Secretary.--The term ``Secretary'' means the Secretary 
     of the Treasury or the Secretary's delegate.
       (4) Exception for exempt uses.--The tax imposed by 
     paragraph (1) shall not apply to aviation fuel held by any 
     person exclusively for any use for which a credit or refund 
     of the entire tax imposed by section 4091 of such Code (other 
     than the rate imposed by section 4091(b)(2) of such Code) is 
     allowable for aviation fuel so used.
       (5) Exception for certain amounts of fuel.--
       (A) In general.--No tax shall be imposed by paragraph (1) 
     on aviation fuel held on October 1, 1997, by any person if 
     the aggregate amount of commercial aviation fuel held by such 
     person on such date does not exceed 2,000 gallons. The 
     preceding sentence shall apply only if such person submits to 
     the Secretary (at the time and in the manner required by the 
     Secretary) such information as the Secretary shall require 
     for purposes of this paragraph.
       (B) Exempt fuel.--For purposes of subparagraph (A), there 
     shall not be taken into account fuel held by any person which 
     is exempt from the tax imposed by paragraph (1) by reason of 
     paragraph (4).
       (C) Controlled groups.--For purposes of this paragraph--
       (i) Corporations.--

       (I) In general.--All persons treated as a controlled group 
     shall be treated as 1 person.
       (II) Controlled group.--The term ``controlled group'' has 
     the meaning given to such term by subsection (a) of section 
     1563 of such Code; except that for such purposes the phrase 
     ``more than 50 percent'' shall be substituted for the phrase 
     ``at least 80 percent'' each place it appears in such 
     subsection.

       (ii) Nonincorporated persons under common control.--Under 
     regulations prescribed by the Secretary, principles similar 
     to the principles of clause (i) shall apply to a group of 
     persons under common control where 1 or more of such persons 
     is not a corporation.
       (6) Other laws applicable.--All provisions of law, 
     including penalties, applicable with respect to the taxes 
     imposed by section 4091 of such Code shall, insofar as 
     applicable and not inconsistent with the provisions of this 
     subsection, apply with respect to the floor stock taxes 
     imposed by paragraph (1) to the same extent as if such taxes 
     were imposed by such section 4091.

     SEC. 11117. EXTENSION OF AIRPORT AND AIRWAY TRUST FUND EXCISE 
                   TAXES.

       (a) Fuel Tax.--
       (1) Subparagraph (A) of section 4091(b)(3) is amended by 
     striking ``January 1, 1996'' and inserting ``October 1, 
     1996''.
       (2) Paragraph (2) of section 4081(d), as amended by section 
     11651 of this Act, is amended by striking ``January 1, 1996'' 
     and inserting ``October 1, 1996''.
       (b) Ticket Taxes.--Sections 4261(g) and 4271(d) are each 
     amended by striking ``January 1, 1996'' and inserting 
     ``October 1, 1996''.
       (c) Transfer to Airport and Airway Trust Fund.--
       (1) Subsection (b) of section 9502 is amended by striking 
     ``January 1, 1996'' each place it appears and inserting 
     ``October 1, 1996''.
       (2) Paragraph (3) of section 9502(f) is amended by striking 
     ``December 31, 1995'' and inserting ``September 30, 1996''.

     SEC. 11118. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.

       Subsection (c) of section 10511 of the Revenue Act of 1987 
     is amended by striking ``October 1, 2000'' and by inserting 
     ``October 1, 2002''.

[[Page H 12650]]


             CHAPTER 2--SUNSET OF LOW-INCOME HOUSING CREDIT

     SEC. 11121. SUNSET OF LOW-INCOME HOUSING CREDIT.

       (a) Repeal of Reallocation of Unused Credits Among 
     States.--Subparagraph (D) of section 42(h)(3) is amended by 
     adding at the end the following new clause:
       ``(v) Termination.--No amount may be allocated under this 
     paragraph for any calendar year after 1995.''
       (b) Termination.--Section 42 is amended by adding at the 
     end the following new subsection:
       ``(o) Termination.--
       ``(1) In general.--Except as provided in paragraph (2)--
       ``(A) clause (i) of subsection (h)(3)(C) shall not apply to 
     any amount allocated after December 31, 1997, and
       ``(B) subsection (h)(4) shall not apply to any building 
     placed in service after such date.
       ``(2) Exception for bond-financed buildings in progress.--
     For purposes of paragraph (1)(B), a building shall be treated 
     as placed in service before January 1, 1998, if--
       ``(A) the bonds with respect to such building are issued 
     before such date,
       ``(B) the taxpayer's basis in the project (of which the 
     building is a part) as of December 31, 1997, is more than 10 
     percent of the taxpayer's reasonably expected basis in such 
     project as of December 31, 1999, and
       ``(C) such building is placed in service before January 1, 
     2000.''

    CHAPTER 3--EXTENSIONS OF SUPERFUND AND OIL SPILL LIABILITY TAXES

     SEC. 11131. EXTENSION OF HAZARDOUS SUBSTANCE SUPERFUND TAXES.

       (a) Extension of Taxes.--
       (1) Environmental tax.--Section 59A(e) is amended to read 
     as follows:
       ``(e) Application of Tax.--The tax imposed by this section 
     shall apply to taxable years beginning after December 31, 
     1986, and before January 1, 1997.''.
       (2) Excise taxes.--Section 4611(e) is amended to read as 
     follows:
       ``(e) Application of Hazardous Substance Superfund 
     Financing Rate.--The Hazardous Substance Superfund financing 
     rate under this section shall apply after December 31, 1986, 
     and before October 1, 1996.''.
       (b) Termination on Deposits of Taxes into Hazardous 
     Substance Superfund.--Paragraph (1) of section 9507(b) is 
     amended by inserting ``before August 1, 1996'' after 
     ``received''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 11132. EXTENSION OF OIL SPILL LIABILITY TAX.

       (a) In General.--Section 4611(f)(1) (relating to 
     application of oil spill liability trust fund financing rate) 
     is amended by striking ``after December 31, 1989, and before 
     January 1, 1995'' and inserting ``after December 31, 1995, 
     and before October 1, 2002''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on January 1, 1996.

              CHAPTER 4--EXTENSIONS RELATING TO FUEL TAXES

     SEC. 11141. ETHANOL BLENDER REFUNDS.

       (a) In General.--Paragraph (4) of section 6427(f) (relating 
     to gasoline, diesel fuel, and aviation fuel used to produce 
     certain alcohol fuels) is amended by striking ``1995'' and 
     inserting ``1999''.
       (b) Special Rule.--With respect to refund claims which 
     could have been filed under section 6427(f) of the Internal 
     Revenue Code of 1986 during the period beginning on October 
     8, 1995, and ending on the date of the enactment of this Act, 
     but for the expiration of such section after September 30, 
     1995, interest shall accrue on such claims from the date 
     which is the later of--
       (1) November 1, 1995, or
       (2) 20 days after the claim could have been filed under 
     such section as in effect on September 30, 1995.
       (c) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of the enactment of this Act.

     SEC. 11142. EXTENSION OF BINDING CONTRACT DATE FOR BIOMASS 
                   AND COAL FACILITIES.

       (a) In General.--Subparagraph (A) of section 29(g)(1) 
     (relating to extension of certain facilities) is amended by 
     striking ``January 1, 1997'' and inserting ``January 1, 
     1998'' and by striking ``January 1, 1996'' and inserting 
     ``July 1, 1996''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 11143. EXEMPTION FROM DIESEL FUEL DYEING REQUIREMENTS 
                   WITH RESPECT TO CERTAIN STATES.

       (a) In General.--Section 4082 (relating to exemptions for 
     diesel fuel) is amended by redesignating subsections (c) and 
     (d) as subsections (d) and (e), respectively, and by 
     inserting after subsection (b) the following new subsection:
       ``(c) Exception to Dyeing Requirements.--Paragraph (2) of 
     subsection (a) shall not apply with respect to any diesel 
     fuel--
       ``(1) removed, entered, or sold in a State for ultimate 
     sale or use in an area of such State on or after the date on 
     which such area is exempted from the fuel dyeing requirements 
     under subsection (i) of section 211 of the Clean Air Act (as 
     in effect on the date of the enactment of this subsection) by 
     the Administrator of the Environmental Protection Agency 
     under paragraph (4) of such subsection (i) (as so in effect), 
     and
       ``(2) the use of which is certified pursuant to regulations 
     issued by the Secretary.''
       (b) Effective Date.--The amendments made by this section 
     shall take effect on the first day of the first calendar 
     quarter beginning after the date of the enactment of this 
     Act.

     SEC. 11144. MORATORIUM FOR EXCISE TAX ON DIESEL FUEL SOLD FOR 
                   USE OR USED IN DIESEL-POWERED MOTORBOATS.

       (a) In General.--Subparagraph (D) of section 4041(a)(1) 
     (relating to the imposition of tax on diesel fuel and special 
     motor fuels) is amended to read as follows:
       ``(D) Diesel fuel used in motorboats.--
       ``(i) Moratorium.--No tax shall be imposed by subsection 
     (a) or (d)(1) on diesel fuel sold for use or used in a 
     diesel-powered motorboat during the period after December 31, 
     1995, and before July 1, 1997.
       ``(ii) Special termination date.--In the case of any sale 
     for use, or use, of fuel in a diesel-powered motorboat--

       ``(I) effective during the period after September 30, 1999, 
     and before January 1, 2000, the rate of tax imposed by this 
     paragraph is 24.3 cents per gallon, and
       ``(II) the termination of the tax under subsection (d) 
     shall not occur before January 1, 2000.''.

       (b) Effective Date.--The amendments made by this section 
     shall take effect after December 31, 1995.

CHAPTER 5--PERMANENT EXTENSION OF FUTA EXEMPTION FOR ALIEN AGRICULTURAL 
                                WORKERS

     SEC. 11151. FUTA EXEMPTION FOR ALIEN AGRICULTURAL WORKERS.

       (a) In General.--Subparagraph (B) of section 3306(c)(1) 
     (defining employment) is amended by striking ``before January 
     1, 1995,''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to services performed after December 31, 1994.

   CHAPTER 6--DISCLOSURE OF RETURN INFORMATION FOR ADMINISTRATION OF 
                       CERTAIN VETERANS PROGRAMS

     SEC. 11161. DISCLOSURE OF RETURN INFORMATION FOR 
                   ADMINISTRATION OF CERTAIN VETERANS PROGRAMS.

       (a) General Rule.--Subparagraph (D) of section 6103(l)(7) 
     (relating to disclosure of return information to Federal, 
     State, and local agencies administering certain programs) is 
     amended by striking ``Clause (viii) shall not apply after 
     September 30, 1998.'' and inserting ``Clause (viii) shall not 
     apply after September 30, 2002.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of the enactment of this Act.
            Subtitle F--Taxpayer Bill of Rights 2 Provisions

     SEC. 11201. EXPANSION OF AUTHORITY TO ABATE INTEREST.

       (a) General Rule.--Paragraph (1) of section 6404(e) 
     (relating to abatement of interest in certain cases) is 
     amended--
       (1) by inserting ``unreasonable'' before ``error'' each 
     place it appears in subparagraphs (A) and (B), and
       (2) by striking ``in performing a ministerial act'' each 
     place it appears and inserting ``in performing a ministerial 
     or managerial act''.
       (b) Clerical Amendment.--The subsection heading for 
     subsection (e) of section 6404 is amended--
       (1) by striking ``Assessments'' and inserting 
     ``Abatement'', and
       (2) by inserting ``Unreasonable'' before ``Errors''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to interest accruing with respect to deficiencies 
     or payments for taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 11202. EXTENSION OF INTEREST-FREE PERIOD FOR PAYMENT OF 
                   TAX AFTER NOTICE AND DEMAND.

       (a) General Rule.--Paragraph (3) of section 6601(e) 
     (relating to payments made within 10 days after notice and 
     demand) is amended to read as follows:
       ``(3) Payments made within specified period after notice 
     and demand.--If notice and demand is made for payment of any 
     amount and if such amount is paid within 21 calendar days (10 
     business days if the amount for which such notice and demand 
     is made equals or exceeds $100,000) after the date of such 
     notice and demand, interest under this section on the amount 
     so paid shall not be imposed for the period after the date of 
     such notice and demand.''
       (b) Conforming Amendments.--
       (1) Subparagraph (A) of section 6601(e)(2) is amended by 
     striking ``10 days from the date of notice and demand 
     therefor'' and inserting ``21 calendar days from the date of 
     notice and demand therefor (10 business days if the amount 
     for which such notice and demand is made equals or exceeds 
     $100,000)''.
       (2) Paragraph (3) of section 6651(a) is amended by striking 
     ``10 days of the date of the notice and demand therefor'' and 
     inserting ``21 calendar days from the date of notice and 
     demand therefor (10 business days if the amount for which 
     such notice and demand is made equals or exceeds $100,000)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply in the case of any notice and demand given after 
     June 30, 1996.

     SEC. 11203. JOINT RETURN MAY BE MADE AFTER SEPARATE RETURNS 
                   WITHOUT FULL PAYMENT OF TAX.

       (a) General Rule.--Paragraph (2) of section 6013(b) 
     (relating to limitations on filing of joint return after 
     filing separate returns) is amended by striking subparagraph 
     (A) and redesignating the following subparagraphs 
     accordingly.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

[[Page H 12651]]


     SEC. 11204. MODIFICATIONS TO CERTAIN LEVY EXEMPTION AMOUNTS.

       (a) Fuel, Etc.--Paragraph (2) of section 6334(a) (relating 
     to fuel, provisions, furniture, and personal effects exempt 
     from levy) is amended--
       (1) by striking ``If the taxpayer is the head of a family, 
     so'' and inserting ``So'',
       (2) by striking ``his household'' and inserting ``the 
     taxpayer's household'', and
       (3) by striking ``$1,650 ($1,550 in the case of levies 
     issued during 1989)'' and inserting ``$2,500''.
       (b) Books, Etc.--Paragraph (3) of section 6334(a) (relating 
     to books and tools of a trade, business, or profession) is 
     amended by striking ``$1,100 ($1,050 in the case of levies 
     issued during 1989)'' and inserting ``$1,250''.
       (c) Inflation Adjustment.--Section 6334 (relating to 
     property exempt from levy) is amended by adding at the end 
     the following new subsection:
       ``(f) Inflation Adjustment.--
       ``(1) In general.--In the case of any calendar year 
     beginning after 1996, each dollar amount referred to in 
     paragraphs (2) and (3) of subsection (a) shall be increased 
     by an amount equal to--
       ``(A) such dollar amount, multiplied by
       ``(B) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year, by substituting 
     `calendar year 1995' for `calendar year 1992' in subparagraph 
     (B) thereof.
       ``(2) Rounding.--If any dollar amount after being increased 
     under paragraph (1) is not a multiple of $10, such dollar 
     amount shall be rounded to the nearest multiple of $10.''.
       (d) Effective Date.--The amendments made by this section 
     shall take effect with respect to levies issued after 
     December 31, 1995.

     SEC. 11205. OFFERS-IN-COMPROMISE.

       (a) Review Requirements.--Subsection (b) of section 7122 
     (relating to records) is amended by striking ``$500.'' and 
     inserting ``$50,000. However, such compromise shall be 
     subject to continuing quality review by the Secretary.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 11206. INCREASED LIMIT ON ATTORNEY FEES.

       (a) In General.--Paragraph (1) of section 7430(c) (defining 
     reasonable litigation costs) is amended--
       (1) by striking ``$75'' in clause (iii) of subparagraph (B) 
     and inserting ``$110'',
       (2) by striking ``an increase in the cost of living or'' in 
     clause (iii) of subparagraph (B), and
       (3) by adding after clause (iii) the following:
     ``In the case of any calendar year beginning after 1996, the 
     dollar amount referred to in clause (iii) shall be increased 
     by an amount equal to such dollar amount multiplied by the 
     cost-of-living adjustment determined under section 1(f)(3) 
     for such calendar year, by substituting `calendar year 1995' 
     for `calendar year 1992' in subparagraph (B) thereof. If any 
     dollar amount after being increased under the preceding 
     sentence is not a multiple of $10, such dollar amount shall 
     be rounded to the nearest multiple of $10.''
       (b) Effective Date.--The amendment made by this section 
     shall apply in the case of proceedings commenced after the 
     date of the enactment of this Act.

     SEC. 11207. AWARD OF LITIGATION COSTS PERMITTED IN 
                   DECLARATORY JUDGMENT PROCEEDINGS.

       (a) In General.--Subsection (b) of section 7430 is amended 
     by striking paragraph (3) and by redesignating paragraph (4) 
     as paragraph (3).
       (b) Effective Date.--The amendment made by this section 
     shall apply in the case of proceedings commenced after the 
     date of the enactment of this Act.

     SEC. 11208. INCREASE IN LIMIT ON RECOVERY OF CIVIL DAMAGES 
                   FOR UNAUTHORIZED COLLECTION ACTIONS.

       (a) General Rule.--Subsection (b) of section 7433 (relating 
     to damages) is amended by striking ``$100,000'' and inserting 
     ``$1,000,000''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to actions by officers or employees of the 
     Internal Revenue Service after the date of the enactment of 
     this Act.

     SEC. 11209. ENROLLED AGENTS INCLUDED AS THIRD-PARTY 
                   RECORDKEEPERS.

       (a) In General.--Paragraph (3) of section 7609(a) (relating 
     to third-party recordkeeper defined) is amended by striking 
     ``and'' at the end of subparagraph (G), by striking the 
     period at the end of subparagraph (H) and inserting ``; 
     and'', and by adding at the end the following the 
     subparagraph:
       ``(I) any enrolled agent.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to summonses issued after the date of the 
     enactment of this Act.

     SEC. 11210. ANNUAL REMINDERS TO TAXPAYERS WITH OUTSTANDING 
                   DELINQUENT ACCOUNTS.

       (a) In General.--Chapter 77 (relating to miscellaneous 
     provisions) is amended by adding at the end the following new 
     section:

     ``SEC. 7524. ANNUAL NOTICE OF TAX DELINQUENCY.

       ``Not less often than annually, the Secretary shall send a 
     written notice to each taxpayer who has a tax delinquent 
     account of the amount of the tax delinquency as of the date 
     of the notice.''
       (b) Clerical Amendment.--The table of sections for chapter 
     77 is amended by adding at the end the following new item:

``Sec. 7524. Annual notice of tax delinquency.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to calendar years after 1995.
       Subtitle G--Casualty and Involuntary Conversion Provisions

     SEC. 11251. BASIS ADJUSTMENT TO PROPERTY HELD BY CORPORATION 
                   WHERE STOCK IN CORPORATION IS REPLACEMENT 
                   PROPERTY UNDER INVOLUNTARY CONVERSION RULES.

       (a) In General.--Subsection (b) of section 1033 is amended 
     to read as follows:
       ``(b) Basis of Property Acquired Through Involuntary 
     Conversion.--
       ``(1) Conversions described in subsection (a)(1).--If the 
     property was acquired as the result of a compulsory or 
     involuntary conversion described in subsection (a)(1), the 
     basis shall be the same as in the case of the property so 
     converted--
       ``(A) decreased in the amount of any money received by the 
     taxpayer which was not expended in accordance with the 
     provisions of law (applicable to the year in which such 
     conversion was made) determining the taxable status of the 
     gain or loss upon such conversion, and
       ``(B) increased in the amount of gain or decreased in the 
     amount of loss to the taxpayer recognized upon such 
     conversion under the law applicable to the year in which such 
     conversion was made.
       ``(2) Conversions described in subsection (a)(2).--In the 
     case of property purchased by the taxpayer in a transaction 
     described in subsection (a)(2) which resulted in the 
     nonrecognition of any part of the gain realized as the result 
     of a compulsory or involuntary conversion, the basis shall be 
     the cost of such property decreased in the amount of the gain 
     not so recognized; and if the property purchased consists of 
     more than 1 piece of property, the basis determined under 
     this sentence shall be allocated to the purchased properties 
     in proportion to their respective costs.
       ``(3) Property held by corporation the stock of which is 
     replacement property.--
       ``(A) In general.--If the basis of stock in a corporation 
     is decreased under paragraph (2), an amount equal to such 
     decrease shall also be applied to reduce the basis of 
     property held by the corporation at the time the taxpayer 
     acquired control (as defined in subsection (a)(2)(E)) of such 
     corporation.
       ``(B) Limitation.--Subparagraph (A) shall not apply to the 
     extent that it would (but for this subparagraph) require a 
     reduction in the aggregate adjusted bases of the property of 
     the corporation below the taxpayer's adjusted basis of the 
     stock in the corporation (determined immediately after such 
     basis is decreased under paragraph (2)).
       ``(C) Allocation of basis reduction.--The decrease required 
     under subparagraph (A) shall be allocated--
       ``(i) first to property which is similar or related in 
     service or use to the converted property,
       ``(ii) second to depreciable property (as defined in 
     section 1017(b)(3)(B)) not described in clause (i), and
       ``(iii) then to other property.
       ``(D) Special rules.--
       ``(i) Reduction not to exceed adjusted basis of property.--
     No reduction in the basis of any property under this 
     paragraph shall exceed the adjusted basis of such property 
     (determined without regard to such reduction).
       ``(ii) Allocation of reduction among properties.--If more 
     than 1 property is described in a clause of subparagraph (C), 
     the reduction under this paragraph shall be allocated among 
     such property in proportion to the adjusted bases of such 
     property (as so determined).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to involuntary conversions occurring after 
     September 13, 1995.

     SEC. 11252. EXPANSION OF REQUIREMENT THAT INVOLUNTARILY 
                   CONVERTED PROPERTY BE REPLACED WITH PROPERTY 
                   ACQUIRED FROM AN UNRELATED PERSON.

       (a) In General.--Subsection (i) of section 1033 is amended 
     to read as follows:
       ``(i) Replacement Property Must Be Acquired From Unrelated 
     Person in Certain Cases.--
       ``(1) In general.--If the property which is involuntarily 
     converted is held by a taxpayer to which this subsection 
     applies, subsection (a) shall not apply if the replacement 
     property or stock is acquired from a related person. The 
     preceding sentence shall not apply to the extent that the 
     related person acquired the replacement property or stock 
     from an unrelated person during the period applicable under 
     subsection (a)(2)(B).
       ``(2) Taxpayers to which subsection applies.--This 
     subsection shall apply to--
       ``(A) a C corporation,
       ``(B) a partnership in which 1 or more C corporations own, 
     directly or indirectly (determined in accordance with section 
     707(b)(3)), more than 50 percent of the capital interest, or 
     profits interest, in such partnership at the time of the 
     involuntary conversion, and
       ``(C) any other taxpayer if, with respect to property which 
     is involuntarily converted during the taxable year, the 
     aggregate of the amount of realized gain on such property on 
     which there is realized gain exceeds $100,000.
     In the case of a partnership, subparagraph (C) shall apply 
     with respect to the partnership and with respect to each 
     partner. A similar rule shall apply in the case of an S 
     corporation and its shareholders.
       ``(3) Related person.--For purposes of this subsection, a 
     person is related to another person if the person bears a 
     relationship to the other person described in section 267(b) 
     or 707(b)(1).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to involuntary conversions occurring after 
     September 13, 1995.

[[Page H 12652]]


     SEC. 11253. SPECIAL RULE FOR CROP INSURANCE PROCEEDS AND 
                   DISASTER PAYMENTS.

       (a) In General.--Section 451(d) (relating to special rule 
     for crop insurance proceeds and disaster payments) is amended 
     to read as follows:
       ``(d) Special Rule for Crop Insurance Proceeds and Disaster 
     Payments.--
       ``(1) General rule.--In the case of any payment described 
     in paragraph (2), a taxpayer reporting on the cash receipts 
     and disbursements method of accounting--
       ``(A) may elect to treat any such payment received in the 
     taxable year of destruction or damage of crops as having been 
     received in the following taxable year if the taxpayer 
     establishes that, under the taxpayer's practice, income from 
     such crops involved would have been reported in a following 
     taxable year, or
       ``(B) may elect to treat any such payment received in a 
     taxable year following the taxable year of the destruction or 
     damage of crops as having been received in the taxable year 
     of destruction or damage, if the taxpayer establishes that, 
     under the taxpayer's practice, income from such crops 
     involved would have been reported in the taxable year of 
     destruction or damage.
       ``(2) Payments described.--For purposes of this subsection, 
     a payment is described in this paragraph if such payment--
       ``(A) is insurance proceeds received on account of 
     destruction or damage to crops, or
       ``(B) is disaster assistance received under any Federal law 
     as a result of--
       ``(i) destruction or damage to crops caused by drought, 
     flood, or other natural disaster, or
       ``(ii) inability to plant crops because of such a 
     disaster.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     applies to payments received after December 31, 1992, as a 
     result of destruction or damage occurring after such date.

     SEC. 11254. APPLICATION OF INVOLUNTARY EXCLUSION RULES TO 
                   PRESIDENTIALLY DECLARED DISASTERS.

       (a) In General.--Section 1033(h) is amended by 
     redesignating paragraphs (2) and (3) as paragraphs (3) and 
     (4) and by inserting after paragraph (1) the following new 
     paragraph:
       ``(2) Trade or business and investment property.--If a 
     taxpayer's property held for productive use in a trade or 
     business or for investment is compulsorily or involuntarily 
     converted as a result of a Presidentially declared disaster, 
     tangible property of a type held for productive use in a 
     trade or business shall be treated for purposes of subsection 
     (a) as property similar or related in use to the property so 
     converted.''.
       (b) Conforming Amendments.--Section 1033(h) is amended--
       (1) by striking ``residence'' in paragraph (3) (as 
     redesignated by subsection (a)) and inserting ``property'',
       (2) by striking ``Principal Residences'' in the heading and 
     inserting ``Property'', and
       (3) by striking ``(1) In general.--'' and inserting ``(1) 
     Principal residences.--''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to disasters declared after December 31, 1994, in 
     taxable years ending after such date.
        Subtitle H--Exempt Organizations and Charitable Reforms

      CHAPTER 1--EXCISE TAX ON AMOUNTS OF PRIVATE EXCESS BENEFITS

     SEC. 11271. EXCISE TAXES FOR FAILURE BY CERTAIN CHARITABLE 
                   ORGANIZATIONS TO MEET CERTAIN QUALIFICATION 
                   REQUIREMENTS.

       (a) In General.--Chapter 42 (relating to private 
     foundations and certain other tax-exempt organizations) is 
     amended by redesignating subchapter D as subchapter E and by 
     inserting after subchapter C the following new subchapter:
  ``Subchapter D--Failure By Certain Charitable Organizations To Meet 
                   Certain Qualification Requirements

``Sec. 4958. Taxes on excess benefit transactions.

     ``SEC. 4958. TAXES ON EXCESS BENEFIT TRANSACTIONS.

       ``(a) Initial Taxes.--
       ``(1) On the disqualified person.--There is hereby imposed 
     on each excess benefit transaction a tax equal to 25 percent 
     of the excess benefit. The tax imposed by this paragraph 
     shall be paid by any disqualified person referred to in 
     subsection (f)(1) with respect to such transaction.
       ``(2) On the management.--In any case in which a tax is 
     imposed by paragraph (1), there is hereby imposed on the 
     participation of any organization manager in the excess 
     benefit transaction, knowing that it is such a transaction, a 
     tax equal to 10 percent of the excess benefit, unless such 
     participation is not willful and is due to reasonable cause. 
     The tax imposed by this paragraph shall be paid by any 
     organization manager who participated in the excess benefit 
     transaction.
       ``(b) Additional Tax On the Disqualified Person.--In any 
     case in which an initial tax is imposed by subsection (a)(1) 
     on an excess benefit transaction and the excess benefit 
     involved in such transaction is not corrected within the 
     taxable period, there is hereby imposed a tax equal to 200 
     percent of the excess benefit involved. The tax imposed by 
     this subsection shall be paid by any disqualified person 
     referred to in subsection (f)(1) with respect to such 
     transaction.
       ``(c) Excess Benefit Transaction; Excess Benefit.--For 
     purposes of this section--
       ``(1) Excess benefit transaction.--
       ``(A) In general.--The term `excess benefit transaction' 
     means any transaction in which an economic benefit is 
     provided by an applicable tax-exempt organization directly or 
     indirectly to or for the use of any disqualified person if 
     the value of the economic benefit provided exceeds the value 
     of the consideration (including the performance of services) 
     received for providing such benefit. For purposes of the 
     preceding sentence, an economic benefit shall not be treated 
     as consideration for the performance of services unless such 
     organization clearly indicated its intent to so treat such 
     benefit.
       ``(B) Excess benefit.--The term `excess benefit' means the 
     excess referred to in subparagraph (A).
       ``(2) Authority to include certain other private 
     inurement.--To the extent provided in regulations prescribed 
     by the Secretary, the term `excess benefit transaction' 
     includes any transaction in which the amount of any economic 
     benefit provided to or for the use of a disqualified person 
     is determined in whole or in part by the revenues of 1 or 
     more activities of the organization but only if such 
     transaction results in inurement not permitted under 
     paragraph (3) or (4) of section 501(c), as the case may be. 
     In the case of any such transaction, the excess benefit shall 
     be the amount of the inurement not so permitted.
       ``(d) Special Rules.--For purposes of this section--
       ``(1) Joint and several liability.--If more than 1 person 
     is liable for any tax imposed by subsection (a) or subsection 
     (b), all such persons shall be jointly and severally liable 
     for such tax.
       ``(2) Limit for management.--With respect to any 1 excess 
     benefit transaction, the maximum amount of the tax imposed by 
     subsection (a)(2) shall not exceed $10,000.
       ``(e) Applicable Tax-Exempt Organization.--For purposes of 
     this subchapter, the term `applicable tax-exempt 
     organization' means--
       ``(1) any organization which (without regard to any excess 
     benefit) would be described in paragraph (3) or (4) of 
     section 501(c) and exempt from tax under section 501(a), and
       ``(2) any organization which was described in paragraph (1) 
     at any time during the 2-year period ending on the date of 
     the transaction.
     Such term shall not include a private foundation (as defined 
     in section 509(a)).
       ``(f) Other Definitions.--For purposes of this section--
       ``(1) Disqualified person.--The term `disqualified person' 
     means, with respect to any transaction--
       ``(A) any person who was, at any time during the 5-year 
     period ending on the date of such transaction, in a position 
     to exercise substantial influence over the affairs of the 
     organization,
       ``(B) a member of the family of an individual described in 
     subparagraph (A), and
       ``(C) a 35-percent controlled entity.
       ``(2) Organization manager.--The term `organization 
     manager' means, with respect to any applicable tax-exempt 
     organization, any officer, director, or trustee of such 
     organization (or any individual having powers or 
     responsibilities similar to those of officers, directors, or 
     trustees of the organization).
       ``(3) 35-percent controlled entity.--
       ``(A) In general.--The term `35-percent controlled entity' 
     means--
       ``(i) a corporation in which persons described in 
     subparagraph (A) or (B) of paragraph (1) own more than 35 
     percent of the total combined voting power,
       ``(ii) a partnership in which such persons own more than 35 
     percent of the profits interest, and
       ``(iii) a trust or estate in which such persons own more 
     than 35 percent of the beneficial interest.
       ``(B) Constructive ownership rules.--Rules similar to the 
     rules of paragraphs (3) and (4) of section 4946(a) shall 
     apply for purposes of this paragraph.
       ``(4) Family members.--The members of an individual's 
     family shall be determined under section 4946(d); except that 
     such members also shall include the brothers and sisters 
     (whether by the whole or half blood) of the individual and 
     their spouses.
       ``(5) Taxable period.--The term `taxable period' means, 
     with respect to any excess benefit transaction, the period 
     beginning with the date on which the transaction occurs and 
     ending on the earliest of--
       ``(A) the date of mailing a notice of deficiency under 
     section 6212 with respect to the tax imposed by subsection 
     (a)(1), or
       ``(B) the date on which the tax imposed by subsection 
     (a)(1) is assessed.
       ``(6) Correction.--The terms `correction' and `correct' 
     mean, with respect to any excess benefit transaction, undoing 
     the excess benefit to the extent possible, and where fully 
     undoing the excess benefit is not possible, such additional 
     corrective action as is prescribed by the Secretary by 
     regulations.''
       (b) Application of Private Inurement Rule to Tax-Exempt 
     Organizations Described in Section 501(c)(4).--
       (1) Paragraph (4) of section 501(c) is amended by inserting 
     ``(A)'' after ``(4)'' and by adding at the end the following:
       ``(B) Subparagraph (A) shall not apply to an entity unless 
     no part of the net earnings of such entity inures to the 
     benefit of any private shareholder or individual.''
       (2) In the case of an organization operating on a 
     cooperative basis which, before the date of the enactment of 
     this Act, was determined by the Secretary of the Treasury or 
     his delegate, to be described in section 501(c)(4) of the 
     Internal Revenue Code of 1986 and exempt from tax under 
     section 501(a) of such Code, the allocation or return of net 
     margins or capital to the members of such organization in 
     accordance with its incorporating statute and bylaws shall 
     not be treated for purposes of such Code as the inurement of 
     the net earnings of such organization to the benefit of any 
     private shareholder or individual. The preceding sentence 
     shall apply only if such statute and bylaws are substantially 
     as such statute and bylaws were in existence on the date of 
     the enactment of this Act.

[[Page H 12653]]

       (c) Technical and Conforming Amendments.--
       (1) Subsection (e) of section 4955 is amended--
       (A) by striking ``Section 4945'' in the heading and 
     inserting ``Sections 4945 and 4958'', and
       (B) by inserting before the period ``or an excess benefit 
     for purposes of section 4958''.
       (2) Subsections (a), (b), and (c) of section 4963 are each 
     amended by inserting ``4958,'' after ``4955,''.
       (3) Subsection (e) of section 6213 is amended by inserting 
     ``4958 (relating to private excess benefit),'' before 
     ``4971''.
       (4) Paragraphs (2) and (3) of section 7422(g) are each 
     amended by inserting ``4958,'' after ``4955,''.
       (5) Subsection (b) of section 7454 is amended by inserting 
     ``or whether an organization manager (as defined in section 
     4958(f)(2)) has `knowingly' participated in an excess benefit 
     transaction (as defined in section 4958(c)),'' after 
     ``section 4912(b),''.
       (6) The table of subchapters for chapter 42 is amended by 
     striking the last item and inserting the following:

``Subchapter D. Failure by certain charitable organizations to meet 
              certain qualification requirements.
``Subchapter E. Abatement of first and second tier taxes in certain 
              cases.''

       (d) Effective Dates.--
       (1) In general.--The amendments made by this section (other 
     than subsection (b)) shall apply to excess benefit 
     transactions occurring on or after September 14, 1995.
       (2) Binding contracts.--The amendments referred to in 
     paragraph (1) shall not apply to any benefit arising from a 
     transaction pursuant to any written contract which was 
     binding on September 13, 1995, and at all times thereafter 
     before such transaction occurred.
       (3) Application of private inurement rule to tax-exempt 
     organizations described in section 501(c)(4).--
       (A) In general.--The amendment made by subsection (b) shall 
     apply to inurement occurring on or after September 14, 1995.
       (B) Binding contracts.--The amendment made by subsection 
     (b) shall not apply to any inurement occurring before January 
     1, 1997, pursuant to a written contract which was binding on 
     September 13, 1995, and at all times thereafter before such 
     inurement occurred.

     SEC. 11272. REPORTING OF CERTAIN EXCISE TAXES AND OTHER 
                   INFORMATION.

       (a) Reporting by Organizations Described in Section 
     501(c)(3).--Subsection (b) of section 6033 (relating to 
     certain organizations described in section 501(c)(3)) is 
     amended by striking ``and'' at the end of paragraph (9), by 
     redesignating paragraph (10) as paragraph (14), and by 
     inserting after paragraph (9) the following new paragraphs:
       ``(10) the respective amounts (if any) of the taxes paid by 
     the organization during the taxable year under the following 
     provisions:
       ``(A) section 4911 (relating to tax on excess expenditures 
     to influence legislation),
       ``(B) section 4912 (relating to tax on disqualifying 
     lobbying expenditures of certain organizations), and
       ``(C) section 4955 (relating to taxes on political 
     expenditures of section 501(c)(3) organizations),
       ``(11) the respective amounts (if any) of the taxes paid by 
     the organization, or any disqualified person with respect to 
     such organization, during the taxable year under section 4958 
     (relating to taxes on private excess benefit from certain 
     charitable organizations),
       ``(12) such information as the Secretary may require with 
     respect to any excess benefit transaction (as defined in 
     section 4958),
       ``(13) the name of each disqualified person (as defined in 
     section 4958(f)(1)(A)) with respect to such organization and 
     such other information as the Secretary may prescribe, and''.
       (b) Organizations Described in Section 501(c)(4).--Section 
     6033 is amended by redesignating subsection (f) as subsection 
     (g) and by inserting after subsection (e) the following new 
     subsection:
       ``(f) Certain Organizations Described in Section 
     501(c)(4).--Every organization described in section 501(c)(4) 
     which is subject to the requirements of subsection (a) shall 
     include on the return required under subsection (a) the 
     information referred to in paragraphs (11), (12) and (13) of 
     subsection (b) with respect to such organization.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to returns for taxable years beginning after the 
     date of the enactment of this Act.

     SEC. 11273. INCREASE IN PENALTIES ON EXEMPT ORGANIZATIONS FOR 
                   FAILURE TO FILE COMPLETE AND TIMELY ANNUAL 
                   RETURNS.

       (a) In General.--Subparagraph (A) of section 6652(c)(1) 
     (relating to annual returns under section 6033) is amended by 
     striking ``$10'' and inserting ``$20'' and by striking 
     ``$5,000'' and inserting ``$10,000''.
       (b) Larger Penalty on Organizations Having Gross Receipts 
     in Excess of $1,000,000.--Subparagraph (A) of section 
     6652(c)(1) is amended by adding at the end the following new 
     sentence: ``In the case of an organization having gross 
     receipts exceeding $1,000,000 for any year, with respect to 
     the return required under section 6033 for such year, the 
     first sentence of this subparagraph shall be applied by 
     substituting `$100' for `$20' and, in lieu of applying the 
     second sentence of this subparagraph, the maximum penalty 
     under this subparagraph shall not exceed $50,000.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to returns for taxable years ending on or after 
     December 31, 1995.

                      CHAPTER 2--OTHER PROVISIONS

     SEC. 11276. COOPERATIVE SERVICE ORGANIZATIONS FOR CERTAIN 
                   FOUNDATIONS.

       (a) In General.--Section 501 (relating to exemption from 
     tax on corporations, certain trusts, etc.) is amended by 
     redesignating subsection (n) as subsection (o) and by 
     inserting after subsection (m) the following new subsection:
       ``(n) Cooperative Service Organizations for Certain 
     Foundations.--
       ``(1) In general.--For purposes of this title, if an 
     organization--
       ``(A) is organized and operated solely for purposes 
     referred to in subsection (f)(1),
       ``(B) is composed solely of members which are exempt from 
     taxation under subsection (a) and are--
       ``(i) private foundations, or
       ``(ii) community foundations as to which section 
     170(b)(1)(A)(vi) applies,
       ``(C) has at least 20 members,
       ``(D) does not at any time after the second taxable year 
     beginning after the date of its organization or, if later, 
     beginning after the date of the enactment of this subsection, 
     have a member which holds more than 10 percent (by value) of 
     the interests in the organization,
       ``(E) is organized and controlled by its members but is not 
     controlled by any one member and does not have a member which 
     controls another member of the organization, and
       ``(F) permits members of the organization to require the 
     dismissal of any of the organization's investment advisers, 
     following reasonable notice, if members holding a majority of 
     interest in the account managed by such adviser vote to 
     remove such adviser,
     then such organization shall be treated as an organization 
     organized and operated exclusively for charitable purposes.
       ``(2) Treatment of income of members.--If any member of an 
     organization described in paragraph (1) is a private 
     foundation (other than an exempt operating foundation, as 
     defined in section 4940(d)), such private foundation's 
     allocable share of the capital gain net income and gross 
     investment income of the organization for any taxable year of 
     the organization shall be treated, for purposes of section 
     4940, as capital gain net income and gross investment income 
     of such private foundation (whether or not distributed to 
     such foundation) for the taxable year of such private 
     foundation with or within which the taxable year of the 
     organization described in paragraph (1) ends (and such 
     private foundation shall take into account its allocable 
     share of the deductions referred to in section 4940(c)(3) of 
     the organization).
       ``(3) Applicable excise taxes.--Subchapter A of chapter 42 
     (other than sections 4940 and 4942) shall apply to any 
     organization described in paragraph (1).''.
       (b) Conforming Amendments.--
       (1) Section 4945(d) is amended by adding at the end the 
     following new flush sentence:
     ``Paragraph (4)(B) shall not apply to a grant to an 
     organization described in section 501(n).''
       (2) Section 4942(g)(1)(A) is amended by inserting ``or an 
     organization described in section 501(n)'' after ``subsection 
     (j)(3))''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after December 31, 1995.

     SEC. 11277. EXCLUSION FROM UNRELATED BUSINESS TAXABLE INCOME 
                   FOR CERTAIN SPONSORSHIP PAYMENTS.

       (a) In General.--Section 513 (relating to unrelated trade 
     or business income) is amended by adding at the end the 
     following new subsection:
       ``(i) Treatment of Certain Sponsorship Payments.--
       ``(1) In general.--The term `unrelated trade or business' 
     does not include the activity of soliciting and receiving 
     qualified sponsorship payments.
       ``(2) Qualified sponsorship payments.--For purposes of this 
     subsection--
       ``(A) In general.--The term `qualified sponsorship payment' 
     means any payment made by any person engaged in a trade or 
     business with respect to which there is no arrangement or 
     expectation that such person will receive any substantial 
     return benefit other than the use or acknowledgement of the 
     name or logo (or product lines) of such person's trade or 
     business in connection with the activities of the 
     organization that receives such payment. Such a use or 
     acknowledgement does not include advertising such person's 
     products or services (including messages containing 
     qualitative or comparative language, price information or 
     other indications of savings or value, an endorsement, or an 
     inducement to purchase, sell, or use such products or 
     services).
       ``(B) Limitations.--
       ``(i) Contingent payments.--The term `qualified sponsorship 
     payment' does not include any payment if the amount of such 
     payment is contingent upon the level of attendance at one or 
     more events, broadcast ratings, or other factors indicating 
     the degree of public exposure to one or more events.
       ``(ii) Acknowledgements or advertising in periodicals.--The 
     term `qualified sponsorship payment' does not include any 
     payment which entitles the payor to an acknowledgement or 
     advertising in regularly scheduled and printed material 
     published by or on behalf of the payee organization that is 
     not related to and primarily distributed in connection with a 
     specific event conducted by the payee organization.
       ``(3) Allocation of portions of single payment.--For 
     purposes of this subsection, to the extent that a portion of 
     a payment would (if made as a separate payment) be a 
     qualified sponsorship payment, such portion of such payment 
     and the other portion of such payment shall be treated as 
     separate payments.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to payments solicited or received after December 
     31, 1995.

[[Page H 12654]]


     SEC. 11278. TREATMENT OF DUES PAID TO AGRICULTURAL OR 
                   HORTICULTURAL ORGANIZATIONS.

       (a) General Rule.--Section 512 (defining unrelated business 
     taxable income) is amended by adding at the end the following 
     new subsection:
       ``(d) Treatment of Dues of Agricultural or Horticultural 
     Organizations.--
       ``(1) In general.--If--
       ``(A) an agricultural or horticultural organization 
     described in section 501(c)(5) requires annual dues to be 
     paid in order to be a member of such organization, and
       ``(B) the amount of such required annual dues does not 
     exceed $100,
     in no event shall any portion of such dues be treated as 
     derived by such organization from an unrelated trade or 
     business by reason of any benefits or privileges to which 
     members of such organization are entitled.
       ``(2) Indexation of $100 amount.--In the case of any 
     taxable year beginning in a calendar year after 1995, the 
     $100 amount in paragraph (1) shall be increased by an amount 
     equal to--
       ``(A) $100, multiplied by
       ``(B) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar year in which the taxable 
     year begins, by substituting `calendar year 1994' for 
     `calendar year 1992' in subparagraph (B) thereof.
       ``(3) Dues.--For purposes of this subsection, the term 
     `dues' means any payment required to be made in order to be 
     recognized by the organization as a member of the 
     organization.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1994.

     SEC. 11279. REPEAL OF CREDIT FOR CONTRIBUTIONS TO COMMUNITY 
                   DEVELOPMENT CORPORATIONS.

       (a) In General.--Section 13311 of the Revenue 
     Reconciliation Act of 1993 (relating to credit for 
     contributions to certain community development corporations) 
     is hereby repealed.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions made after the date of the 
     enactment of this Act (other than contributions made pursuant 
     to a legally enforceable agreement which is effect on the 
     date of the enactment of this Act).
              Subtitle I--Tax Reform and Other Provisions

              CHAPTER 1--PROVISIONS RELATING TO BUSINESSES

     SEC. 11301. TAX TREATMENT OF CERTAIN EXTRAORDINARY DIVIDENDS.

       (a) Treatment of Extraordinary Dividends in Excess of 
     Basis.--Paragraph (2) of section 1059(a) (relating to 
     corporate shareholder's basis in stock reduced by nontaxed 
     portion of extraordinary dividends) is amended to read as 
     follows:
       ``(2) Amounts in excess of basis.--If the nontaxed portion 
     of such dividends exceeds such basis, such excess shall be 
     treated as gain from the sale or exchange of such stock for 
     the taxable year in which the extraordinary dividend is 
     received.''.
       (b) Treatment of Redemptions Where Options Involved.--
     Paragraph (1) of section 1059(e) (relating to treatment of 
     partial liquidations and non-pro rata redemptions) is amended 
     to read as follows:
       ``(1) Treatment of partial liquidations and certain 
     redemptions.--Except as otherwise provided in regulations--
       ``(A) Redemptions.--In the case of any redemption of 
     stock--
       ``(i) which is part of a partial liquidation (within the 
     meaning of section 302(e)) of the redeeming corporation,
       ``(ii) which is not pro rata as to all shareholders, or
       ``(iii) which would not have been treated (in whole or in 
     part) as a dividend if any options had not been taken into 
     account under section 318(a)(4),
     any amount treated as a dividend with respect to such 
     redemption shall be treated as an extraordinary dividend to 
     which paragraphs (1) and (2) of subsection (a) apply without 
     regard to the period the taxpayer held such stock. In the 
     case of a redemption described in clause (iii), only the 
     basis in the stock redeemed shall be taken into account under 
     subsection (a).
       ``(B) Reorganizations, etc.--An exchange described in 
     section 356(a)(1) which is treated as a dividend under 
     section 356(a)(2) shall be treated as a redemption of stock 
     for purposes of applying subparagraph (A).''.
       (c) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to distributions after May 3, 1995.
       (2) Transition rule.--The amendments made by this section 
     shall not apply to any distribution made pursuant to the 
     terms of--
       (A) a written binding contract in effect on May 3, 1995, 
     and at all times thereafter before such distribution, or
       (B) a tender offer outstanding on May 3, 1995.
       (3) Certain dividends not pursuant to certain 
     redemptions.--In determining whether the amendment made by 
     subsection (a) applies to any extraordinary dividend other 
     than a dividend treated as an extraordinary dividend under 
     section 1059(e)(1) of the Internal Revenue Code of 1986 (as 
     amended by this Act), paragraphs (1) and (2) shall be applied 
     by substituting ``September 13, 1995'' for ``May 3, 1995''.

     SEC. 11302. REGISTRATION OF CONFIDENTIAL CORPORATE TAX 
                   SHELTERS.

       (a) In General.--Section 6111 (relating to registration of 
     tax shelters) is amended by redesignating subsections (d) and 
     (e) as subsections (e) and (f), respectively, and by 
     inserting after subsection (c) the following new subsection:
       ``(d) Certain Confidential Arrangements Treated as Tax 
     Shelters.--
       ``(1) In general.--For purposes of this section, the term 
     `tax shelter' includes any entity, plan, arrangement, or 
     transaction--
       ``(A) a significant purpose of the structure of which is 
     the avoidance or evasion of Federal income tax for a direct 
     or indirect participant which is a corporation,
       ``(B) which is offered to any potential participant under 
     conditions of confidentiality, and
       ``(C) for which the tax shelter promoters may receive fees 
     in excess of $100,000 in the aggregate.
       ``(2) Conditions of confidentiality.--For purposes of 
     paragraph (1)(B), an offer is under conditions of 
     confidentiality if--
       ``(A) the potential participant to whom the offer is made 
     (or any other person acting on behalf of such participant) 
     has an understanding or agreement with or for the benefit of 
     any promoter of the tax shelter that such participant (or 
     such other person) will limit disclosure of the tax shelter 
     or any significant tax features of the tax shelter, or
       ``(B) any promoter of the tax shelter--
       ``(i) claims, knows, or has reason to know,
       ``(ii) knows or has reason to know that any other person 
     (other than the potential participant) claims, or
       ``(iii) causes another person to claim,
     that the tax shelter (or any aspect thereof) is proprietary 
     to any person other than the potential participant or is 
     otherwise protected from disclosure to or use by others.
     For purposes of this subsection, the term `promoter' means 
     any person or any related person (within the meaning of 
     section 267 or 707) who participates in the organization, 
     management, or sale of the tax shelter.
       ``(3) Persons other than promoter required to register in 
     certain cases.--
       ``(A) In general.--If--
       ``(i) the requirements of subsection (a) are not met with 
     respect to any tax shelter (as defined in paragraph (1)) by 
     any tax shelter promoter, and
       ``(ii) no tax shelter promoter is a United States person,
     then each United States person who discussed participation in 
     such shelter shall register such shelter under subsection 
     (a).
       ``(B) Exception.--Subparagraph (A) shall not apply to a 
     United States person who discussed participation in a tax 
     shelter if--
       ``(i) such person notified the promoter in writing (not 
     later than the close of the 90th day after the day on which 
     such discussions began) that such person would not 
     participate in such shelter, and
       ``(ii) such person does not participate in such shelter.
       ``(4) Offer to participate treated as offer for sale.--For 
     purposes of subsections (a) and (b), an offer to participate 
     in a tax shelter (as defined in paragraph (1)) shall be 
     treated as an offer for sale.''.
       (b) Penalty.--Subsection (a) of section 6707 (relating to 
     failure to furnish information regarding tax shelters) is 
     amended by adding at the end the following new paragraph:
       ``(3) Confidential arrangements.--
       ``(A) In general.--In the case of a tax shelter (as defined 
     in section 6111(d)), the penalty imposed under paragraph (1) 
     shall be an amount equal to the greater of--
       ``(i) 50 percent of the fees paid to any promoter of the 
     tax shelter with respect to offerings made before the date 
     such shelter is registered under section 6111, or
       ``(ii) $10,000.
     Clause (i) shall be applied by substituting `75 percent' for 
     `50 percent' in the case of an intentional failure or act 
     described in paragraph (1).
       ``(B) Special rule for participants required to register 
     shelter.--In the case of a person required to register such a 
     tax shelter by reason of section 6111(d)(3)--
       ``(i) such person shall be required to pay the penalty 
     under paragraph (1) only if such person actually participated 
     in such shelter,
       ``(ii) the amount of such penalty shall be determined by 
     taking into account under subparagraph (A)(i) only the fees 
     paid by such person, and
       ``(iii) such penalty shall be in addition to the penalty 
     imposed on any other person for failing to register such 
     shelter.''.
       (c) Conforming Amendments.--
       (1) Paragraph (2) of section 6707(a) is amended by striking 
     ``The penalty'' and inserting ``Except as provided in 
     paragraph (3), the penalty''.
       (2) Subparagraph (A) of section 6707(a)(1) is amended by 
     striking ``paragraph (2)'' and inserting ``paragraph (2) or 
     (3), as the case may be''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to any tax shelter (as defined in section 6111(d) 
     of the Internal Revenue Code of 1986, as amended by this 
     section) interests in which are offered to potential 
     participants after the Secretary of the Treasury prescribes 
     guidance with respect to meeting requirements added by such 
     amendments.

     SEC. 11303. DENIAL OF DEDUCTION FOR INTEREST ON LOANS WITH 
                   RESPECT TO COMPANY-OWNED INSURANCE.

       (a) In General.--Paragraph (4) of section 264(a) is 
     amended--
       (1) by inserting ``, or any endowment or annuity contracts 
     owned by the taxpayer covering any individual,'' after ``the 
     life of any individual'', and
       (2) by striking all that follows ``carried on by the 
     taxpayer'' and inserting a period.
       (b) Exception for Contracts Relating to Key Persons; 
     Permissible Interest Rates.--Section 264 is amended--
       (1) by striking ``Any'' in subsection (a)(4) and inserting 
     ``Except as provided in subsection (d), any'', and
       (2) by adding at the end the following new subsection:
       ``(d) Special Rules For Application of Subsection (a)(4).--
       ``(1) Exception for key persons.--Subsection (a)(4) shall 
     not apply to any interest paid or accrued on any indebtedness 
     with respect to policies or contracts covering an individual 
     who is a key person to the extent that 

[[Page H 12655]]
     the aggregate amount of such indebtedness with respect to policies and 
     contracts covering such individual does not exceed $50,000.
       ``(2) Interest rate cap on key persons and pre-1986 
     contracts.--
       ``(A) In general.--No deduction shall be allowed by reason 
     of paragraph (1) or the last sentence of subsection (a) with 
     respect to interest paid or accrued for any month to the 
     extent the amount of such interest exceeds the amount which 
     would have been determined if the applicable rate of interest 
     were used for such month.
       ``(B) Applicable rate of interest.--For purposes of 
     subparagraph (A)--
       ``(i) In general.--The applicable rate of interest for any 
     month is the rate of interest described as Moody's Corporate 
     Bond Yield Average-Monthly Average Corporates as published by 
     Moody's Investors Service, Inc., or any successor thereto, 
     for such month.
       ``(ii) Pre-1986 contract.--In the case of indebtedness on a 
     contract to which the last sentence of subsection (a) 
     applies--

       ``(I) which is a contract providing a fixed rate of 
     interest, the applicable rate of interest for any month shall 
     be the Moody's rate described in clause (i) for the month in 
     which the contract was purchased, or
       ``(II) which is a contract providing a variable rate of 
     interest, the applicable rate of interest for any month in an 
     applicable period shall be such Moody's rate for the last 
     month preceding such period.

     For purposes of subclause (II), the taxpayer shall elect an 
     applicable period for such contract on its return of tax 
     imposed by this chapter for its first taxable year ending on 
     or after October 13, 1995. Such applicable period shall be 
     for any number of months (not greater than 12) specified in 
     the election and may not be changed by the taxpayer without 
     the consent of the Secretary.
       ``(3) Key person.--For purposes of paragraph (1), the term 
     `key person' means an officer or 20-percent owner, except 
     that the number of individuals who may be treated as key 
     persons with respect to any taxpayer shall not exceed the 
     greater of--
       ``(A) 5 individuals, or
       ``(B) the lesser of 5 percent of the total officers and 
     employees of the taxpayer or 10 individuals.
       ``(4) 20-percent owner.--For purposes of this subsection, 
     the term `20-percent owner' means--
       ``(A) if the taxpayer is a corporation, any person who owns 
     directly 20 percent or more of the outstanding stock of the 
     corporation or stock possessing 20 percent or more of the 
     total combined voting power of all stock of the corporation, 
     or
       ``(B) if the taxpayer is not a corporation, any person who 
     owns 20 percent or more of the capital or profits interest in 
     the employer.
       ``(5) Aggregation rules.--
       ``(A) In general.--For purposes of paragraph (4)(A) and 
     applying the $50,000 limitation in paragraph (1)--
       ``(i) all members of a controlled group shall be treated as 
     1 taxpayer, and
       ``(ii) such limitation shall be allocated among the members 
     of such group in such manner as the Secretary may prescribe.
       ``(B) Controlled group.--For purposes of this paragraph, 
     all persons treated as a single employer under subsection (a) 
     or (b) of section 52 or subsection (m) or (o) of section 414 
     shall be treated as members of a controlled group.''.
       (c) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to interest paid or accrued after December 31, 1995.
       (2) Transition rule for existing indebtedness.--
       (A) In general.--In the case of--
       (i) indebtedness incurred before January 1, 1996, or
       (ii) indebtedness incurred before January 1, 1997 with 
     respect to any contract or policy entered into in 1994 or 
     1995,
     the amendments made by this section shall not apply to 
     qualified interest paid or accrued on such indebtedness after 
     October 13, 1995, and before January 1, 1999.
       (B) Qualified interest.--For purposes of subparagraph (A), 
     the qualified interest with respect to any indebtedness for 
     any month is the amount of interest which would be paid or 
     accrued for such month on such indebtedness if--
       (i) in the case of any interest paid or accrued after 
     December 31, 1995, indebtedness with respect to no more than 
     20,000 insured individuals were taken into account, and
       (ii) the lesser of the following rates of interest were 
     used for such month:

       (I) The rate of interest specified under the terms of the 
     indebtedness as in effect on October 13, 1995 (and without 
     regard to modification of such terms after such date).
       (II) The applicable percentage rate of interest described 
     as Moody's Corporate Bond Yield Average-Monthly Average 
     Corporates as published by Moody's Investors Service, Inc., 
     or any successor thereto, for such month.

     For purposes of clause (i), all persons treated as a single 
     employer under subsection (a) or (b) of section 52 of the 
     Internal Revenue Code of 1986 or subsection (m) or (o) of 
     section 414 of such Code shall be treated as one person.
       (C) Applicable percentage.--For purposes of subparagraph 
     (B), the applicable percentage is as follows:

                                                     The percentage is:
    1995...................................................100 percent 
    1996....................................................90 percent 
    1997....................................................80 percent 
    1998....................................................70 percent.

       (3) Special rule for grandfathered contracts.--This section 
     shall not apply to any contract purchased on or before June 
     20, 1986, except that section 264(d)(2) of the Internal 
     Revenue Code of 1986 shall apply to interest paid or accrued 
     after October 13, 1995.
       (d) Spread of Income Inclusion on Surrender, Etc. of 
     Contracts.--
       (1) In general.--If any amount is received under any life 
     insurance policy or endowment or annuity contract described 
     in paragraph (4) of section 264(a) of the Internal Revenue 
     Code of 1986--
       (A) on the complete surrender, redemption, or maturity of 
     such policy or contract during calendar year 1996, 1997, or 
     1998, or
       (B) in full discharge during any such calendar year of the 
     obligation under the policy or contract which is in the 
     nature of a refund of the consideration paid for the policy 
     or contract,
     then (in lieu of any other inclusion in gross income) such 
     amount shall be includible in gross income ratably over the 
     4-taxable year period beginning with the taxable year such 
     amount would (but for this paragraph) be includible. The 
     preceding sentence shall only apply to the extent the amount 
     is includible in gross income for the taxable year in which 
     the event described in subparagraph (A) or (B) occurs.
       (2) Special rules for applying section 264.--A contract 
     shall not be treated as--
       (A) failing to meet the requirement of section 264(c)(1) of 
     the Internal Revenue Code of 1986, or
       (B) a single premium contract under section 264(b)(1) of 
     such Code,
     solely by reason of an occurrence described in subparagraph 
     (A) or (B) of paragraph (1) of this subsection or solely by 
     reason of no additional premiums being received under the 
     contract by reason of a lapse occurring after October 13, 
     1995.
       (3) Special rule for deferred acquisition costs.--In the 
     case of the occurrence of any event described in subparagraph 
     (A) or (B) of paragraph (1) of this subsection with respect 
     to any policy or contract--
       (A) section 848 of the Internal Revenue Code of 1986 shall 
     not apply to the unamortized balance (if any) of the 
     specified policy acquisition expenses attributable to such 
     policy or contract immediately before the insurance company's 
     taxable year in which such event occurs, and
       (B) there shall be allowed as a deduction to such company 
     for such taxable year under chapter 1 of such Code an amount 
     equal to such unamortized balance.

     SEC. 11304. TERMINATION OF SUSPENSE ACCOUNTS FOR FAMILY 
                   CORPORATIONS REQUIRED TO USE ACCRUAL METHOD OF 
                   ACCOUNTING.

       (a) In General.--Subsection (i) of section 447 (relating to 
     method of accounting for corporations engaged in farming) is 
     amended by adding at the end the following new paragraph:
       ``(7) Termination.--
       ``(A) In general.--No suspense account may be established 
     under this subsection by any corporation required by this 
     section to change its method of accounting for any taxable 
     year ending after September 13, 1995.
       ``(B) 20-year phaseout of existing suspense accounts.--Each 
     suspense account under this subsection shall be reduced (but 
     not below zero) for each of the first 20 taxable years 
     beginning after September 13, 1995, by an amount equal to the 
     applicable portion of such account. Any reduction in a 
     suspense account under this paragraph shall be included in 
     gross income for the taxable year of the reduction. The 
     amount of the reduction required under this paragraph for any 
     taxable year shall be reduced (but not below zero) by the 
     amount of any reduction required for such taxable year under 
     any other provision of this subsection.
       ``(C) Applicable portion.--For purposes of subparagraph 
     (B), the term `applicable portion' means, for any taxable 
     year, the amount which would ratably reduce the amount in the 
     account (after taking into account prior reductions) to zero 
     over the period consisting of such taxable year and the 
     remaining taxable years in such first 20 taxable years.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years ending after September 13, 1995.

     SEC. 11305. TERMINATION OF PUERTO RICO AND POSSESSION TAX 
                   CREDIT.

       (a) In General.--Section 936 is amended by adding at the 
     end the following new subsection:
       ``(j) Termination.--
       ``(1) In general.--Except as otherwise provided in this 
     subsection, this section shall not apply to any taxable year 
     beginning after December 31, 1995.
       ``(2) Transition rules for active business income credit.--
     Except as provided in paragraph (3)--
       ``(A) In general.--In the case of an existing credit 
     claimant to which subsection (a)(4)(B) does not apply, the 
     credit determined under subsection (a)(1)(A) shall be allowed 
     for taxable years beginning after December 31, 1995, and 
     before January 1, 2002.
       ``(B) Special rule for reduced credit.--
       ``(i) In general.--In the case of an existing credit 
     claimant to which subsection (a)(4)(B) applies, the credit 
     determined under subsection (a)(1)(A) shall be allowed for 
     taxable years beginning after December 31, 1995, and before 
     January 1, 1998.
       ``(ii) Election irrevocable after 1997.--An election under 
     subsection (a)(4)(B)(iii) which is in effect for the 
     taxpayer's last taxable year beginning before 1997 may not be 
     revoked unless it is revoked for the taxpayer's first taxable 
     year beginning in 1997 and all subsequent taxable years.
       ``(3) Additional restricted credit.--
       ``(A) In general.--In the case of an existing credit 
     claimant--
       ``(i) the credit under subsection (a)(1)(A) shall be 
     allowed for the period beginning with the first taxable year 
     after the last taxable year to which subparagraph (A) or (B) 
     of paragraph 

[[Page H 12656]]
     (2), whichever is appropriate, applied and ending with the last taxable 
     year beginning before January 1, 2006, except that
       ``(ii) the aggregate amount of taxable income taken into 
     account under subsection (a)(1)(A) for any such taxable year 
     shall not exceed the adjusted base period income of such 
     claimant.
       ``(B) Coordination with subsection (a)(4).--The amount of 
     income described in subsection (a)(1)(A) which is taken into 
     account in applying subsection (a)(4) shall be such income as 
     reduced under this paragraph.
       ``(4) Adjusted base period income.--For purposes of 
     paragraph (3)--
       ``(A) In general.--The term `adjusted base period income' 
     means the average of the inflation-adjusted possession 
     incomes of the corporation for each base period year.
       ``(B) Inflation-adjusted possession income.--For purposes 
     of subparagraph (A), the inflation-adjusted possession income 
     of any corporation for any base period year shall be an 
     amount equal to the sum of--
       ``(i) the possession income of such corporation for such 
     base period year, plus
       ``(ii) such possession income multiplied by the inflation 
     adjustment percentage for such base period year.
       ``(C) Inflation adjustment percentage.--For purposes of 
     subparagraph (B), the inflation adjustment percentage for any 
     base period year means the percentage (if any) by which--
       ``(i) the CPI for 1995, exceeds
       ``(ii) the CPI for the calendar year in which the base 
     period year for which the determination is being made ends.
     For purposes of the preceding sentence, the CPI for any 
     calendar year is the CPI (as defined in section 1(f)(5)) for 
     such year under section 1(f)(4).
       ``(D) Increase in inflation adjustment percentage for 
     growth during base years.--The inflation adjustment 
     percentage (determined under subparagraph (C) without regard 
     to this subparagraph) for each of the 5 taxable years 
     referred to in paragraph (5)(A) shall be increased by--
       ``(i) 5 percentage points in the case of a taxable year 
     ending during the 1-year period ending on October 13, 1995;
       ``(ii) 10.25 percentage points in the case of a taxable 
     year ending during the 1-year period ending on October 13, 
     1994;
       ``(iii) 15.76 percentage points in the case of a taxable 
     year ending during the 1-year period ending on October 13, 
     1993;
       ``(iv) 21.55 percentage points in the case of a taxable 
     year ending during the 1-year period ending on October 13, 
     1992; and
       ``(v) 27.63 percentage points in the case of a taxable year 
     ending during the 1-year period ending on October 13, 1991.
       ``(5) Base period year.--For purposes of this subsection--
       ``(A) In general.--The term `base period year' means each 
     of 3 taxable years which are among the 5 most recent taxable 
     years of the corporation ending before October 14, 1995, 
     determined by disregarding--
       ``(i) one taxable year for which the corporation had the 
     largest inflation-adjusted possession income, and
       ``(ii) one taxable year for which the corporation had the 
     smallest inflation-adjusted possession income.
       ``(B) Corporations not having significant possession income 
     throughout 5-year period.--
       ``(i) In general.--If a corporation does not have 
     significant possession income for each of the most recent 5 
     taxable years ending before October 14, 1995, then, in lieu 
     of applying subparagraph (A), the term `base period year' 
     means only those taxable years (of such 5 taxable years) for 
     which the corporation has significant possession income; 
     except that, if such corporation has significant possession 
     income for 4 of such 5 taxable years, the rule of 
     subparagraph (A)(ii) shall apply.
       ``(ii) Special rule.--If there is no year (of such 5 
     taxable years) for which a corporation has significant 
     possession income--

       ``(I) the term `base period year' means the first taxable 
     year ending on or after October 14, 1995, but
       ``(II) the amount of possession income for such year which 
     is taken into account under paragraph (4) shall be the amount 
     which would be determined if such year were a short taxable 
     year ending on September 30, 1995.

       ``(iii) Significant possession income.--For purposes of 
     this subparagraph, the term `significant possession income' 
     means possession income which exceeds 2 percent of the 
     possession income of the taxpayer for the taxable year (of 
     the period of 6 taxable years ending with the first taxable 
     year ending on or after October 14, 1995) having the greatest 
     possession income.
       ``(C) Election to use one base period year.--
       ``(i) In general.--At the election of the taxpayer, the 
     term `base period year' means--

       ``(I) only the last taxable year of the corporation ending 
     in calendar year 1992, or
       ``(II) a deemed taxable year which includes the first ten 
     months of calendar year 1995.

       ``(ii) Base period income for 1995.--In determining the 
     adjusted base period income of the corporation for the deemed 
     taxable year under clause (i)(II), the possession income 
     shall be annualized and shall be determined without regard to 
     any extraordinary item.
       ``(iii) Election.--An election under this subparagraph by 
     any possession corporation may be made only for the 
     corporation's first taxable year beginning after December 31, 
     1995, for which it is a possession corporation. The rules of 
     subclauses (II) and (III) of subsection (a)(4)(B)(iii) shall 
     apply to the election under this subparagraph.
       ``(D) Acquisitions and dispositions.--Rules similar to the 
     rules of subparagraphs (A) and (B) of section 41(f)(3) shall 
     apply for purposes of this subsection.
       ``(6) Possession income.--For purposes of this subsection, 
     the term `possession income' means the income referred to in 
     subsection (a)(1)(A), except that there shall not be taken 
     into account any such income from an applicable possession 
     (as defined in paragraph (8)(B)). In no event shall 
     possession income be treated as being less than zero.
       ``(7) Short years.--If the current year or a base period 
     year is a short taxable year, the application of this 
     subsection shall be made with such annualizations as the 
     Secretary shall prescribe.
       ``(8) Special rules for certain possessions.--
       ``(A) In general.--In the case of an existing credit 
     claimant with respect to an applicable possession, this 
     section (other than the preceding paragraphs of this 
     subsection) shall apply to taxable years beginning after 
     December 31, 1995, and before January 1, 2006.
       ``(B) Applicable possession.--For purposes of this 
     paragraph, the term `applicable possession' means Guam, 
     American Samoa, and the Commonwealth of the Northern Mariana 
     Islands.
       ``(9) Existing credit claimant.--For purposes of this 
     subsection--
       ``(A) In general.--The term `existing credit claimant' 
     means a corporation--
       ``(i) which was actively conducting a trade or business in 
     a possession on October 13, 1995, and
       ``(ii) with respect to which an election under this section 
     is in effect for the corporation's taxable year which 
     includes October 13, 1995.
       ``(B) New lines of business prohibited.--If, after October 
     13, 1995, a corporation which would (but for this 
     subparagraph) be an existing credit claimant adds a 
     substantial new line of business, such corporation shall 
     cease to be treated as an existing credit claimant as of the 
     close of the taxable year ending before the date of such 
     addition.
       ``(C) Binding contract exception.--If, on October 13, 1995, 
     and at all times thereafter, there is in effect with respect 
     to a corporation a binding contract for the acquisition of 
     assets to be used in, or for the sale of assets to be 
     produced from, a trade or business, the corporation shall be 
     treated for purposes of this paragraph as actively conducting 
     such trade or business on October 13, 1995. The preceding 
     sentence shall not apply if such trade or business is not 
     actively conducted before January 1, 1996.
       ``(D) Special rule for applicable possessions.--In 
     determining under paragraph (8) whether a taxpayer is an 
     existing credit claimant with respect to an applicable 
     possession, this paragraph shall be applied separately with 
     respect to such possession.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 11306. DEPRECIATION UNDER INCOME FORECAST METHOD.

       (a) General Rule.--Section 167 (relating to depreciation) 
     is amended by redesignating subsection (g) as subsection (h) 
     and by inserting after subsection (f) the following new 
     subsection:
       ``(g) Depreciation Under Income Forecast Method.--
       ``(1) In general.--If the depreciation deduction allowable 
     under this section to any taxpayer with respect to any 
     property is determined under the income forecast method or 
     any similar method--
       ``(A) in determining the amount of the depreciation 
     deduction under such method, the estimated income from the 
     property shall include all income earned before the close of 
     the 10th taxable year following the taxable year in which the 
     property was placed in service in connection with the 
     ultimate use of the property by, or the ultimate sale of 
     merchandise to, persons who are not related persons (within 
     the meaning of section 267(b)) to the taxpayer,
       ``(B) the adjusted basis of the property shall only include 
     amounts with respect to which the requirements of section 
     461(h) are satisfied,
       ``(C) the depreciation deduction under such method for the 
     10th taxable year beginning after the taxable year in which 
     the property was placed in service shall be equal to the 
     adjusted basis of such property as of the beginning of such 
     10th taxable year, and
       ``(D) such taxpayer shall pay (or be entitled to receive) 
     interest computed under the look-back method of paragraph (2) 
     for any recomputation year.
       ``(2) Look-back method.--The interest computed under the 
     look-back method of this paragraph for any recomputation year 
     shall be determined by--
       ``(A) first determining the depreciation deductions under 
     this section with respect to such property which would have 
     been allowable for prior taxable years if the determination 
     of the amounts so allowable had been made on the basis of the 
     sum of the following (instead of the estimated income with 
     respect to such property)--
       ``(i) the actual income from such property for periods 
     before the close of the recomputation year, and
       ``(ii) an estimate of the future income with respect to 
     such property for periods after the recomputation year,
       ``(B) second, determining (solely for purposes of computing 
     such interest) the overpayment or underpayment of tax for 
     each such prior taxable year which would result solely from 
     the application of subparagraph (A), and
       ``(C) then using the adjusted overpayment rate (as defined 
     in section 460(b)(7)), compounded daily, on the overpayment 
     or underpayment determined under subparagraph (B).
     For purposes of the preceding sentence, any cost incurred 
     after the property is placed in service (which is not treated 
     as a separate property 

[[Page H 12657]]
     under paragraph (5)) shall be taken into account by discounting (using 
     the Federal mid-term rate determined under section 1274(d) as 
     of the time such cost is incurred) such cost to its value as 
     of the date the property is placed in service. The taxpayer 
     may elect with respect to any property to have the preceding 
     sentence not apply to such property.
       ``(3) Exception from look-back method.--Paragraph (1)(D) 
     shall not apply with respect to any property which, when 
     placed in service by the taxpayer, had a basis of $100,000 or 
     less.
       ``(4) Recomputation year.--For purposes of this subsection, 
     except as provided in regulations, the term `recomputation 
     year' means, with respect to any property, the third and the 
     10th taxable years beginning after the taxable year in which 
     the property was placed in service, unless the actual income 
     from the property for the period before the close of such 
     third or 10th taxable year is within 10 percent of the 
     estimated income from the property for such period which was 
     taken into account under paragraph (1)(A).
       ``(5) Special rules.--
       ``(A) Certain costs treated as separate property.--For 
     purposes of this subsection, the following costs shall be 
     treated as separate properties:
       ``(i) Any costs incurred with respect to any property after 
     the 10th taxable year beginning after the taxable year in 
     which the property was placed in service.
       ``(ii) Any costs incurred after the property is placed in 
     service and before the close of such 10th taxable year if 
     such costs are significant and give rise to a significant 
     increase in the income from the property which was not 
     included in the estimated income from the property.
       ``(B) Syndication income from television series.--In the 
     case of property which is an episode in a television series, 
     income from syndicating such series shall not be required to 
     be taken into account under this subsection before the 
     earlier of--
       ``(i) the 4th taxable year beginning after the date the 
     first episode in such series is placed in service, or
       ``(ii) the earliest taxable year in which the taxpayer has 
     an arrangement relating to the future syndication of such 
     series.
       ``(C) Collection of interest.--For purposes of subtitle F 
     (other than sections 6654 and 6655), any interest required to 
     be paid by the taxpayer under paragraph (1) for any 
     recomputation year shall be treated as an increase in the tax 
     imposed by this chapter for such year.
       ``(D) Determinations.--For purposes of paragraph (2), 
     determinations of the amount of income from any property 
     shall be determined in the same manner as for purposes of 
     applying the income forecast method; except that any income 
     from the disposition of such property shall be taken into 
     account.
       ``(E) Treatment of pass-thru entities.--Rules similar to 
     the rules of section 460(b)(4) shall apply for purposes of 
     this subsection.''.
       (b) Effective Date.--
       (1) In general.--The amendment made by subsection (a) shall 
     apply to property placed in service after September 13, 1995.
       (2) Binding contracts.--The amendment made by subsection 
     (a) shall not apply to any property produced or acquired by 
     the taxpayer pursuant to a written contract which was binding 
     on September 13, 1995, and at all times thereafter before 
     such production or acquisition.

     SEC. 11307. TRANSFERS OF EXCESS PENSION ASSETS.

       (a) In General.--Section 420 (relating to transfers of 
     excess pension assets to retiree health accounts) is amended 
     by adding at the end the following new subsection:
       ``(f) Similar Rules To Apply to Other Transfers of Excess 
     Plan Assets.--
       ``(1) In general.--If there is a qualified employee benefit 
     transfer of any excess pension assets of a defined benefit 
     plan (other than a multiemployer plan) to an employer--
       ``(A) a trust which is part of such plan shall not be 
     treated as failing to meet the requirements of section 401(a) 
     solely by reason of such transfer (or any other action 
     authorized under this section), and
       ``(B) such transfer shall not be treated as--
       ``(i) an employer reversion for purposes of section 4980, 
     or
       ``(ii) a prohibited transaction for purposes of section 
     4975.
     The gross income of the employer shall include the amount of 
     any qualified employee benefit transfer made during the 
     taxable year.
       ``(2) Qualified employee benefit transfer.--For purposes of 
     this section--
       ``(A) In general.--The term `qualified employee benefit 
     transfer' means a transfer--
       ``(i) of excess pension assets of a defined benefit plan to 
     the employer, and
       ``(ii) with respect to which--

       ``(I) the use requirements of paragraph (3) are met, and
       ``(II) the requirements of subsection (c)(2)(A) are met 
     (determined by treating such transfer as a qualified 
     transfer).

       ``(B) Limitation on amounts transferred.--The amount of 
     excess pension assets which may be transferred in qualified 
     employee benefit transfers during any taxable year shall not 
     exceed the amount which is reasonably estimated to be the 
     amount the employer maintaining the plan will pay (whether 
     directly or through reimbursement) during the taxable year 
     for qualified current employee benefit liabilities.
       ``(C) Coordination with transfers to retiree health 
     accounts.--Such term shall not include any qualified transfer 
     (as defined in subsection (b)).
       ``(D) Expiration.--No transfer in any taxable year 
     beginning after December 31, 2001, shall be treated as a 
     qualified employee benefit transfer.
       ``(3) Restrictions on use of transferred assets.--
       ``(A) In general.--Any assets transferred to an employer in 
     a qualified employee benefit transfer shall be used only to 
     pay qualified current employee benefit liabilities for the 
     taxable year of the transfer (whether directly or through 
     reimbursement).
       ``(B) Amounts not used to pay benefits.--An employer shall 
     transfer to a plan an amount equal to any assets transferred 
     out of the plan in a qualified employee benefit transfer 
     which are not used as provided in subparagraph (A). Such 
     amount shall be treated in the same manner as amounts are 
     treated under subsection (c)(1)(B), except that allocable 
     income shall be determined by using the Federal short-term 
     rate under section 1274(d).
       ``(C) Qualified current employee benefit liabilities.--For 
     purposes of this subsection--
       ``(i) In general.--The term `qualified current employee 
     benefit liabilities' means, with respect to any taxable year, 
     the aggregate amounts (including administrative expenses) for 
     which a deduction is allowable to the employer for such 
     taxable year with respect to applicable employee benefits.
       ``(ii) Applicable employee benefits.--The term `applicable 
     employee benefits' means--

       ``(I) contributions to a trust described in section 401(a) 
     which is exempt from tax under section 501(a),
       ``(II) benefits under an accident or health plan (within 
     the meaning of section 105),
       ``(III) disability benefits,
       ``(IV) benefits under an educational assistance program of 
     the employer described in section 127(b), and
       ``(V) benefits under a dependent care assistance program of 
     the employer described in section 129(d).

       ``(4) Definition and special rules.--For purposes of this 
     subsection--
       ``(A) Excess pension assets.--The term `excess pension 
     assets' has the meaning given such term by subsection (e)(2).
       ``(B) Coordination with section 412.--In the case of a 
     qualified employee benefit transfer--
       ``(i) any assets transferred in a plan year on or before 
     the valuation date for such year (and any income allocable 
     thereto) shall, for purposes of section 412, be treated as 
     assets in the plan as of the valuation date for such year, 
     and
       ``(ii) the plan shall be treated as having a net experience 
     loss under section 412(b)(2)(B)(iv) in an amount equal to the 
     amount of such transfer and for which amortization charges 
     begin for the first plan year after the plan year in which 
     such transfer occurs, except that such section shall be 
     applied to such amount by substituting `10 plan years' for `5 
     plan years'.''
       (b) Excess Assets.--Section 420(e)(2) is amended to read as 
     follows:
       ``(2) Excess pension assets.--The term `excess pension 
     assets' means the excess (if any) of--
       ``(A) the amount determined under section 412(c)(7)(A)(ii), 
     over
       ``(B) the greater of--
       ``(i) the amount determined under section 
     412(c)(7)(A)(i)(II), or
       ``(ii) 125 percent of termination liability determined 
     under section 414(l), except that the actuarial assumptions 
     used in making such determinations shall be the assumptions 
     used by the Pension Benefit Guaranty Corporation for single-
     employer plan termination purposes under regulations under 
     title IV of the Employee Retirement Income Security Act of 
     1974.
     The determination under the preceding sentence with respect 
     to any transfer shall be made as of the date of the transfer. 
     No substantial changes in the regulations described in clause 
     (ii) which are made after the date of the enactment of the 
     Revenue Reconciliation Act of 1995 shall be taken into 
     account for purposes of such clause.''
       (c) Taxpayers in Bankruptcy May Not Make Transfers.--
     Section 420(e) is amended by adding at the end the following 
     new paragraph:
       ``(5) Exclusion of taxpayers in bankruptcy.--No qualified 
     transfer or qualified employee benefit transfer may be made 
     under this section by a taxpayer if--
       ``(A) the taxpayer has filed, or has had filed against it, 
     a petition in a title 11 or similar case (within the meaning 
     of section 368(a)(3)), and
       ``(B) such case is still pending.''
       (d) Conforming Amendments to ERISA.--
       (1) Notice.--Section 101(e) of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1021(e)) is amended--
       (A) by inserting ``or a qualified employee benefit 
     transfer,'' after ``to a health benefits account,'' in 
     paragraphs (1) and (2)(A),
       (B) by inserting ``or qualified employee benefits'' after 
     ``the amount of health benefits liabilities'' in paragraph 
     (1),
       (C) in paragraph (3)--
       (i) by striking ``January 1, 1995'' and inserting ``the 
     date of the enactment of the Revenue Reconciliation Act of 
     1995'', and
       (ii) by striking ``paragraph (1)'' and inserting ``this 
     subsection'', and
       (D) by striking ``to Health Benefits Accounts'' in the 
     heading.
       (2) Exclusive benefit.--Paragraph (1) of section 403(c) of 
     such Act (29 U.S.C. 1103(c)(1)) is amended by striking 
     ``January 1, 1995'' and inserting ``the date of the enactment 
     of the Revenue Reconciliation Act of 1995''.
       (3) Exemption from prohibited transaction.--Paragraph (13) 
     of section 408(b) of such Act (29 U.S.C. 1108(b)(13)) is 
     amended--
       (A) by striking ``retiree health account'' and inserting 
     ``health benefits account'',
       (B) by inserting before the period at the end ``, or any 
     transfer of such assets in a taxable year beginning before 
     January 1, 2002, in a qualified employee benefit transfer 
     permitted under such section 420'', and
       (C) by striking ``January 1, 1995'' and inserting ``the 
     date of the enactment of the Revenue Reconciliation Act of 
     1995''.
       (e) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to transfers on and after the date of the enactment of 
     this Act.

[[Page H 12658]]

       (2) Qualified transfers.--To the extent the amendments made 
     by subsections (b), (c), and (d) apply to qualified transfers 
     under section 420 of the Internal Revenue Code of 1986 (as in 
     effect on the day before the date of the enactment of this 
     Act), such amendments shall apply to transfers occurring 
     after December 31, 1995.

     SEC. 11308. REPEAL OF EXCLUSION FOR INTEREST ON LOANS USED TO 
                   ACQUIRE EMPLOYER SECURITIES.

       (a) In General.--Section 133 (relating to interest on 
     certain loans used to acquire employer securities) is hereby 
     repealed.
       (b) Conforming Amendments.--
       (1) Subparagraph (B) of section 291(e)(1) is amended by 
     striking clause (iv) and by redesignating clause (v) as 
     clause (iv).
       (2) Section 812 is amended by striking subsection (g).
       (3) Paragraph (5) of section 852(b) is amended by striking 
     subparagraph (C).
       (4) Paragraph (2) of section 4978(b) is amended by striking 
     subparagraph (A) and all that follows and inserting the 
     following:
       ``(A) first from qualified securities to which section 1042 
     applied acquired during the 3-year period ending on the date 
     of the disposition, beginning with the securities first so 
     acquired, and
       ``(B) then from any other employer securities.
     If subsection (d) applies to a disposition, the disposition 
     shall be treated as made from employer securities in the 
     opposite order of the preceding sentence.''.
       (5)(A) Section 4978B (relating to tax on disposition of 
     employer securities to which section 133 applied) is hereby 
     repealed.
       (B) The table of sections for chapter 43 is amended by 
     striking the item relating to section 4978B.
       (6) Subsection (e) of section 6047 is amended by striking 
     paragraphs (1), (2), and (3) and inserting the following new 
     paragraphs:
       ``(1) any employer maintaining, or the plan administrator 
     (within the meaning of section 414(g)) of, an employee stock 
     ownership plan which holds stock with respect to which 
     section 404(k) applies to dividends paid on such stock, or
       ``(2) both such employer or plan administrator,''.
       (7) Subsection (f) of section 7872 is amended by striking 
     paragraph (12).
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to loans made after October 13, 1995.
       (2) Refinancings.--The amendments made by this section 
     shall not apply to loans made after October 13, 1995, to 
     refinance securities acquisition loans (determined without 
     regard to section 133(b)(1)(B) of the Internal Revenue Code 
     of 1986, as in effect on the day before the date of the 
     enactment of this Act) made on or before such date or to 
     refinance loans described in this paragraph if--
       (A) the refinancing loans meet the requirements of section 
     133 of such Code (as so in effect),
       (B) immediately after the refinancing the principal amount 
     of the loan resulting from the refinancing does not exceed 
     the principal amount of the refinanced loan (immediately 
     before the refinancing), and
       (C) the term of such refinancing loan does not extend 
     beyond the last day of the term of the original securities 
     acquisition loan.
     For purposes of this paragraph, the term ``securities 
     acquisition loan'' includes a loan from a corporation to an 
     employee stock ownership plan described in section 133(b)(3) 
     of such Code (as so in effect).

                        CHAPTER 2--LEGAL REFORMS

     SEC. 11311. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES AND FOR 
                   DAMAGES NOT ATTRIBUTABLE TO PHYSICAL INJURIES 
                   OR SICKNESS.

       (a) In General.--Paragraph (2) of section 104(a) (relating 
     to compensation for injuries or sickness) is amended to read 
     as follows:
       ``(2) the amount of any damages (other than punitive 
     damages) received (whether by suit or agreement and whether 
     as lump sums or as periodic payments) on account of personal 
     physical injuries or physical sickness;''.
       (b) Emotional Distress as Such Treated as Not Physical 
     Injury or Physical Sickness.--Section 104(a) is amended by 
     striking the last sentence and inserting the following new 
     sentence: ``For purposes of paragraph (2), emotional distress 
     shall not be treated as a physical injury or physical 
     sickness. The preceding sentence shall not apply to an amount 
     of damages not in excess of the amount paid for medical care 
     (described in subparagraph (A) or (B) of section 213(d)(1)) 
     attributable to emotional distress.''.
       (c) Special Rule for States in Which Only Punitive Damages 
     May Be Awarded in Wrongful Death Actions.--Section 104 is 
     amended by redesignating subsection (c) as subsection (d) and 
     by inserting after subsection (b) the following new 
     subsection:
       ``(c) Restriction on Punitive Damages Not to Apply in 
     Certain Cases.--The restriction on the application of 
     subsection (a)(2) to punitive damages shall not apply to 
     punitive damages which--
       ``(1) are awarded in a civil action--
       ``(A) which is a wrongful death action, and
       ``(B) with respect to which applicable State law (as in 
     effect on February 1, 1996, and without regard to any 
     modification after such date) provides, or has been construed 
     to provide by a court of competent jurisdiction pursuant to a 
     decision issued on or before February 1, 1996, that only 
     punitive damages may be awarded in such an action, and
       ``(2) would have been excludable from gross income under 
     subsection (a)(2) as in effect for amounts received on 
     December 31, 1995.
     This subsection shall cease to apply to any civil action 
     filed on or after the first date on which the applicable 
     State law ceases to provide (or is no longer construed to 
     provide) the treatment described in paragraph (2).''
       (d) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to amounts 
     received after December 31, 1995, in taxable years ending 
     after such date.
       (2) Exception.--The amendments made by this section shall 
     not apply to any amount received under a written binding 
     agreement, court decree, or mediation award in effect on (or 
     issued on or before) September 13, 1995.

     SEC. 11312. REPORTING OF CERTAIN PAYMENTS MADE TO ATTORNEYS.

       (a) In General.--Section 6045 (relating to returns of 
     brokers) is amended by adding at the end the following new 
     subsection:
       ``(f) Return Required in the Case of Payments to 
     Attorneys.--
       ``(1) In general.--Any person engaged in a trade or 
     business and making a payment (in the course of such trade or 
     business) to which this subsection applies shall file a 
     return under subsection (a) and a statement under subsection 
     (b) with respect to such payment.
       ``(2) Application of subsection.--
       ``(A) In general.--This subsection shall apply to any 
     payment to an attorney in connection with legal services 
     (whether or not such services are performed for the payor).
       ``(B) Exception.--This subsection shall not apply to the 
     portion of any payment which is required to be reported under 
     section 6041(a) (or would be so required but for the dollar 
     limitation contained therein) or section 6051.''.
       (b) Reporting of Attorneys' Fees Payable to Corporations.--
     The regulations providing an exception under section 6041 of 
     the Internal Revenue Code of 1986 for payments made to 
     corporations shall not apply to payments of attorneys' fees.
       (c) Effective Date.--The amendment made by this section 
     shall apply to payments made after December 31, 1996.

        CHAPTER 3--REFORMS RELATING TO NONRECOGNITION PROVISIONS

     SEC. 11321. NO ROLLOVER OR EXCLUSION OF GAIN ON SALE OF 
                   PRINCIPAL RESIDENCE WHICH IS ATTRIBUTABLE TO 
                   DEPRECIATION DEDUCTIONS.

       (a) In General.--Subsection (d) of section 1034 (relating 
     to limitations) is amended by adding at the end the following 
     new paragraph:
       ``(3) Recognition of gain attributable to depreciation.--
     Subsection (a) shall not apply to so much of the gain from 
     the sale of any residence as does not exceed the portion of 
     the depreciation adjustments (as defined in section 
     1250(b)(3)) attributable to periods after December 31, 1995, 
     in respect of such residence.''.
       (b) Comparable Treatment Under 1-Time Exclusion of Gain on 
     Sale of Principal Residence.--Subsection (d) of section 121 
     is amended by adding at the end the following new paragraph:
       ``(10) Recognition of gain attributable to depreciation.--
       ``(A) In general.--Subsection (a) shall not apply to so 
     much of the gain from the sale of any property as does not 
     exceed the portion of the depreciation adjustments (as 
     defined in section 1250(b)(3)) attributable to periods after 
     December 31, 1995, in respect of such property.
       ``(B) Coordination with paragraph (5).--If this section 
     does not apply to gain attributable to a portion of a 
     residence by reason of paragraph (5), subparagraph (A) shall 
     not apply to depreciation adjustments attributable to such 
     portion.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after December 31, 1995.

     SEC. 11322. NONRECOGNITION OF GAIN ON SALE OF PRINCIPAL 
                   RESIDENCE BY NONCITIZENS LIMITED TO NEW 
                   RESIDENCES LOCATED IN THE UNITED STATES.

       (a) In General.--Subsection (d) of section 1034 (relating 
     to limitations) (as amended by section 11321) is amended by 
     adding at the end the following new paragraph:
       ``(4) New residence must be located in united states in 
     certain cases.--
       ``(A) In general.--In the case of a sale of an old 
     residence by a taxpayer--
       ``(i) who is not a citizen of the United States at the time 
     of sale, and
       ``(ii) who is not a citizen or resident of the United 
     States on the date which is 2 years after the date of the 
     sale of such old residence,
     subsection (a) shall apply only if the new residence is 
     located in the United States or a possession of the United 
     States.
       ``(B) Property held jointly by husband and wife.--
     Subparagraph (A) shall not apply if--
       ``(i) the old residence is held by a husband and wife as 
     joint tenants, tenants by the entirety, or community 
     property,
       ``(ii) such husband and wife make a joint return for the 
     taxable year of the sale or exchange, and
       ``(iii) one spouse is a citizen of the United States at the 
     time of sale.''.
       (b) Effective Date.--
       (1) In general.--The amendment made by this section shall 
     apply to sales of old residences after December 31, 1995.
       (2) Treatment of purchases of new residences.--The 
     amendment made by this section shall not apply to new 
     residences--
       (A) purchased before September 13, 1995, or
       (B) purchased on or after such date pursuant to a binding 
     contract in effect on such date and at all times thereafter 
     before such purchase.
       (3) Certain rules to apply.--For purposes of this 
     subsection, the rules of paragraphs (1), (2), and (3) of 
     section 1034(c) of the Internal Revenue Code of 1986 shall 
     apply.

[[Page H 12659]]


          CHAPTER 4--EXCISE TAX AND TAX-EXEMPT BOND PROVISIONS

     SEC. 11331. REPEAL OF DIESEL FUEL TAX REBATE TO PURCHASERS OF 
                   DIESEL-POWERED AUTOMOBILES AND LIGHT TRUCKS.

       (a) In General.--Section 6427 (relating to fuels not used 
     for taxable purposes) is amended by striking subsection (g).
       (b) Conforming Amendments.--
       (1) Paragraph (3) of section 34(a) is amended to read as 
     follows:
       ``(3) under section 6427 with respect to fuels used for 
     nontaxable purposes or resold during the taxable year 
     (determined without regard to section 6427(k)).''.
       (2) Paragraphs (1) and (2)(A) of section 6427(i) are each 
     amended--
       (A) by striking ``(g),'', and
       (B) by striking ``(or a qualified diesel powered highway 
     vehicle purchased)'' each place it appears.
       (c) Effective Date.--The amendments made by this section 
     shall apply to vehicles purchased after December 31, 1995.

     SEC. 11332. MODIFICATIONS TO EXCISE TAX ON OZONE-DEPLETING 
                   CHEMICALS.

       (a) In General.--Section 4682(d)(1) (relating to recycling) 
     is amended by inserting ``, or on any recycled halon imported 
     from any country which is a signatory to the Montreal 
     Protocol on Substances that Deplete the Ozone Layer'' before 
     the period at the end.
       (b) Certification System.--The Secretary of the Treasury, 
     after consultation with the Administrator of the 
     Environmental Protection Agency, shall develop a 
     certification system to ensure compliance with the recycling 
     requirement for imported halon under section 4682(d)(1) of 
     the Internal Revenue Code of 1986, as amended by subsection 
     (a).
       (c) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of the enactment of this Act.

     SEC. 11333. ELECTION TO AVOID TAX-EXEMPT BOND PENALTIES FOR 
                   LOCAL FURNISHERS OF ELECTRICITY AND GAS.

       Section 142(f) (relating to local furnishing of electric 
     energy or gas) is amended by adding at the end the following 
     new paragraphs:
       ``(3) Election to avoid penalties for certain furnishers.--
       ``(A) In general.--If--
       ``(i) a person engaged in the local furnishing of electric 
     energy or gas, directly or indirectly financed facilities for 
     such furnishing in whole or in part with exempt facility 
     bonds described in subsection (a)(8) issued before the date 
     of the enactment of this paragraph,
       ``(ii) such bonds would (but for this paragraph) cease to 
     be tax-exempt by reason of such person failing to meet the 
     local furnishing requirement of such section as a result of a 
     service area expansion by such person, and
       ``(iii) an election described in subparagraph (B) is made 
     by such person with respect to all such facilities of the 
     person,
     then such bonds shall not cease to be tax-exempt by reason of 
     such expansion (and section 150(b)(4) shall not apply to 
     interest on such bonds).
       ``(B) Election.--An election is described in this 
     subparagraph if it is an election made in such manner as the 
     Secretary prescribes, and such person agrees that--
       ``(i) no bond exempt from tax under section 103 and 
     described in subsection (a)(8) may be issued on or after the 
     date of the enactment of this paragraph with respect to the 
     facilities for the local furnishing of electric energy or 
     gas, or both of such person, other than such a bond issued to 
     refund another bond if the amount of such bond does not 
     exceed the outstanding amount of the refunded bond and the 
     maturity date of the refunding bond is not later than the 
     average maturity date of the refunded bonds to be refunded by 
     the issue of which the refunding bond is a part,
       ``(ii) the expansion of the service area--

       ``(I) is not financed with the proceeds of any exempt 
     facility bond described in subsection (a)(8), and
       ``(II) is not treated as a nonqualifying use under the 
     rules of paragraph (2), and

       ``(iii) all outstanding bonds used to finance the 
     facilities for such person are redeemed not later than 6 
     months after the later of--

       ``(I) the earliest date on which such bonds may be 
     redeemed, or
       ``(II) the date of the election.

       ``(C) Related persons.--For purposes of this paragraph, the 
     term `person' includes a group of related persons (within the 
     meaning of section 144(a)(3)) which includes such person.
       ``(4) Application of section.--For purposes of this 
     section, no person may qualify on or after the date of the 
     enactment of this paragraph for tax-exempt bond financing for 
     the local furnishing of electric energy or gas unless such 
     person is engaged on such date in the local furnishing of the 
     energy source for which facilities are financed.''.

     SEC. 11334. TAX-EXEMPT BONDS FOR SALE OF ALASKA POWER 
                   ADMINISTRATION FACILITY.

       Sections 142(f)(4) (as added by section 11333(a)) and 
     147(d) of the Internal Revenue Code of 1986 shall not apply 
     with respect to any private activity bond issued after the 
     date of the enactment of this Act and used to finance the 
     acquisition of the Snettisham hydroelectric project from the 
     Alaska Power Administration in determining if such bond is a 
     qualified bond for purposes of such Code.

                CHAPTER 5--FOREIGN TRUST TAX COMPLIANCE

     SEC. 11341. IMPROVED INFORMATION REPORTING ON FOREIGN TRUSTS.

       (a) In General.--Section 6048 (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
       ``(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) Deferred compensation and charitable trusts.--
     Subparagraph (A) shall not apply with respect to a trust 
     which is--

       ``(I) described in section 402(b), 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 paragraph 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.
       ``(B) United states agent required.--The rules of this 
     paragraph 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 

[[Page H 12660]]
     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.--
       ``(A) In general.--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).
       ``(B) Application of accumulation distribution rules.--For 
     purposes of applying section 668 in a case to which 
     subparagraph (A) applies, the applicable number of years for 
     purposes of section 668(a) shall be \1/2\ of the number of 
     years the trust has been in existence.
       ``(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 (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. In no event shall the penalty under this 
     subsection with respect to any failure exceed the gross 
     reportable amount.
       ``(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), as amended by 
     sections 11004 and 11045, is amended by striking ``or'' at 
     the end of subparagraph (U), by striking the period at the 
     end of subparagraph (V) and inserting ``, or'', and by 
     inserting after subparagraph (V) the following new 
     subparagraph:
       ``(W) 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 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 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.''.

       (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. 11342. 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) 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 (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) except as provided in regulations, 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)(2)(B)) to any grantor or beneficiary of the 
     trust.''.
       (b) Exemption of Transfers to Charitable Trusts.--
     Subsection (a) of section 679 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 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 is 
     amended by adding at the end the following new paragraph:
       ``(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.''.

[[Page H 12661]]

       (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. 11343. FOREIGN PERSONS NOT TO BE TREATED AS OWNERS UNDER 
                   GRANTOR TRUST RULES.

       (a) General Rule.--
       (1) Subsection (f) of section 672 (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 irrevocable trusts.--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.
       ``(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 section 1296.
       ``(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) Special rule where grantor is foreign person.--If
       ``(A) but for this subsection, a foreign person would be 
     treated as the owner of any portion of a trust, and
       ``(B) such trust has a beneficiary who is a United States 
     person,
     such beneficiary shall be treated as the grantor of such 
     portion to the extent such beneficiary has made transfers of 
     property by gift (directly or indirectly) to such foreign 
     person. For purposes of the preceding sentence, any gift 
     shall not be taken into account to the extent such gift would 
     be excluded from taxable gifts under section 2503(b).
       ``(6) 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) 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 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 
     paid by the foreign trust to such United States person.''.
       (2) Section 665 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. 11344. INFORMATION REPORTING REGARDING FOREIGN GIFTS.

       (a) In General.--Subpart A of part III of subchapter A of 
     chapter 61 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) Cost-of-Living Adjustment.--In the case of any 
     taxable year beginning after December 31, 1996, the $10,000 
     amount under subsection (a) shall be increased by an amount 
     equal to the product of such amount and the cost-of-living 
     adjustment for such taxable year under section 1(f)(3), 
     except that subparagraph (B) thereof shall be applied by 
     substituting `1995' for `1992'.
       ``(e) 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. 11345. 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 (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--

[[Page H 12662]]

       ``(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 
     undistributed income 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) 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 Loans From Trusts.--
       (1) In general.--Section 643 (relating to definitions 
     applicable to subparts A, B, C, and D) is amended by adding 
     at the end the following new subsection:
       ``(i) Loans From Foreign Trusts.--For purposes of subparts 
     B, C, and D--
       ``(1) General rule.--Except as provided in regulations, 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) 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.--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.
       ``(3) 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.
       (2) Abusive transactions.--The amendment made by subsection 
     (b) shall take effect on the date of the enactment of this 
     Act.
       (3) Loans from trusts.--The amendment made by subsection 
     (c) shall apply to loans of cash or marketable securities 
     after September 19, 1995.

     SEC. 11346. RESIDENCE OF ESTATES AND TRUSTS, ETC.

       (a) Treatment as United States Person.--
       (1) In general.--Paragraph (30) of section 7701(a) 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) 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 (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 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 with respect to a trust, 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.

 CHAPTER 6--TREATMENT OF INDIVIDUALS WHO LOSE UNITED STATES CITIZENSHIP

     SEC. 11348. REVISION OF INCOME, ESTATE, AND GIFT TAXES ON 
                   INDIVIDUALS WHO LOSE UNITED STATES CITIZENSHIP.

       (a) In General.--Subsection (a) of section 877 is amended 
     to read as follows:
       ``(a) Treatment of Expatriates.--
       ``(1) In general.--Every nonresident alien individual who, 
     within the 10-year period immediately preceding the close of 
     the taxable year, lost United States citizenship, unless such 
     loss did not have for 1 of its principal purposes the 
     avoidance of taxes under this subtitle or subtitle B, shall 
     be taxable for such taxable year in the manner provided in 
     subsection (b) if the tax imposed pursuant to such subsection 
     exceeds the tax which, without regard to this section, is 
     imposed pursuant to section 871.
       ``(2) Certain individuals treated as having tax avoidance 
     purpose.--For purposes of paragraph (1), an individual shall 
     be treated as having a principal purpose to avoid such taxes 
     if--
       ``(A) the average annual net income tax (as defined in 
     section 38(c)(1)) of such individual for the period of 5 
     taxable years ending before the date of the loss of United 
     States citizenship is greater than $100,000, or
       ``(B) the net worth of the individual as of such date is 
     $500,000 or more.
     In the case of the loss of United States citizenship in any 
     calendar year after 1996, such $100,000 and $500,000 amounts 
     shall be increased by an amount equal to such dollar amount 
     multiplied by the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year by substituting `1994' 
     for `1992' in subparagraph (B) thereof. Any increase under 
     the preceding sentence shall be rounded to the nearest 
     multiple of $1,000.''
       (b) Exceptions.--
       (1) In general.--Section 877 is amended by striking 
     subsection (d), by redesignating subsection (c) as subsection 
     (d), and by inserting after subsection (b) the following new 
     subsection:
       ``(c) Tax Avoidance Not Presumed in Certain Cases.--
       ``(1) In general.--Subsection (a)(2) shall not apply to an 
     individual if--
       ``(A) such individual is described in a subparagraph of 
     paragraph (2) of this subsection, and
       ``(B) within the 1-year period beginning on the date of the 
     loss of United States citizenship, such individual submits a 
     ruling request for the Secretary's determination as to 
     whether such loss has for 1 of its principal purposes the 
     avoidance of taxes under this subtitle or subtitle B.
       ``(2) Individuals described.--
       ``(A) Dual citizenship, etc.--An individual is described in 
     this subparagraph if--
       ``(i) the individual became at birth a citizen of the 
     United States and a citizen of another country and continues 
     to be a citizen of such other country, or
       ``(ii) the individual becomes (not later than the close of 
     a reasonable period after loss of United States citizenship) 
     a citizen of the country in which--

       ``(I) such individual was born,
       ``(II) if such individual is married, such individual's 
     spouse was born, or
       ``(III) either of such individual's parents were born.

       ``(B) Long-term foreign residents.--An individual is 
     described in this subparagraph if, for each year in the 10-
     year period ending on the date of loss of United States 
     citizenship, the individual was present in the United States 
     for 30 days or less. The rule of section 7701(b)(3)(D)(ii) 
     shall apply for purposes of this subparagraph.
       ``(C) Renunciation upon reaching age of majority.--An 
     individual is described in this subparagraph if the 
     individual's loss of United States citizenship occurs before 
     such individual attains age 18\1/2\.
       ``(D) Individuals specified in regulations.--An individual 
     is described in this subparagraph if the individual is 
     described in a category of individuals prescribed by 
     regulation by the Secretary.''
       (2) Technical amendment.--Paragraph (1) of section 877(b) 
     of such Code is amended by striking ``subsection (c)'' and 
     inserting ``subsection (d)''.
       (c) Treatment of Property Disposed of in Nonrecognition 
     Transactions; Treatment of Distributions From Certain 
     Controlled Foreign Corporations.--Subsection (d) of section 
     877, as redesignated by subsection (b), is amended to read as 
     follows:
       ``(d) Special Rules for Source, Etc.--For purposes of 
     subsection (b)--
       ``(1) Source rules.--The following items of gross income 
     shall be treated as income from sources within the United 
     States:

[[Page H 12663]]

       ``(A) Sale of property.--Gains on the sale or exchange of 
     property (other than stock or debt obligations) located in 
     the United States.
       ``(B) Stock or debt obligations.--Gains on the sale or 
     exchange of stock issued by a domestic corporation or debt 
     obligations of United States persons or of the United States, 
     a State or political subdivision thereof, or the District of 
     Columbia.
       ``(C) Income or gain derived from controlled foreign 
     corporation.--Any income or gain derived from stock in a 
     foreign corporation but only--
       ``(i) if the individual losing United States citizenship 
     owned (within the meaning of section 958(a)), or is 
     considered as owning (by applying the ownership rules of 
     section 958(b)), at any time during the 2-year period ending 
     on the date of the loss of United States citizenship, more 
     than 50 percent of--

       ``(I) the total combined voting power of all classes of 
     stock entitled to vote of such corporation, or
       ``(II) the total value of the stock of such corporation, 
     and

       ``(ii) to the extent such income or gain does not exceed 
     the earnings and profits attributable to such stock which 
     were earned or accumulated before the loss of citizenship and 
     during periods that the ownership requirements of clause (i) 
     are met.
       ``(2) Gain recognition on certain exchanges.--
       ``(A) In general.--In the case of any exchange of property 
     to which this paragraph applies, notwithstanding any other 
     provision of this title, such property shall be treated as 
     sold for its fair market value on the date of such exchange, 
     and any gain shall be recognized for the taxable year which 
     includes such date.
       ``(B) Exchanges to which paragraph applies.--This paragraph 
     shall apply to any exchange during the 10-year period 
     described in subsection (a) if--
       ``(i) gain would not (but for this paragraph) be recognized 
     on such exchange in whole or in part for purposes of this 
     subtitle,
       ``(ii) income derived from such property was from sources 
     within the United States (or, if no income was so derived, 
     would have been from such sources), and
       ``(iii) income derived from the property acquired in the 
     exchange would be from sources outside the United States.
       ``(C) Exception.--Subparagraph (A) shall not apply if the 
     individual enters into an agreement with the Secretary which 
     specifies that any income or gain derived from the property 
     acquired in the exchange (or any other property which has a 
     basis determined in whole or part by reference to such 
     property) during such 10-year period shall be treated as from 
     sources within the United States. If the property transferred 
     in the exchange is disposed of by the person acquiring such 
     property, such agreement shall terminate and any gain which 
     was not recognized by reason of such agreement shall be 
     recognized as of the date of such disposition.
       ``(D) Secretary may extend period.--To the extent provided 
     in regulations prescribed by the Secretary, subparagraph (B) 
     shall be applied by substituting the 15-year period beginning 
     5 years before the loss of United States citizenship for the 
     10-year period referred to therein.
       ``(E) Secretary may require recognition of gain in certain 
     cases.--To the extent provided in regulations prescribed by 
     the Secretary--
       ``(i) the removal of appreciated tangible personal property 
     from the United States, and
       ``(ii) any other occurrence which (without recognition of 
     gain) results in a change in the source of the income or gain 
     from property from sources within the United States to 
     sources outside the United States,
     shall be treated as an exchange to which this paragraph 
     applies.
       ``(3) Substantial diminishing of risks of ownership.--For 
     purposes of determining whether this section applies to any 
     gain on the sale or exchange of any property, the running of 
     the 10-year period described in subsection (a) shall be 
     suspended for any period during which the individual's risk 
     of loss with respect to the property is substantially 
     diminished by--
       ``(A) the holding of a put with respect to such property 
     (or similar property),
       ``(B) the holding by another person of a right to acquire 
     the property, or
       ``(C) a short sale or any other transaction.''
       (d) Credit for Foreign Taxes Imposed on United States 
     Source Income.--
       (1) Subsection (b) of section 877 is amended by adding at 
     the end the following new sentence: ``The tax imposed solely 
     by reason of this section shall be reduced (but not below 
     zero) by the amount of any income, war profits, and excess 
     profits taxes (within the meaning of section 903) paid to any 
     foreign country or possession of the United States on any 
     income of the taxpayer on which tax is imposed solely by 
     reason of this section.''
       (2) Subsection (a) of section 877, as amended by subsection 
     (a), is amended by inserting ``(after any reduction in such 
     tax under the last sentence of such subsection)'' after 
     ``such subsection''.
       (e) Comparable Estate and Gift Tax Treatment.--
       (1) Estate tax.--
       (A) In general.--Subsection (a) of section 2107 is amended 
     to read as follows:
       ``(a) Treatment of Expatriates.--
       ``(1) Rate of tax.--A tax computed in accordance with the 
     table contained in section 2001 is hereby imposed on the 
     transfer of the taxable estate, determined as provided in 
     section 2106, of every decedent nonresident not a citizen of 
     the United States if, within the 10-year period ending with 
     the date of death, such decedent lost United States 
     citizenship, unless such loss did not have for 1 of its 
     principal purposes the avoidance of taxes under this subtitle 
     or subtitle A.
       ``(2) Certain individuals treated as having tax avoidance 
     purpose.--
       ``(A) In general.--For purposes of paragraph (1), an 
     individual shall be treated as having a principal purpose to 
     avoid such taxes if such individual is so treated under 
     section 877(a)(2).
       ``(B) Exception.--Subparagraph (A) shall not apply to a 
     decedent meeting the requirements of section 877(c)(1).''
       (B) Credit for foreign death taxes.--Subsection (c) of 
     section 2107 is amended by redesignating paragraph (2) as 
     paragraph (3) and by inserting after paragraph (1) the 
     following new paragraph:
       ``(2) Credit for foreign death taxes.--
       ``(A) In general.--The tax imposed by subsection (a) shall 
     be credited with the amount of any estate, inheritance, 
     legacy, or succession taxes actually paid to any foreign 
     country in respect of any property which is included in the 
     gross estate solely by reason of subsection (b).
       ``(B) Limitation on credit.--The credit allowed by 
     subparagraph (A) for such taxes paid to a foreign country 
     shall not exceed the lesser of--
       ``(i) the amount which bears the same ratio to the amount 
     of such taxes actually paid to such foreign country in 
     respect of property included in the gross estate as the value 
     of the property included in the gross estate solely by reason 
     of subsection (b) bears to the value of all property 
     subjected to such taxes by such foreign country, or
       ``(ii) such property's proportionate share of the excess 
     of--

       ``(I) the tax imposed by subsection (a), over
       ``(II) the tax which would be imposed by section 2101 but 
     for this section.

       ``(C) Proportionate share.--For purposes of subparagraph 
     (B), a property's proportionate share is the percentage which 
     the value of the property which is included in the gross 
     estate solely by reason of subsection (b) bears to the total 
     value of the gross estate.''
       (C) Expansion of inclusion in gross estate of stock of 
     foreign corporations.--Paragraph (2) of section 2107(b) is 
     amended by striking ``more than 50 percent of'' and all that 
     follows and inserting ``more than 50 percent of--
       ``(A) the total combined voting power of all classes of 
     stock entitled to vote of such corporation, or
       ``(B) the total value of the stock of such corporation,''.
       (2) Gift tax.--
       (A) In general.--Paragraph (3) of section 2501(a) is 
     amended to read as follows:
       ``(3) Exception.--
       ``(A) Certain individuals.--Paragraph (2) shall not apply 
     in the case of a donor who, within the 10-year period ending 
     with the date of transfer, lost United States citizenship, 
     unless such loss did not have for 1 of its principal purposes 
     the avoidance of taxes under this subtitle or subtitle A.
       ``(B) Certain individuals treated as having tax avoidance 
     purpose.--For purposes of subparagraph (A), an individual 
     shall be treated as having a principal purpose to avoid such 
     taxes if such individual is so treated under section 
     877(a)(2).
       ``(C) Exception for certain individuals.--Subparagraph (B) 
     shall not apply to a decedent meeting the requirements of 
     section 877(c)(1).
       ``(D) Credit for foreign gift taxes.--The tax imposed by 
     this section solely by reason of this paragraph shall be 
     credited with the amount of any gift tax actually paid to any 
     foreign country in respect of any gift which is taxable under 
     this section solely by reason of this paragraph.''
       (f) Comparable Treatment of Lawful Permanent Residents Who 
     Cease To Be Taxed as Residents.--
       (1) In general.--Section 877 is amended by redesignating 
     subsection (e) as subsection (f) and by inserting after 
     subsection (d) the following new subsection:
       ``(e) Comparable Treatment of Lawful Permanent Residents 
     Who Cease To Be Taxed as Residents.--
       ``(1) In general.--Any long-term resident of the United 
     States who--
       ``(A) ceases to be a lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)), or
       ``(B) commences to be treated as a resident of a foreign 
     country under the provisions of a tax treaty between the 
     United States and the foreign country and who does not waive 
     the benefits of such treaty applicable to residents of the 
     foreign country,
     shall be treated for purposes of this section and sections 
     2107, 2501, and 6039F in the same manner as if such resident 
     were a citizen of the United States who lost United States 
     citizenship on the date of such cessation or commencement.
       ``(2) Long-term resident.--For purposes of this subsection, 
     the term `long-term resident' means any individual (other 
     than a citizen of the United States) who is a lawful 
     permanent resident of the United States in at least 8 taxable 
     years during the period of 15 taxable years ending with the 
     taxable year during which the event described in subparagraph 
     (A) or (B) of paragraph (1) occurs. For purposes of the 
     preceding sentence, an individual shall not be treated as a 
     lawful permanent resident for any taxable year if such 
     individual is treated as a resident of a foreign country for 
     the taxable year under the provisions of a tax treaty between 
     the United States and the foreign country and does not waive 
     the benefits of such treaty applicable to residents of the 
     foreign country.
       ``(3) Special rules.--
       ``(A) Exceptions not to apply.--Subsection (c) shall not 
     apply to an individual who is treated as provided in 
     paragraph (1).
       ``(B) Step-up in basis.--Solely for purposes of determining 
     any tax imposed by reason of this subsection, property which 
     was held by the long-term resident on the date the individual 


[[Page H 12664]]
     first became a resident of the United States shall be treated as having 
     a basis on such date of not less than the fair market value 
     of such property on such date. The preceding sentence shall 
     not apply if the individual elects not to have such sentence 
     apply. Such an election, once made, shall be irrevocable.
       ``(4) Authority to exempt individuals.--This subsection 
     shall not apply to an individual who is described in a 
     category of individuals prescribed by regulation by the 
     Secretary.
       ``(5) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out this 
     subsection, including regulations providing for the 
     application of this subsection in cases where an alien 
     individual becomes a resident of the United States during the 
     10-year period after being treated as provided in paragraph 
     (1).''
       (2) Conforming amendments.--
       (A) Section 2107 is amended by striking subsection (d), by 
     redesignating subsection (e) as subsection (d), and by 
     inserting after subsection (d) (as so redesignated) the 
     following new subsection:
       ``(e) Cross Reference.--
       ``For comparable treatment of long-term lawful permanent 
     residents who ceased to be taxed as residents, see section 
     877(e).''
       (B) Paragraph (3) of section 2501(a) (as amended by 
     subsection (e)) is amended by adding at the end the following 
     new subparagraph:
       ``(E) Cross reference.--
       ``For comparable treatment of long-term lawful permanent 
     residents who ceased to be taxed as residents, see section 
     877(e).''
       (g) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to--
       (A) individuals losing United States citizenship (within 
     the meaning of section 877 of the Internal Revenue Code of 
     1986) on or after February 6, 1995, and
       (B) long-term residents of the United States with respect 
     to whom an event described in subparagraph (A) or (B) of 
     section 877(e)(1) of such Code occurs on or after February 6, 
     1995.
       (2) Special rule.--
       (A) In general.--In the case of an individual who performed 
     an act of expatriation specified in paragraph (1), (2), (3), 
     or (4) of section 349(a) of the Immigration and Nationality 
     Act (8 U.S.C. 1481(a)(1)-(4)) before February 6, 1995, but 
     who did not, on or before such date, furnish to the United 
     States Department of State a signed statement of voluntary 
     relinquishment of United States nationality confirming the 
     performance of such act, the amendments made by this section 
     and section 11349 shall apply to such individual except 
     that--
       (i) the 10-year period described in section 877(a) of such 
     Code shall not expire before the end of the 10-year period 
     beginning on the date such statement is so furnished, and
       (ii) the 1-year period referred to in section 877(c) of 
     such Code, as amended by this section, shall not expire 
     before the date which is 1 year after the date of the 
     enactment of this Act.
       (B) Exception.--Subparagraph (A) shall not apply if the 
     individual establishes to the satisfaction of the Secretary 
     of the Treasury that such loss of United States citizenship 
     occurred before February 6, 1994.

     SEC. 11349. INFORMATION ON INDIVIDUALS LOSING UNITED STATES 
                   CITIZENSHIP.

       (a) In General.--Subpart A of part III of subchapter A of 
     chapter 61, as amended by section 11344, is amended by 
     inserting after section 6039F the following new section:

     ``SEC. 6039G. INFORMATION ON INDIVIDUALS LOSING UNITED STATES 
                   CITIZENSHIP.

       ``(a) In General.--Notwithstanding any other provision of 
     law, any individual who loses United States citizenship 
     (within the meaning of section 877(a)) shall provide a 
     statement which includes the information described in 
     subsection (b). Such statement shall be--
       ``(1) provided not later than the earliest date of any act 
     referred to in subsection (c), and
       ``(2) provided to the person or court referred to in 
     subsection (c) with respect to such act.
       ``(b) Information To Be Provided.--Information required 
     under subsection (a) shall include--
       ``(1) the taxpayer's TIN,
       ``(2) the mailing address of such individual's principal 
     foreign residence,
       ``(3) the foreign country in which such individual is 
     residing,
       ``(4) the foreign country of which such individual is a 
     citizen,
       ``(5) in the case of an individual having a net worth of at 
     least the dollar amount applicable under section 
     877(a)(2)(B), information detailing the assets and 
     liabilities of such individual, and
       ``(6) such other information as the Secretary may 
     prescribe.
       ``(c) Acts Described.--For purposes of this section, the 
     acts referred to in this subsection are--
       ``(1) the individual's renunciation of his United States 
     nationality before a diplomatic or consular officer of the 
     United States pursuant to paragraph (5) of section 349(a) of 
     the Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
       ``(2) the individual's furnishing to the United States 
     Department of State a signed statement of voluntary 
     relinquishment of United States nationality confirming the 
     performance of an act of expatriation specified in paragraph 
     (1), (2), (3), or (4) of section 349(a) of the Immigration 
     and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
       ``(3) the issuance by the United States Department of State 
     of a certificate of loss of nationality to the individual, or
       ``(4) the cancellation by a court of the United States of a 
     naturalized citizen's certificate of naturalization.
       ``(d) Penalty.--Any individual failing to provide a 
     statement required under subsection (a) shall be subject to a 
     penalty for each year (of the 10-year period beginning on the 
     date of loss of United States citizenship) during any portion 
     of which such failure continues in an amount equal to the 
     greater of--
       ``(1) 5 percent of the tax required to be paid under 
     section 877 for the taxable year ending during such year, or
       ``(2) $1,000,
     unless it is shown that such failure is due to reasonable 
     cause and not to willful neglect.
       ``(e) Information To Be Provided To Secretary.--
     Notwithstanding any other provision of law--
       ``(1) any Federal agency or court which collects (or is 
     required to collect) the statement under subsection (a) shall 
     provide to the Secretary--
       ``(A) a copy of any such statement, and
       ``(B) the name (and any other identifying information) of 
     any individual refusing to comply with the provisions of 
     subsection (a),
       ``(2) the Secretary of State shall provide to the Secretary 
     a copy of each certificate as to the loss of American 
     nationality under section 358 of the Immigration and 
     Nationality Act which is approved by the Secretary of State, 
     and
       ``(3) the Federal agency primarily responsible for 
     administering the immigration laws shall provide to the 
     Secretary the name of each lawful permanent resident of the 
     United States (within the meaning of section 7701(b)(6)) 
     whose status as such has been revoked or has been 
     administratively or judicially determined to have been 
     abandoned.
       ``(f) Reporting by Long-Term Lawful Permanent Residents Who 
     Cease To Be Taxed as Residents.--In lieu of applying the last 
     sentence of subsection (a), any individual who is required to 
     provide a statement under this section by reason of section 
     877(e)(1) shall provide such statement with the return of tax 
     imposed by chapter 1 for the taxable year during which the 
     event described in such section occurs.
       ``(g) Exemption.--The Secretary may by regulations exempt 
     any class of individuals from the requirements of this 
     section if he determines that applying this section to such 
     individuals is not necessary to carry out the purposes of 
     this section.''
       (b) Clerical Amendment.--The table of sections for such 
     subpart A is amended by inserting after the item relating to 
     section 6039F the following new item:
     ``Sec. 6039G. Information on individuals losing United States 
                                                    citizenship.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to--
       (1) individuals losing United States citizenship (within 
     the meaning of section 877 of the Internal Revenue Code of 
     1986) on or after February 6, 1995, and
       (2) long-term residents of the United States with respect 
     to whom an event described in subparagraph (A) or (B) of 
     section 877(e)(1) of such Code occurs on or after such date.
     In no event shall any statement required by such amendments 
     be due before the 90th day after the date of the enactment of 
     this Act.

         CHAPTER 7--FINANCIAL ASSET SECURITIZATION INVESTMENTS

     SEC. 11351. FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS.

       (a) In General.--Subchapter M of chapter 1 is amended by 
     adding at the end the following new part:

       ``PART V--FINANCIAL ASSET SECURITIZATION INVESTMENT TRUSTS

            ``Sec. 860H. Taxation of a FASIT; other general rules.
            ``Sec. 860I. Gain recognition on contributions to and 
                    distributions from a FASIT and in other cases.
        ``Sec. 860J. Non-FASIT losses not to offset certain FASIT 
                                                       inclusions.
      ``Sec. 860K. Treatment of transfers of high-yield interests 
                                          to disqualified holders.
                 ``Sec. 860L. Definitions and other special rules.

     ``SEC. 860H. TAXATION OF A FASIT; OTHER GENERAL RULES.

       ``(a) Taxation of FASIT.--A FASIT as such shall not be 
     subject to taxation under this subtitle (and shall not be 
     treated as a trust, partnership, corporation, or taxable 
     mortgage pool).
       ``(b) Taxation of Holder of Ownership Interest.--In 
     determining the taxable income of the holder of the ownership 
     interest in a FASIT--
       ``(1) all assets, liabilities, and items of income, gain, 
     deduction, loss, and credit of a FASIT shall be treated as 
     assets, liabilities, and such items (as the case may be) of 
     such holder,
       ``(2) the constant yield method (including the rules of 
     section 1272(a)(6)) shall be applied under an accrual method 
     of accounting in determining all interest, acquisition 
     discount, original issue discount, and market discount and 
     all premium deductions or adjustments with respect to all 
     debt instruments of the FASIT,
       ``(3) the amount of the tax imposed by section 860L(e) 
     (relating to tax on income from foreclosure property) shall 
     be allowed as a deduction,
       ``(4) there shall not be taken into account any item of 
     income, gain, loss, or deduction allocable to prohibited 
     income, and
       ``(5) interest accrued by the FASIT which is exempt from 
     tax imposed by this subtitle shall, when taken into account 
     by such holder, be treated as ordinary income.
     For purposes of this subtitle, securities treated as held by 
     such holder under paragraph (1) shall be treated as held for 
     investment.
       ``(c) Treatment of Regular Interests.--For purposes of this 
     title--
       ``(1) a regular interest in a FASIT, if not otherwise a 
     debt instrument, shall be treated as a debt instrument,
       ``(2) section 163(e)(5) shall not apply to such an 
     interest, and
       ``(3) amounts includible in gross income with respect to 
     such an interest shall be determined under an accrual method 
     of accounting.

[[Page H 12665]]


     ``SEC. 860I. GAIN RECOGNITION ON CONTRIBUTIONS TO AND 
                   DISTRIBUTIONS FROM A FASIT AND IN OTHER CASES.

       ``(a) Contributions to FASIT.--
       ``(1) In general.--If property is contributed to a FASIT by 
     the holder of the ownership interest in such FASIT, gain (if 
     any) shall be recognized to such holder in an amount equal to 
     the excess (if any) of such property's value under subsection 
     (e) on the date of such contribution over its adjusted basis 
     on such date.
       ``(2) Debt instruments acquired other than by contribution 
     by holder of ownership interest.--For purposes of this part, 
     any debt instrument which is acquired by a FASIT other than 
     in a contribution by the holder of the ownership interest in 
     the FASIT shall be treated--
       ``(A) as having been acquired by such holder at its fair 
     market value on the date of its acquisition by the FASIT, and
       ``(B) as having been contributed by such holder to the 
     FASIT at its value under subsection (e) on such date.
       ``(3) Deferral of gain recognition.--The Secretary may 
     prescribe regulations which--
       ``(A) provide that gain otherwise recognized under 
     paragraph (1) shall not be recognized before the earliest 
     date on which such property supports any regular interest in 
     such FASIT or any indebtedness of the holder of the ownership 
     interest (or of any person related to such holder), and
       ``(B) provide such adjustments to the other provisions of 
     this part to the extent appropriate in the context of the 
     treatment provided under subparagraph (A).
       ``(b) Certain Distributions.--If a FASIT makes a 
     distribution of property with respect to the ownership 
     interest in the FASIT, gain (if any) shall be recognized to 
     such FASIT on the distribution in the same manner as if the 
     FASIT had sold such property to the distributee at its value 
     under subsection (e) on the date of such distribution.
       ``(c) Gain Recognition on Property Outside FASIT Which 
     Supports Regular Interests.--If property held by the holder 
     of the ownership interest in a FASIT (or by any person 
     related to such holder) supports any regular interest in such 
     FASIT--
       ``(1) gain shall be recognized to such holder in the same 
     manner as if such holder had sold such property at its value 
     under subsection (e) on the earliest date such property 
     supports such an interest, and
       ``(2) such property shall be treated as held by such FASIT 
     for purposes of this part.
       ``(d) Gain Recognition on Retained Interests.--If--
       ``(1) any interest in a debt instrument is contributed to a 
     FASIT, and
       ``(2) the contributor (or any person related to such 
     contributor) retains any interest in such instrument 
     (including a right to receive excessive servicing fees with 
     respect to such instrument),
     then gain shall be recognized to such contributor (or person) 
     in the same manner as if the contributor (or person) had sold 
     the retained interest at its value under subsection (e) on 
     the date of such contribution.
       ``(e) Valuation.--For purposes of this section--
       ``(1) In general.--The value of any property under this 
     subsection shall be--
       ``(A) in the case of property other than a debt instrument, 
     its fair market value, and
       ``(B) in the case of a debt instrument, the sum of the 
     present values of the reasonably expected payments under such 
     instrument determined (in the manner provided by regulations 
     prescribed by the Secretary)--
       ``(i) as of the date of the event resulting in the gain 
     recognition under this section, and
       ``(ii) by using a discount rate equal to 120 percent of the 
     applicable Federal rate (as defined in section 1274(d)), or 
     such other discount rate specified in such regulations, 
     compounded semiannually.
       ``(2) Special rule for revolving loan accounts.--For 
     purposes of paragraph (1)--
       ``(A) each extension of credit (other than the accrual of 
     interest) on a revolving loan account shall be treated as a 
     separate debt instrument, and
       ``(B) payments on such extensions of credit having 
     substantially the same terms shall be applied to such 
     extensions beginning with the earliest such extension.
       ``(f) Special Rules.--
       ``(1) Nonrecognition rules not to apply.--Gain required to 
     be recognized under this section shall be recognized 
     notwithstanding any other provision of this subtitle.
       ``(2) Basis adjustments.--The basis of any property on 
     which gain is recognized under this section shall be 
     increased by the amount of gain so recognized.

     ``SEC. 860J. NON-FASIT LOSSES NOT TO OFFSET CERTAIN FASIT 
                   INCLUSIONS.

       ``(a) In General.--The taxable income of the holder of the 
     ownership interest or any high-yield interest in a FASIT for 
     any taxable year shall in no event be less than such holder's 
     taxable income determined solely with respect to such 
     interests.
       ``(b) Coordination With Section 172.--Any increase in the 
     taxable income of any holder of the ownership interest or a 
     high-yield interest in a FASIT for any taxable year by reason 
     of subsection (a) shall be disregarded--
       ``(1) in determining under section 172 the amount of any 
     net operating loss for such taxable year, and
       ``(2) in determining taxable income for such taxable year 
     for purposes of the 2nd sentence of section 172(b)(2).
       ``(c) Coordination With Minimum Tax.--For purposes of part 
     VI of subchapter A of this chapter--
       ``(1) the reference in section 55(b)(2) to taxable income 
     shall be treated as a reference to taxable income determined 
     without regard to this section,
       ``(2) the alternative minimum taxable income of any holder 
     of the ownership interest or a high-yield interest in a FASIT 
     for any taxable year shall in no event be less than such 
     holder's taxable income determined solely with respect to 
     such interests, and
       ``(3) any increase in taxable income under this section 
     shall be disregarded for purposes of computing the 
     alternative tax net operating loss deduction.

     ``SEC. 860K. TREATMENT OF TRANSFERS OF HIGH-YIELD INTERESTS 
                   TO DISQUALIFIED HOLDERS.

       ``(a) General Rule.--If any high-yield interest is held by 
     a disqualified holder, this chapter shall be applied as if 
     the transferor of such interest to such holder had not 
     transferred such interest.
       ``(b) Exceptions.--Rules similar to the rules of paragraphs 
     (4) and (7) of section 860E(e) shall apply to the tax imposed 
     by reason of subsection (a).
       ``(c) Disqualified Holder.--For purposes of this section, 
     the term `disqualified holder' means any holder other than an 
     eligible corporation (as defined in section 860L(a)(2)).
       ``(d) Treatment of Interests Held By Securities Dealers.--
       ``(1) In general.--Subsection (a) shall not apply to any 
     high-yield interest held by a disqualified holder if such 
     holder is a dealer in securities who acquired such interest 
     exclusively for sale to customers in the ordinary course of 
     business (and not for investment).
       ``(2) Change in dealer status.--
       ``(A) In general.--In the case of a dealer in securities 
     which is not an eligible corporation (as defined in section 
     860L(a)(2)), if--
       ``(i) such dealer ceases to be a dealer in securities, or
       ``(ii) such dealer commences holding the high-yield 
     interest for investment,
     there is hereby imposed (in addition to other taxes) an 
     excise tax equal to the product of the highest rate of tax 
     specified in section 11(b)(1) and the income of such dealer 
     attributable to such interest for periods after the date of 
     such cessation or commencement.
       ``(B) Holding for 31 days or less.--For purposes of 
     subparagraph (A)(ii), a dealer shall not be treated as 
     holding an interest for investment before the 32d day after 
     the date such dealer acquired such interest unless such 
     interest is so held as part of a plan to avoid the purposes 
     of this paragraph.
       ``(C) Administrative provisions.--The deficiency procedures 
     of subtitle F shall apply to the tax imposed by this 
     paragraph.
       ``(e) Treatment of High-Yield Interests in Pass-Thru 
     Entities.--If a pass-thru entity (as defined in section 
     860E(e)(6)) issues a debt or equity interest--
       ``(1) which is supported by any regular interest in a 
     FASIT, and
       ``(2) which has an original yield to maturity which is 
     greater than each of--
       ``(A) the sum determined under clauses (i) and (ii) of 
     section 163(i)(1)(B) with respect to such debt or equity 
     interest, and
       ``(B) the yield to maturity on such regular interest,
     there is hereby imposed on the pass-thru entity a tax (in 
     addition to other taxes) equal to the product of the highest 
     rate of tax specified in section 11(b)(1) and the income of 
     the holder of such debt or equity interest which is properly 
     attributable to such regular interest. For purposes of the 
     preceding sentence, the yield to maturity of any equity 
     interest shall be determined under regulations prescribed by 
     the Secretary.

     ``SEC. 860L. DEFINITIONS AND OTHER SPECIAL RULES.

       ``(a) FASIT.--
       ``(1) In general.--For purposes of this title, the terms 
     `financial asset securitization investment trust' and `FASIT' 
     mean any entity--
       ``(A) for which an election to be treated as a FASIT 
     applies for the taxable year,
       ``(B) all of the interests in which are regular interests 
     or the ownership interest,
       ``(C) which has only 1 ownership interest and such 
     ownership interest is held directly by an eligible 
     corporation,
       ``(D) as of the close of the 3rd month beginning after the 
     day of its formation and at all times thereafter, 
     substantially all of the assets of which (including assets 
     treated as held by the entity under section 860I(c)(2)) 
     consist of permitted assets, and
       ``(E) which is not described in section 851(a).
     A rule similar to the rule of the last sentence of section 
     860D(a) shall apply for purposes of this paragraph.
       ``(2) Eligible corporation.--For purposes of paragraph 
     (1)(C), the term `eligible corporation' means any domestic C 
     corporation other than--
       ``(A) a corporation which is exempt from, or is not subject 
     to, tax under this chapter,
       ``(B) an entity described in section 851(a) or 856(a),
       ``(C) a REMIC, and
       ``(D) an organization to which part I of subchapter T 
     applies.
       ``(3) Election.--
       ``(A) In general.--An entity (otherwise meeting the 
     requirements of paragraph (1)) may elect to be treated as a 
     FASIT. Except as provided in paragraph (5), such an election 
     shall apply to the taxable year for which made and all 
     subsequent taxable years unless revoked with the consent of 
     the Secretary.
       ``(B) Elections made after 1st taxable year of entity.--If 
     the election under subparagraph (A) is made after the first 
     taxable year of the entity, all property held (or treated as 
     held under section 860I(c)(2)) by such entity as of the first 
     day of the first taxable year for which such election is made 
     shall be treated as contributed to such entity on such first 
     day by the holder of the ownership interest in such entity.

[[Page H 12666]]

       ``(4) Termination.--If any entity ceases to be a FASIT at 
     any time during the taxable year, such entity shall not be 
     treated as a FASIT for such taxable year or any succeeding 
     taxable year.
       ``(5) Inadvertent terminations, etc.--Rules similar to the 
     rules of section 860D(b)(2)(B) shall apply to inadvertent 
     failures to qualify or remain qualified as a FASIT.
       ``(b) Interests in FASIT.--For purposes of this part--
       ``(1) Regular interest.--
       ``(A) In general.--The term `regular interest' means any 
     interest which is issued by a FASIT with fixed terms and 
     which is designated as a regular interest if--
       ``(i) such interest unconditionally entitles the holder to 
     receive a specified principal amount (or other similar 
     amount),
       ``(ii) except as otherwise provided by the Secretary--

       ``(I) in the case of a FASIT which would be treated as a 
     REMIC if an election under section 860D(b) had been made, 
     interest payments (or other similar amounts), if any, with 
     respect to such interest at or before maturity meet the 
     requirements applicable under clause (i) or (ii) of section 
     860G(a)(1)(B), or
       ``(II) in the case of any other FASIT, interest payments 
     (or other similar amounts), if any, with respect to such 
     interest are determined using a current rate which is 
     reasonably expected to measure contemporaneous variations in 
     the cost of newly borrowed funds in the currency in which the 
     regular interest is denominated,

       ``(iii) such interest does not have a stated maturity 
     (including options to renew) greater than 30 years (or such 
     longer period as may be permitted by regulations),
       ``(iv) the issue price of such interest does not exceed 125 
     percent of its stated principal amount, and
       ``(v) the yield to maturity on such interest is less than 
     the sum determined under section 163(i)(1)(B) with respect to 
     such interest.
     Interest shall not fail to meet the requirements of clause 
     (i) merely because the timing (but not the amount) of the 
     principal payments (or other similar amounts) may be 
     contingent on the extent that payments on debt instruments 
     held by the FASIT are made in advance of anticipated payments 
     and on the amount of income from permitted assets.
       ``(B) High-yield interests.--
       ``(i) In general.--The term `regular interest' includes any 
     high-yield interest.
       ``(ii) High-yield interest.--The term `high-yield interest' 
     means any interest which would be described in subparagraph 
     (A) but for failing to meet the requirements of one or more 
     of clauses (i), (iv), or (v) thereof.
       ``(2) Ownership interest.--The term `ownership interest' 
     means the interest issued by a FASIT which is designated as 
     an ownership interest and which is not a regular interest.
       ``(c) Permitted Assets.--For purposes of this part--
       ``(1) In general.--The term `permitted asset' means--
       ``(A) cash or cash equivalents,
       ``(B) any debt instrument (as defined in section 
     1275(a)(1)) under which interest payments (or other similar 
     amounts), if any, at or before maturity meet the requirements 
     applicable under clause (i) or (ii) of section 860G(a)(1)(B),
       ``(C) foreclosure property,
       ``(D) any asset--
       ``(i) which is an interest rate or foreign currency 
     notional principal contract, letter of credit, insurance, 
     guarantee against payment defaults, or other similar 
     instrument, permitted by the Secretary, and
       ``(ii) which is a reasonably required to guarantee or hedge 
     against the FASIT's risks associated with being the obligor 
     on interests issued by the FASIT, and
       ``(E) contract rights to acquire debt instruments described 
     in subparagraph (B) or assets described in subparagraph (D).
       ``(2) Debt issued by holder of ownership interest not 
     permitted asset.--The term `permitted asset' shall not 
     include any debt instrument issued by the holder of the 
     ownership interest in the FASIT or by any person related to 
     such holder or any direct or indirect interest in such a debt 
     instrument. The preceding sentence shall not apply to cash 
     equivalents and to any other investment specified in 
     regulations prescribed by the Secretary.
       ``(3) Foreclosure property.--The term `foreclosure 
     property' means property--
       ``(A) which would be foreclosure property under section 
     856(e) (determined without regard to paragraph (5) thereof) 
     if acquired by a real estate investment trust, and
       ``(B) which is acquired in connection with the default or 
     imminent default of a debt instrument held by the FASIT 
     unless the security interest in such property was created for 
     the principal purpose of permitting the FASIT to invest in 
     such property.
     Solely for purposes of subsection (a)(1), the determination 
     of whether any property is foreclosure property shall be made 
     without regard to section 856(e)(4).
       ``(d) Tax on Prohibited Transactions.--
       ``(1) In general.--There is hereby imposed for each taxable 
     year of a FASIT a tax equal to 100 percent of the net income 
     derived from prohibited transactions.
       ``(2) Prohibited transactions.--For purposes of this part, 
     the term `prohibited transaction' means--
       ``(A) the receipt of any income derived from any asset that 
     is not a permitted asset,
       ``(B) except as provided in paragraph (3), the disposition 
     of any permitted asset,
       ``(C) the receipt of any income derived from any loan 
     originated by the FASIT, and
       ``(D) the receipt of any income representing a fee or other 
     compensation for services (other than any fee received as 
     compensation for a waiver, amendment, or consent under 
     permitted assets (other than foreclosure property) held by 
     the FASIT).
       ``(3) Exception for income from certain dispositions.--
       ``(A) In general.--Paragraph (2)(B) shall not apply to a 
     disposition which would not be a prohibited transaction (as 
     defined in section 860F(a)(2)) by reason of--
       ``(i) clause (ii), (iii), or (iv) of section 860F(a)(2)(A), 
     or
       ``(ii) section 860F(a)(5),
     if the FASIT were treated as a REMIC and debt instruments 
     described in subsection (c)(1)(B) were treated as qualified 
     mortgages.
       ``(B) Substitution of debt instruments; reduction of over-
     collateralization.--Paragraph (2)(B) shall not apply to--
       ``(i) the substitution of a debt instrument described in 
     subsection (c)(1)(B) for another debt instrument which is a 
     permitted asset, or
       ``(ii) the distribution of a debt instrument contributed by 
     the holder of the ownership interest to such holder in order 
     to reduce over-collateralization of the FASIT,
     but only if a principal purpose of acquiring the debt 
     instrument which is disposed of was not the recognition of 
     gain (or the reduction of a loss) as a result of an increase 
     in the market value of the debt instrument after its 
     acquisition by the FASIT.
       ``(C) Liquidation of class of regular interests.--Paragraph 
     (2)(B) shall not apply to the complete liquidation of any 
     class of regular interests.
       ``(4) Net income.--For purposes of this subsection, net 
     income shall be determined in accordance with section 
     860F(a)(3).
       ``(e) Tax on Income From Foreclosure Property.--
       ``(1) In general.--A tax is hereby imposed for each taxable 
     year on the net income from foreclosure property of each 
     FASIT. Such tax shall be computed by multiplying the net 
     income from foreclosure property by the highest rate of tax 
     specified in section 11(b).
       ``(2) Net income from foreclosure property.--For purposes 
     of this part, the term `net income from foreclosure property' 
     means the amount which would be the FASIT's net income from 
     foreclosure property under section 857(b)(4)(B) if the FASIT 
     were a real estate investment trust.
       ``(f) Coordination With Wash Sales Rules.--Rules similar to 
     the rules of section 860F(d) shall apply to the ownership 
     interest in a FASIT.
       ``(g) Related Person.--For purposes of this part, a person 
     (hereinafter in this subsection referred to as the `related 
     person') is related to any person if--
       ``(1) the related person bears a relationship to such 
     person specified in section 267(b) or section 707(b)(1), or
       ``(2) the related person and such person are engaged in 
     trades or businesses under common control (within the meaning 
     of subsections (a) and (b) of section 52).
     For purposes of paragraph (1), in applying section 267(b) or 
     707(b)(1), `20 percent' shall be substituted for `50 
     percent'.
       ``(h) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this part, including regulations to prevent 
     the abuse of the purposes of this part through transactions 
     which are not primarily related to securitization of debt 
     instruments by a FASIT.''.
       (b) Technical Amendments.--
       (1) Paragraph (2) of section 26(b) is amended by striking 
     ``and'' at the end of subparagraph (M), by striking the 
     period at the end of subparagraph (N) and inserting ``, 
     and'', and by adding at the end the following new 
     subparagraphs:
       ``(O) section 860K (relating to treatment of transfers of 
     high-yield interests to disqualified holders).''.
       (2) Paragraph (6) of section 56(g) is amended by striking 
     ``or REMIC'' and inserting ``REMIC, or FASIT''.
       (3) Clause (ii) of section 382(l)(4)(B) is amended by 
     striking ``or a REMIC to which part IV of subchapter M 
     applies'' and inserting ``a REMIC to which part IV of 
     subchapter M applies, or a FASIT to which part V of 
     subchapter M applies''.
       (4) Paragraph (1) of section 582(c) is amended by inserting 
     ``, and any regular or ownership interest in a FASIT,'' after 
     ``REMIC''.
       (5) Subparagraph (E) of section 856(c)(6) is amended by 
     adding at the end the following new sentence: ``References in 
     the preceding provisions of this subparagraph to a REMIC 
     shall be treated as including a reference to a FASIT.''.
       (6) Subparagraph (C) of section 1202(e)(4) is amended by 
     striking ``or REMIC'' and inserting ``REMIC, or FASIT''.
       (7) Clause (xi) of section 7701(a)(19)(C) is amended to 
     read as follows:
       ``(xi) any regular or residual interest in a REMIC, and any 
     regular or ownership interest in a FASIT, but only in the 
     proportion which the assets of such REMIC or FASIT consist of 
     property described in any of the preceding clauses of this 
     subparagraph; except that if 95 percent or more of the assets 
     of such REMIC or FASIT are assets described in clauses (i) 
     through (x), the entire interest in the REMIC or FASIT shall 
     qualify.''.
       (8) Subparagraph (A) of section 7701(i)(2) is amended by 
     inserting ``or a FASIT'' after ``a REMIC''.
       (c) Clerical Amendment.--The table of parts for subchapter 
     M of chapter 1 is amended by adding at the end the following 
     new item:
              ``Part V. Financial asset securitization investment 
                                                        trusts.''.
       (d) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

[[Page H 12667]]


                   CHAPTER 8--DEPRECIATION PROVISIONS

     SEC. 11361. TREATMENT OF CONTRIBUTIONS IN AID OF 
                   CONSTRUCTION.

       (a) Treatment of Contributions in Aid of Construction.--
       (1) In general.--Section 118 (relating to contributions to 
     the capital of a corporation) is amended--
       (A) by redesignating subsection (c) as subsection (e), and
       (B) by inserting after subsection (b) the following new 
     subsections:
       ``(c) Special Rules for Water and Sewerage Disposal 
     Utilities.--
       ``(1) General rule.--For purposes of this section, the term 
     `contribution to the capital of the taxpayer' includes any 
     amount of money or other property received from any person 
     (whether or not a shareholder) by a regulated public utility 
     which provides water or sewerage disposal services if--
       ``(A) such amount is a contribution in aid of construction,
       ``(B) in the case of contribution of property other than 
     water or sewerage disposal facilities, such amount meets the 
     requirements of the expenditure rule of paragraph (2), and
       ``(C) such amount (or any property acquired or constructed 
     with such amount) is not included in the taxpayer's rate base 
     for ratemaking purposes.
       ``(2) Expenditure rule.--An amount meets the requirements 
     of this paragraph if--
       ``(A) an amount equal to such amount is expended for the 
     acquisition or construction of tangible property described in 
     section 1231(b)--
       ``(i) which is the property for which the contribution was 
     made or is of the same type as such property, and
       ``(ii) which is used predominantly in the trade or business 
     of furnishing water or sewerage disposal services,
       ``(B) the expenditure referred to in subparagraph (A) 
     occurs before the end of the second taxable year after the 
     year in which such amount was received, and
       ``(C) accurate records are kept of the amounts contributed 
     and expenditures made, the expenditures to which 
     contributions are allocated, and the year in which the 
     contributions and expenditures are received and made.
       ``(3) Definitions.--For purposes of this subsection--
       ``(A) Contribution in aid of construction.--The term 
     `contribution in aid of construction' shall be defined by 
     regulations prescribed by the Secretary, except that such 
     term shall not include amounts paid as service charges for 
     starting or stopping services.
       ``(B) Predominantly.--The term `predominantly' means 80 
     percent or more.
       ``(C) Regulated public utility.--The term `regulated public 
     utility' has the meaning given such term by section 
     7701(a)(33), except that such term shall not include any 
     utility which is not required to provide water or sewerage 
     disposal services to members of the general public in its 
     service area.
       ``(4) Disallowance of deductions and credits; adjusted 
     basis.--Notwithstanding any other provision of this subtitle, 
     no deduction or credit shall be allowed for, or by reason of, 
     any expenditure which constitutes a contribution in aid of 
     construction to which this subsection applies. The adjusted 
     basis of any property acquired with contributions in aid of 
     construction to which this subsection applies shall be zero.
       ``(d) Statute of Limitations.--If the taxpayer for any 
     taxable year treats an amount as a contribution to the 
     capital of the taxpayer described in subsection (c), then--
       ``(1) the statutory period for the assessment of any 
     deficiency attributable to any part of such amount shall not 
     expire before the expiration of 3 years from the date the 
     Secretary is notified by the taxpayer (in such manner as the 
     Secretary may prescribe) of--
       ``(A) the amount of the expenditure referred to in 
     subparagraph (A) of subsection (c)(2),
       ``(B) the taxpayer's intention not to make the expenditures 
     referred to in such subparagraph, or
       ``(C) a failure to make such expenditure within the period 
     described in subparagraph (B) of subsection (c)(2); and
       ``(2) such deficiency may be assessed before the expiration 
     of such 3-year period notwithstanding the provisions of any 
     other law or rule of law which would otherwise prevent such 
     assessment.''.
       (2) Conforming amendment.--Section 118(b) is amended by 
     inserting ``except as provided in subsection (c),'' before 
     ``the term''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to amounts received after the date of the 
     enactment of this Act.
       (b) Recovery Method and Period for Water Utility 
     Property.--
       (1) Requirement to use straight line method.--Section 
     168(b)(3) is amended by adding at the end the following new 
     subparagraph:
       ``(F) Water utility property described in subsection 
     (e)(5).''.
       (2) 25-year recovery period.--The table contained in 
     section 168(c)(1) is amended by inserting the following item 
     after the item relating to 20-year property:
                                          ``Water utility property


                                                   25 years''.

       (3) Water utility property.--
       (A) In general.--Section 168(e) is amended by adding at the 
     end the following new paragraph:
       ``(5) Water utility property.--The term `water utility 
     property' means property--
       ``(A) which is an integral part of the gathering, 
     treatment, or commercial distribution of water, and which, 
     without regard to this paragraph, would be 20-year property, 
     and
       ``(B) any municipal sewer.''.
       (B) Conforming amendments.--Section 168 is amended--
       (i) by striking subparagraph (F) of subsection (e)(3), and
       (ii) by striking the item relating to subparagraph (F) in 
     the table in subsection (g)(3).
       (4) Alternative system.--Clause (iv) of section 
     168(g)(2)(C) is amended by inserting ``or water utility 
     property'' after ``tunnel bore''.
       (5) Effective date.--The amendments made by this subsection 
     shall apply to property placed in service after the date of 
     the enactment of this Act, other than property placed in 
     service pursuant to a binding contract in effect on such date 
     and at all times thereafter before the property is placed in 
     service.

     SEC. 11362. DEDUCTION FOR CERTAIN OPERATING AUTHORITY.

       (a) General Rule.--For purpose of chapter 1 of the Internal 
     Revenue Code of 1986, in computing the taxable income of a 
     taxpayer who, on January 1, 1995, held one or more operating 
     authorities preempted by section 601 of the Federal Aviation 
     Administration Authorization Act of 1994, the taxpayer shall 
     be entitled to deduct ratably over the 36-month period 
     beginning with January 1995 an amount equal to the aggregate 
     adjusted bases of such operating authorities held by the 
     taxpayer on January 1, 1995.
       (b) Treatment As Depreciation.--Any deduction under 
     subsection (a) shall be treated as a deduction for 
     depreciation for purposes of the Internal Revenue Code of 
     1986.
       (c) Effective Date.--The provisions of this section shall 
     apply to taxable years ending after December 31, 1994.

     SEC. 11363. CLASS LIFE FOR GAS STATION CONVENIENCE STORES AND 
                   SIMILAR STRUCTURES.

       (a) In General.--Section 168(e)(3)(E) (classifying certain 
     property as 15-year property) is amended by striking ``and'' 
     at the end of clause (i), by striking the period at the end 
     of clause (ii) and inserting ``, and'', and by adding at the 
     end the following new clause:
       ``(iii) any section 1250 property which is a retail motor 
     fuels outlet (whether or not food or other convenience items 
     are sold at the outlet).''.
       (b) Conforming Amendment.--Subparagraph (B) of section 
     168(g)(3) is amended by inserting after the item relating to 
     subparagraph (E)(ii) in the table contained therein the 
     following new item:
                ``(E)(iii) . . . . . . . . . . . . . . . . . 20''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to property which is placed in service on or 
     after the date of the enactment of this Act and to which 
     section 168 of the Internal Revenue Code of 1986 applies 
     after the amendment made by section 201 of the Tax Reform Act 
     of 1986. A taxpayer may elect to have such amendments apply 
     with respect to any property placed in service before such 
     date and to which such section so applies.

                      CHAPTER 9--OTHER PROVISIONS

     SEC. 11371. APPLICATION OF FAILURE-TO-PAY PENALTY TO 
                   SUBSTITUTE RETURNS.

       (a) General Rule.--Section 6651 (relating to failure to 
     file tax return or to pay tax) is amended by adding at the 
     end the following new subsection:
       ``(g) Treatment of Returns Prepared by Secretary Under 
     Section 6020(b).--In the case of any return made by the 
     Secretary under section 6020(b)--
       ``(1) such return shall be disregarded for purposes of 
     determining the amount of the addition under paragraph (1) of 
     subsection (a), but
       ``(2) such return shall be treated as the return filed by 
     the taxpayer for purposes of determining the amount of the 
     addition under paragraphs (2) and (3) of subsection (a).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply in the case of any return the due date for which 
     (determined without regard to extensions) is after the date 
     of the enactment of this Act.

     SEC. 11372. EXTENSION OF WITHHOLDING TO CERTAIN GAMBLING 
                   WINNINGS.

       (a) Repeal of Exemption for Bingo and Keno.--Paragraph (5) 
     of section 3402(q) is amended to read as follows:
       ``(5) Exemption for slot machines.--The tax imposed under 
     paragraph (1) shall not apply to winnings from a slot 
     machine.''.
       (b) Threshold Amount.--Paragraph (3) of section 3402(q) is 
     amended--
       (1) by striking ``(B) and (C)'' in subparagraph (A) and 
     inserting ``(B), (C), and (D)'', and
       (2) by adding at the end the following new subparagraph:
       ``(D) Bingo and keno.--Proceeds of more than $5,000 from a 
     wager placed in a bingo or keno game.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on January 1, 1996.

     SEC. 11373. LOSSES FROM FORECLOSURE PROPERTY.

       (a) In General.--Section 818(b) is amended by adding at the 
     end the following new paragraph:
       ``(2) Losses from foreclosure property.--
       ``(A) In general.--The amortizable portion of any loss 
     arising from the sale or exchange of foreclosure property 
     which (without regard to this paragraph) is treated as a 
     capital loss shall be treated as a loss from the sale or 
     exchange of real property used in carrying on an insurance 
     business which is recognized ratably over the 10-taxable year 
     period beginning with the taxable year following the taxable 
     year in which the sale or exchange of the foreclosure 
     property occurred.
       ``(B) Amortizable portion.--For purposes of this 
     paragraph--
       ``(i) In general.--The amortizable portion of a loss 
     referred to in subparagraph (A) is the percentage (not 
     greater than 20 percent) of such loss to which the taxpayer 
     elects to have this paragraph apply.
       ``(ii) Subsequent modifications of amount.--The taxpayer 
     may elect for any of the 

[[Page H 12668]]
     taxable years in the change period to change (subject to the limitation 
     under clause (i)) the percentage of a loss referred to in 
     subparagraph (A) which is treated as the amortizable portion 
     of such loss. If the taxpayer so elects, each such changed 
     percentage shall be treated as if it were the percentage 
     specified in the election made under clause (i), and proper 
     adjustments shall be made for all taxable years to reflect 
     each such change.
       ``(iii) Statute of limitations.-- For purposes of section 
     6501(h) and 6511(d)(2), any change by reason of an election 
     under clause (ii) shall be treated as a capital loss 
     carryback from the year such change is made.
       ``(iv) Change period.--For purposes of clause (ii), the 
     change period is the 3-taxable year period following the 
     taxable year in which the sale or exchange of the foreclosure 
     property occurred.
       ``(C) Election to treat unamortized ordinary losses as 
     capital losses.--
       ``(i) In general.--The taxpayer may elect to treat any 
     unused amount of any ordinary loss described in subparagraph 
     (A) as a capital loss arising in the taxable year for which 
     the election under this subparagraph is made.
       ``(ii) Limitation on election.--An election may be made 
     under clause (i) with respect to any loss only for any 
     taxable year in the 5-taxable year period following the 
     taxable year referred to in subparagraph (A).
       ``(iii) Unused amount of ordinary loss.--For purposes of 
     clause (i), the unused amount of an ordinary loss is the 
     amount of the amortizable portion of any loss which has not 
     been recognized as of the close of the preceding taxable 
     year.
       ``(iv) Ordering rule.--Any unused amount of an ordinary 
     loss with respect to which an election was made under clause 
     (i) shall be treated as coming first from the last taxable 
     year in the 10-taxable year period referred to in 
     subparagraph (A) and then from each preceding taxable year in 
     reverse chronological order.
       ``(D) Foreclosure property.--For purposes of this 
     paragraph, the term `foreclosure property' means any real 
     property used in a trade or businesses (as defined in section 
     1231(b) without regard to this subsection) which is acquired 
     by a life insurance company as the result of--
       ``(i) such company having bid on such property at 
     foreclosure, or
       ``(ii) such company having otherwise reduced such property 
     to ownership or possession by agreement or process of law, 
     after there was a default (or default was imminent) on 
     indebtedness which such property secured.
       ``(E) Time for making elections.--Any election under this 
     paragraph for any taxable year shall be made on or before the 
     due date (including extensions) for the return of tax for 
     such taxable year.''
       (b) Conforming Amendments.--Section 818(b) is amended--
       (1) by striking ``In the'' and inserting:
       ``(1) In general.--In the '', and
       (2) by redesignating paragraphs (1) and (2) and 
     subparagraphs (A) and (B) of paragraph (1) as subparagraphs 
     (A) and (B) and clauses (i) and (ii) of subparagraph (A), 
     respectively.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1994.

     SEC. 11374. NONRECOGNITION TREATMENT FOR CERTAIN TRANSFERS BY 
                   COMMON TRUST FUNDS TO REGULATED INVESTMENT 
                   COMPANIES.

       (a) General Rule.--Section 584 (relating to common trust 
     funds) is amended by redesignating subsection (h) as 
     subsection (i) and by inserting after subsection (g) the 
     following new subsection:
       ``(h) Nonrecognition Treatment for Certain Transfers to 
     Regulated Investment Companies.--
       ``(1) In general.--If--
       ``(A) pursuant to a single plan, a common trust fund 
     transfers substantially all of its assets to one or more 
     regulated investment companies in exchange solely for stock 
     in the company or companies to which such assets are so 
     transferred, and
       ``(B) such stock is distributed by such common trust fund 
     to participants in such common trust fund in exchange solely 
     for their interests in such common trust fund,
     no gain or loss shall be recognized by such common trust fund 
     by reason of such transfer or distribution, and no gain or 
     loss shall be recognized by any participant in such common 
     trust fund by reason of such exchange.
       ``(2) Basis rules.--
       ``(A) Regulated investment company.--The basis of any asset 
     received by a regulated investment company in a transfer 
     referred to in paragraph (1)(A) shall be the same as it would 
     be in the hands of the common trust fund.
       ``(B) Participants.--The basis of the stock which is 
     received in an exchange referred to in paragraph (1)(B) shall 
     be the same as that of the property exchanged. If stock in 
     more than one regulated investment company is received in 
     such exchange, the basis determined under the preceding 
     sentence shall be allocated among the stock in each such 
     company on the basis of respective fair market values.
       ``(3) Treatment of assumptions of liability.--
       ``(A) In general.--In determining whether the transfer 
     referred to in paragraph (1)(A) is in exchange solely for 
     stock in one or more regulated investment companies, the 
     assumption by any such company of a liability of the common 
     trust fund, and the fact that any property transferred by the 
     common trust fund is subject to a liability, shall be 
     disregarded.
       ``(B) Special rule where assumed liabilities exceed 
     basis.--
       ``(i) In general.--If, in any transfer referred to in 
     paragraph (1)(A), the assumed liabilities exceed the 
     aggregate adjusted bases (in the hands of the common trust 
     fund) of the assets transferred to the regulated investment 
     company or companies--

       ``(I) notwithstanding paragraph (1), gain shall be 
     recognized to the common trust fund on such transfer in an 
     amount equal to such excess,
       ``(II) the basis of the assets received by the regulated 
     investment company or companies in such transfer shall be 
     increased by the amount so recognized, and
       ``(III) any adjustment to the basis of a participant's 
     interest in the common trust fund as a result of the gain so 
     recognized shall be treated as occurring immediately before 
     the exchange referred to in paragraph (1)(B).

     If the transfer referred to in paragraph (1)(A) is to two or 
     more regulated investment companies, the basis increase under 
     subclause (II) shall be allocated among such companies on the 
     basis of the respective fair market values of the assets 
     received by each of such companies.
       ``(ii) Assumed liabilities.--For purposes of clause (i), 
     the term `assumed liabilities' means the aggregate of--

       ``(I) any liability of the common trust fund assumed by any 
     regulated investment company in connection with the transfer 
     referred to in paragraph (1)(A), and
       ``(II) any liability to which property so transferred is 
     subject.

       ``(4) Common trust fund must meet diversification rules.--
     This subsection shall not apply to any common trust fund 
     which would not meet the requirements of section 
     368(a)(2)(F)(ii) if it were a corporation. For purposes of 
     the preceding sentence, Government securities shall not be 
     treated as securities of an issuer in applying the 25-percent 
     and 50-percent test and such securities shall not be excluded 
     for purposes of determining total assets under clause (iv) of 
     section 368(a)(2)(F).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to transfers after December 31, 1995.

     SEC. 11375. EXCLUSION FOR ENERGY CONSERVATION SUBSIDIES 
                   LIMITED TO SUBSIDIES WITH RESPECT TO DWELLING 
                   UNITS.

       (a) In General.--Paragraph (1) of section 136(c) (defining 
     energy conservation measure) is amended by striking ``energy 
     demand--'' and all that follows and inserting ``energy demand 
     with respect to a dwelling unit.''
       (b) Conforming Amendments.--
       (1) Subsection (a) of section 136 is amended to read as 
     follows:
       ``(a) Exclusion.--Gross income shall not include the value 
     of any subsidy provided (directly or indirectly) by a public 
     utility to a customer for the purchase or installation of any 
     energy conservation measure.''
       (2) Paragraph (2) of section 136(c) is amended--
       (A) by striking subparagraph (A) and by redesignating 
     subparagraphs (B) and (C) as subparagraphs (A) and (B), 
     respectively, and
       (B) by striking ``and special rules'' in the paragraph 
     heading.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts received after December 31, 1995, 
     unless received pursuant to a written binding contract in 
     effect on September 13, 1995, and at all times thereafter.

     SEC. 11376. ELECTION TO CEASE STATUS AS QUALIFIED SCHOLARSHIP 
                   FUNDING CORPORATION.

       (a) In General.--Subsection (d) of section 150 (relating to 
     definitions and special rules) is amended by adding at the 
     end thereof the following new paragraph:
       ``(3) Election to cease status as qualified scholarship 
     funding corporation.--
       ``(A) In general.--Any qualified scholarship funding bond, 
     and qualified student loan bond, outstanding on the date of 
     the issuer's election under this paragraph (and any bond (or 
     series of bonds) issued to refund such a bond) shall not fail 
     to be a tax-exempt bond solely because the issuer ceases to 
     be described in subparagraphs (A) and (B) of paragraph (2) if 
     the issuer meets the requirements of subparagraphs (B) and 
     (C) of this paragraph.
       ``(B) Assets and liabilities of issuer transferred to 
     taxable subsidiary.--The requirements of this subparagraph 
     are met by an issuer if--
       ``(i) all of the student loan notes of the issuer and other 
     assets pledged to secure the repayment of qualified 
     scholarship funding bond indebtedness of the issuer are 
     transferred to another corporation within a reasonable period 
     after the election is made under this paragraph;
       ``(ii) such transferee corporation assumes or otherwise 
     provides for the payment of all of the qualified scholarship 
     funding bond indebtedness of the issuer within a reasonable 
     period after the election is made under this paragraph;
       ``(iii) to the extent permitted by law, such transferee 
     corporation assumes all of the responsibilities, and succeeds 
     to all of the rights, of the issuer under the issuer's 
     agreements with the Secretary of Education in respect of 
     student loans;
       ``(iv) immediately after such transfer, the issuer, 
     together with any other issuer which has made an election 
     under this paragraph in respect of such transferee, hold all 
     of the senior stock in such transferee corporation; and
       ``(v) such transferee corporation is not exempt from tax 
     under this chapter.
       ``(C) Issuer to operate as independent organization 
     described in section 501(c)(3).--The requirements of this 
     subparagraph are met by an issuer if, within a reasonable 
     period after the transfer referred to in subparagraph (B)--
       ``(i) the issuer is described in section 501(c)(3) and 
     exempt from tax under section 501(a);
       ``(ii) the issuer no longer is described in subparagraphs 
     (A) and (B) of paragraph (2); and
       ``(iii) at least 80 percent of the members of the board of 
     directors of the issuer are independent members.

[[Page H 12669]]

       ``(D) Senior stock.--For purposes of this paragraph, the 
     term `senior stock' means stock--
       ``(i) which participates pro rata and fully in the equity 
     value of the corporation with all other common stock of the 
     corporation but which has the right to payment of liquidation 
     proceeds prior to payment of liquidation proceeds in respect 
     of other common stock of the corporation;
       ``(ii) which has a fixed right upon liquidation and upon 
     redemption to an amount equal to the greater of--

       ``(I) the fair market value of such stock on the date of 
     liquidation or redemption (whichever is applicable); or
       ``(II) the fair market value of all assets transferred in 
     exchange for such stock and reduced by the amount of all 
     liabilities of the corporation which has made an election 
     under this paragraph assumed by the transferee corporation in 
     such transfer;

       ``(iii) the holder of which has the right to require the 
     transferee corporation to redeem on a date that is not later 
     than 10 years after the date on which an election under this 
     paragraph was made and pursuant to such election such stock 
     was issued; and
       ``(iv) in respect of which, during the time such stock is 
     outstanding, there is not outstanding any equity interest in 
     the corporation having any liquidation, redemption or 
     dividend rights in the corporation which are superior to 
     those of such stock.
       ``(E) Independent member.--The term `independent member' 
     means a member of the board of directors of the issuer who 
     (except for services as a member of such board) receives no 
     compensation directly or indirectly--
       ``(i) for services performed in connection with such 
     transferee corporation, or
       ``(ii) for services as a member of the board of directors 
     or as an officer of such transferee corporation.
     For purposes of clause (ii), the term `officer' includes any 
     individual having powers or responsibilities similar to those 
     of officers.
       ``(F) Coordination with certain private foundation taxes.--
     For purposes of sections 4942 (relating to the excise tax on 
     a failure to distribute income) and 4943 (relating to the 
     excise tax on excess business holdings), the transferee 
     corporation referred to in subparagraph (B) shall be treated 
     as a functionally related business (within the meaning of 
     section 4942(j)(4)) with respect to the issuer during the 
     period commencing with the date on which an election is made 
     under this paragraph and ending on the date that is the 
     earlier of--
       ``(i) the last day of the last taxable year for which more 
     than 50 percent of the gross income of such transferee 
     corporation is derived from, or more than 50 percent of the 
     assets (by value) of such transferee corporation consists of, 
     student loan notes incurred under the Higher Education Act of 
     1965; or
       ``(ii) the last day of the taxable year of the issuer 
     during which occurs the date which is 10 years after the date 
     on which the election under this paragraph is made.
       ``(G) Election.--An election under this paragraph may be 
     revoked only with the consent of the Secretary.''
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 11377. CERTAIN AMOUNTS DERIVED FROM FOREIGN CORPORATIONS 
                   TREATED AS UNRELATED BUSINESS TAXABLE INCOME.

       (a) General Rule.--Subsection (b) of section 512 (relating 
     to modifications) is amended by adding at the end thereof the 
     following new paragraph:
       ``(18) Treatment of certain amounts derived from foreign 
     corporations.--
       ``(A) In general.--Notwithstanding paragraph (1), any 
     amount included in gross income under section 951(a)(1)(A) 
     shall be included as an item of gross income derived from an 
     unrelated trade or business to the extent the amount so 
     included is attributable to insurance income (as defined in 
     section 953) which, if derived directly by the organization, 
     would be treated as gross income from an unrelated trade or 
     business. There shall be allowed all deductions directly 
     connected with amounts included in gross income under the 
     preceding sentence.
       ``(B) Exception.--Subparagraph (A) shall not apply to 
     income attributable to a policy of insurance or reinsurance 
     with respect to which the person (directly or indirectly) 
     insured is--
       ``(i) such organization,
       ``(ii) an affiliate of such organization which is exempt 
     from tax under section 501(a), or
       ``(iii) a director or officer of, or an individual who 
     performs services for, such organization or affiliate but 
     only if the insurance covers primarily risks associated with 
     the performance of services for the benefit of such 
     organization or affiliate.
     For purposes of this subparagraph, the determination as to 
     whether an entity is an affiliate of an organization shall be 
     made under rules similar to the rules of section 
     168(h)(4)(B).
       ``(C) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this paragraph, including regulations for the 
     application of this paragraph in the case of income paid 
     through 1 or more entities or between 2 or more chains of 
     entities.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to amounts included in gross income in any 
     taxable year beginning after December 31, 1995.

     SEC. 11378. REPEAL OF FINANCIAL INSTITUTION TRANSITION RULE 
                   TO INTEREST ALLOCATION RULES.

       (a) In General.--Paragraph (5) of section 1215(c) of the 
     Tax Reform Act of 1986 (Public Law 99-514, 100 Stat. 2548) is 
     hereby repealed.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 11379. REPEAL OF BAD DEBT RESERVE METHOD FOR THRIFT 
                   SAVINGS ASSOCIATIONS.

       (a) In General.--Section 593 (relating to reserves for 
     losses on loans) is hereby repealed.
       (b) Conforming Amendments.--
       (1) Subsection (d) of section 50 is amended by adding at 
     the end the following new sentence:
     ``Paragraphs (1)(A), (2)(A), and (4) of section 46(e) 
     referred to in paragraph (1) of this subsection shall not 
     apply to any taxable year beginning after December 31, 
     1995.''
       (2) Subsection (e) of section 52 is amended by striking 
     paragraph (1) and by redesignating paragraphs (2) and (3) as 
     paragraphs (1) and (2), respectively.
       (3) Subsection (a) of section 57 is amended by striking 
     paragraph (4).
       (4) Section 246 is amended by striking subsection (f).
       (5) Clause (i) of section 291(e)(1)(B) is amended by 
     striking ``or to which section 593 applies''.
       (6) Subparagraph (A) of section 585(a)(2) is amended by 
     striking ``other than an organization to which section 593 
     applies''.
       (7) Sections 595 and 596 are hereby repealed.
       (8) Subsection (a) of section 860E is amended--
       (A) by striking ``Except as provided in paragraph (2), 
     the'' in paragraph (1) and inserting ``The'',
       (B) by striking paragraphs (2) and (4) and redesignating 
     paragraphs (3) and (5) as paragraphs (2) and (3), 
     respectively, and
       (C) by striking in paragraph (2) (as so redesignated) all 
     that follows ``subsection'' and inserting a period.
       (9) Paragraph (3) of section 992(d) is amended by striking 
     ``or 593''.
       (10) Section 1038 is amended by striking subsection (f).
       (11) Clause (ii) of section 1042(c)(4)(B) is amended by 
     striking ``or 593''.
       (12) Subsection (c) of section 1277 is amended by striking 
     ``or to which section 593 applies''.
       (13) Subparagraph (B) of section 1361(b)(2) is amended by 
     striking ``or to which section 593 applies''.
       (14) The table of sections for part II of subchapter H of 
     chapter 1 is amended by striking the items relating to 
     sections 593, 595, and 596.
       (c) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 1995.
       (2) Repeal of section 595.--The repeal of section 595 under 
     subsection (b)(7) shall apply to property acquired in taxable 
     years beginning after December 31, 1995.
       (d) 6-Year Spread of Adjustments.--
       (1) In general.--In the case of any taxpayer who is 
     required by reason of the amendments made by this section to 
     change its method of computing reserves for bad debts--
       (A) such change shall be treated as a change in a method of 
     accounting,
       (B) such change shall be treated as initiated by the 
     taxpayer and as having been made with the consent of the 
     Secretary, and
       (C) the net amount of the adjustments required to be taken 
     into account by the taxpayer under section 481(a)--
       (i) shall be determined by taking into account only 
     applicable excess reserves, and
       (ii) as so determined, shall be taken into account ratably 
     over the 6-taxable year period beginning with the first 
     taxable year beginning after December 31, 1995.
       (2) Applicable excess reserves.--
       (A) In general.--For purposes of paragraph (1), the term 
     `applicable excess reserves' means the excess (if any) of--
       (i) the balance of the reserves described in section 
     593(c)(1) of such Code (as in effect on the day before the 
     date of the enactment of this Act) as of the close of the 
     taxpayer's last taxable year beginning before January 1, 
     1996, over
       (ii) the lesser of--

       (I) the balance of such reserves as of the close of the 
     taxpayer's last taxable year beginning before January 1, 
     1988, or
       (II) the balance of the reserves described in subclause 
     (I), reduce by an amount determined in the same manner as 
     under section 585(b)(2)(B)(ii) on the basis of the taxable 
     years described in clause (i) and this clause.

       (B) Special rule for thrifts which become small banks.--In 
     the case of a bank (as defined in section 581 of such Code) 
     which is not a large bank (as defined in section 585(c)(2) of 
     such Code) for its first taxable year beginning after 
     December 31, 1995--
       (i) the balance taken into account under subparagraph 
     (A)(ii) shall not be less than the amount which would be the 
     balance of such reserve as of the close of its last taxable 
     year beginning before January 1, 1996, if the additions to 
     such reserve for all taxable years had been determined under 
     section 585(b)(2)(A), and
       (ii) the opening balance of the reserve for bad debts as of 
     the beginning of such first taxable year shall be the balance 
     taken into account under subparagraph (A)(ii) (determined 
     after the application of clause (i) of this subparagraph).
     The preceding sentence shall not apply for purposes of 
     paragraphs (5), (6), and (7).
       (3) Recapture of pre-1988 reserves where taxpayer ceases to 
     be bank.--If during any taxable year beginning after December 
     31, 1995, a taxpayer to which paragraph (1) applied is not a 
     bank (as defined in section 581), paragraph (1) shall apply 
     to the reserves described in subparagraph (A)(ii) except that 
     such reserves shall be taken into account ratably over the 6-
     taxable year period beginning with such taxable year.
       (4) Suspension of recapture if residential loan requirement 
     met.--
       (A) In general.--In the case of a bank which meets the 
     residential loan requirement of subparagraph (B) for a 
     taxable year beginning 

[[Page H 12670]]
     after December 31, 1995, and before January 1, 1998--
       (i) no adjustment shall be taken into account under 
     paragraph (1) for such taxable year, and
       (ii) such taxable year shall be disregarded in 
     determining--

       (I) whether any other taxable year is a taxable year for 
     which an adjustment is required to be taken into account 
     under paragraph (1), and
       (II) the amount of such adjustment.

       (B) Residential loan requirement.--A taxpayer meets the 
     residential loan requirement of this subparagraph for any 
     taxable year if the principal amount of the residential loans 
     made by the taxpayer during such year is not less than the 
     base amount for such year.
       (C) Residential loan.--For purposes of this paragraph, the 
     term ``residential loan'' means any loan described in clause 
     (v) of section 7701(a)(19)(C) of such Code but only if such 
     loan is incurred in acquiring, constructing, or improving the 
     property described in such clause.
       (D) Base amount.--For purposes of subparagraph (B), the 
     base amount is the average of the principal amounts of the 
     residential loans made by the taxpayer during the 6 most 
     recent taxable years beginning before January 1, 1996. At the 
     election of the taxpayer who made such loans during each of 
     such 6 taxable years, the preceding sentence shall be applied 
     without regard to the taxable year in which such principal 
     amount was the highest and the taxable year in such principal 
     amount was the lowest. Such an election may be made only for 
     the first taxable year beginning after December 31, 1995, 
     and, if made for such taxable year, shall apply to the 
     succeeding taxable year unless revoked with the consent of 
     the Secretary of the Treasury or his delegate.
       (E) Controlled groups.--In the case of a taxpayer which is 
     a member of any controlled group of corporations described in 
     section 1563(a)(1) of such Code, subparagraph (B) shall be 
     applied with respect to such group.
       (5) Continued application of fresh start under section 585 
     transitional rules.--In the case of a taxpayer to which 
     paragraph (1) applied and which was not a large bank (as 
     defined in section 585(c)(2) of such Code) for its first 
     taxable year beginning after December 31, 1995:
       (A) In general.--For purposes of determining the net amount 
     of adjustments referred to in section 585(c)(3)(A)(iii) of 
     such Code, there shall be taken into account only the excess 
     of the reserve for bad debts as of the close of the last 
     taxable year before the disqualification year over the 
     balance taken into account by such taxpayer under paragraph 
     (2)(A)(ii) of this subsection.
       (B) Treatment under elective cut-off method.--For purposes 
     of applying section 585(c)(4) of such Code--
       (i) the balance of the reserve taken into account under 
     subparagraph (B) thereof shall be reduced by the balance 
     taken into account by such taxpayer under paragraph 
     (2)(A)(ii) of this subsection, and
       (ii) no amount shall be includible in gross income by 
     reason of such reduction.
       (6) Continued application of section 593(e).--
     Notwithstanding the amendments made by this section, in the 
     case of a taxpayer to which paragraph (1) of this subsection 
     applies, section 593(e) of such Code (as in effect on the day 
     before the date of the enactment of this Act) shall continue 
     to apply to such taxpayer as if such taxpayer were a domestic 
     building and loan association but the amount of the reserves 
     taken into account under subparagraphs (B) and (C) of section 
     593(e)(1) (as so in effect) shall be the balance taken into 
     account by such taxpayer under paragraph (2)(A)(ii) of this 
     subsection.
       (7) Certain items included as section 381(c) items.--The 
     balance of the applicable excess reserves, and the balance 
     taken into account by a taxpayer under paragraph (2)(A)(ii) 
     of this subsection, shall be treated as items described in 
     section 381(c) of such Code.
       (8) Conversions to credit unions.--In the case of a 
     taxpayer to which paragraph (1) applied which becomes a 
     credit union described in section 501(c)(14)(A)--
       (A) any amount required to be included in the gross income 
     of the credit union by reason of this subsection shall be 
     treated as derived from an unrelated trade or business (as 
     defined in section 513), and
       (B) for purposes of paragraph (3), the credit union shall 
     not be treated as if it were a bank.
       (9) Regulations.--The Secretary of the Treasury or his 
     delegate shall prescribe such regulations as may be necessary 
     to carry out this subsection, including regulations providing 
     for the application of paragraphs (4) and (6) in the case of 
     acquisitions, mergers, spin-offs, and other reorganizations.

     SEC. 11380. NEWSPAPER DISTRIBUTORS TREATED AS DIRECT SELLERS.

       (a) In General.--Section 3508(b)(2)(A) in amended by 
     striking ``or'' at the end of clause (i), by inserting ``or'' 
     at the end of clause (ii), and by inserting after clause (ii) 
     the following new clause:
       ``(iii) is engaged in the trade or business of the 
     delivering or distribution of newspapers or shopping news 
     (including any services directly related to such trade or 
     business),''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to services performed after December 31, 1995.
                     Subtitle J--Tax Simplification

             CHAPTER 1--PROVISIONS RELATING TO INDIVIDUALS

   Subchapter A--Provisions Relating To Rollover of Gain on Sale of 
                          Principal Residence

     SEC. 11401. MULTIPLE SALES WITHIN ROLLOVER PERIOD.

       (a) General Rule.--
       (1) Section 1034(d) (relating to limitation on rollover of 
     gain on sale of principal residence), as amended by sections 
     11321 and 11322, is amended by striking paragraphs (1) and 
     (2) and by redesignating paragraphs (3) and (4) as paragraphs 
     (1) and (2), respectively.
       (2) Paragraph (4) of section 1034(c) is amended to read as 
     follows:
       ``(4) If the taxpayer, during the period described in 
     subsection (a), purchases more than 1 residence which is used 
     by him as his principal residence at some time within 2 years 
     after the date of the sale of the old residence, only the 
     first of such residences so used by him after the date of 
     such sale shall constitute the new residence.''
       (3) Subsections (h)(1) and (k) of section 1034 are each 
     amended by striking ``(other than the 2 years referred to in 
     subsection (c)(4))''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to sales of old residences (within the meaning of 
     section 1034 of the Internal Revenue Code of 1986) after the 
     date of the enactment of this Act.

     SEC. 11402. SPECIAL RULES IN CASE OF DIVORCE.

       (a) In General.--Subsection (c) of section 1034 is amended 
     by adding at the end the following new paragraph:
       ``(5) If--
       ``(A) a residence is sold by an individual pursuant to a 
     divorce or marital separation, and
       ``(B) the taxpayer used such residence as his principal 
     residence at any time during the 2-year period ending on the 
     date of such sale,
     for purposes of this section, such residence shall be treated 
     as the taxpayer's principal residence at the time of such 
     sale.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to sales of old residences (within the meaning of 
     section 1034 of the Internal Revenue Code of 1986) after the 
     date of the enactment of this Act.

     SEC. 11403. ONE-TIME EXCLUSION OF GAIN FROM SALE OF PRINCIPAL 
                   RESIDENCE FOR CERTAIN SPOUSES.

       (a) In General.--Paragraph (2) of section 121(b) (relating 
     to one-time exclusion of gain from sale of principal 
     residence by individual who has attained age 55) is amended 
     by adding at the end the following new sentence: ``For 
     purposes of applying the preceding sentence to individuals 
     who are married to each other, an election by one individual 
     with respect to a sale or exchange occurring before the 
     marriage shall be disregarded for purposes of permitting an 
     election with respect to property owned and used by the other 
     individual as his principal residence throughout the 3-year 
     period ending on the date of the marriage.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply for purposes of determining whether an election 
     may be made under section 121 of the Internal Revenue Code of 
     1986 with respect to a sale or exchange occurring after 
     September 13, 1995.

                     Subchapter B--Other Provisions

     SEC. 11411. TREATMENT OF CERTAIN REIMBURSED EXPENSES OF RURAL 
                   MAIL CARRIERS.

       (a) In General.--Section 162 (relating to trade or business 
     expenses) is amended by redesignating subsection (o) as 
     subsection (p) and by inserting after subsection (n) the 
     following new subsection:
       ``(o) Treatment of Certain Reimbursed Expenses of Rural 
     Mail Carriers.--
       ``(1) General rule.--In the case of any employee of the 
     United States Postal Service who performs services involving 
     the collection and delivery of mail on a rural route and who 
     receives qualified reimbursements for the expenses incurred 
     by such employee for the use of a vehicle in performing such 
     services--
       ``(A) the amount allowable as a deduction under this 
     chapter for the use of a vehicle in performing such services 
     shall be equal to the amount of such qualified 
     reimbursements; and
       ``(B) such qualified reimbursements shall be treated as 
     paid under a reimbursement or other expense allowance 
     arrangement for purposes of section 62(a)(2)(A) (and section 
     62(c) shall not apply to such qualified reimbursements).
       ``(2) Definition of qualified reimbursements.--For purposes 
     of this subsection, the term `qualified reimbursements' means 
     the amounts paid by the United States Postal Service to 
     employees as an equipment maintenance allowance under the 
     1991 collective bargaining agreement between the United 
     States Postal Service and the National Rural Letter Carriers' 
     Association. Amounts paid as an equipment maintenance 
     allowance by such Postal Service under later collective 
     bargaining agreements that supersede the 1991 agreement shall 
     be considered qualified reimbursements if such amounts do not 
     exceed the amounts that would have been paid under the 1991 
     agreement, adjusted for changes in the Consumer Price Index 
     (as defined in section 1(f)(5)) since 1991.''
       (b) Technical Amendment.--Section 6008 of the Technical and 
     Miscellaneous Revenue Act of 1988 is hereby repealed.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 11412. TREATMENT OF TRAVELING EXPENSES OF CERTAIN 
                   FEDERAL EMPLOYEES ENGAGED IN CRIMINAL 
                   INVESTIGATIONS.

       (a) In General.--Subsection (a) of section 162 is amended 
     by adding at the end the following new sentence: ``The 
     preceding sentence shall not apply to any Federal employee 
     during any period for which such employee is certified by the 
     Attorney General (or the designee thereof) as traveling on 
     behalf of the United States in temporary duty status to 
     investigate, or provide support services for the 
     investigation of, a Federal crime.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.

[[Page H 12671]]


                   CHAPTER 2--PENSION SIMPLIFICATION

              Subchapter A--Simplified Distribution Rules

     SEC. 11421. REPEAL OF 5-YEAR INCOME AVERAGING FOR LUMP-SUM 
                   DISTRIBUTIONS.

       (a) In General.--Subsection (d) of section 402 (relating to 
     taxability of beneficiary of employees' trust) is amended to 
     read as follows:
       ``(d) Taxability of Beneficiary of Certain Foreign Situs 
     Trusts.--For purposes of subsections (a), (b), and (c), a 
     stock bonus, pension, or profit-sharing trust which would 
     qualify for exemption from tax under section 501(a) except 
     for the fact that it is a trust created or organized outside 
     the United States shall be treated as if it were a trust 
     exempt from tax under section 501(a).''.
       (b) Conforming Amendments.--
       (1) Subparagraph (D) of section 402(e)(4) (relating to 
     other rules applicable to exempt trusts) is amended to read 
     as follows:
       ``(D) Lump-sum distribution.--For purposes of this 
     paragraph--
       ``(i) In general.--The term `lump sum distribution' means 
     the distribution or payment within one taxable year of the 
     recipient of the balance to the credit of an employee which 
     becomes payable to the recipient--

       ``(I) on account of the employee's death,
       ``(II) after the employee attains age 59\1/2\,
       ``(III) on account of the employee's separation from 
     service, or
       ``(IV) after the employee has become disabled (within the 
     meaning of section 72(m)(7)),

     from a trust which forms a part of a plan described in 
     section 401(a) and which is exempt from tax under section 501 
     or from a plan described in section 403(a). Subclause (III) 
     of this clause shall be applied only with respect to an 
     individual who is an employee without regard to section 
     401(c)(1), and subclause (IV) shall be applied only with 
     respect to an employee within the meaning of section 
     401(c)(1). For purposes of this clause, a distribution to two 
     or more trusts shall be treated as a distribution to one 
     recipient. For purposes of this paragraph, the balance to the 
     credit of the employee does not include the accumulated 
     deductible employee contributions under the plan (within the 
     meaning of section 72(o)(5)).
       ``(ii) Aggregation of certain trusts and plans.--For 
     purposes of determining the balance to the credit of an 
     employee under clause (i)--

       ``(I) all trusts which are part of a plan shall be treated 
     as a single trust, all pension plans maintained by the 
     employer shall be treated as a single plan, all profit-
     sharing plans maintained by the employer shall be treated as 
     a single plan, and all stock bonus plans maintained by the 
     employer shall be treated as a single plan, and
       ``(II) trusts which are not qualified trusts under section 
     401(a) and annuity contracts which do not satisfy the 
     requirements of section 404(a)(2) shall not be taken into 
     account.

       ``(iii) Community property laws.--The provisions of this 
     paragraph shall be applied without regard to community 
     property laws.
       ``(iv) Amounts subject to penalty.--This paragraph shall 
     not apply to amounts described in subparagraph (A) of section 
     72(m)(5) to the extent that section 72(m)(5) applies to such 
     amounts.
       ``(v) Balance to credit of employee not to include amounts 
     payable under qualified domestic relations order.--For 
     purposes of this paragraph, the balance to the credit of an 
     employee shall not include any amount payable to an alternate 
     payee under a qualified domestic relations order (within the 
     meaning of section 414(p)).
       ``(vi) Transfers to cost-of-living arrangement not treated 
     as distribution.--For purposes of this paragraph, the balance 
     to the credit of an employee under a defined contribution 
     plan shall not include any amount transferred from such 
     defined contribution plan to a qualified cost-of-living 
     arrangement (within the meaning of section 415(k)(2)) under a 
     defined benefit plan.
       ``(vii) Lump-sum distributions of alternate payees.--If any 
     distribution or payment of the balance to the credit of an 
     employee would be treated as a lump-sum distribution, then, 
     for purposes of this paragraph, the payment under a qualified 
     domestic relations order (within the meaning of section 
     414(p)) of the balance to the credit of an alternate payee 
     who is the spouse or former spouse of the employee shall be 
     treated as a lump-sum distribution. For purposes of this 
     clause, the balance to the credit of the alternate payee 
     shall not include any amount payable to the employee.''.
       (2) Section 402(c) (relating to rules applicable to 
     rollovers from exempt trusts) is amended by striking 
     paragraph (10).
       (3) Paragraph (1) of section 55(c) (defining regular tax) 
     is amended by striking ``shall not include any tax imposed by 
     section 402(d) and''.
       (4) Paragraph (8) of section 62(a) (relating to certain 
     portion of lump-sum distributions from pension plans taxed 
     under section 402(d)) is hereby repealed.
       (5) Section 401(a)(28)(B) (relating to coordination with 
     distribution rules) is amended by striking clause (v).
       (6) Subparagraph (B)(ii) of section 401(k)(10) (relating to 
     distributions that must be lump-sum distributions) is amended 
     to read as follows:
       ``(ii) Lump-sum distribution.--For purposes of this 
     subparagraph, the term `lump-sum distribution' means any 
     distribution of the balance to the credit of an employee 
     immediately before the distribution.''.
       (7) Section 406(c) (relating to termination of status as 
     deemed employee not to be treated as separation from service 
     for purposes of limitation of tax) is hereby repealed.
       (8) Section 407(c) (relating to termination of status as 
     deemed employee not to be treated as separation from service 
     for purposes of limitation of tax) is hereby repealed.
       (9) Section 691(c) (relating to deduction for estate tax) 
     is amended by striking paragraph (5).
       (10) Paragraph (1) of section 871(b) (relating to 
     imposition of tax) is amended by striking ``section 1, 55, or 
     402(d)(1)'' and inserting ``section 1 or 55''.
       (11) Subsection (b) of section 877 (relating to alternative 
     tax) is amended by striking ``section 1, 55, or 402(d)(1)'' 
     and inserting ``section 1 or 55''.
       (12) Section 4980A(c)(4) is amended--
       (A) by striking ``to which an election under section 
     402(d)(4)(B) applies'' and inserting ``(as defined in section 
     402(e)(4)(D)) with respect to which the individual elects to 
     have this paragraph apply'',
       (B) by adding at the end the following new flush sentence:
     ``An individual may elect to have this paragraph apply to 
     only one lump-sum distribution.'', and
       (C) by striking the heading and inserting:
       ``(4) Special one-time election.--''.
       (13) Section 402(e) is amended by striking paragraph (5).
       (c) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years beginning after December 31, 1998.
       (2) Retention of certain transition rules.--Notwithstanding 
     any other provision of this section, the amendments made by 
     this section shall not apply to any distribution for which 
     the taxpayer elects the benefits of section 1122 (h)(3) or 
     (h)(5) of the Tax Reform Act of 1986. For purposes of the 
     preceding sentence, the rules of sections 402(c)(10) and 
     402(d) of the Internal Revenue Code of 1986 (as in effect 
     before the amendments made by this Act) shall apply.

     SEC. 11422. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES' DEATH 
                   BENEFITS.

       (a) In General.--Subsection (b) of section 101 is hereby 
     repealed.
       (b) Conforming Amendments.--
       (1) Subsection (c) of section 101 is amended by striking 
     ``subsection (a) or (b)'' and inserting ``subsection (a)''.
       (2) Sections 406(e) and 407(e) are each amended by striking 
     paragraph (2) and by redesignating paragraph (3) as paragraph 
     (2).
       (3) Section 7701(a)(20) is amended by striking ``, for the 
     purposes of applying the provisions of section 101(b) with 
     respect to employees' death benefits''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 11423. SIMPLIFIED METHOD FOR TAXING ANNUITY 
                   DISTRIBUTIONS UNDER CERTAIN EMPLOYER PLANS.

       (a) General Rule.--Subsection (d) of section 72 (relating 
     to annuities; certain proceeds of endowment and life 
     insurance contracts) is amended to read as follows:
       ``(d) Special Rules for Qualified Employer Retirement 
     Plans.--
       ``(1) Simplified method of taxing annuity payments.--
       ``(A) In general.--In the case of any amount received as an 
     annuity under a qualified employer retirement plan--
       ``(i) subsection (b) shall not apply, and
       ``(ii) the investment in the contract shall be recovered as 
     provided in this paragraph.
       ``(B) Method of recovering investment in contract.--
       ``(i) In general.--Gross income shall not include so much 
     of any monthly annuity payment under a qualified employer 
     retirement plan as does not exceed the amount obtained by 
     dividing--

       ``(I) the investment in the contract (as of the annuity 
     starting date), by
       ``(II) the number of anticipated payments determined under 
     the table contained in clause (iii) (or, in the case of a 
     contract to which subsection (c)(3)(B) applies, the number of 
     monthly annuity payments under such contract).

       ``(ii) Certain rules made applicable.--Rules similar to the 
     rules of paragraphs (2) and (3) of subsection (b) shall apply 
     for purposes of this paragraph.
       ``(iii) Number of anticipated payments.--

         ``If the age of the                                           
           primary annuitant on                              The number
           the annuity starting                          of anticipated
           date is:                                        payments is:
           Not more than 55........................................360 
           More than 55 but not more than 60.......................310 
           More than 60 but not more than 65.......................260 
           More than 65 but not more than 70.......................210 
           More than 70............................................160.

       ``(C) Adjustment for refund feature not applicable.--For 
     purposes of this paragraph, investment in the contract shall 
     be determined under subsection (c)(1) without regard to 
     subsection (c)(2).
       ``(D) Special rule where lump sum paid in connection with 
     commencement of annuity payments.--If, in connection with the 
     commencement of annuity payments under any qualified employer 
     retirement plan, the taxpayer receives a lump sum payment--
       ``(i) such payment shall be taxable under subsection (e) as 
     if received before the annuity starting date, and
       ``(ii) the investment in the contract for purposes of this 
     paragraph shall be determined as if such payment had been so 
     received.
       ``(E) Exception.--This paragraph shall not apply in any 
     case where the primary annuitant has attained age 75 on the 
     annuity starting date unless there are fewer than 5 years of 
     guaranteed payments under the annuity.
       ``(F) Adjustment where annuity payments not on monthly 
     basis.--In any case where the 

[[Page H 12672]]
     annuity payments are not made on a monthly basis, appropriate 
     adjustments in the application of this paragraph shall be 
     made to take into account the period on the basis of which 
     such payments are made.
       ``(G) Qualified employer retirement plan.--For purposes of 
     this paragraph, the term `qualified employer retirement plan' 
     means any plan or contract described in paragraph (1), (2), 
     or (3) of section 4974(c).
       ``(2) Treatment of employee contributions under defined 
     contribution plans.--For purposes of this section, employee 
     contributions (and any income allocable thereto) under a 
     defined contribution plan may be treated as a separate 
     contract.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply in cases where the annuity starting date is after 
     December 31, 1995.

     SEC. 11424. REQUIRED DISTRIBUTIONS.

       (a) In General.--Section 401(a)(9)(C) (defining required 
     beginning date) is amended to read as follows:
       ``(C) Required beginning date.--For purposes of this 
     paragraph--
       ``(i) In general.--The term `required beginning date' means 
     April 1 of the calendar year following the later of--

       ``(I) the calendar year in which the employee attains age 
     70\1/2\, or
       ``(II) the calendar year in which the employee retires.

       ``(ii) Exception.--Subclause (II) of clause (i) shall not 
     apply--

       ``(I) except as provided in section 409(d), in the case of 
     an employee who is a 5-percent owner (as defined in section 
     416) with respect to the plan year ending in the calendar 
     year in which the employee attains age 70\1/2\, or
       ``(II) for purposes of section 408 (a)(6) or (b)(3).

       ``(iii) Actuarial adjustment.--In the case of an employee 
     to whom clause (i)(II) applies who retires in a calendar year 
     after the calendar year in which the employee attains age 
     70\1/2\, the employee's accrued benefit shall be actuarially 
     increased to take into account the period after age 70\1/2\ 
     in which the employee was not receiving any benefits under 
     the plan.
       ``(iv) Exception for governmental and church plans.--
     Clauses (ii) and (iii) shall not apply in the case of a 
     governmental plan or church plan. For purposes of this 
     clause, the term `church plan' means a plan maintained by a 
     church for church employees, and the term `church' means any 
     church (as defined in section 3121(w)(3)(A)) or qualified 
     church-controlled organization (as defined in section 
     3121(w)(3)(B)).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to years beginning after December 31, 1995.

            Subchapter B--Increased Access to Pension Plans

     SEC. 11431. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER SECTION 
                   401(k).

       (a) In General.--Subparagraph (B) of section 401(k)(4) is 
     amended to read as follows:
       ``(B) Eligibility of state and local governments and tax-
     exempt organizations.--
       ``(i) Governments ineligible.--A cash or deferred 
     arrangement shall not be treated as a qualified cash or 
     deferred arrangement if it is part of a plan maintained by a 
     State or local government or political subdivision thereof, 
     or any agency or instrumentality thereof. This clause shall 
     not apply to a rural cooperative plan.
       ``(ii) Tax-exempts eligible.--

       ``(I) In general.--Any organization exempt from tax under 
     this subtitle may include a qualified cash or deferred 
     arrangement as part of a plan maintained by it.
       ``(II) Treatment of indian tribal governments.--An employer 
     which is an Indian tribal government (as defined in section 
     7701(a)(40)), a subdivision of an Indian tribal government 
     (determined in accordance with section 7871(d)), an agency or 
     instrumentality of an Indian tribal government or subdivision 
     thereof, or a corporation chartered under Federal, State, or 
     tribal law which is owned in whole or in part by any of the 
     foregoing shall be treated as an organization exempt from tax 
     under this subtitle for purposes of subclause (I).

       (b) Effective Date.--The amendment made by this section 
     shall apply to plan years beginning after December 31, 1996, 
     but shall not apply to any cash or deferred arrangement to 
     which clause (i) of section 1116(f)(2)(B) of the Tax Reform 
     Act of 1986 applies.

               Subchapter C--Nondiscrimination Provisions

     SEC. 11441. DEFINITION OF HIGHLY COMPENSATED EMPLOYEES; 
                   REPEAL OF FAMILY AGGREGATION.

       (a) In General.--Paragraph (1) of section 414(q) (defining 
     highly compensated employee) is amended to read as follows:
       ``(1) In general.--The term `highly compensated employee' 
     means any employee who--
       ``(A) was a 5-percent owner at any time during the year or 
     the preceding year, or
       ``(B) for the preceding year had compensation from the 
     employer in excess of $80,000 and was in the top-paid group 
     of the employer.
     The Secretary shall adjust the $80,000 amount under 
     subparagraph (B) at the same time and in the same manner as 
     under section 415(d), except that the base period shall be 
     the calendar quarter ending September 30, 1996.''.
       (b) Repeal of Family Aggregation Rules.--
       (1) In general.--Paragraph (6) of section 414(q) is hereby 
     repealed.
       (2) Compensation limit.--Paragraph (17)(A) of section 
     401(a) is amended by striking the last sentence.
       (3) Deduction.--Subsection (l) of section 404 is amended by 
     striking the last sentence.
       (c) Conforming Amendments.--
       (1)(A) Subsection (q) of section 414 is amended by striking 
     paragraphs (2), (5), (8), and (12) and by redesignating 
     paragraphs (3), (4), (7), (9), (10), and (11) as paragraphs 
     (2) through (7), respectively.
       (B) Sections 129(d)(8)(B), 401(a)(5)(D)(ii), 408(k)(2)(C), 
     and 416(i)(1)(D) are each amended by striking ``section 
     414(q)(7)'' and inserting ``section 414(q)(4)''.
       (C) Section 416(i)(1)(A) is amended by striking ``section 
     414(q)(8)'' and inserting ``section 414(r)(9)''.
       (2)(A) Section 414(r) is amended by adding at the end the 
     following new paragraph:
       ``(9) Excluded employees.--For purposes of this subsection, 
     the following employees shall be excluded:
       ``(A) Employees who have not completed 6 months of service.
       ``(B) Employees who normally work less than 17\1/2\ hours 
     per week.
       ``(C) Employees who normally work not more than 6 months 
     during any year.
       ``(D) Employees who have not attained the age of 21.
       ``(E) Except to the extent provided in regulations, 
     employees who are included in a unit of employees covered by 
     an agreement which the Secretary of Labor finds to be a 
     collective bargaining agreement between employee 
     representatives and the employer.
     Except as provided by the Secretary, the employer may elect 
     to apply subparagraph (A), (B), (C), or (D) by substituting a 
     shorter period of service, smaller number of hours or months, 
     or lower age for the period of service, number of hours or 
     months, or age (as the case may be) specified in such 
     subparagraph.''.
       (B) Subparagraph (A) of section 414(r)(2) is amended by 
     striking ``subsection (q)(8)'' and inserting ``paragraph 
     (9)''.
       (3) Section 1114(c)(4) of the Tax Reform Act of 1986 is 
     amended by adding at the end the following new sentence: 
     ``Any reference in this paragraph to section 414(q) shall be 
     treated as a reference to such section as in effect on the 
     day before the date of the enactment of the Revenue 
     Reconciliation Act of 1995.''.
       (d) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to years beginning after December 31, 1995, except that 
     in determining whether an employee is a highly compensated 
     employee for years beginning in 1996, such amendments shall 
     be treated as having been in effect for years beginning in 
     1995.
       (2) Family aggregation.--The amendments made by subsection 
     (b) shall apply to years beginning after December 31, 1995.

     SEC. 11442. MODIFICATION OF ADDITIONAL PARTICIPATION 
                   REQUIREMENTS.

       (a) General Rule.--Section 401(a)(26)(A) (relating to 
     additional participation requirements) is amended to read as 
     follows:
       ``(A) In general.--In the case of a trust which is a part 
     of a defined benefit plan, such trust shall not constitute a 
     qualified trust under this subsection unless on each day of 
     the plan year such trust benefits at least the lesser of--
       ``(i) 50 employees of the employer, or
       ``(ii) the greater of--
       ``(I) 40 percent of all employees of the employer, or
       ``(II) 2 employees (or if there is only 1 employee, such 
     employee).''.
       (b) Separate Line of Business Test.--Section 401(a)(26)(G) 
     (relating to separate line of business) is amended by 
     striking ``paragraph (7)'' and inserting ``paragraph (2)(A) 
     or (7)''.
       (c) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 1995.

     SEC. 11443. NONDISCRIMINATION RULES FOR QUALIFIED CASH OR 
                   DEFERRED ARRANGEMENTS AND MATCHING 
                   CONTRIBUTIONS.

       (a) Alternative Methods of Satisfying Section 401(k) 
     Nondiscrimination Tests.--Section 401(k) (relating to cash or 
     deferred arrangements), as amended by this Act, is amended by 
     adding at the end the following new paragraph:
       ``(12) Alternative methods of meeting nondiscrimination 
     requirements.--
       ``(A) In general.--A cash or deferred arrangement shall be 
     treated as meeting the requirements of paragraph (3)(A)(ii) 
     if such arrangement--
       ``(i) meets the contribution requirements of subparagraph 
     (B) or (C), and
       ``(ii) meets the notice requirements of subparagraph (D).
       ``(B) Matching contributions.--
       ``(i) In general.--The requirements of this subparagraph 
     are met if, under the arrangement, the employer makes 
     matching contributions on behalf of each employee who is not 
     a highly compensated employee in an amount equal to--

       ``(I) 100 percent of the elective contributions of the 
     employee to the extent such elective contributions do not 
     exceed 3 percent of the employee's compensation, and
       ``(II) 50 percent of the elective contributions of the 
     employee to the extent that such elective contributions 
     exceed 3 percent but do not exceed 5 percent of the 
     employee's compensation.

       ``(ii) Rate for highly compensated employees.--The 
     requirements of this subparagraph are not met if, under the 
     arrangement, the matching contribution with respect to any 
     elective contribution of a highly compensated employee at any 
     level of compensation is greater than that with respect to an 
     employee who is not a highly compensated employee.
       ``(iii) Alternative plan designs.--If the matching 
     contribution with respect to any elective contribution at any 
     specific level of compensation is not equal to the percentage 
     required under clause (i), an arrangement shall not be 
     treated as failing to meet the requirements of clause (i) 
     if--

       ``(I) the level of an employer's matching contribution does 
     not increase as an employee's elective contributions 
     increase, and

[[Page H 12673]]

       ``(II) the aggregate amount of matching contributions with 
     respect to elective contributions not in excess of such level 
     of compensation is at least equal to the amount of matching 
     contributions which would be made if matching contributions 
     were made on the basis of the percentages described in clause 
     (i).

       ``(C) Nonelective contributions.--The requirements of this 
     subparagraph are met if, under the arrangement, the employer 
     is required, without regard to whether the employee makes an 
     elective contribution or employee contribution, to make a 
     contribution to a defined contribution plan on behalf of each 
     employee who is not a highly compensated employee and who is 
     eligible to participate in the arrangement in an amount equal 
     to at least 3 percent of the employee's compensation.
       ``(D) Notice requirement.--An arrangement meets the 
     requirements of this paragraph if, under the arrangement, 
     each employee eligible to participate is, within a reasonable 
     period before any year, given written notice of the 
     employee's rights and obligations under the arrangement 
     which--
       ``(i) is sufficiently accurate and comprehensive to 
     appraise the employee of such rights and obligations, and
       ``(ii) is written in a manner calculated to be understood 
     by the average employee eligible to participate.
       ``(E) Other requirements.--
       ``(i) Withdrawal and vesting restrictions.--An arrangement 
     shall not be treated as meeting the requirements of 
     subparagraph (B) or (C) unless the requirements of 
     subparagraphs (B) and (C) of paragraph (2) are met with 
     respect to all employer contributions (including matching 
     contributions).
       ``(ii) Social security and similar contributions not taken 
     into account.--An arrangement shall not be treated as meeting 
     the requirements of subparagraph (B) or (C) unless such 
     requirements are met without regard to subsection (l), and, 
     for purposes of subsection (l), employer contributions under 
     subparagraph (B) or (C) shall not be taken into account.
       ``(F) Other plans.--An arrangement shall be treated as 
     meeting the requirements under subparagraph (A)(i) if any 
     other plan maintained by the employer meets such requirements 
     with respect to employees eligible under the arrangement.''.
       (b) Alternative Methods of Satisfying Section 401(m) 
     Nondiscrimination Tests.--Section 401(m) (relating to 
     nondiscrimination test for matching contributions and 
     employee contributions), as amended by this Act, is amended 
     by redesignating paragraph (10) as paragraph (11) and by 
     adding after paragraph (9) the following new paragraph:
       ``(11) Alternative method of satisfying tests.--
       ``(A) In general.--A defined contribution plan shall be 
     treated as meeting the requirements of paragraph (2) with 
     respect to matching contributions if the plan--
       ``(i) meets the contribution requirements of subparagraph 
     (B) or (C) of subsection (k)(12),
       ``(ii) meets the notice requirements of subsection 
     (k)(12)(D), and
       ``(iii) meets the requirements of subparagraph (B).
       ``(B) Limitation on matching contributions.--The 
     requirements of this subparagraph are met if--
       ``(i) matching contributions on behalf of any employee may 
     not be made with respect to an employee's contributions or 
     elective deferrals in excess of 6 percent of the employee's 
     compensation,
       ``(ii) the level of an employer's matching contribution 
     does not increase as an employee's contributions or elective 
     deferrals increase, and
       ``(iii) the matching contribution with respect to any 
     highly compensated employee at a specific level of 
     compensation is not greater than that with respect to an 
     employee who is not a highly compensated employee.''.
       (c) Year for Computing Nonhighly Compensated Employee 
     Percentage.--
       (1) Cash or deferred arrangements.--Clause (ii) of section 
     401(k)(3)(A) is amended--
       (A) by striking ``such year'' and inserting ``the plan 
     year'',
       (B) by striking ``for such plan year'' and inserting ``the 
     preceding plan year'', and
       (C) by adding at the end the following new sentence: ``An 
     arrangement may apply this clause by using the plan year 
     rather than the preceding plan year if the employer so 
     elects, except that if such an election is made, it may not 
     be changed except as provided by the Secretary.''.
       (2) Matching and employee contributions.--Section 
     401(m)(2)(A) is amended--
       (A) by inserting ``for such plan year'' after ``highly 
     compensated employee'',
       (B) by inserting ``for the preceding plan year'' after 
     ``eligible employees'' each place it appears in clause (i) 
     and clause (ii), and
       (C) by adding at the end the following flush sentence: 
     ``This subparagraph may be applied by using the plan year 
     rather than the preceding plan year if the employer so 
     elects, except that if such an election is made, it may not 
     be changed except as provided the Secretary.''.
       (d) Special Rule for Determining Average Deferral 
     Percentage for First Plan Year, Etc.--
       (1) Paragraph (3) of section 401(k) is amended by adding at 
     the end the following new subparagraph:
       ``(E) For purposes of this paragraph, in the case of the 
     first plan year of any plan, the amount taken into account as 
     the actual deferral percentage of nonhighly compensated 
     employees for the preceding plan year shall be--
       ``(i) 3 percent, or
       ``(ii) if the employer makes an election under this 
     subclause, the actual deferral percentage of nonhighly 
     compensated employees determined for such first plan year.''.
       (2) Paragraph (3) of section 401(m) is amended by adding at 
     the end the following: ``Rules similar to the rules of 
     subsection (k)(3)(E) shall apply for purposes of this 
     subsection.''.
       (e) Distribution of Excess Contributions.--
       (1) Subparagraph (C) of section 401(k)(8) (relating to 
     arrangement not disqualified if excess contributions 
     distributed) is amended by striking ``on the basis of the 
     respective portions of the excess contributions attributable 
     to each of such employees'' and inserting ``on the basis of 
     the amount of contributions by, or on behalf of, each of such 
     employees''.
       (2) Subparagraph (C) of section 401(m)(6) (relating to 
     method of distributing excess aggregate contributions) is 
     amended by striking ``on the basis of the respective portions 
     of such amounts attributable to each of such employees'' and 
     inserting ``on the basis of the amount of contributions on 
     behalf of, or by, each such employee''.
       (f) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to years beginning after December 31, 1998.
       (2) Excess contributions.--The amendments made by 
     subsection (e) shall apply to years beginning after December 
     31, 1995.

     SEC. 11444. DEFINITION OF COMPENSATION FOR SECTION 415 
                   PURPOSES.

       (a) General Rule.--Section 415(c)(3) (defining 
     participant's compensation) is amended by adding at the end 
     the following new subparagraph:
       ``(D) Certain deferrals included.--The term `participant's 
     compensation' shall include--
       ``(i) any elective deferral (as defined in section 
     402(g)(3)), and
       ``(ii) any amount which is contributed by the employer at 
     the election of the employee and which is not includible in 
     the gross income of the employee under section 125 or 457.''.
       (b) Conforming Amendments.--
       (1) Section 414(q)(4), as redesignated by section 11441, is 
     amended to read as follows:
       ``(7) Compensation.--For purposes of this subsection, the 
     term `compensation' has the meaning given such term by 
     section 415(c)(3).''.
       (2) Section 414(s)(2) is amended by inserting ``not'' after 
     ``elect'' in the text and heading thereof.
       (c) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1997.

                 Subchapter D--Miscellaneous Provisions

     SEC. 11451. PLANS COVERING SELF-EMPLOYED INDIVIDUALS.

       (a) Aggregation Rules.--Section 401(d) (relating to 
     additional requirements for qualification of trusts and plans 
     benefiting owner-employees) is amended to read as follows:
       ``(d) Contribution Limit on Owner-Employees.--A trust 
     forming part of a pension or profit-sharing plan which 
     provides contributions or benefits for employees some or all 
     of whom are owner-employees shall constitute a qualified 
     trust under this section only if, in addition to meeting the 
     requirements of subsection (a), the plan provides that 
     contributions on behalf of any owner-employee may be made 
     only with respect to the earned income of such owner-employee 
     which is derived from the trade or business with respect to 
     which such plan is established.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1995.

     SEC. 11452. ELIMINATION OF SPECIAL VESTING RULE FOR 
                   MULTIEMPLOYER PLANS.

       (a) In General.--Paragraph (2) of section 411(a) (relating 
     to minimum vesting standards) is amended--
       (1) by striking ``subparagraph (A), (B), or (C)'' and 
     inserting ``subparagraph (A) or (B)''; and
       (2) by striking subparagraph (C).
       (b) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning on or after the earlier 
     of--
       (1) the later of--
       (A) January 1, 1996, or
       (B) the date on which the last of the collective bargaining 
     agreements pursuant to which the plan is maintained 
     terminates (determined without regard to any extension 
     thereof after the date of the enactment of this Act), or
       (2) January 1, 1998.
     Such amendments shall not apply to any individual who does 
     not have more than 1 hour of service under the plan on or 
     after the 1st day of the 1st plan year to which such 
     amendments apply.

     SEC. 11453. DISTRIBUTIONS UNDER RURAL COOPERATIVE PLANS.

       (a) Distributions for Hardship or After a Certain Age.--
     Section 401(k)(7) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Special rule for certain distributions.--A rural 
     cooperative plan which includes a qualified cash or deferred 
     arrangement shall not be treated as violating the 
     requirements of section 401(a) or of paragraph (2) merely by 
     reason of a hardship distribution or a distribution to a 
     participant after attainment of age 59\1/2\. For purposes of 
     this section, the term `hardship distribution' means a 
     distribution described in paragraph (2)(B)(i)(IV) (without 
     regard to the limitation of its application to profit-sharing 
     or stock bonus plans).''.
       (b) Public Utility Districts.--Clause (i) of section 
     401(k)(7)(B) (defining rural cooperative) is amended to read 
     as follows:
       ``(i) any organization which--

       ``(I) is engaged primarily in providing electric service on 
     a mutual or cooperative basis, or
       ``(II) is engaged primarily in providing electric service 
     to the public in its area of service and which is exempt from 
     tax under this subtitle or which is a State or local 
     government (or an 

[[Page H 12674]]
     agency or instrumentality thereof), other than a municipality (or an 
     agency or instrumentality thereof).''

       (c) Effective Dates.--
       (1) Distributions.--The amendments made by subsection (a) 
     shall apply to distributions after the date of the enactment 
     of this Act.
       (2) Rural cooperative.--The amendments made by subsection 
     (b) shall apply to plan years beginning after December 31, 
     1994.

     SEC. 11454. TREATMENT OF GOVERNMENTAL PLANS UNDER SECTION 
                   415.

       (a) Compensation Limit.--Subsection (b) of section 415 is 
     amended by adding immediately after paragraph (10) the 
     following new paragraph:
       ``(11) Special limitation rule for governmental plans.--In 
     the case of a governmental plan (as defined in section 
     414(d)), subparagraph (B) of paragraph (1) shall not apply.''
       (b) Treatment of Certain Excess Benefit Plans.--
       (1) In general.--Section 415 is amended by adding at the 
     end the following new subsection:
       ``(m) Treatment of Qualified Governmental Excess Benefit 
     Arrangements.--
       ``(1) Governmental plan not affected.--In determining 
     whether a governmental plan (as defined in section 414(d)) 
     meets the requirements of this section, benefits provided 
     under a qualified governmental excess benefit arrangement 
     shall not be taken into account. Income accruing to a 
     governmental plan (or to a trust that is maintained solely 
     for the purpose of providing benefits under a qualified 
     governmental excess benefit arrangement) in respect of a 
     qualified governmental excess benefit arrangement shall 
     constitute income derived from the exercise of an essential 
     governmental function upon which such governmental plan (or 
     trust) shall be exempt from tax under section 115.
       ``(2) Taxation of participant.--For purposes of this 
     chapter--
       ``(A) the taxable year or years for which amounts in 
     respect of a qualified governmental excess benefit 
     arrangement are includible in gross income by a participant, 
     and
       ``(B) the treatment of such amounts when so includible by 
     the participant,
     shall be determined as if such qualified governmental excess 
     benefit arrangement were treated as a plan for the deferral 
     of compensation which is maintained by a corporation not 
     exempt from tax under this chapter and which does not meet 
     the requirements for qualification under section 401.
       ``(3) Qualified governmental excess benefit arrangement.--
     For purposes of this subsection, the term `qualified 
     governmental excess benefit arrangement' means a portion of a 
     governmental plan if--
       ``(A) such portion is maintained solely for the purpose of 
     providing to participants in the plan that part of the 
     participant's annual benefit otherwise payable under the 
     terms of the plan that exceeds the limitations on benefits 
     imposed by this section,
       ``(B) under such portion no election is provided at any 
     time to the participant (directly or indirectly) to defer 
     compensation, and
       ``(C) benefits described in subparagraph (A) are not paid 
     from a trust forming a part of such governmental plan unless 
     such trust is maintained solely for the purpose of providing 
     such benefits.''
       (2) Coordination with section 457.--Subsection (e) of 
     section 457 is amended by adding at the end the following new 
     paragraph:
       ``(15) Treatment of qualified governmental excess benefit 
     arrangements.--Subsections (b)(2) and (c)(1) shall not apply 
     to any qualified governmental excess benefit arrangement (as 
     defined in section 415(m)(3)), and benefits provided under 
     such an arrangement shall not be taken into account in 
     determining whether any other plan is an eligible deferred 
     compensation plan.''
       (3) Conforming amendment.--Paragraph (2) of section 457(f) 
     is amended by striking ``and'' at the end of subparagraph 
     (C), by striking the period at the end of subparagraph (D) 
     and inserting ``, and'', and by inserting immediately 
     thereafter the following new subparagraph:
       ``(E) a qualified governmental excess benefit arrangement 
     described in section 415(m).''
       (c) Exemption for Survivor and Disability Benefits.--
     Paragraph (2) of section 415(b) is amended by adding at the 
     end the following new subparagraph:
       ``(I) Exemption for survivor and disability benefits 
     provided under governmental plans.--Subparagraph (B) of 
     paragraph (1), subparagraph (C) of this paragraph, and 
     paragraph (5) shall not apply to--
       ``(i) income received from a governmental plan (as defined 
     in section 414(d)) as a pension, annuity, or similar 
     allowance as the result of the recipient becoming disabled by 
     reason of personal injuries or sickness, or
       ``(ii) amounts received from a governmental plan by the 
     beneficiaries, survivors, or the estate of an employee as the 
     result of the death of the employee.''
       (d) Revocation of Grandfather Election.--
       (1) In general.--Subparagraph (C) of section 415(b)(10) is 
     amended by adding at the end the following new clause:
       ``(ii) Revocation of election.--An election under clause 
     (i) may be revoked not later than the last day of the third 
     plan year beginning after the date of the enactment of this 
     clause. The revocation shall apply to all plan years to which 
     the election applied and to all subsequent plan years. Any 
     amount paid by a plan in a taxable year ending after the 
     revocation shall be includible in income in such taxable year 
     under the rules of this chapter in effect for such taxable 
     year, except that, for purposes of applying the limitations 
     imposed by this section, any portion of such amount which is 
     attributable to any taxable year during which the election 
     was in effect shall be treated as received in such taxable 
     year.''
       (2) Conforming amendment.--Subparagraph (C) of section 
     415(b)(10) is amended by striking ``This'' and inserting:
       ``(i) In general.--This''.
       (e) Effective Date.--
       (1) In general.--The amendments made by subsections (a), 
     (b), and (c) shall apply to years beginning after December 
     31, 1994. The amendments made by subsection (d) shall apply 
     with respect to revocations adopted after the date of the 
     enactment of this Act.
       (2) Treatment for years beginning before date of 
     enactment.--Nothing in the amendments made by this section 
     shall be construed to infer that a governmental plan (as 
     defined in section 414(d) of the Internal Revenue Code of 
     1986) fails to satisfy the requirements of section 415 of 
     such Code for any taxable year beginning before the date of 
     the enactment of this Act.

     SEC. 11455. UNIFORM RETIREMENT AGE.

       (a) Discrimination Testing.--Paragraph (5) of section 
     401(a) (relating to special rules relating to 
     nondiscrimination requirements) is amended by adding at the 
     end the following new subparagraph:
       ``(F) Social security retirement age.--For purposes of 
     testing for discrimination under paragraph (4)--
       ``(i) the social security retirement age (as defined in 
     section 415(b)(8)) shall be treated as a uniform retirement 
     age, and
       ``(ii) subsidized early retirement benefits and joint and 
     survivor annuities shall not be treated as being unavailable 
     to employees on the same terms merely because such benefits 
     or annuities are based in whole or in part on an employee's 
     social security retirement age (as so defined).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 1995.

     SEC. 11456. CONTRIBUTIONS ON BEHALF OF DISABLED EMPLOYEES.

       (a) All Disabled Participants Receiving Contributions.--
     Section 415(c)(3)(C) is amended by adding at the end the 
     following: ``If a defined contribution plan provides for the 
     continuation of contributions on behalf of all participants 
     described in clause (i) for a fixed or determinable period, 
     this subparagraph shall be applied without regard to clauses 
     (ii) and (iii).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 1995.

     SEC. 11457. TREATMENT OF DEFERRED COMPENSATION PLANS OF STATE 
                   AND LOCAL GOVERNMENTS AND TAX-EXEMPT 
                   ORGANIZATIONS.

       (a) Special Rules for Plan Distributions.--Paragraph (9) of 
     section 457(e) (relating to other definitions and special 
     rules) is amended to read as follows:
       ``(9) Benefits not treated as made available by reason of 
     certain elections, etc.--
       ``(A) Total amount payable is $3,500 or less.--The total 
     amount payable to a participant under the plan shall not be 
     treated as made available merely because the participant may 
     elect to receive such amount (or the plan may distribute such 
     amount without the participant's consent) if--
       ``(i) such amount does not exceed $3,500, and
       ``(ii) such amount may be distributed only if--

       ``(I) no amount has been deferred under the plan with 
     respect to such participant during the 2-year period ending 
     on the date of the distribution, and
       ``(II) there has been no prior distribution under the plan 
     to such participant to which this subparagraph applied.

     A plan shall not be treated as failing to meet the 
     distribution requirements of subsection (d) by reason of a 
     distribution to which this subparagraph applies.
       ``(B) Election to defer commencement of distributions.--The 
     total amount payable to a participant under the plan shall 
     not be treated as made available merely because the 
     participant may elect to defer commencement of distributions 
     under the plan if--
       ``(i) such election is made after amounts may be available 
     under the plan in accordance with subsection (d)(1)(A) and 
     before commencement of such distributions, and
       ``(ii) the participant may make only 1 such election.''.
       (b) Cost-of-Living Adjustment of Maximum Deferral Amount.--
     Subsection (e) of section 457, as amended by section 
     11454(b)(2) (relating to governmental plans), is amended by 
     adding at the end the following new paragraph:
       ``(16) Cost-of-living adjustment of maximum deferral 
     amount.--The Secretary shall adjust the $7,500 amount 
     specified in subsections (b)(2) and (c)(1) at the same time 
     and in the same manner as under section 415(d), except that 
     the base period shall be the calendar quarter ending 
     September 30, 1994, and any increase under this paragraph 
     which is not a multiple of $500 shall be rounded to the next 
     lowest multiple of $500.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 11458. TRUST REQUIREMENT FOR DEFERRED COMPENSATION PLANS 
                   OF STATE AND LOCAL GOVERNMENTS.

       (a) In General.--Section 457 is amended by adding at the 
     end the following new subsection:
       ``(g) Governmental Plans Must Maintain Set Asides for 
     Exclusive Benefit of Participants.--
       ``(1) In general.--A plan maintained by an eligible 
     employer described in subsection (e)(1)(A) shall not be 
     treated as an eligible deferred compensation plan unless all 
     assets and income of the plan described in subsection (b)(6) 
     are held in trust for the exclusive benefit of participants 
     and their beneficiaries.
       ``(2) Taxability of trusts and participants.--For purposes 
     of this title--
       ``(A) a trust described in paragraph (1) shall be treated 
     as an organization exempt from taxation under section 501(a), 
     and 

[[Page H 12675]]

       ``(B) notwithstanding any other provision of this title, 
     amounts in the trust shall be includible in the gross income 
     of participants and beneficiaries only to the extent, and at 
     the time, provided in this section.
       ``(3) Custodial accounts and contracts.--For purposes of 
     this subsection, custodial accounts and contracts described 
     in section 401(f) shall be treated as trusts under rules 
     similar to the rules under section 401(f).''
       (b) Conforming Amendment.--Paragraph (6) of section 457(b) 
     is amended by inserting ``except as provided in subsection 
     (g),'' before ``which provides that''.
       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to assets and 
     income described in section 457(b)(6) of the Internal Revenue 
     Code of 1986 held by a plan on and after the date of the 
     enactment of this Act.
       (2) Transition rule.--In the case of assets and income 
     described in paragraph (1) held by a plan before the first 
     day of the first calendar quarter beginning after the close 
     of the first regular session of the State legislature of the 
     State in which the governmental entity maintaining the plan 
     is located beginning after the date of the enactment of this 
     Act, a trust need not be established by reason of the 
     amendments made by this section before such first day. For 
     purposes of the preceding sentence, in the case of a State 
     that has a 2-year legislative session, each year of such 
     session shall be deemed to be a separate regular session of 
     the State legislature.

     SEC. 11459. TRANSITION RULE FOR COMPUTING MAXIMUM BENEFITS 
                   UNDER SECTION 415 LIMITATIONS.

       (a) In General.--Subparagraph (A) of section 767(d)(3) of 
     the Uruguay Round Agreements Act is amended to read as 
     follows:
       ``(A) Exception.--A plan that was adopted and in effect 
     before December 8, 1994, shall not be required to apply the 
     amendments made by subsection (b) with respect to benefits 
     accrued before the earlier of--
       ``(i) the later of the date a plan amendment applying such 
     amendment is adopted or made effective, or
       ``(ii) the first day of the first limitation year beginning 
     after December 31, 1999.
     Determinations under section 415(b)(2)(E) of the Internal 
     Revenue Code of 1986 shall be made with respect to such 
     benefits on the basis of such section as in effect on 
     December 7, 1994 (except that the modification made by 
     subsection (b) shall be taken into account), and the 
     provisions of the plan as in effect on December 7, 1994, but 
     only if such provisions of the plan meet the requirements of 
     such section (as so in effect).''
       (b) Modification of Certain Assumptions for Adjusting 
     Benefits of Defined Benefit Plans for Early Retirees.--
     Subparagraph (E) of section 415(b)(2) (relating to limitation 
     on certain assumptions) is amended--
       (1) by striking ``Except as provided in clause (ii), for 
     purposes of adjusting any benefit or limitation under 
     subparagraph (B) or (C),'' in clause (i) and inserting ``For 
     purposes of adjusting any limitation under subparagraph (C) 
     and, except as provided in clause (ii), for purposes of 
     adjusting any benefit under subparagraph (B),'', and
       (2) by striking ``For purposes of adjusting the benefit or 
     limitation of any form of benefit subject to section 
     417(e)(3),'' in clause (ii) and inserting ``For purposes of 
     adjusting any benefit under subparagraph (B) for any form of 
     benefit subject to section 417(e)(3),''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of section 
     767 of the Uruguay Round Agreements Act.
       (d) Transitional Rule.--In the case of a plan that was 
     adopted and in effect before December 8, 1994, if--
       (1) a plan amendment was adopted or made effective on or 
     before the date of the enactment of this Act applying the 
     amendments made by section 767(b) of the Uruguay Round 
     Agreements Act, and
       (2) within 1 year after the date of the enactment of this 
     Act, a plan amendment is adopted which repeals the amendment 
     referred to in paragraph (1),
     the amendment referred to in paragraph (1) shall not be taken 
     into account in applying section 767(d)(3)(A) of the Uruguay 
     Round Agreements Act, as amended by subsection (a).

     SEC. 11460. MODIFICATIONS OF SECTION 403(b).

       (a) Multiple Salary Reduction Agreements Permitted.--
       (1) General rule.--For purposes of section 403(b) of the 
     Internal Revenue Code of 1986, the frequency that an employee 
     is permitted to enter into a salary reduction agreement, the 
     salary to which such an agreement may apply, and the ability 
     to revoke such an agreement shall be determined under the 
     rules applicable to cash or deferred elections under section 
     401(k) of such Code.
       (2) Effective date.--This subsection shall apply to taxable 
     years beginning after December 31, 1995.
       (b) Treatment of Indian Tribal Governments.--
       (1) In general.--In the case of any contract purchased in a 
     plan year beginning before January 1, 1995, section 403(b) of 
     the Internal Revenue Code of 1986 shall be applied as if any 
     reference to an employer described in section 501(c)(3) of 
     the Internal Revenue Code of 1986 which is exempt from tax 
     under section 501 of such Code included a reference to an 
     employer which is an Indian tribal government (as defined by 
     section 7701(a)(40) of such Code), a subdivision of an Indian 
     tribal government (determined in accordance with section 
     7871(d) of such Code), an agency or instrumentality of an 
     Indian tribal government or subdivision thereof, or a 
     corporation chartered under Federal, State, or tribal law 
     which is owned in whole or in part by any of the foregoing.
       (2) Rollovers.--Solely for purposes of applying section 
     403(b)(8) of such Code to a contract to which paragraph (1) 
     applies, a qualified cash or deferred arrangement under 
     section 401(k) of such Code shall be treated as if it were a 
     plan or contract described in clause (ii) of section 
     403(b)(8)(A) of such Code.
       (c) Elective Deferrals.--
       (1) In general.--Subparagraph (E) of section 403(b)(1) is 
     amended to read as follows:
       ``(E) in the case of a contract purchased under a salary 
     reduction agreement, the contract meets the requirements of 
     section 401(a)(30),''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to years beginning after December 31, 1995.

     SEC. 11461. WAIVER OF MINIMUM PERIOD FOR JOINT AND SURVIVOR 
                   ANNUITY EXPLANATION BEFORE ANNUITY STARTING 
                   DATE.

       (a) General Rule.--For purposes of section 417(a)(3)(A) of 
     the Internal Revenue Code of 1986 (relating to plan to 
     provide written explanations), the minimum period prescribed 
     by the Secretary of the Treasury between the date that the 
     explanation referred to in such section is provided and the 
     annuity starting date shall not apply if waived by the 
     participant and, if applicable, the participant's spouse.
       (b) Effective Date.--Subsection (a) shall apply to plan 
     years beginning after December 31, 1995.

     SEC. 11462. REPEAL OF LIMITATION IN CASE OF DEFINED BENEFIT 
                   PLAN AND DEFINED CONTRIBUTION PLAN FOR SAME 
                   EMPLOYEE; EXCESS DISTRIBUTIONS.

       (a) In General.--Section 415(e) is repealed.
       (b) Excess Distributions.--Section 4980A is amended by 
     adding at the end the following new subsection:
       ``(g) Limitation on Application.--This section shall not 
     apply to distributions during years beginning after December 
     31, 1995, and before January 1, 1999, and such distributions 
     shall be treated as made first from amounts not described in 
     subsection (f).''
       (c) Conforming Amendments.--
       (1) Subparagraph (B) of section 415(b)(5) is amended by 
     striking ``and subsection (e)''.
       (2) Paragraph (1) of section 415(f) is amended by striking 
     ``subsections (b), (c), and (e)'' and inserting ``subsections 
     (b) and (c)''.
       (3) Subsection (g) of section 415 is amended by striking 
     ``subsections (e) and (f)'' in the last sentence and 
     inserting ``subsection (f)''.
       (4) Clause (i) of section 415(k)(2)(A) is amended to read 
     as follows:
       ``(i) any contribution made directly by an employee under 
     such an arrangement shall not be treated as an annual 
     addition for purposes of subsection (c), and''.
       (5) Clause (ii) of section 415(k)(2)(A) is amended by 
     striking ``subsections (c) and (e)'' and inserting 
     ``subsection (c)''.
       (6) Section 416 is amended by striking subsection (h).
       (d) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to limitation 
     years beginning after December 31, 1998.
       (2) Excess distributions.--The amendment made by subsection 
     (b) shall apply to years beginning after December 31, 1995.

     SEC. 11463. TAX ON PROHIBITED TRANSACTIONS.

       (a) In General.--Section 4975(a) is amended by striking ``5 
     percent'' and inserting ``10 percent''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to prohibited transactions occurring after 
     December 31, 1995.

     SEC. 11464. TREATMENT OF LEASED EMPLOYEES.

       (a) General Rule.--Subparagraph (C) of section 414(n)(2) 
     (defining leased employee) is amended to read as follows:
       ``(C) such services are performed under primary direction 
     or control by the recipient.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to years beginning after December 31, 1995, but 
     shall not apply to any relationship determined under an 
     Internal Revenue Service ruling issued before the date of the 
     enactment of this Act pursuant to section 414(n)(2)(C) of the 
     Internal Revenue Code of 1986 (as in effect on the day before 
     such date) not to involve a leased employee.

               CHAPTER 3--TREATMENT OF LARGE PARTNERSHIPS

     SEC. 11471. SIMPLIFIED FLOW-THROUGH FOR ELECTING LARGE 
                   PARTNERSHIPS.

       (a) General Rule.--Subchapter K (relating to partners and 
     partnerships) is amended by adding at the end the following 
     new part:

        ``PART IV--SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS

``Sec. 771. Application of subchapter to electing large partnerships.
``Sec. 772. Simplified flow-through.
``Sec. 773. Computations at partnership level.
``Sec. 774. Other modifications.
``Sec. 775. Electing large partnership defined.
``Sec. 776. Special rules for partnerships holding oil and gas 
              properties.
``Sec. 777. Regulations.

     ``SEC. 771. APPLICATION OF SUBCHAPTER TO ELECTING LARGE 
                   PARTNERSHIPS.

       ``The preceding provisions of this subchapter to the extent 
     inconsistent with the provisions of this part shall not apply 
     to an electing large partnership and its partners.

     ``SEC. 772. SIMPLIFIED FLOW-THROUGH.

       ``(a) General Rule.--In determining the income tax of a 
     partner of an electing large partnership, such partner shall 
     take into account separately such partner's distributive 
     share of the partnership's--

[[Page H 12676]]

       ``(1) taxable income or loss from passive loss limitation 
     activities,
       ``(2) taxable income or loss from other activities,
       ``(3) net capital gain (or net capital loss)--
       ``(A) to the extent allocable to passive loss limitation 
     activities, and
       ``(B) to the extent allocable to other activities,
       ``(4) tax-exempt interest,
       ``(5) applicable net AMT adjustment separately computed 
     for--
       ``(A) passive loss limitation activities, and
       ``(B) other activities,
       ``(6) general credits,
       ``(7) low-income housing credit determined under section 
     42,
       ``(8) rehabilitation credit determined under section 47,
       ``(9) foreign income taxes,
       ``(10) the credit allowable under section 29, and
       ``(11) other items to the extent that the Secretary 
     determines that the separate treatment of such items is 
     appropriate.
       ``(b) Separate Computations.--In determining the amounts 
     required under subsection (a) to be separately taken into 
     account by any partner, this section and section 773 shall be 
     applied separately with respect to such partner by taking 
     into account such partner's distributive share of the items 
     of income, gain, loss, deduction, or credit of the 
     partnership.
       ``(c) Treatment at Partner Level.--
       ``(1) In general.--Except as provided in this subsection, 
     rules similar to the rules of section 702(b) shall apply to 
     any partner's distributive share of the amounts referred to 
     in subsection (a).
       ``(2) Income or loss from passive loss limitation 
     activities.--For purposes of this chapter, any partner's 
     distributive share of any income or loss described in 
     subsection (a)(1) shall be treated as an item of income or 
     loss (as the case may be) from the conduct of a trade or 
     business which is a single passive activity (as defined in 
     section 469). A similar rule shall apply to a partner's 
     distributive share of amounts referred to in paragraphs 
     (3)(A) and (5)(A) of subsection (a).
       ``(3) Income or loss from other activities.--
       ``(A) In general.--For purposes of this chapter, any 
     partner's distributive share of any income or loss described 
     in subsection (a)(2) shall be treated as an item of income or 
     expense (as the case may be) with respect to property held 
     for investment.
       ``(B) Deductions for loss not subject to section 67.--The 
     deduction under section 212 for any loss described in 
     subparagraph (A) shall not be treated as a miscellaneous 
     itemized deduction for purposes of section 67.
       ``(4) Treatment of net capital gain or loss.--For purposes 
     of this chapter, any partner's distributive share of any gain 
     or loss described in subsection (a)(3) shall be treated as a 
     long-term capital gain or loss, as the case may be.
       ``(5) Minimum tax treatment.--In determining the 
     alternative minimum taxable income of any partner, such 
     partner's distributive share of any applicable net AMT 
     adjustment shall be taken into account in lieu of making the 
     separate adjustments provided in sections 56, 57, and 58 with 
     respect to the items of the partnership. Except as provided 
     in regulations, the applicable net AMT adjustment shall be 
     treated, for purposes of section 53, as an adjustment or item 
     of tax preference not specified in section 53(d)(1)(B)(ii).
       ``(6) General credits.--A partner's distributive share of 
     the amount referred to in paragraph (6) of subsection (a) 
     shall be taken into account as a current year business 
     credit.
       ``(d) Operating Rules.--For purposes of this section--
       ``(1) Passive loss limitation activity.--The term `passive 
     loss limitation activity' means--
       ``(A) any activity which involves the conduct of a trade or 
     business, and
       ``(B) any rental activity.
     For purposes of the preceding sentence, the term `trade or 
     business' includes any activity treated as a trade or 
     business under paragraph (5) or (6) of section 469(c).
       ``(2) Tax-exempt interest.--The term `tax-exempt interest' 
     means interest excludable from gross income under section 
     103.
       ``(3) Applicable net amt adjustment.--
       ``(A) In general.--The applicable net AMT adjustment is--
       ``(i) with respect to taxpayers other than corporations, 
     the net adjustment determined by using the adjustments 
     applicable to individuals, and
       ``(ii) with respect to corporations, the net adjustment 
     determined by using the adjustments applicable to 
     corporations.
       ``(B) Net adjustment.--The term `net adjustment' means the 
     net adjustment in the items attributable to passive loss 
     activities or other activities (as the case may be) which 
     would result if such items were determined with the 
     adjustments of sections 56, 57, and 58.
       ``(4) Treatment of certain separately stated items.--
       ``(A) Exclusion for certain purposes.--In determining the 
     amounts referred to in paragraphs (1) and (2) of subsection 
     (a), any net capital gain or net capital loss (as the case 
     may be), and any item referred to in subsection (a)(11), 
     shall be excluded.
       ``(B) Allocation rules.--The net capital gain shall be 
     treated--
       ``(i) as allocable to passive loss limitation activities to 
     the extent the net capital gain does not exceed the net 
     capital gain determined by only taking into account gains and 
     losses from sales and exchanges of property used in 
     connection with such activities, and
       ``(ii) as allocable to other activities to the extent such 
     gain exceeds the amount allocated under clause (i).
     A similar rule shall apply for purposes of allocating any net 
     capital loss.
       ``(C) Net capital loss.--The term `net capital loss' means 
     the excess of the losses from sales or exchanges of capital 
     assets over the gains from sales or exchange of capital 
     assets.
       ``(5) General credits.--The term `general credits' means 
     any credit other than the low-income housing credit, the 
     rehabilitation credit, the foreign tax credit, and the credit 
     allowable under section 29.
       ``(6) Foreign income taxes.--The term `foreign income 
     taxes' means taxes described in section 901 which are paid or 
     accrued to foreign countries and to possessions of the United 
     States.
       ``(e) Special Rule for Unrelated Business Tax.--In the case 
     of a partner which is an organization subject to tax under 
     section 511, such partner's distributive share of any items 
     shall be taken into account separately to the extent 
     necessary to comply with the provisions of section 512(c)(1).
       ``(f) Special Rules for Applying Passive Loss 
     Limitations.--If any person holds an interest in an electing 
     large partnership other than as a limited partner--
       ``(1) paragraph (2) of subsection (c) shall not apply to 
     such partner, and
       ``(2) such partner's distributive share of the partnership 
     items allocable to passive loss limitation activities shall 
     be taken into account separately to the extent necessary to 
     comply with the provisions of section 469.
     The preceding sentence shall not apply to any items allocable 
     to an interest held as a limited partner.

     ``SEC. 773. COMPUTATIONS AT PARTNERSHIP LEVEL.

       ``(a) General Rule.--
       ``(1) Taxable income.--The taxable income of an electing 
     large partnership shall be computed in the same manner as in 
     the case of an individual except that--
       ``(A) the items described in section 772(a) shall be 
     separately stated, and
       ``(B) the modifications of subsection (b) shall apply.
       ``(2) Elections.--All elections affecting the computation 
     of the taxable income of an electing large partnership or the 
     computation of any credit of an electing large partnership 
     shall be made by the partnership; except that the election 
     under section 901, and any election under section 108, shall 
     be made by each partner separately.
       ``(3) Limitations, etc.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     all limitations and other provisions affecting the 
     computation of the taxable income of an electing large 
     partnership or the computation of any credit of an electing 
     large partnership shall be applied at the partnership level 
     (and not at the partner level).
       ``(B) Certain limitations applied at partner level.--The 
     following provisions shall be applied at the partner level 
     (and not at the partnership level):
       ``(i) Section 68 (relating to overall limitation on 
     itemized deductions).
       ``(ii) Sections 49 and 465 (relating to at risk 
     limitations).
       ``(iii) Section 469 (relating to limitation on passive 
     activity losses and credits).
       ``(iv) Any other provision specified in regulations.
       ``(4) Coordination with other provisions.--Paragraphs (2) 
     and (3) shall apply notwithstanding any other provision of 
     this chapter other than this part.
       ``(b) Modifications to Determination of Taxable Income.--In 
     determining the taxable income of an electing large 
     partnership--
       ``(1) Certain deductions not allowed.--The following 
     deductions shall not be allowed:
       ``(A) The deduction for personal exemptions provided in 
     section 151.
       ``(B) The net operating loss deduction provided in section 
     172.
       ``(C) The additional itemized deductions for individuals 
     provided in part VII of subchapter B (other than section 212 
     thereof).
       ``(2) Charitable deductions.--In determining the amount 
     allowable under section 170, the limitation of section 
     170(b)(2) shall apply.
       ``(3) Coordination with section 67.--In lieu of applying 
     section 67, 70 percent of the amount of the miscellaneous 
     itemized deductions shall be disallowed.
       ``(c) Special Rules for Income From Discharge of 
     Indebtedness.--If an electing large partnership has income 
     from the discharge of any indebtedness--
       ``(1) such income shall be excluded in determining the 
     amounts referred to in section 772(a), and
       ``(2) in determining the income tax of any partner of such 
     partnership--
       ``(A) such income shall be treated as an item required to 
     be separately taken into account under section 772(a), and
       ``(B) the provisions of section 108 shall be applied 
     without regard to this part.

     ``SEC. 774. OTHER MODIFICATIONS.

       ``(a) Treatment of Certain Optional Adjustments, Etc.--In 
     the case of an electing large partnership--
       ``(1) computations under section 773 shall be made without 
     regard to any adjustment under section 743(b) or 108(b), but
       ``(2) a partner's distributive share of any amount referred 
     to in section 772(a) shall be appropriately adjusted to take 
     into account any adjustment under section 743(b) or 108(b) 
     with respect to such partner.
       ``(b) Credit Recapture Determined at Partnership Level.--
       ``(1) In general.--In the case of an electing large 
     partnership--
       ``(A) any credit recapture shall be taken into account by 
     the partnership, and

[[Page H 12677]]

       ``(B) the amount of such recapture shall be determined as 
     if the credit with respect to which the recapture is made had 
     been fully utilized to reduce tax.
       ``(2) Method of taking recapture into account.--An electing 
     large partnership shall take into account a credit recapture 
     by reducing the amount of the appropriate current year credit 
     to the extent thereof, and if such recapture exceeds the 
     amount of such current year credit, the partnership shall be 
     liable to pay such excess.
       ``(3) Dispositions not to trigger recapture.--No credit 
     recapture shall be required by reason of any transfer of an 
     interest in an electing large partnership.
       ``(4) Credit recapture.--For purposes of this subsection, 
     the term `credit recapture' means any increase in tax under 
     section 42(j) or 50(a).
       ``(c) Partnership Not Terminated by Reason of Change in 
     Ownership.--Subparagraph (B) of section 708(b)(1) shall not 
     apply to an electing large partnership.
       ``(d) Partnership Entitled to Certain Credits.--The 
     following shall be allowed to an electing large partnership 
     and shall not be taken into account by the partners of such 
     partnership:
       ``(1) The credit provided by section 34.
       ``(2) Any credit or refund under section 852(b)(3)(D).
       ``(e) Treatment of REMIC Residuals.--For purposes of 
     applying section 860E(e)(6) to any electing large 
     partnership--
       ``(1) all interests in such partnership shall be treated as 
     held by disqualified organizations,
       ``(2) in lieu of applying subparagraph (C) of section 
     860E(e)(6), the amount subject to tax under section 
     860E(e)(6) shall be excluded from the gross income of such 
     partnership, and
       ``(3) subparagraph (D) of section 860E(e)(6) shall not 
     apply.
       ``(f) Special Rules for Applying Certain Installment Sale 
     Rules.--In the case of an electing large partnership--
       ``(1) the provisions of sections 453(l)(3) and 453A shall 
     be applied at the partnership level, and
       ``(2) in determining the amount of interest payable under 
     such sections, such partnership shall be treated as subject 
     to tax under this chapter at the highest rate of tax in 
     effect under section 1 or 11.

     ``SEC. 775. ELECTING LARGE PARTNERSHIP DEFINED.

       ``(a) General Rule.--For purposes of this part--
       ``(1) In general.--The term `electing large partnership' 
     means, with respect to any partnership taxable year, any 
     partnership if--
       ``(A) the number of persons who were partners in such 
     partnership in the preceding partnership taxable year equaled 
     or exceeded 100, and
       ``(B) such partnership elects the application of this part.
     To the extent provided in regulations, a partnership shall 
     cease to be treated as an electing large partnership for any 
     partnership taxable year if in such taxable year fewer than 
     100 persons were partners in such partnership.
       ``(2) Election.--The election under this subsection shall 
     apply to the taxable year for which made and all subsequent 
     taxable years unless revoked with the consent of the 
     Secretary.
       ``(b) Special Rules for Certain Service Partnerships.--
       ``(1) Certain partners not counted.--For purposes of this 
     section, the term `partner' does not include any individual 
     performing substantial services in connection with the 
     activities of the partnership and holding an interest in such 
     partnership, or an individual who formerly performed 
     substantial services in connection with such activities and 
     who held an interest in such partnership at the time the 
     individual performed such services.
       ``(2) Exclusion.--For purposes of this part, an election 
     under subsection (a) shall not be effective with respect to 
     any partnership if substantially all the partners of such 
     partnership--
       ``(A) are individuals performing substantial services in 
     connection with the activities of such partnership or are 
     personal service corporations (as defined in section 269A(b)) 
     the owner-employees (as defined in section 269A(b)) of which 
     perform such substantial services,
       ``(B) are retired partners who had performed such 
     substantial services, or
       ``(C) are spouses of partners who are performing (or had 
     previously performed) such substantial services.
       ``(3) Special rule for lower tier partnerships.--For 
     purposes of this subsection, the activities of a partnership 
     shall include the activities of any other partnership in 
     which the partnership owns directly an interest in the 
     capital and profits of at least 80 percent.
       ``(c) Exclusion of Commodity Pools.--For purposes of this 
     part, an election under subsection (a) shall not be effective 
     with respect to any partnership the principal activity of 
     which is the buying and selling of commodities (not described 
     in section 1221(1)), or options, futures, or forwards with 
     respect to such commodities.
       ``(d) Secretary May Rely on Treatment on Return.--If, on 
     the partnership return of any partnership, such partnership 
     is treated as an electing large partnership, such treatment 
     shall be binding on such partnership and all partners of such 
     partnership but not on the Secretary.

     ``SEC. 776. SPECIAL RULES FOR PARTNERSHIPS HOLDING OIL AND 
                   GAS PROPERTIES.

       ``(a) Exception for Partnerships Holding Significant Oil 
     and Gas Properties.--
       ``(1) In general.--For purposes of this part, an election 
     under section 775(a) shall not be effective with respect to 
     any partnership if the average percentage of assets (by 
     value) held by such partnership during the taxable year which 
     are oil or gas properties is at least 25 percent. For 
     purposes of the preceding sentence, any interest held by a 
     partnership in another partnership shall be disregarded, 
     except that the partnership shall be treated as holding its 
     proportionate share of the assets of such other partnership.
       ``(2) Election to waive exception.--Any partnership may 
     elect to have paragraph (1) not apply. Such an election shall 
     apply to the partnership taxable year for which made and all 
     subsequent partnership taxable years unless revoked with the 
     consent of the Secretary.
       ``(b) Special Rules Where Part Applies.--
       ``(1) Computation of percentage depletion.--In the case of 
     an electing large partnership, except as provided in 
     paragraph (2)--
       ``(A) the allowance for depletion under section 611 with 
     respect to any partnership oil or gas property shall be 
     computed at the partnership level without regard to any 
     provision of section 613A requiring such allowance to be 
     computed separately by each partner,
       ``(B) such allowance shall be determined without regard to 
     the provisions of section 613A(c) limiting the amount of 
     production for which percentage depletion is allowable and 
     without regard to paragraph (1) of section 613A(d), and
       ``(C) paragraph (3) of section 705(a) shall not apply.
       ``(2) Treatment of certain partners.--
       ``(A) In general.--In the case of a disqualified person, 
     the treatment under this chapter of such person's 
     distributive share of any item of income, gain, loss, 
     deduction, or credit attributable to any partnership oil or 
     gas property shall be determined without regard to this part. 
     Such person's distributive share of any such items shall be 
     excluded for purposes of making determinations under sections 
     772 and 773.
       ``(B) Disqualified person.--For purposes of subparagraph 
     (A), the term `disqualified person' means, with respect to 
     any partnership taxable year--
       ``(i) any person referred to in paragraph (2) or (4) of 
     section 613A(d) for such person's taxable year in which such 
     partnership taxable year ends, and
       ``(ii) any other person if such person's average daily 
     production of domestic crude oil and natural gas for such 
     person's taxable year in which such partnership taxable year 
     ends exceeds 500 barrels.
       ``(C) Average daily production.--For purposes of 
     subparagraph (B), a person's average daily production of 
     domestic crude oil and natural gas for any taxable year shall 
     be computed as provided in section 613A(c)(2)--
       ``(i) by taking into account all production of domestic 
     crude oil and natural gas (including such person's 
     proportionate share of any production of a partnership),
       ``(ii) by treating 6,000 cubic feet of natural gas as a 
     barrel of crude oil, and
       ``(iii) by treating as 1 person all persons treated as 1 
     taxpayer under section 613A(c)(8) or among whom allocations 
     are required under such section.

     ``SEC. 777. REGULATIONS.

       ``The Secretary shall prescribe such regulations as may be 
     appropriate to carry out the purposes of this part.''
       (b) Clerical Amendment.--The table of parts for subchapter 
     K of chapter 1 is amended by adding at the end the following 
     new item:

``Part IV. Special rules for electing large partnerships.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to partnership taxable years beginning after 
     December 31, 1995.

     SEC. 11472. RETURNS MAY BE REQUIRED ON MAGNETIC MEDIA.

       (a) In General.--Paragraph (2) of section 6011(e) (relating 
     to returns on magnetic media) is amended by adding at the end 
     the following new sentence:
     ``Notwithstanding the preceding sentence, the Secretary shall 
     require partnerships having more than 100 partners to file 
     returns on magnetic media.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to partnership taxable years beginning after 
     December 31, 1995.

                     CHAPTER 4--FOREIGN PROVISIONS

Subchapter A--Modifications to Treatment of Passive Foreign Investment 
                               Companies

     SEC. 11481. UNITED STATES SHAREHOLDERS OF CONTROLLED FOREIGN 
                   CORPORATIONS NOT SUBJECT TO PFIC INCLUSION.

       Section 1296 is amended by adding at the end the following 
     new subsection:
       ``(e) Exception for United States Shareholders of 
     Controlled Foreign Corporations.--
       ``(1) In general.--For purposes of this part, a corporation 
     shall not be treated with respect to a shareholder as a 
     passive foreign investment company during the qualified 
     portion of such shareholder's holding period with respect to 
     stock in such corporation.
       ``(2) Qualified portion.--For purposes of this subsection, 
     the term `qualified portion' means the portion of the 
     shareholder's holding period--
       ``(A) which is after December 31, 1995, and
       ``(B) during which the shareholder is a United States 
     shareholder (as defined in section 951(b)) of the corporation 
     and the corporation is a controlled foreign corporation.
       ``(3) New holding period if qualified portion ends.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     if the qualified portion of a shareholder's holding period 
     with respect to any stock ends after December 31, 1995, 
     solely for purposes of this part, the shareholder's holding 
     period with respect to such stock shall be treated as 
     beginning as of the first day following such period.
       ``(B) Exception.--Subparagraph (A) shall not apply if such 
     stock was, with respect to such 

[[Page H 12678]]
     shareholder, stock in a passive foreign investment company at any time 
     before the qualified portion of the shareholder's holding 
     period with respect to such stock and no election under 
     section 1298(b)(1) is made.''

     SEC. 11482. ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK 
                   IN PASSIVE FOREIGN INVESTMENT COMPANY.

       (a) In General.--Part VI of subchapter P of chapter 1 is 
     amended by redesignating subpart C as subpart D, by 
     redesignating sections 1296 and 1297 as sections 1297 and 
     1298, respectively, and by inserting after subpart B the 
     following new subpart:

      ``Subpart C--Election of Mark to Market For Marketable Stock

``Sec. 1296. Election of mark to market for marketable stock.

     ``SEC. 1296. ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK.

       ``(a) General Rule.--In the case of marketable stock in a 
     passive foreign investment company which is owned (or treated 
     under subsection (g) as owned) by a United States person at 
     the close of any taxable year of such person, at the election 
     of such person--
       ``(1) If the fair market value of such stock as of the 
     close of such taxable year exceeds its adjusted basis, such 
     United States person shall include in gross income for such 
     taxable year an amount equal to the amount of such excess.
       ``(2) If the adjusted basis of such stock exceeds the fair 
     market value of such stock as of the close of such taxable 
     year, such United States person shall be allowed a deduction 
     for such taxable year equal to the lesser of--
       ``(A) the amount of such excess, or
       ``(B) the unreversed inclusions with respect to such stock.
       ``(b) Basis Adjustments.--
       ``(1) In general.--The adjusted basis of stock in a passive 
     foreign investment company--
       ``(A) shall be increased by the amount included in the 
     gross income of the United States person under subsection 
     (a)(1) with respect to such stock, and
       ``(B) shall be decreased by the amount allowed as a 
     deduction to the United States person under subsection (a)(2) 
     with respect to such stock.
       ``(2) Special rule for stock constructively owned.--In the 
     case of stock in a passive foreign investment company which 
     the United States person is treated as owning under 
     subsection (g)--
       ``(A) the adjustments under paragraph (1) shall apply to 
     such stock in the hands of the person actually holding such 
     stock but only for purposes of determining the subsequent 
     treatment under this chapter of the United States person with 
     respect to such stock, and
       ``(B) similar adjustments shall be made to the adjusted 
     basis of the property by reason of which the United States 
     person is treated as owning such stock.
       ``(c) Character and Source Rules.--
       ``(1) Ordinary treatment.--
       ``(A) Gain.--Any amount included in gross income under 
     subsection (a)(1), and any gain on the sale or other 
     disposition of marketable stock in a passive foreign 
     investment company (with respect to which an election under 
     this section is in effect), shall be treated as ordinary 
     income.
       ``(B) Loss.--Any--
       ``(i) amount allowed as a deduction under subsection 
     (a)(2), and
       ``(ii) loss on the sale or other disposition of marketable 
     stock in a passive foreign investment company (with respect 
     to which an election under this section is in effect) to the 
     extent that the amount of such loss does not exceed the 
     unreversed inclusions with respect to such stock,
     shall be treated as an ordinary loss. The amount so treated 
     shall be treated as a deduction allowable in computing 
     adjusted gross income.
       ``(2) Source.--The source of any amount included in gross 
     income under subsection (a)(1) (or allowed as a deduction 
     under subsection (a)(2)) shall be determined in the same 
     manner as if such amount were gain or loss (as the case may 
     be) from the sale of stock in the passive foreign investment 
     company.
       ``(d) Unreversed Inclusions.--For purposes of this section, 
     the term `unreversed inclusions' means, with respect to any 
     stock in a passive foreign investment company, the excess (if 
     any) of--
       ``(1) the amount included in gross income of the taxpayer 
     under subsection (a)(1) with respect to such stock for prior 
     taxable years, over
       ``(2) the amount allowed as a deduction under subsection 
     (a)(2) with respect to such stock for prior taxable years.
     The amount referred to in paragraph (1) shall include any 
     amount which would have been included in gross income under 
     subsection (a)(1) with respect to such stock for any prior 
     taxable year but for section 1291.
       ``(e) Marketable Stock.--For purposes of this section--
       ``(1) In general.--The term `marketable stock' means--
       ``(A) any stock which is regularly traded on--
       ``(i) a national securities exchange which is registered 
     with the Securities and Exchange Commission or the national 
     market system established pursuant to section 11A of the 
     Securities and Exchange Act of 1934, or
       ``(ii) any exchange or other market which the Secretary 
     determines has rules adequate to carry out the purposes of 
     this part,
       ``(B) to the extent provided in regulations, stock in any 
     foreign corporation which is comparable to a regulated 
     investment company and which offers for sale or has 
     outstanding any stock of which it is the issuer and which is 
     redeemable at its net asset value, and
       ``(C) to the extent provided in regulations, any option on 
     stock described in subparagraph (A) or (B).
       ``(2) Special rule for regulated investment companies.--In 
     the case of any regulated investment company which is 
     offering for sale or has outstanding any stock of which it is 
     the issuer and which is redeemable at its net asset value, 
     all stock in a passive foreign investment company which it 
     owns directly or indirectly shall be treated as marketable 
     stock for purposes of this section. Except as provided in 
     regulations, similar treatment as marketable stock shall 
     apply in the case of any other regulated investment company 
     which publishes net asset valuations at least annually.
       ``(f) Treatment of Controlled Foreign Corporations Which 
     are Shareholders in Passive Foreign Investment Companies.--In 
     the case of a foreign corporation which is a controlled 
     foreign corporation and which owns (or is treated under 
     subsection (g) as owning) stock in a passive foreign 
     investment company--
       ``(1) this section (other than subsection (c)(2)) shall 
     apply to such foreign corporation in the same manner as if 
     such corporation were a United States person, and
       ``(2) for purposes of subpart F of part III of subchapter 
     N--
       ``(A) any amount included in gross income under subsection 
     (a)(1) shall be treated as foreign personal holding company 
     income described in section 954(c)(1)(A), and
       ``(B) any amount allowed as a deduction under subsection 
     (a)(2) shall be treated as a deduction allocable to foreign 
     personal holding company income so described.
       ``(g) Stock Owned Through Certain Foreign Entities.--Except 
     as provided in regulations--
       ``(1) In general.--For purposes of this section, stock 
     owned, directly or indirectly, by or for a foreign 
     partnership or foreign trust or foreign estate shall be 
     considered as being owned proportionately by its partners or 
     beneficiaries. Stock considered to be owned by a person by 
     reason of the application of the preceding sentence shall, 
     for purposes of applying such sentence, be treated as 
     actually owned by such person.
       ``(2) Treatment of certain dispositions.--In any case in 
     which a United States person is treated as owning stock in a 
     passive foreign investment company by reason of paragraph 
     (1)--
       ``(A) any disposition by the United States person or by any 
     other person which results in the United States person being 
     treated as no longer owning such stock, and
       ``(B) any disposition by the person owning such stock,
     shall be treated as a disposition by the United States person 
     of the stock in the passive foreign investment company.
       ``(h) Coordination With Section 851(b).--For purposes of 
     paragraphs (2) and (3) of section 851(b), any amount included 
     in gross income under subsection (a) shall be treated as a 
     dividend.
       ``(i) Stock Acquired From a Decedent.--In the case of stock 
     of a passive foreign investment company which is acquired by 
     bequest, devise, or inheritance (or by the decedent's estate) 
     and with respect to which an election under this section was 
     in effect as of the date of the decedent's death, 
     notwithstanding section 1014, the basis of such stock in the 
     hands of the person so acquiring it shall be the adjusted 
     basis of such stock in the hands of the decedent immediately 
     before his death (or, if lesser, the basis which would have 
     been determined under section 1014 without regard to this 
     subsection).
       ``(j) Coordination With Section 1291 for First Year of 
     Election.--
       ``(1) Taxpayers other than regulated investment 
     companies.--
       ``(A) In general.--If the taxpayer elects the application 
     of this section with respect to any marketable stock in a 
     corporation after the beginning of the taxpayer's holding 
     period in such stock, and if the requirements of subparagraph 
     (B) are not satisfied, section 1291 shall apply to--
       ``(i) any distributions with respect to, or disposition of, 
     such stock in the first taxable year of the taxpayer for 
     which such election is made, and
       ``(ii) any amount which, but for section 1291, would have 
     been included in gross income under subsection (a) with 
     respect to such stock for such taxable year in the same 
     manner as if such amount were gain on the disposition of such 
     stock.
       ``(B) Requirements.--The requirements of this subparagraph 
     are met if, with respect to each of such corporation's 
     taxable years for which such corporation was a passive 
     foreign investment company and which begin after December 31, 
     1986, and included any portion of the taxpayer's holding 
     period in such stock, such corporation was treated as a 
     qualified electing fund under this part with respect to the 
     taxpayer.
       ``(2) Special rules for regulated investment companies.--
       ``(A) In general.--If a regulated investment company elects 
     the application of this section with respect to any 
     marketable stock in a corporation after the beginning of the 
     taxpayer's holding period in such stock, then, with respect 
     to such company's first taxable year for which such company 
     elects the application of this section with respect to such 
     stock--
       ``(i) section 1291 shall not apply to such stock with 
     respect to any distribution or disposition during, or amount 
     included in gross income under this section for, such first 
     taxable year, but
       ``(ii) such regulated investment company's tax under this 
     chapter for such first taxable year shall be increased by the 
     aggregate amount of interest which would have been determined 
     under section 1291(c)(3) if section 1291 were applied without 
     regard to this subparagraph.
     Clause (ii) shall not apply if for the preceding taxable year 
     the company elected to mark to market the stock held by such 
     company as of the last day of such preceding taxable year.

[[Page H 12679]]

       ``(B) Disallowance of deduction.--No deduction shall be 
     allowed to any regulated investment company for the increase 
     in tax under subparagraph (A)(ii).
       ``(k) Election.--This section shall apply to marketable 
     stock in a passive foreign investment company which is held 
     by a United States person only if such person elects to apply 
     this section with respect to such stock. Such an election 
     shall apply to the taxable year for which made and all 
     subsequent taxable years unless--
       ``(1) such stock ceases to be marketable stock, or
       ``(2) the Secretary consents to the revocation of such 
     election.
       ``(l) Transition Rule for Individuals Becoming Subject to 
     United States Tax.--If any individual becomes a United States 
     person in a taxable year beginning after December 31, 1995, 
     solely for purposes of this section, the adjusted basis 
     (before adjustments under subsection (b)) of any marketable 
     stock in a passive foreign investment company owned by such 
     individual on the first day of such taxable year shall be 
     treated as being the greater of its fair market value on such 
     first day or its adjusted basis on such first day.''
       (b) Coordination With Interest Charge, Etc.--
       (1) Paragraph (1) of section 1291(d) is amended by adding 
     at the end the following new flush sentence:
     ``Except as provided in section 1296(j), this section also 
     shall not apply if an election under section 1296(k) is in 
     effect for the taxpayer's taxable year.''
       (2) The subsection heading for subsection (d) of section 
     1291 is amended by striking ``Subpart B'' and inserting 
     ``Subparts B and C''.
       (3) Subparagraph (A) of section 1291(a)(3) is amended to 
     read as follows:
       ``(A) Holding period.--The taxpayer's holding period shall 
     be determined under section 1223; except that--
       ``(i) for purposes of applying this section to an excess 
     distribution, such holding period shall be treated as ending 
     on the date of such distribution, and
       ``(ii) if section 1296 applied to such stock with respect 
     to the taxpayer for any prior taxable year, such holding 
     period shall be treated as beginning on the first day of the 
     first taxable year beginning after the last taxable year for 
     which section 1296 so applied.''
       (c) Conforming Amendments.--
       (1) Sections 532(b)(4) and 542(c)(10) are each amended by 
     striking ``section 1296'' and inserting ``section 1297''.
       (2) Subsection (f) of section 551 is amended by striking 
     ``section 1297(b)(5)'' and inserting ``section 1298(b)(5)''
       (3) Subsections (a)(1) and (d) of section 1293 are each 
     amended by striking ``section 1297(a)'' and inserting 
     ``section 1298(a)''.
       (4) Paragraph (3) of section 1297(b), as redesignated by 
     subsection (a), is hereby repealed.
       (5) The table of sections for subpart D of part VI of 
     subchapter P of chapter 1, as redesignated by subsection (a), 
     is amended to read as follows:
``Sec. 1297. Passive foreign investment company.
``Sec. 1298. Special rules.''
       (6) The table of subparts for part VI of subchapter P of 
     chapter 1 is amended by striking the last item and inserting 
     the following new items:
``Subpart C. Election of mark to market for marketable stock.
``Subpart D. General provisions.''
       (d) Clarification of Gain Recognition Election.--The last 
     sentence of section 1298(b)(1), as so redesignated, is 
     amended by inserting ``(determined without regard to the 
     preceding sentence)'' after ``investment company''.

     SEC. 11483. MODIFICATIONS TO DEFINITION OF PASSIVE INCOME.

       (a) Exception for Same Country Income Not To Apply.--
     Paragraph (1) of section 1297(b) (defining passive income), 
     as redesignated by section 11482, is amended by inserting 
     before the period ``without regard to paragraph (3) 
     thereof''.
       (b) Passive Income Not To Include FSC Income.--Paragraph 
     (2) of section 1297(b), as so redesignated, is amended by 
     striking ``or'' at the end of subparagraph (B), by striking 
     the period at the end of subparagraph (C) and inserting ``, 
     or'', and by inserting after subparagraph (C) the following 
     new subparagraph:
       ``(D) any foreign trade income of a FSC.''

     SEC. 11484. EFFECTIVE DATE.

       The amendments made by this subchapter shall apply to--
       (1) taxable years of United States persons beginning after 
     December 31, 1995, and
       (2) taxable years of foreign corporations ending with or 
     within such taxable years of United States persons.

       Subchapter B--Treatment of Controlled Foreign Corporations

     SEC. 11486. GAIN ON CERTAIN STOCK SALES BY CONTROLLED FOREIGN 
                   CORPORATIONS TREATED AS DIVIDENDS.

       (a) General Rule.--Section 964 (relating to miscellaneous 
     provisions) is amended by adding at the end the following new 
     subsection:
       ``(e) Gain on Certain Stock Sales by Controlled Foreign 
     Corporations Treated as Dividends.--
       ``(1) In general.--If a controlled foreign corporation 
     sells or exchanges stock in any other foreign corporation, 
     gain recognized on such sale or exchange shall be included in 
     the gross income of such controlled foreign corporation as a 
     dividend to the same extent that it would have been so 
     included under section 1248(a) if such controlled foreign 
     corporation were a United States person. For purposes of 
     determining the amount which would have been so includible, 
     the determination of whether such other foreign corporation 
     was a controlled foreign corporation shall be made without 
     regard to the preceding sentence.
       ``(2) Same country exception not applicable.--Clause (i) of 
     section 954(c)(3)(A) shall not apply to any amount treated as 
     a dividend by reason of paragraph (1).
       ``(3) Clarification of deemed sales.--For purposes of this 
     subsection, a controlled foreign corporation shall be treated 
     as having sold or exchanged any stock if, under any provision 
     of this subtitle, such controlled foreign corporation is 
     treated as having gain from the sale or exchange of such 
     stock.''
       (b) Amendment of Section 904(d).--Clause (i) of section 
     904(d)(2)(E) is amended by striking ``and except as provided 
     in regulations, the taxpayer was a United States shareholder 
     in such corporation''.
       (c) Effective Dates.--
       (1) The amendment made by subsection (a) shall apply to 
     gain recognized on transactions occurring after the date of 
     the enactment of this Act.
       (2) The amendment made by subsection (b) shall apply to 
     distributions after the date of the enactment of this Act.

     SEC. 11487. MISCELLANEOUS MODIFICATIONS TO SUBPART F.

       (a) Section 1248 Gain Taken Into Account in Determining Pro 
     Rata Share.--
       (1) In general.--Paragraph (2) of section 951(a) (defining 
     pro rata share of subpart F income) is amended by adding at 
     the end the following new sentence: ``For purposes of 
     subparagraph (B), any gain included in the gross income of 
     any person as a dividend under section 1248 shall be treated 
     as a distribution received by such person with respect to the 
     stock involved.''
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to dispositions after the date of the enactment 
     of this Act.
       (b) Basis Adjustments in Stock Held by Foreign 
     Corporation.--
       (1) In general.--Section 961 (relating to adjustments to 
     basis of stock in controlled foreign corporations and of 
     other property) is amended by adding at the end the following 
     new subsection:
       ``(c) Basis Adjustments in Stock Held by Foreign 
     Corporation.--Under regulations prescribed by the Secretary, 
     if a United States shareholder is treated under section 
     958(a)(2) as owning any stock in a controlled foreign 
     corporation which is actually owned by another controlled 
     foreign corporation, adjustments similar to the adjustments 
     provided by subsections (a) and (b) shall be made to the 
     basis of such stock in the hands of such other controlled 
     foreign corporation, but only for the purposes of determining 
     the amount included under section 951 in the gross income of 
     such United States shareholder (or any other United States 
     shareholder who acquires from any person any portion of the 
     interest of such United States shareholder by reason of which 
     such shareholder was treated as owning such stock, but only 
     to the extent of such portion, and subject to such proof of 
     identity of such interest as the Secretary may prescribe by 
     regulations).''
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply for purposes of determining inclusions for 
     taxable years of United States shareholders beginning after 
     December 31, 1995.
       (c) Determination of Previously Taxed Income in Section 304 
     Distributions, Etc.--
       (1) In general.--Section 959 (relating to exclusion from 
     gross income of previously taxed earnings and profits) is 
     amended by adding at the end the following new subsection:
       ``(g) Adjustments for Certain Transactions.--If by reason 
     of--
       ``(1) a transaction to which section 304 applies,
       ``(2) the structure of a United States shareholder's 
     holdings in controlled foreign corporations, or
       ``(3) other circumstances,
     there would be a multiple inclusion of any item in income (or 
     an inclusion or exclusion without an appropriate basis 
     adjustment) by reason of this subpart, the Secretary may 
     prescribe regulations providing such modifications in the 
     application of this subpart as may be necessary to eliminate 
     such multiple inclusion or provide such basis adjustment, as 
     the case may be.''
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on the date of the enactment of this Act.
       (d) Clarification of Treatment of Branch Tax Exemptions or 
     Reductions.--
       (1) In general.--Subsection (b) of section 952 is amended 
     by adding at the end the following new sentence: ``For 
     purposes of this subsection, any exemption (or reduction) 
     with respect to the tax imposed by section 884 shall not be 
     taken into account.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to taxable years beginning after December 31, 
     1986.

     SEC. 11488. INDIRECT FOREIGN TAX CREDIT ALLOWED FOR CERTAIN 
                   LOWER TIER COMPANIES.

       (a) Section 902 Credit.--
       (1) In general.--Subsection (b) of section 902 (relating to 
     deemed taxes increased in case of certain 2nd and 3rd tier 
     foreign corporations) is amended to read as follows:
       ``(b) Deemed Taxes Increased in Case of Certain Lower Tier 
     Corporations.--
       ``(1) In general.--If--
       ``(A) any foreign corporation is a member of a qualified 
     group, and
       ``(B) such foreign corporation owns 10 percent or more of 
     the voting stock of another member of such group from which 
     it receives dividends in any taxable year,
     such foreign corporation shall be deemed to have paid the 
     same proportion of such other member's post-1986 foreign 
     income taxes as would be determined under subsection (a) if 

[[Page H 12680]]
     such foreign corporation were a domestic corporation.
       ``(2) Qualified group.--For purposes of paragraph (1), the 
     term `qualified group' means--
       ``(A) the foreign corporation described in subsection (a), 
     and
       ``(B) any other foreign corporation if--
       ``(i) the domestic corporation owns at least 5 percent of 
     the voting stock of such other foreign corporation indirectly 
     through a chain of foreign corporations connected through 
     stock ownership of at least 10 percent of their voting stock,
       ``(ii) the foreign corporation described in subsection (a) 
     is the first tier corporation in such chain, and
       ``(iii) such other corporation is not below the sixth tier 
     in such chain.
     The term `qualified group' shall not include any foreign 
     corporation below the third tier in the chain referred to in 
     clause (i) unless such foreign corporation is a controlled 
     foreign corporation (as defined in section 957) and the 
     domestic corporation is a United States shareholder (as 
     defined in section 951(b)) in such foreign corporation. 
     Paragraph (1) shall apply to those taxes paid by a member of 
     the qualified group below the third tier only with respect to 
     periods during which it was a controlled foreign 
     corporation.''
       (2) Conforming amendments.--
       (A) Subparagraph (B) of section 902(c)(3) is amended by 
     adding ``or'' at the end of clause (i) and by striking 
     clauses (ii) and (iii) and inserting the following new 
     clause:
       ``(ii) the requirements of subsection (b)(2) are met with 
     respect to such foreign corporation.''
       (B) Subparagraph (B) of section 902(c)(4) is amended by 
     striking ``3rd foreign corporation'' and inserting ``sixth 
     tier foreign corporation''.
       (C) The heading for paragraph (3) of section 902(c) is 
     amended by striking ``where domestic corporation acquires 10 
     percent of foreign corporation'' and inserting ``where 
     foreign corporation first qualifies''.
       (D) Paragraph (3) of section 902(c) is amended by striking 
     ``ownership'' each place it appears.
       (b) Section 960 Credit.--Paragraph (1) of section 960(a) 
     (relating to special rules for foreign tax credits) is 
     amended to read as follows:
       ``(1) Deemed paid credit.--For purposes of subpart A of 
     this part, if there is included under section 951(a) in the 
     gross income of a domestic corporation any amount 
     attributable to earnings and profits of a foreign corporation 
     which is a member of a qualified group (as defined in section 
     902(b)) with respect to the domestic corporation, then, 
     except to the extent provided in regulations, section 902 
     shall be applied as if the amount so included were a dividend 
     paid by such foreign corporation (determined by applying 
     section 902(c) in accordance with section 904(d)(3)(B)).''
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxes of foreign corporations for taxable years of 
     such corporations beginning after the date of enactment of 
     this Act.
       (2) Special rule.--In the case of any chain of foreign 
     corporations described in clauses (i) and (ii) of section 
     902(b)(2)(B) of the Internal Revenue Code of 1986 (as amended 
     by this section), no liquidation, reorganization, or similar 
     transaction in a taxable year beginning after the date of the 
     enactment of this Act shall have the effect of permitting 
     taxes to be taken into account under section 902 of the 
     Internal Revenue Code of 1986 which could not have been taken 
     into account under such section but for such transaction.

     SEC. 11489. REPEAL OF INCLUSION OF CERTAIN EARNINGS INVESTED 
                   IN EXCESS PASSIVE ASSETS.

       (a) In General.--
       (1) Repeal of inclusion.--Paragraph (1) of section 951(a) 
     (relating to amounts included in gross income of United 
     States shareholders) is amended by striking subparagraph (C), 
     by striking ``; and'' at the end of subparagraph (B) and 
     inserting a period, and by adding ``and'' at the end of 
     subparagraph (A).
       (2) Repeal of inclusion amount.--Section 956A (relating to 
     earnings invested in excess passive assets) is repealed.
       (b) Conforming Amendments.--
       (1) Paragraph (1) of section 956(b) is amended to read as 
     follows:
       ``(1) Applicable earnings.--For purposes of this section, 
     the term `applicable earnings' means, with respect to any 
     controlled foreign corporation, the sum of--
       ``(A) the amount (not including a deficit) referred to in 
     section 316(a)(1), and
       ``(B) the amount referred to in section 316(a)(2),
     but reduced by distributions made during the taxable year.''
       (2) Paragraph (3) of section 956(b) is amended to read as 
     follows:
       ``(3) Special rule where corporation ceases to be 
     controlled foreign corporation.--If any foreign corporation 
     ceases to be a controlled foreign corporation during any 
     taxable year--
       ``(A) the determination of any United States shareholder's 
     pro rata share shall be made on the basis of stock owned 
     (within the meaning of section 958(a)) by such shareholder on 
     the last day during the taxable year on which the foreign 
     corporation is a controlled foreign corporation,
       ``(B) the average referred to in subsection (a)(1)(A) for 
     such taxable year shall be determined by only taking into 
     account quarters ending on or before such last day, and
       ``(C) in determining applicable earnings, the amount taken 
     into account by reason of being described in paragraph (2) of 
     section 316(a) shall be the portion of the amount so 
     described which is allocable (on a pro rata basis) to the 
     part of such year during which the corporation is a 
     controlled foreign corporation.''
       (3) Subsection (a) of section 959 (relating to exclusion 
     from gross income of previously taxed earnings and profits) 
     is amended by adding ``or'' at the end of paragraph (1), by 
     striking ``or'' at the end of paragraph (2), and by striking 
     paragraph (3).
       (4) Subsection (a) of section 959 is amended by striking 
     ``paragraphs (2) and (3)'' in the last sentence and inserting 
     ``paragraph (2)''.
       (5) Subsection (c) of section 959 is amended by adding at 
     the end the following flush sentence:
     ``References in this subsection to section 951(a)(1)(C) and 
     subsection (a)(3) shall be treated as references to such 
     provisions as in effect on the day before the date of the 
     enactment of the Revenue Reconciliation Act of 1995.''
       (6) Paragraph (1) of section 959(f) is amended to read as 
     follows:
       ``(1) In general.--For purposes of this section, amounts 
     that would be included under subparagraph (B) of section 
     951(a)(1) (determined without regard to this section) shall 
     be treated as attributable first to earnings described in 
     subsection (c)(2), and then to earnings described in 
     subsection (c)(3).''
       (7) Paragraph (2) of section 959(f) is amended by striking 
     ``subparagraphs (B) and (C) of section 951(a)(1)'' and 
     inserting ``section 951(a)(1)(B)''.
       (8) Subsection (b) of section 989 is amended by striking 
     ``subparagraph (B) or (C) of section 951(a)(1)'' and 
     inserting ``section 951(a)(1)(B)''.
       (9) Paragraph (9) of section 1298(b), as redesignated by 
     section 11482, is amended by striking ``subparagraph (B) or 
     (C) of section 951(a)(1)'' and inserting ``section 
     951(a)(1)(B)''.
       (10) Subsections (d)(3)(B) and (e)(2)(B)(ii) of section 
     1298, as redesignated by section 11482, are each amended by 
     striking ``or section 956A''.
       (c) Clerical Amendment.--The table of sections for subpart 
     F of part III of subchapter N of chapter 1 is amended by 
     striking the item relating to section 956A.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years of foreign corporations 
     beginning after September 30, 1995, and to taxable years of 
     United States shareholders within which or with which such 
     taxable years of foreign corporations end.

                 CHAPTER 5--OTHER INCOME TAX PROVISIONS

          Subchapter A--Provisions Relating to S Corporations

     SEC. 11501. S CORPORATIONS PERMITTED TO HAVE 75 SHAREHOLDERS.

       Subparagraph (A) of section 1361(b)(1) (defining small 
     business corporation) is amended by striking ``35 
     shareholders'' and inserting ``75 shareholders''.

     SEC. 11502. ELECTING SMALL BUSINESS TRUSTS.

       (a) General Rule.--Subparagraph (A) of section 1361(c)(2) 
     (relating to certain trusts permitted as shareholders) is 
     amended by inserting after clause (iv) the following new 
     clause:
       ``(v) An electing small business trust.''
       (b) Current Beneficiaries Treated as Shareholders.--
     Subparagraph (B) of section 1361(c)(2) is amended by adding 
     at the end the following new clause:
       ``(v) In the case of a trust described in clause (v) of 
     subparagraph (A), each potential current beneficiary of such 
     trust shall be treated as a shareholder; except that, if for 
     any period there is no potential current beneficiary of such 
     trust, such trust shall be treated as the shareholder during 
     such period.''
       (c) Electing Small Business Trust Defined.--Section 1361 
     (defining S corporation) is amended by adding at the end the 
     following new subsection:
       ``(e) Electing Small Business Trust Defined.--
       ``(1) Electing small business trust.--For purposes of this 
     section--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `electing small business trust' means any trust if--
       ``(i) such trust does not have as a beneficiary any person 
     other than (I) an individual, (II) an estate, or (III) an 
     organization described in paragraph (2), (3), (4), or (5) of 
     section 170(c) which holds a contingent interest and is not a 
     potential current beneficiary,
       ``(ii) no interest in such trust was acquired by purchase, 
     and
       ``(iii) an election under this subsection applies to such 
     trust.
       ``(B) Certain trusts not eligible.--The term `electing 
     small business trust' shall not include--
       ``(i) any qualified subchapter S trust (as defined in 
     subsection (d)(3)) if an election under subsection (d)(2) 
     applies to any corporation the stock of which is held by such 
     trust, and
       ``(ii) any trust exempt from tax under this subtitle.
       ``(C) Purchase.--For purposes of subparagraph (A), the term 
     `purchase' means any acquisition if the basis of the property 
     acquired is determined under section 1012.
       ``(2) Potential current beneficiary.--For purposes of this 
     section, the term `potential current beneficiary' means, with 
     respect to any period, any person who at any time during such 
     period is entitled to, or at the discretion of any person may 
     receive, a distribution from the principal or income of the 
     trust. If a trust disposes of all of the stock which it holds 
     in an S corporation, then, with respect to such corporation, 
     the term `potential current beneficiary' does not include any 
     person who first met the requirements of the preceding 
     sentence during the 60-day period ending on the date of such 
     disposition.
       ``(3) Election.--An election under this subsection shall be 
     made by the trustee. Any such election shall apply to the 
     taxable year of the trust for which made and all subsequent 
     taxable years of such trust unless revoked with the consent 
     of the Secretary. 

[[Page H 12681]]

       ``(4) Cross reference.--

  ``For special treatment of electing small business trusts, see 
section 641(d).''

       (d) Taxation of Electing Small Business Trusts.--Section 
     641 (relating to imposition of tax on trusts) is amended by 
     adding at the end the following new subsection:
       ``(d) Special Rules for Taxation of Electing Small Business 
     Trusts.--
       ``(1) In general.--For purposes of this chapter--
       ``(A) the portion of any electing small business trust 
     which consists of stock in 1 or more S corporations shall be 
     treated as a separate trust, and
       ``(B) the amount of the tax imposed by this chapter on such 
     separate trust shall be determined with the modifications of 
     paragraph (2).
       ``(2) Modifications.--For purposes of paragraph (1), the 
     modifications of this paragraph are the following:
       ``(A) Except as provided in section 1(h), the amount of the 
     tax imposed by section 1(e) shall be determined by using the 
     highest rate of tax set forth in section 1(e).
       ``(B) The exemption amount under section 55(d) shall be 
     zero.
       ``(C) The only items of income, loss, deduction, or credit 
     to be taken into account are the following:
       ``(i) The items required to be taken into account under 
     section 1366.
       ``(ii) Any gain or loss from the disposition of stock in an 
     S corporation.
       ``(iii) To the extent provided in regulations, State or 
     local income taxes or administrative expenses to the extent 
     allocable to items described in clauses (i) and (ii).
     No deduction or credit shall be allowed for any amount not 
     described in this paragraph, and no item described in this 
     paragraph shall be apportioned to any beneficiary.
       ``(D) No amount shall be allowed under paragraph (1) or (2) 
     of section 1211(b).
       ``(3) Treatment of remainder of trust and distributions.--
     For purposes of determining--
       ``(A) the amount of the tax imposed by this chapter on the 
     portion of any electing small business trust not treated as a 
     separate trust under paragraph (1), and
       ``(B) the distributable net income of the entire trust,
     the items referred to in paragraph (2)(C) shall be excluded. 
     Except as provided in the preceding sentence, this subsection 
     shall not affect the taxation of any distribution from the 
     trust.
       ``(4) Treatment of unused deductions where termination of 
     separate trust.--If a portion of an electing small business 
     trust ceases to be treated as a separate trust under 
     paragraph (1), any carryover or excess deduction of the 
     separate trust which is referred to in section 642(h) shall 
     be taken into account by the entire trust.
       ``(5) Electing small business trust.--For purposes of this 
     subsection, the term `electing small business trust' has the 
     meaning given such term by section 1361(e)(1).''
       (e) Technical Amendment.--Paragraph (1) of section 1366(a) 
     is amended by inserting ``, or of a trust or estate which 
     terminates,'' after ``who dies''.

     SEC. 11503. EXPANSION OF POST-DEATH QUALIFICATION FOR CERTAIN 
                   TRUSTS.

       Subparagraph (A) of section 1361(c)(2) (relating to certain 
     trusts permitted as shareholders) is amended--
       (1) by striking ``60-day period'' each place it appears in 
     clauses (ii) and (iii) and inserting ``2-year period'', and
       (2) by striking the last sentence in clause (ii).

     SEC. 11504. FINANCIAL INSTITUTIONS PERMITTED TO HOLD SAFE 
                   HARBOR DEBT.

       Clause (iii) of section 1361(c)(5)(B) (defining straight 
     debt) is amended by striking ``or a trust described in 
     paragraph (2)'' and inserting ``a trust described in 
     paragraph (2), or a person which is actively and regularly 
     engaged in the business of lending money.''

     SEC. 11505. RULES RELATING TO INADVERTENT TERMINATIONS AND 
                   INVALID ELECTIONS.

       (a) General Rule.--Subsection (f) of section 1362 (relating 
     to inadvertent terminations) is amended to read as follows:
       ``(f) Inadvertent Invalid Elections or Terminations.--If--
       ``(1) an election under subsection (a) by any corporation--
       ``(A) was not effective for the taxable year for which made 
     (determined without regard to subsection (b)(2)) by reason of 
     a failure to meet the requirements of section 1361(b) or to 
     obtain shareholder consents, or
       ``(B) was terminated under paragraph (2) or (3) of 
     subsection (d),
       ``(2) the Secretary determines that the circumstances 
     resulting in such ineffectiveness or termination were 
     inadvertent,
       ``(3) no later than a reasonable period of time after 
     discovery of the circumstances resulting in such 
     ineffectiveness or termination, steps were taken--
       ``(A) so that the corporation is a small business 
     corporation, or
       ``(B) to acquire the required shareholder consents, and
       ``(4) the corporation, and each person who was a 
     shareholder in the corporation at any time during the period 
     specified pursuant to this subsection, agrees to make such 
     adjustments (consistent with the treatment of the corporation 
     as an S corporation) as may be required by the Secretary with 
     respect to such period,
     then, notwithstanding the circumstances resulting in such 
     ineffectiveness or termination, such corporation shall be 
     treated as an S corporation during the period specified by 
     the Secretary.''
       (b) Late Elections.--Subsection (b) of section 1362 is 
     amended by adding at the end the following new paragraph:
       ``(5) Authority to treat late elections as timely.--If--
       ``(A) an election under subsection (a) is made for any 
     taxable year (determined without regard to paragraph (3)) 
     after the date prescribed by this subsection for making such 
     election for such taxable year, and
       ``(B) the Secretary determines that there was reasonable 
     cause for the failure to timely make such election,
     the Secretary may treat such election as timely made for such 
     taxable year (and paragraph (3) shall not apply).''
       (c) Effective Date.--The amendments made by subsection (a) 
     and (b) shall apply with respect to elections for taxable 
     years beginning after December 31, 1982.

     SEC. 11506. AGREEMENT TO TERMINATE YEAR.

       Paragraph (2) of section 1377(a) (relating to pro rata 
     share) is amended to read as follows:
       ``(2) Election to terminate year.--
       ``(A) In general.--If any shareholder terminates the 
     shareholder's interest in the corporation during the taxable 
     year and all affected shareholders and the corporation agree 
     to the application of this paragraph, paragraph (1) shall be 
     applied to the affected shareholders as if the taxable year 
     consisted of 2 taxable years the first of which ends on the 
     date of the termination.
       ``(B) Affected shareholders.--For purposes of subparagraph 
     (A), the term `affected shareholders' means the shareholder 
     whose interest is terminated and all shareholders to whom 
     such shareholder has transferred shares during the taxable 
     year. If such shareholder has transferred shares to the 
     corporation, the term `affected shareholders' shall include 
     all persons who are shareholders during the taxable year.''

     SEC. 11507. EXPANSION OF POST-TERMINATION TRANSITION PERIOD.

       (a) In General.--Paragraph (1) of section 1377(b) (relating 
     to post-termination transition period) is amended by striking 
     ``and'' at the end of subparagraph (A), by redesignating 
     subparagraph (B) as subparagraph (C), and by inserting after 
     subparagraph (A) the following new subparagraph:
       ``(B) the 120-day period beginning on the date of any 
     determination pursuant to an audit of the taxpayer which 
     follows the termination of the corporation's election and 
     which adjusts a subchapter S item of income, loss, or 
     deduction of the corporation arising during the S period (as 
     defined in section 1368(e)(2)), and''.
       (b) Determination Defined.--Paragraph (2) of section 
     1377(b) is amended by striking subparagraphs (A) and (B), by 
     redesignating subparagraph (C) as subparagraph (B), and by 
     inserting before subparagraph (B) (as so redesignated) the 
     following new subparagraph:
       ``(A) a determination as defined in section 1313(a), or''.
       (c) Repeal of Special Audit Provisions for Subchapter S 
     Items.--
       (1) General rule.--Subchapter D of chapter 63 (relating to 
     tax treatment of subchapter S items) is hereby repealed.
       (2) Consistent treatment required.--Section 6037 (relating 
     to return of S corporation) is amended by adding at the end 
     the following new subsection:
       ``(c) Shareholder's Return Must Be Consistent With 
     Corporate Return or Secretary Notified of Inconsistency.--
       ``(1) In general.--A shareholder of an S corporation shall, 
     on such shareholder's return, treat a subchapter S item in a 
     manner which is consistent with the treatment of such item on 
     the corporate return.
       ``(2) Notification of inconsistent treatment.--
       ``(A) In general.--In the case of any subchapter S item, 
     if--
       ``(i)(I) the corporation has filed a return but the 
     shareholder's treatment on his return is (or may be) 
     inconsistent with the treatment of the item on the corporate 
     return, or
       ``(II) the corporation has not filed a return, and
       ``(ii) the shareholder files with the Secretary a statement 
     identifying the inconsistency,
     paragraph (1) shall not apply to such item.
       ``(B) Shareholder receiving incorrect information.--A 
     shareholder shall be treated as having complied with clause 
     (ii) of subparagraph (A) with respect to a subchapter S item 
     if the shareholder--
       ``(i) demonstrates to the satisfaction of the Secretary 
     that the treatment of the subchapter S item on the 
     shareholder's return is consistent with the treatment of the 
     item on the schedule furnished to the shareholder by the 
     corporation, and
       ``(ii) elects to have this paragraph apply with respect to 
     that item.
       ``(3) Effect of failure to notify.--In any case--
       ``(A) described in subparagraph (A)(i)(I) of paragraph (2), 
     and
       ``(B) in which the shareholder does not comply with 
     subparagraph (A)(ii) of paragraph (2),
     any adjustment required to make the treatment of the items by 
     such shareholder consistent with the treatment of the items 
     on the corporate return shall be treated as arising out of 
     mathematical or clerical errors and assessed according to 
     section 6213(b)(1). Paragraph (2) of section 6213(b) shall 
     not apply to any assessment referred to in the preceding 
     sentence.
       ``(4) Subchapter s item.--For purposes of this subsection, 
     the term `subchapter S item' means any item of an S 
     corporation to the extent that regulations prescribed by the 
     Secretary provide that, for purposes of this subtitle, such 
     item is more appropriately determined at the corporation 
     level than at the shareholder level.
       ``(5) Addition to tax for failure to comply with section.--
  ``For addition to tax in the case of a shareholder's negligence in 
connection with, or disregard of, the requirements of this section, see 
part II of subchapter A of chapter 68.''

[[Page H 12682]]

       (3) Conforming amendments.--
       (A) Section 1366 is amended by striking subsection (g).
       (B) Subsection (b) of section 6233 is amended to read as 
     follows:
       ``(b) Similar Rules in Certain Cases.--If a partnership 
     return is filed for any taxable year but it is determined 
     that there is no entity for such taxable year, to the extent 
     provided in regulations, rules similar to the rules of 
     subsection (a) shall apply.''
       (C) The table of subchapters for chapter 63 is amended by 
     striking the item relating to subchapter D.

     SEC. 11508. S CORPORATIONS PERMITTED TO HOLD SUBSIDIARIES.

       (a) In General.--Paragraph (2) of section 1361(b) (defining 
     ineligible corporation) is amended by striking subparagraph 
     (A) and by redesignating subparagraphs (B), (C), (D), and (E) 
     as subparagraphs (A), (B), (C), and (D), respectively.
       (b) Treatment of Certain Wholly Owned S Corporation 
     Subsidiaries.--Section 1361(b) (defining small business 
     corporation) is amended by adding at the end the following 
     new paragraph:
       ``(3) Treatment of certain wholly owned subsidiaries.--
       ``(A) In general.--For purposes of this title--
       ``(i) a corporation which is a qualified subchapter S 
     subsidiary shall not be treated as a separate corporation, 
     and
       ``(ii) all assets, liabilities, and items of income, 
     deduction, and credit of a qualified subchapter S subsidiary 
     shall be treated as assets, liabilities, and such items (as 
     the case may be) of the S corporation.
       ``(B) Qualified subchapter s subsidiary.--For purposes of 
     this paragraph, the term `qualified subchapter S subsidiary' 
     means any domestic corporation which is not an ineligible 
     corporation (as defined in paragraph (2)), if--
       ``(i) 100 percent of the stock of such corporation is held 
     by the S corporation, and
       ``(ii) the S corporation elects to treat such corporation 
     as a qualified subchapter S subsidiary.
       ``(C) Treatment of terminations of qualified subchapter s 
     subsidiary status.--For purposes of this title, if any 
     corporation which was a qualified subchapter S subsidiary 
     ceases to meet the requirements of subparagraph (B), such 
     corporation shall be treated as a new corporation acquiring 
     all of its assets (and assuming all of its liabilities) 
     immediately before such cessation from the S corporation in 
     exchange for its stock.''
       (c) Certain Dividends Not Treated as Passive Investment 
     Income.--Paragraph (3) of section 1362(d) is amended by 
     adding at the end the following new subparagraph:
       ``(F) Treatment of certain dividends.--If an S corporation 
     holds stock in a C corporation meeting the requirements of 
     section 1504(a)(2), the term `passive investment income' 
     shall not include dividends from such C corporation to the 
     extent such dividends are attributable to the earnings and 
     profits of such C corporation derived from the active conduct 
     of a trade or business.''
       (d) Conforming Amendments.--
       (1) Subsection (c) of section 1361 is amended by striking 
     paragraph (6).
       (2) Subsection (b) of section 1504 (defining includible 
     corporation) is amended by adding at the end the following 
     new paragraph:
       ``(8) An S corporation.''

     SEC. 11509. TREATMENT OF DISTRIBUTIONS DURING LOSS YEARS.

       (a) Adjustments for Distributions Taken Into Account Before 
     Losses.--
       (1) Subparagraph (A) of section 1366(d)(1) (relating to 
     losses and deductions cannot exceed shareholder's basis in 
     stock and debt) is amended by striking ``paragraph (1)'' and 
     inserting ``paragraphs (1) and (2)(A)''.
       (2) Subsection (d) of section 1368 (relating to certain 
     adjustments taken into account) is amended by adding at the 
     end the following new sentence:
     ``In the case of any distribution made during any taxable 
     year, the adjusted basis of the stock shall be determined 
     with regard to the adjustments provided in paragraph (1) of 
     section 1367(a) for the taxable year.''
       (b) Accumulated Adjustments Account.--Paragraph (1) of 
     section 1368(e) (relating to accumulated adjustments account) 
     is amended by adding at the end the following new 
     subparagraph:
       ``(C) Net loss for year disregarded.--
       ``(i) In general.--In applying this section to 
     distributions made during any taxable year, the amount in the 
     accumulated adjustments account as of the close of such 
     taxable year shall be determined without regard to any net 
     negative adjustment for such taxable year.
       ``(ii) Net negative adjustment.--For purposes of clause 
     (i), the term `net negative adjustment' means, with respect 
     to any taxable year, the excess (if any) of--
       ``(I) the reductions in the account for the taxable year 
     (other than for distributions), over
       ``(II) the increases in such account for such taxable 
     year.''
       (c) Conforming Amendments.--Subparagraph (A) of section 
     1368(e)(1) is amended--
       (1) by striking ``as provided in subparagraph (B)'' and 
     inserting ``as otherwise provided in this paragraph'', and
       (2) by striking ``section 1367(b)(2)(A)'' and inserting 
     ``section 1367(a)(2)''.

     SEC. 11510. TREATMENT OF S CORPORATIONS UNDER SUBCHAPTER C.

       Subsection (a) of section 1371 (relating to application of 
     subchapter C rules) is amended to read as follows:
       ``(a) Application of Subchapter C Rules.--Except as 
     otherwise provided in this title, and except to the extent 
     inconsistent with this subchapter, subchapter C shall apply 
     to an S corporation and its shareholders.''

     SEC. 11511. ELIMINATION OF CERTAIN EARNINGS AND PROFITS.

       (a) In General.--If--
       (1) a corporation was an electing small business 
     corporation under subchapter S of chapter 1 of the Internal 
     Revenue Code of 1986 for any taxable year beginning before 
     January 1, 1983, and
       (2) such corporation is an S corporation under subchapter S 
     of chapter 1 of such Code for its first taxable year 
     beginning after December 31, 1995,
     the amount of such corporation's accumulated earnings and 
     profits (as of the beginning of such first taxable year) 
     shall be reduced by an amount equal to the portion (if any) 
     of such accumulated earnings and profits which were 
     accumulated in any taxable year beginning before January 1, 
     1983, for which such corporation was an electing small 
     business corporation under such subchapter S.
       (b) Conforming Amendments.--
       (1) Paragraph (3) of section 1362(d) is amended--
       (A) by striking ``Subchapter C'' in the paragraph heading 
     and inserting ``Accumulated'',
       (B) by striking ``subchapter C'' in subparagraph (A)(i)(I) 
     and inserting ``accumulated'', and
       (C) by striking subparagraph (B) and redesignating the 
     following subparagraphs accordingly.
       (2)(A) Subsection (a) of section 1375 is amended by 
     striking ``subchapter C'' in paragraph (1) and inserting 
     ``accumulated''.
       (B) Paragraph (3) of section 1375(b) is amended to read as 
     follows:
       ``(3) Passive investment income, etc.--The terms `passive 
     investment income' and `gross receipts' have the same 
     respective meanings as when used in paragraph (3) of section 
     1362(d).''
       (C) The section heading for section 1375 is amended by 
     striking 
     ``
      '' and inserting 
     ``
     ''.
       (D) The table of sections for part III of subchapter S of 
     chapter 1 is amended by striking ``subchapter C'' in the item 
     relating to section 1375 and inserting ``accumulated''.
       (3) Clause (i) of section 1042(c)(4)(A) is amended by 
     striking ``section 1362(d)(3)(D)'' and inserting ``section 
     1362(d)(3)(C)''.

     SEC. 11512. CARRYOVER OF DISALLOWED LOSSES AND DEDUCTIONS 
                   UNDER AT-RISK RULES ALLOWED.

       Paragraph (3) of section 1366(d) (relating to carryover of 
     disallowed losses and deductions to post-termination 
     transition period) is amended by adding at the end the 
     following new subparagraph:
       ``(D) At-risk limitations.--To the extent that any increase 
     in adjusted basis described in subparagraph (B) would have 
     increased the shareholder's amount at risk under section 465 
     if such increase had occurred on the day preceding the 
     commencement of the post-termination transition period, rules 
     similar to the rules described in subparagraphs (A) through 
     (C) shall apply to any losses disallowed by reason of section 
     465(a).''

     SEC. 11513. ADJUSTMENTS TO BASIS OF INHERITED S STOCK TO 
                   REFLECT CERTAIN ITEMS OF INCOME.

       (a) In General.--Subsection (b) of section 1367 (relating 
     to adjustments to basis of stock of shareholders, etc.) is 
     amended by adding at the end the following new paragraph:
       ``(4) Adjustments in case of inherited stock.--
       ``(A) In general.--If any person acquires stock in an S 
     corporation by reason of the death of a decedent or by 
     bequest, devise, or inheritance, section 691 shall be applied 
     with respect to any item of income of the S corporation in 
     the same manner as if the decedent had held directly his pro 
     rata share of such item.
       ``(B) Adjustments to basis.--The basis determined under 
     section 1014 of any stock in an S corporation shall be 
     reduced by the portion of the value of the stock which is 
     attributable to items constituting income in respect of the 
     decedent.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply in the case of decedents dying after the date of 
     the enactment of this Act.

     SEC. 11514. S CORPORATIONS ELIGIBLE FOR RULES APPLICABLE TO 
                   REAL PROPERTY SUBDIVIDED FOR SALE BY 
                   NONCORPORATE TAXPAYERS.

       (a) In General.--Subsection (a) of section 1237 (relating 
     to real property subdivided for sale) is amended by striking 
     ``other than a corporation'' in the material preceding 
     paragraph (1) and inserting ``other than a C corporation''.
       (b) Conforming Amendment.--Subparagraph (A) of section 
     1237(a)(2) is amended by inserting ``an S corporation which 
     included the taxpayer as a shareholder,'' after ``controlled 
     by the taxpayer,''.

     SEC. 11515. EFFECTIVE DATE.

       (a) In General.--Except as otherwise provided in this 
     subchapter, the amendments made by this subchapter shall 
     apply to taxable years beginning after December 31, 1995.
       (b) Treatment of Certain Elections Under Prior Law.--For 
     purposes of section 1362(g) of the Internal Revenue Code of 
     1986 (relating to election after termination), any 
     termination under section 1362(d) of such Code in a taxable 
     year beginning before January 1, 1996, shall not be taken 
     into account.

Subchapter B--Repeal of 30-Percent Gross Income Limitation on Regulated 
                          Investment Companies

     SEC. 11521. REPEAL OF 30-PERCENT GROSS INCOME LIMITATION.

       (a) General Rule.--Subsection (b) of section 851 (relating 
     to limitations) is amended by striking paragraph (3), by 
     adding ``and'' at the end of paragraph (2), and by 
     redesignating paragraph (4) as paragraph (3).

[[Page H 12683]]

       (b) Technical Amendments.--
       (1) The material following paragraph (3) of section 851(b) 
     (as redesignated by subsection (a)) is amended--
       (A) by striking out ``paragraphs (2) and (3)'' and 
     inserting ``paragraph (2)'', and
       (B) by striking out the last sentence thereof.
       (2) Subsection (c) of section 851 is amended by striking 
     ``subsection (b)(4)'' each place it appears (including the 
     heading) and inserting ``subsection (b)(3)''.
       (3) Subsection (d) of section 851 is amended by striking 
     ``subsections (b)(4)'' and inserting ``subsections (b)(3)''.
       (4) Paragraph (1) of section 851(e) is amended by striking 
     ``subsection (b)(4)'' and inserting ``subsection (b)(3)''.
       (5) Paragraph (4) of section 851(e) is amended by striking 
     ``subsections (b)(4)'' and inserting ``subsections (b)(3)''.
       (6) Section 851 is amended by striking subsection (g) and 
     redesignating subsection (h) as subsection (g).
       (7) Subsection (g) of section 851 (as redesignated by 
     paragraph (6)) is amended by striking paragraph (3).
       (8) Section 817(h)(2) is amended--
       (A) by striking ``851(b)(4)'' in subparagraph (A) and 
     inserting ``851(b)(3)'', and
       (B) by striking ``851(b)(4)(A)(i)'' in subparagraph (B) and 
     inserting ``851(b)(3)(A)(i)''.
       (9) Section 1092(f)(2) is amended by striking ``Except for 
     purposes of section 851(b)(3), the'' and inserting ``The''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.

                  Subchapter C--Accounting Provisions

     SEC. 11551. MODIFICATIONS TO LOOK-BACK METHOD FOR LONG-TERM 
                   CONTRACTS.

       (a) Look-Back Method Not To Apply in Certain Cases.--
     Subsection (b) of section 460 (relating to percentage of 
     completion method) is amended by adding at the end the 
     following new paragraph:
       ``(6) Election to have look-back method not apply in de 
     minimis cases.--
       ``(A) Amounts taken into account after completion of 
     contract.--Paragraph (1)(B) shall not apply with respect to 
     any taxable year (beginning after the taxable year in which 
     the contract is completed) if--
       ``(i) the cumulative taxable income (or loss) under the 
     contract as of the close of such taxable year, is within
       ``(ii) 10 percent of the cumulative look-back taxable 
     income (or loss) under the contract as of the close of the 
     most recent taxable year to which paragraph (1)(B) applied 
     (or would have applied but for subparagraph (B)).
       ``(B) De minimis discrepancies.--Paragraph (1)(B) shall not 
     apply in any case to which it would otherwise apply if--
       ``(i) the cumulative taxable income (or loss) under the 
     contract as of the close of each prior contract year, is 
     within
       ``(ii) 10 percent of the cumulative look-back income (or 
     loss) under the contract as of the close of such prior 
     contract year.
       ``(C) Definitions.--For purposes of this paragraph--
       ``(i) Contract year.--The term `contract year' means any 
     taxable year for which income is taken into account under the 
     contract.
       ``(ii) Look-back income or loss.--The look-back income (or 
     loss) is the amount which would be the taxable income (or 
     loss) under the contract if the allocation method set forth 
     in paragraph (2)(A) were used in determining taxable income.
       ``(iii) Discounting not applicable.--The amounts taken into 
     account after the completion of the contract shall be 
     determined without regard to any discounting under the 2nd 
     sentence of paragraph (2).
       ``(D) Contracts to which paragraph applies.--This paragraph 
     shall only apply if the taxpayer makes an election under this 
     subparagraph. Unless revoked with the consent of the 
     Secretary, such an election shall apply to all long-term 
     contracts completed during the taxable year for which 
     election is made or during any subsequent taxable year.''
       (b) Modification of Interest Rate.--
       (1) In general.--Subparagraph (C) of section 460(b)(2) is 
     amended by striking ``the overpayment rate established by 
     section 6621'' and inserting ``the adjusted overpayment rate 
     (as defined in paragraph (7))''.
       (2) Adjusted overpayment rate.--Subsection (b) of section 
     460 is amended by adding at the end the following new 
     paragraph:
       ``(7) Adjusted overpayment rate.--
       ``(A) In general.--The adjusted overpayment rate for any 
     interest accrual period is the overpayment rate in effect 
     under section 6621 for the calendar quarter in which such 
     interest accrual period begins.
       ``(B) Interest accrual period.--For purposes of 
     subparagraph (A), the term `interest accrual period' means 
     the period--
       ``(i) beginning on the day after the return due date for 
     any taxable year of the taxpayer, and
       ``(ii) ending on the return due date for the following 
     taxable year.
     For purposes of the preceding sentence, the term `return due 
     date' means the date prescribed for filing the return of the 
     tax imposed by this chapter (determined without regard to 
     extensions).''
       (c) Effective Date.--The amendments made by this section 
     shall apply to contracts completed in taxable years ending 
     after the date of the enactment of this Act.

     SEC. 11552. APPLICATION OF MARK TO MARKET ACCOUNTING METHOD 
                   TO TRADERS IN SECURITIES.

       (a) In General.--Section 475 (relating to mark to market 
     accounting method for dealers in securities) is amended by 
     redesignating subsection (e) as subsection (f) and by 
     inserting after subsection (d) the following new subsection:
       ``(e) Authority To Extend Method to Traders in 
     Securities.--
       ``(1) In general.--A trader in securities may elect to have 
     the provisions of this section (other than subsection (d)(3)) 
     apply to securities held by the trader. Such election may be 
     made only with the consent of the Secretary.
       ``(2) Trader in securities.--For purposes of this 
     subsection, the term `trader in securities' means a taxpayer 
     who is regularly engaged in trading securities.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending on and after December 31, 
     1995.

     SEC. 11553. MODIFICATION OF RULING AMOUNTS FOR NUCLEAR 
                   DECOMMISSIONING COSTS.

       (a) In General.--Section 468A(d) (relating to ruling 
     amount) is amended by adding at the end the following new 
     paragraph:
       ``(4) Nonsubstantial modifications.--A taxpayer may modify 
     a schedule of ruling amounts under paragraph (1) without a 
     review under paragraph (3) if such modification does not 
     substantially modify the ruling amount. The taxpayer shall 
     notify the Secretary of any such modification.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to modifications after the date of the enactment 
     of this Act.

                Subchapter D--Tax-Exempt Bond Provision

     SEC. 11561. REPEAL OF DEBT SERVICE-BASED LIMITATION ON 
                   INVESTMENT IN CERTAIN NONPURPOSE INVESTMENTS.

       (a) In General.--Subsection (d) of section 148 (relating to 
     special rules for reasonably required reserve or replacement 
     fund) is amended by striking paragraph (3).
       (b) Effective Date.--The amendments made by this part shall 
     apply to bonds issued after the date of the enactment of this 
     Act.

                   Subchapter E--INSURANCE PROVISIONS

     SEC. 11571. TREATMENT OF CERTAIN INSURANCE CONTRACTS ON 
                   RETIRED LIVES.

       (a) General Rule.--
       (1) Paragraph (2) of section 817(d) (defining variable 
     contract) is amended by striking ``or'' at the end of 
     subparagraph (A), by striking ``and'' at the end of 
     subparagraph (B) and inserting ``or'', and by inserting after 
     subparagraph (B) the following new subparagraph:
       ``(C) provides for funding of insurance on retired lives as 
     described in section 807(c)(6), and''.
       (2) Paragraph (3) of section 817(d) is amended by striking 
     ``or'' at the end of subparagraph (A), by striking the period 
     at the end of subparagraph (B) and inserting ``, or'', and by 
     inserting after subparagraph (B) the following new 
     subparagraph:
       ``(C) in the case of funds held under a contract described 
     in paragraph (2)(C), the amounts paid in, or the amounts paid 
     out, reflect the investment return and the market value of 
     the segregated asset account.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 11572. TREATMENT OF MODIFIED GUARANTEED CONTRACTS.

       (a) General Rule.--Subpart E of part I of subchapter L of 
     chapter 1 (relating to definitions and special rules) is 
     amended by inserting after section 817 the following new 
     section:

     ``SEC. 817A. SPECIAL RULES FOR MODIFIED GUARANTEED CONTRACTS.

       ``(a) Computation of Reserves.--In the case of a modified 
     guaranteed contract, clause (ii) of section 807(e)(1)(A) 
     shall not apply.
       ``(b) Segregated Assets Under Modified Guaranteed Contracts 
     Marked to Market.--
       ``(1) In general.--In the case of any life insurance 
     company, for purposes of this subtitle--
       ``(A) Any gain or loss with respect to a segregated asset 
     shall be treated as ordinary income or loss, as the case may 
     be.
       ``(B) If any segregated asset is held by such company as of 
     the close of any taxable year--
       ``(i) such company shall recognize gain or loss as if such 
     asset were sold for its fair market value on the last 
     business day of such taxable year, and
       ``(ii) any such gain or loss shall be taken into account 
     for such taxable year.
     Proper adjustment shall be made in the amount of any gain or 
     loss subsequently realized for gain or loss taken into 
     account under the preceding sentence. The Secretary may 
     provide by regulations for the application of this 
     subparagraph at times other than the times provided in this 
     subparagraph.
       ``(2) Segregated asset.--For purposes of paragraph (1), the 
     term `segregated asset' means any asset held as part of a 
     segregated account referred to in subsection (d)(1) under a 
     modified guaranteed contract.
       ``(c) Special Rule in Computing Life Insurance Reserves.--
     For purposes of applying section 816(b)(1)(A) to any modified 
     guaranteed contract, an assumed rate of interest shall 
     include a rate of interest determined, from time to time, 
     with reference to a market rate of interest.
       ``(d) Modified Guaranteed Contract Defined.--For purposes 
     of this section, the term `modified guaranteed contract' 
     means a contract not described in section 817--
       ``(1) all or part of the amounts received under which are 
     allocated to an account which, pursuant to State law or 
     regulation, is segregated from the general asset accounts of 
     the company and is valued from time to time with reference to 
     market values,
       ``(2) which--
       ``(A) provides for the payment of annuities,
       ``(B) is a life insurance contract, or
       ``(C) is a pension plan contract which is not a life, 
     accident, or health, property, casualty, or liability 
     contract,

[[Page H 12684]]

       ``(3) for which reserves are valued at market for annual 
     statement purposes, and
       ``(4) which provides for a net surrender value or a 
     policyholder's fund (as defined in section 807(e)(1)).
     If only a portion of a contract is not described in section 
     817, such portion shall be treated for purposes of this 
     section as a separate contract.
       ``(e) Regulations.--The Secretary may prescribe 
     regulations--
       ``(1) to provide for the treatment of market value 
     adjustments under sections 72, 7702, 7702A, and 807(e)(1)(B),
       ``(2) to determine the interest rates applicable under 
     sections 807(c)(3), 807(d)(2)(B), and 812 with respect to a 
     modified guaranteed contract annually, in a manner 
     appropriate for modified guaranteed contracts and, to the 
     extent appropriate for such a contract, to modify or waive 
     the applicability of section 811(d),
       ``(3) to provide rules to limit ordinary gain or loss 
     treatment to assets constituting reserves for modified 
     guaranteed contracts (and not other assets) of the company,
       ``(4) to provide appropriate treatment of transfers of 
     assets to and from the segregated account, and
       ``(5) as may be necessary or appropriate to carry out the 
     purposes of this section.''.
       (b) Clerical Amendment.--The table of sections for subpart 
     E of part I of subchapter L of chapter 1 is amended by 
     inserting after the item relating to section 817 the 
     following new item:

``Sec. 817A. Special rules for modified guaranteed contracts.''.

       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years beginning after December 31, 1995.
       (2) Treatment of net adjustments.--In the case of any 
     taxpayer required by the amendments made by this section to 
     change its calculation of reserves to take into account 
     market value adjustments and to mark segregated assets to 
     market for any taxable year--
       (A) such changes shall be treated as a change in method of 
     accounting initiated by the taxpayer,
       (B) such changes shall be treated as made with the consent 
     of the Secretary, and
       (C) the adjustments required by reason of section 481 of 
     the Internal Revenue Code of 1986 shall be taken into account 
     as ordinary income or loss by the taxpayer for the taxpayer's 
     first taxable year beginning after December 31, 1995.

                     Subchapter F--Other Provisions

     SEC. 11581. CLOSING OF PARTNERSHIP TAXABLE YEAR WITH RESPECT 
                   TO DECEASED PARTNER, ETC.

       (a) General Rule.--Subparagraph (A) of section 706(c)(2) 
     (relating to disposition of entire interest) is amended to 
     read as follows:
       ``(A) Disposition of entire interest.--The taxable year of 
     a partnership shall close with respect to a partner whose 
     entire interest in the partnership terminates (whether by 
     reason of death, liquidation, or otherwise).''
       (b) Clerical Amendment.--The paragraph heading for 
     paragraph (2) of section 706(c) is amended to read as 
     follows:
       ``(2) Treatment of dispositions.--''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to partnership taxable years beginning after 
     December 31, 1995.

     SEC. 11582. CREDIT FOR SOCIAL SECURITY TAXES PAID WITH 
                   RESPECT TO EMPLOYEE CASH TIPS.

       (a) Reporting Requirement Not Considered.--Subparagraph (A) 
     of section 45B(b)(1) (relating to excess employer social 
     security tax) is amended by inserting ``(without regard to 
     whether such tips are reported under section 6053)'' after 
     ``section 3121(q)''.
       (b) Taxes Paid.--Subsection (d) of section 13443 of the 
     Revenue Reconciliation Act of 1993 is amended by inserting 
     ``, with respect to services performed before, on, or after 
     such date'' after ``1993''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect as if included in the amendments made by, 
     and the provisions of, section 13443 of the Revenue 
     Reconciliation Act of 1993.

     SEC. 11583. DUE DATE FOR FIRST QUARTER ESTIMATED TAX PAYMENTS 
                   BY PRIVATE FOUNDATIONS.

       (a) In General.--Paragraph (3) of section 6655(g) is 
     amended by inserting after subparagraph (C) the following new 
     subparagraph:
       ``(D) In the case of any private foundation, subsection 
     (c)(2) shall be applied by substituting `May 15' for `April 
     15 ' ''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     1995.

                     CHAPTER 6--ESTATES AND TRUSTS

                  Subchapter A--Income Tax Provisions

     SEC. 11601. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF 
                   ESTATE.

       (a) In General.--Subpart A of part I of subchapter J 
     (relating to estates, trusts, beneficiaries, and decedents) 
     is amended by adding at the end the following new section:

     ``SEC. 646. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF 
                   ESTATE.

       ``(a) General Rule.--For purposes of this subtitle, if both 
     the executor (if any) of an estate and the trustee of a 
     qualified revocable trust elect the treatment provided in 
     this section, such trust shall be treated and taxed as part 
     of such estate (and not as a separate trust) for all taxable 
     years of the estate ending after the date of the decedent's 
     death and before the applicable date.
       ``(b) Definitions.--For purposes of subsection (a)--
       ``(1) Qualified revocable trust.--The term `qualified 
     revocable trust' means any trust (or portion thereof) which 
     was treated under section 676 as owned by the decedent of the 
     estate referred to in subsection (a) by reason of a power in 
     the grantor (determined without regard to section 672(e)).
       ``(2) Applicable date.--The term `applicable date' means--
       ``(A) if no return of tax imposed by chapter 11 is required 
     to be filed, the date which is 2 years after the date of the 
     decedent's death, and
       ``(B) if such a return is required to be filed, the date 
     which is 6 months after the date of the final determination 
     of the liability for tax imposed by chapter 11.
       ``(c) Election.--The election under subsection (a) shall be 
     made not later than the time prescribed for filing the return 
     of tax imposed by this chapter for the first taxable year of 
     the estate (determined with regard to extensions) and, once 
     made, shall be irrevocable.''
       (b) Comparable Treatment Under Generation-Skipping Tax.--
     Paragraph (1) of section 2652(b) is amended by adding at the 
     end the following new sentence: ``Such term shall not include 
     any trust during any period the trust is treated as part of 
     an estate under section 646.''
       (c) Clerical Amendment.--The table of sections for such 
     subpart A is amended by adding at the end the following new 
     item:

``Sec. 646. Certain revocable trusts treated as part of estate.''

       (d) Effective Date.--The amendments made by this section 
     shall apply with respect to estates of decedents dying after 
     the date of the enactment of this Act.

     SEC. 11602. DISTRIBUTIONS DURING FIRST 65 DAYS OF TAXABLE 
                   YEAR OF ESTATE.

       (a) In General.--Subsection (b) of section 663 (relating to 
     distributions in first 65 days of taxable year) is amended by 
     inserting ``an estate or'' before ``a trust'' each place it 
     appears.
       (b) Conforming Amendment.--Paragraph (2) of section 663(b) 
     is amended by striking ``the fiduciary of such trust'' and 
     inserting ``the executor of such estate or the fiduciary of 
     such trust (as the case may be)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 11603. SEPARATE SHARE RULES AVAILABLE TO ESTATES.

       (a) In General.--Subsection (c) of section 663 (relating to 
     separate shares treated as separate trusts) is amended--
       (1) by inserting before the last sentence the following new 
     sentence: ``Rules similar to the rules of the preceding 
     provisions of this subsection shall apply to treat 
     substantially separate and independent shares of different 
     beneficiaries in an estate having more than 1 beneficiary as 
     separate estates.'', and
       (2) by inserting ``or estates'' after ``trusts'' in the 
     last sentence.
       (b) Conforming Amendment.--The subsection heading of 
     section 663(c) is amended by inserting ``Estates or'' before 
     ``Trusts''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to estates of decedents dying after the date of 
     the enactment of this Act.

     SEC. 11604. EXECUTOR OF ESTATE AND BENEFICIARIES TREATED AS 
                   RELATED PERSONS FOR DISALLOWANCE OF LOSSES, 
                   ETC.

       (a) Disallowance of Losses.--Subsection (b) of section 267 
     (relating to losses, expenses, and interest with respect to 
     transactions between related taxpayers) is amended by 
     striking ``or'' at the end of paragraph (11), by striking the 
     period at the end of paragraph (12) and inserting ``; or'', 
     and by adding at the end the following new paragraph:
       ``(13) Except in the case of a sale or exchange in 
     satisfaction of a pecuniary bequest, an executor of an estate 
     and a beneficiary of such estate.''
       (b) Ordinary Income From Gain From Sale of Depreciable 
     Property.--Subsection (b) of section 1239 is amended by 
     striking the period at the end of paragraph (2) and inserting 
     ``, and'' and by adding at the end the following new 
     paragraph:
       ``(3) except in the case of a sale or exchange in 
     satisfaction of a pecuniary bequest, an executor of an estate 
     and a beneficiary of such estate.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 11605. LIMITATION ON TAXABLE YEAR OF ESTATES.

       (a) In General.--Section 645 (relating to taxable year of 
     trusts) is amended to read as follows:

     ``SEC. 645. TAXABLE YEAR OF ESTATES AND TRUSTS.

       ``(a) Estates.--For purposes of this subtitle, the taxable 
     year of an estate shall be a year ending on October 31, 
     November 30, or December 31.
       ``(b) Trusts.--
       ``(1) In general.--For purposes of this subtitle, the 
     taxable year of any trust shall be the calendar year.
       ``(2) Exception for trusts exempt from tax and charitable 
     trusts.--Paragraph (1) shall not apply to a trust exempt from 
     taxation under section 501(a) or to a trust described in 
     section 4947(a)(1).''
       (b) Clerical Amendment.--The table of sections for subpart 
     A of part I of subchapter J of chapter 1 is amended by 
     striking the item relating to section 645 and inserting the 
     following new item:

``Sec. 645. Taxable year of estates and trusts.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to estates of decedents dying after the date of 
     the enactment of this Act.

[[Page H 12685]]


     SEC. 11606. TREATMENT OF FUNERAL TRUSTS.

       (a) In General.--Subpart F of part I of subchapter J of 
     chapter 1 is amended by adding at the end the following new 
     section:

     ``SEC. 684. TREATMENT OF FUNERAL TRUSTS.

       ``(a) In General.--In the case of a qualified funeral 
     trust--
       ``(1) subparts B, C, D, and E shall not apply, and
       ``(2) no deduction shall be allowed by section 642(b).
       ``(b) Qualified Funeral Trust.--For purposes of this 
     subsection, the term `qualified funeral trust' means any 
     trust (other than a foreign trust) if--
       ``(1) the trust arises as a result of a contract with a 
     person engaged in the trade or business of providing funeral 
     or burial services or property necessary to provide such 
     services,
       ``(2) the sole purpose of the trust is to hold, invest, and 
     reinvest funds in the trust and to use such funds solely to 
     make payments for such services or property for the benefit 
     of the beneficiaries of the trust,
       ``(3) the only beneficiaries of such trust are individuals 
     who have entered into contracts described in paragraph (1) to 
     have such services or property provided at their death,
       ``(4) the only contributions to the trust are contributions 
     by or for the benefit of such beneficiaries,
       ``(5) the trustee elects the application of this 
     subsection, and
       ``(6) the trust would (but for the election described in 
     paragraph (5)) be treated as owned by the beneficiaries under 
     subpart E.
       ``(c) Dollar Limitation on Contributions.--
       ``(1) In general.--The term `qualified funeral trust' shall 
     not include any trust which accepts aggregate contributions 
     by or for the benefit of an individual in excess of $7,000.
       ``(2) Related trusts.--For purposes of paragraph (1), all 
     trusts having trustees which are related persons shall be 
     treated as 1 trust. For purposes of the preceding sentence, 
     persons are related if--
       ``(A) the relationship between such persons would result in 
     the disallowance of losses under section 267 or 707(b),
       ``(B) such persons are treated as a single employer under 
     subsection (a) or (b) of section 52, or
       ``(C) the Secretary determines that treating such persons 
     as related is necessary to prevent avoidance of the purposes 
     of this section.
       ``(3) Inflation adjustment.--In the case of any contract 
     referred to in subsection (b)(1) which is entered into during 
     any calendar year after 1996, the dollar amount referred to 
     paragraph (1) shall be increased by an amount equal to--
       ``(A) such dollar amount, multiplied by
       ``(B) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year, by substituting 
     `calendar year 1995' for `calendar year 1992' in subparagraph 
     (B) thereof.
     If any dollar amount after being increased under the 
     preceding sentence is not a multiple of $100, such dollar 
     amount shall be rounded to the nearest multiple of $100.
       ``(d) Application of Rate Schedule.--Section 1(e) shall be 
     applied to each qualified funeral trust by treating each 
     beneficiary's interest in each such trust as a separate 
     trust.
       ``(e) Treatment of Amounts Refunded to Beneficiary on 
     Cancellation.--No gain or loss shall be recognized to a 
     beneficiary described in subsection (b)(3) of any qualified 
     funeral trust by reason of any payment from such trust to 
     such beneficiary by reason of cancellation of a contract 
     referred to in subsection (b)(1). If any payment referred to 
     in the preceding sentence consists of property other than 
     money, the basis of such property in the hands of such 
     beneficiary shall be the same as the trust's basis in such 
     property immediately before the payment.
       ``(f) Simplified Reporting.--The Secretary may prescribe 
     rules for simplified reporting of all trusts having a single 
     trustee.''
       (b) Clerical Amendment.--The table of sections for subpart 
     F of part I of subchapter J of chapter 1 is amended by adding 
     at the end the following new item:

``Sec. 684. Treatment of funeral trusts.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

              Subchapter B--Estate and Gift Tax Provisions

     SEC. 11611. CLARIFICATION OF WAIVER OF CERTAIN RIGHTS OF 
                   RECOVERY.

       (a) Amendment to Section 2207A.--Paragraph (2) of section 
     2207A(a) (relating to right of recovery in the case of 
     certain marital deduction property) is amended to read as 
     follows:
       ``(2) Decedent may otherwise direct.--Paragraph (1) shall 
     not apply with respect to any property to the extent that the 
     decedent in his will (or a revocable trust) specifically 
     indicates an intent to waive any right of recovery under this 
     subchapter with respect to such property.''
       (b) Amendment to Section 2207B.--Paragraph (2) of section 
     2207B(a) (relating to right of recovery where decedent 
     retained interest) is amended to read as follows:
       ``(2) Decedent may otherwise direct.--Paragraph (1) shall 
     not apply with respect to any property to the extent that the 
     decedent in his will (or a revocable trust) specifically 
     indicates an intent to waive any right of recovery under this 
     subchapter with respect to such property.''
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to the estates of decedents dying 
     after the date of the enactment of this Act.

     SEC. 11612. ADJUSTMENTS FOR GIFTS WITHIN 3 YEARS OF 
                   DECEDENT'S DEATH.

       (a) General Rule.--Section 2035 is amended to read as 
     follows:

     ``SEC. 2035. ADJUSTMENTS FOR CERTAIN GIFTS MADE WITHIN 3 
                   YEARS OF DECEDENT'S DEATH.

       ``(a) Inclusion of Certain Property in Gross Estate.--If--
       ``(1) the decedent made a transfer (by trust or otherwise) 
     of an interest in any property, or relinquished a power with 
     respect to any property, during the 3-year period ending on 
     the date of the decedent's death, and
       ``(2) the value of such property (or an interest therein) 
     would have been included in the decedent's gross estate under 
     section 2036, 2037, 2038, or 2042 if such transferred 
     interest or relinquished power had been retained by the 
     decedent on the date of his death,
     the value of the gross estate shall include the value of any 
     property (or interest therein) which would have been so 
     included.
       ``(b) Inclusion of Gift Tax on Gifts Made During 3 Years 
     Before Decedent's Death.--The amount of the gross estate 
     (determined without regard to this subsection) shall be 
     increased by the amount of any tax paid under chapter 12 by 
     the decedent or his estate on any gift made by the decedent 
     or his spouse during the 3-year period ending on the date of 
     the decedent's death.
       ``(c) Other Rules Relating to Transfers Within 3 Years of 
     Death.--
       ``(1) In general.--For purposes of--
       ``(A) section 303(b) (relating to distributions in 
     redemption of stock to pay death taxes),
       ``(B) section 2032A (relating to special valuation of 
     certain farms, etc., real property), and
       ``(C) subchapter C of chapter 64 (relating to lien for 
     taxes),
     the value of the gross estate shall include the value of all 
     property to the extent of any interest therein of which the 
     decedent has at any time made a transfer, by trust or 
     otherwise, during the 3-year period ending on the date of the 
     decedent's death.
       ``(2) Coordination with section 6166.--An estate shall be 
     treated as meeting the 35 percent of adjusted gross estate 
     requirement of section 6166(a)(1) only if the estate meets 
     such requirement both with and without the application of 
     paragraph (1).
       ``(3) Marital and small transfers.--Paragraph (1) shall not 
     apply to any transfer (other than a transfer with respect to 
     a life insurance policy) made during a calendar year to any 
     donee if the decedent was not required by section 6019 (other 
     than by reason of section 6019(2)) to file any gift tax 
     return for such year with respect to transfers to such donee.
       ``(d) Exception.--Subsection (a) shall not apply to any 
     bona fide sale for an adequate and full consideration in 
     money or money's worth.
       ``(e) Treatment of Certain Transfers From Revocable 
     Trusts.--For purposes of this section and section 2038, any 
     transfer from any portion of a trust during any period that 
     such portion was treated under section 676 as owned by the 
     decedent by reason of a power in the grantor (determined 
     without regard to section 672(e)) shall be treated as a 
     transfer made directly by the decedent.''
       (b) Clerical Amendment.--The table of sections for part III 
     of subchapter A of chapter 11 is amended by striking 
     ``gifts'' in the item relating to section 2035 and inserting 
     ``certain gifts''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to the estates of decedents dying after the date 
     of the enactment of this Act.

     SEC. 11613. CLARIFICATION OF QUALIFIED TERMINABLE INTEREST 
                   RULES.

       (a) General Rule.--
       (1) Estate tax.--Subparagraph (B) of section 2056(b)(7) 
     (defining qualified terminable interest property) is amended 
     by adding at the end the following new clause:
       ``(vi) Treatment of certain income distributions.--An 
     income interest shall not fail to qualify as a qualified 
     income interest for life solely because income for the period 
     after the last distribution date and on or before the date of 
     the surviving spouse's death is not required to be 
     distributed to the surviving spouse or to the estate of the 
     surviving spouse.''
       (2) Gift tax.--Paragraph (3) of section 2523(f) is amended 
     by striking ``and (iv)'' and inserting ``(iv), and (vi)''.
       (b) Clarification of Subsequent Inclusions.--Section 2044 
     is amended by adding at the end the following new subsection:
       ``(d) Clarification of Inclusion of Certain Income.--The 
     amount included in the gross estate under subsection (a) 
     shall include the amount of any income from the property to 
     which this section applies for the period after the last 
     distribution date and on or before the date of the decedent's 
     death if such income is not otherwise included in the 
     decedent's gross estate.''
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply with respect to the estates of decedents dying, and 
     gifts made, after the date of the enactment of this Act.
       (2) Application of section 2044 to transfers before date of 
     enactment.--In the case of the estate of any decedent dying 
     after the date of the enactment of this Act, if there was a 
     transfer of property on or before such date--
       (A) such property shall not be included in the gross estate 
     of the decedent under section 2044 of the Internal Revenue 
     Code of 1986 if no prior marital deduction was allowed with 
     respect to such a transfer of such property to the decedent, 
     but
       (B) such property shall be so included if such a deduction 
     was allowed.

     SEC. 11614. TRANSITIONAL RULE UNDER SECTION 2056A.

       (a) General Rule.--In the case of any trust created under 
     an instrument executed before the 

[[Page H 12686]]
     date of the enactment of the Revenue Reconciliation Act of 1990, such 
     trust shall be treated as meeting the requirements of 
     paragraph (1) of section 2056A(a) of the Internal Revenue 
     Code of 1986 if the trust instrument requires that all 
     trustees of the trust be individual citizens of the United 
     States or domestic corporations.
       (b) Effective Date.--The provisions of subsection (a) shall 
     take effect as if included in the provisions of section 
     11702(g) of the Revenue Reconciliation Act of 1990.

     SEC. 11615. OPPORTUNITY TO CORRECT CERTAIN FAILURES UNDER 
                   SECTION 2032A.

       (a) General Rule.--Paragraph (3) of section 2032A(d) 
     (relating to modification of election and agreement to be 
     permitted) is amended to read as follows:
       ``(3) Modification of election and agreement to be 
     permitted.--The Secretary shall prescribe procedures which 
     provide that in any case in which the executor makes an 
     election under paragraph (1) (and submits the agreement 
     referred to in paragraph (2)) within the time prescribed 
     therefor, but--
       ``(A) the notice of election, as filed, does not contain 
     all required information, or
       ``(B) signatures of 1 or more persons required to enter 
     into the agreement described in paragraph (2) are not 
     included on the agreement as filed, or the agreement does not 
     contain all required information,
     the executor will have a reasonable period of time (not 
     exceeding 90 days) after notification of such failures to 
     provide such information or signatures.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to the estates of decedents dying after the date 
     of the enactment of this Act.

     SEC. 11616. GIFTS MAY NOT BE REVALUED FOR ESTATE TAX PURPOSES 
                   AFTER EXPIRATION OF STATUTE OF LIMITATIONS.

       (a) In General.--Section 2001 (relating to imposition and 
     rate of estate tax) is amended by adding at the end the 
     following new subsection:
       ``(f) Valuation of Gifts.--If--
       ``(1) the time has expired within which a tax may be 
     assessed under chapter 12 (or under corresponding provisions 
     of prior laws) on the transfer of property by gift made 
     during a preceding calendar period (as defined in section 
     2502(b)), and
       ``(2) the value of such gift is shown on the return for 
     such preceding calendar period or is disclosed in such 
     return, or in a statement attached to the return, in a manner 
     adequate to apprise the Secretary of the nature of such gift,
     the value of such gift shall, for purposes of computing the 
     tax under this chapter, be the value of such gift as finally 
     determined for purposes of chapter 12.''
       (b) Modification of Application of Statute of 
     Limitations.--Paragraph (9) of section 6501(c) is amended to 
     read as follows:
       ``(9) Gift tax on certain gifts not shown on return.--If 
     any gift of property the value of which (or any increase in 
     taxable gifts required under section 2701(d)) is required to 
     be shown on a return of tax imposed by chapter 12 (without 
     regard to section 2503(b)), and is not shown on such return, 
     any tax imposed by chapter 12 on such gift may be assessed, 
     or a proceeding in court for the collection of such tax may 
     be begun without assessment, at any time. The preceding 
     sentence shall not apply to any item which is disclosed in 
     such return, or in a statement attached to the return, in a 
     manner adequate to apprise the Secretary of the nature of 
     such item. The value of any item which is so disclosed may 
     not be redetermined by the Secretary after the expiration of 
     the period under subsection (a).''
       (c) Declaratory Judgment Procedure for Determining Value of 
     Gift.--
       (1) In general.--Part IV of subchapter C of chapter 76 is 
     amended by inserting after section 7476 the following new 
     section:

     ``SEC. 7477. DECLARATORY JUDGMENTS RELATING TO VALUE OF 
                   CERTAIN GIFTS.

       ``(a) Creation of Remedy.--In a case of an actual 
     controversy involving a determination by the Secretary of the 
     value of any gift shown on the return of tax imposed by 
     chapter 12 or disclosed on such return or in any statement 
     attached to such return, upon the filing of an appropriate 
     pleading, the Tax Court may make a declaration of the value 
     of such gift. Any such declaration shall have the force and 
     effect of a decision of the Tax Court and shall be reviewable 
     as such.
       ``(b) Limitations.--
       ``(1) Petitioner.--A pleading may be filed under this 
     section only by the donor.
       ``(2) Exhaustion of administrative remedies.--The court 
     shall not issue a declaratory judgment or decree under this 
     section in any proceeding unless it determines that the 
     petitioner has exhausted all available administrative 
     remedies within the Internal Revenue Service.
       ``(3) Time for bringing action.--If the Secretary sends by 
     certified or registered mail notice of his determination as 
     described in subsection (a) to the petitioner, no proceeding 
     may be initiated under this section unless the pleading is 
     filed before the 91st day after the date of such mailing.''
       (2) Clerical amendment.--The table of sections for such 
     part IV is amended by inserting after the item relating to 
     section 7476 the following new item:

``Sec. 7477. Declaratory judgments relating to value of certain 
              gifts.''

       (d) Conforming Amendment.--Subsection (c) of section 2504 
     is amended by striking ``, and if a tax under this chapter or 
     under corresponding provisions of prior laws has been 
     assessed or paid for such preceding calendar period''.
       (e) Effective Dates.--
       (1) In general.--The amendments made by subsections (a) and 
     (c) shall apply to gifts made after the date of the enactment 
     of this Act.
       (2) Subsection (b).--The amendment made by subsection (b) 
     shall apply to gifts made in calendar years ending after the 
     date of the enactment of this Act.

     SEC. 11617. CLARIFICATIONS RELATING TO DISCLAIMERS.

       (a) Partial Transfer-Type Disclaimers Permitted.--Paragraph 
     (3) of section 2518(c) (relating to certain transfers treated 
     as disclaimers) is amended by inserting ``(or an undivided 
     portion of such interest)'' after ``entire interest in the 
     property''.
       (b) Retention of Interest by Decedent's Spouse Permitted in 
     Transfer-Type Disclaimers.--Paragraph (3) of section 2518(c) 
     is amended by adding at the end the following new flush 
     sentence:
     ``For purposes of the preceding sentence, a written transfer 
     by the spouse of the decedent of property to a trust shall 
     not fail to be treated as a transfer of such spouse's 
     interest in such property by reason of such spouse having an 
     interest in such trust.''
       (c) Disclaimers Are Effective For Income Tax Purposes.--
     Subsection (a) of section 2518 is amended by inserting ``and 
     subtitle A'' after ``this subtitle'' each place it appears.
       (d) Effective Date.--The amendments made by this section 
     shall apply to transfers creating an interest in the person 
     disclaiming, and disclaimers, made after the date of the 
     enactment of this Act.

     SEC. 11618. CLARIFICATION OF TREATMENT OF SURVIVOR ANNUITIES 
                   UNDER QUALIFIED TERMINABLE INTEREST RULES.

       (a) In General.--Subparagraph (C) of section 2056(b)(7) is 
     amended by inserting ``(or, in the case of an interest in an 
     annuity arising under the community property laws of a State, 
     included in the gross estate of the decedent under section 
     2033)'' after ``section 2039''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to estates of decedents dying after the date of 
     the enactment of this Act.

     SEC. 11619. TREATMENT UNDER QUALIFIED DOMESTIC TRUST RULES OF 
                   FORMS OF OWNERSHIP WHICH ARE NOT TRUSTS.

       (a) In General.--Subsection (c) of section 2056A (defining 
     qualified domestic trust) is amended by adding at the end the 
     following new paragraph:
       ``(3) Trust.--To the extent provided in regulations 
     prescribed by the Secretary, the term `trust' includes other 
     arrangements which have substantially the same effect as a 
     trust.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to estates of decedents dying after the date of 
     the enactment of this Act.

            Subchapter C--Generation-Skipping Tax Provisions

     SEC. 11631. TAXABLE TERMINATION NOT TO INCLUDE DIRECT SKIPS.

       (a) In General.--Paragraph (1) of section 2612(a) (defining 
     taxable termination) is amended by adding at the end the 
     following new flush sentence:
     ``Such term shall not include a direct skip.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to generation-skipping transfers (as defined in 
     section 2611 of the Internal Revenue Code of 1986) after the 
     date of the enactment of this Act.

                  CHAPTER 7--EXCISE TAX SIMPLIFICATION

 Subchapter A--Provisions Related to Distilled Spirits, Wines, and Beer

     SEC. 11641. CREDIT OR REFUND FOR IMPORTED BOTTLED DISTILLED 
                   SPIRITS RETURNED TO DISTILLED SPIRITS PLANT.

       (a) In General.--Paragraph (1) of section 5008(c) (relating 
     to distilled spirits returned to bonded premises) is amended 
     by striking ``withdrawn from bonded premises on payment or 
     determination of tax'' and inserting ``on which tax has been 
     determined or paid''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect at the beginning of the first calendar 
     quarter beginning more than 180 days after the date of the 
     enactment of this Act.

     SEC. 11642. FERMENTED MATERIAL FROM ANY BREWERY MAY BE 
                   RECEIVED AT A DISTILLED SPIRITS PLANT.

       (a) In General.--Paragraph (2) of section 5222(b) (relating 
     to production, receipt, removal, and use of distilling 
     materials) is amended to read as follows:
       ``(2) beer conveyed without payment of tax from brewery 
     premises, beer which has been lawfully removed from brewery 
     premises upon determination of tax, or''.
       (b) Clarification of Authority To Permit Removal of Beer 
     Without Payment of Tax for Use as Distilling Material.--
     Section 5053 (relating to exemptions) is amended by 
     redesignating subsection (f) as subsection (i) and by 
     inserting after subsection (e) the following new subsection:
       ``(f) Removal for Use as Distilling Material.--Subject to 
     such regulations as the Secretary may prescribe, beer may be 
     removed from a brewery without payment of tax to any 
     distilled spirits plant for use as distilling material.''
       (c) Clarification of Refund and Credit of Tax.--Section 
     5056 (relating to refund and credit of tax, or relief from 
     liability) is amended--
       (1) by redesignating subsection (c) as subsection (d) and 
     by inserting after subsection (b) the following new 
     subsection:
       ``(c) Beer Received at a Distilled Spirits Plant.--Any tax 
     paid by any brewer on beer produced in the United States may 
     be refunded or credited to the brewer, without interest, or 
     if the tax has not been paid, the brewer may be relieved of 
     liability therefor, under regulations as 

[[Page H 12687]]
     the Secretary may prescribe, if such beer is received on the bonded 
     premises of a distilled spirits plant pursuant to the 
     provisions of section 5222(b)(2), for use in the production 
     of distilled spirits.'', and
       (2) by striking ``or rendering unmerchantable'' in 
     subsection (d) (as so redesignated) and inserting ``rendering 
     unmerchantable, or receipt on the bonded premises of a 
     distilled spirits plant''.
       (d) Effective Date.--The amendments made by this section 
     shall take effect at the beginning of the first calendar 
     quarter beginning more than 180 days after the date of the 
     enactment of this Act.

     SEC. 11643. REFUND OF TAX ON WINE RETURNED TO BOND NOT 
                   LIMITED TO UNMERCHANTABLE WINE.

       (a) In General.--Subsection (a) of section 5044 (relating 
     to refund of tax on unmerchantable wine) is amended by 
     striking ``as unmerchantable''.
       (b) Conforming Amendments.--
       (1) Section 5361 is amended by striking ``unmerchantable''.
       (2) The section heading for section 5044 is amended by 
     striking 
     ``
     
     ''.
       (3) The item relating to section 5044 in the table of 
     sections for subpart C of part I of subchapter A of chapter 
     51 is amended by striking ``unmerchantable''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect at the beginning of the first calendar 
     quarter beginning more than 180 days after the date of the 
     enactment of this Act.

     SEC. 11644. BEER MAY BE WITHDRAWN FREE OF TAX FOR 
                   DESTRUCTION.

       (a) In General.--Section 5053 is amended by inserting after 
     subsection (g) the following new subsection:
       ``(h) Removals for Destruction.--Subject to such 
     regulations as the Secretary may prescribe, beer may be 
     removed from the brewery without payment of tax for 
     destruction.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect at the beginning of the first calendar 
     quarter beginning more than 180 days after the date of the 
     enactment of this Act.

     SEC. 11645. TRANSFER TO BREWERY OF BEER IMPORTED IN BULK 
                   WITHOUT PAYMENT OF TAX.

       (a) In General.--Part II of subchapter G of chapter 51 is 
     amended by adding at the end the following new section:

     ``SEC. 5418. BEER IMPORTED IN BULK.

       ``Beer imported or brought into the United States in bulk 
     containers may, under such regulations as the Secretary may 
     prescribe, be withdrawn from customs custody and transferred 
     in such bulk containers to the premises of a brewery without 
     payment of the internal revenue tax imposed on such beer. The 
     proprietor of a brewery to which such beer is transferred 
     shall become liable for the tax on the beer withdrawn from 
     customs custody under this section upon release of the beer 
     from customs custody, and the importer, or the person 
     bringing such beer into the United States, shall thereupon be 
     relieved of the liability for such tax.''
       (b) Clerical Amendment.--The table of sections for such 
     part II is amended by adding at the end the following new 
     item:

``Sec. 5418. Beer imported in bulk.''

       (c) Effective Date.--The amendments made by this section 
     shall take effect at the beginning of the first calendar 
     quarter beginning more than 180 days after the date of the 
     enactment of this Act.

       Subchapter B--Consolidation of Taxes on Aviation Gasoline

     SEC. 11651. CONSOLIDATION OF TAXES ON AVIATION GASOLINE.

       (a) In General.--Subparagraph (A) of section 4081(a)(2) 
     (relating to imposition of tax on gasoline and diesel fuel) 
     is amended by redesignating clause (ii) as clause (iii) and 
     by striking clause (i) and inserting the following:
       ``(i) in the case of gasoline other than aviation gasoline, 
     18.3 cents per gallon,
       ``(ii) in the case of aviation gasoline, 19.3 cents per 
     gallon, and''.
       (b) Termination.--Subsection (d) of section 4081 is amended 
     by redesignating paragraph (2) as paragraph (3) and by 
     inserting after paragraph (1) the following new paragraph:
       ``(2) Aviation gasoline.--On and after January 1, 1996, the 
     rate specified in subsection (a)(2)(A)(ii) shall be 4.3 cents 
     per gallon.''
       (c) Repeal of Retail Level Tax.--
       (1) Subsection (c) of section 4041 is amended by striking 
     paragraphs (2) and (3) and by redesignating paragraphs (4) 
     and (5) as paragraphs (2) and (3), respectively.
       (2) Paragraph (3) of section 4041(c), as redesignated by 
     paragraph (1), is amended by striking ``paragraphs (1) and 
     (2)'' and inserting ``paragraph (1)''.
       (d) Conforming Amendments.--
       (1) Paragraph (1) of section 4041(k) is amended by adding 
     ``and'' at the end of subparagraph (A), by striking ``, and'' 
     at the end of subparagraph (B) and inserting a period, and by 
     striking subparagraph (C).
       (2) Paragraph (1) of section 4081(d) is amended by striking 
     ``each rate of tax specified in subsection (a)(2)(A)'' and 
     inserting ``the rates of tax specified in clauses (i) and 
     (iii) of subsection (a)(2)(A)''.
       (3) Sections 6421(f)(2)(A) and 9502(f)(1)(A) are each 
     amended by striking ``section 4041(c)(4)'' and inserting 
     ``section 4041(c)(2)''.
       (4) Paragraph (2) of section 9502(b) is amended by striking 
     ``14 cents'' and inserting ``15 cents''.
       (e) Effective Date.--The amendments made by this section 
     shall take effect on January 1, 1996.
       (f) Floor Stocks Tax.--
       (1) Imposition of tax.--In the case of aviation gasoline on 
     which tax was imposed under section 4081 of the Internal 
     Revenue Code of 1986 before January 1, 1996, and which is 
     held on such date by any person, there is hereby imposed a 
     floor stocks tax of 1 cent per gallon of such gasoline.
       (2) Liability for tax and method of payment.--
       (A) Liability for tax.--A person holding aviation gasoline 
     on January 1, 1996, to which the tax imposed by paragraph (1) 
     applies shall be liable for such tax.
       (B) Method of payment.--The tax imposed by paragraph (1) 
     shall be paid in such manner as the Secretary shall 
     prescribe.
       (C) Time for payment.--The tax imposed by paragraph (1) 
     shall be paid on or before June 30, 1996.
       (3) Definitions.--For purposes of this subsection:
       (A) Held by a person.--Gasoline shall be considered as 
     ``held by a person'' if title thereto has passed to such 
     person (whether or not delivery to the person has been made).
       (B) Secretary.--The term ``Secretary'' means the Secretary 
     of the Treasury or his delegate.
       (4) Exception for exempt uses.--The tax imposed by 
     paragraph (1) shall not apply to gasoline held by any person 
     exclusively for any use to the extent a credit or refund of 
     the tax imposed by section 4081 of such Code is allowable for 
     such use.
       (5) Exception for fuel held in aircraft tank.--No tax shall 
     be imposed by paragraph (1) on aviation gasoline held in the 
     tank of an aircraft.
       (6) Exception for certain amounts of fuel.--
       (A) In general.--No tax shall be imposed by paragraph (1) 
     on aviation gasoline held on January 1, 1996, by any person 
     if the aggregate amount of aviation gasoline held by such 
     person on such date does not exceed 6,000 gallons. The 
     preceding sentence shall apply only if such person submits to 
     the Secretary (at the time and in the manner required by the 
     Secretary) such information as the Secretary shall require 
     for purposes of this paragraph.
       (B) Exempt fuel.--For purposes of subparagraph (A), there 
     shall not be taken into account fuel held by any person which 
     is exempt from the tax imposed by paragraph (1) by reason of 
     paragraph (4) or (5).
       (C) Controlled groups.--
       (i) Corporations.--In the case of a controlled group, the 
     6,000 gallon amount in subparagraph (A) shall be apportioned 
     among the component members of such group in such manner as 
     the Secretary shall by regulations prescribe. For purposes of 
     the preceding sentence, the term ``controlled group'' has the 
     meaning given to such term by subsection (a) of section 1563 
     of such Code; except that for such purposes the phrase ``more 
     than 50 percent'' shall be substituted for the phrase ``at 
     least 80 percent'' each place it appears in such subsection.
       (ii) Nonincorporated persons under common control.--Under 
     regulations prescribed by the Secretary, principles similar 
     to the principles of clause (i) shall apply to a group under 
     common control where 1 or more of the members is not a 
     corporation.
       (7) Other laws applicable.--All provisions of law, 
     including penalties, applicable with respect to the taxes 
     imposed by section 4081 of such Code shall, insofar as 
     applicable and not inconsistent with the provisions of this 
     subsection, apply with respect to the floor stock taxes 
     imposed by paragraph (1) to the same extent as if such taxes 
     were imposed by such section 4081.

               Subchapter C--Other Excise Tax Provisions

     SEC. 11661. CERTAIN COMBINATIONS NOT TREATED AS MANUFACTURE 
                   UNDER RETAIL SALES TAX ON HEAVY TRUCKS.

       (a) In General.--Paragraph (2) of section 4052(c) (relating 
     to certain combinations not treated as manufacture) is 
     amended by striking ``or wood or metal floor'' and inserting 
     ``wood or metal floor, or a power take-off and dump body''.
       (b) Removal of Fifth Wheel.--Paragraph (1) of section 
     4052(c) is amended by inserting before the period ``or the 
     removal of any coupling device (including any fifth wheel)''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

                  CHAPTER 8--ADMINISTRATIVE PROVISION

     SEC. 11671. CERTAIN NOTICES DISREGARDED UNDER PROVISION 
                   INCREASING INTEREST RATE ON LARGE CORPORATE 
                   UNDERPAYMENTS.

       (a) General Rule.--Subparagraph (B) of section 6621(c)(2) 
     (defining applicable date) is amended by adding at the end 
     the following new clause:
       ``(iii) Exception for letters or notices involving small 
     amounts.--For purposes of this paragraph, any letter or 
     notice shall be disregarded if the amount of the deficiency 
     or proposed deficiency (or the assessment or proposed 
     assessment) set forth in such letter or notice is not greater 
     than $100,000 (determined by not taking into account any 
     interest, penalties, or additions to tax).''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply for purposes of determining interest for periods 
     after December 31, 1995.
                  Subtitle K--Miscellaneous Provisions

     SEC. 11701. TREATMENT OF STORAGE OF PRODUCT SAMPLES.

       (a) In General.--Paragraph (2) of section 280A(c) is 
     amended by striking ``inventory'' and inserting ``inventory 
     or product samples''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     1995.

[[Page H 12688]]


     SEC. 11702. ADJUSTMENT OF DEATH BENEFIT LIMITS FOR CERTAIN 
                   POLICIES.

       (a) In General.--Subparagraph (C)(i) of section 7702(e)(2) 
     (relating to limited increases in death benefit permitted) is 
     amended by striking ``$5,000'' and inserting ``$7,000'' and 
     by striking ``$25,000'' and inserting ``$30,000''.
       (b) Inflation Adjustments.--Section 7702(e) (relating to 
     computational rules) is amended by adding at the end the 
     following new paragraph:
       ``(3) Inflation adjustment to death benefit limits for 
     years after 1996.--In the case of any taxable year beginning 
     in a calendar year after 1996, each dollar amount contained 
     in paragraph (2)(C)(i) shall be increased by an amount equal 
     to--
       ``(A) such dollar amount, multiplied by
       ``(B) the cost-of-living adjustment determined under 
     section 1(f)(3), for the calendar year in which the taxable 
     year begins, by substituting `calendar year 1995' for 
     `calendar year 1992' in subparagraph (B) thereof.''.
       (c) Conforming Amendment.--Section 72(e)(10)(B) is amended 
     by striking ``$25,000'' and inserting ``$30,000 (adjusted at 
     the same time and in the same manner as under section 
     7702(e)(3))''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to contracts entered into after December 31, 
     1995.

     SEC. 11703. ORGANIZATIONS SUBJECT TO SECTION 833.

       (a) In General.--Section 833(c) (relating to organization 
     to which section applies) is amended by adding at the end the 
     following new paragraph:
       ``(4) Treatment as existing blue cross or blue shield 
     organization.--
       ``(A) In general.--Paragraph (2) shall be applied to an 
     organization described in subparagraph (B) as if it were a 
     Blue Cross or Blue Shield organization.
       ``(B) Applicable organization.--An organization is 
     described in this subparagraph if it--
       ``(i) is organized under, and governed by, State laws which 
     are specifically and exclusively applicable to not-for-profit 
     health insurance or health service type organizations, and
       ``(ii) is not a Blue Cross or Blue Shield organization or 
     health maintenance organization.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years ending after October 13, 1995.

     SEC. 11704. CORRECTION OF INFLATION ADJUSTMENT IN LUXURY 
                   EXCISE TAX ON AUTOMOBILES.

       (a) In General.--Subsection (e) of section 4001 (relating 
     to inflation adjustment) is amended to read as follows:
       ``(e) Inflation Adjustment.--
       ``(1) In general.--The $30,000 amount in subsection (a) and 
     section 4003(a) shall be increased by an amount equal to--
       ``(A) $30,000, multiplied by
       ``(B) the cost-of-living adjustment under section 1(f)(3) 
     for the calendar year in which the vehicle is sold, 
     determined by substituting `calendar year 1990' for `calendar 
     year 1992' in subparagraph (B) thereof.
       ``(2) Rounding.--If any amount as adjusted under paragraph 
     (1) is not a multiple of $2,000, such amount shall be rounded 
     to the next lowest multiple of $2,000.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of the enactment of this Act.

     SEC. 11705. EXTENSION AND PHASEDOWN OF LUXURY PASSENGER 
                   AUTOMOBILE TAX.

       (a) Extension.--Subsection (f) of section 4001 is amended 
     by striking ``1999'' and inserting ``2002''.
       (b) Phasedown.--Section 4001 is amended by redesignating 
     subsection (f) (as amended by subsection (a) of this section) 
     as subsection (g) and by inserting after subsection (e) the 
     following new subsection:
       ``(f) Phasedown.--For sales occurring in a calendar year 
     after 1995 and before 2003, subsection (a) shall be applied 
     by substituting for `10 percent' the percentage determined in 
     accordance with the following table:

``If the calendar year is:                           The percentage is:
  1996...................................................9 percent     
  1997...................................................8 percent     
  1998...................................................7 percent     
  1999...................................................6 percent     
  2000...................................................5 percent     
  2001...................................................4 percent     
  2002...................................................3 percent.''  

       (c) Effective Date.--The amendments made by this section 
     shall take effect on January 1, 1996.
             Subtitle L--Generalized System of Preferences

     SEC. 11801. SHORT TITLE.

       This subtitle may be cited as the ``GSP Renewal Act of 
     1995''.

     SEC. 11802. GENERALIZED SYSTEM OF PREFERENCES.

       (a) In General.--Title V of the Trade Act of 1974 is 
     amended to read as follows:
              ``TITLE V--GENERALIZED SYSTEM OF PREFERENCES

     ``SEC. 501. AUTHORITY TO EXTEND PREFERENCES.

       ``The President may provide duty-free treatment for any 
     eligible article from any beneficiary developing country in 
     accordance with the provisions of this title. In taking any 
     such action, the President shall have due regard for--
       ``(1) the effect such action will have on furthering the 
     economic development of developing countries through the 
     expansion of their exports;
       ``(2) the extent to which other major developed countries 
     are undertaking a comparable effort to assist developing 
     countries by granting generalized preferences with respect to 
     imports of products of such countries;
       ``(3) the anticipated impact of such action on United 
     States producers of like or directly competitive products; 
     and
       ``(4) the extent of the beneficiary developing country's 
     competitiveness with respect to eligible articles.

     ``SEC. 502. DESIGNATION OF BENEFICIARY DEVELOPING COUNTRIES.

       ``(a) Authority To Designate Countries.--
       ``(1) Beneficiary developing countries.--The President is 
     authorized to designate countries as beneficiary developing 
     countries for purposes of this title.
       ``(2) Least-developed beneficiary developing countries.--
     The President is authorized to designate any beneficiary 
     developing country as a least-developed beneficiary 
     developing country for purposes of this title, based on the 
     considerations in section 501 and subsection (c) of this 
     section.
       ``(b) Countries Ineligible for Designation.--
       ``(1) Specific countries.--The following countries may not 
     be designated as beneficiary developing countries for 
     purposes of this title:
       ``(A) Australia.
       ``(B) Canada.
       ``(C) European Union member states.
       ``(D) Iceland.
       ``(E) Japan.
       ``(F) Monaco.
       ``(G) New Zealand.
       ``(H) Norway.
       ``(I) Switzerland.
       ``(2) Other bases for ineligibility.--The President shall 
     not designate any country a beneficiary developing country 
     under this title if any of the following applies:
       ``(A) Such country is a Communist country, unless--
       ``(i) the products of such country receive 
     nondiscriminatory treatment,
       ``(ii) such country is a WTO Member (as such term is 
     defined in section 2(10) of the Uruguay Round Agreements Act) 
     (19 U.S.C. 3501(10)) and a member of the International 
     Monetary Fund, and
       ``(iii) such country is not dominated or controlled by 
     international communism.
       ``(B) Such country is a party to an arrangement of 
     countries and participates in any action pursuant to such 
     arrangement, the effect of which is--
       ``(i) to withhold supplies of vital commodity resources 
     from international trade or to raise the price of such 
     commodities to an unreasonable level, and
       ``(ii) to cause serious disruption of the world economy.
       ``(C) Such country affords preferential treatment to the 
     products of a developed country, other than the United 
     States, which has, or is likely to have, a significant 
     adverse effect on United States commerce.
       ``(D)(i) Such country--
       ``(I) has nationalized, expropriated, or otherwise seized 
     ownership or control of property, including patents, 
     trademarks, or copyrights, owned by a United States citizen 
     or by a corporation, partnership, or association which is 50 
     percent or more beneficially owned by United States citizens,
       ``(II) has taken steps to repudiate or nullify an existing 
     contract or agreement with a United States citizen or a 
     corporation, partnership, or association which is 50 percent 
     or more beneficially owned by United States citizens, the 
     effect of which is to nationalize, expropriate, or otherwise 
     seize ownership or control of property, including patents, 
     trademarks, or copyrights, so owned, or
       ``(III) has imposed or enforced taxes or other exactions, 
     restrictive maintenance or operational conditions, or other 
     measures with respect to property, including patents, 
     trademarks, or copyrights, so owned, the effect of which is 
     to nationalize, expropriate, or otherwise seize ownership or 
     control of such property,
     unless clause (ii) applies.
       ``(ii) This clause applies if the President determines 
     that--
       ``(I) prompt, adequate, and effective compensation has been 
     or is being made to the citizen, corporation, partnership, or 
     association referred to in clause (i),
       ``(II) good faith negotiations to provide prompt, adequate, 
     and effective compensation under the applicable provisions of 
     international law are in progress, or the country described 
     in clause (i) is otherwise taking steps to discharge its 
     obligations under international law with respect to such 
     citizen, corporation, partnership, or association, or
       ``(III) a dispute involving such citizen, corporation, 
     partnership, or association over compensation for such a 
     seizure has been submitted to arbitration under the 
     provisions of the Convention for the Settlement of Investment 
     Disputes, or in another mutually agreed upon forum,
     and the President promptly furnishes a copy of such 
     determination to the Senate and House of Representatives.
       ``(E) Such country fails to act in good faith in 
     recognizing as binding or in enforcing arbitral awards in 
     favor of United States citizens or a corporation, 
     partnership, or association which is 50 percent or more 
     beneficially owned by United States citizens, which have been 
     made by arbitrators appointed for each case or by permanent 
     arbitral bodies to which the parties involved have submitted 
     their dispute.
       ``(F) Such country aids or abets, by granting sanctuary 
     from prosecution to, any individual or group which has 
     committed an act of international terrorism.
       ``(G) Such country has not taken or is not taking steps to 
     afford internationally recognized worker rights to workers in 
     the country (including any designated zone in that country).
     Subparagraphs (D), (E), (F), and (G) shall not prevent the 
     designation of any country as a 

[[Page H 12689]]
     beneficiary developing country under this title if the President 
     determines that such designation will be in the national 
     economic interest of the United States and reports such 
     determination to the Congress with the reasons therefor.
       ``(c) Factors Affecting Country Designation.--In 
     determining whether to designate any country as a beneficiary 
     developing country under this title, the President shall take 
     into account--
       ``(1) an expression by such country of its desire to be so 
     designated;
       ``(2) the level of economic development of such country, 
     including its per capita gross national product, the living 
     standards of its inhabitants, and any other economic factors 
     which the President deems appropriate;
       ``(3) whether or not other major developed countries are 
     extending generalized preferential tariff treatment to such 
     country;
       ``(4) the extent to which such country has assured the 
     United States that it will provide equitable and reasonable 
     access to the markets and basic commodity resources of such 
     country and the extent to which such country has assured the 
     United States that it will refrain from engaging in 
     unreasonable export practices;
       ``(5) the extent to which such country is providing 
     adequate and effective protection of intellectual property 
     rights;
       ``(6) the extent to which such country has taken action 
     to--
       ``(A) reduce trade distorting investment practices and 
     policies (including export performance requirements); and
       ``(B) reduce or eliminate barriers to trade in services; 
     and
       ``(7) whether or not such country has taken or is taking 
     steps to afford to workers in that country (including any 
     designated zone in that country) internationally recognized 
     worker rights.
       ``(d) Withdrawal, Suspension, or Limitation of Country 
     Designation.--
       ``(1) In general.--The President may withdraw, suspend, or 
     limit the application of the duty-free treatment accorded 
     under this title with respect to any country. In taking any 
     action under this subsection, the President shall consider 
     the factors set forth in section 501 and subsection (c) of 
     this section.
       ``(2) Changed circumstances.--The President shall, after 
     complying with the requirements of subsection (f)(2), 
     withdraw or suspend the designation of any country as a 
     beneficiary developing country if, after such designation, 
     the President determines that as the result of changed 
     circumstances such country would be barred from designation 
     as a beneficiary developing country under subsection (b)(2). 
     Such country shall cease to be a beneficiary developing 
     country on the day on which the President issues an Executive 
     order or Presidential proclamation revoking the designation 
     of such country under this title.
       ``(3) Advice to congress.--The President shall, as 
     necessary, advise the Congress on the application of section 
     501 and subsection (c) of this section, and the actions the 
     President has taken to withdraw, to suspend, or to limit the 
     application of duty-free treatment with respect to any 
     country which has failed to adequately take the actions 
     described in subsection (c).
       ``(e) Mandatory Graduation of Beneficiary Developing 
     Countries.--If the President determines that a beneficiary 
     developing country has become a `high income' country, as 
     defined by the official statistics of the International Bank 
     for Reconstruction and Development, then the President shall 
     terminate the designation of such country as a beneficiary 
     developing country for purposes of this title, effective on 
     January 1 of the second year following the year in which such 
     determination is made.
       ``(f) Congressional Notification.--
       ``(1) Notification of designation.--
       ``(A) In general.--Before the President designates any 
     country as a beneficiary developing country under this title, 
     the President shall notify the Congress of the President's 
     intention to make such designation, together with the 
     considerations entering into such decision.
       ``(B) Designation as least-developed beneficiary developing 
     country.--At least 60 days before the President designates 
     any country as a least-developed beneficiary developing 
     country, the President shall notify the Congress of the 
     President's intention to make such designation.
       ``(2) Notification of termination.--If the President has 
     designated any country as a beneficiary developing country 
     under this title, the President shall not terminate such 
     designation unless, at least 60 days before such termination, 
     the President has notified the Congress and has notified such 
     country of the President's intention to terminate such 
     designation, together with the considerations entering into 
     such decision.

     ``SEC. 503. DESIGNATION OF ELIGIBLE ARTICLES.

       ``(a) Eligible Articles.--
       ``(1) Designation.--
       ``(A) In general.--Except as provided in subsection (b), 
     the President is authorized to designate articles as eligible 
     articles from all beneficiary developing countries for 
     purposes of this title by Executive order or Presidential 
     proclamation after receiving the advice of the International 
     Trade Commission in accordance with subsection (e).
       ``(B) Least-developed beneficiary developing countries.--
     Except for articles described in subparagraphs (A), (B), and 
     (E) of subsection (b)(1) and articles described in paragraphs 
     (2) and (3) of subsection (b), the President may, in carrying 
     out section 502(d)(1) and subsection (c)(1) of this section, 
     designate articles as eligible articles only for countries 
     designated as least-developed beneficiary developing 
     countries under section 502(a)(2) if, after receiving the 
     advice of the International Trade Commission in accordance 
     with subsection (e) of this section, the President determines 
     that such articles are not import-sensitive in the context of 
     imports from least-developed beneficiary developing 
     countries.
       ``(C) Three-year rule.--If, after receiving the advice of 
     the International Trade Commission under subsection (e), an 
     article has been formally considered for designation as an 
     eligible article under this title and denied such 
     designation, such article may not be reconsidered for such 
     designation for a period of 3 years after such denial.
       ``(2) Rule of origin.--
       ``(A) General rule.--The duty-free treatment provided under 
     this title shall apply to any eligible article which is the 
     growth, product, or manufacture of a beneficiary developing 
     country if--
       ``(i) that article is imported directly from a beneficiary 
     developing country into the customs territory of the United 
     States; and
       ``(ii) the sum of--

       ``(I) the cost or value of the materials produced in the 
     beneficiary developing country or any two or more such 
     countries that are members of the same association of 
     countries and are treated as one country under section 
     507(2), plus
       ``(II) the direct costs of processing operations performed 
     in such beneficiary developing country or such member 
     countries,

     is not less than 35 percent of the appraised value of such 
     article at the time it is entered.
       ``(B) Exclusions.--An article shall not be treated as the 
     growth, product, or manufacture of a beneficiary developing 
     country by virtue of having merely undergone--
       ``(i) simple combining or packaging operations, or
       ``(ii) mere dilution with water or mere dilution with 
     another substance that does not materially alter the 
     characteristics of the article.
       ``(3) Regulations.--The Secretary of the Treasury, after 
     consulting with the United States Trade Representative, shall 
     prescribe such regulations as may be necessary to carry out 
     paragraph (2), including, but not limited to, regulations 
     providing that, in order to be eligible for duty-free 
     treatment under this title, an article--
       ``(A) must be wholly the growth, product, or manufacture of 
     a beneficiary developing country, or
       ``(B) must be a new or different article of commerce which 
     has been grown, produced, or manufactured in the beneficiary 
     developing country.
       ``(b) Articles That May Not Be Designated As Eligible 
     Articles.--
       ``(1) Import sensitive articles.--The President may not 
     designate any article as an eligible article under subsection 
     (a) if such article is within one of the following categories 
     of import-sensitive articles:
       ``(A) Textile and apparel articles which were not eligible 
     articles for purposes of this title on January 1, 1994, as 
     this title was in effect on such date.
       ``(B) Watches, except those watches entered after June 30, 
     1989, that the President specifically determines, after 
     public notice and comment, will not cause material injury to 
     watch or watch band, strap, or bracelet manufacturing and 
     assembly operations in the United States or the United States 
     insular possessions.
       ``(C) Import-sensitive electronic articles.
       ``(D) Import-sensitive steel articles.
       ``(E) Footwear, handbags, luggage, flat goods, work gloves, 
     and leather wearing apparel which were not eligible articles 
     for purposes of this title on January 1, 1995, as this title 
     was in effect on such date.
       ``(F) Import-sensitive semimanufactured and manufactured 
     glass products.
       ``(G) Any other articles which the President determines to 
     be import-sensitive in the context of the Generalized System 
     of Preferences.
       ``(2) Articles against which other actions taken.--An 
     article shall not be an eligible article for purposes of this 
     title for any period during which such article is the subject 
     of any action proclaimed pursuant to section 203 of this Act 
     (19 U.S.C. 2253) or section 232 or 351 of the Trade Expansion 
     Act of 1962 (19 U.S.C. 1862, 1981).
       ``(3) Agricultural products.--No quantity of an 
     agricultural product subject to a tariff-rate quota that 
     exceeds the in-quota quantity shall be eligible for duty-free 
     treatment under this title.
       ``(c) Withdrawal, Suspension, or Limitation of Duty-Free 
     Treatment; Competitive Need Limitation.--
       ``(1) In general.--The President may withdraw, suspend, or 
     limit the application of the duty-free treatment accorded 
     under this title with respect to any article, except that no 
     rate of duty may be established with respect to any article 
     pursuant to this subsection other than the rate which would 
     apply but for this title. In taking any action under this 
     subsection, the President shall consider the factors set 
     forth in sections 501 and 502(c).
       ``(2) Competitive need limitation.--
       ``(A) Basis for withdrawal of duty-free treatment.--
       ``(i) In general.--Except as provided in clause (ii) and 
     subject to subsection (d), whenever the President determines 
     that a beneficiary developing country has exported (directly 
     or indirectly) to the United States during any calendar year 
     beginning after December 31, 1995--

       ``(I) a quantity of an eligible article having an appraised 
     value in excess of the applicable amount for the calendar 
     year, or
       ``(II) a quantity of an eligible article equal to or 
     exceeding 50 percent of the appraised value of the total 
     imports of that article into the United States during any 
     calendar year,

     the President shall, not later than July 1 of the next 
     calendar year, terminate the duty-free treatment for that 
     article from that beneficiary developing country.

[[Page H 12690]]

       ``(ii) Annual adjustment of applicable amount.--For 
     purposes of applying clause (i), the applicable amount is--

       ``(I) for 1996, $75,000,000, and
       ``(II) for each calendar year thereafter, an amount equal 
     to the applicable amount in effect for the preceding calendar 
     year plus $5,000,000.

       ``(B) Country defined.--For purposes of this paragraph, the 
     term `country' does not include an association of countries 
     which is treated as one country under section 507(2), but 
     does include a country which is a member of any such 
     association.
       ``(C) Redesignations.--A country which is no longer treated 
     as a beneficiary developing country with respect to an 
     eligible article by reason of subparagraph (A) may, subject 
     to the considerations set forth in sections 501 and 502, be 
     redesignated a beneficiary developing country with respect to 
     such article if imports of such article from such country did 
     not exceed the limitations in subparagraph (A) during the 
     preceding calendar year.
       ``(D) Least-developed beneficiary developing countries.--
     Subparagraph (A) shall not apply to any least-developed 
     beneficiary developing country.
       ``(E) Articles not produced in the united states 
     excluded.--Subparagraph (A)(i)(II) shall not apply with 
     respect to any eligible article if a like or directly 
     competitive article was not produced in the United States on 
     January 1, 1995.
       ``(F) De minimis waivers.--
       ``(i) In general.--The President may disregard subparagraph 
     (A)(i)(II) with respect to any eligible article from any 
     beneficiary developing country if the aggregate appraised 
     value of the imports of such article into the United States 
     during the preceding calendar year does not exceed the 
     applicable amount for such preceding calendar year.
       ``(ii) Applicable amount.--For purposes applying clause 
     (i), the applicable amount is--

       ``(I) for calendar year 1995, $13,000,000, and
       ``(II) for each calendar year thereafter, an amount equal 
     to the applicable amount in effect for the preceding calendar 
     year plus $500,000.

       ``(d) Waiver of Competitive Need Limitation.--
       ``(1) In general.--The President may waive the application 
     of subsection (c)(2) with respect to any eligible article of 
     any beneficiary developing country if, before July 1 of the 
     calendar year beginning after the calendar year for which a 
     determination described in subsection (c)(2)(A) was made with 
     respect to such eligible article, the President--
       ``(A) receives the advice of the International Trade 
     Commission under section 332 of the Tariff Act of 1930 on 
     whether any industry in the United States is likely to be 
     adversely affected by such waiver,
       ``(B) determines, based on the considerations described in 
     sections 501 and 502(c) and the advice described in 
     subparagraph (A), that such waiver is in the national 
     economic interest of the United States, and
       ``(C) publishes the determination described in subparagraph 
     (B) in the Federal Register.
       ``(2) Considerations by the president.--In making any 
     determination under paragraph (1), the President shall give 
     great weight to--
       ``(A) the extent to which the beneficiary developing 
     country has assured the United States that such country will 
     provide equitable and reasonable access to the markets and 
     basic commodity resources of such country, and
       ``(B) the extent to which such country provides adequate 
     and effective protection of intellectual property rights.
       ``(3) Other bases for waiver.--The President may waive the 
     application of subsection (c)(2) if, before July 1 of the 
     calendar year beginning after the calendar year for which a 
     determination described in subsection (c)(2) was made with 
     respect to a beneficiary developing country, the President 
     determines that--
       ``(A) there has been a historical preferential trade 
     relationship between the United States and such country,
       ``(B) there is a treaty or trade agreement in force 
     covering economic relations between such country and the 
     United States, and
       ``(C) such country does not discriminate against, or impose 
     unjustifiable or unreasonable barriers to, United States 
     commerce,
     and the President publishes that determination in the Federal 
     Register.
       ``(4) Limitations on waivers.--
       ``(A) In general.--The President may not exercise the 
     waiver authority under this subsection with respect to a 
     quantity of an eligible article entered during any calendar 
     year beginning after 1995, the aggregate appraised value of 
     which equals or exceeds 30 percent of the aggregate appraised 
     value of all articles that entered duty-free under this title 
     during the preceding calendar year.
       ``(B) Other waiver limits.--The President may not exercise 
     the waiver authority provided under this subsection with 
     respect to a quantity of an eligible article entered during 
     any calendar year beginning after 1995, the aggregate 
     appraised value of which exceeds 15 percent of the aggregate 
     appraised value of all articles that have entered duty-free 
     under this title during the preceding calendar year from 
     those beneficiary developing countries which for the 
     preceding calendar year--
       ``(i) had a per capita gross national product (calculated 
     on the basis of the best available information, including 
     that of the International Bank for Reconstruction and 
     Development) of $5,000 or more; or
       ``(ii) had exported (either directly or indirectly) to the 
     United States a quantity of articles that was duty-free under 
     this title that had an aggregate appraised value of more than 
     10 percent of the aggregate appraised value of all articles 
     that entered duty-free under this title during that year.
       ``(C) Calculation of limitations.--There shall be counted 
     against the limitations imposed under subparagraphs (A) and 
     (B) for any calendar year only that value of any eligible 
     article of any country that--
       ``(i) entered duty-free under this title during such 
     calendar year; and
       ``(ii) is in excess of the value of that article that would 
     have been so entered during such calendar year if the 
     limitations under subsection (c)(2)(A) applied.
       ``(5) Effective period of waiver.--Any waiver granted under 
     this subsection shall remain in effect until the President 
     determines that such waiver is no longer warranted due to 
     changed circumstances.
       ``(e) International Trade Commission Advice.--Before 
     designating articles as eligible articles under subsection 
     (a)(1), the President shall publish and furnish the 
     International Trade Commission with lists of articles which 
     may be considered for designation as eligible articles for 
     purposes of this title. The provisions of sections 131, 132, 
     133, and 134 shall be complied with as though action under 
     section 501 and this section were action under section 123 to 
     carry out a trade agreement entered into under section 123.
       ``(f) Special Rule Concerning Puerto Rico.--No action under 
     this title may affect any tariff duty imposed by the 
     Legislature of Puerto Rico pursuant to section 319 of the 
     Tariff Act of 1930 on coffee imported into Puerto Rico.

     ``SEC. 504. REVIEW AND REPORTS TO CONGRESS.

       ``The President shall submit an annual report to the 
     Congress on the status of internationally recognized worker 
     rights within each beneficiary developing country.

     ``SEC. 505. DATE OF TERMINATION.

       ``No duty-free treatment provided under this title shall 
     remain in effect after December 31, 1996.

     ``SEC. 506. AGRICULTURAL EXPORTS OF BENEFICIARY DEVELOPING 
                   COUNTRIES.

       ``The appropriate agencies of the United States shall 
     assist beneficiary developing countries to develop and 
     implement measures designed to assure that the agricultural 
     sectors of their economies are not directed to export markets 
     to the detriment of the production of foodstuffs for their 
     citizenry.

     ``SEC. 507. DEFINITIONS.

       ``For purposes of this title:
       ``(1) Beneficiary developing country.--The term 
     `beneficiary developing country' means any country with 
     respect to which there is in effect an Executive order or 
     Presidential proclamation by the President designating such 
     country as a beneficiary developing country for purposes of 
     this title.
       ``(2) Country.--The term `country' means any foreign 
     country or territory, including any overseas dependent 
     territory or possession of a foreign country, or the Trust 
     Territory of the Pacific Islands. In the case of an 
     association of countries which is a free trade area or 
     customs union, or which is contributing to comprehensive 
     regional economic integration among its members through 
     appropriate means, including, but not limited to, the 
     reduction of duties, the President may by Executive order or 
     Presidential proclamation provide that all members of such 
     association other than members which are barred from 
     designation under section 502(b) shall be treated as one 
     country for purposes of this title.
       ``(3) Entered.--The term `entered' means entered, or 
     withdrawn from warehouse for consumption, in the customs 
     territory of the United States.
       ``(4) Internationally recognized worker rights.--The term 
     `internationally recognized worker rights' includes--
       ``(A) the right of association;
       ``(B) the right to organize and bargain collectively;
       ``(C) a prohibition on the use of any form of forced or 
     compulsory labor;
       ``(D) a minimum age for the employment of children; and
       ``(E) acceptable conditions of work with respect to minimum 
     wages, hours of work, and occupational safety and health.
       ``(5) Least-developed beneficiary developing country.--The 
     term `least-developed beneficiary developing country' means a 
     beneficiary developing country that is designated as a least-
     developed beneficiary developing country under section 
     502(a)(2).''.
       (b) Table of Contents.--The items relating to title V in 
     the table of contents of the Trade Act of 1974 are amended to 
     read as follows:

              ``TITLE V--GENERALIZED SYSTEM OF PREFERENCES

``Sec. 501. Authority to extend preferences.
``Sec. 502. Designation of beneficiary developing countries.
``Sec. 503. Designation of eligible articles.
``Sec. 504. Review and reports to Congress.
``Sec. 505. Date of termination.
``Sec. 506. Agricultural exports of beneficiary developing countries.
``Sec. 507. Definitions.''.

     SEC. 11803. RETROACTIVE APPLICATION FOR CERTAIN LIQUIDATIONS 
                   AND RELIQUIDATIONS.

       (a) In General.--Notwithstanding section 514 of the Tariff 
     Act of 1930 or any other provision of law and subject to 
     subsection (b), the entry--
       (1) of any article to which duty-free treatment under title 
     V of the Trade Act of 1974 would have applied if the entry 
     had been made on July 31, 1995, and
       (2) that was made after July 31, 1995, and before the date 
     of the enactment of this Act,
     shall be liquidated or reliquidated as free of duty, and the 
     Secretary of the Treasury shall refund any duty paid with 
     respect to such 

[[Page H 12691]]
     entry. As used in this subsection, the term ``entry'' includes a 
     withdrawal from warehouse for consumption.
       (b) Requests.--Liquidation or reliquidation may be made 
     under subsection (a) with respect to an entry only if a 
     request therefor is filed with the Customs Service, within 
     180 days after the date of the enactment of this Act, that 
     contains sufficient information to enable the Customs 
     Service--
       (1) to locate the entry; or
       (2) to reconstruct the entry if it cannot be located.

     SEC. 11804. CONFORMING AMENDMENTS.

       (a) Trade Laws.--
       (1) Section 1211(b) of the Omnibus Trade and 
     Competitiveness Act of 1988 (19 U.S.C. 3011(b)) is amended--
       (A) in paragraph (1), by striking ``(19 U.S.C. 2463(a), 
     2464(c)(3))'' and inserting ``(as in effect on July 31, 
     1995)''; and
       (B) in paragraph (2), by striking ``(19 U.S.C. 
     2464(c)(1))'' and inserting the following: ``(as in effect on 
     July 31, 1995)''.
       (2) Section 203(c)(7) of the Andean Trade Preference Act 
     (19 U.S.C. 3202(c)(7)) is amended by striking ``502(a)(4)'' 
     and inserting ``507(4)''.
       (3) Section 212(b)(7) of the Caribbean Basin Economic 
     Recovery Act (19 U.S.C. 2702(b)(7)) is amended by striking 
     ``502(a)(4)'' and inserting ``507(4)''.
       (4) General note 3(a)(iv)(C) of the Harmonized Tariff 
     Schedule of the United States is amended by striking 
     ``sections 503(b) and 504(c)'' and inserting ``subsections 
     (a), (c), and (d) of section 503''.
       (5) Section 201(a)(2) of the North American Free Trade 
     Agreement Implementation Act (19 U.S.C. 3331(a)(2)) is 
     amended by striking ``502(a)(2) of the Trade Act of 1974 (19 
     U.S.C. 2462(a)(2))'' and inserting ``502(f)(2) of the Trade 
     Act of 1974''.
       (6) Section 131 of the Uruguay Round Agreements Act (19 
     U.S.C. 3551) is amended in subsections (a) and (b)(1) by 
     striking ``502(a)(4)'' and inserting ``507(4)''.
       (b) Other Laws.--
       (1) Section 871(f)(2)(B) of the Internal Revenue Code of 
     1986 is amended by striking ``within the meaning of section 
     502'' and inserting ``under title V''.
       (2) Section 2202(8) of the Export Enhancement Act of 1988 
     (15 U.S.C. 4711(8)) is amended by striking ``502(a)(4)'' and 
     inserting ``507(4)''.
       (3) Section 231A(a) of the Foreign Assistance Act of 1961 
     (22 U.S.C. 2191a(a)) is amended--
       (A) in paragraph (1) by striking ``502(a)(4) of the Trade 
     Act of 1974 (19 U.S.C. 2462(a)(4))'' and inserting ``507(4) 
     of the Trade Act of 1974'';
       (B) in paragraph (2) by striking ``505(c) of the Trade Act 
     of 1974 (19 U.S.C. 2465(c))'' and inserting ``504 of the 
     Trade Act of 1974''; and
       (C) in paragraph (4) by striking ``502(a)(4)'' and 
     inserting ``507(4)''.
       (4) Section 1621(a)(1) of the International Financial 
     Institutions Act (22 U.S.C. 262p-4p(a)(1)) is amended by 
     striking ``502(a)(4)'' and inserting ``507(4)''.
       (5) Section 103B of the Agricultural Act of 1949 (7 U.S.C. 
     1444-2) is amended in subsections (a)(5)(F)(v) and (n)(1)(C) 
     by striking ``503(d) of the Trade Act of 1974 (19 U.S.C. 
     2463(d))'' and inserting ``503(b)(3) of the Trade Act of 
     1974''.
               Subtitle M--Increase in Public Debt LImit

     SEC. 11901. INCREASE IN PUBLIC DEBT LIMIT.

       Subsection (b) of section 3101 of title 31, United States 
     Code, is amended by striking the dollar amount contained in 
     the first sentence and inserting ``$5,500,000,000,000'' and 
     by striking the second sentence (if any).
  TITLE XII--TEACHING HOSPITALS AND GRADUATE MEDICAL EDUCATION; ASSET 
                  SALES; WELFARE; AND OTHER PROVISIONS

     SEC. 12001. SHORT TITLE.

       Subtitles A through K of this title may be cited as the 
     ``Personal Responsibility and Work Opportunity Act of 1995''.

     SEC. 12002. TABLE OF CONTENTS.

       The table of contents of subtitles A through L of this 
     title is as follows:

Sec. 12001. Short title.
Sec. 12002. Table of contents.

  Subtitle A--Block Grants for Temporary Assistance for Needy Families

Sec. 12100. References to the Social Security Act.
Sec. 12101. Block grants to States.
Sec. 12102. Report on data processing.
Sec. 12103. Conforming amendments to the Social Security Act.
Sec. 12104. Conforming amendments to the Food Stamp Act of 1977 and 
              related provisions.
Sec. 12105. Conforming amendments to other laws.
Sec. 12106. Effective date; transition rule.

                Subtitle B--Supplemental Security Income

Sec. 12200. Reference to Social Security Act.

                  Chapter 1--Eligibility Restrictions

Sec. 12201. Denial of supplemental security income benefits by reason 
              of disability to drug addicts and alcoholics.
Sec. 12202. Denial of SSI benefits for 10 years to individuals found to 
              have fraudulently misrepresented residence in order to 
              obtain benefits simultaneously in 2 or more States.
Sec. 12203. Denial of SSI benefits for fugitive felons and probation 
              and parole violators.

               Chapter 2--Benefits For Disabled Children

Sec. 12211. Definition and eligibility rules.
Sec. 12212. Eligibility redeterminations and continuing disability 
              reviews.
Sec. 12213. Additional accountability requirements.
Sec. 12214. Reduction in cash benefits payable to institutionalized 
              individuals whose medical costs are covered by private 
              insurance.
Sec. 12215. Regulations.

                       Subtitle C--Child Support

Sec. 12300. Reference to Social Security Act.

     Chapter 1--Eligibility For Services; Distribution of Payments

Sec. 12301. State obligation to provide child support enforcement 
              services.
Sec. 12302. Distribution of child support collections.
Sec. 12303. Privacy safeguards.

                  Chapter 2--Locate And Case Tracking

Sec. 12311. State case registry.
Sec. 12312. Collection and disbursement of support payments.
Sec. 12313. State directory of new hires.
Sec. 12314. Amendments concerning income withholding.
Sec. 12315. Locator information from interstate networks.
Sec. 12316. Expansion of the Federal parent locator service.
Sec. 12317. Collection and use of social security numbers for use in 
              child support enforcement.

          Chapter 3--Streamlining And Uniformity of Procedures

Sec. 12321. Adoption of uniform State laws.
Sec. 12322. Improvements to full faith and credit for child support 
              orders.
Sec. 12323. Administrative enforcement in interstate cases.
Sec. 12324. Use of forms in interstate enforcement.
Sec. 12325. State laws providing expedited procedures.

                   Chapter 4--Paternity Establishment

Sec. 12331. State laws concerning paternity establishment.
Sec. 12332. Outreach for voluntary paternity establishment.
Sec. 12333. Cooperation by applicants for and recipients of temporary 
              family assistance.

             Chapter 5--Program Administration and Funding

Sec. 12341. Performance-based incentives and penalties.
Sec. 12342. Federal and State reviews and audits.
Sec. 12343. Required reporting procedures.
Sec. 12344. Automated data processing requirements.
Sec. 12345. Technical assistance.
Sec. 12346. Reports and data collection by the Secretary.

      Chapter 6--Establishment And Modification of Support Orders

Sec. 12351. Simplified process for review and adjustment of child 
              support orders.
Sec. 12352. Furnishing consumer reports for certain purposes relating 
              to child support.
Sec. 12353. Nonliability for financial institutions providing financial 
              records to State child support enforcement agencies in 
              child support cases.

                Chapter 7--Enforcement Of Support Orders

Sec. 12361. Internal Revenue Service collection of arrearages.
Sec. 12362. Authority to collect support from Federal employees.
Sec. 12363. Enforcement of child support obligations of members of the 
              Armed Forces.
Sec. 12364. Voiding of fraudulent transfers.
Sec. 12365. Work requirement for persons owing past-due child support.
Sec. 12366. Definition of support order.
Sec. 12367. Reporting arrearages to credit bureaus.
Sec. 12368. Liens.
Sec. 12369. State law authorizing suspension of licenses.
Sec. 12370. International child support enforcement.
Sec. 12371. Financial institution data matches.
Sec. 12372. Enforcement of orders against paternal or maternal 
              grandparents in cases of minor parents.

                       Chapter 8--Medical Support

Sec. 12376. Correction to ERISA definition of medical child support 
              order.
Sec. 12377. Enforcement of orders for health care coverage.

Chapter 9--Enhancing Responsibility and Opportunity for Non-Residential 
                                Parents

Sec. 12381. Grants to States for access and visitation programs.

                    Chapter 10--Effect of Enactment

Sec. 12391. Effective dates.

     Subtitle D--Restricting Welfare and Public Benefits for Aliens

              Chapter 1--Eligibility For Federal Benefits

Sec. 12401. Aliens who are not qualified aliens ineligible for Federal 
              public benefits.
Sec. 12402. Limited eligibility of certain qualified aliens for certain 
              Federal programs.
Sec. 12403. Five-year limited eligibility of qualified aliens for 
              Federal means-tested public benefit.

       Chapter 2--Attribution Of Income and Affidavits of Support

Sec. 12421. Attribution of sponsor's income and resources to alien.
Sec. 12422. Requirements for sponsor's affidavit of support.
Sec. 12423. Cosignature of alien student loans.

                      Chapter 3-General Provisions

Sec. 12431. Definitions.
Sec. 12432. Reapplication for SSI benefits.
Sec. 12433. Statutory construction.

Subtitle E--Teaching Hospital and Graduate Medical Education Trust Fund

                         Chapter 1--Trust Fund

Sec. 13501. Establishment of Fund; payments to teaching hospitals.

[[Page H 12692]]


               Chapter 2--Amendments to Medicare Program

Sec. 13511. Transfer of funds.

                 Subtitle F--National Defense Stockpile

Sec. 12601. Disposal of certain materials in national defense stockpile 
              for deficit reduction.

 Subtitle G--Child Protection Block Grant Program And Foster Care and 
                          Adoption Assistance

Sec. 12701. Establishment of program.
Sec. 12702. Conforming amendments.
Sec. 12703. Effective date; transition rule.

                         Subtitle H--Child Care

Sec. 12801. Short title and references.
Sec. 12802. Authorization of appropriations.
Sec. 12803. Lead agency.
Sec. 12804. Application and plan.
Sec. 12805. Limitation on State allotments.
Sec. 12806. Activities to improve the quality of child care.
Sec. 12807. Administration and enforcement.
Sec. 12808. Payments.
Sec. 12809. Annual report and audits.
Sec. 12810. Allotments.
Sec. 12811. Definitions.

                  Subtitle I--Child Nutrition Programs

                  Chapter 1--National School Lunch Act

Sec. 12901. Termination of additional payment for lunches served in 
              high free and reduced price participation schools.
Sec. 12902. Direct Federal expenditures.
Sec. 12903. Value of food assistance.
Sec. 12904. Reduced price lunches.
Sec. 12905. Lunches, breakfasts, and supplements.
Sec. 12906. Summer food service program for children.
Sec. 12907. Child care food program.
Sec. 12908. Pilot projects.
Sec. 12909. Information clearinghouse.

                     Chapter 2--Child Nutrition Act

Sec. 12921. Special milk program.
Sec. 12922. Free and reduced price breakfasts.
Sec. 12923. Conforming reimbursement for paid breakfasts and lunches.
Sec. 12924. School breakfast program authorization.
Sec. 12925. Miscellaneous provisions and definitions.
Sec. 12926. Nutrition education and training.

           Subtitle J--Food Stamps and Commodity Distribution

Sec. 13001. Short title.

                     Chapter 1--Food Stamp Program

Sec. 13011. Definition of certification period.
Sec. 13012. Definition of coupon.
Sec. 13013. Treatment of children living at home.
Sec. 13014. Optional additional criteria for separate household 
              determinations.
Sec. 13015. Adjustment of thrifty food plan.
Sec. 13016. Definition of homeless individual.
Sec. 13017. State option for eligibility standards.
Sec. 13018. Earnings of students.
Sec. 13019. Energy assistance.
Sec. 13020. Deductions from income.
Sec. 13021. Vehicle allowance.
Sec. 13022. Vendor payments for transitional housing counted as income.
Sec. 13023. Doubled penalties for violating food stamp program 
              requirements.
Sec. 13024. Disqualification of convicted individuals.
Sec. 13025. Disqualification.
Sec. 13026. Caretaker exemption.
Sec. 13027. Employment and training.
Sec. 13028. Comparable treatment for disqualification.
Sec. 13029. Disqualification for receipt of multiple food stamp 
              benefits.
Sec. 13030. Disqualification of fleeing felons.
Sec. 13031. Cooperation with child support agencies.
Sec. 13032. Disqualification relating to child support arrears.
Sec. 13033. Work requirement.
Sec. 13034. Encourage electronic benefit transfer systems.
Sec. 13035. Value of minimum allotment.
Sec. 13036. Benefits on recertification.
Sec. 13037. Optional combined allotment for expedited households.
Sec. 13038. Failure to comply with other means-tested public assistance 
              programs.
Sec. 13039. Allotments for households residing in centers.
Sec. 13040. Condition precedent for approval of retail food stores and 
              wholesale food concerns.
Sec. 13041. Authority to establish authorization periods.
Sec. 13042. Information for verifying eligibility for authorization.
Sec. 13043. Waiting period for stores that fail to meet authorization 
              criteria.
Sec. 13044. Expedited coupon service.
Sec. 13045. Withdrawing fair hearing requests.
Sec. 13046. Disqualification of retailers who intentionally submit 
              falsified applications.
Sec. 13047. Disqualification of retailers who are disqualified under 
              the WIC program.
Sec. 13048. Collection of overissuances.
Sec. 13049. Authority to suspend stores violating program requirements 
              pending administrative and judicial review.
Sec. 13050. Limitation of Federal match.
Sec. 13051. Work supplementation or support program.
Sec. 13052. Authorization of pilot projects.
Sec. 13053. Employment initiatives program.
Sec. 13054. Reauthorization of Puerto Rico nutrition assistance 
              program.
Sec. 13055. Simplified food stamp program.
Sec. 13056. State food assistance block grant.
Sec. 13057. American Samoa.
Sec. 13058. Assistance for community food projects.

               Chapter 2--Commodity Distribution Programs

Sec. 13071. Emergency food assistance program.

                       Subtitle K--Miscellaneous

Sec. 13101. Food stamp eligibility.
Sec. 13102. Reduction in block grants for social services.

             Subtitle L--Reform of the Earned Income Credit

Sec. 13200. Amendment of 1986 code.
Sec. 13201. Earned income credit denied to individuals not authorized 
              to be employed in the United States.
Sec. 13202. Repeal of earned income credit for individuals without 
              children.
Sec. 13203. Modification of earned income credit amount and phaseout.
Sec. 13204. Rules relating to denial of earned income credit on basis 
              of disqualified income.
Sec. 13205. Modification of adjusted gross income definition for earned 
              income credit.
Sec. 13206. Provisions to improve tax compliance.

                   Subtitle M--Clinical Laboratories

Sec. 13301. Exemption of physician office laboratories.
  Subtitle A--Block Grants for Temporary Assistance for Needy Families

     SEC. 12100. REFERENCES TO THE SOCIAL SECURITY ACT.

       Except as otherwise specifically provided, wherever in this 
     subtitle an amendment is expressed in terms of an amendment 
     to or repeal of a section or other provision, the reference 
     shall be considered to be made to that section or other 
     provision of the Social Security Act.

     SEC. 12101. BLOCK GRANTS TO STATES.

       Part A of title IV (42 U.S.C. 601 et seq.) is amended to 
     read as follows:

  ``PART A--BLOCK GRANTS TO STATES FOR TEMPORARY ASSISTANCE FOR NEEDY 
                                FAMILIES

     ``SEC. 401. ELIGIBLE STATES; STATE PLAN.

       ``(a) In General.--As used in this part, the term `eligible 
     State' means, with respect to a fiscal year, a State that, 
     during the 2-year period immediately preceding the fiscal 
     year, has submitted to the Secretary a plan that includes the 
     following:
       ``(1) Outline of family assistance program.--
       ``(A) General provisions.--A written document that outlines 
     how the State intends to do the following:
       ``(i) Conduct a program, designed to serve all political 
     subdivisions in the State, that provides assistance to needy 
     families with (or expecting) children and provides parents 
     with job preparation, work, and support services to enable 
     them to leave the program and become self-sufficient.
       ``(ii) Require a parent or caretaker receiving assistance 
     under the program to engage in work (as defined by the State) 
     once the State determines the parent or caretaker is ready to 
     engage in work, or once the parent or caretaker has received 
     assistance under the program for 24 months (whether or not 
     consecutive), whichever is earlier.
       ``(iii) Ensure that parents and caretakers receiving 
     assistance under the program engage in work activities in 
     accordance with section 406.
       ``(iv) Take such reasonable steps as the State deems 
     necessary to restrict the use and disclosure of information 
     about individuals and families receiving assistance under the 
     program.
       ``(v) Establish goals and take action to prevent and reduce 
     the incidence of out-of-wedlock pregnancies, with special 
     emphasis on teenage pregnancies, and establish numerical 
     goals for reducing the illegitimacy ratio of the State (as 
     defined in section 402(a)(2)(B)) for calendar years 1996 
     through 2005.
       ``(B) Special provisions.--
       ``(i) The document shall indicate whether the State intends 
     to treat families moving into the State from another State 
     differently than other families under the program, and if so, 
     how the State intends to treat such families under the 
     program.
       ``(ii) The document shall indicate whether the State 
     intends to provide assistance under the program to 
     individuals who are not citizens of the United States, and if 
     so, shall include an overview of such assistance.
       ``(2) Certification that the state will operate a child 
     support enforcement program.--A certification by the chief 
     executive officer of the State that, during the fiscal year, 
     the State will operate a child support enforcement program 
     under the State plan approved under part D.
       ``(3) Certification that the state will operate a child 
     protection program.--A certification by the chief executive 
     officer of the State that, during the fiscal year, the State 
     will operate a child protection program under the State plan 
     approved under part B.
       ``(4) Certification of the administration of the program.--
     A certification by the chief executive officer of the State 
     specifying which State agency or agencies will administer and 
     supervise the program referred to in paragraph (1) for the 
     fiscal year, which shall include assurances that local 
     governments and private sector organizations--
       ``(A) have been consulted regarding the plan and design of 
     welfare services in the State so that services are provided 
     in a manner appropriate to local populations; and
       ``(B) have had at least 60 days to submit comments on the 
     plan and the design of such services.
       ``(5) Certification that the state will provide indians 
     with equitable access to assistance.--A certification by the 
     chief executive officer of the State that, during the fiscal 
     year, 

[[Page H 12693]]
     the State will provide each Indian who is a member of an Indian tribe 
     in the State that does not have a tribal family assistance 
     plan approved under section 411 with equitable access to 
     assistance under the State program funded under this part.
       ``(b) Special Rule for Fiscal Year 1996.--Notwithstanding 
     subsection (a), the term `eligible State' means, with respect 
     to fiscal year 1996, a State that has submitted to the 
     Secretary a plan described in subsection (a) within 3 months 
     after the date of the enactment of this part.
       ``(c) Public Availability of State Plan Summary.--The State 
     shall make available to the public a summary of any plan 
     submitted by the State under this section.

     ``SEC. 402. PAYMENTS TO STATES.

       ``(a) Grants.--
       ``(1) Family assistance grant.--
       ``(A) In general.--Each eligible State shall be entitled to 
     receive from the Secretary, for each of fiscal years 1996, 
     1997, 1998, 1999, and 2000, a grant in an amount equal to the 
     State family assistance grant. The payment of these grants to 
     States shall not be deemed to entitle any individual or 
     family to any assistance under any State program funded under 
     this part.
       ``(B) State family assistance grant defined.--As used in 
     this part, the term `State family assistance grant' means the 
     greatest of--
       ``(i) \1/3\ of the total amount required to be paid to the 
     State under section 403 of this title (as in effect on 
     September 30, 1995) for fiscal years 1992, 1993, and 1994 
     (other than with respect to amounts expended by the State for 
     child care under subsection (g) or (i) of section 402 (as so 
     in effect));
       ``(ii) the total amount required to be paid to the State 
     under such section 403 for fiscal year 1994 (other than with 
     respect to amounts expended by the State for child care under 
     subsection (g) or (i) of section 402 (as so in effect)); or
       ``(iii) \4/3\ of the total amount required to be paid to 
     the State under such section 403 for the 1st 3 quarters of 
     fiscal year 1995 (other than with respect to amounts expended 
     by the State under the State plan approved under part F (as 
     so in effect) or for child care under subsection (g) or (i) 
     of section 402 (as so in effect)), plus the total amount 
     required to be paid to the State for fiscal year 1995 under 
     section 403(l) (as so in effect).
       ``(2) Grant to reward states that reduce out-of-wedlock 
     births.--
       ``(A) In general.--In addition to any grant under paragraph 
     (1), each eligible State shall be entitled to receive from 
     the Secretary for fiscal year 1998 or any succeeding fiscal 
     year, a grant in an amount equal to the State family 
     assistance grant multiplied by--
       ``(i) 5 percent if--

       ``(I) the illegitimacy ratio of the State for the fiscal 
     year is at least 1 percentage point lower than the 
     illegitimacy ratio of the State for fiscal year 1995; and
       ``(II) the rate of induced pregnancy terminations in the 
     State for the fiscal year is less than the rate of induced 
     pregnancy terminations in the State for fiscal year 1995; or

       ``(ii) 10 percent--

       ``(I) if the illegitimacy ratio of the State for the fiscal 
     year is at least 2 percentage points lower than the 
     illegitimacy ratio of the State for fiscal year 1995; and
       ``(II) the rate of induced pregnancy terminations in the 
     State for the fiscal year is less than the rate of induced 
     pregnancy terminations in the State for fiscal year 1995.

       ``(B) Illegitimacy ratio.--As used in this paragraph, the 
     term `illegitimacy ratio' means, with respect to a State and 
     a fiscal year--
       ``(i) the number of out-of-wedlock births that occurred in 
     the State during the most recent fiscal year for which such 
     information is available; divided by
       ``(ii) the number of births that occurred in the State 
     during the most recent fiscal year for which such information 
     is available.
       ``(C) Disregard of changes in data due to changed reporting 
     methods.--For purposes of subparagraph (A), the Secretary 
     shall disregard--
       ``(i) any difference between the illegitimacy ratio of a 
     State for a fiscal year and the illegitimacy ratio of the 
     State for fiscal year 1995 which is attributable to a change 
     in State methods of reporting data used to calculate the 
     illegitimacy ratio; and
       ``(ii) any difference between the rate of induced pregnancy 
     terminations in a State for a fiscal year and such rate for 
     fiscal year 1995 which is attributable to a change in State 
     methods of reporting data used to calculate such rate.
       ``(3) Supplemental grant for population increases in 
     certain states.--
       ``(A) In general.--In addition to any grant under paragraph 
     (1), each qualifying State shall, subject to subparagraph 
     (E), be entitled to receive from the Secretary for each of 
     fiscal years 1997, 1998, 1999, and 2000, a grant in an amount 
     equal to the sum of--
       ``(i) the amount (if any) required to be paid to the State 
     under this paragraph for the immediately preceding fiscal 
     year; and
       ``(ii) 2.5 percent of the sum of--

       ``(I) the total amount required to be paid to the State 
     under part A (as in effect during fiscal year 1994) for 
     fiscal year 1994; and
       ``(II) the amount (if any) required to be paid to the State 
     under this paragraph for the fiscal year preceding the fiscal 
     year specified in the matter preceding clause (i).

       ``(B) Qualifying state.--
       ``(i) In general.--For purposes of this paragraph, a State 
     is a qualifying State for a fiscal year if--

       ``(I) the level of welfare spending per poor person by the 
     State for the immediately preceding fiscal year is less than 
     the national average level of State welfare spending per poor 
     person for such preceding fiscal year; and
       ``(II) the population growth rate of the State (as 
     determined by the Bureau of the Census for the most recent 
     fiscal year for which information is available exceeds the 
     average population growth rate for all States (as so 
     determined) for such most recent fiscal year.

       ``(ii) State must qualify in fiscal year 1997.--
     Notwithstanding clause (i), a State shall not be a qualifying 
     State for any fiscal year after 1997 by reason of clause (i) 
     if the State is not a qualifying State for fiscal year 1997 
     by reason of clause (i).
       ``(iii) Certain states deemed qualifying states.--For 
     purposes of this paragraph, a State is deemed to be a 
     qualifying State for fiscal years 1997, 1998, 1999, and 2000 
     if--

       ``(I) the level of welfare spending per poor person by the 
     State for fiscal year 1996 is less than 35 percent of the 
     national average level of State welfare spending per poor 
     person for fiscal year 1996; or
       ``(II) the population of the State increased by more than 
     10 percent from April 1, 1990 to July 1, 1994, as determined 
     by the Bureau of the Census.

       ``(C) Definitions.--As used in this paragraph:
       ``(i) Level of welfare spending per poor person.--The term 
     `level of State welfare spending per poor person' means, with 
     respect to a State and a fiscal year--

       ``(I) the sum of--

       ``(aa) the total amount required to be paid to the State 
     under part A (as in effect during fiscal year 1994) for 
     fiscal year 1994; and
       ``(bb) the amount (if any) paid to the State under this 
     paragraph for the immediately preceding fiscal year; divided 
     by

       ``(II) the number of individuals, according to the 1990 
     decennial census, who were residents of the State and whose 
     income was below the poverty line.

       ``(ii) National average level of state welfare spending per 
     poor person.--The term `national average level of State 
     welfare spending per poor person' means, with respect to a 
     fiscal year, an amount equal to--

       ``(I) the total amount required to be paid to the States 
     under part A (as in effect during fiscal year 1994) for 
     fiscal year 1994; divided by
       ``(II) the number of individuals, according to the 1990 
     decennial census, who were residents of any State and whose 
     income was below the poverty line.

       ``(iii) State.--The term `State' means each of the 50 
     States of the United States and the District of Columbia.
       ``(D) Appropriation.--Out of any money in the Treasury of 
     the United States not otherwise appropriated, there are 
     appropriated 1996, 1997, 1998, 1999, and 2000 such sums as 
     are necessary for grants under this paragraph, in a total 
     amount not to exceed $800,000,000.
       ``(E) Grants reduced pro rata if insufficient 
     appropriations.--If the amount appropriated pursuant to this 
     paragraph for a fiscal year is less than the total amount of 
     payments otherwise required to be made under this paragraph 
     for the fiscal year, then the amount otherwise payable to 
     each qualifying State for the fiscal year under this 
     paragraph shall be reduced by a percentage equal to the 
     amount so appropriated divided by such total amount.
       ``(b) Contingency Fund.--
       ``(1) Establishment.--There is hereby established in the 
     Treasury of the United States a fund which shall be known as 
     the `Contingency Fund for State Welfare Programs' (in this 
     section referred to as the `Fund').
       ``(2) Deposits into fund.--Out of any money in the Treasury 
     of the United States not otherwise appropriated, there are 
     appropriated for fiscal years 1996, 1997, 1998, 1999, and 
     2000 such sums as are necessary for payment to the Fund in a 
     total amount not to exceed $800,000,000.
       ``(3) Computation of grant.--
       ``(A) In general.--Subject to subparagraph (B), the 
     Secretary of the Treasury shall pay to each eligible State 
     for a fiscal year an amount equal to the Federal medical 
     assistance percentage for the State for the fiscal year (as 
     defined in section 1905(b), as in effect on the date of the 
     enactment of this part) of so much of the expenditures by the 
     State in the fiscal year under the State program funded under 
     this part as exceed the historic State expenditures (as 
     defined in section 408(a)(7)(B)(iii)) for the State.
       ``(B) Limitation.--The total amount paid to a State under 
     subparagraph (A) for any fiscal year shall not exceed an 
     amount equal to 20 percent of the State family assistance 
     grant for the fiscal year.
       ``(C) Method of reconciliation.--If, at the end of any 
     fiscal year, the Secretary finds that a State to which 
     amounts from the Fund were paid in the fiscal year did not 
     meet the maintenance of effort requirement under paragraph 
     (4)(B) for the fiscal year, the Secretary shall reduce the 
     grant payable to the State under subsection (a)(1) for the 
     immediately succeeding fiscal year by such amounts.
       ``(4) Eligible state.--
       ``(A) In general.--For purposes of this subsection, a State 
     is an eligible State for a fiscal year, if--
       ``(i)(I) the average rate of total unemployment in such 
     State (seasonally adjusted) for the period consisting of the 
     most recent 3 months for which data for all States are 
     published equals or exceeds 6.5 percent; and
       ``(II) the average rate of total unemployment in such State 
     (seasonally adjusted) for the 3-month period equals or 
     exceeds 110 percent of such average rate for either (or both) 
     of the corresponding 3-month periods ending in the 2 
     preceding calendar years; and
       ``(ii) has met the maintenance of effort requirement under 
     subparagraph (B) for the State program funded under this part 
     for the fiscal year.
       ``(B) Maintenance of effort.--The maintenance of effort 
     requirement for any State under 

[[Page H 12694]]
     this subparagraph for any fiscal year is the expenditure by the State 
     during the fiscal year of an amount at least equal to 100 
     percent of the level of historic State expenditures for the 
     State (as determined under section 408(e)).
       ``(5) State.--As used in this subsection, the term `State' 
     means each of the 50 States of the United States and the 
     District of Columbia.
       ``(c) Condition of Grant.--
       ``(1) In general.--Notwithstanding any other provision of 
     this section, as a condition of receiving a grant under this 
     section, a State shall not provide cash assistance to a 
     family that includes an adult who has received assistance 
     under any State program funded under this part for 60 months 
     (whether or not consecutive) after September 30, 1995, except 
     as provided in paragraphs (2) and (3).
       ``(2) Minor child exception.--In determining the number of 
     months for which an individual who is a parent or pregnant, 
     as the case may be, has received assistance under the State 
     program funded under this part, there shall be disregarded 
     any month for which such assistance was provided with respect 
     to the individual and throughout which the individual was--
       ``(A) a minor child; and
       ``(B) not the head of a household or married to the head of 
     a household.
       ``(3) Hardship exception.--
       ``(A) In general.--The State may exempt a family from the 
     application of paragraph (1) by reason of hardship or if the 
     family includes an individual who has been battered or 
     subjected to extreme cruelty.
       ``(B) Limitation.--The number of families with respect to 
     which an exemption made by a State under subparagraph (A) is 
     in effect for a fiscal year shall not exceed 15 percent of 
     the average monthly number of families to which the State is 
     providing assistance under the program funded under this 
     part.
       ``(C) Battered or subject to extreme cruelty defined.--For 
     purposes of subparagraph (A), an individual has been battered 
     or subjected to extreme cruelty if the individual has been 
     subjected to--
       ``(i) physical acts that resulted in, or threatened to 
     result in, physical injury to the individual;
       ``(ii) sexual abuse;
       ``(iii) sexual activity involving a dependent child;
       ``(iv) being forced as the caretaker relative of a 
     dependent child to engage in nonconsensual sexual acts or 
     activities;
       ``(v) threats of, or attempts at, physical or sexual abuse;
       ``(vi) mental abuse; or
       ``(vii) neglect or deprivation of medical care.
       ``(4) Rule of interpretation.--Paragraph (1) shall not be 
     interpreted to require any State to provide assistance to any 
     individual for any period of time under the State program 
     funded under this part.

     ``SEC. 403. USE OF GRANTS.

       ``(a) General Rules.--Subject to this part, a State to 
     which a grant is made under section 402 may use the grant--
       ``(1) in any manner that is reasonably calculated to 
     increase the flexibility of States in operating a program 
     designed to--
       ``(A) provide assistance to needy families so that children 
     may be cared for in their own homes or in the homes of 
     relatives;
       ``(B) end the dependence of needy parents on government 
     benefits by promoting job preparation, work, and marriage;
       ``(C) prevent and reduce the incidence of out-of-wedlock 
     pregnancies and establish annual numerical goals for 
     preventing and reducing the incidence of these pregnancies; 
     and
       ``(D) encourage the formation and maintenance of two-parent 
     families; and
       ``(2) in any manner that the State was authorized to use 
     amounts received under part A or F of this title, as such 
     parts were in effect on September 30, 1995.
       ``(b) Limitation on Use of Grant for Administrative 
     Purposes.--
       ``(1) Limitation.--A State to which a grant is made under 
     section 402 shall not expend more than 15 percent of the 
     grant for administrative purposes.
       ``(2) Exception.--Paragraph (1) shall not apply to the use 
     of a grant for information technology and computerization 
     needed for tracking or monitoring required by or under this 
     part.
       ``(c) Authority to Use Portion of Grant for Other 
     Purposes.--
       ``(1) In general.--A State may use not more than 30 percent 
     of the amount of the grant made to the State under section 
     402 for a fiscal year to carry out a State program pursuant 
     to any or all of the following provisions of law:
       ``(A) Part B of this title.
       ``(B) Title XX of this Act.
       ``(C) The Child Care and Development Block Grant Act of 
     1990.
       ``(2) Applicable rules.--Any amount paid to the State under 
     this part that is used to carry out a State program pursuant 
     to a provision of law specified in paragraph (1) shall not be 
     subject to the requirements of this part, but shall be 
     subject to the requirements that apply to Federal funds 
     provided directly under the provision of law to carry out the 
     program.
       ``(d) Authority to Reserve Certain Amounts for 
     Assistance.--A State may reserve amounts paid to the State 
     under this part for any fiscal year for the purpose of 
     providing, without fiscal year limitation, assistance under 
     the State program funded under this part.
       ``(e) Authority to Operate Employment Placement Program.--A 
     State to which a grant is made under section 402 may use the 
     grant to make payments (or provide job placement vouchers) to 
     State-approved public and private job placement agencies that 
     provide employment placement services to individuals who 
     receive assistance under the State program funded under this 
     part.
       ``(f) Implementation of Electronic Benefit Transfer 
     System.--A State to which a grant is made under section 402 
     is encouraged to implement an electronic benefit transfer 
     system for providing assistance under the State program 
     funded under this part, and may use the grant for such 
     purpose.

     ``SEC. 404. ADMINISTRATIVE PROVISIONS.

       ``(a) Quarterly.--The Secretary shall pay each grant 
     payable to a State under section 402 in quarterly 
     installments.
       ``(b) Notification.--Not later than 3 months before the 
     payment of any such quarterly installment to a State, the 
     Secretary shall notify the State of the amount of any 
     reduction determined under section 411(a)(1)(B) with respect 
     to the State.
       ``(c) Computation and Certification of Payments to 
     States.--
       ``(1) Computation.--The Secretary shall estimate the amount 
     to be paid to each eligible State for each quarter under this 
     part, such estimate to be based on a report filed by the 
     State containing an estimate by the State of the total sum to 
     be expended by the State in the quarter under the State 
     program funded under this part and such other information as 
     the Secretary may find necessary.
       ``(2) Certification.--The Secretary of Health and Human 
     Services shall certify to the Secretary of the Treasury the 
     amount estimated by the Secretary under paragraph (1) with 
     respect to a State.
       ``(d) Payment Method.--Upon receipt of a certification 
     under subsection (c)(2) with respect to a State, the 
     Secretary of the Treasury shall, through the Fiscal Service 
     of the Department of the Treasury and before audit or 
     settlement by the General Accounting Office, pay to the 
     State, at the time or times fixed by the Secretary of Health 
     and Human Services, the amount so certified.

     ``SEC. 405. FEDERAL LOANS FOR STATE WELFARE PROGRAMS.

       ``(a) Loan Authority.--
       ``(1) In general.--The Secretary shall make loans to any 
     loan-eligible State, for a period to maturity of not more 
     than 3 years.
       ``(2) Loan-eligible state.--As used in paragraph (1), the 
     term `loan-eligible State' means a State against which a 
     penalty has not been imposed under section 408(a)(1) at any 
     time before the loan is to be made.
       ``(b) Rate of Interest.--The Secretary shall charge and 
     collect interest on any loan made under this section at a 
     rate equal to the current average market yield on outstanding 
     marketable obligations of the United States with remaining 
     periods to maturity comparable to the period to maturity of 
     the loan.
       ``(c) Use of Loan.--A State shall use a loan made to the 
     State under this section only for any purpose for which grant 
     amounts received by the State under section 402(a) may be 
     used including--
       ``(1) welfare anti-fraud activities; and
       ``(2) the provision of assistance under the State program 
     to Indian families that have moved from the service area of 
     an Indian tribe with a tribal family assistance plan approved 
     under section 411.
       ``(d) Limitation on Total Amount of Loans to a State.--The 
     cumulative dollar amount of all loans made to a State under 
     this section during fiscal years 1996 through 2000 shall not 
     exceed 10 percent of the State family assistance grant.
       ``(e) Limitation on Total Amount of Outstanding Loans.--The 
     total dollar amount of loans outstanding under this section 
     may not exceed $1,700,000,000.
       ``(f) Appropriation.--Out of any money in the Treasury of 
     the United States not otherwise appropriated, there are 
     appropriated such sums as may be necessary for the cost of 
     loans under this section.

     ``SEC. 406. MANDATORY WORK REQUIREMENTS.

       ``(a) Participation Rate Requirements.--
       ``(1) All families.--A State to which a grant is made under 
     section 402 for a fiscal year shall achieve the minimum 
     participation rate specified in the following table for the 
     fiscal year with respect to all families receiving assistance 
     under the State program funded under this part:

                                                            The minimum
                                                          participation
      ``If the fiscal year is:                                 rate is:
        1996......................................................15   
        1997......................................................20   
        1998......................................................25   
        1999......................................................30   
        2000......................................................35   
        2001......................................................40   
        2002 or thereafter........................................50.  
       ``(2) 2-parent families.--A State to which a grant is made 
     under section 402 for a fiscal year shall achieve the minimum 
     participation rate specified in the following table for the 
     fiscal year with respect to 2-parent families receiving 
     assistance under the State program funded under this part:

                                                            The minimum
                                                          participation
      ``If the fiscal year is:                                 rate is:
        1996......................................................50   
        1997......................................................75   
        1998......................................................75   
        1999 or thereafter........................................90.  
       ``(b) Calculation of Participation Rates.--
       ``(1) All families.--
       ``(A) Average monthly rate.--For purposes of subsection 
     (a)(1), the participation rate for all families of a State 
     for a fiscal year is the average of the participation rates 
     for all families of the State for each month in the fiscal 
     year.
       ``(B) Monthly participation rates.--The participation rate 
     of a State for all families of the State for a month, 
     expressed as a percentage, is--
       ``(i) the number of families receiving assistance under the 
     State program funded under this 

[[Page H 12695]]
     part that include an adult who is engaged in work for the month; 
     divided by
       ``(ii) the amount by which--

       ``(I) the number of families receiving such assistance 
     during the month that include an adult receiving such 
     assistance; exceeds
       ``(II) the number of families receiving such assistance 
     that are subject in such month to a reduction or termination 
     of assistance pursuant to section 408(a)(2) but have not been 
     subject to such penalty for more than 3 months within the 
     preceding 12-month period (whether or not consecutive).

       ``(2) 2-parent families.--
       ``(A) Average monthly rate.--For purposes of subsection 
     (a)(2), the participation rate for 2-parent families of a 
     State for a fiscal year is the average of the participation 
     rates for 2-parent families of the State for each month in 
     the fiscal year.
       ``(B) Monthly participation rates.--The participation rate 
     of a State for 2-parent families of the State for a month 
     shall be calculated by use of the formula set forth in 
     paragraph (1)(B), except that in the formula the term `number 
     of 2-parent families' shall be substituted for the term 
     `number of families' each place such latter term appears.
       ``(3) Pro rata reduction of participation rate due to 
     caseload reductions not required by federal law.--
       ``(A) In general.--The Secretary shall prescribe 
     regulations for reducing the minimum participation rate 
     otherwise required by this section for a fiscal year by the 
     number of percentage points equal to the number of percentage 
     points (if any) by which--
       ``(i) the number of families receiving assistance during 
     the fiscal year under the State program funded under this 
     part is less than
       ``(ii) the number of families that received aid under the 
     State plan approved under part A of this title (as in effect 
     on September 30, 1995) during the fiscal year immediately 
     preceding such effective date.
     The minimum participation rate shall not be reduced to the 
     extent that the Secretary determines that the reduction in 
     the number of families receiving such assistance is required 
     by Federal law.
       ``(B) Eligibility changes not counted.--The regulations 
     described in subparagraph (A) shall not take into account 
     families that are diverted from a State program funded under 
     this part as a result of differences in eligibility criteria 
     under a State program funded under this part and eligibility 
     criteria under such State's plan under the aid to families 
     with dependent children program, as such plan was in effect 
     on the day before the date of the enactment of the Personal 
     Responsibility and Work Opportunity Act of 1995. Such 
     regulations shall place the burden on the Secretary to prove 
     that such families were diverted as a direct result of 
     differences in such eligibility criteria.
       ``(4) State option to include individuals receiving 
     assistance under a tribal family assistance plan.--For 
     purposes of paragraphs (1)(B) and (2)(B), a State may, at its 
     option, include families receiving assistance under a tribal 
     family assistance plan approved under section 411.
       ``(c) Engaged in Work.--
       ``(1) All families.--For purposes of subsection 
     (b)(1)(B)(i), a recipient is engaged in work for a month in a 
     fiscal year if the recipient is participating in such 
     activities for at least the minimum average number of hours 
     per week specified in the following table during the month, 
     not fewer than 20 hours per week of which are attributable to 
     an activity described in paragraph (1), (2), (3), (4), (5), 
     (7), or (8) of subsection (d) (or, in the case of the first 4 
     weeks for which the recipient is required under this section 
     to participate in work activities, an activity described in 
     subsection (d)(6)):

                                                            The minimum
         ``If the month is                            average number of
           in fiscal year:                           hours per week is:
           1996...................................................20   
           1997...................................................20   
           1998...................................................20   
           1999...............................................25   

           2000...................................................30   
           2001...................................................30   
           2002...................................................35   
           2003 or thereafter.....................................35.  
       ``(2) 2-parent families.--For purposes of subsection 
     (b)(2)(B)(i), an adult is engaged in work for a month in a 
     fiscal year if the adult is making progress in such 
     activities for at least 35 hours per week during the month, 
     not fewer than 30 hours per week of which are attributable to 
     an activity described in paragraph (1), (2), (3), (4), (5), 
     (7), or (8) of subsection (d) (or, in the case of the first 4 
     weeks for which the recipient is required under this section 
     to participate in work activities, an activity described in 
     subsection (d)(6)).
       ``(3) Limitation on vocational education activities counted 
     as work.--For purposes of determining monthly participation 
     rates under paragraphs (1)(B)(i) and (2)(B)(i) of subsection 
     (b), not more than 20 percent of adults in all families and 
     in 2-parent families determined to be engaged in work in the 
     State for a month may meet the work activity requirement 
     through participation in vocational educational training.
       ``(d) Work Activities Defined.--As used in this section, 
     the term `work activities' means--
       ``(1) unsubsidized employment;
       ``(2) subsidized private sector employment;
       ``(3) subsidized public sector employment;
       ``(4) work experience (including work associated with the 
     refurbishing of publicly assisted housing) if sufficient 
     private sector employment is not available;
       ``(5) on-the-job training;
       ``(6) job search and job readiness assistance;
       ``(7) community service programs;
       ``(8) vocational educational training (not to exceed 12 
     months with respect to any individual);
       ``(9) job skills training directly related to employment;
       ``(10) education directly related to employment, in the 
     case of a recipient who has not attained 20 years of age, and 
     has not received a high school diploma or a certificate of 
     high school equivalency; and
       ``(11) satisfactory attendance at secondary school, in the 
     case of a recipient who--
       ``(A) has not completed secondary school; and
       ``(B) is a dependent child, or a head of household who has 
     not attained 20 years of age.

     ``SEC. 407. PROHIBITIONS.

       ``(a) In General.--
       ``(1) No assistance for families without a minor child.--A 
     State to which a grant is made under section 402 may not use 
     any part of the grant to provide assistance to a family, 
     unless the family includes--
       ``(A) a minor child who resides with a custodial parent or 
     other adult caretaker relative of the child; or
       ``(B) a pregnant individual.
       ``(2) Reduced assistance for family if adult refuses to 
     work.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     a State to which a grant is made under section 402 may not 
     fail to--
       ``(i) reduce the amount of assistance otherwise payable to 
     a family receiving assistance under the State program funded 
     under this part, pro rata (or more, at the option of the 
     State) with respect to any period during a month in which an 
     adult member of the family refuses to engage in work required 
     in accordance with this section; or
       ``(ii) terminate such assistance,
     subject to such good cause and other exceptions as the State 
     may establish.
       ``(B) Exception.--Notwithstanding subparagraph (A), a State 
     may not reduce or terminate assistance under the State 
     program funded under this part based on a refusal of an adult 
     to work if the adult is a single custodial parent caring for 
     a child who has not attained 6 years of age, and the adult 
     proves that the adult has a demonstrated inability (as 
     determined by the State) to obtain needed child care, for 1 
     or more of the following reasons:
       ``(i) Unavailability of appropriate child care within a 
     reasonable distance from the individual's home or work site.
       ``(ii) Unavailability or unsuitability of informal child 
     care by a relative or under other arrangements.
       ``(iii) Unavailability of appropriate and affordable formal 
     child care arrangements.
       ``(3) Reduction or elimination of assistance for 
     noncooperation in child support.--If the agency responsible 
     for administering the State plan approved under part D 
     determines that an individual is not cooperating with the 
     State in establishing, modifying, or enforcing a support 
     order with respect to a child of the individual, then the 
     State--
       ``(A) shall deduct from the assistance that would otherwise 
     be provided to the family of the individual under the State 
     program funded under this part the share of such assistance 
     attributable to the individual; and
       ``(B) may deny the family any assistance under the State 
     program.
       ``(4) No assistance for families not assigning certain 
     support rights to the state.--
       ``(A) In general.--A State to which a grant is made under 
     section 402 may not fail to require, as a condition of 
     providing assistance to a family under the State program 
     funded under this part, that a member of the family assign to 
     the State any rights the family member may have (on behalf of 
     the family member or of any other person for whom the family 
     member has applied for or is receiving such assistance) to 
     support from any other person, not exceeding the total amount 
     of assistance so provided to the family, which accrue (or 
     have accrued) before the date the family leaves the program, 
     which assignment, on and after the date the the family leaves 
     the program, shall not apply with respect to--
       ``(i) if the assignment occurs on or after October 1, 1997, 
     and before October 1, 2000, any support (other than support 
     collected pursuant to section 464) which accrued before the 
     family received such assistance and which the State has not 
     collected by September 30, 2000; or
       ``(II) if the assignment occurs on or after October 1, 
     2000, any support (other than support collected pursuant to 
     section 464) which accrued before the family received such 
     assistance and which the State has not collected by the date 
     the family leaves the program.
       ``(B) Limitation.--A State to which a grant is made under 
     section 402 may not require, as a condition of providing 
     assistance to any family under the State program funded under 
     this part, that a member of the family assign to the State 
     any rights to support described in subparagraph (A) which 
     accrue after the date the family leaves the program.
       ``(5) No assistance for teenage parents who do not attend 
     high school or other equivalent training program.--A State to 
     which a grant is made under section 402 may not use any part 
     of the grant to provide assistance to an individual who has 
     not attained 18 years of age, is not married, has a minor 
     child at least 12 weeks of age in his or her care, and has 
     not successfully completed a high-school education (or its 
     equivalent), if the individual does not participate in--
       ``(A) educational activities directed toward the attainment 
     of a high school diploma or its equivalent; or
       ``(B) an alternative educational or training program that 
     has been approved by the State.
       ``(6) No assistance for teenage parents not living in 
     adult-supervised settings.--

[[Page H 12696]]

       ``(A) In general.--
       ``(i) Requirement.--Except as provided in subparagraph (B), 
     a State to which a grant is made under section 402 may not 
     use any part of the grant to provide assistance to an 
     individual described in clause (ii) of this subparagraph if 
     the individual and the minor child referred to in clause 
     (ii)(II) do not reside in a place of residence maintained by 
     a parent, legal guardian, or other adult relative of the 
     individual as such parent's, guardian's, or adult relative's 
     own home.
       ``(ii) Individual described.-- For purposes of clause (i), 
     an individual described in this clause is an individual who--

       ``(I) has not attained 18 years of age; and
       ``(II) is not married, and has a minor child in his or her 
     care.

       ``(B) Exception.--
       ``(i) Provision of, or assistance in locating, adult-
     supervised living arrangement.--In the case of an individual 
     who is described in clause (ii), the State agency referred to 
     in section 401(a)(4) shall provide, or assist the individual 
     in locating, a second chance home, maternity home, or other 
     appropriate adult-supervised supportive living arrangement, 
     taking into consideration the needs and concerns of the 
     individual, unless the State agency determines that the 
     individual's current living arrangement is appropriate, and 
     thereafter shall require that the individual and the minor 
     child referred to in subparagraph (A)(ii)(II) reside in such 
     living arrangement as a condition of the continued receipt of 
     assistance under the State program funded under this part (or 
     in an alternative appropriate arrangement, should 
     circumstances change and the current arrangement cease to be 
     appropriate).
       ``(ii) Individual described.--For purposes of clause (i), 
     an individual is described in this clause if the individual 
     is described in subparagraph (A)(ii), and--

       ``(I) the individual has no parent, legal guardian or other 
     appropriate adult relative described in subclause (II) of his 
     or her own who is living or whose whereabouts are known;
       ``(II) no living parent, legal guardian, or other 
     appropriate adult relative, who would otherwise meet 
     applicable State criteria to act as the individual's legal 
     guardian, of such individual allows the individual to live in 
     the home of such parent, guardian, or relative;
       ``(III) the State agency determines that--

       ``(aa) the individual or the minor child referred to in 
     subparagraph (A)(ii)(II) is being or has been subjected to 
     serious physical or emotional harm, sexual abuse, or 
     exploitation in the residence of the individual's own parent 
     or legal guardian; or
       ``(bb) substantial evidence exists of an act or failure to 
     act that presents an imminent or serious harm if the 
     individual and the minor child lived in the same residence 
     with the individual's own parent or legal guardian; or

       ``(IV) the State agency otherwise determines that it is in 
     the best interest of the minor child to waive the requirement 
     of subparagraph (A) with respect to the individual or the 
     minor child.

       ``(iii) Second-chance home.--For purposes of this 
     subparagraph, the term `second-chance home' means an entity 
     that provides individuals described in clause (ii) with a 
     supportive and supervised living arrangement in which such 
     individuals are required to learn parenting skills, including 
     child development, family budgeting, health and nutrition, 
     and other skills to promote their long-term economic 
     independence and the well-being of their children.
       ``(7) No medical services.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     a State to which a grant is made under section 402 may not 
     use any part of the grant to provide medical services.
       ``(B) Exception for family planning services.--As used in 
     subparagraph (A), the term `medical services' does not 
     include family planning services.
       ``(8) Denial of assistance for 10 years to a person found 
     to have fraudulently misrepresented residence in order to 
     obtain assistance in 2 or more states.--a State to which a 
     grant is made under section 402 may not use any part of the 
     grant to provide cash assistance to an individual during the 
     10-year period that begins on the date the individual is 
     convicted in Federal or State court of having made a 
     fraudulent statement or representation with respect to the 
     place of residence of the individual in order to receive 
     assistance simultaneously from 2 or more States under 
     programs that are funded under this title, title XIX, or the 
     Food Stamp Act of 1977, or benefits in 2 or more States under 
     the supplemental security income program under title XVI.
       ``(9) Denial of assistance for fugitive felons and 
     probation and parole violators.--
       ``(A) In general.--A State to which a grant is made under 
     section 402 may not use any part of the grant to provide 
     assistance to any individual who is--
       ``(i) fleeing to avoid prosecution, or custody or 
     confinement after conviction, under the laws of the place 
     from which the individual flees, for a crime, or an attempt 
     to commit a crime, which is a felony under the laws of the 
     place from which the individual flees, or which, in the case 
     of the State of New Jersey, is a high misdemeanor under the 
     laws of such State; or
       ``(ii) violating a condition of probation or parole imposed 
     under Federal or State law.
       ``(B) Exchange of information with law enforcement 
     agencies.--If a State to which a grant is made under section 
     402 establishes safeguards against the use or disclosure of 
     information about applicants or recipients of assistance 
     under the State program funded under this part, the 
     safeguards shall not prevent the State agency administering 
     the program from furnishing a Federal, State, or local law 
     enforcement officer, upon the request of the officer, with 
     the current address of any recipient if the officer furnishes 
     the agency with the name of the recipient and notifies the 
     agency that--
       ``(i) such recipient--

       ``(I) is fleeing to avoid prosecution, or custody or 
     confinement after conviction, under the laws of the place 
     from which the recipient flees, for a crime, or an attempt to 
     commit a crime, which is a felony under the laws of the place 
     from which the recipient flees, or which, in the case of the 
     State of New Jersey, is a high misdemeanor under the laws of 
     such State;
       ``(II) is violating a condition of probation or parole 
     imposed under Federal or State law; or
       ``(III) has information that is necessary for the officer 
     to conduct the official duties of the officer; and

       ``(ii) the location or apprehension of the recipient is 
     within such official duties.
       ``(10) Denial of assistance for minor children who are 
     absent from the home for a significant period.--
       ``(A) In general.--A State to which a grant is made under 
     section 402 may not use any part of the grant to provide 
     assistance for a minor child who has been, or is expected by 
     a parent (or other caretaker relative) of the child to be, 
     absent from the home for a period of 45 consecutive days or, 
     at the option of the State, such period of not less than 30 
     and not more than 90 consecutive days as the State may 
     provide for in the State plan submitted pursuant to section 
     401.
       ``(B) State authority to establish good cause exceptions.--
     The State may establish such good cause exceptions to 
     subparagraph (A) as the State considers appropriate if such 
     exceptions are provided for in the State plan submitted 
     pursuant to section 401.
       ``(C) Denial of assistance for relative who fails to notify 
     state agency of absence of child.--A State to which a grant 
     is made under section 402 may not use any part of the grant 
     to provide assistance for an individual who is a parent (or 
     other caretaker relative) of a minor child and who fails to 
     notify the agency administering the State program funded 
     under this part, of the absence of the minor child from the 
     home for the period specified in or provided for under 
     subparagraph (A), by the end of the 5-day period that begins 
     with the date that it becomes clear to the parent (or 
     relative) that the minor child will be absent for such period 
     so specified or provided for.
       ``(11) Income security payments not to be disregarded in 
     determining the amount of assistance to be provided to a 
     family.--If a State to which a grant is made under section 
     402 uses any part of the grant to provide assistance for any 
     individual who is receiving a payment under a State plan for 
     old-age assistance approved under section 2, a State program 
     funded under part B that provides cash payments for foster 
     care, or the supplemental security income program under title 
     XVI, then the State may not disregard the payment in 
     determining the amount of assistance to be provided to the 
     family of which the individual is a member under the State 
     program funded under this part.

     ``SEC. 408. PENALTIES.

       ``(a) In General.--Subject to subsections (b), (c), and 
     (d):
       ``(1) For use of grant in violation of this part.--
       ``(A) General penalty.--If an audit conducted under chapter 
     75 of title 31, United States Code, finds that an amount paid 
     to a State under section 402 for a fiscal year has been used 
     in violation of this part, the Secretary shall reduce the 
     grant payable to the State under section 402(a)(1) for the 
     immediately succeeding fiscal year quarter by the amount so 
     used.
       ``(B) Enhanced penalty for intentional violations.--If the 
     State does not prove to the satisfaction of the Secretary 
     that the State did not intend to use the amount in violation 
     of this part, the Secretary shall further reduce the grant 
     payable to the State under section 402(a)(1) for the 
     immediately succeeding fiscal year quarter by an amount equal 
     to 5 percent of the State family assistance grant.
       ``(2) For failure to submit required report.--
       ``(A) In general.--If the Secretary determines that a State 
     has not, within 6 months after the end of a fiscal year, 
     submitted the report required by section 410 for the fiscal 
     year, the Secretary shall reduce the grant payable to the 
     State under section 402(a)(1) for the immediately succeeding 
     fiscal year by an amount equal to 4 percent of the State 
     family assistance grant.
       ``(B) Rescission of penalty.--The Secretary shall rescind a 
     penalty imposed on a State under subparagraph (A) with 
     respect to a report for a fiscal year if the State submits 
     the report before the end of the immediately succeeding 
     fiscal year.
       ``(3) For failure to satisfy minimum participation rates.--
       ``(A) In general.--If the Secretary determines that a State 
     to which a grant is made under section 402 for a fiscal year 
     has failed to comply with section 406(a) for the fiscal year, 
     the Secretary shall reduce the grant payable to the State 
     under section 402(a)(1) for the immediately succeeding fiscal 
     year by an amount equal to not more than 5 percent of the 
     State family assistance grant.
       ``(B) Penalty based on severity of failure.--The Secretary 
     shall impose reductions under subparagraph (A) based on the 
     degree of noncompliance.
       ``(4) For failure to participate in the income and 
     eligibility verification system.--If the Secretary determines 
     that a State program funded under this part is not 
     participating during a fiscal year in the income and 
     eligibility verification system required by section 1137, the 
     Secretary shall reduce the grant payable to the State under 
     section 402(a)(1) for the immediately succeeding fiscal year 
     by an amount equal to 

[[Page H 12697]]
     not more than 2 percent of the State family assistance grant.
       ``(5) For failure to comply with paternity establishment 
     and child support enforcement requirements under part d.--
     Notwithstanding any other provision of this Act, if the 
     Secretary determines that the State agency that administers a 
     program funded under this part does not enforce the penalties 
     requested by the agency administering part D against 
     recipients of assistance under the State program who fail to 
     cooperate in establishing paternity in accordance with such 
     part, the Secretary shall reduce the grant payable to the 
     State under section 402(a)(1) for the immediately succeeding 
     fiscal year (without regard to this section) by not more than 
     5 percent.
       ``(6) For failure to timely repay a federal loan fund for 
     state welfare programs.--If the Secretary determines that a 
     State has failed to repay any amount borrowed from the 
     Federal Loan Fund for State Welfare Programs established 
     under section 405 within the period of maturity applicable to 
     the loan, plus any interest owed on the loan, the Secretary 
     shall reduce the grant payable to the State under section 
     402(a)(1) for the immediately succeeding fiscal year quarter 
     (without regard to this section) by the outstanding loan 
     amount, plus the interest owed on the outstanding amount. The 
     Secretary may not forgive any outstanding loan amount or 
     interest owed on the outstanding amount.
       ``(7) Maintenance of effort.--
       ``(A) In general.--The Secretary shall reduce the grant 
     payable to the State under section 402(a)(1) for fiscal year 
     1996, 1997, 1998, 1999, or 2000 by the amount (if any) by 
     which State expenditures under the State program funded under 
     this part for the then immediately preceding fiscal year is 
     less than the applicable percentage of historic State 
     expenditures.
       ``(B) Definitions.--As used in this paragraph:
       ``(i) State expenditures under the state program funded 
     under this part.--

       ``(I) In general.--The term `State expenditures under the 
     State program funded under this part' means, with respect to 
     a State and a fiscal year, the sum of the expenditures by the 
     State under the program for the fiscal year for--

       ``(aa) cash assistance;
       ``(bb) child care assistance;
       ``(cc) education, job training, and work;
       ``(dd) administrative costs; and
       ``(ee) any other use of funds allowable under section 
     403(a)(1).

       ``(II) Exclusion of transfers from other state and local 
     programs.--Such term does not include funding supplanted by 
     transfers from other State and local programs.

       ``(ii) Applicable percentage.--The term `applicable 
     percentage' means--

       ``(I) for fiscal year 1996, 75 percent; and
       ``(II) for fiscal years 1997, 1998, 1999, and 2000, 75 
     percent reduced (if appropriate) in accordance with 
     subparagraph (C)(iii).

       ``(iii) Historic state expenditures.--The term `historic 
     State expenditures' means, with respect to a State, the 
     lesser of--

       ``(I) the expenditures by the State under parts A and F of 
     this title (as in effect during fiscal year 1994) for fiscal 
     year 1994; or
       ``(II) the amount which bears the same ratio to the amount 
     described in subclause (I) as--

       ``(aa) the State family assistance grant for the 
     immediately preceding fiscal year; bears to
       ``(bb) the total amount of Federal payments to the State 
     under section 403 (as in effect during fiscal year 1994) for 
     fiscal year 1994.
       ``(iv) Expenditures by the state.--The term `expenditures 
     by the State' does not include any expenditures from amounts 
     made available by the Federal Government, State funds 
     expended for the medicaid program under title XIX or the 
     MediGrant program under title XXI, or any State funds which 
     are used to match Federal funds or are expended as a 
     condition of receiving Federal funds under Federal programs 
     other than under title I.
       ``(C) Applicable percentage reduced for states with best or 
     most improved performance in certain areas.--
       ``(i) Scoring of state performance.--Beginning with fiscal 
     year 1997, the Secretary shall assign to each State a score 
     that represents the performance of the State for the fiscal 
     year in each category described in clause (ii).
       ``(ii) Categories.--The categories described in this clause 
     are the following:

       ``(I) Increasing the number of families that received 
     assistance under a State program funded under this part in 
     the fiscal year, and that, during the fiscal year, become 
     ineligible for such assistance as a result of unsubsidized 
     employment.
       ``(II) Reducing the percentage of families that, within 18 
     months after becoming ineligible for assistance under the 
     State program funded under this part, become eligible for 
     such assistance.
       ``(III) Increasing the amount earned by families that 
     receive assistance under this part.
       ``(IV) Reducing the percentage of families in the State 
     that receive assistance under the State program funded under 
     this part.

       ``(iii) Reduction of maintenance of effort threshold.--

       ``(I) Reduction for states with 5 greatest scores in each 
     category of performance.--The applicable percentage for a 
     State for a fiscal year shall be reduced by 2 percentage 
     points, with respect to each category described in clause 
     (ii) for which the score assigned to the State under clause 
     (i) for the fiscal year is 1 of the 5 highest scores so 
     assigned to States.
       ``(II) Reduction for states with 5 greatest improvement in 
     scores in each category of performance.--The applicable 
     percentage for a State for a fiscal year shall be reduced by 
     2 percentage points for a State for a fiscal year, with 
     respect to each category described in clause (ii) for which 
     the difference between the score assigned to the State under 
     clause (i) for the fiscal year and the score so assigned to 
     the State for the immediately preceding fiscal year is 1 of 
     the 5 greatest such differences.
       ``(III) Limitation on reduction.--The applicable percentage 
     for a State for a fiscal year may not be reduced by more than 
     8 percentage points pursuant to this clause.

       ``(8) Penalties for substantial noncompliance of state 
     child support enforcement program with requirements of part 
     d.--
       ``(A) In general.--If a State program operated under part D 
     is found as a result of a review conducted under section 
     452(a)(4) not to have complied substantially with the 
     requirements of such part for any quarter, and the Secretary 
     determines that the program is not complying substantially 
     with such requirements at the time the finding is made, the 
     Secretary shall, subject to paragraph (2), reduce the grant 
     payable to the State under section 402(a)(1) for the quarter 
     and each subsequent quarter that ends before the 1st quarter 
     throughout which the program is found not to be in 
     substantial compliance with such requirements by--
       ``(i) not less than 1 nor more than 2 percent;
       ``(ii) not less than 2 nor more than 3 percent, if the 
     finding is the 2nd consecutive such finding made as a result 
     of such a review; or
       ``(iii) not less than 3 nor more than 5 percent, if the 
     finding is the 3rd or a subsequent consecutive such finding 
     made as a result of such a review.
       ``(B) Disregard of noncompliance which is of a technical 
     nature.--For purposes of subparagraph (A) and section 
     452(a)(4), a State which is not in full compliance with the 
     requirements of this part shall be determined to be in 
     substantial compliance with such requirements only if the 
     Secretary determines that any noncompliance with such 
     requirements is of a technical nature which does not 
     adversely affect the performance of the State's program 
     operated under part D.
       ``(9) For failure to expend additional state funds to 
     replace grant reductions.--If the grant payable to a State 
     under section 402(a)(1) for a fiscal year is reduced by 
     reason of any of the preceding paragraphs of this subsection, 
     the State shall, during the immediately succeeding fiscal 
     year, expend under the State program funded under this part 
     an amount equal to the sum of--
       ``(A) the applicable percentage of the historic State 
     expenditures; and
       ``(B) 105 percent of the total amount of such reductions 
     under such preceding paragraphs.
       ``(b) Reasonable Cause Exception.--The Secretary may not 
     impose a penalty on a State under subsection (a) with respect 
     to a requirement if the Secretary determines that the State 
     has reasonable cause for failing to comply with the 
     requirement.
       ``(c) Corrective Compliance Plan.--
       ``(1) In general.--
       ``(A) Notification of violation.--Notwithstanding any other 
     provision of law, the Federal Government shall, before 
     assessing a penalty against a State under subsection (a), 
     notify the State of the violation of law for which the 
     penalty would be assessed and allow the State the opportunity 
     to enter into a corrective compliance plan in accordance with 
     this subsection which outlines how the State will correct any 
     such violations and how the State will insure continuing 
     compliance with the requirements of this part.
       ``(B) 60-day period to propose a corrective compliance 
     plan.--Any State notified under subparagraph (A) shall have 
     60 days in which to submit to the Federal Government a 
     corrective compliance plan to correct any violations 
     described in subparagraph (A).
       ``(C) Acceptance of plan.--The Federal Government shall 
     have 60 days to accept or reject the State's corrective 
     compliance plan and may consult with the State during this 
     period to modify the plan. If the Federal Government does not 
     accept or reject the corrective compliance plan during the 
     period, the corrective compliance plan shall be deemed to be 
     accepted.
       ``(2) Failure to correct.--If a corrective compliance plan 
     is accepted by the Federal Government, no penalty shall be 
     imposed with respect to a violation described in paragraph 
     (1) if the State corrects the violation pursuant to the plan. 
     If a State has not corrected the violation in a timely manner 
     under the plan, some or all of the penalty shall be assessed.
       ``(d) Limitation on Amount of Penalty.--
       ``(1) In general.--In imposing the penalties described in 
     subsection (a), the Secretary shall not reduce any quarterly 
     payment to a State by more than 25 percent.
       ``(2) Carryforward of unrecovered penalties.--To the extent 
     that paragraph (1) prevents the Secretary from recovering 
     during a fiscal year the full amount of all penalties imposed 
     on a State under subsection (a) for a prior fiscal year, the 
     Secretary shall apply any remaining amount of such penalties 
     to the grant payable to the State under section 402(a)(1) for 
     the immediately succeeding fiscal year.

     ``SEC. 409. APPEAL OF ADVERSE DECISION.

       ``(a) In General.--Within 5 days after the date any adverse 
     decision is made or action is taken under this part with 
     respect to a State, the Secretary shall notify the chief 
     executive officer of the State of the adverse decision or 
     action, including any decision with respect to the State plan 
     submitted under section 401 or the imposition of a penalty 
     under section 408.
       ``(b) Administrative Review of Adverse Decision.--
       ``(1) In general.--Within 60 days after the date a State 
     receives notice under this section of an adverse decision, 
     the State may appeal the decision, in whole or in part, to 
     the Departmental Appeals Board established in the Department 
     of Health and Human Services (in this section referred to as 
     the `Board') by filing an appeal with the Board.
       ``(2) Procedural rules.--The Board shall consider a State's 
     appeal on the basis of such 

[[Page H 12698]]
     documentation as the State may submit and as the Board may require to 
     support the final decision of the Board. In deciding whether 
     to uphold an adverse decision or any portion of such a 
     decision, the Board shall conduct a thorough review of the 
     issues and take into account all relevant evidence. The Board 
     shall make a final determination with respect to an appeal 
     filed under this paragraph not less than 60 days after the 
     date the appeal is filed.
       ``(c) Judicial Review of Adverse Decision.--
       ``(1) In general.--Within 90 days after the date of a final 
     decision by the Board with respect to an adverse decision 
     regarding a State under this section, the State may obtain 
     judicial review of the final decision (and the findings 
     incorporated into the final decision) by filing an action 
     in--
       ``(A) the district court of the United States for the 
     judicial district in which the principal or headquarters 
     office of the State agency is located; or
       ``(B) the United States District Court for the District of 
     Columbia.
       ``(2) Procedural rules.--The district court in which an 
     action is filed shall review the final decision of the Board 
     on the record established in the administrative proceeding, 
     in accordance with the standards of review prescribed by 
     subparagraphs (A) through (E) of section 706(2) of title 5, 
     United States Code. The review shall be on the basis of the 
     documents and supporting data submitted to the Board.

     ``SEC. 410. DATA COLLECTION AND REPORTING.

       ``(a) General Reporting Requirement.--Beginning July 1, 
     1996, each State shall collect on a monthly basis, and report 
     to the Secretary on a quarterly basis, the following 
     information on the families receiving assistance under the 
     State program funded under this part:
       ``(1) The county of residence of the family.
       ``(2) Whether a child receiving such assistance or an adult 
     in the family is disabled.
       ``(3) The ages of the members of such families.
       ``(4) The number of individuals in the family, and the 
     relation of each family member to the youngest child in the 
     family.
       ``(5) The employment status and earnings of the employed 
     adult in the family.
       ``(6) The marital status of the adults in the family, 
     including whether such adults have never married, are 
     widowed, or are divorced.
       ``(7) The educational status of each adult in the family.
       ``(8) The educational status of each child in the family.
       ``(9) Whether the family received subsidized housing, 
     assistance under the State MediGrant plan approved under 
     title XXI, food stamps, or subsidized child care, and if the 
     latter 2, the amount received.
       ``(10) The number of months that the family has received 
     each type of assistance under the program.
       ``(11) If the adults participated in, and the number of 
     hours per week of participation in, the following activities:
       ``(A) Education.
       ``(B) Subsidized private sector employment.
       ``(C) Unsubsidized employment.
       ``(D) Public sector employment, work experience, or 
     community service.
       ``(E) Job search.
       ``(F) Job skills training or on-the-job training.
       ``(G) Vocational education.
       ``(12) Information necessary to calculate participation 
     rates under section 406.
       ``(13) The type and amount of assistance received under the 
     program, including the amount of and reason for any reduction 
     of assistance (including sanctions).
       ``(14) From a sample of closed cases, whether the family 
     left the program, and if so, whether the family left due to--
       ``(A) employment;
       ``(B) marriage;
       ``(C) the prohibition set forth in section 407(a)(8);
       ``(D) sanction; or
       ``(E) State policy.
       ``(15) Any amount of unearned income received by any member 
     of the family.
       ``(16) The citizenship of the members of the family.
       ``(b) Use of Estimates.--
       ``(1) Authority.--A State may comply with subsection (a) by 
     submitting an estimate which is obtained through the use of 
     scientifically acceptable sampling methods approved by the 
     Secretary.
       ``(2) Sampling and other methods.--The Secretary shall 
     provide the States with such case sampling plans and data 
     collection procedures as the Secretary deems necessary to 
     produce statistically valid estimates of the performance of 
     State programs funded under this part. The Secretary may 
     develop and implement procedures for verifying the quality of 
     data submitted by the States.
       ``(c) Report on Use of Federal Funds to Cover 
     Administrative Costs and Overhead.--The report required by 
     subsection (a) for a fiscal quarter shall include a statement 
     of the percentage of the funds paid to the State under this 
     part for the quarter that are used to cover administrative 
     costs or overhead.
       ``(d) Report on State Expenditures on Programs for Needy 
     Families.--The report required by subsection (a) for a fiscal 
     quarter shall include a statement of the total amount 
     expended by the State during the quarter on programs for 
     needy families.
       ``(e) Report on Noncustodial Parents Participating in Work 
     Activities.--The report required by subsection (a) for a 
     fiscal quarter shall include the number of noncustodial 
     parents in the State who participated in work activities (as 
     defined in section 406(d)) during the quarter.
       ``(f) Report on Transitional Services.--The report required 
     by subsection (a) for a fiscal quarter shall include the 
     total amount expended by the State during the quarter to 
     provide transitional services to a family that has ceased to 
     receive assistance under this part because of employment, 
     along with a description of such services.
       ``(g) Report to Congress.--Not later than 6 months after 
     the end of fiscal year 1997, and each fiscal year thereafter, 
     the Secretary shall transmit to the Congress a report 
     describing--
       ``(1) whether the States are meeting--
       ``(A) the participation rates described in section 406(a); 
     and
       ``(B) the objectives of--
       ``(i) increasing employment and earnings of needy families, 
     and child support collections; and
       ``(ii) decreasing out-of-wedlock pregnancies and child 
     poverty;
       ``(2) the demographic and financial characteristics of 
     families applying for assistance, families receiving 
     assistance, and families that become ineligible to receive 
     assistance;
       ``(3) the characteristics of each State program funded 
     under this part; and
       ``(4) the trends in employment and earnings of needy 
     families with minor children living at home.

     ``SEC. 411. DIRECT FUNDING AND ADMINISTRATION BY INDIAN 
                   TRIBES.

       ``(a) Grants for Indian Tribes.--
       ``(1) Tribal family assistance grant.--
       ``(A) In general.--For each of fiscal years 1997, 1998, 
     1999, and 2000, the Secretary shall pay to each Indian tribe 
     that has an approved tribal family assistance plan a tribal 
     family assistance grant for the fiscal year in an amount 
     equal to the amount determined under subparagraph (B), and 
     shall reduce the grant payable under section 402(a)(1) to any 
     State in which lies the service area or areas of the Indian 
     tribe by that portion of the amount so determined that is 
     attributable to expenditures by the State.
       ``(B) Amount determined.--
       ``(i) In general.--The amount determined under this 
     subparagraph is an amount equal to the total amount of the 
     Federal payments to a State or States under section 403 for 
     fiscal year 1994 (as in effect during such fiscal year) 
     attributable to expenditures by the State or States under 
     parts A and F of this title (as so in effect) for fiscal year 
     1994 for Indian families residing in the service area or 
     areas identified by the Indian tribe pursuant to subsection 
     (b)(1)(C).
       ``(ii) Use of state submitted data.--

       ``(I) In general.--The Secretary shall use State submitted 
     data to make each determination under clause (i).
       ``(II) Disagreement with determination.--If an Indian tribe 
     or tribal organization disagrees with State submitted data 
     described under subclause (I), the Indian tribe or tribal 
     organization may submit to the Secretary such additional 
     information as may be relevant to making the determination 
     under clause (i) and the Secretary may consider such 
     information before making such determination.

       ``(2) Grants for indian tribes that received jobs funds.--
       ``(A) In general.--The Secretary shall pay to each eligible 
     Indian tribe for each of fiscal years 1996, 1997, 1998, 1999, 
     and 2000 a grant in an amount equal to the amount received by 
     the Indian tribe in fiscal year 1994 under section 482(i) (as 
     in effect during fiscal year 1994).
       ``(B) Eligible indian tribe.--For purposes of subparagraph 
     (A), the term `eligible Indian tribe' means an Indian tribe 
     or Alaska Native organization that conducted a job 
     opportunities and basic skills training program in fiscal 
     year 1995 under section 482(i) (as in effect during such 
     fiscal year).
       ``(C) Use of grant.--Each Indian tribe to which a grant is 
     made under this paragraph shall use the grant for the purpose 
     of operating a program to make work activities available to 
     members of the Indian tribe.
       ``(D) Appropriation.--Out of any money in the Treasury of 
     the United States not otherwise appropriated, there are 
     appropriated $7,638,474 for each fiscal year specified in 
     subparagraph (A) for grants under subparagraph (A).
       ``(b) 3-Year Tribal Family Assistance Plan.--
       ``(1) In general.--Any Indian tribe that desires to receive 
     a tribal family assistance grant shall submit to the 
     Secretary a 3-year tribal family assistance plan that--
       ``(A) outlines the Indian tribe's approach to providing 
     welfare-related services for the 3-year period, consistent 
     with this section;
       ``(B) specifies whether the welfare-related services 
     provided under the plan will be provided by the Indian tribe 
     or through agreements, contracts, or compacts with 
     intertribal consortia, States, or other entities;
       ``(C) identifies the population and service area or areas 
     to be served by such plan;
       ``(D) provides that a family receiving assistance under the 
     plan may not receive duplicative assistance from other State 
     or tribal programs funded under this part;
       ``(E) identifies the employment opportunities in or near 
     the service area or areas of the Indian tribe and the manner 
     in which the Indian tribe will cooperate and participate in 
     enhancing such opportunities for recipients of assistance 
     under the plan consistent with any applicable State 
     standards; and
       ``(F) applies the fiscal accountability provisions of 
     section 5(f)(1) of the Indian Self-Determination and 
     Education Assistance Act (25 U.S.C. 450c(f)(1)), relating to 
     the submission of a single-agency audit report required by 
     chapter 75 of title 31, United States Code.
       ``(2) Approval.--The Secretary shall approve each tribal 
     family assistance plan submitted in accordance with paragraph 
     (1).
       ``(3) Consortium of tribes.--Nothing in this section shall 
     preclude the development and submission of a single tribal 
     family assistance plan 

[[Page H 12699]]
     by the participating Indian tribes of an intertribal consortium.
       ``(c) Minimum Work Participation Requirements and Time 
     Limits.--The Secretary, with the participation of Indian 
     tribes, shall establish for each Indian tribe receiving a 
     grant under this section minimum work participation 
     requirements, appropriate time limits for receipt of welfare-
     related services under the grant, and penalties against 
     individuals--
       ``(1) consistent with the purposes of this section;
       ``(2) consistent with the economic conditions and resources 
     available to each tribe; and
       ``(3) similar to comparable provisions in section 406(d).
       ``(d) Emergency Assistance.--Nothing in this section shall 
     preclude an Indian tribe from seeking emergency assistance 
     from any Federal loan program or emergency fund.
       ``(e) Accountability.--Nothing in this section shall be 
     construed to limit the ability of the Secretary to maintain 
     program funding accountability consistent with--
       ``(1) generally accepted accounting principles; and
       ``(2) the requirements of the Indian Self-Determination and 
     Education Assistance Act (25 U.S.C. 450 et seq.).
       ``(f) Penalties.--
       ``(1) Subsections (a)(1), (a)(6), and (b) of section 408, 
     shall apply to an Indian tribe with an approved tribal 
     assistance plan in the same manner as such subsections apply 
     to a State.
       ``(2) Section 408(a)(3) shall apply to an Indian tribe with 
     an approved tribal assistance plan by substituting `meet 
     minimum work participation requirements established under 
     section 411(c)' for `comply with section 406(a)'.
       ``(g) Data Collection and Reporting.--Section 410 shall 
     apply to an Indian tribe with an approved tribal family 
     assistance plan.
       ``(h) Special Rule for Indian Tribes in Alaska.--
       ``(1) In general.--Notwithstanding any other provision of 
     this section, and except as provided in paragraph (2), a 
     tribal organization in the State of Alaska that receives a 
     tribal family assistance grant under this section shall use 
     the grant to operate a program in accordance with the 
     requirements comparable to the requirements applicable to the 
     program of the State of Alaska funded under this part. 
     Comparability of programs shall be established on the basis 
     of program criteria developed by the Secretary in 
     consultation with the State of Alaska and the tribal 
     organizations.
       ``(2) Waiver.--An Indian tribe described in paragraph (1) 
     may apply to the appropriate State authority to receive a 
     waiver of the requirement of paragraph (1).

     ``SEC. 412. RESEARCH, EVALUATIONS, AND NATIONAL STUDIES.

       ``(a) Research.--The Secretary shall conduct research on 
     the benefits, effects, and costs of operating different State 
     programs funded under this part, including time limits 
     relating to eligibility for assistance. The research shall 
     include studies on the effects of different programs and the 
     operation of such programs on welfare dependency, 
     illegitimacy, teen pregnancy, employment rates, child well-
     being, and any other area the Secretary deems appropriate. 
     The Secretary shall also conduct research on the costs and 
     benefits of State activities under section 406.
       ``(b) Development and Evaluation of Innovative Approaches 
     To Reducing Welfare Dependency and Increasing Child Well-
     Being.--
       ``(1) In general.--The Secretary may assist States in 
     developing, and shall evaluate, innovative approaches for 
     reducing welfare dependency and increasing the well-being of 
     minor children living at home with respect to recipients of 
     assistance under programs funded under this part. The 
     Secretary may provide funds for training and technical 
     assistance to carry out the approaches developed pursuant to 
     this paragraph.
       ``(2) Evaluations.--In performing the evaluations under 
     paragraph (1), the Secretary shall, to the maximum extent 
     feasible, use random assignment as an evaluation methodology.
       ``(c) Dissemination of Information.--The Secretary shall 
     develop innovative methods of disseminating information on 
     any research, evaluations, and studies conducted under this 
     section, including the facilitation of the sharing of 
     information and best practices among States and localities 
     through the use of computers and other technologies.
       ``(d) Annual Ranking of States and Review of Most and Least 
     Successful Work Programs.--
       ``(1) Annual ranking of states.--The Secretary shall rank 
     annually the States to which grants are paid under section 
     402 in the order of their success in placing recipients of 
     assistance under the State program funded under this part 
     into long-term private sector jobs, reducing the overall 
     welfare caseload, and, when a practicable method for 
     calculating this information becomes available, diverting 
     individuals from formally applying to the State program and 
     receiving assistance. In ranking States under this 
     subsection, the Secretary shall take into account the average 
     number of minor children living at home in families in the 
     State that have incomes below the poverty line and the amount 
     of funding provided each State for such families.
       ``(2) Annual review of most and least successful work 
     programs.--The Secretary shall review the programs of the 3 
     States most recently ranked highest under paragraph (1) and 
     the 3 States most recently ranked lowest under paragraph (1) 
     that provide parents with work experience, assistance in 
     finding employment, and other work preparation activities and 
     support services to enable the families of such parents to 
     leave the program and become self-sufficient.
       ``(e) Annual Ranking of States and Review of Issues 
     Relating to Out-of-Wedlock Births.--
       ``(1) Annual ranking of states.--
       ``(A) In general.--The Secretary shall annually rank States 
     to which grants are made under section 402 based on the 
     following ranking factors:
       ``(i) Absolute out-of-wedlock ratios.--The ratio 
     represented by--

       ``(I) the total number of out-of-wedlock births in families 
     receiving assistance under the State program under this part 
     in the State for the most recent fiscal year for which 
     information is available; over
       ``(II) the total number of births in families receiving 
     assistance under the State program under this part in the 
     State for such year.

       ``(ii) Net changes in the out-of-wedlock ratio.--The 
     difference between the ratio described in subparagraph (A)(i) 
     for the most recent fiscal year for which information is 
     available and such State's ratio determined for the preceding 
     year.
       ``(2) Annual review.--The Secretary shall review the 
     programs of the 5 States most recently ranked highest under 
     paragraph (1) and the 5 States most recently ranked the 
     lowest under paragraph (1).
       ``(f) State-Initiated Studies.--A State shall be eligible 
     to receive funding to evaluate the State's family assistance 
     program funded under this part if--
       ``(1) the State submits a proposal to the Secretary for 
     such evaluation,
       ``(2) the Secretary determines that the design and approach 
     of the evaluation is rigorous and is likely to yield 
     information that is credible and will be useful to other 
     States, and
       ``(3) unless otherwise waived by the Secretary, the State 
     provides a non-Federal share of at least 10 percent of the 
     cost of such study.
       ``(g) Funding of Studies and Demonstrations.--
       ``(1) In general.--Out of any money in the Treasury of the 
     United States not otherwise appropriated, there are 
     appropriated $15,000,000 for each fiscal year specified in 
     section 402(a)(1) for the purpose of paying--
       ``(A) the cost of conducting the research described in 
     subsection (a);
       ``(B) the cost of developing and evaluating innovative 
     approaches for reducing welfare dependency and increasing the 
     well-being of minor children under subsection (b);
       ``(C) the Federal share of any State-initiated study 
     approved under subsection (f); and
       ``(D) an amount determined by the Secretary to be necessary 
     to operate and evaluate demonstration projects, relating to 
     this part, that are in effect or approved under section 1115 
     as of September 30, 1995, and are continued after such date.
       ``(2) Allocation.--Of the amount appropriated under 
     paragraph (1) for a fiscal year--
       ``(A) 50 percent shall be allocated for the purposes 
     described in subparagraphs (A) and (B) of paragraph (1), and
       ``(B) 50 percent shall be allocated for the purposes 
     described in subparagraphs (C) and (D) of paragraph (1).

     ``SEC. 413. STUDY BY THE CENSUS BUREAU.

       ``(a) In General.--The Bureau of the Census shall expand 
     the Survey of Income and Program Participation as necessary 
     to obtain such information as will enable interested persons 
     to evaluate the impact of the amendments made by subtitle A 
     of the Personal Responsibility and Work Opportunity Act of 
     1995 on a random national sample of recipients of assistance 
     under State programs funded under this part and (as 
     appropriate) other low income families, and in doing so, 
     shall pay particular attention to the issues of out-of-
     wedlock birth, welfare dependency, the beginning and end of 
     welfare spells, and the causes of repeat welfare spells.
       ``(b) Appropriation.--Out of any money in the Treasury of 
     the United States not otherwise appropriated, there are 
     appropriated $10,000,000 for each of fiscal years 1996, 1997, 
     1998, 1999, and 2000 for payment to the Bureau of the Census 
     to carry out subsection (a).

     ``SEC. 414. WAIVERS.

       ``(a) Continuation of Waivers.--
       ``(1) In general.--Except as provided in paragraph (2), if 
     any waiver granted to a State under section 1115 or otherwise 
     which relates to the provision of assistance under a State 
     plan under this part is in effect or approved by the 
     Secretary as of October 1, 1995, the amendments made by the 
     Personal Responsibility and Work Opportunity Act of 1995 
     shall not apply with respect to the State before the 
     expiration (determined without regard to any extensions) of 
     the waiver to the extent such amendments are inconsistent 
     with the terms of the waiver.
       ``(2) Financing limitation.--Notwithstanding any other 
     provision of law, beginning with fiscal year 1996, a State 
     operating under a waiver described in paragraph (1) shall 
     receive the payment described for such State for such fiscal 
     year under section 402, in lieu of any other payment provided 
     for in the waiver.
       ``(b) State Option To Terminate Waiver.--
       ``(1) In general.--A State may terminate a waiver described 
     in subsection (a) before the expiration of the waiver.
       ``(2) Report.--A State which terminates a waiver under 
     paragraph (1) shall submit a report to the Secretary 
     summarizing the waiver and any available information 
     concerning the result or effect of such waiver.
       ``(3) Hold harmless provision.--
       ``(A) In general.--Notwithstanding any other provision of 
     law, a State that, not later than the date described in 
     subparagraph (B), submits a written request to terminate a 
     waiver described in subsection (a) shall be held harmless for 
     accrued cost neutrality liabilities incurred under the terms 
     and conditions of such waiver.
       ``(B) Date described.--The date described in this 
     subparagraph is the later of--
       ``(i) January 1, 1996; or

[[Page H 12700]]

       ``(ii) 90 days following the adjournment of the first 
     regular session of the State legislature that begins after 
     the date of the enactment of the Personal Responsibility and 
     Work Opportunity Act of 1995.
       ``(c) Secretarial Encouragement of Current Waivers.--The 
     Secretary shall encourage any State operating a waiver 
     described in subsection (a) to continue such waiver and to 
     evaluate, using random sampling and other characteristics of 
     accepted scientific evaluations, the result or effect of such 
     waiver.
       ``(d) Continuation of Individual Waivers.--A State may 
     elect to continue one or more individual waivers described in 
     subsection (a)(1).

     ``SEC. 415. ASSISTANT SECRETARY FOR FAMILY SUPPORT.

       ``The programs under this part and part D shall be 
     administered by an Assistant Secretary for Family Support 
     within the Department of Health and Human Services, who shall 
     be appointed by the President, by and with the advice and 
     consent of the Senate, and who shall be in addition to any 
     other Assistant Secretary of Health and Human Services 
     provided for by law.

     ``SEC. 416. LIMITATION ON FEDERAL AUTHORITY.

       ``No officer or employee of the Federal Government may 
     regulate the conduct of States under this part or enforce any 
     provision of this part, except to the extent expressly 
     provided in this part.

     ``SEC. 417. DEFINITIONS.

       ``As used in this part:
       ``(1) Adult.--The term `adult' means an individual who is 
     not a minor child.
       ``(2) Minor child.--The term `minor child' means an 
     individual who--
       ``(A) has not attained 18 years of age; or
       ``(B) has not attained 19 years of age and is a full-time 
     student in a secondary school (or in the equivalent level of 
     vocational or technical training).
       ``(3) Fiscal year.--The term `fiscal year' means any 12-
     month period ending on September 30 of a calendar year.
       ``(4) Indian, indian tribe, and tribal organization.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the terms `Indian', `Indian tribe', and `tribal organization' 
     have the meaning given such terms by section 4 of the Indian 
     Self-Determination and Education Assistance Act (25 U.S.C. 
     450b).
       ``(B) Special rule for indian tribes in alaska.--The term 
     `Indian tribe' means, with respect to the State of Alaska, 
     only the following Alaska Native regional nonprofit 
     corporations:
       ``(i) Arctic Slope Native Association.
       ``(ii) Kawerak, Inc.
       ``(iii) Maniilaq Association.
       ``(iv) Association of Village Council Presidents.
       ``(v) Tanana Chiefs Conference.
       ``(vi) Cook Inlet Tribal Council.
       ``(vii) Bristol Bay Native Association.
       ``(viii) Aleutian and Pribilof Island Association.
       ``(ix) Chugachmuit.
       ``(x) Tlingit Haida Central Council.
       ``(xi) Kodiak Area Native Association.
       ``(xii) Copper River Native Association.
       ``(xiii) Metlakatla Indian Tribe.
       ``(5) State.--Except as otherwise specifically provided, 
     the term `State' includes the several States, the District of 
     Columbia, the Commonwealth of Puerto Rico, the United States 
     Virgin Islands, Guam, and American Samoa.''.

     SEC. 12102. REPORT ON DATA PROCESSING.

       (a) In General.--Within 6 months after the date of the 
     enactment of this Act, the Secretary of Health and Human 
     Services shall prepare and submit to the Congress a report 
     on--
       (1) the status of the automated data processing systems 
     operated by the States to assist management in the 
     administration of State programs under part A of title IV of 
     the Social Security Act (whether in effect before or after 
     October 1, 1995); and
       (2) what would be required to establish a system capable 
     of--
       (A) tracking participants in public programs over time; and
       (B) checking case records of the States to determine 
     whether individuals are participating in public programs of 2 
     or more States.
       (b) Preferred Contents.--The report required by subsection 
     (a) should include--
       (1) a plan for building on the automated data processing 
     systems of the States to establish a system with the 
     capabilities described in subsection (a)(2); and
       (2) an estimate of the amount of time required to establish 
     such a system and of the cost of establishing such a system.

     SEC. 12103. CONFORMING AMENDMENTS TO THE SOCIAL SECURITY ACT.

       (a) Amendments to Title II.--
       (1) Section 205(c)(2)(C)(vi) (42 U.S.C. 405(c)(2)(C)(vi)), 
     as so redesignated by section 321(a)(9)(B) of the Social 
     Security Independence and Program Improvements Act of 1994, 
     is amended--
       (A) by inserting ``an agency administering a program funded 
     under part A of title IV or'' before ``an agency operating''; 
     and
       (B) by striking ``A or D of title IV of this Act'' and 
     inserting ``D of such title''.
       (2) Section 228(d)(1) (42 U.S.C. 428(d)(1)) is amended by 
     inserting ``under a State program funded under'' before 
     ``part A of title IV''.
       (b) Amendments to Part D of Title IV.--
       (1) Section 451 (42 U.S.C. 651) is amended by striking 
     ``aid'' and inserting ``assistance under a State program 
     funded''.
       (2) Section 452(a)(10)(C) (42 U.S.C. 652(a)(10)(C)) is 
     amended--
       (A) by striking ``aid to families with dependent children'' 
     and inserting ``assistance under a State program funded under 
     part A'';
       (B) by striking ``such aid'' and inserting ``such 
     assistance''; and
       (C) by striking ``under section 402(a)(26) or 471(a)(17)'' 
     and inserting ``pursuant to section 408(a)(4) or under 
     section 471(a)(17)''.
       (3) Section 452(a)(10)(F) (42 U.S.C. 652(a)(10)(F)) is 
     amended--
       (A) by striking ``aid under a State plan approved'' and 
     inserting ``assistance under a State program funded''; and
       (B) by striking ``in accordance with the standards referred 
     to in section 402(a)(26)(B)(ii)'' and inserting ``by the 
     State''.
       (4) Section 452(b) (42 U.S.C. 652(b)) is amended in the 
     first sentence by striking ``aid under the State plan 
     approved under part A'' and inserting ``assistance under the 
     State program funded under part A''.
       (5) Section 452(d)(3)(B)(i) (42 U.S.C. 652(d)(3)(B)(i)) is 
     amended by striking ``1115(c)'' and inserting ``1115(b)''.
       (6) Section 452(g)(2)(A)(ii)(I) (42 U.S.C. 
     652(g)(2)(A)(ii)(I)) is amended by striking ``aid is being 
     paid under the State's plan approved under part A or E'' and 
     inserting ``assistance is being provided under the State 
     program funded under part A or aid is being paid under the 
     State's plan approved under part E''.
       (7) Section 452(g)(2)(A) (42 U.S.C. 652(g)(2)(A)) is 
     amended in the matter following clause (iii) by striking 
     ``aid was being paid under the State's plan approved under 
     part A or E'' and inserting ``assistance was being provided 
     under the State program funded under part A or aid was being 
     paid under the State's plan approved under part E''.
       (8) Section 452(g)(2) (42 U.S.C. 652(g)(2)) is amended in 
     the matter following subparagraph (B)--
       (A) by striking ``who is a dependent child'' and inserting 
     ``with respect to whom assistance is being provided under the 
     State program funded under part A'';
       (B) by inserting ``by the State agency administering the 
     State plan approved under this part'' after ``found''; and
       (C) by striking ``under section 402(a)(26)'' and inserting 
     ``with the State in establishing paternity''.
       (9) Section 452(h) (42 U.S.C. 652(h)) is amended by 
     striking ``under section 402(a)(26)'' and inserting 
     ``pursuant to section 408(a)(4)''.
       (10) Section 453(c)(3) (42 U.S.C. 653(c)(3)) is amended by 
     striking ``aid under part A of this title'' and inserting 
     ``assistance under a State program funded under part A''.
       (11) Section 454(5)(A) (42 U.S.C. 654(5)(A))) is amended--
       (A) by striking ``under section 402(a)(26)'' and inserting 
     ``pursuant to section 408(a)(4)''; and
       (B) by striking ``; except that this paragraph shall not 
     apply to such payments for any month following the first 
     month in which the amount collected is sufficient to make 
     such family ineligible for assistance under the State plan 
     approved under part A;'' and inserting a comma.
       (12) Section 454(6)(D) (42 U.S.C. 654(6)(D)) is amended by 
     striking ``aid under a State plan approved'' and inserting 
     ``assistance under a State program funded''.
       (13) Section 456(a)(1) (42 U.S.C. 656(a)(1)) is amended by 
     striking ``under section 402(a)(26)''.
       (14) Section 466(a)(3)(B) (42 U.S.C. 666(a)(3)(B)) is 
     amended by striking ``402(a)(26)'' and inserting 
     ``408(a)(4)''.
       (15) Section 466(b)(2) (42 U.S.C. 666(b)(2)) is amended by 
     striking ``aid'' and inserting ``assistance under a State 
     program funded''.
       (16) Section 469(a) (42 U.S.C. 669(a)) is amended--
       (A) by striking ``aid under plans approved'' and inserting 
     ``assistance under State programs funded''; and
       (B) by striking ``such aid'' and inserting ``such 
     assistance''.
       (c) Repeal of Part F of Title IV.--Part F of title IV (42 
     U.S.C. 681-687) is repealed.
       (d) Amendment to Title X.--Section 1002(a)(7) (42 U.S.C. 
     1202(a)(7)) is amended by striking ``aid to families with 
     dependent children under the State plan approved under 
     section 402 of this Act'' and inserting ``assistance under a 
     State program funded under part A of title IV''.
       (e) Amendments to Title XI.--
       (1) Section 1108 (42 U.S.C. 1308) is amended to read as 
     follows:

     ``SEC. 1108. LIMITATION ON PAYMENTS TO PUERTO RICO, THE 
                   VIRGIN ISLANDS, GUAM, AND AMERICAN SAMOA.

       ``(a) In General.--Notwithstanding any other provision of 
     this Act, the total amount certified by the Secretary of 
     Health and Human Services under titles I, X, XIV, and XVI, 
     and under parts A and B of title IV for payment to any 
     territory for a fiscal year shall not exceed the ceiling 
     amount for the territory for the fiscal year.
       ``(b) Definitions.--As used in this section:
       ``(1) Territory.--The term `territory' means Puerto Rico, 
     the Virgin Islands, Guam, and American Samoa.
       ``(2) Ceiling amount.--The term `ceiling amount' means, 
     with respect to a territory and a fiscal year, the mandatory 
     ceiling amount with respect to the territory plus the 
     discretionary ceiling amount with respect to the territory, 
     reduced for the fiscal year in accordance with subsection 
     (e).
       ``(3) Mandatory ceiling amount.--The term `mandatory 
     ceiling amount' means--
       ``(A) $103,538,000 with respect to for Puerto Rico;
       ``(B) $4,812,000 with respect to Guam;
       ``(C) $3,677,397 with respect to the Virgin Islands; and
       ``(D) $1,122,095 with respect to American Samoa.
       ``(4) Discretionary ceiling amount.--The term 
     `discretionary ceiling amount' means, with respect to a 
     territory, the dollar amount specified in subsection (c)(2) 
     with respect to the territory.

[[Page H 12701]]

       ``(c) Discretionary Grants.--
       ``(1) In general.--The Secretary shall make a grant to each 
     territory for any fiscal year in the amount appropriated 
     pursuant to paragraph (2) for the fiscal year for payment to 
     the territory.
       ``(2) Use of grant.--Any territory to which a grant is made 
     under paragraph (1) may expend the amount under any program 
     operated or funded under any provision of law specified in 
     subsection (a).
       ``(3) Limitation on authorization of appropriations.--For 
     grants under paragraph (1), there are authorized to be 
     appropriated to the Secretary for each fiscal year--
       ``(A) $7,951,000 for payment to Puerto Rico;
       ``(B) $345,000 for payment to Guam;
       ``(C) $275,000 for payment to the Virgin Islands; and
       ``(D) $190,000 for payment to American Samoa.
       ``(d) Authority to Transfer Funds Among Programs.--
     Notwithstanding any other provision of this Act, any 
     territory to which an amount is paid under any provision of 
     law specified in subsection (a) may use part or all of the 
     amount to carry out any program operated by the territory, or 
     funded, under any other such provision of law.
       ``(e) Maintenance of Effort.--The ceiling amount with 
     respect to a territory shall be reduced for a fiscal year by 
     an amount equal to the amount (if any) by which--
       ``(1) the total amount expended by the territory under all 
     programs of the territory operated pursuant to the provisions 
     of law specified in subsection (a) (as such provisions were 
     in effect for fiscal year 1995) for fiscal year 1995; exceeds
       ``(2) the total amount expended by the territory under all 
     programs of the territory that are funded under the 
     provisions of law specified in subsection (a) for the fiscal 
     year that immediately precedes the fiscal year referred to in 
     the matter preceding paragraph (1).''.
       (2) Section 1109 (42 U.S.C. 1309) is amended by striking 
     ``or part A of title IV,''.
       (3) Section 1115 (42 U.S.C. 1315) is amended--
       (A) in subsection (a)(2)--
       (i) by inserting ``(A)'' after ``(2)'';
       (ii) by striking ``403,'';
       (iii) by striking the period at the end and inserting ``, 
     and''; and
       (iv) by adding at the end the following new subparagraph:
       ``(B) costs of such project which would not otherwise be a 
     permissible use of funds under part A of title IV and which 
     are not included as part of the costs of projects under 
     section 1110, shall to the extent and for the period 
     prescribed by the Secretary, be regarded as a permissible use 
     of funds under such part.''; and
       (B) in subsection (c)(3), by striking ``under the program 
     of aid to families with dependent children'' and inserting 
     ``part A of such title''.
       (4) Section 1116 (42 U.S.C. 1316) is amended--
       (A) in each of subsections (a)(1), (b), and (d), by 
     striking ``or part A of title IV,''; and
       (B) in subsection (a)(3), by striking ``404,''.
       (5) Section 1118 (42 U.S.C. 1318) is amended--
       (A) by striking ``403(a),'';
       (B) by striking ``and part A of title IV,''; and
       (C) by striking ``, and shall, in the case of American 
     Samoa, mean 75 per centum with respect to part A of title 
     IV''.
       (6) Section 1119 (42 U.S.C. 1319) is amended--
       (A) by striking ``or part A of title IV''; and
       (B) by striking ``403(a),''.
       (7) Section 1133(a) (42 U.S.C. 1320b-3(a)) is amended by 
     striking ``or part A of title IV,''.
       (8) Section 1136 (42 U.S.C. 1320b-6) is repealed.
       (9) Section 1137 (42 U.S.C. 1320b-7) is amended--
       (A) in subsection (b), by striking paragraph (1) and 
     inserting the following:
       ``(1) any State program funded under part A of title IV of 
     this Act;''; and
       (B) in subsection (d)(1)(B)--
       (i) by striking ``In this subsection--'' and all that 
     follows through ``(ii) in'' and inserting ``In this 
     subsection, in'';
       (ii) by redesignating subclauses (I), (II), and (III) as 
     clauses (i), (ii), and (iii); and
       (iii) by moving such redesignated material 2 ems to the 
     left.
       (f) Amendment to Title XIV.--Section 1402(a)(7) (42 U.S.C. 
     1352(a)(7)) is amended by striking ``aid to families with 
     dependent children under the State plan approved under 
     section 402 of this Act'' and inserting ``assistance under a 
     State program funded under part A of title IV''.
       (g) Amendment to Title XVI as in Effect With Respect to the 
     Territories.--Section 1602(a)(11), as in effect without 
     regard to the amendment made by section 301 of the Social 
     Security Amendments of 1972 (42 U.S.C. 1382 note), is amended 
     by striking ``aid under the State plan approved'' and 
     inserting ``assistance under a State program funded''.
       (h) Amendment to Title XVI as in Effect With Respect to the 
     States.--Section 1611(c)(5)(A) (42 U.S.C. 1382(c)(5)(A)) is 
     amended to read as follows: ``(A) a State program funded 
     under part A of title IV,''.

     SEC. 12104. CONFORMING AMENDMENTS TO THE FOOD STAMP ACT OF 
                   1977 AND RELATED PROVISIONS.

       (a) Section 5 of the Food Stamp Act of 1977 (7 U.S.C. 2014) 
     is amended--
       (1) in the second sentence of subsection (a), by striking 
     ``plan approved'' and all that follows through ``title IV of 
     the Social Security Act'' and inserting ``program funded 
     under part A of title IV of the Social Security Act (42 
     U.S.C. 601 et seq.) that the Secretary determines complies 
     with standards established by the Secretary that ensure that 
     the standards under the State program are comparable to or 
     more restrictive than those in effect on June 1, 1995'';
       (2) in subsection (d)--
       (A) in paragraph (5), by striking ``assistance to families 
     with dependent children'' and inserting ``assistance under a 
     State program funded''; and
       (B) by striking paragraph (13) and redesignating paragraphs 
     (14), (15), and (16) as paragraphs (13), (14), and (15), 
     respectively;
       (3) in subsection (j), by striking ``plan approved under 
     part A of title IV of such Act (42 U.S.C. 601 et seq.)'' and 
     inserting ``program funded under part A of title IV of the 
     Act (42 U.S.C. 601 et seq.) that the Secretary determines 
     complies with standards established by the Secretary that 
     ensure that the standards under the State program are 
     comparable to or more restrictive than those in effect on 
     June 1, 1995''.
       (b) Section 6 of such Act (7 U.S.C. 2015) is amended--
       (1) in subsection (c)(5), by striking ``the State plan 
     approved'' and inserting ``the State program funded'';
       (2) in subsection (e)--
       (A) by striking ``aid to families with dependent children'' 
     and inserting ``benefits under a State program funded''; and
       (B) by inserting before the semicolon the following: ``that 
     the Secretary determines complies with standards established 
     by the Secretary that ensure that the standards under the 
     State program are comparable to or more restrictive than 
     those in effect on June 1, 1995''; and
       (3) by adding at the end the following new subsection:
       ``(i) Eligibility Under Other Law.--Notwithstanding any 
     other provision of this Act, a household may not receive 
     benefits under this Act as a result of the household's 
     eligibility under a State program funded under part A of 
     title IV of the Social Security Act (42 U.S.C. 601 et seq.), 
     unless the Secretary determines that any household with 
     income above 130 percent of the poverty guidelines is not 
     eligible for the program.''.
       (c) Section 16(g)(4) of such Act (7 U.S.C. 2025(g)(4)) is 
     amended by striking ``State plans under the Aid to Families 
     with Dependent Children Program under'' and inserting ``State 
     programs funded under part A of''.
       (d) Section 17 of such Act (7 U.S.C. 2026) is amended--
       (1) in the first sentence of subsection (b)(1)(A), by 
     striking ``to aid to families with dependent children under 
     part A of title IV of the Social Security Act'' and inserting 
     ``or are receiving assistance under a State program funded 
     under part A of title IV of the Social Security Act (42 
     U.S.C. 601 et seq.)''; and
       (2) in subsection (b)(3), by adding at the end the 
     following new subparagraph:
        ``(I) The Secretary may not grant a waiver under this 
     paragraph on or after October 1, 1995. Any reference in this 
     paragraph to a provision of title IV of the Social Security 
     Act shall be deemed to be a reference to such provision as in 
     effect on September 30, 1995.'';
       (e) Section 20 of such Act (7 U.S.C. 2029) is amended--
       (1) in subsection (a)(2)(B) by striking ``operating--'' and 
     all that follows through ``(ii) any other'' and inserting 
     ``operating any''; and
       (2) in subsection (b)--
       (A) in paragraph (1)--
       (i) by striking ``(b)(1) A household'' and inserting ``(b) 
     A household''; and
       (ii) in subparagraph (B), by striking ``training program'' 
     and inserting ``activity'';
       (B) by striking paragraph (2); and
       (C) by redesignating subparagraphs (A) through (F) as 
     paragraphs (1) through (6), respectively.
       (f) Section 5(h)(1) of the Agriculture and Consumer 
     Protection Act of 1973 (Public Law 93-186; 7 U.S.C. 612c 
     note) is amended by striking ``the program for aid to 
     families with dependent children'' and inserting ``the State 
     program funded''.
       (g) Section 9 of the National School Lunch Act (42 U.S.C. 
     1758) is amended--
       (1) in subsection (b)--
       (A) in paragraph (2)(C)(ii)(II)--
       (i) by striking ``program for aid to families with 
     dependent children'' and inserting ``State program funded''; 
     and
       (ii) by inserting before the period at the end the 
     following: ``that the Secretary determines complies with 
     standards established by the Secretary that ensure that the 
     standards under the State program are comparable to or more 
     restrictive than those in effect on June 1, 1995''; and
       (B) in paragraph (6)--
       (i) in subparagraph (A)(ii)--

       (I) by striking ``an AFDC assistance unit (under the aid to 
     families with dependent children program authorized'' and 
     inserting ``a family (under the State program funded''; and
       (II) by striking ``, in a State'' and all that follows 
     through ``9902(2)))'' and inserting ``that the Secretary 
     determines complies with standards established by the 
     Secretary that ensure that the standards under the State 
     program are comparable to or more restrictive than those in 
     effect on June 1, 1995''; and

       (ii) in subparagraph (B), by striking ``aid to families 
     with dependent children'' and inserting ``assistance under 
     the State program funded under part A of title IV of the 
     Social Security Act (42 U.S.C. 601 et seq.) that the 
     Secretary determines complies with standards established by 
     the Secretary that ensure that the standards under the State 
     program are comparable to or more restrictive than those in 
     effect on June 1, 1995''; and
       (2) in subsection (d)(2)(C)--
       (A) by striking ``program for aid to families with 
     dependent children'' and inserting ``State program funded''; 
     and
       (B) by inserting before the period at the end the 
     following: ``that the Secretary determines complies with 
     standards established by the Secretary that ensure that the 
     standards under the State program are comparable to or more 
     restrictive than those in effect on June 1, 1995''.
       (h) Section 17(d)(2)(A)(ii)(II) of the Child Nutrition Act 
     of 1966 (42 U.S.C. 1786(d)(2)(A)(ii)(II)) is amended--
       (1) by striking ``program for aid to families with 
     dependent children established'' and inserting ``State 
     program funded''; and

[[Page H 12702]]

       (2) by inserting before the semicolon the following: ``that 
     the Secretary determines complies with standards established 
     by the Secretary that ensure that the standards under the 
     State program are comparable to or more restrictive than 
     those in effect on June 1, 1995''.

     SEC. 12105. CONFORMING AMENDMENTS TO OTHER LAWS.

       (a) Subsection (b) of section 508 of the Unemployment 
     Compensation Amendments of 1976 (42 U.S.C. 603a; Public Law 
     94-566; 90 Stat. 2689) is amended to read as follows:
       ``(b) Provision for Reimbursement of Expenses.--For 
     purposes of section 455 of the Social Security Act, expenses 
     incurred to reimburse State employment offices for furnishing 
     information requested of such offices--
       ``(1) pursuant to the third sentence of section 3(a) of the 
     Act entitled `An Act to provide for the establishment of a 
     national employment system and for cooperation with the 
     States in the promotion of such system, and for other 
     purposes', approved June 6, 1933 (29 U.S.C. 49b(a)), or
       ``(2) by a State or local agency charged with the duty of 
     carrying a State plan for child support approved under part D 
     of title IV of the Social Security Act,
     shall be considered to constitute expenses incurred in the 
     administration of such State plan.''.
       (b) Section 9121 of the Omnibus Budget Reconciliation Act 
     of 1987 (42 U.S.C. 602 note) is repealed.
       (c) Section 9122 of the Omnibus Budget Reconciliation Act 
     of 1987 (42 U.S.C. 602 note) is repealed.
       (d) Section 221 of the Housing and Urban-Rural Recovery Act 
     of 1983 (42 U.S.C. 602 note), relating to treatment under 
     AFDC of certain rental payments for federally assisted 
     housing, is repealed.
       (e) Section 159 of the Tax Equity and Fiscal Responsibility 
     Act of 1982 (42 U.S.C. 602 note) is repealed.
       (f) Section 202(d) of the Social Security Amendments of 
     1967 (81 Stat. 882; 42 U.S.C. 602 note) is repealed.
       (g) Section 903 of the Stewart B. McKinney Homeless 
     Assistance Amendments Act of 1988 (42 U.S.C. 11381 note), 
     relating to demonstration projects to reduce number of AFDC 
     families in welfare hotels, is amended--
       (1) in subsection (a), by striking ``aid to families with 
     dependent children under a State plan approved'' and 
     inserting ``assistance under a State program funded''; and
       (2) in subsection (c), by striking ``aid to families with 
     dependent children in the State under a State plan approved'' 
     and inserting ``assistance in the State under a State program 
     funded''.
       (h) The Higher Education Act of 1965 (20 U.S.C. 1001 et 
     seq.) is amended--
       (1) in section 404C(c)(3) (20 U.S.C. 1070a-23(c)(3)), by 
     striking ``(Aid to Families with Dependent Children)''; and
       (2) in section 480(b)(2) (20 U.S.C. 1087vv(b)(2)), by 
     striking ``aid to families with dependent children under a 
     State plan approved'' and inserting ``assistance under a 
     State program funded''.
       (i) The Carl D. Perkins Vocational and Applied Technology 
     Education Act (20 U.S.C. 2301 et seq.) is amended--
       (1) in section 231(d)(3)(A)(ii) (20 U.S.C. 
     2341(d)(3)(A)(ii)), by striking ``the program for aid to 
     dependent children'' and inserting ``the State program 
     funded'';
       (2) in section 232(b)(2)(B) (20 U.S.C. 2341a(b)(2)(B)), by 
     striking ``the program for aid to families with dependent 
     children'' and inserting ``the State program funded''; and
       (3) in section 521(14)(B)(iii) (20 U.S.C. 
     2471(14)(B)(iii)), by striking ``the program for aid to 
     families with dependent children'' and inserting ``the State 
     program funded''.
       (j) The Elementary and Secondary Education Act of 1965 (20 
     U.S.C. 2701 et seq.) is amended--
       (1) in section 1113(a)(5) (20 U.S.C. 6313(a)(5)), by 
     striking ``Aid to Families with Dependent Children Program'' 
     and inserting ``State program funded under part A of title IV 
     of the Social Security Act'';
       (2) in section 1124(c)(5) (20 U.S.C. 6333(c)(5)), by 
     striking ``the program of aid to families with dependent 
     children under a State plan approved under'' and inserting 
     ``a State program funded under part A of''; and
       (3) in section 5203(b)(2) (20 U.S.C. 7233(b)(2))--
       (A) in subparagraph (A)(xi), by striking ``Aid to Families 
     with Dependent Children benefits'' and inserting ``assistance 
     under a State program funded under part A of title IV of the 
     Social Security Act''; and
       (B) in subparagraph (B)(viii), by striking ``Aid to 
     Families with Dependent Children'' and inserting ``assistance 
     under the State program funded under part A of title IV of 
     the Social Security Act''.
       (k) Chapter VII of title I of Public Law 99-88 (25 U.S.C. 
     13d-1) is amended to read as follows: ``Provided further, 
     That general assistance payments made by the Bureau of Indian 
     Affairs shall be made--
       ``(1) after April 29, 1985, and before October 1, 1995, on 
     the basis of Aid to Families with Dependent Children (AFDC) 
     standards of need; and
       ``(2) on and after October 1, 1995, on the basis of 
     standards of need established under the State program funded 
     under part A of title IV of the Social Security Act,
     except that where a State ratably reduces its AFDC or State 
     program payments, the Bureau shall reduce general assistance 
     payments in such State by the same percentage as the State 
     has reduced the AFDC or State program payment.''.
       (l) The Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.) 
     is amended--
       (1) in section 51(d)(9) (26 U.S.C. 51(d)(9)), by striking 
     all that follows ``agency as'' and inserting ``being eligible 
     for financial assistance under part A of title IV of the 
     Social Security Act and as having continually received such 
     financial assistance during the 90-day period which 
     immediately precedes the date on which such individual is 
     hired by the employer.'';
       (2) in section 3304(a)(16) (26 U.S.C. 3304(a)(16)), by 
     striking ``eligibility for aid or services,'' and all that 
     follows through ``children approved'' and inserting 
     ``eligibility for assistance, or the amount of such 
     assistance, under a State program funded'';
       (3) in section 6103(l)(7)(D)(i) (26 U.S.C. 
     6103(l)(7)(D)(i)), by striking ``aid to families with 
     dependent children provided under a State plan approved'' and 
     inserting ``a State program funded'';
       (4) in section 6334(a)(11)(A) (26 U.S.C. 6334(a)(11)(A)), 
     by striking ``(relating to aid to families with dependent 
     children)''; and
       (5) in section 7523(b)(3)(C) (26 U.S.C. 7523(b)(3)(C)), by 
     striking ``aid to families with dependent children'' and 
     inserting ``assistance under a State program funded under 
     part A of title IV of the Social Security Act''.
       (m) Section 3(b) of the Wagner-Peyser Act (29 U.S.C. 
     49b(b)) is amended by striking ``State plan approved under 
     part A of title IV'' and inserting ``State program funded 
     under part A of title IV''.
       (n) The Job Training Partnership Act (29 U.S.C. 1501 et 
     seq.) is amended--
       (1) in section 4(29)(A)(i) (29 U.S.C. 1503(29)(A)(i)), by 
     striking ``(42 U.S.C. 601 et seq.)'';
       (2) in section 106(b)(6)(C) (29 U.S.C. 1516(b)(6)(C)), by 
     striking ``State aid to families with dependent children 
     records,'' and inserting ``records collected under the State 
     program funded under part A of title IV of the Social 
     Security Act,'';
       (3) in section 121(b)(2) (29 U.S.C. 1531(b)(2))--
       (A) by striking ``the JOBS program'' and inserting ``the 
     work activities required under title IV of the Social 
     Security Act''; and
       (B) by striking the second sentence;
       (4) in section 123(c) (29 U.S.C. 1533(c))--
       (A) in paragraph (1)(E), by repealing clause (vi); and
       (B) in paragraph (2)(D), by repealing clause (v);
       (5) in section 203(b)(3) (29 U.S.C. 1603(b)(3)), by 
     striking ``, including recipients under the JOBS program'';
       (6) in subparagraphs (A) and (B) of section 204(a)(1) (29 
     U.S.C. 1604(a)(1) (A) and (B)), by striking ``(such as the 
     JOBS program)'' each place it appears;
       (7) in section 205(a) (29 U.S.C. 1605(a)), by striking 
     paragraph (4) and inserting the following:
       ``(4) the portions of title IV of the Social Security Act 
     relating to work activities;'';
       (8) in section 253 (29 U.S.C. 1632)--
       (A) in subsection (b)(2), by repealing subparagraph (C); 
     and
       (B) in paragraphs (1)(B) and (2)(B) of subsection (c), by 
     striking ``the JOBS program or'' each place it appears;
       (9) in section 264 (29 U.S.C. 1644)--
       (A) in subparagraphs (A) and (B) of subsection (b)(1), by 
     striking ``(such as the JOBS program)'' each place it 
     appears; and
       (B) in subparagraphs (A) and (B) of subsection (d)(3), by 
     striking ``and the JOBS program'' each place it appears;
       (10) in section 265(b) (29 U.S.C. 1645(b)), by striking 
     paragraph (6) and inserting the following:
       ``(6) the portion of title IV of the Social Security Act 
     relating to work activities;'';
       (11) in the second sentence of section 429(e) (29 U.S.C. 
     1699(e)), by striking ``and shall be in an amount that does 
     not exceed the maximum amount that may be provided by the 
     State pursuant to section 402(g)(1)(C) of the Social Security 
     Act (42 U.S.C. 602(g)(1)(C))'';
       (12) in section 454(c) (29 U.S.C. 1734(c)), by striking 
     ``JOBS and'';
       (13) in section 455(b) (29 U.S.C. 1735(b)), by striking 
     ``the JOBS program,'';
       (14) in section 501(1) (29 U.S.C. 1791(1)), by striking 
     ``aid to families with dependent children under part A of 
     title IV of the Social Security Act (42 U.S.C. 601 et seq.)'' 
     and inserting ``assistance under the State program funded 
     under part A of title IV of the Social Security Act'';
       (15) in section 506(1)(A) (29 U.S.C. 1791e(1)(A)), by 
     striking ``aid to families with dependent children'' and 
     inserting ``assistance under the State program funded'';
       (16) in section 508(a)(2)(A) (29 U.S.C. 1791g(a)(2)(A)), by 
     striking ``aid to families with dependent children'' and 
     inserting ``assistance under the State program funded''; and
       (17) in section 701(b)(2)(A) (29 U.S.C. 1792(b)(2)(A))--
       (A) in clause (v), by striking the semicolon and inserting 
     ``; and''; and
       (B) by striking clause (vi).
       (o) Section 3803(c)(2)(C)(iv) of title 31, United States 
     Code, is amended to read as follows:
       ``(iv) assistance under a State program funded under part A 
     of title IV of the Social Security Act''.
       (p) Section 2605(b)(2)(A)(i) of the Low-Income Home Energy 
     Assistance Act of 1981 (42 U.S.C. 8624(b)(2)(A)(i)) is 
     amended to read as follows:
       ``(i) assistance under the State program funded under part 
     A of title IV of the Social Security Act;''.
       (q) Section 303(f)(2) of the Family Support Act of 1988 (42 
     U.S.C. 602 note) is amended--
       (1) by striking ``(A)''; and
       (2) by striking subparagraphs (B) and (C).
       (r) The Balanced Budget and Emergency Deficit Control Act 
     of 1985 (2 U.S.C. 900 et seq.) is amended--
       (1) in the first section 255(h) (2 U.S.C. 905(h)), by 
     striking ``Aid to families with dependent children (75-0412-
     0-1-609);'' and inserting ``Block grants to States for 
     temporary assistance for needy families;''; and

[[Page H 12703]]

       (2) in section 256 (2 U.S.C. 906)--
       (A) by striking subsection (k); and
       (B) by redesignating subsection (l) as subsection (k).
       (s) The Immigration and Nationality Act (8 U.S.C. 1101 et 
     seq.) is amended--
       (1) in section 210(f) (8 U.S.C. 1160(f)), by striking ``aid 
     under a State plan approved under'' each place it appears and 
     inserting ``assistance under a State program funded under'';
       (2) in section 245A(h) (8 U.S.C. 1255a(h))--
       (A) in paragraph (1)(A)(i), by striking ``program of aid to 
     families with dependent children'' and inserting ``State 
     program of assistance''; and
       (B) in paragraph (2)(B), by striking ``aid to families with 
     dependent children'' and inserting ``assistance under a State 
     program funded under part A of title IV of the Social 
     Security Act''; and
       (3) in section 412(e)(4) (8 U.S.C. 1522(e)(4)), by striking 
     ``State plan approved'' and inserting ``State program 
     funded''.
       (t) Section 640(a)(4)(B)(i) of the Head Start Act (42 
     U.S.C. 9835(a)(4)(B)(i)) is amended by striking ``program of 
     aid to families with dependent children under a State plan 
     approved'' and inserting ``State program of assistance 
     funded''.
       (u) Section 9 of the Act of April 19, 1950 (64 Stat. 47, 
     chapter 92; 25 U.S.C. 639) is repealed.
       (v) Subparagraph (E) of section 213(d)(6) of the School-To-
     Work Opportunities Act of 1994 (20 U.S.C. 6143(d)(6)) is 
     amended to read as follows:
       ``(E) part A of title IV of the Social Security Act (42 
     U.S.C. 601 et seq.) relating to work activities;''.

     SEC. 12106. EFFECTIVE DATE; TRANSITION RULE.

       (a) In General.--Except as otherwise provided in this 
     subtitle, this subtitle and the amendments made by this 
     subtitle shall take effect on October 1, 1995.
       (b) Penalties.--
       (1) In general.--Paragraphs (2) through (7) and paragraph 
     (9) of section 408(a) of the Social Security Act (as added by 
     section 12101 of this Act) shall apply with respect to fiscal 
     years beginning on or after October 1, 1996.
       (2) Misuse of funds.--Paragraphs (1) and (8) of section 
     408(a) of the Social Security Act (as added by section 12101 
     of this Act, shall apply with respect to fiscal years 
     beginning on or after October 1, 1995.
       (c) Transition Rules.--
       (1) State option to continue afdc program.--
       (A) 9-month extension.--A State may elect to continue the 
     State AFDC program until June 30, 1996.
       (B) No individual or family entitlement under continued 
     state afdc programs.--Notwithstanding any other provision of 
     law or any rule of law, no individual or family is entitled 
     to aid under any State AFDC program on or after the date of 
     the enactment of this Act.
       (C) Limitations on federal obligations.--
       (i) Under afdc program.--If a State elects to continue the 
     State AFDC program pursuant to subparagraph (A), the total 
     obligations of the Federal Government to the State under part 
     A of title IV of the Social Security Act (as in effect on 
     September 30, 1995) after the date of the enactment of this 
     Act shall not exceed an amount equal to--

       (I) the State family assistance grant (as defined in 
     section 402(a)(1)(B) of the Social Security Act (as in effect 
     pursuant to the amendment made by section 12101 of this 
     Act)); minus
       (II) any obligations of the Federal Government to the State 
     under such part (as in effect on September 30, 1995) with 
     respect to expenditures by the State during the period that 
     begins on October 1, 1995, and ends on the day before the 
     date of the enactment of this Act.

       (ii) Under temporary family assistance program.--
     Notwithstanding section 402(a)(1) of the Social Security Act 
     (as in effect pursuant to the amendment made by section 12101 
     of this Act), the total obligations of the Federal Government 
     to the State under such section 402(a)(1) for fiscal year 
     1996 after the termination of the State AFDC program shall 
     not exceed an amount equal to--

       (I) the amount described in clause (i)(I) of this 
     subparagraph; minus
       (II) any obligations of the Federal Government to the State 
     under part A of title IV of the Social Security Act (as in 
     effect on September 30, 1995) with respect to expenditures by 
     the State on or after October 1, 1995.

       (D) Submission of state plan for fiscal year 1996 deemed 
     acceptance of grant limitations and formula.--The submission 
     of a plan by a State under section 401(a) of the Social 
     Security Act (as in effect pursuant to the amendment made by 
     section 12101 of this Act) for fiscal year 1996 is deemed to 
     constitute the State's acceptance of the grant reductions 
     under subparagraph (C)(ii) of this paragraph (including the 
     formula for computing the amount of the reduction).
       (E) State afdc program defined.--As used in this paragraph, 
     the term ``State AFDC program'' means the State program under 
     parts A and F of title IV of the Social Security Act (as in 
     effect on September 30, 1995).
       (2) Claims, actions, and proceedings.--The amendments made 
     by this subtitle shall not apply with respect to--
       (A) powers, duties, functions, rights, claims, penalties, 
     or obligations applicable to aid, assistance, or services 
     provided before the effective date of this subtitle under the 
     provisions amended; and
       (B) administrative actions and proceedings commenced before 
     such date, or authorized before such date to be commenced, 
     under such provisions.
       (3) Closing out account for those programs terminated or 
     substantially modified by this subtitle.--In closing out 
     accounts, Federal and State officials may use scientifically 
     acceptable statistical sampling techniques. Claims made under 
     programs which are repealed or substantially amended in this 
     subtitle and which involve State expenditures in cases where 
     assistance or services were provided during a prior fiscal 
     year, shall be treated as expenditures during fiscal year 
     1995 for purposes of reimbursement even if payment was made 
     by a State on or after October 1, 1995. States shall complete 
     the filing of all claims no later than September 30, 1997. 
     Federal department heads shall--
       (A) use the single audit procedure to review and resolve 
     any claims in connection with the close out of programs, and
       (B) reimburse States for any payments made for assistance 
     or services provided during a prior fiscal year from funds 
     for fiscal year 1995, rather than the funds authorized by 
     this subtitle.
       (4) Continuance in office of assistant secretary for family 
     support.--The individual who, on the day before the effective 
     date of this subtitle, is serving as Assistant Secretary for 
     Family Support within the Department of Health and Human 
     Services shall, until a successor is appointed to such 
     position--
       (A) continue to serve in such position; and
       (B) except as otherwise provided by law--
       (i) continue to perform the functions of the Assistant 
     Secretary for Family Support under section 417 of the Social 
     Security Act (as in effect before such effective date); and
       (ii) have the powers and duties of the Assistant Secretary 
     for Family Support under section 415 of the Social Security 
     Act (as in effect pursuant to the amendment made by section 
     12101 of this Act).
       (d) Sunset.--The amendment made by section 12101 shall be 
     effective only during the 6-year period beginning on October 
     1, 1995.
                Subtitle B--Supplemental Security Income

     SEC. 12200. REFERENCE TO SOCIAL SECURITY ACT.

       Except as otherwise specifically provided, where ever in 
     this subtitle an amendment is expressed in terms of an 
     amendment to or repeal of a section or other provision, the 
     reference shall be considered to be made to that section or 
     other provision of the Social Security Act.

                  CHAPTER 1--ELIGIBILITY RESTRICTIONS

     SEC. 12201. DENIAL OF SUPPLEMENTAL SECURITY INCOME BENEFITS 
                   BY REASON OF DISABILITY TO DRUG ADDICTS AND 
                   ALCOHOLICS.

       (a) In General.--Section 1614(a)(3) (42 U.S.C. 1382c(a)(3)) 
     is amended by adding at the end the following:
       ``(I) Notwithstanding subparagraph (A), an individual shall 
     not be considered to be disabled for purposes of this title 
     if alcoholism or drug addiction would (but for this 
     subparagraph) be a contributing factor material to the 
     Commissioner's determination that the individual is 
     disabled.''.
       (b) Representative Payee Requirements.--
       (1) Section 1631(a)(2)(A)(ii)(II) (42 U.S.C. 
     1383(a)(2)(A)(ii)(II)) is amended to read as follows:
       ``(II) In the case of an individual eligible for benefits 
     under this title by reason of disability, the payment of such 
     benefits shall be made to a representative payee if the 
     Commissioner of Social Security determines that such payment 
     would serve the interest of the individual because the 
     individual also has an alcoholism or drug addiction condition 
     that prevents the individual from managing such benefits.''.
       (2) Section 1631(a)(2)(B)(vii) (42 U.S.C. 
     1383(a)(2)(B)(vii)) is amended by striking ``eligible for 
     benefits'' and all that follows through ``is disabled'' and 
     inserting ``described in subparagraph (A)(ii)(II)''.
       (3) Section 1631(a)(2)(B)(ix)(II) (42 U.S.C. 
     1383(a)(2)(B)(ix)(II)) is amended by striking all that 
     follows ``15 years, or'' and inserting ``described in 
     subparagraph (A)(ii)(II)''.
       (4) Section 1631(a)(2)(D)(i)(II) (42 U.S.C. 
     1383(a)(2)(D)(i)(II)) is amended by striking ``eligible for 
     benefits'' and all that follows through ``is disabled'' and 
     inserting ``described in subparagraph (A)(ii)(II)''.
       (c) Treatment Referrals for Individuals with an Alcoholism 
     or Drug Addiction Condition.--Title XVI (42 U.S.C. 1381 et 
     seq.) is amended by adding at the end the following new 
     section:


   ``TREATMENT REFERRALS FOR INDIVIDUALS WITH AN ALCOHOLISM OR DRUG 
                          ADDICTION CONDITION

       ``Sec. 1636. In the case of any eligible individual whose 
     benefits under this title by reason of disability are paid to 
     a representative payee pursuant to section 
     1631(a)(2)(A)(ii)(II), the Commissioner of Social Security 
     shall refer such individual to the appropriate State agency 
     administering the State plan for substance abuse treatment 
     services approved under subpart II of part B of title XIX of 
     the Public Health Service Act (42 U.S.C. 300x-21 et seq.).''.
       (d) Conforming Amendments.--
       (1) Section 1611(e) (42 U.S.C. 1382(e)) is amended by 
     striking paragraph (3).
       (2) Section 1634 (42 U.S.C. 1383c) is amended by striking 
     subsection (e).
       (3) Section 201(c)(1) of the Social Security Independence 
     and Program Improvements Act of 1994 (42 U.S.C. 425 note) is 
     amended--
       (A) by striking ``to--'' and all that follows through ``in 
     cases in which'' and inserting ``to individuals who are 
     entitled to disability insurance benefits or child's, 
     widow's, or widower's insurance benefits based on disability 
     under title II of the Social Security Act, in cases in 
     which'';
       (B) by striking ``either subparagraph (A) or subparagraph 
     (B)'' and inserting ``the preceding sentence''; and
       (C) by striking ``subparagraph (A) or (B)'' and inserting 
     ``the preceding sentence''.

[[Page H 12704]]

       (e) Supplemental Funding for Alcohol and Substance Abuse 
     Treatment Programs.--
       (1) In general.--Out of any money in the Treasury not 
     otherwise appropriated, there are hereby appropriated to 
     supplement State and Tribal programs funded under section 
     1933 of the Public Health Service Act (42 U.S.C. 300x-33), 
     $50,000,000 for each of the fiscal years 1997 and 1998.
       (2) Additional funds.--Amounts appropriated under paragraph 
     (1) shall be in addition to any funds otherwise appropriated 
     for allotments under section 1933 of the Public Health 
     Service Act (42 U.S.C. 300x-33) and shall be allocated 
     pursuant to such section 1933.
       (3) Use of Funds.--A State or Tribal government receiving 
     an allotment under this subsection shall consider as 
     priorities, for purposes of expending funds allotted under 
     this subsection, activities relating to the treatment of the 
     abuse of alcohol and other drugs.
       (f) Effective dates.--
       (1) In general.--Except as provided in paragraphs (2) and 
     (3), the amendments made by this section shall apply to 
     applicants for benefits for months beginning on or after the 
     date of the enactment of this Act, without regard to whether 
     regulations have been issued to implement such amendments.
       (2) Application to current recipients.--
       (A) Application and notice.--Notwithstanding any other 
     provision of law, in the case of an individual who is 
     receiving supplemental security income benefits under title 
     XVI of the Social Security Act as of the date of the 
     enactment of this Act and whose eligibility for such benefits 
     would terminate by reason of the amendments made by this 
     section, such amendments shall apply with respect to the 
     benefits of such individual, including such individual's 
     treatment (if any) provided pursuant to such title as in 
     effect on the day before the date of such enactment, for 
     months beginning on or after January 1, 1997, and the 
     Commissioner of Social Security shall so notify the 
     individual not later than 90 days after the date of the 
     enactment of this Act.
       (B) Reapplication.--
       (i) In general.--Not later than 120 days after the date of 
     the enactment of this Act, each individual notified pursuant 
     to subparagraph (A) who desires to reapply for benefits under 
     title XVI of the Social Security Act, as amended by this 
     title, may reapply to the Commissioner of Social Security.
       (ii) Determination of eligibility.--Not later than January 
     1, 1997, the Commissioner of Social Security shall complete 
     the eligibility redetermination of each individual who 
     reapplies for benefits under clause (i) pursuant to the 
     procedures of title XVI of such Act.
       (3) Additional application of payee representative and 
     treatment referral requirements.--The amendments made by 
     subsections (b) and (c) shall also apply--
       (A) in the case of any individual who is receiving 
     supplemental security income benefits under title XVI of the 
     Social Security Act as of the date of the enactment of this 
     Act, on and after the date of such individual's first 
     continuing disability review occurring after such date of 
     enactment, and
       (B) in the case of any individual who receives supplemental 
     security income benefits under title XVI of the Social 
     Security Act and has attained age 65, in such manner as 
     determined appropriate by the Commissioner of Social 
     Security.

     SEC. 12202. DENIAL OF SSI BENEFITS FOR 10 YEARS TO 
                   INDIVIDUALS FOUND TO HAVE FRAUDULENTLY 
                   MISREPRESENTED RESIDENCE IN ORDER TO OBTAIN 
                   BENEFITS SIMULTANEOUSLY IN 2 OR MORE STATES.

       (a) In General.--Section 1614(a) (42 U.S.C. 1382c(a)) is 
     amended by adding at the end the following new paragraph:
       ``(5) An individual shall not be considered an eligible 
     individual for the purposes of this title during the 10-year 
     period that begins on the date the individual is convicted in 
     Federal or State court of having made a fraudulent statement 
     or representation with respect to the place of residence of 
     the individual in order to receive assistance simultaneously 
     from 2 or more States under programs that are funded under 
     title IV, title XXI, or the Food Stamp Act of 1977, or 
     benefits in 2 or more States under the supplemental security 
     income program under this title.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 12203. DENIAL OF SSI BENEFITS FOR FUGITIVE FELONS AND 
                   PROBATION AND PAROLE VIOLATORS.

       (a) In General.--Section 1611(e) (42 U.S.C. 1382(e)), as 
     amended by section 12201(d)(1), is amended by inserting after 
     paragraph (2) the following new paragraph:
       ``(3) A person shall not be considered an eligible 
     individual or eligible spouse for purposes of this title with 
     respect to any month if during such month the person is--
       ``(A) fleeing to avoid prosecution, or custody or 
     confinement after conviction, under the laws of the place 
     from which the person flees, for a crime, or an attempt to 
     commit a crime, which is a felony under the laws of the place 
     from which the person flees, or which, in the case of the 
     State of New Jersey, is a high misdemeanor under the laws of 
     such State; or
       ``(B) violating a condition of probation or parole imposed 
     under Federal or State law.''.
       (b) Exchange of Information With Law Enforcement 
     Agencies.--Section 1611(e) (42 U.S.C. 1382(e)), as amended by 
     section 12201(d)(1) and subsection (a), is amended by 
     inserting after paragraph (3) the following new paragraph:
       ``(4) Notwithstanding any other provision of law, the 
     Commissioner shall furnish any Federal, State, or local law 
     enforcement officer, upon the request of the officer, with 
     the current address, Social Security number, and photograph 
     (if applicable) of any recipient of benefits under this 
     title, if the officer furnishes the Commissioner with the 
     name of the recipient and notifies the Commissioner that--
       ``(A) the recipient--
       ``(i) is described in subparagraph (A) or (B) of paragraph 
     (3); or
       ``(ii) has information that is necessary for the officer to 
     conduct the officer's official duties; and
       ``(B) the location or apprehension of the recipient is 
     within the officer's official duties.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

               CHAPTER 2--BENEFITS FOR DISABLED CHILDREN

     SEC. 12211. DEFINITION AND ELIGIBILITY RULES.

       (a) Definition of Childhood Disability.--Section 1614(a)(3) 
     (42 U.S.C. 1382c(a)(3)), as amended by section 7251(a), is 
     amended--
       (1) in subparagraph (A), by striking ``An individual'' and 
     inserting ``Except as provided in subparagraph (C), an 
     individual'';
       (2) in subparagraph (A), by striking ``(or, in the case of 
     an individual under the age of 18, if he suffers from any 
     medically determinable physical or mental impairment of 
     comparable severity)'';
       (3) by redesignating subparagraphs (C) through (I) as 
     subparagraphs (D) through (J), respectively;
       (4) by inserting after subparagraph (B) the following new 
     subparagraph:
       ``(C) An individual under the age of 18 shall be considered 
     disabled for the purposes of this title if that individual 
     has a medically determinable physical or mental impairment, 
     which results in marked and severe functional limitations, 
     and which can be expected to result in death or which has 
     lasted or can be expected to last for a continuous period of 
     not less than 12 months. Notwithstanding the preceding 
     sentence, no individual under the age of 18 who engages in 
     substantial gainful activity (determined in accordance with 
     regulations prescribed pursuant to subparagraph (E)) may be 
     considered to be disabled.''; and
       (5) in subparagraph (F), as redesignated by paragraph (3), 
     by striking ``(D)'' and inserting ``(E)''.
       (b) Changes to Childhood SSI Regulations.--
       (1) Modification to medical criteria for evaluation of 
     mental and emotional disorders.--The Commissioner of Social 
     Security shall modify sections 112.00C.2. and 112.02B.2.c.(2) 
     of appendix 1 to subpart P of part 404 of title 20, Code of 
     Federal Regulations, to eliminate references to maladaptive 
     behavior in the domain of personal/behavorial function.
       (2) Discontinuance of individualized functional 
     assessment.--The Commissioner of Social Security shall 
     discontinue the individualized functional assessment for 
     children set forth in sections 416.924d and 416.924e of title 
     20, Code of Federal Regulations.
       (c) Medical Improvement Review Standard as it Applies to 
     Individuals Under the Age of 18.--Section 1614(a)(4) (42 
     U.S.C. 1382(a)(4)) is amended--
       (1) by redesignating subclauses (I) and (II) of clauses (i) 
     and (ii) of subparagraph (B) as subclauses (aa) and (bb), 
     respectively;
       (2) by redesignating clauses (i) and (ii) of subparagraphs 
     (A) and (B) as subclauses (I) and (II), respectively;
       (3) by redesignating subparagraphs (A) through (C) as 
     clauses (i) through (iii), respectively, and by moving their 
     left hand margin 2 ems to the right;
       (4) by inserting before clause (i) (as redesignated by 
     paragraph (3)) the following:
       ``(A) in the case of an individual who is age 18 or older--
     '';
       (5) at the end of subparagraph (A)(iii) (as redesignated by 
     paragraphs (3) and (4)), by striking the period and inserting 
     ``; or'';
       (6) by inserting after and below subparagraph (A)(iii) (as 
     so redesignated) the following:
       ``(B) in the case of an individual who is under the age of 
     18--
       ``(i) substantial evidence which demonstrates that there 
     has been medical improvement in the individual's impairment 
     or combination of impairments, and that such impairment or 
     combination of impairments no longer results in marked and 
     severe functional limitations; or
       ``(ii) substantial evidence which demonstrates that, as 
     determined on the basis of new or improved diagnostic 
     techniques or evaluations, the individual's impairment or 
     combination of impairments, is not as disabling as it was 
     considered to be at the time of the most recent prior 
     decision that he or she was under a disability or continued 
     to be under a disability, and such impairment or combination 
     of impairments does not result in marked or severe functional 
     limitations; or'';
       (7) by redesignating subparagraph (D) as subparagraph (C) 
     and by inserting in such subparagraph ``in the case of any 
     individual,'' before ``substantial evidence''; and
       (8) in the first sentence following subparagraph (C) (as 
     redesignated by paragraph (7)), by--
       (A) inserting ``(i)'' before ``to restore''; and
       (B) inserting ``, or (ii) in the case of an individual 
     under the age of 18, to eliminate or improve the individual's 
     impairment or combination of impairments so that it no longer 
     results in marked and severe functional limitations'' 
     immediately before the period.
       (d) Amount of Benefits.--Section 1611(b) (42 U.S.C. 
     1382(b)) is amended by adding at the end the following new 
     paragraph:
       ``(3)(i) Except with respect to individuals described in 
     clause (ii), the benefit under this title for an individual 
     described in section 1614(a)(3)(C) shall be payable at a rate 
     equal to 

[[Page H 12705]]
     75 percent of the rate otherwise determined under this subsection.
       ``(ii) An individual is described in this clause if such 
     individual is described in section 1614(a)(3)(C), and--
       ``(I) in the case of such an individual under the age of 6, 
     such individual has a medical impairment that severely limits 
     the individual's ability to function in a manner appropriate 
     to individuals of the same age and who without special 
     personal assistance would require specialized care outside 
     the home; or
       ``(II) in the case of such an individual who has attained 
     the age of 6, such individual requires personal care 
     assistance with--
       ``(aa) at least 2 activities of daily living;
       ``(bb) continual 24-hour supervision or monitoring to avoid 
     causing injury or harm to self or others; or
       ``(cc) the administration of medical treatment; and
     who without such assistance would require full-time or part-
     time specialized care outside the home.
       ``(iii)(I) For purposes of clause (ii), the term 
     `specialized care' means medical care beyond routine 
     administration of medication.
       ``(II) For purposes of clause (ii)(II)--
       ``(aa) the term `personal care assistance' means at least 
     hands-on and stand-by assistance, supervision, or cueing; and
       ``(bb) the term `activities of daily living' means eating, 
     toileting, dressing, bathing, and mobility.''.
       (e) Effective Dates, Etc.--
       (1) Effective dates.--
       (A) In general.--The provisions of, and amendments made by, 
     subsections (a), (b), and (c) shall apply to applicants for 
     benefits under title XVI of the Social Security Act for 
     months beginning on or after the date of the enactment of 
     this Act, without regard to whether regulations have been 
     issued to implement such provisions and amendments.
       (B) Eligibility rules.--The amendments made by subsection 
     (d) shall apply to--
       (i) applicants for benefits under title XVI of the Social 
     Security Act for months beginning on or after January 1, 
     1997; and
       (ii) with respect to continuing disability reviews of 
     eligibility for benefits under such title occurring on or 
     after such date.
       (2) Application to current recipients.--
       (A) Eligibility determinations.--Not later than 1 year 
     after the date of the enactment of this Act, the Commissioner 
     of Social Security shall redetermine the eligibility of any 
     individual under age 18 who is receiving supplemental 
     security income benefits based on a disability under title 
     XVI of the Social Security Act as of the date of the 
     enactment of this Act and whose eligibility for such benefits 
     may terminate by reason of the provisions of, and amendments 
     made by, subsections (a), (b), and (c). With respect to any 
     redetermination under this subparagraph--
       (i) section 1614(a)(4) of the Social Security Act (42 
     U.S.C. 1382c(a)(4)) shall not apply;
       (ii) the Commissioner of Social Security shall apply the 
     eligibility criteria for new applicants for benefits under 
     title XVI of such Act;
       (iii) the Commissioner shall give such redetermination 
     priority over all continuing eligibility reviews and other 
     reviews under such title; and
       (iv) such redetermination shall be counted as a review or 
     redetermination otherwise required to be made under section 
     208 of the Social Security Independence and Program 
     Improvements Act of 1994 or any other provision of title XVI 
     of the Social Security Act.
       (B) Grandfather provision.--The provisions of, and 
     amendments made by, subsections (a), (b), and (c), and the 
     redetermination under subparagraph (A), shall only apply with 
     respect to the benefits of an individual described in 
     subparagraph (A) for months beginning on or after January 1, 
     1997.
       (C) Notice.--Not later than 90 days after the date of the 
     enactment of this Act, the Commissioner of Social Security 
     shall notify an individual described in subparagraph (A) of 
     the provisions of this paragraph.
       (3) Regulations.--The Commissioner of Social Security shall 
     submit for review to the committees of jurisdiction in the 
     Congress any final regulation pertaining to the eligibility 
     of individuals under age 18 for benefits under title XVI of 
     the Social Security Act at least 45 days before the effective 
     date of such regulation. The submission under this paragraph 
     shall include supporting documentation providing a cost 
     analysis, workload impact, and projections as to how the 
     regulation will effect the future number of recipients under 
     such title.
       (4) Appropriations.--
       (A) In general.--Out of any money in the Treasury not 
     otherwise appropriated, there are authorized to be 
     appropriated and are hereby appropriated, to remain available 
     without fiscal year limitation, $200,000,000 for fiscal year 
     1996, $75,000,000 for fiscal year 1997, and $25,000,000 for 
     fiscal year 1998, for the Commissioner of Social Security to 
     utilize only for continuing disability reviews and 
     redeterminations under title XVI of the Social Security Act, 
     with reviews and redeterminations for individuals affected by 
     the provisions of subsection (b) given highest priority.
       (B) Additional funds.--Amounts appropriated under 
     subparagraph (A) shall be in addition to any funds otherwise 
     appropriated for continuing disability reviews and 
     redeterminations under title XVI of the Social Security Act.

     SEC. 12212. ELIGIBILITY REDETERMINATIONS AND CONTINUING 
                   DISABILITY REVIEWS.

       (a) Continuing Disability Reviews Relating to Certain 
     Children.--Section 1614(a)(3)(H) (42 U.S.C. 1382c(a)(3)(H)), 
     as redesignated by section 12211(a)(3), is amended--
       (1) by inserting ``(i)'' after ``(H)''; and
       (2) by adding at the end the following new clause:
       ``(ii)(I) Not less frequently than once every 3 years, the 
     Commissioner shall review in accordance with paragraph (4) 
     the continued eligibility for benefits under this title of 
     each individual who has not attained 18 years of age and is 
     eligible for such benefits by reason of an impairment (or 
     combination of impairments) which may improve (or, at the 
     option of the Commissioner, which is unlikely to improve).
       ``(II) A representative payee of a recipient whose case is 
     reviewed under this clause shall present, at the time of 
     review, evidence demonstrating that the recipient is, and has 
     been, receiving treatment, to the extent considered medically 
     necessary and available, of the condition which was the basis 
     for providing benefits under this title.
       ``(III) If the representative payee refuses to comply 
     without good cause with the requirements of subclause (II), 
     the Commissioner of Social Security shall, if the 
     Commissioner determines it is in the best interest of the 
     individual, promptly terminate payment of benefits to the 
     representative payee, and provide for payment of benefits to 
     an alternative representative payee of the individual or, if 
     the interest of the individual under this title would be 
     served thereby, to the individual.
       ``(IV) Subclause (II) shall not apply to the representative 
     payee of any individual with respect to whom the Commissioner 
     determines such application would be inappropriate or 
     unnecessary. In making such determination, the Commissioner 
     shall take into consideration the nature of the individual's 
     impairment (or combination of impairments). Section 1631(c) 
     shall not apply to a finding by the Commissioner that the 
     requirements of subclause (II) should not apply to an 
     individual's representative payee.''.
       (b) Disability Eligibility Redeterminations Required for 
     SSI Recipients Who Attain 18 Years of Age.--
       (1) In general.--Section 1614(a)(3)(H) (42 U.S.C. 
     1382c(a)(3)(H)), as amended by subsection (a), is amended by 
     adding at the end the following new clause:
       ``(iii) If an individual is eligible for benefits under 
     this title by reason of disability for the month preceding 
     the month in which the individual attains the age of 18 
     years, the Commissioner shall redetermine such eligibility--
       ``(I) during the 1-year period beginning on the 
     individual's 18th birthday; and
       ``(II) by applying the criteria used in determining the 
     initial eligibility for applicants who are age 18 or older.
     With respect to a redetermination under this clause, 
     paragraph (4) shall not apply and such redetermination shall 
     be considered a substitute for a review or redetermination 
     otherwise required under any other provision of this 
     subparagraph during that 1-year period.''.
       (2) Conforming repeal.--Section 207 of the Social Security 
     Independence and Program Improvements Act of 1994 (42 U.S.C. 
     1382 note; 108 Stat. 1516) is hereby repealed.
       (c) Continuing Disability Review Required for Low Birth 
     Weight Babies.--Section 1614(a)(3)(H) (42 U.S.C. 
     1382c(a)(3)(H)), as amended by subsections (a) and (b), is 
     amended by adding at the end the following new clause:
       ``(iv)(I) Not later than 12 months after the birth of an 
     individual, the Commissioner shall review in accordance with 
     paragraph (4) the continuing eligibility for benefits under 
     this title by reason of disability of such individual whose 
     low birth weight is a contributing factor material to the 
     Commissioner's determination that the individual is disabled.
       ``(II) A review under subclause (I) shall be considered a 
     substitute for a review otherwise required under any other 
     provision of this subparagraph during that 12-month period.
       ``(III) A representative payee of a recipient whose case is 
     reviewed under this clause shall present, at the time of 
     review, evidence demonstrating that the recipient is, and has 
     been, receiving treatment, to the extent considered medically 
     necessary and available, of the condition which was the basis 
     for providing benefits under this title.
       ``(IV) If the representative payee refuses to comply 
     without good cause with the requirements of subclause (III), 
     the Commissioner of Social Security shall, if the 
     Commissioner determines it is in the best interest of the 
     individual, promptly terminate payment of benefits to the 
     representative payee, and provide for payment of benefits to 
     an alternative representative payee of the individual or, if 
     the interest of the individual under this title would be 
     served thereby, to the individual.
       ``(V) Subclause (III) shall not apply to the representative 
     payee of any individual with respect to whom the Commissioner 
     determines such application would be inappropriate or 
     unnecessary. In making such determination, the Commissioner 
     shall take into consideration the nature of the individual's 
     impairment (or combination of impairments). Section 1631(c) 
     shall not apply to a finding by the Commissioner that the 
     requirements of subclause (III) should not apply to an 
     individual's representative payee.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to benefits for months beginning on or after the 
     date of the enactment of this Act, without regard to whether 
     regulations have been issued to implement such amendments.

     SEC. 12213. ADDITIONAL ACCOUNTABILITY REQUIREMENTS.

       (a) Disposal of Resources for Less Than Fair Market 
     Value.--
       (1) In general.--Section 1613(c) (42 U.S.C. 1382b(c)) is 
     amended to read as follows:
       ``(c) Disposal of Resources for Less Than Fair Market 
     Value.--(1)(A)(i) If an individual who has not attained 18 
     years of age (or any person acting on such individual's 
     behalf) disposes of resources of the individual for less than 
     fair market value on or after the look-back date 

[[Page H 12706]]
     specified in clause (ii)(I), the individual is ineligible for benefits 
     under this title for months during the period beginning on 
     the date specified in clause (iii) and equal to the number of 
     months specified in clause (iv).
       ``(ii)(I) The look-back date specified in this subclause is 
     a date that is 36 months before the date specified in 
     subclause (II).
       ``(II) The date specified in this subclause is the date on 
     which the individual applies for benefits under this title 
     or, if later, the date on which the disposal of the 
     individual's resources for less than fair market value 
     occurs.
       ``(iii) The date specified in this clause is the first day 
     of the first month that follows the month in which the 
     individual's resources were disposed of for less than fair 
     market value and that does not occur in any other period of 
     ineligibility under this paragraph.
       ``(iv) The number of months of ineligibility under this 
     clause for an individual shall be equal to--
       ``(I) the total, cumulative uncompensated value of all the 
     individual's resources so disposed of on or after the look-
     back date specified in clause (ii)(I), divided by
       ``(II) the amount of the maximum monthly benefit payable 
     under section 1611(b) to an eligible individual for the month 
     in which the date specified in clause (ii)(II) occurs.
       ``(B) An individual shall not be ineligible for benefits 
     under this title by reason of subparagraph (A) if the 
     Commissioner determines that--
       ``(i) the individual intended to dispose of the resources 
     at fair market value;
       ``(ii) the resources were transferred exclusively for a 
     purpose other than to qualify for benefits under this title;
       ``(iii) all resources transferred for less than fair market 
     value have been returned to the individual; or
       ``(iv) the denial of eligibility would work an undue 
     hardship on the individual (as determined on the basis of 
     criteria established by the Commissioner in regulations).
       ``(C) For purposes of this paragraph, in the case of a 
     resource held by an individual in common with another person 
     or persons in a joint tenancy, tenancy in common, or similar 
     arrangement, the resource (or the affected portion of such 
     resource) shall be considered to be disposed of by such 
     individual when any action is taken, either by such 
     individual or by any other person, that reduces or eliminates 
     such individual's ownership or control of such resource.
       ``(D)(i) Notwithstanding subparagraph (A), this subsection 
     shall not apply to a transfer of a resource to a trust if the 
     portion of the trust attributable to such resource is 
     considered a resource available to the individual pursuant to 
     subsection (e)(3) (or would be so considered, but for the 
     application of subsection (e)(4)).
       ``(ii) In the case of a trust established by an individual 
     (within the meaning of paragraph (2)(A) of subsection (e)), 
     if from such portion of the trust (if any) that is considered 
     a resource available to the individual pursuant to paragraph 
     (3) of such subsection (or would be so considered but for the 
     application of paragraph (2) of such subsection) or the 
     residue of such portion upon the termination of the trust--
       ``(I) there is made a payment other than to or for the 
     benefit of the individual, or
       ``(II) no payment could under any circumstance be made to 
     the individual,
     then the payment described in subclause (I) or the 
     foreclosure of payment described in subclause (II) shall be 
     considered a disposal of resources by the individual subject 
     to this subsection, as of the date of such payment or 
     foreclosure, respectively.
       ``(2)(A) At the time an individual (and the individual's 
     eligible spouse, if any) applies for benefits under this 
     title, and at the time the eligibility of an individual (and 
     such spouse, if any) for such benefits is redetermined, the 
     Commissioner of Social Security shall--
       ``(i) inform such individual of the provisions of paragraph 
     (1) providing for a period of ineligibility for benefits 
     under this title for individuals who make certain 
     dispositions of resources for less than fair market value, 
     and inform such individual that information obtained pursuant 
     to clause (ii) will be made available to the State agency 
     administering a State plan under title XXI (as provided in 
     subparagraph (B)); and
       ``(ii) obtain from such individual information which may be 
     used in determining whether or not a period of ineligibility 
     for such benefits would be required by reason of paragraph 
     (1).
       ``(B) The Commissioner of Social Security shall make the 
     information obtained under subparagraph (A)(ii) available, on 
     request, to any State agency administering a State plan 
     approved under title XXI.
       ``(3) For purposes of this subsection--
       ``(A) the term `trust' includes any legal instrument or 
     device that is similar to a trust; and
       ``(B) the term `benefits under this title' includes 
     supplementary payments pursuant to an agreement for Federal 
     administration under section 1616(a), and payments pursuant 
     to an agreement entered into under section 212(b) of Public 
     Law 93-66.''.
       (2) Effective date.--The amendment made by this subsection 
     shall be effective with respect to transfers of resources for 
     less than fair market value that occur at least 90 days after 
     the date of the enactment of this Act.
       (b) Treatment of Assets Held in Trust.--
       (1) Treatment as resource.--Section 1613 (42 U.S.C. 1382) 
     is amended by adding at the end the following new subsection:


                                ``trusts

       ``(e)(1) In determining the resources of an individual who 
     has not attained 18 years of age, the provisions of paragraph 
     (3) shall apply to a trust established by such individual.
       ``(2)(A) For purposes of this subsection, an individual 
     shall be considered to have established a trust if any assets 
     of the individual were transferred to the trust.
       ``(B) In the case of an irrevocable trust to which the 
     assets of an individual and the assets of any other person or 
     persons were transferred, the provisions of this subsection 
     shall apply to the portion of the trust attributable to the 
     assets of the individual.
       ``(C) This subsection shall apply without regard to--
       ``(i) the purposes for which the trust is established;
       ``(ii) whether the trustees have or exercise any discretion 
     under the trust;
       ``(iii) any restrictions on when or whether distributions 
     may be made from the trust; or
       ``(iv) any restrictions on the use of distributions from 
     the trust.
       ``(3)(A) In the case of a revocable trust, the corpus of 
     the trust shall be considered a resource available to the 
     individual.
       ``(B) In the case of an irrevocable trust, if there are any 
     circumstances under which payment from the trust could be 
     made to or for the benefit of the individual, the portion of 
     the corpus from which payment to or for the benefit of the 
     individual could be made shall be considered a resource 
     available to the individual.
       ``(4) The Commissioner may waive the application of this 
     subsection with respect to any individual if the Commissioner 
     determines, on the basis of criteria prescribed in 
     regulations, that such application would work an undue 
     hardship on such individual.
       ``(5) For purposes of this subsection--
       ``(A) the term `trust' includes any legal instrument or 
     device that is similar to a trust;
       ``(B) the term `corpus' means all property and other 
     interests held by the trust, including accumulated earnings 
     and any other addition to such trust after its establishment 
     (except that such term does not include any such earnings or 
     addition in the month in which such earnings or addition is 
     credited or otherwise transferred to the trust);
       ``(C) the term `asset' includes any income or resource of 
     the individual, including--
       ``(i) any income otherwise excluded by section 1612(b);
       ``(ii) any resource otherwise excluded by this section; and
       ``(iii) any other payment or property that the individual 
     is entitled to but does not receive or have access to because 
     of action by--
       ``(I) such individual;
       ``(II) a person or entity (including a court) with legal 
     authority to act in place of, or on behalf of, such 
     individual; or
       ``(III) a person or entity (including a court) acting at 
     the direction of, or upon the request of, such individual; 
     and
       ``(D) the term `benefits under this title' includes 
     supplementary payments pursuant to an agreement for Federal 
     administration under section 1616(a), and payments pursuant 
     to an agreement entered into under section 212(b) of Public 
     Law 93-66.''.
       (2) Treatment as income.--Section 1612(a)(2) (42 U.S.C. 
     1382a(a)(2)) is amended--
       (A) by striking ``and'' at the end of subparagraph (E);
       (B) by striking the period at the end of subparagraph (F) 
     and inserting ``; and''; and
       (C) by adding at the end the following new subparagraph:
       ``(G) any earnings of, and additions to, the corpus of a 
     trust (as defined in section 1613(f)) established by an 
     individual (within the meaning of paragraph (2)(A) of section 
     1613(e)) and of which such individual is a beneficiary (other 
     than a trust to which paragraph (4) of such section applies); 
     except that in the case of an irrevocable trust, there shall 
     exist circumstances under which payment from such earnings or 
     additions could be made to, or for the benefit of, such 
     individual.''.
       (3) Effective date.--The amendments made by this subsection 
     shall take effect on January 1, 1996, and shall apply to 
     trusts established on or after such date.
       (c) Requirement To Establish Account.--
       (1) In general.--Section 1631(a)(2) (42 U.S.C. 1383(a)(2)) 
     is amended--
       (A) by redesignating subparagraphs (F) and (G) as 
     subparagraphs (G) and (H), respectively; and
       (B) by inserting after subparagraph (E) the following new 
     subparagraph:
       ``(F)(i)(I) Each representative payee of an eligible 
     individual under the age of 18 who is eligible for the 
     payment of benefits described in subclause (II) shall 
     establish on behalf of such individual an account in a 
     financial institution into which such benefits shall be paid, 
     and shall thereafter maintain such account for use in 
     accordance with clause (ii).
       ``(II) Benefits described in this subclause are past-due 
     monthly benefits under this title (which, for purposes of 
     this subclause, include State supplementary payments made by 
     the Commissioner pursuant to an agreement under section 1616 
     or section 212(b) of Public Law 93-66) in an amount (after 
     any withholding by the Commissioner for reimbursement to a 
     State for interim assistance under subsection (g)) that 
     exceeds the product of--
       ``(aa) 6, and
       ``(bb) the maximum monthly benefit payable under this title 
     to an eligible individual.
       ``(ii)(I) A representative payee may use funds in the 
     account established under clause (i) to pay for allowable 
     expenses described in subclause (II).
       ``(II) An allowable expense described in this subclause is 
     an expense for--
       ``(aa) education or job skills training;
       ``(bb) personal needs assistance;
       ``(cc) special equipment;
       ``(dd) housing modification;
       ``(ee) medical treatment;
       ``(ff) therapy or rehabilitation; or
       ``(gg) any other item or service that the Commissioner 
     determines to be appropriate;
     provided that such expense benefits such individual and, in 
     the case of an expense described 

[[Page H 12707]]
     in division (cc), (dd), (ff), or (gg), is related to the impairment (or 
     combination of impairments) of such individual.
       ``(III) The use of funds from an account established under 
     clause (i) in any manner not authorized by this clause--
       ``(aa) by a representative payee shall constitute misuse of 
     benefits for all purposes of this paragraph, and any 
     representative payee who knowingly misuses benefits from such 
     an account shall be liable to the Commissioner in an amount 
     equal to the total amount of such misused benefits; and
       ``(bb) by an eligible individual who is his or her own 
     representative payee shall be considered an overpayment 
     subject to recovery under subsection (b).
       ``(IV) This clause shall continue to apply to funds in the 
     account after the child has reached age 18, regardless of 
     whether benefits are paid directly to the beneficiary or 
     through a representative payee.
       ``(iii) The representative payee may deposit into the 
     account established pursuant to clause (i)--
       ``(I) past-due benefits payable to the eligible individual 
     in an amount less than that specified in clause (i)(II), and
       ``(II) any other funds representing an underpayment under 
     this title to such individual, provided that the amount of 
     such underpayment is equal to or exceeds the maximum monthly 
     benefit payable under this title to an eligible individual.
       ``(iv) The Commissioner of Social Security shall establish 
     a system for accountability monitoring whereby such 
     representative payee shall report, at such time and in such 
     manner as the Commissioner shall require, on activity 
     respecting funds in the account established pursuant to 
     clause (i).''.
       (2) Exclusion from resources.--Section 1613(a) (42 U.S.C. 
     1382b(a)) is amended--
       (A) in paragraph (9), by striking ``; and'' and inserting a 
     semicolon;
       (B) in the first paragraph (10), by striking the period and 
     inserting a semicolon;
       (C) by redesignating the second paragraph (10) as paragraph 
     (11), and by striking the period and inserting ``; and''; and
       (D) by adding at the end the following:
       ``(12) the assets and accrued interest or other earnings of 
     any account established and maintained in accordance with 
     section 1631(a)(2)(F).''.
       (3) Exclusion from income.--Section 1612(b) (42 U.S.C. 
     1382a(b)) is amended--
       (A) by striking ``and'' at the end of paragraph (19);
       (B) by striking the period at the end of paragraph (20) and 
     inserting ``; and''; and
       (C) by adding at the end the following new paragraph:
       ``(21) the interest or other earnings on any account 
     established and maintained in accordance with section 
     1631(a)(2)(F).''.
       (4) Effective date.--The amendments made by this subsection 
     shall apply to payments made after the date of the enactment 
     of this Act.

     SEC. 12214. REDUCTION IN CASH BENEFITS PAYABLE TO 
                   INSTITUTIONALIZED INDIVIDUALS WHOSE MEDICAL 
                   COSTS ARE COVERED BY PRIVATE INSURANCE.

       (a) In General.--Section 1611(e)(1)(B) (42 U.S.C. 
     1382(e)(1)(B)) is amended--
       (1) by striking ``title XIX, or'' and inserting ``title 
     XIX,''; and
       (2) by inserting ``or, in the case of an eligible 
     individual under the age of 18 receiving payments (with 
     respect to such individual) under any health insurance policy 
     issued by a private provider of such insurance'' after 
     ``section 1614(f)(2)(B),''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to benefits for months beginning 90 or more days 
     after the date of the enactment of this Act, without regard 
     to whether regulations have been issued to implement such 
     amendments.

     SEC. 12215. REGULATIONS.

       Within 3 months after the date of the enactment of this 
     Act, the Commissioner of Social Security shall prescribe such 
     regulations as may be necessary to implement the amendments 
     made by sections 12211, 12212, 12213, and 12214.
                       Subtitle C--Child Support

     SEC. 12300. REFERENCE TO SOCIAL SECURITY ACT.

       Except as otherwise specifically provided, where ever in 
     this subtitle an amendment is expressed in terms of an 
     amendment to or repeal of a section or other provision, the 
     reference shall be considered to be made to that section or 
     other provision of the Social Security Act.

     CHAPTER 1--ELIGIBILITY FOR SERVICES; DISTRIBUTION OF PAYMENTS

     SEC. 12301. STATE OBLIGATION TO PROVIDE CHILD SUPPORT 
                   ENFORCEMENT SERVICES.

       (a) State Plan Requirements.--Section 454 (42 U.S.C. 654) 
     is amended--
       (1) by striking paragraph (4) and inserting the following 
     new paragraph:
       ``(4) provide that the State will--
       ``(A) provide services relating to the establishment of 
     paternity or the establishment, modification, or enforcement 
     of child support obligations, as appropriate, under the plan 
     with respect to--
       ``(i) each child for whom (I) assistance is provided under 
     the State program funded under part A of this title, (II) 
     benefits or services for foster care maintenance and adoption 
     assistance are provided under the State program funded under 
     part B of this title, or (III) medical assistance is provided 
     under the State plan approved under title XXI, unless the 
     State agency administering the plan determines (in accordance 
     with paragraph (29)) that it is against the best interests of 
     the child to do so; and
       ``(ii) any other child, if an individual applies for such 
     services with respect to the child; and
       ``(B) enforce any support obligation established with 
     respect to--
       ``(i) a child with respect to whom the State provides 
     services under the plan; or
       ``(ii) the custodial parent of such a child.''; and
       (2) in paragraph (6)--
       (A) by striking ``provide that'' and inserting ``provide 
     that--'';
       (B) by striking subparagraph (A) and inserting the 
     following new subparagraph:
       ``(A) services under the plan shall be made available to 
     residents of other States on the same terms as to residents 
     of the State submitting the plan;'';
       (C) in subparagraph (B), by inserting ``on individuals not 
     receiving assistance under any State program funded under 
     part A'' after ``such services shall be imposed'';
       (D) in each of subparagraphs (B), (C), (D), and (E)--
       (i) by indenting the subparagraph in the same manner as, 
     and aligning the left margin of the subparagraph with the 
     left margin of, the matter inserted by subparagraph (B) of 
     this paragraph; and
       (ii) by striking the final comma and inserting a semicolon; 
     and
       (E) in subparagraph (E), by indenting each of clauses (i) 
     and (ii) 2 additional ems.
       (b) Continuation of Services for Families Ceasing To 
     Receive Assistance Under the State Program Funded Under Part 
     A.--Section 454 (42 U.S.C. 654) is amended--
       (1) by striking ``and'' at the end of paragraph (23);
       (2) by striking the period at the end of paragraph (24) and 
     inserting ``; and''; and
       (3) by adding after paragraph (24) the following new 
     paragraph:
       ``(25) provide that if a family with respect to which 
     services are provided under the plan ceases to receive 
     assistance under the State program funded under part A, the 
     State shall provide appropriate notice to the family and 
     continue to provide such services, subject to the same 
     conditions and on the same basis as in the case of other 
     individuals to whom services are furnished under the plan, 
     except that an application or other request to continue 
     services shall not be required of such a family and paragraph 
     (6)(B) shall not apply to the family.''.
       (c) Conforming Amendments.--
       (1) Section 452(b) (42 U.S.C. 652(b)) is amended by 
     striking ``454(6)'' and inserting ``454(4)''.
       (2) Section 452(g)(2)(A) (42 U.S.C. 652(g)(2)(A)) is 
     amended by striking ``454(6)'' each place it appears and 
     inserting ``454(4)(A)(ii)''.
       (3) Section 466(a)(3)(B) (42 U.S.C. 666(a)(3)(B)) is 
     amended by striking ``in the case of overdue support which a 
     State has agreed to collect under section 454(6)'' and 
     inserting ``in any other case''.
       (4) Section 466(e) (42 U.S.C. 666(e)) is amended by 
     striking ``paragraph (4) or (6) of section 454'' and 
     inserting ``section 454(4)''.

     SEC. 12302. DISTRIBUTION OF CHILD SUPPORT COLLECTIONS.

       (a) In General.--Section 457 (42 U.S.C. 657) is amended to 
     read as follows:

     ``SEC. 457. DISTRIBUTION OF COLLECTED SUPPORT.

       ``(a) In General.--An amount collected on behalf of a 
     family as support by a State pursuant to a plan approved 
     under this part shall be distributed as follows:
       ``(1) Families receiving assistance.--In the case of a 
     family receiving assistance from the State, the State shall--
       ``(A) retain, or distribute to the family, the State share 
     of the amount so collected; and
       ``(B) pay to the Federal Government the Federal share of 
     the amount so collected.
       ``(2) Families that formerly received assistance.--In the 
     case of a family that formerly received assistance from the 
     State:
       ``(A) Current support payments.--To the extent that the 
     amount so collected does not exceed the amount required to be 
     paid to the family for the month in which collected, the 
     State shall distribute the amount so collected to the family.
       ``(B) Payments of arrearages.--To the extent that the 
     amount so collected exceeds the amount required to be paid to 
     the family for the month in which collected, the State shall 
     distribute the amount so collected as follows:
       ``(i) Distribution of arrearages that accrued after the 
     family ceased to receive assistance.--

       ``(I) Pre-October 1997.--The provisions of this section 
     (other than subsection (b)(1)) as in effect on the day before 
     the date of the enactment of section 12302 of the Personal 
     Responsibility and Work Opportunity Act of 1995 shall apply 
     with respect to the distribution of support arrearages that--

       ``(aa) accrued after the family ceased to receive 
     assistance, and
       ``(bb) are collected before October 1, 1997.

       ``(II) Post-September 1997.--With respect to amounts 
     collected on or after October 1, 1997--

       ``(aa) In general.--The State shall distribute any amount 
     collected (other than amounts described in clause (iv)) to 
     the family to the extent necessary to satisfy any support 
     arrearages with respect to the family that accrued after the 
     family ceased to receive assistance from the State.
       ``(bb) Reimbursement of governments for assistance provided 
     to the family.--To the extent that division (aa) does not 
     apply to the amount, the State shall retain the State share 
     of the amount so collected, and pay to the Federal Government 
     the Federal share (as defined in subsection (c)(2)(A)) of the 
     amount so collected, to the extent necessary to reimburse 
     amounts paid to the family as assistance by the State.
       ``(cc) Distribution of the remainder to the family.--To the 
     extent that neither division 

[[Page H 12708]]
     (aa) nor division (bb) applies to the amount so collected, the State 
     shall distribute the amount to the family.
       ``(ii) Distribution of arrearages that accrued before the 
     family received assistance.--

       ``(I) Pre-October 2000.--The provisions of this section 
     (other than subsection (b)(1)) as in effect on the day before 
     the date of the enactment of section 12302 of the Personal 
     Responsibility and Work Opportunity Act of 1995 shall apply 
     with respect to the distribution of support arrearages that--

       ``(aa) accrued before the family received assistance, and
       ``(bb) are collected before October 1, 2000.

       ``(II) Post-September 2000.--Unless based on the report 
     required by paragraph (4), the Congress determines otherwise, 
     with respect to amounts collected on or after October 1, 
     2000--

       ``(aa) In general.--The State shall first distribute any 
     amount collected (other than amounts described in clause 
     (iv)) to the family to the extent necessary to satisfy any 
     support arrears with respect to the family that accrued 
     before the family received assistance from the State .
       ``(bb) Reimbursement of governments for assistance provided 
     to the family.--The State shall retain the State share of the 
     amounts so collected in excess of those distributed pursuant 
     to division (aa) and pay to the Federal Government the 
     Federal share (as defined in subsection (c)(2)) of the amount 
     so collected, to the extent necessary to reimburse all or 
     part of the amounts paid to the family as assistance by the 
     State.
       ``(cc) Distribution of the remainder to the family.--To the 
     extent that neither division (aa) nor division (bb) applies 
     to the amount so collected, the State shall distribute the 
     amount to the family.
       ``(iii) Distribution of arrearages that accrued while the 
     family received assistance.--In the case of a family 
     described in this subparagraph, the provisions of paragraph 
     (1) shall apply with respect to the distribution of support 
     arrearages that accrued while the family received assistance.
       ``(iv) Amounts collected pursuant to section 464.--
     Notwithstanding any other provision of this section, any 
     amount of support collected pursuant to section 464 shall be 
     retained by the State to the extent necessary to reimburse 
     amounts paid to the family as assistance by the State. The 
     State shall pay to the Federal Government the Federal share 
     of the amounts so retained. To the extent the amount 
     collected pursuant to section 464 exceeds the amount so 
     retained, the State shall distribute the excess to the 
     family.
       ``(v) Ordering rules for distributions.--For purposes of 
     this subparagraph, the State shall treat any support 
     arrearages collected as accruing in the following order:

       ``(I) to the period after the family ceased to receive 
     assistance;
       ``(II) to the period before the family received assistance; 
     and
       ``(III) to the period while the family was receiving 
     assistance.

       ``(3) Families that never received assistance.--In the case 
     of any other family, the State shall distribute the amount so 
     collected to the family.
       ``(4) Study and report.--Not later than October 1, 1998, 
     the Secretary shall report to the Congress the Secretary's 
     findings with respect to--
       ``(A) whether the distribution of post-assistance 
     arrearages to families has been effective in moving people 
     off of welfare and keeping them off of welfare;
       ``(B) whether early implementation of a pre-assistance 
     arrearage program by some states has been effective in moving 
     people off of welfare and keeping them off of welfare;
       ``(C) what the overall impact has been of the amendments 
     made by the Personal Responsibility and Work Opportunity Act 
     of 1995 with respect to child support enforcement in moving 
     people off of welfare and keeping them off of welfare; and
       ``(D) based on the information and data the Secretary has 
     obtained, what changes, if any, should be made in the 
     policies related to the distribution of child support 
     arrearages.
       ``(b) Continuation Of Assignments.--Any rights to support 
     obligations, which were assigned to a State as a condition of 
     receiving assistance from the State under part A and which 
     were in effect on the day before the date of the enactment of 
     the Personal Responsibility and Work Opportunity Act of 1995, 
     shall remain assigned after such date.
       ``(c) Definitions.--As used in subsection (a):
       ``(1) Assistance.--The term `assistance from the State' 
     means--
       ``(A) assistance under the State program funded under part 
     A or under the State plan approved under part A of this title 
     (as in effect on the day before the date of the enactment of 
     the Personal Responsibility and Work Opportunity Act of 
     1995); or
       ``(B) benefits under the State plan approved under part E 
     of this title (as in effect on the day before the date of the 
     enactment of the Personal Responsibility and Work Opportunity 
     Act of 1995).
       ``(2) Federal share.--The term `Federal share' means--
       ``(A) if the amounts collected and retained by the State 
     (to the extent necessary to reimburse amounts paid to 
     families as assistance by the State) are equal to or greater 
     than such amounts collected in fiscal year 1995 (reduced by 
     amounts not retained by the State in fiscal year 1995 as a 
     result of the application of subsection (b)(1) of this 
     section as in effect on the day before the date of the 
     enactment of the Personal Responsibility and Work Opportunity 
     Act of 1995), the highest Federal medical assistance 
     percentage in effect for the State in fiscal year 1995 or any 
     succeeding year of the amount so collected; or
       ``(B) if the amounts so collected and retained by the State 
     are less than such amounts collected in fiscal year 1995 
     (reduced by amounts not retained by the State in fiscal year 
     1995 as a result of the application of subsection (b)(1) of 
     this section as in effect on the day before the date of the 
     enactment of the Personal Responsibility and Work Opportunity 
     Act of 1995), the amounts so collected and retained less the 
     State share in fiscal year 1995.
       ``(3) Federal medical assistance percentage.--The term 
     `Federal medical assistance percentage' means--
       ``(A) the Federal medical assistance percentage (as defined 
     in section 1118), in the case of Puerto Rico, the Virgin 
     Islands, Guam, and American Samoa; or
       ``(B) the Federal medical assistance percentage (as defined 
     in section 2122(c)) in the case of any other State.
       ``(4) State share.--The term `State share' means 100 
     percent minus the Federal share.
       ``(d) Continuation of Services for Families Ceasing To 
     Receive Assistance Under the State Program Funded Under Part 
     A.--When a family with respect to which services are provided 
     under a State plan approved under this part ceases to receive 
     assistance under the State program funded under part A, the 
     State shall provide appropriate notice to the family and 
     continue to provide such services, subject to the same 
     conditions and on the same basis as in the case of 
     individuals to whom services are furnished under section 454, 
     except that an application or other request to continue 
     services shall not be required of such a family and section 
     454(6)(B) shall not apply to the family.''.
       (b) Conforming Amendment.--Section 464(a)(1) (42 U.S.C. 
     664(a)(1)) is amended by striking ``section 457(b)(4) or 
     (d)(3)'' and inserting ``section 457''.
       (c) Effective Date.--The amendments made by this section 
     shall be effective on October 1, 1996, or earlier at the 
     State's option.

     SEC. 12303. PRIVACY SAFEGUARDS.

       (a) State Plan Requirement.--Section 454 (42 U.S.C. 654), 
     as amended by section 12301(b) of this Act, is amended--
       (1) by striking ``and'' at the end of paragraph (24);
       (2) by striking the period at the end of paragraph (25) and 
     inserting ``; and''; and
       (3) by adding after paragraph (25) the following new 
     paragraph:
       ``(26) will have in effect safeguards, applicable to all 
     confidential information handled by the State agency, that 
     are designed to protect the privacy rights of the parties, 
     including--
       ``(A) safeguards against unauthorized use or disclosure of 
     information relating to proceedings or actions to establish 
     paternity, or to establish or enforce support;
       ``(B) prohibitions against the release of information on 
     the whereabouts of 1 party to another party against whom a 
     protective order with respect to the former party has been 
     entered; and
       ``(C) prohibitions against the release of information on 
     the whereabouts of 1 party to another party if the State has 
     reason to believe that the release of the information may 
     result in physical or emotional harm to the former party.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall become effective on October 1, 1997.

                  CHAPTER 2--LOCATE AND CASE TRACKING

     SEC. 12311. STATE CASE REGISTRY.

       Section 454A, as added by section 12344(a)(2) of this Act, 
     is amended by adding at the end the following new 
     subsections:
       ``(e) State Case Registry.--
       ``(1) Contents.--The automated system required by this 
     section shall include a registry (which shall be known as the 
     `State case registry') that contains records with respect 
     to--
       ``(A) each case in which services are being provided by the 
     State agency under the State plan approved under this part; 
     and
       ``(B) each support order established or modified in the 
     State on or after October 1, 1998.
       ``(2) Linking of local registries.--The State case registry 
     may be established by linking local case registries of 
     support orders through an automated information network, 
     subject to this section.
       ``(3) Use of standardized data elements.--Such records 
     shall use standardized data elements for both parents (such 
     as names, social security numbers and other uniform 
     identification numbers, dates of birth, and case 
     identification numbers), and contain such other information 
     (such as on-case status) as the Secretary may require.
       ``(4) Payment records.--Each case record in the State case 
     registry with respect to which services are being provided 
     under the State plan approved under this part and with 
     respect to which a support order has been established shall 
     include a record of--
       ``(A) the amount of monthly (or other periodic) support 
     owed under the order, and other amounts (including 
     arrearages, interest or late payment penalties, and fees) due 
     or overdue under the order;
       ``(B) any amount described in subparagraph (A) that has 
     been collected;
       ``(C) the distribution of such collected amounts;
       ``(D) the birth date of any child for whom the order 
     requires the provision of support; and
       ``(E) the amount of any lien imposed with respect to the 
     order pursuant to section 466(a)(4).
       ``(5) Updating and monitoring.--The State agency operating 
     the automated system required by this section shall promptly 
     establish and maintain, and regularly monitor, case records 
     in the State case registry with respect to which services are 
     being provided under the State plan approved under this part, 
     on the basis of--

[[Page H 12709]]

       ``(A) information on administrative actions and 
     administrative and judicial proceedings and orders relating 
     to paternity and support;
       ``(B) information obtained from comparison with Federal, 
     State, or local sources of information;
       ``(C) information on support collections and distributions; 
     and
       ``(D) any other relevant information.
       ``(f) Information Comparisons and Other Disclosures of 
     Information.--The State shall use the automated system 
     required by this section to extract information from (at such 
     times, and in such standardized format or formats, as may be 
     required by the Secretary), to share and compare information 
     with, and to receive information from, other data bases and 
     information comparison services, in order to obtain (or 
     provide) information necessary to enable the State agency (or 
     the Secretary or other State or Federal agencies) to carry 
     out this part, subject to section 6103 of the Internal 
     Revenue Code of 1986. Such information comparison activities 
     shall include the following:
       ``(1) Federal case registry of child support orders.--
     Furnishing to the Federal Case Registry of Child Support 
     Orders established under section 453(h) (and update as 
     necessary, with information including notice of expiration of 
     orders) the minimum amount of information on child support 
     cases recorded in the State case registry that is necessary 
     to operate the registry (as specified by the Secretary in 
     regulations).
       ``(2) Federal parent locator service.--Exchanging 
     information with the Federal Parent Locator Service for the 
     purposes specified in section 453.
       ``(3) Temporary family assistance and MediGrant agencies.--
     Exchanging information with State agencies (of the State and 
     of other States) administering programs funded under part A, 
     programs operated under State plans under title XXI, and 
     other programs designated by the Secretary, as necessary to 
     perform State agency responsibilities under this part and 
     under such programs.
       ``(4) Intrastate and interstate information comparisons.--
     Exchanging information with other agencies of the State, 
     agencies of other States, and interstate information 
     networks, as necessary and appropriate to carry out (or 
     assist other States to carry out) the purposes of this 
     part.''.

     SEC. 12312. COLLECTION AND DISBURSEMENT OF SUPPORT PAYMENTS.

       (a) State Plan Requirement.--Section 454 (42 U.S.C. 654), 
     as amended by sections 12301(b) and 12303(a) of this Act, is 
     amended--
       (1) by striking ``and'' at the end of paragraph (25);
       (2) by striking the period at the end of paragraph (26) and 
     inserting ``; and''; and
       (3) by adding after paragraph (26) the following new 
     paragraph:
       ``(27) provide that, on and after October 1, 1998, the 
     State agency will--
       ``(A) operate a State disbursement unit in accordance with 
     section 454B; and
       ``(B) have sufficient State staff (consisting of State 
     employees) and (at State option) contractors reporting 
     directly to the State agency to--
       ``(i) monitor and enforce support collections through the 
     unit (including carrying out the automated data processing 
     responsibilities described in section 454A(g)); and
       ``(ii) take the actions described in section 466(c)(1) in 
     appropriate cases.''.
       (b) Establishment of State Disbursement Unit.--Part D of 
     title IV (42 U.S.C. 651-669), as amended by section 
     12344(a)(2) of this Act, is amended by inserting after 
     section 454A the following new section:

     ``SEC. 454B. COLLECTION AND DISBURSEMENT OF SUPPORT PAYMENTS.

       ``(a) State Disbursement Unit.--
       ``(1) In general.--In order for a State to meet the 
     requirements of this section, the State agency must establish 
     and operate a unit (which shall be known as the `State 
     disbursement unit') for the collection and disbursement of 
     payments under support orders in all cases being enforced by 
     the State pursuant to section 454(4).
       ``(2) Operation.--The State disbursement unit shall be 
     operated--
       ``(A) directly by the State agency (or 2 or more State 
     agencies under a regional cooperative agreement), or (to the 
     extent appropriate) by a contractor responsible directly to 
     the State agency; and
       ``(B) in coordination with the automated system established 
     by the State pursuant to section 454A.
       ``(3) Linking of local disbursement units.--The State 
     disbursement unit may be established by linking local 
     disbursement units through an automated information network, 
     subject to this section, if the Secretary agrees that the 
     system will not cost more nor take more time to establish or 
     operate than a centralized system. In addition, employers 
     shall be given 1 location to which income withholding is 
     sent.
       ``(b) Required Procedures.--The State disbursement unit 
     shall use automated procedures, electronic processes, and 
     computer-driven technology to the maximum extent feasible, 
     efficient, and economical, for the collection and 
     disbursement of support payments, including procedures--
       ``(1) for receipt of payments from parents, employers, and 
     other States, and for disbursements to custodial parents and 
     other obligees, the State agency, and the agencies of other 
     States;
       ``(2) for accurate identification of payments;
       ``(3) to ensure prompt disbursement of the custodial 
     parent's share of any payment; and
       ``(4) to furnish to any parent, upon request, timely 
     information on the current status of support payments under 
     an order requiring payments to be made by or to the parent.
       ``(c) Timing of Disbursements.--
       ``(1) In general.--Except as provided in paragraph (2), the 
     State disbursement unit shall distribute all amounts payable 
     under section 457(a) within 2 business days after receipt 
     from the employer or other source of periodic income, if 
     sufficient information identifying the payee is provided.
       ``(2) Permissive retention of arrearages.--The State 
     disbursement unit may delay the distribution of collections 
     toward arrearages until the resolution of any timely appeal 
     with respect to such arrearages.
       ``(d) Business Day Defined.--As used in this section, the 
     term `business day' means a day on which State offices are 
     open for regular business.''.
       (c) Use of Automated System.--Section 454A, as added by 
     section 12344(a)(2) and as amended by section 12311 of this 
     Act, is amended by adding at the end the following new 
     subsection:
       ``(g) Collection and Distribution of Support Payments.--
       ``(1) In general.--The State shall use the automated system 
     required by this section, to the maximum extent feasible, to 
     assist and facilitate the collection and disbursement of 
     support payments through the State disbursement unit operated 
     under section 454B, through the performance of functions, 
     including, at a minimum--
       ``(A) transmission of orders and notices to employers (and 
     other debtors) for the withholding of wages and other 
     income--
       ``(i) within 2 business days after receipt from a court, 
     another State, an employer, the Federal Parent Locator 
     Service, or another source recognized by the State of notice 
     of, and the income source subject to, such withholding; and
       ``(ii) using uniform formats prescribed by the Secretary;
       ``(B) ongoing monitoring to promptly identify failures to 
     make timely payment of support; and
       ``(C) automatic use of enforcement procedures (including 
     procedures authorized pursuant to section 466(c)) if payments 
     are not timely made.
       ``(2) Business day defined.--As used in paragraph (1), the 
     term `business day' means a day on which State offices are 
     open for regular business.''.
       (d) Effective Date.--The amendments made by this section 
     shall become effective on October 1, 1998.

     SEC. 12313. STATE DIRECTORY OF NEW HIRES.

       (a) State Plan Requirement.--Section 454 (42 U.S.C. 654), 
     as amended by sections 12301(b), 12303(a) and 12312(a) of 
     this Act, is amended--
       (1) by striking ``and'' at the end of paragraph (26);
       (2) by striking the period at the end of paragraph (27) and 
     inserting ``; and''; and
       (3) by adding after paragraph (27) the following new 
     paragraph:
       ``(28) provide that, on and after October 1, 1997, the 
     State will operate a State Directory of New Hires in 
     accordance with section 453A.''.
       (b) State Directory of New Hires.--Part D of title IV (42 
     U.S.C. 651-669) is amended by inserting after section 453 the 
     following new section:

     ``SEC. 453A. STATE DIRECTORY OF NEW HIRES.

       ``(a) Establishment.--
       ``(1) In general.--
       ``(A) Requirement for States that have no directory.--
     Except as provided in subparagraph (B), not later than 
     October 1, 1997, each State shall establish an automated 
     directory (to be known as the `State Directory of New Hires') 
     which shall contain information supplied in accordance with 
     subsection (b) by employers on each newly hired employee.
       ``(B) States with new hire reporting in existence.--A State 
     which has a new hire reporting law in existence on the date 
     of the enactment of this section may continue to operate 
     under the State law, but the State must meet the requirements 
     of this section (other than subsection (f)) not later than 
     October 1, 1997.
       ``(2) Definitions.--As used in this section:
       ``(A) Employee.--The term `employee'--
       ``(i) means an individual who is an employee within the 
     meaning of chapter 24 of the Internal Revenue Code of 1986; 
     and
       ``(ii) does not include an employee of a Federal or State 
     agency performing intelligence or counterintelligence 
     functions, if the head of such agency has determined that 
     reporting pursuant to paragraph (1) with respect to the 
     employee could endanger the safety of the employee or 
     compromise an ongoing investigation or intelligence mission.
       ``(B) Employer.--
       ``(i) In general.--The term `employer' has the meaning 
     given such term in section 3401(d) of the Internal Revenue 
     Code of 1996 and includes any governmental entity and any 
     labor organization.
       ``(ii) Labor organization.--The term `labor organization' 
     shall have the meaning given such term in section 2(5) of the 
     National Labor Relations Act, and includes any entity (also 
     known as a `hiring hall') which is used by the organization 
     and an employer to carry out requirements described in 
     section 8(f)(3) of such Act of an agreement between the 
     organization and the employer.
       ``(b) Employer Information.--
       ``(1) Reporting requirement.--
       ``(A) In general.--Except as provided in subparagraphs (B) 
     and (C), each employer shall furnish to the Directory of New 
     Hires of the State in which a newly hired employee works, a 
     report that contains the name, address, and social security 
     number of the employee, and the name of, and identifying 
     number assigned under section 6109 of the Internal Revenue 
     Code of 1986 to, the employer.
       ``(B) Multistate employers.--An employer that has employees 
     who are employed in 2 or more States and that transmits 
     reports magnetically or electronically may comply with 
     subparagraph (A) by designating 1 State in which such 
     employer has employees to which the employer will transmit 
     the report described in subparagraph (A), and transmitting 
     such report to 

[[Page H 12710]]
     such State. Any employer that transmits reports pursuant to this 
     subparagraph shall notify the Secretary in writing as to 
     which State such employer designates for the purpose of 
     sending reports.
       ``(C) Federal government employers.--Any department, 
     agency, or instrumentality of the United States shall comply 
     with subparagraph (A) by transmitting the report described in 
     subparagraph (A) to the National Directory of New Hires 
     established pursuant to section 453.
       ``(2) Timing of report.--Each State may provide the time 
     within which the report required by paragraph (1) shall be 
     made with respect to an employee, but such report shall be 
     made not later than 20 days after the date the employer hires 
     the employee.
       ``(c) Reporting Format and Method.--Each report required by 
     subsection (b) shall be made on a W-4 form or, at the option 
     of the employer, an equivalent form, and may be transmitted 
     by 1st class mail, magnetically, or electronically.
       ``(d) Civil Money Penalties on Noncomplying Employers.--The 
     State shall have the option to set a State civil money 
     penalty which shall be less than--
       ``(1) $25; or
       ``(2) $500 if, under State law, the failure is the result 
     of a conspiracy between the employer and the employee to not 
     supply the required report or to supply a false or incomplete 
     report.
       ``(e) Entry of Employer Information.--Information shall be 
     entered into the data base maintained by the State Directory 
     of New Hires within 5 business days of receipt from an 
     employer pursuant to subsection (b).
       ``(f) Information Comparisons.--
       ``(1) In general.--Not later than May 1, 1998, an agency 
     designated by the State shall, directly or by contract, 
     conduct automated comparisons of the social security numbers 
     reported by employers pursuant to subsection (b) and the 
     social security numbers appearing in the records of the State 
     case registry for cases being enforced under the State plan.
       ``(2) Notice of match.--When an information comparison 
     conducted under paragraph (1) reveals a match with respect to 
     the social security number of an individual required to 
     provide support under a support order, the State Directory of 
     New Hires shall provide the agency administering the State 
     plan approved under this part of the appropriate State with 
     the name, address, and social security number of the employee 
     to whom the social security number is assigned, and the name 
     of, and identifying number assigned under section 6109 of the 
     Internal Revenue Code of 1986 to, the employer.
       ``(g) Transmission of Information.--
       ``(1) Transmission of wage withholding notices to 
     employers.--Within 2 business days after the date information 
     regarding a newly hired employee is entered into the State 
     Directory of New Hires, the State agency enforcing the 
     employee's child support obligation shall transmit a notice 
     to the employer of the employee directing the employer to 
     withhold from the wages of the employee an amount equal to 
     the monthly (or other periodic) child support obligation 
     (including any past due support obligation) of the employee, 
     unless the employee's wages are not subject to withholding 
     pursuant to section 466(b)(3).
       ``(2) Transmissions to the national directory of new 
     hires.--
       ``(A) New hire information.--Within 3 business days after 
     the date information regarding a newly hired employee is 
     entered into the State Directory of New Hires, the State 
     Directory of New Hires shall furnish the information to the 
     National Directory of New Hires.
       ``(B) Wage and unemployment compensation information.--The 
     State Directory of New Hires shall, on a quarterly basis, 
     furnish to the National Directory of New Hires extracts of 
     the reports required under section 303(a)(6) to be made to 
     the Secretary of Labor concerning the wages and unemployment 
     compensation paid to individuals, by such dates, in such 
     format, and containing such information as the Secretary of 
     Health and Human Services shall specify in regulations.
       ``(3) Business day defined.--As used in this subsection, 
     the term `business day' means a day on which State offices 
     are open for regular business.
       ``(h) Other Uses of New Hire Information.--
       ``(1) Location of child support obligors.--The agency 
     administering the State plan approved under this part shall 
     use information received pursuant to subsection (f)(2) to 
     locate individuals for purposes of establishing paternity and 
     establishing, modifying, and enforcing child support 
     obligations.
       ``(2) Verification of eligibility for certain programs.--A 
     State agency responsible for administering a program 
     specified in section 1137(b) shall have access to information 
     reported by employers pursuant to subsection (b) of this 
     section for purposes of verifying eligibility for the 
     program.
       ``(3) Administration of employment security and workers' 
     compensation.--State agencies operating employment security 
     and workers' compensation programs shall have access to 
     information reported by employers pursuant to subsection (b) 
     for the purposes of administering such programs.''.
       (c) Quarterly Wage Reporting.--Section 1137(a)(3) (42 
     U.S.C. 1320b-7(a)(3)) is amended--
       (1) by inserting ``(including State and local governmental 
     entities and labor organizations (as defined in section 
     453A(a)(2)(B)(iii))'' after ``employers''; and
       (2) by inserting ``, and except that no report shall be 
     filed with respect to an employee of a State or local agency 
     performing intelligence or counterintelligence functions, if 
     the head of such agency has determined that filing such a 
     report could endanger the safety of the employee or 
     compromise an ongoing investigation or intelligence mission'' 
     after ``paragraph (2)''.

     SEC. 12314. AMENDMENTS CONCERNING INCOME WITHHOLDING.

       (a) Mandatory Income Withholding.--
       (1) In general.--Section 466(a)(1) (42 U.S.C. 666(a)(1)) is 
     amended to read as follows:
       ``(1)(A) Procedures described in subsection (b) for the 
     withholding from income of amounts payable as support in 
     cases subject to enforcement under the State plan.
       ``(B) Procedures under which the wages of a person with a 
     support obligation imposed by a support order issued (or 
     modified) in the State before October 1, 1996, if not 
     otherwise subject to withholding under subsection (b), shall 
     become subject to withholding as provided in subsection (b) 
     if arrearages occur, without the need for a judicial or 
     administrative hearing.''.
       (2) Conforming amendments.--
       (A) Section 466(b) (42 U.S.C. 666(b)) is amended in the 
     matter preceding paragraph (1), by striking ``subsection 
     (a)(1)'' and inserting ``subsection (a)(1)(A)''.
       (B) Section 466(b)(4) (42 U.S.C. 666(b)(4)) is amended to 
     read as follows:
       ``(4)(A) Such withholding must be carried out in full 
     compliance with all procedural due process requirements of 
     the State, and the State must send notice to each 
     noncustodial parent to whom paragraph (1) applies--
       ``(i) that the withholding has commenced; and
       ``(ii) of the procedures to follow if the noncustodial 
     parent desires to contest such withholding on the grounds 
     that the withholding or the amount withheld is improper due 
     to a mistake of fact.
       ``(B) The notice under subparagraph (A) of this paragraph 
     shall include the information provided to the employer under 
     paragraph (6)(A).''.
       (C) Section 466(b)(5) (42 U.S.C. 666(b)(5)) is amended by 
     striking all that follows ``administered by'' and inserting 
     ``the State through the State disbursement unit established 
     pursuant to section 454B, in accordance with the requirements 
     of section 454B.''.
       (D) Section 466(b)(6)(A) (42 U.S.C. 666(b)(6)(A)) is 
     amended--
       (i) in clause (i), by striking ``to the appropriate 
     agency'' and all that follows and inserting ``to the State 
     disbursement unit within 2 business days after the date the 
     amount would (but for this subsection) have been paid or 
     credited to the employee, for distribution in accordance with 
     this part. The employer shall comply with the procedural 
     rules relating to income withholding of the State in which 
     the employee works, regardless of the State where the notice 
     originates.''.
       (ii) in clause (ii), by inserting ``be in a standard format 
     prescribed by the Secretary, and'' after ``shall''; and
       (iii) by adding at the end the following new clause:
       ``(iii) As used in this subparagraph, the term `business 
     day' means a day on which State offices are open for regular 
     business.''.
       (E) Section 466(b)(6)(D) (42 U.S.C. 666(b)(6)(D)) is 
     amended by striking ``any employer'' and all that follows and 
     inserting ``any employer who--
       ``(i) discharges from employment, refuses to employ, or 
     takes disciplinary action against any noncustodial parent 
     subject to wage withholding required by this subsection 
     because of the existence of such withholding and the 
     obligations or additional obligations which it imposes upon 
     the employer; or
       ``(ii) fails to withhold support from wages, or to pay such 
     amounts to the State disbursement unit in accordance with 
     this subsection.''.
       (F) Section 466(b) (42 U.S.C. 666(b)) is amended by adding 
     at the end the following new paragraph:
       ``(11) Procedures under which the agency administering the 
     State plan approved under this part may execute a withholding 
     order without advance notice to the obligor, including 
     issuing the withholding order through electronic means.''.
       (b) Conforming Amendment.--Section 466(c) (42 U.S.C. 
     666(c)) is repealed.

     SEC. 12315. LOCATOR INFORMATION FROM INTERSTATE NETWORKS.

       Section 466(a) (42 U.S.C. 666(a)) is amended by adding at 
     the end the following new paragraph:
       ``(12) Locator information from interstate networks.--
     Procedures to ensure that all Federal and State agencies 
     conducting activities under this part have access to any 
     system used by the State to locate an individual for purposes 
     relating to motor vehicles or law enforcement.''.

     SEC. 12316. EXPANSION OF THE FEDERAL PARENT LOCATOR SERVICE.

       (a) Expanded Authority To Locate Individuals and Assets.--
     Section 453 (42 U.S.C. 653) is amended--
       (1) in subsection (a), by striking all that follows 
     ``subsection (c))'' and inserting ``, for the purpose of 
     establishing parentage, establishing, setting the amount of, 
     modifying, or enforcing child support obligations, or 
     enforcing child custody or visitation orders--
       ``(1) information on, or facilitating the discovery of, the 
     location of any individual--
       ``(A) who is under an obligation to pay child support or 
     provide child custody or visitation rights;
       ``(B) against whom such an obligation is sought;
       ``(C) to whom such an obligation is owed,
     including the individual's social security number (or 
     numbers), most recent address, and the name, address, and 
     employer identification number of the individual's employer;
       ``(2) information on the individual's wages (or other 
     income) from, and benefits of, employment (including rights 
     to or enrollment in group health care coverage); and
       ``(3) information on the type, status, location, and amount 
     of any assets of, or debts owed by or to, any such 
     individual.''; and

[[Page H 12711]]

       (2) in subsection (b)--
       (A) in the matter preceding paragraph (1), by striking 
     ``social security'' and all that follows through ``absent 
     parent'' and inserting ``information described in subsection 
     (a)''; and
       (B) in the flush paragraph at the end, by adding the 
     following: ``No information shall be disclosed to any person 
     if the State has notified the Secretary that the State has 
     reasonable evidence of domestic violence or child abuse and 
     the disclosure of such information could be harmful to the 
     custodial parent or the child of such parent. Information 
     received or transmitted pursuant to this section shall be 
     subject to the safeguard provisions contained in section 
     454(26).''.
       (b) Authorized Person for Information Regarding Visitation 
     Rights.--Section 453(c) (42 U.S.C. 653(c)) is amended--
       (1) in paragraph (1), by striking ``support'' and inserting 
     ``support or to seek to enforce orders providing child 
     custody or visitation rights''; and
       (2) in paragraph (2), by striking ``, or any agent of such 
     court; and'' and inserting ``or to issue an order against a 
     resident parent for child custody or visitation rights, or 
     any agent of such court;''.
       (c) Reimbursement for Information From Federal Agencies.--
     Section 453(e)(2) (42 U.S.C. 653(e)(2)) is amended in the 4th 
     sentence by inserting ``in an amount which the Secretary 
     determines to be reasonable payment for the information 
     exchange (which amount shall not include payment for the 
     costs of obtaining, compiling, or maintaining the 
     information)'' before the period.
       (d) Reimbursement for Reports by State Agencies.--Section 
     453 (42 U.S.C. 653) is amended by adding at the end the 
     following new subsection:
       ``(g) Reimbursement for Reports by State Agencies.--The 
     Secretary may reimburse Federal and State agencies for the 
     costs incurred by such entities in furnishing information 
     requested by the Secretary under this section in an amount 
     which the Secretary determines to be reasonable payment for 
     the information exchange (which amount shall not include 
     payment for the costs of obtaining, compiling, or maintaining 
     the information).''.
       (e) Conforming Amendments.--
       (1) Sections 452(a)(9), 453(a), 453(b), 463(a), 463(e), and 
     463(f) (42 U.S.C. 652(a)(9), 653(a), 653(b), 663(a), 663(e), 
     and 663(f)) are each amended by inserting ``Federal'' before 
     ``Parent'' each place such term appears.
       (2) Section 453 (42 U.S.C. 653) is amended in the heading 
     by adding ``federal'' before ``parent''.
       (f) New Components.--Section 453 (42 U.S.C. 653), as 
     amended by subsection (d) of this section, is amended by 
     adding at the end the following new subsections:
       ``(h) Federal Case Registry of Child Support Orders.--
       ``(1) In general.--Not later than October 1, 1998, in order 
     to assist States in administering programs under State plans 
     approved under this part and programs funded under part A, 
     and for the other purposes specified in this section, the 
     Secretary shall establish and maintain in the Federal Parent 
     Locator Service an automated registry (which shall be known 
     as the `Federal Case Registry of Child Support Orders'), 
     which shall contain abstracts of support orders and other 
     information described in paragraph (2) with respect to each 
     case in each State case registry maintained pursuant to 
     section 454A(e), as furnished (and regularly updated), 
     pursuant to section 454A(f), by State agencies administering 
     programs under this part.
       ``(2) Case information.--The information referred to in 
     paragraph (1) with respect to a case shall be such 
     information as the Secretary may specify in regulations 
     (including the names, social security numbers or other 
     uniform identification numbers, and State case identification 
     numbers) to identify the individuals who owe or are owed 
     support (or with respect to or on behalf of whom support 
     obligations are sought to be established), and the State or 
     States which have the case.
       ``(i) National Directory of New Hires.--
       ``(1) In general.--In order to assist States in 
     administering programs under State plans approved under this 
     part and programs funded under part A, and for the other 
     purposes specified in this section, the Secretary shall, not 
     later than October 1, 1996, establish and maintain in the 
     Federal Parent Locator Service an automated directory to be 
     known as the National Directory of New Hires, which shall 
     contain the information supplied pursuant to section 
     453A(g)(2).
       ``(2) Entry of data.--Information shall be entered into the 
     data base maintained by the National Directory of New Hires 
     within 2 business days of receipt pursuant to section 
     453A(g)(2).
       ``(3) Administration of federal tax laws.--The Secretary of 
     the Treasury shall have access to the information in the 
     National Directory of New Hires for purposes of administering 
     section 32 of the Internal Revenue Code of 1986, or the 
     advance payment of the earned income tax credit under section 
     3507 of such Code, and verifying a claim with respect to 
     employment in a tax return.
       ``(4) List of multistate employers.--The Secretary shall 
     maintain within the National Directory of New Hires a list of 
     multistate employers that report information regarding newly 
     hired employees pursuant to section 453A(b)(1)(B), and the 
     State which each such employer has designated to receive such 
     information.
       ``(j) Information Comparisons and Other Disclosures.--
       ``(1) Verification by social security administration.--
       ``(A) In general.--The Secretary shall transmit information 
     on individuals and employers maintained under this section to 
     the Social Security Administration to the extent necessary 
     for verification in accordance with subparagraph (B).
       ``(B) Verification by ssa.--The Social Security 
     Administration shall verify the accuracy of, correct, or 
     supply to the extent possible, and report to the Secretary, 
     the following information supplied by the Secretary pursuant 
     to subparagraph (A):
       ``(i) The name, social security number, and birth date of 
     each such individual.
       ``(ii) The employer identification number of each such 
     employer.
       ``(2) Information comparisons.--For the purpose of locating 
     individuals in a paternity establishment case or a case 
     involving the establishment, modification, or enforcement of 
     a support order, the Secretary shall--
       ``(A) compare information in the National Directory of New 
     Hires against information in the support case abstracts in 
     the Federal Case Registry of Child Support Orders not less 
     often than every 2 business days; and
       ``(B) within 2 such days after such a comparison reveals a 
     match with respect to an individual, report the information 
     to the State agency responsible for the case.
       ``(3) Information comparisons and disclosures of 
     information in all registries for title iv program 
     purposes.--To the extent and with the frequency that the 
     Secretary determines to be effective in assisting States to 
     carry out their responsibilities under programs operated 
     under this part and programs funded under part A, the 
     Secretary shall--
       ``(A) compare the information in each component of the 
     Federal Parent Locator Service maintained under this section 
     against the information in each other such component (other 
     than the comparison required by paragraph (2)), and report 
     instances in which such a comparison reveals a match with 
     respect to an individual to State agencies operating such 
     programs; and
       ``(B) disclose information in such registries to such State 
     agencies.
       ``(4) Provision of new hire information to the social 
     security administration.--The National Directory of New Hires 
     shall provide the Commissioner of Social Security with all 
     information in the National Directory, which shall be used to 
     determine the accuracy of payments under the supplemental 
     security income program under title XVI and in connection 
     with benefits under title II.
       ``(5) Research.--The Secretary may provide access to 
     information reported by employers pursuant to section 453A(b) 
     for research purposes found by the Secretary to be likely to 
     contribute to achieving the purposes of part A or this part, 
     but without personal identifiers.
       ``(k) Fees.--
       ``(1) For ssa verification.--The Secretary shall reimburse 
     the Commissioner of Social Security, at a rate negotiated 
     between the Secretary and the Commissioner, for the costs 
     incurred by the Commissioner in performing the verification 
     services described in subsection (j).
       ``(2) For information from state directories of new 
     hires.--The Secretary shall reimburse costs incurred by State 
     directories of new hires in furnishing information as 
     required by subsection (j)(3), at rates which the Secretary 
     determines to be reasonable (which rates shall not include 
     payment for the costs of obtaining, compiling, or maintaining 
     such information).
       ``(3) For information furnished to state and federal 
     agencies.--A State or Federal agency that receives 
     information from the Secretary pursuant to this section shall 
     reimburse the Secretary for costs incurred by the Secretary 
     in furnishing the information, at rates which the Secretary 
     determines to be reasonable (which rates shall include 
     payment for the costs of obtaining, verifying, maintaining, 
     and comparing the information).
       ``(l) Restriction on Disclosure and Use.--Information in 
     the Federal Parent Locator Service, and information resulting 
     from comparisons using such information, shall not be used or 
     disclosed except as expressly provided in this section, 
     subject to section 6103 of the Internal Revenue Code of 1986.
       ``(m) Information Integrity and Security.--The Secretary 
     shall establish and implement safeguards with respect to the 
     entities established under this section designed to--
       ``(1) ensure the accuracy and completeness of information 
     in the Federal Parent Locator Service; and
       ``(2) restrict access to confidential information in the 
     Federal Parent Locator Service to authorized persons, and 
     restrict use of such information to authorized purposes.
       ``(n) Federal Government Reporting.--Each department, 
     agency, and instrumentality of the United States shall on a 
     quarterly basis report to the Federal Parent Locator Service 
     the name and social security number of each employee and the 
     wages paid to the employee during the previous quarter, 
     except that such a report shall not be filed with respect to 
     an employee of a department, agency, or instrumentality 
     performing intelligence or counterintelligence functions, if 
     the head of such department, agency, or instrumentality has 
     determined that filing such a report could endanger the 
     safety of the employee or compromise an ongoing investigation 
     or intelligence mission.''.
       (g) Conforming Amendments.--
       (1) To part d of title iv of the social security act.--
       (A) Section 454(8)(B) (42 U.S.C. 654(8)(B)) is amended to 
     read as follows:
       ``(B) the Federal Parent Locator Service established under 
     section 453;''.
       (B) Section 454(13) (42 U.S.C.654(13)) is amended by 
     inserting ``and provide that information requests by parents 
     who are residents of other States be treated with the same 
     priority as requests by parents who are residents of the 
     State submitting the plan'' before the semicolon.

[[Page H 12712]]

       (2) To federal unemployment tax act.--Section 3304(a)(16) 
     of the Internal Revenue Code of 1986 is amended--
       (A) by striking ``Secretary of Health, Education, and 
     Welfare'' each place such term appears and inserting 
     ``Secretary of Health and Human Services'';
       (B) in subparagraph (B), by striking ``such information'' 
     and all that follows and inserting ``information furnished 
     under subparagraph (A) or (B) is used only for the purposes 
     authorized under such subparagraph;'';
       (C) by striking ``and'' at the end of subparagraph (A);
       (D) by redesignating subparagraph (B) as subparagraph (C); 
     and
       (E) by inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) wage and unemployment compensation information 
     contained in the records of such agency shall be furnished to 
     the Secretary of Health and Human Services (in accordance 
     with regulations promulgated by such Secretary) as necessary 
     for the purposes of the National Directory of New Hires 
     established under section 453(i) of the Social Security Act, 
     and''.
       (3) To state grant program under title iii of the social 
     security act.--Subsection (h) of section 303 (42 U.S.C. 503) 
     is amended to read as follows:
       ``(h)(1) The State agency charged with the administration 
     of the State law shall, on a reimbursable basis--
       ``(A) disclose quarterly, to the Secretary of Health and 
     Human Services wage and claim information, as required 
     pursuant to section 453(i)(1), contained in the records of 
     such agency;
       ``(B) ensure that information provided pursuant to 
     subparagraph (A) meets such standards relating to correctness 
     and verification as the Secretary of Health and Human 
     Services, with the concurrence of the Secretary of Labor, may 
     find necessary; and
       ``(C) establish such safeguards as the Secretary of Labor 
     determines are necessary to insure that information disclosed 
     under subparagraph (A) is used only for purposes of section 
     453(i)(1) in carrying out the child support enforcement 
     program under title IV.
       ``(2) Whenever the Secretary of Labor, after reasonable 
     notice and opportunity for hearing to the State agency 
     charged with the administration of the State law, finds that 
     there is a failure to comply substantially with the 
     requirements of paragraph (1), the Secretary of Labor shall 
     notify such State agency that further payments will not be 
     made to the State until the Secretary of Labor is satisfied 
     that there is no longer any such failure. Until the Secretary 
     of Labor is so satisfied, the Secretary shall make no future 
     certification to the Secretary of the Treasury with respect 
     to the State.
       ``(3) For purposes of this subsection--
       ``(A) the term `wage information' means information 
     regarding wages paid to an individual, the social security 
     account number of such individual, and the name, address, 
     State, and the Federal employer identification number of the 
     employer paying such wages to such individual; and
       ``(B) the term `claim information' means information 
     regarding whether an individual is receiving, has received, 
     or has made application for, unemployment compensation, the 
     amount of any such compensation being received (or to be 
     received by such individual), and the individual's current 
     (or most recent) home address.''.
       (4) Disclosure of certain information to agents of child 
     support enforcement agencies.--
       (A) In general.--Paragraph (6) of section 6103(l) of the 
     Internal Revenue Code of 1986 (relating to disclosure of 
     return information to Federal, State, and local child support 
     enforcement agencies) is amended by redesignating 
     subparagraph (B) as subparagraph (C) and by inserting after 
     subparagraph (A) the following new subparagraph:
       ``(B) Disclosure to certain agents.--The address and social 
     security account number (or numbers) of an individual with 
     respect to any individual with respect to whom child support 
     obligations are sought to be established or enforced may be 
     disclosed by any child support enforcement agency to any 
     agent of such agency which is under contract with such agency 
     to carry out the purposes described in subparagraph (C).''
       (B) Conforming amendments.--
       (i) Paragraph (3) of section 6103(a) of such Code is 
     amended by striking ``(l)(12)'' and inserting ``paragraph (6) 
     or (12) of subsection (l)''.
       (ii) Subparagraph (C) of section 6103(l)(6) of such Code, 
     as redesignated by subsection (a), is amended to read as 
     follows:
       ``(C) Restriction on disclosure.--Information may be 
     disclosed under this paragraph only for purposes of, and to 
     the extent necessary in, establishing and collecting child 
     support obligations from, and locating, individuals owing 
     such obligations.''
       (iii) The material following subparagraph (F) of section 
     6103(p)(4) of such Code is amended by striking ``subsection 
     (l)(12)(B)'' and inserting ``paragraph (6)(A) or (12)(B) of 
     subsection (l)''.

     SEC. 12317. COLLECTION AND USE OF SOCIAL SECURITY NUMBERS FOR 
                   USE IN CHILD SUPPORT ENFORCEMENT.

       (a) State Law Requirement.--Section 466(a) (42 U.S.C. 
     666(a)), as amended by section 12315 of this Act, is amended 
     by adding at the end the following new paragraph:
       ``(13) Recording of social security numbers in certain 
     family matters.--Procedures requiring that the social 
     security number of--
       ``(A) any applicant for a professional license, commercial 
     driver's license, occupational license, or marriage license 
     be recorded on the application;
       ``(B) any individual who is subject to a divorce decree, 
     support order, or paternity determination or acknowledgment 
     be placed in the records relating to the matter; and
       ``(C) any individual who has died be placed in the records 
     relating to the death and be recorded on the death 
     certificate.
     For purposes of subparagraph (A), if a State allows the use 
     of a number other than the social security number, the State 
     shall so advise any applicants.''.
       (b) Conforming Amendments.--Section 205(c)(2)(C) (42 U.S.C. 
     405(c)(2)(C)), as amended by section 321(a)(9) of the Social 
     Security Independence and Program Improvements Act of 1994, 
     is amended--
       (1) in clause (i), by striking ``may require'' and 
     inserting ``shall require'';
       (2) in clause (ii), by inserting after the 1st sentence the 
     following: ``In the administration of any law involving the 
     issuance of a marriage certificate or license, each State 
     shall require each party named in the certificate or license 
     to furnish to the State (or political subdivision thereof), 
     or any State agency having administrative responsibility for 
     the law involved, the social security number of the party.'';
       (3) in clause (ii), by inserting ``or marriage 
     certificate'' after ``Such numbers shall not be recorded on 
     the birth certificate''.
       (4) in clause (vi), by striking ``may'' and inserting 
     ``shall''; and
       (5) by adding at the end the following new clauses:
       ``(x) An agency of a State (or a political subdivision 
     thereof) charged with the administration of any law 
     concerning the issuance or renewal of a license, certificate, 
     permit, or other authorization to engage in a profession, an 
     occupation, or a commercial activity shall require all 
     applicants for issuance or renewal of the license, 
     certificate, permit, or other authorization to provide the 
     applicant's social security number to the agency for the 
     purpose of administering such laws, and for the purpose of 
     responding to requests for information from an agency 
     operating pursuant to part D of title IV.
       ``(xi) All divorce decrees, support orders, and paternity 
     determinations issued, and all paternity acknowledgments 
     made, in each State shall include the social security number 
     of each party to the decree, order, determination, or 
     acknowledgement in the records relating to the matter, for 
     the purpose of responding to requests for information from an 
     agency operating pursuant to part D of title IV.''.

          CHAPTER 3--STREAMLINING AND UNIFORMITY OF PROCEDURES

     SEC. 12321. ADOPTION OF UNIFORM STATE LAWS.

       Section 466 (42 U.S.C. 666) is amended by adding at the end 
     the following new subsection:
       ``(f) Uniform Interstate Family Support Act.--
       ``(1) Enactment and use.--In order to satisfy section 
     454(20)(A), on or after January 1, 1998, each State must have 
     in effect the Uniform Interstate Family Support Act, as 
     approved by the American Bar Association on February 9, 1993, 
     together with any amendments officially adopted before 
     January 1, 1998 by the National Conference of Commissioners 
     on Uniform State Laws.
       ``(2) Employers to follow procedural rules of State where 
     employee works.--The State law enacted pursuant to paragraph 
     (1) shall provide that an employer that receives an income 
     withholding order or notice pursuant to section 501 of the 
     Uniform Interstate Family Support Act follow the procedural 
     rules that apply with respect to such order or notice under 
     the laws of the State in which the obligor works.

     SEC. 12322. IMPROVEMENTS TO FULL FAITH AND CREDIT FOR CHILD 
                   SUPPORT ORDERS.

       Section 1738B of title 28, United States Code, is amended--
       (1) in subsection (a)(2), by striking ``subsection (e)'' 
     and inserting ``subsections (e), (f), and (i)'';
       (2) in subsection (b), by inserting after the 2nd 
     undesignated paragraph the following:
       `` `child's home State' means the State in which a child 
     lived with a parent or a person acting as parent for at least 
     6 consecutive months immediately preceding the time of filing 
     of a petition or comparable pleading for support and, if a 
     child is less than 6 months old, the State in which the child 
     lived from birth with any of them. A period of temporary 
     absence of any of them is counted as part of the 6-month 
     period.'';
       (3) in subsection (c), by inserting ``by a court of a 
     State'' before ``is made'';
       (4) in subsection (c)(1), by inserting ``and subsections 
     (e), (f), and (g)'' after ``located'';
       (5) in subsection (d)--
       (A) by inserting ``individual'' before ``contestant''; and
       (B) by striking ``subsection (e)'' and inserting 
     ``subsections (e) and (f)'';
       (6) in subsection (e), by striking ``make a modification of 
     a child support order with respect to a child that is made'' 
     and inserting ``modify a child support order issued'';
       (7) in subsection (e)(1), by inserting ``pursuant to 
     subsection (i)'' before the semicolon;
       (8) in subsection (e)(2)--
       (A) by inserting ``individual'' before ``contestant'' each 
     place such term appears; and
       (B) by striking ``to that court's making the modification 
     and assuming'' and inserting ``with the State of continuing, 
     exclusive jurisdiction for a court of another State to modify 
     the order and assume'';
       (9) by redesignating subsections (f) and (g) as subsections 
     (g) and (h), respectively;
       (10) by inserting after subsection (e) the following new 
     subsection:
       ``(f) Recognition of Child Support Orders.--If 1 or more 
     child support orders have been issued in this or another 
     State with regard to an obligor and a child, a court shall 
     apply the following rules in determining which order to 
     recognize for purposes of continuing, exclusive jurisdiction 
     and enforcement:

[[Page H 12713]]

       ``(1) If only 1 court has issued a child support order, the 
     order of that court must be recognized.
       ``(2) If 2 or more courts have issued child support orders 
     for the same obligor and child, and only 1 of the courts 
     would have continuing, exclusive jurisdiction under this 
     section, the order of that court must be recognized.
       ``(3) If 2 or more courts have issued child support orders 
     for the same obligor and child, and more than 1 of the courts 
     would have continuing, exclusive jurisdiction under this 
     section, an order issued by a court in the current home State 
     of the child must be recognized, but if an order has not been 
     issued in the current home State of the child, the order most 
     recently issued must be recognized.
       ``(4) If 2 or more courts have issued child support orders 
     for the same obligor and child, and none of the courts would 
     have continuing, exclusive jurisdiction under this section, a 
     court may issue a child support order, which must be 
     recognized.
       ``(5) The court that has issued an order recognized under 
     this subsection is the court having continuing, exclusive 
     jurisdiction.'';
       (11) in subsection (g) (as so redesignated)--
       (A) by striking ``Prior'' and inserting ``Modified''; and
       (B) by striking ``subsection (e)'' and inserting 
     ``subsections (e) and (f)'';
       (12) in subsection (h) (as so redesignated)--
       (A) in paragraph (2), by inserting ``including the duration 
     of current payments and other obligations of support'' before 
     the comma; and
       (B) in paragraph (3), by inserting ``arrears under'' after 
     ``enforce''; and
       (13) by adding at the end the following new subsection:
       ``(i) Registration for Modification.--If there is no 
     individual contestant or child residing in the issuing State, 
     the party or support enforcement agency seeking to modify, or 
     to modify and enforce, a child support order issued in 
     another State shall register that order in a State with 
     jurisdiction over the nonmovant for the purpose of 
     modification.''.

     SEC. 12323. ADMINISTRATIVE ENFORCEMENT IN INTERSTATE CASES.

       Section 466(a) (42 U.S.C. 666(a)), as amended by sections 
     12315 and 12317(a) of this Act, is amended by adding at the 
     end the following new paragraph:
       ``(14) Administrative enforcement in interstate cases.--
     Procedures under which--
       ``(A)(i) the State shall respond within 5 business days to 
     a request made by another State to enforce a support order; 
     and
       ``(ii) the term `business day' means a day on which State 
     offices are open for regular business;
       ``(B) the State may, by electronic or other means, transmit 
     to another State a request for assistance in a case involving 
     the enforcement of a support order, which request--
       ``(i) shall include such information as will enable the 
     State to which the request is transmitted to compare the 
     information about the case to the information in the data 
     bases of the State; and
       ``(ii) shall constitute a certification by the requesting 
     State--

       ``(I) of the amount of support under the order the payment 
     of which is in arrears; and
       ``(II) that the requesting State has complied with all 
     procedural due process requirements applicable to the case;

       ``(C) if the State provides assistance to another State 
     pursuant to this paragraph with respect to a case, neither 
     State shall consider the case to be transferred to the 
     caseload of such other State; and
       ``(D) the State shall maintain records of--
       ``(i) the number of such requests for assistance received 
     by the State;
       ``(ii) the number of cases for which the State collected 
     support in response to such a request; and
       ``(iii) the amount of such collected support.''.

     SEC. 12324. USE OF FORMS IN INTERSTATE ENFORCEMENT.

       (a) Promulgation.--Section 452(a) (42 U.S.C. 652(a)) is 
     amended--
       (1) by striking ``and'' at the end of paragraph (9);
       (2) by striking the period at the end of paragraph (10) and 
     inserting ``; and''; and
       (3) by adding at the end the following new paragraph:
       ``(11) not later than June 30, 1996, after consulting with 
     the State directors of programs under this part, promulgate 
     forms to be used by States in interstate cases for--
       ``(A) collection of child support through income 
     withholding;
       ``(B) imposition of liens; and
       ``(C) administrative subpoenas.''.
       (b) Use by States.--Section 454(9) (42 U.S.C. 654(9)) is 
     amended--
       (1) by striking ``and'' at the end of subparagraph (C);
       (2) by inserting ``and'' at the end of subparagraph (D); 
     and
       (3) by adding at the end the following new subparagraph:
       ``(E) no later than October 1, 1996, in using the forms 
     promulgated pursuant to section 452(a)(11) for income 
     withholding, imposition of liens, and issuance of 
     administrative subpoenas in interstate child support 
     cases;''.

     SEC. 12325. STATE LAWS PROVIDING EXPEDITED PROCEDURES.

       (a) State Law Requirements.--Section 466 (42 U.S.C. 666), 
     as amended by section 12314 of this Act, is amended--
       (1) in subsection (a)(2), by striking the 1st sentence and 
     inserting the following: ``Expedited administrative and 
     judicial procedures (including the procedures specified in 
     subsection (c)) for establishing paternity and for 
     establishing, modifying, and enforcing support 
     obligations.''; and
       (2) by inserting after subsection (b) the following new 
     subsection:
       ``(c) Expedited Procedures.--The procedures specified in 
     this subsection are the following:
       ``(1) Administrative action by state agency.--Procedures 
     which give the State agency the authority to take the 
     following actions relating to establishment or enforcement of 
     support orders, without the necessity of obtaining an order 
     from any other judicial or administrative tribunal, and to 
     recognize and enforce the authority of State agencies of 
     other States) to take the following actions:
       ``(A) Genetic testing.--To order genetic testing for the 
     purpose of paternity establishment as provided in section 
     466(a)(5).
       ``(B) Financial or other information.--To subpoena any 
     financial or other information needed to establish, modify, 
     or enforce a support order, and to impose penalties for 
     failure to respond to such a subpoena.
       ``(C) Response to state agency request.--To require all 
     entities in the State (including for-profit, nonprofit, and 
     governmental employers) to provide promptly, in response to a 
     request by the State agency of that or any other State 
     administering a program under this part, information on the 
     employment, compensation, and benefits of any individual 
     employed by such entity as an employee or contractor, and to 
     sanction failure to respond to any such request.
       ``(D) Access to certain records.--To obtain access, subject 
     to safeguards on privacy and information security, to the 
     following records (including automated access, in the case of 
     records maintained in automated data bases):
       ``(i) Records of other State and local government agencies, 
     including--

       ``(I) vital statistics (including records of marriage, 
     birth, and divorce);
       ``(II) State and local tax and revenue records (including 
     information on residence address, employer, income and 
     assets);
       ``(III) records concerning real and titled personal 
     property;
       ``(IV) records of occupational and professional licenses, 
     and records concerning the ownership and control of 
     corporations, partnerships, and other business entities;
       ``(V) employment security records;
       ``(VI) records of agencies administering public assistance 
     programs;
       ``(VII) records of the motor vehicle department; and
       ``(VIII) corrections records.

       ``(ii) Certain records held by private entities, 
     including--

       ``(I) customer records of public utilities and cable 
     television companies; and
       ``(II) information (including information on assets and 
     liabilities) on individuals who owe or are owed support (or 
     against or with respect to whom a support obligation is 
     sought) held by financial institutions (subject to 
     limitations on liability of such entities arising from 
     affording such access), as provided pursuant to agreements 
     described in subsection (a)(18).

       ``(E) Change in payee.--In cases in which support is 
     subject to an assignment in order to comply with a 
     requirement imposed pursuant to part A or section 1912, or to 
     a requirement to pay through the State disbursement unit 
     established pursuant to section 454B, upon providing notice 
     to obligor and obligee, to direct the obligor or other payor 
     to change the payee to the appropriate government entity.
       ``(F) Income withholding.--To order income withholding in 
     accordance with subsections (a)(1) and (b) of section 466.
       ``(G) Securing assets.--In cases in which there is a 
     support arrearage, to secure assets to satisfy the arrearage 
     by--
       ``(i) intercepting or seizing periodic or lump-sum payments 
     from--

       ``(I) a State or local agency, including unemployment 
     compensation, workers' compensation, and other benefits; and
       ``(II) judgments, settlements, and lotteries;

       ``(ii) attaching and seizing assets of the obligor held in 
     financial institutions;
       ``(iii) attaching public and private retirement funds; and
       ``(iv) imposing liens in accordance with subsection (a)(4) 
     and, in appropriate cases, to force sale of property and 
     distribution of proceeds.
       ``(H) Increase monthly payments.--For the purpose of 
     securing overdue support, to increase the amount of monthly 
     support payments to include amounts for arrearages, subject 
     to such conditions or limitations as the State may provide.
     Such procedures shall be subject to due process safeguards, 
     including (as appropriate) requirements for notice, 
     opportunity to contest the action, and opportunity for an 
     appeal on the record to an independent administrative or 
     judicial tribunal.
       ``(2) Substantive and procedural rules.--The expedited 
     procedures required under subsection (a)(2) shall include the 
     following rules and authority, applicable with respect to all 
     proceedings to establish paternity or to establish, modify, 
     or enforce support orders:
       ``(A) Locator information; presumptions concerning 
     notice.--Procedures under which--
       ``(i) each party to any paternity or child support 
     proceeding is required (subject to privacy safeguards) to 
     file with the tribunal and the State case registry upon entry 
     of an order, and to update as appropriate, information on 
     location and identity of the party, including social security 
     number, residential and mailing addresses, telephone number, 
     driver's license number, and name, address, and name and 
     telephone number of employer; and
       ``(ii) in any subsequent child support enforcement action 
     between the parties, upon sufficient showing that diligent 
     effort has been made to ascertain the location of such a 
     party, the tribunal may deem State due process requirements 
     for notice and service of process to be met with respect to 
     the party, upon delivery of written notice to the most recent 
     residential or employer 

[[Page H 12714]]
     address filed with the tribunal pursuant to clause (i).
       ``(B) Statewide jurisdiction.--Procedures under which--
       ``(i) the State agency and any administrative or judicial 
     tribunal with authority to hear child support and paternity 
     cases exerts statewide jurisdiction over the parties; and
       ``(ii) in a State in which orders are issued by courts or 
     administrative tribunals, a case may be transferred between 
     local jurisdictions in the State without need for any 
     additional filing by the petitioner, or service of process 
     upon the respondent, to retain jurisdiction over the parties.
       ``(3) Coordination with erisa.--Notwithstanding subsection 
     (d) of section 514 of the Employee Retirement Income Security 
     Act of 1974 (relating to effect on other laws), nothing in 
     this subsection shall be construed to alter, amend, modify, 
     invalidate, impair, or supersede subsections (a), (b), and 
     (c) of such section 514 as it applies with respect to any 
     procedure referred to in paragraph (1) and any expedited 
     procedure referred to in paragraph (2), except to the extent 
     that such procedure would be consistent with the requirements 
     of section 206(d)(3) of such Act (relating to qualified 
     domestic relations orders) or the requirements of section 
     609(a) of such Act (relating to qualified medical child 
     support orders) if the reference in such section 206(d)(3) to 
     a domestic relations order and the reference in such section 
     609(a) to a medical child support order were a reference to a 
     support order referred to in paragraphs (1) and (2) relating 
     to the same matters, respectively.''.
       (b) Automation of State Agency Functions.--Section 454A, as 
     added by section 12344(a)(2) and as amended by sections 12311 
     and 12312(c) of this Act, is amended by adding at the end the 
     following new subsection:
       ``(h) Expedited Administrative Procedures.--The automated 
     system required by this section shall be used, to the maximum 
     extent feasible, to implement the expedited administrative 
     procedures required by section 466(c).''.

                   CHAPTER 4--PATERNITY ESTABLISHMENT

     SEC. 12331. STATE LAWS CONCERNING PATERNITY ESTABLISHMENT.

       (a) State Laws Required.--Section 466(a)(5) (42 U.S.C. 
     666(a)(5)) is amended to read as follows:
       ``(5) Procedures concerning paternity establishment.--
       ``(A) Establishment process available from birth until age 
     18.--
       ``(i) Procedures which permit the establishment of the 
     paternity of a child at any time before the child attains 18 
     years of age.
       ``(ii) As of August 16, 1984, clause (i) shall also apply 
     to a child for whom paternity has not been established or for 
     whom a paternity action was brought but dismissed because a 
     statute of limitations of less than 18 years was then in 
     effect in the State.
       ``(B) Procedures concerning genetic testing.--
       ``(i) Genetic testing required in certain contested 
     cases.--Procedures under which the State is required, in a 
     contested paternity case (unless otherwise barred by State 
     law) to require the child and all other parties (other than 
     individuals found under section 454(29) to have good cause 
     for refusing to cooperate) to submit to genetic tests upon 
     the request of any such party, if the request is supported by 
     a sworn statement by the party--

       ``(I) alleging paternity, and setting forth facts 
     establishing a reasonable possibility of the requisite sexual 
     contact between the parties; or
       ``(II) denying paternity, and setting forth facts 
     establishing a reasonable possibility of the nonexistence of 
     sexual contact between the parties.

       ``(ii) Other requirements.--Procedures which require the 
     State agency, in any case in which the agency orders genetic 
     testing--

       ``(I) to pay costs of such tests, subject to recoupment (if 
     the State so elects) from the alleged father if paternity is 
     established; and
       ``(II) to obtain additional testing in any case if an 
     original test result is contested, upon request and advance 
     payment by the contestant.

       ``(C) Voluntary paternity acknowledgment.--
       ``(i) Simple civil process.--Procedures for a simple civil 
     process for voluntarily acknowledging paternity under which 
     the State must provide that, before a mother and a putative 
     father can sign an acknowledgment of paternity, the mother 
     and the putative father must be given notice, orally and in 
     writing, of the alternatives to, the legal consequences of, 
     and the rights (including, if 1 parent is a minor, any rights 
     afforded due to minority status) and responsibilities that 
     arise from, signing the acknowledgment.
       ``(ii) Hospital-based program.--Such procedures must 
     include a hospital-based program for the voluntary 
     acknowledgment of paternity focusing on the period 
     immediately before or after the birth of a child, subject to 
     such good cause exceptions, taking into account the best 
     interests of the child, as the State may establish.
       ``(iii) Paternity establishment services.--

       ``(I) State-offered services.--Such procedures must require 
     the State agency responsible for maintaining birth records to 
     offer voluntary paternity establishment services.
       ``(II) Regulations.--

       ``(aa) Services offered by hospitals and birth record 
     agencies.--The Secretary shall prescribe regulations 
     governing voluntary paternity establishment services offered 
     by hospitals and birth record agencies.
       ``(bb) Services offered by other entities.--The Secretary 
     shall prescribe regulations specifying the types of other 
     entities that may offer voluntary paternity establishment 
     services, and governing the provision of such services, which 
     shall include a requirement that such an entity must use the 
     same notice provisions used by, use the same materials used 
     by, provide the personnel providing such services with the 
     same training provided by, and evaluate the provision of such 
     services in the same manner as the provision of such services 
     is evaluated by, voluntary paternity establishment programs 
     of hospitals and birth record agencies.
       ``(iv) Use of paternity acknowledgment affidavit.--Such 
     procedures must require the State to develop and use an 
     affidavit for the voluntary acknowledgment of paternity which 
     includes the minimum requirements of the affidavit developed 
     by the Secretary under section 452(a)(7) for the voluntary 
     acknowledgment of paternity, and to give full faith and 
     credit to such an affidavit signed in any other State 
     according to its procedures.
       ``(D) Status of signed paternity acknowledgment.--
       ``(i) Inclusion in birth records.--Procedures under which 
     the name of the father shall be included on the record of 
     birth of the child only if--

       ``(I) the father and mother have signed a voluntary 
     acknowledgment of paternity; or
       ``(II) a court or an administrative agency of competent 
     jurisdiction has issued an adjudication of paternity.

     Nothing in this clause shall preclude a State agency from 
     obtaining an admission of paternity from the father for 
     submission in a judicial or administrative proceeding, or 
     prohibit the issuance of an order in a judicial or 
     administrative proceeding which bases a legal finding of 
     paternity on an admission of paternity by the father and any 
     other additional showing required by State law.
       ``(ii) Legal finding of paternity.--Procedures under which 
     a signed voluntary acknowledgment of paternity is considered 
     a legal finding of paternity, subject to the right of any 
     signatory to rescind the acknowledgment within the earlier 
     of--

       ``(I) 60 days; or
       ``(II) the date of an administrative or judicial proceeding 
     relating to the child (including a proceeding to establish a 
     support order) in which the signatory is a party.

       ``(iii) Contest.--Procedures under which, after the 60-day 
     period referred to in clause (ii), a signed voluntary 
     acknowledgment of paternity may be challenged in court only 
     on the basis of fraud, duress, or material mistake of fact, 
     with the burden of proof upon the challenger, and under which 
     the legal responsibilities (including child support 
     obligations) of any signatory arising from the acknowledgment 
     may not be suspended during the challenge, except for good 
     cause shown.
       ``(E) Bar on acknowledgment ratification proceedings.--
     Procedures under which judicial or administrative proceedings 
     are not required or permitted to ratify an unchallenged 
     acknowledgment of paternity.
       ``(F) Admissibility of genetic testing results.--
     Procedures--
       ``(i) requiring the admission into evidence, for purposes 
     of establishing paternity, of the results of any genetic test 
     that is--

       ``(I) of a type generally acknowledged as reliable by 
     accreditation bodies designated by the Secretary; and
       ``(II) performed by a laboratory approved by such an 
     accreditation body;

       ``(ii) requiring an objection to genetic testing results to 
     be made in writing not later than a specified number of days 
     before any hearing at which the results may be introduced 
     into evidence (or, at State option, not later than a 
     specified number of days after receipt of the results); and
       ``(iii) making the test results admissible as evidence of 
     paternity without the need for foundation testimony or other 
     proof of authenticity or accuracy, unless objection is made.
       ``(G) Presumption of paternity in certain cases.--
     Procedures which create a rebuttable or, at the option of the 
     State, conclusive presumption of paternity upon genetic 
     testing results indicating a threshold probability that the 
     alleged father is the father of the child.
       ``(H) Default orders.--Procedures requiring a default order 
     to be entered in a paternity case upon a showing of service 
     of process on the defendant and any additional showing 
     required by State law.
       ``(I) No right to jury trial.--Procedures providing that 
     the parties to an action to establish paternity are not 
     entitled to a trial by jury.
       ``(J) Temporary support order based on probable paternity 
     in contested cases.--Procedures which require that a 
     temporary order be issued, upon motion by a party, requiring 
     the provision of child support pending an administrative or 
     judicial determination of parentage, if there is clear and 
     convincing evidence of paternity (on the basis of genetic 
     tests or other evidence).
       ``(K) Proof of certain support and paternity establishment 
     costs.--Procedures under which bills for pregnancy, 
     childbirth, and genetic testing are admissible as evidence 
     without requiring third-party foundation testimony, and shall 
     constitute prima facie evidence of amounts incurred for such 
     services or for testing on behalf of the child.
       ``(L) Standing of putative fathers.--Procedures ensuring 
     that the putative father has a reasonable opportunity to 
     initiate a paternity action.
       ``(M) Filing of acknowledgments and adjudications in state 
     registry of birth records.--Procedures under which voluntary 
     acknowledgments and adjudications of paternity by judicial or 
     administrative processes are filed with the State registry of 
     birth records for comparison with information in the State 
     case registry.''.
       (b) National Paternity Acknowledgment Affidavit.--Section 
     452(a)(7) (42 U.S.C. 652(a)(7)) is amended by inserting ``, 
     and develop an affidavit to be used for the voluntary 
     acknowledgment of paternity which shall include the social 
     security number of each parent 

[[Page H 12715]]
     and, after consultation with the States, other common elements as 
     determined by such designee'' before the semicolon.
       (c) Conforming Amendment.--Section 468 (42 U.S.C. 668) is 
     amended by striking ``a simple civil process for voluntarily 
     acknowledging paternity and''.

     SEC. 12332. OUTREACH FOR VOLUNTARY PATERNITY ESTABLISHMENT.

       Section 454(23) (42 U.S.C. 654(23)) is amended by inserting 
     ``and will publicize the availability and encourage the use 
     of procedures for voluntary establishment of paternity and 
     child support by means the State deems appropriate'' before 
     the semicolon.

     SEC. 12333. COOPERATION BY APPLICANTS FOR AND RECIPIENTS OF 
                   TEMPORARY FAMILY ASSISTANCE.

       Section 454 (42 U.S.C. 654), as amended by sections 
     12301(b), 12303(a), 12312(a), and 12313(a) of this Act, is 
     amended--
       (1) by striking ``and'' at the end of paragraph (27);
       (2) by striking the period at the end of paragraph (28) and 
     inserting ``; and''; and
       (3) by inserting after paragraph (28) the following new 
     paragraph:
       ``(29) provide that the State agency responsible for 
     administering the State plan--
       ``(A) shall make the determination (and redetermination at 
     appropriate intervals) as to whether an individual who has 
     applied for or is receiving assistance under the State 
     program funded under part A or the State program under title 
     XXI is cooperating in good faith with the State in 
     establishing the paternity of, or in establishing, modifying, 
     or enforcing a support order for, any child of the individual 
     by providing the State agency with the name of, and such 
     other information as the State agency may require with 
     respect to, the noncustodial parent of the child, subject to 
     such good cause exceptions, taking into account the best 
     interests of the child, as the State may establish through 
     the State agency, or at the option of the State, through the 
     State agencies administering the State programs funded under 
     part A and title XXI;
       ``(B) shall require the individual to supply additional 
     necessary information and appear at interviews, hearings, and 
     legal proceedings;
       ``(C) shall require the individual and the child to submit 
     to genetic tests pursuant to judicial or administrative 
     order;
       ``(D) may request that the individual sign a voluntary 
     acknowledgment of paternity, after notice of the rights and 
     consequences of such an acknowledgment, but may not require 
     the individual to sign an acknowledgment or otherwise 
     relinquish the right to genetic tests as a condition of 
     cooperation and eligibility for assistance under the State 
     program funded under part A or the State program under title 
     XXI; and
       ``(E) shall promptly notify the individual and the State 
     agency administering the State program funded under part A 
     and the State agency administering the State program under 
     title XXI of each such determination, and if noncooperation 
     is determined, the basis therefore.''.

             CHAPTER 5--PROGRAM ADMINISTRATION AND FUNDING

     SEC. 12341. PERFORMANCE-BASED INCENTIVES AND PENALTIES.

       (a) Development of New System.--The Secretary of Health and 
     Human Services, in consultation with State directors of 
     programs under part D of title IV of the Social Security Act, 
     shall develop a new incentive system to replace the system 
     under section 458 of such Act. The new system shall provide 
     additional payments to any State based on such State's 
     performance under such a program.
       (b) Conforming Amendments to Present System.--Section 458 
     (42 U.S.C. 658) is amended--
       (1) in subsection (a), by striking ``aid to families with 
     dependent children under a State plan approved under part A 
     of this title'' and inserting ``assistance under a program 
     funded under part A'';
       (2) in subsection (b)(1)(A), by striking ``section 
     402(a)(26)'' and inserting ``section 407(a)(4)'';
       (3) in subsections (b) and (c)--
       (A) by striking ``AFDC collections'' each place it appears 
     and inserting ``title IV-A collections'', and
       (B) by striking ``non-AFDC collections'' each place it 
     appears and inserting ``non-title IV-A collections''; and
       (4) in subsection (c), by striking ``combined AFDC/non-AFDC 
     administrative costs'' both places it appears and inserting 
     ``combined title IV-A/non-title IV-A administrative costs''.
       (c) Calculation of IV-D Paternity Establishment 
     Percentage.--
       (1) Section 452(g)(1) (42 U.S.C. 652(g)(1)) is amended in 
     each of subparagraphs (A) and (B), by striking ``75'' and 
     inserting ``90''.
       (2) Section 452(g)(2)(A) (42 U.S.C. 652(g)(2)(A)) is 
     amended in the matter preceding clause (i)--
       (A) by striking ``paternity establishment percentage'' and 
     inserting ``IV-D paternity establishment percentage''; and
       (B) by striking ``(or all States, as the case may be)''.
       (3) Section 452(g)(2) (42 U.S.C. 652(g)(2)) is amended by 
     adding at the end the following new sentence: ``In meeting 
     the 90 percent paternity establishment requirement, a State 
     may calculate either the paternity establishment rate of 
     cases in the program funded under this part or the paternity 
     establishment rate of all out-of-wedlock births in the 
     State.''.
       (4) Section 452(g)(3) (42 U.S.C. 652(g)(3)) is amended--
       (A) by striking subparagraph (A) and redesignating 
     subparagraphs (B) and (C) as subparagraphs (A) and (B), 
     respectively;
       (B) in subparagraph (A) (as so redesignated), by striking 
     ``the percentage of children born out-of-wedlock in a State'' 
     and inserting ``the percentage of children in a State who are 
     born out of wedlock or for whom support has not been 
     established''; and
       (C) in subparagraph (B) (as so redesignated) by inserting 
     ``and securing support'' before the period.
       (d) Effective Dates.--
       (1) Incentive adjustments.--
       (A) In general.--The system developed under subsection (a) 
     and the amendments made by subsection (b) shall become 
     effective on October 1, 1997, except to the extent provided 
     in subparagraph (B).
       (B) Application of section 458.--Section 458 of the Social 
     Security Act, as in effect on the day before the date of the 
     enactment of this section, shall be effective for purposes of 
     incentive payments to States for fiscal years before fiscal 
     year 1999.
       (2) Penalty reductions.--The amendments made by subsection 
     (c) shall become effective with respect to calendar quarters 
     beginning on or after the date of the enactment of this Act.

     SEC. 12342. FEDERAL AND STATE REVIEWS AND AUDITS.

       (a) State Agency Activities.--Section 454 (42 U.S.C. 654) 
     is amended--
       (1) in paragraph (14), by striking ``(14)'' and inserting 
     ``(14)(A)'';
       (2) by redesignating paragraph (15) as subparagraph (B) of 
     paragraph (14); and
       (3) by inserting after paragraph (14) the following new 
     paragraph:
       ``(15) provide for--
       ``(A) a process for annual reviews of and reports to the 
     Secretary on the State program operated under the State plan 
     approved under this part, including such information as may 
     be necessary to measure State compliance with Federal 
     requirements for expedited procedures, using such standards 
     and procedures as are required by the Secretary, under which 
     the State agency will determine the extent to which the 
     program is operated in compliance with this part; and
       ``(B) a process of extracting from the automated data 
     processing system required by paragraph (16) and transmitting 
     to the Secretary data and calculations concerning the levels 
     of accomplishment (and rates of improvement) with respect to 
     applicable performance indicators (including IV-D paternity 
     establishment percentages to the extent necessary for 
     purposes of sections 452(g) and 458.''.
       (b) Federal Activities.--Section 452(a)(4) (42 U.S.C. 
     652(a)(4)) is amended to read as follows:
       ``(4)(A) review data and calculations transmitted by State 
     agencies pursuant to section 454(15)(B) on State program 
     accomplishments with respect to performance indicators for 
     purposes of subsection (g) of this section and section 458;
       ``(B) review annual reports submitted pursuant to section 
     454(15)(A) and, as appropriate, provide to the State 
     comments, recommendations for additional or alternative 
     corrective actions, and technical assistance; and
       ``(C) conduct audits, in accordance with the Government 
     auditing standards of the Comptroller General of the United 
     States--
       ``(i) at least once every 3 years (or more frequently, in 
     the case of a State which fails to meet the requirements of 
     this part concerning performance standards and reliability of 
     program data) to assess the completeness, reliability, and 
     security of the data, and the accuracy of the reporting 
     systems, used in calculating performance indicators under 
     subsection (g) of this section and section 458;
       ``(ii) of the adequacy of financial management of the State 
     program operated under the State plan approved under this 
     part, including assessments of--
       ``(I) whether Federal and other funds made available to 
     carry out the State program are being appropriately expended, 
     and are properly and fully accounted for; and
       ``(II) whether collections and disbursements of support 
     payments are carried out correctly and are fully accounted 
     for; and
       ``(iii) for such other purposes as the Secretary may find 
     necessary;''.
       (c) Effective Date.--The amendments made by this section 
     shall be effective with respect to calendar quarters 
     beginning 12 months or more after the date of the enactment 
     of this Act.

     SEC. 12343. REQUIRED REPORTING PROCEDURES.

       (a) Establishment.--Section 452(a)(5) (42 U.S.C. 652(a)(5)) 
     is amended by inserting ``, and establish procedures to be 
     followed by States for collecting and reporting information 
     required to be provided under this part, and establish 
     uniform definitions (including those necessary to enable the 
     measurement of State compliance with the requirements of this 
     part relating to expedited processes) to be applied in 
     following such procedures'' before the semicolon.
       (b) State Plan Requirement.--Section 454 (42 U.S.C. 654), 
     as amended by sections 12301(b), 12303(a), 12312(a), 
     12313(a), and 12333 of this Act, is amended--
       (1) by striking ``and'' at the end of paragraph (28);
       (2) by striking the period at the end of paragraph (29) and 
     inserting ``; and''; and
       (3) by adding after paragraph (29) the following new 
     paragraph:
       ``(30) provide that the State shall use the definitions 
     established under section 452(a)(5) in collecting and 
     reporting information as required under this part.''.

     SEC. 12344. AUTOMATED DATA PROCESSING REQUIREMENTS.

       (a) Revised Requirements.--
       (1) In general.--Section 454(16) (42 U.S.C. 654(16)) is 
     amended--
       (A) by striking ``, at the option of the State,'';
       (B) by inserting ``and operation by the State agency'' 
     after ``for the establishment'';
       (C) by inserting ``meeting the requirements of section 
     454A'' after ``information retrieval system'';

[[Page H 12716]]

       (D) by striking ``in the State and localities thereof, so 
     as (A)'' and inserting ``so as'';
       (E) by striking ``(i)''; and
       (F) by striking ``(including'' and all that follows and 
     inserting a semicolon.
       (2) Automated data processing.--Part D of title IV (42 
     U.S.C. 651-669) is amended by inserting after section 454 the 
     following new section:

     ``SEC. 454A. AUTOMATED DATA PROCESSING.

       ``(a) In General.--In order for a State to meet the 
     requirements of this section, the State agency administering 
     the State program under this part shall have in operation a 
     single statewide automated data processing and information 
     retrieval system which has the capability to perform the 
     tasks specified in this section with the frequency and in the 
     manner required by or under this part.
       ``(b) Program Management.--The automated system required by 
     this section shall perform such functions as the Secretary 
     may specify relating to management of the State program under 
     this part, including--
       ``(1) controlling and accounting for use of Federal, State, 
     and local funds in carrying out the program; and
       ``(2) maintaining the data necessary to meet Federal 
     reporting requirements under this part on a timely basis.
       ``(c) Calculation of Performance Indicators.--In order to 
     enable the Secretary to determine the incentive payments and 
     penalty adjustments required by sections 452(g) and 458, the 
     State agency shall--
       ``(1) use the automated system--
       ``(A) to maintain the requisite data on State performance 
     with respect to paternity establishment and child support 
     enforcement in the State; and
       ``(B) to calculate the IV-D paternity establishment 
     percentage for the State for each fiscal year; and
       ``(2) have in place systems controls to ensure the 
     completeness and reliability of, and ready access to, the 
     data described in paragraph (1)(A), and the accuracy of the 
     calculations described in paragraph (1)(B).
       ``(d) Information Integrity and Security.--The State agency 
     shall have in effect safeguards on the integrity, accuracy, 
     and completeness of, access to, and use of data in the 
     automated system required by this section, which shall 
     include the following (in addition to such other safeguards 
     as the Secretary may specify in regulations):
       ``(1) Policies restricting access.--Written policies 
     concerning access to data by State agency personnel, and 
     sharing of data with other persons, which--
       ``(A) permit access to and use of data only to the extent 
     necessary to carry out the State program under this part; and
       ``(B) specify the data which may be used for particular 
     program purposes, and the personnel permitted access to such 
     data.
       ``(2) Systems controls.--Systems controls (such as 
     passwords or blocking of fields) to ensure strict adherence 
     to the policies described in paragraph (1).
       ``(3) Monitoring of access.--Routine monitoring of access 
     to and use of the automated system, through methods such as 
     audit trails and feedback mechanisms, to guard against and 
     promptly identify unauthorized access or use.
       ``(4) Training and information.--Procedures to ensure that 
     all personnel (including State and local agency staff and 
     contractors) who may have access to or be required to use 
     confidential program data are informed of applicable 
     requirements and penalties (including those in section 6103 
     of the Internal Revenue Code of 1986), and are adequately 
     trained in security procedures.
       ``(5) Penalties.--Administrative penalties (up to and 
     including dismissal from employment) for unauthorized access 
     to, or disclosure or use of, confidential data.''.
       (3) Regulations.--The Secretary of Health and Human 
     Services shall prescribe final regulations for implementation 
     of section 454A of the Social Security Act not later than 2 
     years after the date of the enactment of this Act.
       (4) Implementation timetable.--Section 454(24) (42 U.S.C. 
     654(24)), as amended by section 12303(a)(1) of this Act, is 
     amended to read as follows:
       ``(24) provide that the State will have in effect an 
     automated data processing and information retrieval system--
       ``(A) by October 1, 1997, which meets all requirements of 
     this part which were enacted on or before the date of 
     enactment of the Family Support Act of 1988, and
       ``(B) by October 1, 1999, which meets all requirements of 
     this part enacted on or before the date of the enactment of 
     the Personal Responsibility and Work Opportunity Act of 1995, 
     except that such deadline shall be extended by 1 day for each 
     day (if any) by which the Secretary fails to meet the 
     deadline imposed by section 12344(a)(3) of the Personal 
     Responsibility and Work Opportunity Act of 1995;''.
       (b) Special Federal Matching Rate for Development Costs of 
     Automated Systems.--
       (1) In general.--Section 455(a) (42 U.S.C. 655(a)) is 
     amended--
       (A) in paragraph (1)(B)--
       (i) by striking ``90 percent'' and inserting ``the percent 
     specified in paragraph (3)'';
       (ii) by striking ``so much of''; and
       (iii) by striking ``which the Secretary'' and all that 
     follows and inserting ``, and''; and
       (B) by adding at the end the following new paragraph:
       ``(3)(A) The Secretary shall pay to each State, for each 
     quarter in fiscal years 1996 and 1997, 90 percent of so much 
     of the State expenditures described in paragraph (1)(B) as 
     the Secretary finds are for a system meeting the requirements 
     specified in section 454(16) (as in effect on September 30, 
     1995) but limited to the amount approved for States in the 
     advance planning documents of such States submitted on or 
     before May 1, 1995.
       ``(B)(i) The Secretary shall pay to each State, for each 
     quarter in fiscal years 1997 through 2001, the percentage 
     specified in clause (ii) of so much of the State expenditures 
     described in paragraph (1)(B) as the Secretary finds are for 
     a system meeting the requirements of sections 454(16) and 
     454A.
       ``(ii) The percentage specified in this clause is 80 
     percent.''.
       (2) Temporary limitation on payments under special federal 
     matching rate.--
       (A) In general.--The Secretary of Health and Human Services 
     may not pay more than $400,000,000 in the aggregate under 
     section 455(a)(3) of the Social Security Act for fiscal years 
     1996, 1997, 1998, 1999, and 2000.
       (B) Allocation of limitation among states.--The total 
     amount payable to a State under section 455(a)(3) of such Act 
     for fiscal years 1996, 1997, 1998, 1999, and 2000 shall not 
     exceed the limitation determined for the State by the 
     Secretary of Health and Human Services in regulations.
       (C) Allocation formula.--The regulations referred to in 
     subparagraph (B) shall prescribe a formula for allocating the 
     amount specified in subparagraph (A) among States with plans 
     approved under part D of title IV of the Social Security Act, 
     which shall take into account--
       (i) the relative size of State caseloads under such part; 
     and
       (ii) the level of automation needed to meet the automated 
     data processing requirements of such part.
       (c) Conforming Amendment.--Section 123(c) of the Family 
     Support Act of 1988 (102 Stat. 2352; Public Law 100-485) is 
     repealed.

     SEC. 12345. TECHNICAL ASSISTANCE.

       (a) For Training of Federal and State Staff, Research and 
     Demonstration Programs, and Special Projects of Regional or 
     National Significance.--Section 452 (42 U.S.C. 652) is 
     amended by adding at the end the following new subsection:
       ``(j) Out of any money in the Treasury of the United States 
     not otherwise appropriated, there is hereby appropriated to 
     the Secretary for each fiscal year an amount equal to 1 
     percent of the total amount paid to the Federal Government 
     pursuant to section 457(a) during the immediately preceding 
     fiscal year (as determined on the basis of the most recent 
     reliable data available to the Secretary as of the end of the 
     3rd calendar quarter following the end of such preceding 
     fiscal year), to cover costs incurred by the Secretary for--
       ``(1) information dissemination and technical assistance to 
     States, training of State and Federal staff, staffing 
     studies, and related activities needed to improve programs 
     under this part (including technical assistance concerning 
     State automated systems required by this part); and
       ``(2) research, demonstration, and special projects of 
     regional or national significance relating to the operation 
     of State programs under this part.''.
       (b) Operation of Federal Parent Locator Service.--Section 
     453 (42 U.S.C. 653), as amended by section 12316 of this Act, 
     is amended by adding at the end the following new subsection:
       ``(o) Recovery of Costs.--Out of any money in the Treasury 
     of the United States not otherwise appropriated, there is 
     hereby appropriated to the Secretary for each fiscal year an 
     amount equal to 2 percent of the total amount paid to the 
     Federal Government pursuant to section 457(a) during the 
     immediately preceding fiscal year (as determined on the basis 
     of the most recent reliable data available to the Secretary 
     as of the end of the 3rd calendar quarter following the end 
     of such preceding fiscal year), to cover costs incurred by 
     the Secretary for operation of the Federal Parent Locator 
     Service under this section, to the extent such costs are not 
     recovered through user fees.''.

     SEC. 12346. REPORTS AND DATA COLLECTION BY THE SECRETARY.

       (a) Annual Report to Congress.--
       (1) Section 452(a)(10)(A) (42 U.S.C. 652(a)(10)(A)) is 
     amended--
       (A) by striking ``this part;'' and inserting ``this part, 
     including--''; and
       (B) by adding at the end the following new clauses:
       ``(i) the total amount of child support payments collected 
     as a result of services furnished during the fiscal year to 
     individuals receiving services under this part;
       ``(ii) the cost to the States and to the Federal Government 
     of so furnishing the services; and
       ``(iii) the number of cases involving families--

       ``(I) who became ineligible for assistance under State 
     programs funded under part A during a month in the fiscal 
     year; and
       ``(II) with respect to whom a child support payment was 
     received in the month;''.

       (2) Section 452(a)(10)(C) (42 U.S.C. 652(a)(10)(C)) is 
     amended--
       (A) in the matter preceding clause (i)--
       (i) by striking ``with the data required under each clause 
     being separately stated for cases'' and inserting 
     ``separately stated for (1) cases'';
       (ii) by striking ``cases where the child was formerly 
     receiving'' and inserting ``or formerly received'';
       (iii) by inserting ``or 1912'' after ``471(a)(17)''; and
       (iv) by inserting ``(2)'' before ``all other'';
       (B) in each of clauses (i) and (ii), by striking ``, and 
     the total amount of such obligations'';
       (C) in clause (iii), by striking ``described in'' and all 
     that follows and inserting ``in which support was collected 
     during the fiscal year;'';
       (D) by striking clause (iv); and
       (E) by redesignating clause (v) as clause (vii), and 
     inserting after clause (iii) the following new clauses:
       ``(iv) the total amount of support collected during such 
     fiscal year and distributed as current support;

[[Page H 12717]]

       ``(v) the total amount of support collected during such 
     fiscal year and distributed as arrearages;
       ``(vi) the total amount of support due and unpaid for all 
     fiscal years; and''.
       (3) Section 452(a)(10)(G) (42 U.S.C. 652(a)(10)(G)) is 
     amended by striking ``on the use of Federal courts and''.
       (4) Section 452(a)(10) (42 U.S.C. 652(a)(10)) is amended--
       (A) in subparagraph (H), by striking ``and'';
       (B) in subparagraph (I), by striking the period and 
     inserting ``; and''; and
       (C) by inserting after subparagraph (I) the following new 
     subparagraph:
       ``(J) compliance, by State, with the standards established 
     pursuant to subsections (h) and (i).''.
       (5) Section 452(a)(10) (42 U.S.C. 652(a)(10)) is amended by 
     striking all that follows subparagraph (J), as added by 
     paragraph (4).
       (b) Effective Date.--The amendments made by subsection (a) 
     shall be effective with respect to fiscal year 1996 and 
     succeeding fiscal years.

      CHAPTER 6--ESTABLISHMENT AND MODIFICATION OF SUPPORT ORDERS

     SEC. 12351. SIMPLIFIED PROCESS FOR REVIEW AND ADJUSTMENT OF 
                   CHILD SUPPORT ORDERS.

       Section 466(a)(10) (42 U.S.C. 666(a)(10)) is amended to 
     read as follows:
       ``(10) Review and adjustment of support orders upon 
     request.--Procedures under which the State shall review and 
     adjust each support order being enforced under this part upon 
     the request of either parent or the State if there is an 
     assignment. Such procedures shall provide the following:
       ``(A) In general.--
       ``(i) 3-year cycle.--Except as provided in subparagraphs 
     (B) and (C), the State shall review and, as appropriate, 
     adjust the support order every 3 years, taking into account 
     the best interests of the child involved.
       ``(ii) Methods of adjustment.--The State may elect to 
     review and, if appropriate, adjust an order pursuant to 
     clause (i) by--

       ``(I) reviewing and, if appropriate, adjusting the order in 
     accordance with the guidelines established pursuant to 
     section 467(a) if the amount of the child support award under 
     the order differs from the amount that would be awarded in 
     accordance with the guidelines; or
       ``(II) applying a cost-of-living adjustment to the order in 
     accordance with a formula developed by the State and permit 
     either party to contest the adjustment, within 30 days after 
     the date of the notice of the adjustment, by making a request 
     for review and, if appropriate, adjustment of the order in 
     accordance with the child support guidelines established 
     pursuant to section 467(a).

       ``(iii) No proof of change in circumstances necessary.--Any 
     adjustment under this subparagraph (A) shall be made without 
     a requirement for proof or showing of a change in 
     circumstances.
       ``(B) Automated method.--The State may use automated 
     methods (including automated comparisons with wage or State 
     income tax data) to identify orders eligible for review, 
     conduct the review, identify orders eligible for adjustment, 
     and apply the appropriate adjustment to the orders eligible 
     for adjustment under the threshold established by the State.
       ``(C) Request upon substantial change in circumstances.--
     The State shall, at the request of either parent subject to 
     such an order or of any State child support enforcement 
     agency, review and, if appropriate, adjust the order in 
     accordance with the guidelines established pursuant to 
     section 467(a) based upon a substantial change in the 
     circumstances of either parent.
       ``(D) Notice of right to review.--The State shall provide 
     notice not less than once every 3 years to the parents 
     subject to such an order informing them of their right to 
     request the State to review and, if appropriate, adjust the 
     order pursuant to this paragraph. The notice may be included 
     in the order.''.

     SEC. 12352. FURNISHING CONSUMER REPORTS FOR CERTAIN PURPOSES 
                   RELATING TO CHILD SUPPORT.

       Section 604 of the Fair Credit Reporting Act (15 U.S.C. 
     1681b) is amended by adding at the end the following new 
     paragraphs:
       ``(4) In response to a request by the head of a State or 
     local child support enforcement agency (or a State or local 
     government official authorized by the head of such an 
     agency), if the person making the request certifies to the 
     consumer reporting agency that--
       ``(A) the consumer report is needed for the purpose of 
     establishing an individual's capacity to make child support 
     payments or determining the appropriate level of such 
     payments;
       ``(B) the paternity of the consumer for the child to which 
     the obligation relates has been established or acknowledged 
     by the consumer in accordance with State laws under which the 
     obligation arises (if required by those laws);
       ``(C) the person has provided at least 10 days' prior 
     notice to the consumer whose report is requested, by 
     certified or registered mail to the last known address of the 
     consumer, that the report will be requested; and
       ``(D) the consumer report will be kept confidential, will 
     be used solely for a purpose described in subparagraph (A), 
     and will not be used in connection with any other civil, 
     administrative, or criminal proceeding, or for any other 
     purpose.
       ``(5) To an agency administering a State plan under section 
     454 of the Social Security Act (42 U.S.C. 654) for use to set 
     an initial or modified child support award.''.

     SEC. 12353. NONLIABILITY FOR FINANCIAL INSTITUTIONS PROVIDING 
                   FINANCIAL RECORDS TO STATE CHILD SUPPORT 
                   ENFORCEMENT AGENCIES IN CHILD SUPPORT CASES.

       (a) In General.--Notwithstanding any other provision of 
     Federal or State law, a financial institution shall not be 
     liable under any Federal or State law to any person for 
     disclosing any financial record of an individual to a State 
     child support enforcement agency attempting to establish, 
     modify, or enforce a child support obligation of such 
     individual.
       (b) Prohibition of Disclosure of Financial Record Obtained 
     by State Child Support Enforcement Agency.--A State child 
     support enforcement agency which obtains a financial record 
     of an individual from a financial institution pursuant to 
     subsection (a) may disclose such financial record only for 
     the purpose of, and to the extent necessary in, establishing, 
     modifying, or enforcing a child support obligation of such 
     individual.
       (c) Civil Damages for Unauthorized Disclosure.--
       (1) Disclosure by state officer or employee.--If any person 
     knowingly, or by reason of negligence, discloses a financial 
     record of an individual in violation of subsection (b), such 
     individual may bring a civil action for damages against such 
     person in a district court of the United States.
       (2) No liability for good faith but erroneous 
     interpretation.--No liability shall arise under this 
     subsection with respect to any disclosure which results from 
     a good faith, but erroneous, interpretation of subsection 
     (b).
       (3) Damages.--In any action brought under paragraph (1), 
     upon a finding of liability on the part of the defendant, the 
     defendant shall be liable to the plaintiff in an amount equal 
     to the sum of--
       (A) the greater of--
       (i) $1,000 for each act of unauthorized disclosure of a 
     financial record with respect to which such defendant is 
     found liable; or
       (ii) the sum of--

       (I) the actual damages sustained by the plaintiff as a 
     result of such unauthorized disclosure; plus
       (II) in the case of a willful disclosure or a disclosure 
     which is the result of gross negligence, punitive damages; 
     plus

       (B) the costs (including attorney's fees) of the action.
       (d) Definitions.--For purposes of this section--
       (1) Financial institution.--The term ``financial 
     institution'' means--
       (A) a depository institution, as defined in section 3(c) of 
     the Federal Deposit Insurance Act (12 U.S.C. 1813(c));
       (B) an institution-affiliated party, as defined in section 
     3(u) of such Act (12 U.S.C. 1813(v));
       (C) any Federal credit union or State credit union, as 
     defined in section 101 of the Federal Credit Union Act (12 
     U.S.C. 1752), including an institution-affiliated party of 
     such a credit union, as defined in section 206(r) of such Act 
     (12 U.S.C. 1786(r)); and
       (D) any benefit association, insurance company, safe 
     deposit company, money-market mutual fund, or similar entity 
     authorized to do business in the State.
       (2) Financial record.--The term ``financial record'' has 
     the meaning given such term in section 1101 of the Right to 
     Financial Privacy Act of 1978 (12 U.S.C. 3401).
       (3) State child support enforcement agency.--The term 
     ``State child support enforcement agency'' means a State 
     agency which administers a State program for establishing and 
     enforcing child support obligations.

                CHAPTER 7--ENFORCEMENT OF SUPPORT ORDERS

     SEC. 12361. INTERNAL REVENUE SERVICE COLLECTION OF 
                   ARREARAGES.

       (a) Collection of Fees.--Section 6305(a) of the Internal 
     Revenue Code of 1986 (relating to collection of certain 
     liability) is amended--
       (1) by striking ``and'' at the end of paragraph (3);
       (2) by striking the period at the end of paragraph (4) and 
     inserting ``, and'';
       (3) by adding at the end the following new paragraph:
       ``(5) no additional fee may be assessed for adjustments to 
     an amount previously certified pursuant to such section 
     452(b) with respect to the same obligor.''; and
       (4) by striking ``Secretary of Health, Education, and 
     Welfare'' each place it appears and inserting ``Secretary of 
     Health and Human Services''.
       (b) Effective Date.--The amendments made by this section 
     shall become effective October 1, 1997.

     SEC. 12362. AUTHORITY TO COLLECT SUPPORT FROM FEDERAL 
                   EMPLOYEES.

       (a) Consolidation and Streamlining of Authorities.--Section 
     459 (42 U.S.C. 659) is amended to read as follows:

     ``SEC. 459. CONSENT BY THE UNITED STATES TO INCOME 
                   WITHHOLDING, GARNISHMENT, AND SIMILAR 
                   PROCEEDINGS FOR ENFORCEMENT OF CHILD SUPPORT 
                   AND ALIMONY OBLIGATIONS.

       ``(a) Consent to Support Enforcement.--Notwithstanding any 
     other provision of law (including section 207 of this Act and 
     section 5301 of title 38, United States Code), effective 
     January 1, 1975, moneys (the entitlement to which is based 
     upon remuneration for employment) due from, or payable by, 
     the United States or the District of Columbia (including any 
     agency, subdivision, or instrumentality thereof) to any 
     individual, including members of the Armed Forces of the 
     United States, shall be subject, in like manner and to the 
     same extent as if the United States or the District of 
     Columbia were a private person, to withholding in accordance 
     with State law enacted pursuant to subsections (a)(1) and (b) 
     of section 466 and regulations of the Secretary under such 
     subsections, and to any other legal process brought, by a 
     State agency administering a program under a State plan 
     approved under this part or by an individual obligee, to 
     enforce the legal obligation of the individual to provide 
     child support or alimony.

[[Page H 12718]]

       ``(b) Consent to Requirements Applicable to Private 
     Person.--With respect to notice to withhold income pursuant 
     to subsection (a)(1) or (b) of section 466, or any other 
     order or process to enforce support obligations against an 
     individual (if the order or process contains or is 
     accompanied by sufficient data to permit prompt 
     identification of the individual and the moneys involved), 
     each governmental entity specified in subsection (a) shall be 
     subject to the same requirements as would apply if the entity 
     were a private person, except as otherwise provided in this 
     section.
       ``(c) Designation of Agent; Response to Notice or Process--
       ``(1) Designation of agent.--The head of each agency 
     subject to this section shall--
       ``(A) designate an agent or agents to receive orders and 
     accept service of process in matters relating to child 
     support or alimony; and
       ``(B) annually publish in the Federal Register the 
     designation of the agent or agents, identified by title or 
     position, mailing address, and telephone number.
       ``(2) Response to notice or process.--If an agent 
     designated pursuant to paragraph (1) of this subsection 
     receives notice pursuant to State procedures in effect 
     pursuant to subsection (a)(1) or (b) of section 466, or is 
     effectively served with any order, process, or interrogatory, 
     with respect to an individual's child support or alimony 
     payment obligations, the agent shall--
       ``(A) as soon as possible (but not later than 15 days) 
     thereafter, send written notice of the notice or service 
     (together with a copy of the notice or service) to the 
     individual at the duty station or last-known home address of 
     the individual;
       ``(B) within 30 days (or such longer period as may be 
     prescribed by applicable State law) after receipt of a notice 
     pursuant to such State procedures, comply with all applicable 
     provisions of section 466; and
       ``(C) within 30 days (or such longer period as may be 
     prescribed by applicable State law) after effective service 
     of any other such order, process, or interrogatory, respond 
     to the order, process, or interrogatory.
       ``(d) Priority of Claims.--If a governmental entity 
     specified in subsection (a) receives notice or is served with 
     process, as provided in this section, concerning amounts owed 
     by an individual to more than 1 person--
       ``(1) support collection under section 466(b) must be given 
     priority over any other process, as provided in section 
     466(b)(7);
       ``(2) allocation of moneys due or payable to an individual 
     among claimants under section 466(b) shall be governed by 
     section 466(b) and the regulations prescribed under such 
     section; and
       ``(3) such moneys as remain after compliance with 
     paragraphs (1) and (2) shall be available to satisfy any 
     other such processes on a first-come, first-served basis, 
     with any such process being satisfied out of such moneys as 
     remain after the satisfaction of all such processes which 
     have been previously served.
       ``(e) No Requirement to Vary Pay Cycles.--A governmental 
     entity that is affected by legal process served for the 
     enforcement of an individual's child support or alimony 
     payment obligations shall not be required to vary its normal 
     pay and disbursement cycle in order to comply with the legal 
     process.
       ``(f) Relief From Liability.--
       ``(1) Neither the United States, nor the government of the 
     District of Columbia, nor any disbursing officer shall be 
     liable with respect to any payment made from moneys due or 
     payable from the United States to any individual pursuant to 
     legal process regular on its face, if the payment is made in 
     accordance with this section and the regulations issued to 
     carry out this section.
       ``(2) No Federal employee whose duties include taking 
     actions necessary to comply with the requirements of 
     subsection (a) with regard to any individual shall be subject 
     under any law to any disciplinary action or civil or criminal 
     liability or penalty for, or on account of, any disclosure of 
     information made by the employee in connection with the 
     carrying out of such actions.
       ``(g) Regulations.--Authority to promulgate regulations for 
     the implementation of this section shall, insofar as this 
     section applies to moneys due from (or payable by)--
       ``(1) the United States (other than the legislative or 
     judicial branches of the Federal Government) or the 
     government of the District of Columbia, be vested in the 
     President (or the designee of the President);
       ``(2) the legislative branch of the Federal Government, be 
     vested jointly in the President pro tempore of the Senate and 
     the Speaker of the House of Representatives (or their 
     designees), and
       ``(3) the judicial branch of the Federal Government, be 
     vested in the Chief Justice of the United States (or the 
     designee of the Chief Justice).
       ``(h) Moneys Subject to Process.--
       ``(1) In general.--Subject to paragraph (2), moneys paid or 
     payable to an individual which are considered to be based 
     upon remuneration for employment, for purposes of this 
     section--
       ``(A) consist of--
       ``(i) compensation paid or payable for personal services of 
     the individual, whether the compensation is denominated as 
     wages, salary, commission, bonus, pay, allowances, or 
     otherwise (including severance pay, sick pay, and incentive 
     pay);
       ``(ii) periodic benefits (including a periodic benefit as 
     defined in section 228(h)(3)) or other payments--

       ``(I) under the insurance system established by title II;
       ``(II) under any other system or fund established by the 
     United States which provides for the payment of pensions, 
     retirement or retired pay, annuities, dependents' or 
     survivors' benefits, or similar amounts payable on account of 
     personal services performed by the individual or any other 
     individual;
       ``(III) as compensation for death under any Federal 
     program;
       ``(IV) under any Federal program established to provide 
     `black lung' benefits; or
       ``(V) by the Secretary of Veterans Affairs as pension, or 
     as compensation for a service-connected disability or death; 
     and

       ``(iii) worker's compensation benefits paid under Federal 
     or State law but
       ``(B) do not include any payment--
       ``(i) by way of reimbursement or otherwise, to defray 
     expenses incurred by the individual in carrying out duties 
     associated with the employment of the individual; or
       ``(ii) as allowances for members of the uniformed services 
     payable pursuant to chapter 7 of title 37, United States 
     Code, as prescribed by the Secretaries concerned (defined by 
     section 101(5) of such title) as necessary for the efficient 
     performance of duty.
       ``(2) Certain amounts excluded.--In determining the amount 
     of any moneys due from, or payable by, the United States to 
     any individual, there shall be excluded amounts which--
       ``(A) are owed by the individual to the United States;
       ``(B) are required by law to be, and are, deducted from the 
     remuneration or other payment involved, including Federal 
     employment taxes, and fines and forfeitures ordered by court-
     martial;
       ``(C) are properly withheld for Federal, State, or local 
     income tax purposes, if the withholding of the amounts is 
     authorized or required by law and if amounts withheld are not 
     greater than would be the case if the individual claimed all 
     dependents to which he was entitled (the withholding of 
     additional amounts pursuant to section 3402(i) of the 
     Internal Revenue Code of 1986 may be permitted only when the 
     individual presents evidence of a tax obligation which 
     supports the additional withholding);
       ``(D) are deducted as health insurance premiums;
       ``(E) are deducted as normal retirement contributions (not 
     including amounts deducted for supplementary coverage); or
       ``(F) are deducted as normal life insurance premiums from 
     salary or other remuneration for employment (not including 
     amounts deducted for supplementary coverage).
       ``(i) Definitions.--For purposes of this section--
       ``(1) United states.--The term `United States' includes any 
     department, agency, or instrumentality of the legislative, 
     judicial, or executive branch of the Federal Government, the 
     United States Postal Service, the Postal Rate Commission, any 
     Federal corporation created by an Act of Congress that is 
     wholly owned by the Federal Government, and the governments 
     of the territories and possessions of the United States.
       ``(2) Child support.--The term `child support', when used 
     in reference to the legal obligations of an individual to 
     provide such support, means amounts required to be paid under 
     a judgment, decree, or order, whether temporary, final, or 
     subject to modification, issued by a court or an 
     administrative agency of competent jurisdiction, for the 
     support and maintenance of a child, including a child who has 
     attained the age of majority under the law of the issuing 
     State, or a child and the parent with whom the child is 
     living, which provides for monetary support, health care, 
     arrearages or reimbursement, and which may include other 
     related costs and fees, interest and penalties, income 
     withholding, attorney's fees, and other relief.
       ``(3) Alimony.--
       ``(A) In general.--The term `alimony', when used in 
     reference to the legal obligations of an individual to 
     provide the same, means periodic payments of funds for the 
     support and maintenance of the spouse (or former spouse) of 
     the individual, and (subject to and in accordance with State 
     law) includes separate maintenance, alimony pendente lite, 
     maintenance, and spousal support, and includes attorney's 
     fees, interest, and court costs when and to the extent that 
     the same are expressly made recoverable as such pursuant to a 
     decree, order, or judgment issued in accordance with 
     applicable State law by a court of competent jurisdiction.
       ``(B) Exceptions.--Such term does not include--
       ``(i) any child support; or
       ``(ii) any payment or transfer of property or its value by 
     an individual to the spouse or a former spouse of the 
     individual in compliance with any community property 
     settlement, equitable distribution of property, or other 
     division of property between spouses or former spouses.
       ``(4) Private person.--The term `private person' means a 
     person who does not have sovereign or other special immunity 
     or privilege which causes the person not to be subject to 
     legal process.
       ``(5) Legal process.--The term `legal process' means any 
     writ, order, summons, or other similar process in the nature 
     of garnishment--
       ``(A) which is issued by--
       ``(i) a court or an administrative agency of competent 
     jurisdiction in any State, territory, or possession of the 
     United States;
       ``(ii) a court or an administrative agency of competent 
     jurisdiction in any foreign country with which the United 
     States has entered into an agreement which requires the 
     United States to honor the process; or
       ``(iii) an authorized official pursuant to an order of such 
     a court or an administrative agency of competent jurisdiction 
     or pursuant to State or local law; and
       ``(B) which is directed to, and the purpose of which is to 
     compel, a governmental entity which holds moneys which are 
     otherwise payable to an individual to make a payment from the 
     moneys to another party in order to satisfy a legal 
     obligation of the individual to provide child support or make 
     alimony payments.''.

[[Page H 12719]]

       (b) Conforming Amendments.--
       (1) To part d of title iv.--Sections 461 and 462 (42 U.S.C. 
     661 and 662) are repealed.
       (2) To title 5, united states code.--Section 5520a of title 
     5, United States Code, is amended, in subsections (h)(2) and 
     (i), by striking ``sections 459, 461, and 462 of the Social 
     Security Act (42 U.S.C. 659, 661, and 662)'' and inserting 
     ``section 459 of the Social Security Act (42 U.S.C. 659)''.
       (c) Military Retired and Retainer Pay.--
       (1) Definition of court.--Section 1408(a)(1) of title 10, 
     United States Code, is amended--
       (A) by striking ``and'' at the end of subparagraph (B);
       (B) by striking the period at the end of subparagraph (C) 
     and inserting ``; and''; and
       (C) by adding after subparagraph (C) the following: new 
     subparagraph
       ``(D) any administrative or judicial tribunal of a State 
     competent to enter orders for support or maintenance 
     (including a State agency administering a program under a 
     State plan approved under part D of title IV of the Social 
     Security Act), and, for purposes of this subparagraph, the 
     term `State' includes the District of Columbia, the 
     Commonwealth of Puerto Rico, the Virgin Islands, Guam, and 
     American Samoa.''.
       (2) Definition of court order.--Section 1408(a)(2) of such 
     title is amended--
       (A) by inserting ``or a support order, as defined in 
     section 453(p) of the Social Security Act (42 U.S.C. 
     653(p)),'' before ``which--'';
       (B) in subparagraph (B)(i), by striking ``(as defined in 
     section 462(b) of the Social Security Act (42 U.S.C. 
     662(b)))'' and inserting ``(as defined in section 459(i)(2) 
     of the Social Security Act (42 U.S.C. 662(i)(2)))''; and
       (C) in subparagraph (B)(ii), by striking ``(as defined in 
     section 462(c) of the Social Security Act (42 U.S.C. 
     662(c)))'' and inserting ``(as defined in section 459(i)(3) 
     of the Social Security Act (42 U.S.C. 662(i)(3)))''.
       (3) Public payee.--Section 1408(d) of such title is 
     amended--
       (A) in the heading, by inserting ``(or for Benefit of)'' 
     before ``Spouse or''; and
       (B) in paragraph (1), in the 1st sentence, by inserting 
     ``(or for the benefit of such spouse or former spouse to a 
     State disbursement unit established pursuant to section 454B 
     of the Social Security Act or other public payee designated 
     by a State, in accordance with part D of title IV of the 
     Social Security Act, as directed by court order, or as 
     otherwise directed in accordance with such part D)'' before 
     ``in an amount sufficient''.
       (4) Relationship to part d of title iv.--Section 1408 of 
     such title is amended by adding at the end the following new 
     subsection:
       ``(j) Relationship to Other Laws.--In any case involving an 
     order providing for payment of child support (as defined in 
     section 459(i)(2) of the Social Security Act) by a member who 
     has never been married to the other parent of the child, the 
     provisions of this section shall not apply, and the case 
     shall be subject to the provisions of section 459 of such 
     Act.''.
       (d) Effective Date.--The amendments made by this section 
     shall become effective 6 months after the date of the 
     enactment of this Act.

     SEC. 12363. ENFORCEMENT OF CHILD SUPPORT OBLIGATIONS OF 
                   MEMBERS OF THE ARMED FORCES.

       (a) Availability of Locator Information.--
       (1) Maintenance of address information.--The Secretary of 
     Defense shall establish a centralized personnel locator 
     service that includes the address of each member of the Armed 
     Forces under the jurisdiction of the Secretary. Upon request 
     of the Secretary of Transportation, addresses for members of 
     the Coast Guard shall be included in the centralized 
     personnel locator service.
       (2) Type of address.--
       (A) Residential address.--Except as provided in 
     subparagraph (B), the address for a member of the Armed 
     Forces shown in the locator service shall be the residential 
     address of that member.
       (B) Duty address.--The address for a member of the Armed 
     Forces shown in the locator service shall be the duty address 
     of that member in the case of a member--
       (i) who is permanently assigned overseas, to a vessel, or 
     to a routinely deployable unit; or
       (ii) with respect to whom the Secretary concerned makes a 
     determination that the member's residential address should 
     not be disclosed due to national security or safety concerns.
       (3) Updating of locator information.--Within 30 days after 
     a member listed in the locator service establishes a new 
     residential address (or a new duty address, in the case of a 
     member covered by paragraph (2)(B)), the Secretary concerned 
     shall update the locator service to indicate the new address 
     of the member.
       (4) Availability of information.--The Secretary of Defense 
     shall make information regarding the address of a member of 
     the Armed Forces listed in the locator service available, on 
     request, to the Federal Parent Locator Service established 
     under section 453 of the Social Security Act.
       (b) Facilitating Granting of Leave for Attendance at 
     Hearings.--
       (1) Regulations.--The Secretary of each military 
     department, and the Secretary of Transportation with respect 
     to the Coast Guard when it is not operating as a service in 
     the Navy, shall prescribe regulations to facilitate the 
     granting of leave to a member of the Armed Forces under the 
     jurisdiction of that Secretary in a case in which--
       (A) the leave is needed for the member to attend a hearing 
     described in paragraph (2);
       (B) the member is not serving in or with a unit deployed in 
     a contingency operation (as defined in section 101 of title 
     10, United States Code); and
       (C) the exigencies of military service (as determined by 
     the Secretary concerned) do not otherwise require that such 
     leave not be granted.
       (2) Covered hearings.--Paragraph (1) applies to a hearing 
     that is conducted by a court or pursuant to an administrative 
     process established under State law, in connection with a 
     civil action--
       (A) to determine whether a member of the Armed Forces is a 
     natural parent of a child; or
       (B) to determine an obligation of a member of the Armed 
     Forces to provide child support.
       (3) Definitions.--For purposes of this subsection--
       (A) The term ``court'' has the meaning given that term in 
     section 1408(a) of title 10, United States Code.
       (B) The term ``child support'' has the meaning given such 
     term in section 459(i) of the Social Security Act (42 U.S.C. 
     659(i)).
       (c) Payment of Military Retired Pay in Compliance With 
     Child Support Orders.--
       (1) Date of certification of court order.--Section 1408 of 
     title 10, United States Code, as amended by section 362(c)(4) 
     of this Act, is amended--
       (A) by redesignating subsections (i) and (j) as subsections 
     (j) and (k), respectively; and
       (B) by inserting after subsection (h) the following new 
     subsection:
       ``(i) Certification Date.--It is not necessary that the 
     date of a certification of the authenticity or completeness 
     of a copy of a court order for child support received by the 
     Secretary concerned for the purposes of this section be 
     recent in relation to the date of receipt by the 
     Secretary.''.
       (2) Payments consistent with assignments of rights to 
     states.--Section 1408(d)(1) of such title is amended by 
     inserting after the 1st sentence the following new sentence: 
     ``In the case of a spouse or former spouse who, pursuant to 
     section 407(a)(4) of the Social Security Act (42 U.S.C. 
     607(a)(4)), assigns to a State the rights of the spouse or 
     former spouse to receive support, the Secretary concerned may 
     make the child support payments referred to in the preceding 
     sentence to that State in amounts consistent with that 
     assignment of rights.''.
       (3) Arrearages owed by members of the uniformed services.--
     Section 1408(d) of such title is amended by adding at the end 
     the following new paragraph:
       ``(6) In the case of a court order for which effective 
     service is made on the Secretary concerned on or after the 
     date of the enactment of this paragraph and which provides 
     for payments from the disposable retired pay of a member to 
     satisfy the amount of child support set forth in the order, 
     the authority provided in paragraph (1) to make payments from 
     the disposable retired pay of a member to satisfy the amount 
     of child support set forth in a court order shall apply to 
     payment of any amount of child support arrearages set forth 
     in that order as well as to amounts of child support that 
     currently become due.''.
       (4) Payroll deductions.--The Secretary of Defense shall 
     begin payroll deductions within 30 days after receiving 
     notice of withholding, or for the 1st pay period that begins 
     after such 30-day period.

     SEC. 12364. VOIDING OF FRAUDULENT TRANSFERS.

       Section 466 (42 U.S.C. 666), as amended by section 321 of 
     this Act, is amended by adding at the end the following new 
     subsection:
       ``(g) Laws Voiding Fraudulent Transfers.--In order to 
     satisfy section 454(20)(A), each State must have in effect--
       ``(1)(A) the Uniform Fraudulent Conveyance Act of 1981;
       ``(B) the Uniform Fraudulent Transfer Act of 1984; or
       ``(C) another law, specifying indicia of fraud which create 
     a prima facie case that a debtor transferred income or 
     property to avoid payment to a child support creditor, which 
     the Secretary finds affords comparable rights to child 
     support creditors; and
       ``(2) procedures under which, in any case in which the 
     State knows of a transfer by a child support debtor with 
     respect to which such a prima facie case is established, the 
     State must--
       ``(A) seek to void such transfer; or
       ``(B) obtain a settlement in the best interests of the 
     child support creditor.''.

     SEC. 12365. WORK REQUIREMENT FOR PERSONS OWING PAST-DUE CHILD 
                   SUPPORT.

       (a) In General.--Section 466(a) of the Social Security Act 
     (42 U.S.C. 666(a)), as amended by sections 12315, 12317(a), 
     and 12323 of this Act, is amended by adding at the end the 
     following new paragraph:
       ``(15) Procedures to ensure that persons owing past-due 
     support work or have a plan for payment of such support.--
       ``(A) In general.--Procedures under which the State has the 
     authority, in any case in which an individual owes past-due 
     support with respect to a child receiving assistance under a 
     State program funded under part A, to seek a court order that 
     requires the individual to--
       ``(i) pay such support in accordance with a plan approved 
     by the court, or, at the option of the State, a plan approved 
     by the State agency administering the State program under 
     this part; or
       ``(ii) if the individual is subject to such a plan and is 
     not incapacitated, participate in such work activities (as 
     defined in section 406(d)) as the court, or, at the option of 
     the State, the State agency administering the State program 
     under this part, deems appropriate.
       ``(B) Past-due support defined.--For purposes of 
     subparagraph (A), the term `past-due support' means the 
     amount of a delinquency, determined under a court order, or 
     an order of an administrative process established under State 
     law, for support and maintenance of a child, or of a child 
     and the parent with whom the child is living.''.

[[Page H 12720]]

       (b) Conforming amendment.--The flush paragraph at the end 
     of section 466(a) (42 U.S.C.666(a)) is amended by striking 
     ``and (7)'' and inserting ``(7), and (15)''.

     SEC. 12366. DEFINITION OF SUPPORT ORDER.

       Section 453 (42 U.S.C. 653) as amended by sections 12316 
     and 12345(b) of this Act, is amended by adding at the end the 
     following new subsection:
       ``(p) Support Order Defined.--As used in this part, the 
     term `support order' means a judgment, decree, or order, 
     whether temporary, final, or subject to modification, issued 
     by a court or an administrative agency of competent 
     jurisdiction, for the support and maintenance of a child, 
     including a child who has attained the age of majority under 
     the law of the issuing State, or a child and the parent with 
     whom the child is living, which provides for monetary 
     support, health care, arrearages, or reimbursement, and which 
     may include related costs and fees, interest and penalties, 
     income withholding, attorneys' fees, and other relief.''.

     SEC. 12367. REPORTING ARREARAGES TO CREDIT BUREAUS.

       Section 466(a)(7) (42 U.S.C. 666(a)(7)) is amended to read 
     as follows:
       ``(7) Reporting arrearages to credit bureaus.--
       ``(A) In general.--Procedures (subject to safeguards 
     pursuant to subparagraph (B)) requiring the State to report 
     periodically to consumer reporting agencies (as defined in 
     section 603(f) of the Fair Credit Reporting Act (15 U.S.C. 
     1681a(f)) the name of any noncustodial parent who is 
     delinquent in the payment of support, and the amount of 
     overdue support owed by such parent.
       ``(B) Safeguards.--Procedures ensuring that, in carrying 
     out subparagraph (A), information with respect to a 
     noncustodial parent is reported--
       ``(i) only after such parent has been afforded all due 
     process required under State law, including notice and a 
     reasonable opportunity to contest the accuracy of such 
     information; and
       ``(ii) only to an entity that has furnished evidence 
     satisfactory to the State that the entity is a consumer 
     reporting agency (as so defined).''.

     SEC. 12368. LIENS.

       Section 466(a)(4) (42 U.S.C. 666(a)(4)) is amended to read 
     as follows:
       ``(4) Liens.--Procedures under which--
       ``(A) liens arise by operation of law against real and 
     personal property for amounts of overdue support owed by a 
     noncustodial parent who resides or owns property in the 
     State; and
       ``(B) the State accords full faith and credit to liens 
     described in subparagraph (A) arising in another State, 
     without registration of the underlying order.''.

     SEC. 12369. STATE LAW AUTHORIZING SUSPENSION OF LICENSES.

       Section 466(a) (42 U.S.C. 666(a)), as amended by sections 
     12315, 12317(a), 12323, and 12365 of this Act, is amended by 
     adding at the end the following:
       ``(16) Authority to withhold or suspend licenses.--
     Procedures under which the State has (and uses in appropriate 
     cases) authority to withhold or suspend, or to restrict the 
     use of driver's licenses, professional and occupational 
     licenses, and recreational licenses of individuals owing 
     overdue support or failing, after receiving appropriate 
     notice, to comply with subpoenas or warrants relating to 
     paternity or child support proceedings.''.

     SEC. 12370. INTERNATIONAL CHILD SUPPORT ENFORCEMENT.

       (a) Authority for International Agreements.--Part D of 
     title IV, as amended by section 362(a) of this Act, is 
     amended by adding after section 459 the following new 
     section:

     ``SEC. 459A. INTERNATIONAL CHILD SUPPORT ENFORCEMENT.

       ``(a) Authority for Declarations.--
       ``(1) Declaration.--The Secretary of State, with the 
     concurrence of the Secretary of Health and Human Services, is 
     authorized to declare any foreign country (or a political 
     subdivision thereof) to be a foreign reciprocating country if 
     the foreign country has established, or undertakes to 
     establish, procedures for the establishment and enforcement 
     of duties of support owed to obligees who are residents of 
     the United States, and such procedures are substantially in 
     conformity with the standards prescribed under subsection 
     (b).
       ``(2) Revocation.--A declaration with respect to a foreign 
     country made pursuant to paragraph (1) may be revoked if the 
     Secretaries of State and Health and Human Services determine 
     that--
       ``(A) the procedures established by the foreign nation 
     regarding the establishment and enforcement of duties of 
     support have been so changed, or the foreign nation's 
     implementation of such procedures is so unsatisfactory, that 
     such procedures do not meet the criteria for such a 
     declaration; or
       ``(B) continued operation of the declaration is not 
     consistent with the purposes of this part.
       ``(3) Form of declaration.--A declaration under paragraph 
     (1) may be made in the form of an international agreement, in 
     connection with an international agreement or corresponding 
     foreign declaration, or on a unilateral basis.
       ``(b) Standards for Foreign Support Enforcement 
     Procedures.--
       ``(1) Mandatory elements.--Child support enforcement 
     procedures of a foreign country which may be the subject of a 
     declaration pursuant to subsection (a)(1) shall include the 
     following elements:
       ``(A) The foreign country (or political subdivision 
     thereof) has in effect procedures, available to residents of 
     the United States--
       ``(i) for establishment of paternity, and for establishment 
     of orders of support for children and custodial parents; and
       ``(ii) for enforcement of orders to provide support to 
     children and custodial parents, including procedures for 
     collection and appropriate distribution of support payments 
     under such orders.
       ``(B) The procedures described in subparagraph (A), 
     including legal and administrative assistance, are provided 
     to residents of the United States at no cost.
       ``(C) An agency of the foreign country is designated as a 
     Central Authority responsible for--
       ``(i) facilitating child support enforcement in cases 
     involving residents of the foreign nation and residents of 
     the United States; and
       ``(ii) ensuring compliance with the standards established 
     pursuant to this subsection.
       ``(2) Additional elements.--The Secretary of Health and 
     Human Services and the Secretary of State, in consultation 
     with the States, may establish such additional standards as 
     may be considered necessary to further the purposes of this 
     section.
       ``(c) Designation of United States Central Authority.--It 
     shall be the responsibility of the Secretary of Health and 
     Human Services to facilitate child support enforcement in 
     cases involving residents of the United States and residents 
     of foreign nations that are the subject of a declaration 
     under this section, by activities including--
       ``(1) development of uniform forms and procedures for use 
     in such cases;
       ``(2) notification of foreign reciprocating countries of 
     the State of residence of individuals sought for support 
     enforcement purposes, on the basis of information provided by 
     the Federal Parent Locator Service; and
       ``(3) such other oversight, assistance, and coordination 
     activities as the Secretary may find necessary and 
     appropriate.
       ``(d) Effect on Other Laws.--States may enter into 
     reciprocal arrangements for the establishment and enforcement 
     of child support obligations with foreign countries that are 
     not the subject of a declaration pursuant to subsection (a), 
     to the extent consistent with Federal law.''.
       (b) State Plan Requirement.--Section 454 (42 U.S.C. 654), 
     as amended by sections 12301(b), 12303(a), 12312(b), 
     12313(a), 12333, and 12343(b) of this Act, is amended--
       (1) by striking ``and'' at the end of paragraph (29);
       (2) by striking the period at the end of paragraph (30) and 
     inserting ``; and''; and
       (3) by adding after paragraph (30) the following new 
     paragraph:
       ``(31)(A) provide that any request for services under this 
     part by a foreign reciprocating country or a foreign country 
     with which the State has an arrangement described in section 
     459A(d)(2) shall be treated as a request by a State;
       ``(B) provide, at State option, notwithstanding paragraph 
     (4) or any other provision of this part, for services under 
     the plan for enforcement of a spousal support order not 
     described in paragraph (4)(B) entered by such a country (or 
     subdivision); and
       ``(C) provide that no applications will be required from, 
     and no costs will be assessed for such services against, the 
     foreign reciprocating country or foreign obligee (but costs 
     may at State option be assessed against the obligor).''.

     SEC. 12371. FINANCIAL INSTITUTION DATA MATCHES.

       Section 466(a) (42 U.S.C. 666(a)), as amended by sections 
     12315, 12317(a), 12323, 12365, and 12369 of this Act, is 
     amended by adding at the end the following new paragraph:
       ``(17) Financial institution data matches.--
       ``(A) In general.--Procedures under which the State agency 
     shall enter into agreements with financial institutions doing 
     business in the State--
       ``(i) to develop and operate, in coordination with such 
     financial institutions, a data match system, using automated 
     data exchanges to the maximum extent feasible, in which each 
     such financial institution is required to provide for each 
     calendar quarter the name, record address, social security 
     number or other taxpayer identification number, and other 
     identifying information for each noncustodial parent who 
     maintains an account at such institution and who owes past-
     due support, as identified by the State by name and social 
     security number or other taxpayer identification number; and
       ``(ii) in response to a notice of lien or levy, encumber or 
     surrender, as the case may be, assets held by such 
     institution on behalf of any noncustodial parent who is 
     subject to a child support lien pursuant to paragraph (4).
       ``(B) Reasonable fees.--The State agency may pay a 
     reasonable fee to a financial institution for conducting the 
     data match provided for in subparagraph (A)(i), not to exceed 
     the actual costs incurred by such financial institution.
       ``(C) Liability.--A financial institution shall not be 
     liable under any Federal or State law to any person--
       ``(i) for any disclosure of information to the State agency 
     under subparagraph (A)(i);
       ``(ii) for encumbering or surrendering any assets held by 
     such financial institution in response to a notice of lien or 
     levy issued by the State agency as provided for in 
     subparagraph (A)(ii); or
       ``(iii) for any other action taken in good faith to comply 
     with the requirements of subparagraph (A).
       ``(D) Definitions.--For purposes of this paragraph--
       ``(i) Financial institution.--The term `financial 
     institution' means any Federal or State commercial savings 
     bank, including savings association or cooperative bank, 
     Federal- or State-chartered credit union, benefit 
     association, insurance company, safe deposit company, money-
     market mutual fund, or any similar entity authorized to do 
     business in the State; and
       ``(ii) Account.--The term `account' means a demand deposit 
     account, checking or negotiable withdrawal order account, 
     savings account, time deposit account, or money-market mutual 
     fund account.''.

[[Page H 12721]]


     SEC. 12372. ENFORCEMENT OF ORDERS AGAINST PATERNAL OR 
                   MATERNAL GRANDPARENTS IN CASES OF MINOR 
                   PARENTS.

       Section 466(a) (42 U.S.C. 666(a)), as amended by sections 
     12315, 12317(a), 12323, 12365, 12369, and 12371 of this Act, 
     is amended by adding at the end the following new paragraph:
       ``(18) Enforcement of orders against paternal or maternal 
     grandparents.--Procedures under which, at the State's option, 
     any child support order enforced under this part with respect 
     to a child of minor parents, if the custodial parents of such 
     child is receiving assistance under the State program under 
     part A, shall be enforceable, jointly and severally, against 
     the parents of the noncustodial parents of such child.''.

                       CHAPTER 8--MEDICAL SUPPORT

     SEC. 12376. CORRECTION TO ERISA DEFINITION OF MEDICAL CHILD 
                   SUPPORT ORDER.

       (a) In General.--Section 609(a)(2)(B) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 
     1169(a)(2)(B)) is amended--
       (1) by striking ``issued by a court of competent 
     jurisdiction'';
       (2) by striking the period at the end of clause (ii) and 
     inserting a comma; and
       (3) by adding, after and below clause (ii), the following:
     ``if such judgment, decree, or order (I) is issued by a court 
     of competent jurisdiction or (II) is issued through an 
     administrative process established under State law and has 
     the force and effect of law under applicable State law.''.
       (b) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     take effect on the date of the enactment of this Act.
       (2) Plan amendments not required until january 1, 1996.--
     Any amendment to a plan required to be made by an amendment 
     made by this section shall not be required to be made before 
     the 1st plan year beginning on or after January 1, 1996, if--
       (A) during the period after the date before the date of the 
     enactment of this Act and before such 1st plan year, the plan 
     is operated in accordance with the requirements of the 
     amendments made by this section; and
       (B) such plan amendment applies retroactively to the period 
     after the date before the date of the enactment of this Act 
     and before such 1st plan year.
     A plan shall not be treated as failing to be operated in 
     accordance with the provisions of the plan merely because it 
     operates in accordance with this paragraph.

     SEC. 12377. ENFORCEMENT OF ORDERS FOR HEALTH CARE COVERAGE.

       Section 466(a) (42 U.S.C. 666(a)), as amended by sections 
     12315, 12317(a), 12323, 12365, 12369, 12371, and 12372 of 
     this Act, is amended by adding at the end the following new 
     paragraph:
       ``(19) Health care coverage.--Procedures under which all 
     child support orders enforced pursuant to this part shall 
     include a provision for the health care coverage of the 
     child, and in the case in which a noncustodial parent 
     provides such coverage and changes employment, and the new 
     employer provides health care coverage, the State agency 
     shall transfer notice of the provision to the employer, which 
     notice shall operate to enroll the child in the noncustodial 
     parent's health plan, unless the noncustodial parent contests 
     the notice.''.

CHAPTER 9--ENHANCING RESPONSIBILITY AND OPPORTUNITY FOR NON-RESIDENTIAL 
                                PARENTS

     SEC. 12381. GRANTS TO STATES FOR ACCESS AND VISITATION 
                   PROGRAMS.

       Part D of title IV (42 U.S.C. 651-669) is amended by adding 
     at the end the following:

     ``SEC. 469A. GRANTS TO STATES FOR ACCESS AND VISITATION 
                   PROGRAMS.

       ``(a) In General.--The Administration for Children and 
     Families shall make grants under this section to enable 
     States to establish and administer programs to support and 
     facilitate noncustodial parents' access to and visitation of 
     their children, by means of activities including mediation 
     (both voluntary and mandatory), counseling, education, 
     development of parenting plans, visitation enforcement 
     (including monitoring, supervision and neutral drop-off and 
     pickup), and development of guidelines for visitation and 
     alternative custody arrangements.
       ``(b) Amount of Grant.--The amount of the grant to be made 
     to a State under this section for a fiscal year shall be an 
     amount equal to the lesser of--
       ``(1) 90 percent of State expenditures during the fiscal 
     year for activities described in subsection (a); or
       ``(2) the allotment of the State under subsection (c) for 
     the fiscal year.
       ``(c) Allotments to States.--
       ``(1) In general.--The allotment of a State for a fiscal 
     year is the amount that bears the same ratio to the amount 
     appropriated for grants under this section for the fiscal 
     year as the number of children in the State living with only 
     1 biological parent bears to the total number of such 
     children in all States.
       ``(2) Minimum allotment.--The Administration for Children 
     and Families shall adjust allotments to States under 
     paragraph (1) as necessary to ensure that no State is 
     allotted less than--
       ``(A) $50,000 for fiscal year 1996 or 1997; or
       ``(B) $100,000 for any succeeding fiscal year.
       ``(d) No Supplantation of State Expenditures for Similar 
     Activities.--A State to which a grant is made under this 
     section may not use the grant to supplant expenditures by the 
     State for activities specified in subsection (a), but shall 
     use the grant to supplement such expenditures at a level at 
     least equal to the level of such expenditures for fiscal year 
     1995.
       ``(e) State Administration.--Each State to which a grant is 
     made under this section--
       ``(1) may administer State programs funded with the grant, 
     directly or through grants to or contracts with courts, local 
     public agencies, or non-profit private entities;
       ``(2) shall not be required to operate such programs on a 
     statewide basis; and
       ``(3) shall monitor, evaluate, and report on such programs 
     in accordance with regulations prescribed by the 
     Secretary.''.

                    CHAPTER 10--EFFECT OF ENACTMENT

     SEC. 12391. EFFECTIVE DATES.

       (a) In General.--Except as otherwise specifically provided 
     (but subject to subsections (b) and (c))--
       (1) the provisions of this subtitle requiring the enactment 
     or amendment of State laws under section 466 of the Social 
     Security Act, or revision of State plans under section 454 of 
     such Act, shall be effective with respect to periods 
     beginning on and after October 1, 1996; and
       (2) all other provisions of this subtitle shall become 
     effective upon the date of the enactment of this Act.
       (b) Grace Period for State Law Changes.--The provisions of 
     this subtitle shall become effective with respect to a State 
     on the later of--
       (1) the date specified in this subtitle, or
       (2) the effective date of laws enacted by the legislature 
     of such State implementing such provisions,
     but in no event later than the 1st day of the 1st calendar 
     quarter beginning after the close of the 1st regular session 
     of the State legislature that begins after the date of the 
     enactment of this Act. For purposes of the previous sentence, 
     in the case of a State that has a 2-year legislative session, 
     each year of such session shall be deemed to be a separate 
     regular session of the State legislature.
       (c) Grace Period for State Constitutional Amendment.--A 
     State shall not be found out of compliance with any 
     requirement enacted by this subtitle if the State is unable 
     to so comply without amending the State constitution until 
     the earlier of--
       (1) 1 year after the effective date of the necessary State 
     constitutional amendment; or
       (2) 5 years after the date of the enactment of this Act.
     Subtitle D--Restricting Welfare and Public Benefits for Aliens

              CHAPTER 1--ELIGIBILITY FOR FEDERAL BENEFITS

     SEC. 12401. ALIENS WHO ARE NOT QUALIFIED ALIENS INELIGIBLE 
                   FOR FEDERAL PUBLIC BENEFITS.

       (a) In General.--Notwithstanding any other provision of law 
     and except as provided in subsection (b), an alien who is not 
     a qualified alien (as defined section 12431) is not eligible 
     for any Federal public benefit (as defined in subsection 
     (c)).
       (b) Exceptions.--Subsection (a) shall not apply with 
     respect to the following Federal public benefits:
       (1) Emergency medical services under title XIX or XXI of 
     the Social Security Act.
       (2) Short-term, non-cash, in-kind emergency disaster 
     relief.
       (3)(A) Public health assistance for immunizations.
       (B) Public health assistance for testing and treatment of a 
     serious communicable disease if the Secretary of Health and 
     Human Services determines that it is necessary to prevent the 
     spread of such disease.
       (4) Programs, services, or assistance (such as soup 
     kitchens, crisis counseling and intervention, and short-term 
     shelter) specified by the Attorney General, in the Attorney 
     General's sole and unreviewable discretion after consultation 
     with appropriate Federal agencies and departments, which (A) 
     deliver in-kind services at the community level, including 
     through public or private nonprofit agencies; (B) do not 
     condition the provision of assistance, the amount of 
     assistance provided, or the cost of assistance provided on 
     the individual recipient's income or resources; and (C) are 
     necessary for the protection of life or safety.
       (5) Programs for housing or community development 
     assistance or financial assistance administered by the 
     Secretary of Housing and Urban Development, any program under 
     title V of the Housing Act of 1949, or any assistance under 
     section 306C of the Consolidated Farm and Rural Development 
     Act, to the extent that the alien is receiving such a benefit 
     on the date of the enactment of this Act.
       (c) Federal Public Benefit Defined.--
       (1) Except as provided in paragraph (2), for purposes of 
     this subtitle the term ``Federal public benefit'' means a 
     Federal public benefit providing direct spending for--
       (A) any grant, contract, loan, professional license, or 
     commercial license provided by an agency of the United States 
     or by appropriated funds of the United States; and
       (B) any retirement, welfare, health, disability, public or 
     assisted housing, post-secondary education, food assistance, 
     unemployment benefit, or any other similar benefit for which 
     payments or assistance are provided to an individual, 
     household, or family eligibility unit by an agency of the 
     United States or by appropriated funds of the United States.
       (2) Such term shall not apply--
       (A) to any contract, professional license, or commercial 
     license for a nonimmigrant whose visa for entry is related to 
     such employment in the United States; or
       (B) with respect to benefits for an alien who as a work 
     authorized nonimmigrant or as an alien lawfully admitted for 
     permanent residence under the Immigration and Nationality Act 
     qualified for such benefits and for whom the United States 
     under reciprocal treaty agreements is required to pay 
     benefits, as determined by the Attorney General, after 
     consultation with the Secretary of State.

[[Page H 12722]]


     SEC. 12402. LIMITED ELIGIBILITY OF CERTAIN QUALIFIED ALIENS 
                   FOR CERTAIN FEDERAL PROGRAMS.

       (a) Limited Eligibility for Specified Federal Programs.--
       (1) In general.--Notwithstanding any other provision of law 
     and except as provided in paragraph (2), an alien who is a 
     qualified alien (as defined in section 12431) is not eligible 
     for any specified Federal program (as defined in paragraph 
     (3)).
       (2) Exceptions.--
       (A) Time-limited exception for refugees and asylees.--
     Paragraph (1) shall not apply to an alien until 5 years after 
     the date--
       (i) an alien is admitted to the United States as a refugee 
     under section 207 of the Immigration and Nationality Act;
       (ii) an alien is granted asylum under section 208 of such 
     Act; or
       (iii) an alien's deportation is withheld under section 
     243(h) of such Act.
       (B) Certain permanent resident aliens.--Paragraph (1) shall 
     not apply to an alien who--
       (i) is lawfully admitted to the United States for permanent 
     residence under the Immigration and Nationality Act; and
       (ii)(I) has worked 40 qualifying quarters of coverage as 
     defined under title II of the Social Security Act, and (II) 
     did not receive any Federal means-tested public benefit (as 
     defined in section 12403(c)) during any such quarter.
       (C) Veteran and active duty exception.--Paragraph (1) shall 
     not apply to an alien who is lawfully residing in any State 
     and is--
       (i) a veteran (as defined in section 101 of title 38, 
     United States Code) with a discharge characterized as an 
     honorable discharge and not on account of alienage,
       (ii) on active duty (other than active duty for training) 
     in the Armed Forces of the United States, or
       (iii) the spouse or unmarried dependent child of an 
     individual described in clause (i) or (ii).
       (D) Transition for aliens currently receiving benefits.--
     Paragraph (1) shall apply to the eligibility of an alien for 
     a program for months beginning on or after January 1, 1997, 
     if, on the date of the enactment of this Act, the alien is 
     lawfully residing in any State and is receiving benefits 
     under such program on the date of the enactment of this Act.
       (3) Specified Federal program defined.--For purposes of 
     this subtitle, the term ``specified Federal program'' means 
     any of the following:
       (A) SSI.--The supplemental security income program under 
     title XVI of the Social Security Act.
       (B) Food stamps.--The food stamp program as defined in 
     section 3(h) of the Food Stamp Act of 1977.
       (b) Limited Eligibility for Designated Federal Programs.--
       (1) In general.--Notwithstanding any other provision of law 
     and except as provided in section 12403 and paragraph (2), a 
     State is authorized to determine the eligibility of an alien 
     who is a qualified alien (as defined in section 12431) for 
     any designated Federal program (as defined in paragraph (3)).
       (2) Exceptions.--Qualified aliens under this paragraph 
     shall be eligible for any designated Federal program.
       (A) Time-limited exception for refugees and asylees.--
       (i) An alien who is admitted to the United States as a 
     refugee under section 207 of the Immigration and Nationality 
     Act until 5 years after the date of an alien's entry into the 
     United States.
       (ii) An alien who is granted asylum under section 208 of 
     such Act until 5 years after the date of such grant of 
     asylum.
       (iii) An alien whose deportation is being withheld under 
     section 243(h) of such Act until 5 years after such 
     withholding.
       (B) Certain permanent resident aliens.--An alien who--
       (i) is lawfully admitted to the United States for permanent 
     residence under the Immigration and Nationality Act; and
       (ii)(I) has worked 40 qualifying quarters of coverage to be 
     a fully insured individual for old-age retirement benefits 
     under title II of the Social Security Act, (II) did not 
     receive any Federal means-tested public benefit (as defined 
     in section 12403(c)) during any such quarter, and (III) at 
     the time of application is otherwise eligible for such 
     benefits.
       (C) Veteran and active duty exception.--An alien who is 
     lawfully residing in any State and is--
       (i) a veteran (as defined in section 101 of title 38, 
     United States Code) with a discharge characterized as an 
     honorable discharge and not on account of alienage,
       (ii) on active duty (other than active duty for training) 
     in the Armed Forces of the United States, or
       (iii) the spouse or unmarried dependent child of an 
     individual described in clause (i) or (ii).
       (D) Transition for those currently receiving benefits.--An 
     alien who on the date of the enactment of this Act is 
     lawfully residing in any State and is receiving benefits 
     under such program on the date of the enactment of this Act 
     shall continue to be eligible to receive such benefits until 
     January 1, 1997.
       (3) Designated Federal program defined.--For purposes of 
     this subtitle, the term ``designated Federal program'' means 
     any of the following:
       (A) Temporary assistance for needy families.--The program 
     of block grants to States for temporary assistance for needy 
     families under part A of title IV of the Social Security Act.
       (B) Social services block grant.--The program of block 
     grants to States for social services under title XX of the 
     Social Security Act.
       (C) Medicaid and MediGrant.--The program of medical 
     assistance under title XIX and XXI of the Social Security 
     Act.

     SEC. 12403. FIVE-YEAR LIMITED ELIGIBILITY OF QUALIFIED ALIENS 
                   FOR FEDERAL MEANS-TESTED PUBLIC BENEFIT.

       (a) In General.--Notwithstanding any other provision of law 
     and except as provided in subsection (b), an alien who is a 
     qualified alien (as defined in section 12431) and who enters 
     the United States on or after the date of the enactment of 
     this Act is not eligible for any Federal means-tested public 
     benefit (as defined in subsection (c)) for a period of five 
     years beginning on the date of the alien's entry into the 
     United States with a status within the meaning of the term 
     ``qualified alien''.
       (b) Exceptions.--The limitation under subsection (a) shall 
     not apply to the following aliens:
       (1) Exception for refugees and asylees.--
       (A) An alien who is admitted to the United States as a 
     refugee under section 207 of the Immigration and Nationality 
     Act.
       (B) An alien who is granted asylum under section 208 of 
     such Act.
       (C) An alien whose deportation is being withheld under 
     section 243(h) of such Act.
       (2) Veteran and active duty exception.--An alien who is 
     lawfully residing in any State and is--
       (A) a veteran (as defined in section 101 of title 38, 
     United States Code) with a discharge characterized as an 
     honorable discharge and not on account of alienage,
       (B) on active duty (other than active duty for training) in 
     the Armed Forces of the United States, or
       (C) the spouse or unmarried dependent child of an 
     individual described in subparagraph (A) or (B).
       (c) Federal means-tested Public Benefit Defined.--
       (1) Except as provided in paragraph (2), for purposes of 
     this subtitle, the term ``Federal means-tested public 
     benefit'' means a Federal public benefit providing direct 
     spending (including cash, medical, housing, and food 
     assistance and social services) by the Federal Government in 
     which the eligibility of an individual, household, or family 
     eligibility unit for benefits, or the amount of such 
     benefits, or both are determined on the basis of income, 
     resources, or financial need of the individual, household, or 
     unit.
       (2) Such term does not include the following:
       (A) Emergency medical services under title XIX or XXI of 
     the Social Security Act.
       (B) Short-term, non-cash, in-kind emergency disaster 
     relief.
       (C) Assistance or benefits under the National School Lunch 
     Act.
       (D) Assistance or benefits under the Child Nutrition Act of 
     1966.
       (E)(i) Public health assistance for immunizations.
       (ii) Public health assistance for testing and treatment of 
     a serious communicable disease if the Secretary of Health and 
     Human Services determines that it is necessary to prevent the 
     spread of such disease.
       (F) Payments for foster care and adoption assistance under 
     part B of title IV of the Social Security Act for a child who 
     would, in the absence of subsection (a), be eligible to have 
     such payments made on the child's behalf under such part, but 
     only if the foster or adoptive parent or parents of such 
     child are not described under subsection (a).
       (G) Programs, services, or assistance (such as soup 
     kitchens, crisis counseling and intervention, and short-term 
     shelter) specified by the Attorney General, in the Attorney 
     General's sole and unreviewable discretion after consultation 
     with appropriate Federal agencies and departments, which (i) 
     deliver in-kind services at the community level, including 
     through public or private nonprofit agencies; (ii) do not 
     condition the provision of assistance, the amount of 
     assistance provided, or the cost of assistance provided on 
     the individual recipient's income or resources; and (iii) are 
     necessary for the protection of life or safety.
       (H) Programs of student assistance under titles IV, V, IX, 
     and X of the Higher Education Act of 1965.
       (I) Means-tested programs under the Elementary and 
     Secondary Education Act of 1965.

       CHAPTER 2--ATTRIBUTION OF INCOME AND AFFIDAVITS OF SUPPORT

     SEC. 12421. ATTRIBUTION OF SPONSOR'S INCOME AND RESOURCES TO 
                   ALIEN.

       (a) In General.--Notwithstanding any other provision of law 
     and except as provided in subsection (c), in determining the 
     eligibility and the amount of benefits of an alien for any 
     means-tested public benefits program (as defined in 
     subsection (e)) the income and resources of the alien shall 
     be deemed to include the following:
       (1) The income and resources of any person who executed an 
     affidavit of support pursuant to section 213A of the 
     Immigration and Nationality Act (as added by section 12422) 
     in behalf of such alien.
       (2) The income and resources of the spouse (if any) of the 
     person.
       (b) Application.--Subsection (a) shall apply with respect 
     to an alien until such time as the alien achieves United 
     States citizenship through naturalization pursuant to chapter 
     2 of title III of the Immigration and Nationality Act.
       (c) Exceptions.--Subsection (a) shall not apply with 
     respect to the following Federal public benefits:
       (1) Emergency medical services under title XIX or XXI of 
     the Social Security Act.
       (2) Short-term, non-cash, in-kind emergency disaster 
     relief.
       (3) Assistance or benefits under the National School Lunch 
     Act.
       (4) Assistance or benefits under the Child Nutrition Act of 
     1966.
       (5)(A) Public health assistance for immunizations.

[[Page H 12723]]

       (B) Public health assistance for testing and treatment of a 
     serious communicable disease if the Secretary of Health and 
     Human Services determines that it is necessary to prevent the 
     spread of such disease.
       (6) Payments for foster care and adoption assistance under 
     part B of title IV of the Social Security Act for a child who 
     would, in the absence of subsection (a), be eligible to have 
     such payments made on the child's behalf under such part, but 
     only if the foster or adoptive parent or parents of such 
     child are not described under subsection (a).
       (7) Programs, services, or assistance (such as soup 
     kitchens, crisis counseling and intervention, and short-term 
     shelter) specified by the Attorney General, in the Attorney 
     General's sole and unreviewable discretion after consultation 
     with appropriate Federal agencies and departments, which (A) 
     deliver in-kind services at the community level, including 
     through public or private nonprofit agencies; (B) do not 
     condition the provision of assistance, the amount of 
     assistance provided, or the cost of assistance provided on 
     the individual recipient's income or resources; and (C) are 
     necessary for the protection of life or safety.
       (8) Programs of student assistance under titles IV, V, IX, 
     and X of the Higher Education Act of 1965.
       (d) Review of Income and Resources of Alien Upon 
     Reapplication.--Whenever an alien is required to reapply for 
     benefits under any means-tested public benefits program, the 
     applicable agency shall review the income and resources 
     attributed to the alien under subsection (a).
       (e) Means-Tested Public Benefits Program Defined.--The term 
     ``means-tested public benefits program'' means a program of 
     Federal public benefits providing direct spending (including 
     cash, medical, housing, and food assistance and social 
     services) by the Federal government in which the eligibility 
     of an individual, household, or family eligibility unit for 
     benefits, or the amount of such benefits, or both are 
     determined on the basis of income, resources, or financial 
     need of the individual, household, or unit.
       (f) Application.--
       (1) If on the date of the enactment of this Act, a means-
     tested public benefits program attributes a sponsor's income 
     and resources to an alien in determining the alien's 
     eligibility and the amount of benefits for an alien, this 
     section shall apply to any such determination beginning on 
     the day after the date of the enactment of this Act.
       (2) If on the date of the enactment of this Act, a means-
     tested public benefits program does not attribute a sponsor's 
     income and resources to an alien in determining the alien's 
     eligibility and the amount of benefits for an alien, this 
     section shall apply to any such determination beginning 180 
     days after the date of the enactment of this Act.

     SEC. 12422. REQUIREMENTS FOR SPONSOR'S AFFIDAVIT OF SUPPORT.

       (a) In General.--Title II of the Immigration and 
     Nationality Act is amended by inserting after section 213 the 
     following new section:


           ``requirements for sponsor's affidavit of support

       ``Sec. 213A. (a) Enforceability.--(1) No affidavit of 
     support may be accepted by the Attorney General or by any 
     consular officer to establish that an alien is not excludable 
     as a public charge under section 212(a)(4) unless such 
     affidavit is executed as a contract--
       ``(A) which is legally enforceable against the sponsor by 
     the sponsored alien, the Federal Government, and by any State 
     (or any political subdivision of such State) which provides 
     any means-tested public benefits program, but not later than 
     10 years after the alien last receives any such benefit;
       ``(B) in which the sponsor agrees to financially support 
     the alien, so that the alien will not become a public charge; 
     and
       ``(C) in which the sponsor agrees to submit to the 
     jurisdiction of any Federal or State court for the purpose of 
     actions brought under subsection (e)(2).
       ``(2) A contract under paragraph (1) shall be enforceable 
     with respect to benefits provided to the alien until such 
     time as the alien achieves United States citizenship through 
     naturalization pursuant to chapter 2 of title III.
       ``(b) Forms.--Not later than 90 days after the date of 
     enactment of this section, the Attorney General, in 
     consultation with the Secretary of State and the Secretary of 
     Health and Human Services, shall formulate an affidavit of 
     support consistent with the provisions of this section.
       ``(c) Remedies.--Remedies available to enforce an affidavit 
     of support under this section include any or all of the 
     remedies described in section 3201, 3203, 3204, or 3205 of 
     title 28, United States Code, as well as an order for 
     specific performance and payment of legal fees and other 
     costs of collection, and include corresponding remedies 
     available under State law. A Federal agency may seek to 
     collect amounts owed under this section in accordance with 
     the provisions of subchapter II of chapter 37 of title 31, 
     United States Code.
       ``(d) Notification of Change of Address.--
       (1) In general.--The sponsor shall notify the Attorney 
     General and the State in which the sponsored alien is 
     currently resident within 30 days of any change of address of 
     the sponsor during the period specified in subsection (a)(2).
       (2) Penalty.--Any person subject to the requirement of 
     paragraph (1) who fails to satisfy such requirement shall be 
     subject to a civil penalty of--
       (A) not less than $250 or more than $2,000, or
       (B) if such failure occurs with knowledge that the alien 
     has received any means-tested public benefit, not less than 
     $2,000 or more than $5,000.
       ``(e) Reimbursement of Government Expenses.--(1)(A) Upon 
     notification that a sponsored alien has received any benefit 
     under any means-tested public benefits program, the 
     appropriate Federal, State, or local official shall request 
     reimbursement by the sponsor in the amount of such 
     assistance.
       ``(B) The Attorney General, in consultation with the 
     Secretary of Health and Human Services, shall prescribe such 
     regulations as may be necessary to carry out subparagraph 
     (A).
       ``(2) If within 45 days after requesting reimbursement, the 
     appropriate Federal, State, or local agency has not received 
     a response from the sponsor indicating a willingness to 
     commence payments, an action may be brought against the 
     sponsor pursuant to the affidavit of support.
       ``(3) If the sponsor fails to abide by the repayment terms 
     established by such agency, the agency may, within 60 days of 
     such failure, bring an action against the sponsor pursuant to 
     the affidavit of support.
       ``(4) No cause of action may be brought under this 
     subsection later than 10 years after the alien last received 
     any benefit under any means-tested public benefits program.
       ``(5) If, pursuant to the terms of this subsection, a 
     Federal, State, or local agency requests reimbursement from 
     the sponsor in the amount of assistance provided, or brings 
     an action against the sponsor pursuant to the affidavit of 
     support, the appropriate agency may appoint or hire an 
     individual or other person to act on behalf of such agency 
     acting under the authority of law for purposes of collecting 
     any moneys owed. Nothing in this subsection shall preclude 
     any appropriate Federal, State, or local agency from directly 
     requesting reimbursement from a sponsor for the amount of 
     assistance provided, or from bringing an action against a 
     sponsor pursuant to an affidavit of support.
       ``(f) Definitions.--For the purposes of this section--
       ``(1) Sponsor.--The term `sponsor' means an individual 
     who--
       ``(A) is a citizen or national of the United States or an 
     alien who is lawfully admitted to the United States for 
     permanent residence;
       ``(B) is 18 years of age or over;
       ``(C) is domiciled in any State; and
       ``(D) is the person petitioning for the admission of the 
     alien under section 204.
       ``(2) Means-tested public benefits program defined.--The 
     term `means-tested public benefits program' means a program 
     of Federal public benefits providing direct spending 
     (including cash, medical, housing, and food assistance and 
     social services) by the Federal Government in which the 
     eligibility of an individual, household, or family 
     eligibility unit for benefits, or the amount of such 
     benefits, or both are determined on the basis of income, 
     resources, or financial need of the individual, household, or 
     unit.''.
       (b) Clerical Amendment.--The table of contents of such Act 
     is amended by inserting after the item relating to section 
     213 the following:
``Sec. 213A. Requirements for sponsor's affidavit of support.''.
       (c) Effective Date.--Subsection (a) of section 213A of the 
     Immigration and Nationality Act, as inserted by subsection 
     (a) of this section, shall apply to affidavits of support 
     executed on or after a date specified by the Attorney 
     General, which date shall be not earlier than 60 days (and 
     not later than 90 days) after the date the Attorney General 
     formulates the form for such affidavits under subsection (b) 
     of such section.
       (d) Benefits Not Subject to Reimbursement.--Requirements 
     for reimbursement by a sponsor for benefits provided to a 
     sponsored alien pursuant to an affidavit of support under 
     section 213A of the Immigration and Nationality Act shall not 
     apply with respect to the following:
       (1) Emergency medical services under title XIX or XXI of 
     the Social Security Act.
       (2) Short-term, non-cash, in-kind emergency disaster 
     relief.
       (3) Assistance or benefits under the National School Lunch 
     Act.
       (4) Assistance or benefits under the Child Nutrition Act of 
     1966.
       (5)(A) Public health assistance for immunizations.
       (B) Public health assistance for testing and treatment of a 
     serious communicable disease if the Secretary of Health and 
     Human Services determines that it is necessary to prevent the 
     spread of such disease.
       (6) Payments for foster care and adoption assistance under 
     part B of title IV of the Social Security Act for a child who 
     would, in the absence of subsection (a), be eligible to have 
     such payments made on the child's behalf under such part, but 
     only if the foster or adoptive parent or parents of such 
     child are not described under subsection (a).
       (7) Programs, services, or assistance (such as soup 
     kitchens, crisis counseling and intervention, and short-term 
     shelter) specified by the Attorney General, in the Attorney 
     General's sole and unreviewable discretion after consultation 
     with appropriate Federal agencies and departments, which (A) 
     deliver in-kind services at the community level, including 
     through public or private nonprofit agencies; (B) do not 
     condition the provision of assistance, the amount of 
     assistance provided, or the cost of assistance provided on 
     the individual recipient's income or resources; and (C) are 
     necessary for the protection of life or safety.
       (8) Programs of student assistance under titles IV, V, IX, 
     and X of the Higher Education Act of 1965.

     SEC. 12423. COSIGNATURE OF ALIEN STUDENT LOANS.

       Section 484(b) of the Higher Education Act of 1965 (20 
     U.S.C. 1091(b)) is amended by adding at the end the following 
     new paragraph:

[[Page H 12724]]

       ``(6) Notwithstanding sections 427(a)(2)(C), 428B(a), 
     428C(b)(4)(A), and 464(c)(1)(E), a student who is an alien 
     lawfully admitted for permanent residence under the 
     Immigration and Nationality Act shall not be eligible for a 
     loan under this title unless the loan is endorsed and 
     cosigned by the alien's sponsor under section 213A of the 
     Immigration and Nationality Act or by another individual who 
     is a United States citizen.''.

                     CHAPTER 3--GENERAL PROVISIONS

     SEC. 12431. DEFINITIONS.

       (a) In General.--Except as otherwise provided in this 
     subtitle, the terms used in this subtitle have the same 
     meaning given such terms in section 101(a) of the Immigration 
     and Nationality Act.
       (b) Qualified Alien.--For purposes of this subtitle, the 
     term ``qualified alien'' means an alien who, at the time the 
     alien applies for, receives, or attempts to receive a Federal 
     public benefit, is--
       (1) an alien who is lawfully admitted for permanent 
     residence under the Immigration and Nationality Act,
       (2) an alien who is granted asylum under section 208 of 
     such Act,
       (3) a refugee who is admitted to the United States under 
     section 207 of such Act,
       (4) an alien who is paroled into the United States under 
     section 212(d)(5) of such Act for a period of at least 1 
     year,
       (5) an alien whose deportation is being withheld under 
     section 243(h) of such Act, or
       (6) an alien who is granted conditional entry pursuant to 
     section 203(a)(7) of such Act as in effect prior to April 1, 
     1980.

     SEC. 12432. REAPPLICATION FOR SSI BENEFITS.

       (a) Application and Notice.--Notwithstanding any other 
     provision of law, in the case of an individual who is 
     receiving supplemental security income benefits under title 
     XVI of the Social Security Act as of the date of the 
     enactment of this Act and whose eligibility for such benefits 
     would terminate by reason of the application of section 
     12402(a)(2)(D), the Commissioner of Social Security shall so 
     notify the individual not later than 90 days after the date 
     of the enactment of this Act.
       (b) Reapplication.--
       (1) In general.--Not later than 120 days after the date of 
     the enactment of this Act, each individual notified pursuant 
     to subsection (a) who desires to reapply for benefits under 
     title XVI of the Social Security Act shall reapply to the 
     Commissioner of Social Security.
       (2) Determination of eligibility.--Not later than 1 year 
     after the date of the enactment of this Act, the Commissioner 
     of Social Security shall determine the eligibility of each 
     individual who reapplies for benefits under paragraph (1) 
     pursuant to the procedures of such title XVI.

     SEC. 12433. STATUTORY CONSTRUCTION.

       (a) Limitation.--
       (1) Nothing in this subtitle may be construed as an 
     entitlement or a determination of an individual's eligibility 
     or fulfillment of the requisite requirements for any Federal, 
     State, or local governmental program, assistance, or 
     benefits. For purposes of this subtitle, eligibility relates 
     only to the general issue of eligibility or ineligibility on 
     the basis of alienage.
       (2) Nothing in this subtitle may be construed as addressing 
     alien eligibility for a basic public education as determined 
     by the Supreme Court of the United States under Plyler v. Doe 
     (457 U.S. 202)(1982).
       (b) Not Applicable to Foreign Assistance.--This subtitle 
     does not apply to any Federal, State, or local governmental 
     program, assistance, or benefits provided to an alien under 
     any program of foreign assistance as determined by the 
     Secretary of State in consultation with the Attorney General.
       (c) Severability.--If any provision of this subtitle or the 
     application of such provision to any person or circumstance 
     is held to be unconstitutional, the remainder of this 
     subtitle and the application of the provisions of such to any 
     person or circumstance shall not be affected thereby.
Subtitle E--Teaching Hospital and Graduate Medical Education Trust Fund

                         CHAPTER 1--TRUST FUND

     SEC. 12501. ESTABLISHMENT OF FUND; PAYMENTS TO TEACHING 
                   HOSPITALS.

       The Social Security Act (42 U.S.C. 300 et seq.) is amended 
     by adding after title XXI the following title:

 ``TITLE XXII--TEACHING HOSPITAL AND GRADUATE MEDICAL EDUCATION TRUST 
                                  FUND


                      ``table of contents of title

                    ``Part A--Establishment of Fund

``Sec. 2201. Establishment of Fund.

                ``Part B--Payments to Teaching Hospitals

                  ``Subpart 1--Requirement of Payments

``Sec. 2211. Formula payments to teaching hospitals.
``Sec. 2212. Additional provisions regarding annual payment document.

          ``Subpart 2--Amount Relating to MedicarePlus Program

``Sec. 2221. Determination of amount relating to MedicarePlus program.

  ``Subpart 3--Amount Relating to Indirect Costs of Graduate Medical 
                               Education

``Sec. 2231. Determination of amount relating to indirect costs.
``Sec. 2232. Indirect costs; special rules regarding payments from 
              general account.

   ``Subpart 4--Amount Relating to Direct Costs of Graduate Medical 
                               Education

``Sec. 2241. Determination of amount relating to direct costs.
``Sec. 2242. Direct costs; special rules regarding payments from 
              general account.
``Sec. 2243. Direct costs; authority for payments to consortia of 
              providers.

                    ``Part A--Establishment of Fund

     ``SEC. 2201. ESTABLISHMENT OF FUND.

       ``(a) In General.--There is established in the Treasury of 
     the United States a fund to be known as the Teaching Hospital 
     and Graduate Medical Education Trust Fund (in this title 
     referred to as the `Fund'), consisting of amounts 
     appropriated to the Fund in subsections (d), (f)(3), and (g), 
     and amounts transferred to the Fund under section 1886(j). 
     Amounts in the Fund are available until expended.
       ``(b) Expenditures From Fund.--Amounts in the Fund are 
     available to the Secretary for making payments under section 
     2211.
       ``(c) Accounts in Fund.--There are established within the 
     Fund the following accounts:
       ``(1) The General MedicarePlus Incentive Account.
       ``(2) The General Indirect-Costs Medical Education Account.
       ``(3) The General Direct-Costs Medical Education Account.
       ``(4) The Medicare Indirect-Costs Medical Education 
     Account.
       ``(5) The Medicare Direct-Costs Medical Education Account.
       ``(d) General Transfers to Fund.--
       ``(1) In general.--For fiscal year 1997 and each subsequent 
     fiscal year, there are appropriated to the Fund (effective on 
     the date specified in paragraph (2)), out of any money in the 
     Treasury not otherwise appropriated, the following amounts 
     (as applicable to the fiscal year involved):
       ``(A) For fiscal year 1997, $1,100,000,000.
       ``(B) For fiscal year 1998, $1,300,000,000.
       ``(C) For fiscal year 1999, $2,000,000,000.
       ``(D) For fiscal year 2000, $2,600,000,000.
       ``(E) For fiscal year 2001, $3,100,000,000.
       ``(F) For fiscal year 2002, $3,400,000,000.
       ``(G) For fiscal year 2003 and each subsequent fiscal year, 
     the greater of the amount appropriated for the preceding 
     fiscal year or an amount equal to the product of--
       ``(i) the amount appropriated for the preceding fiscal 
     year; and
       ``(ii) 1 plus the percentage increase in the nominal gross 
     domestic product for the one-year period ending upon July 1 
     of such preceding fiscal year.
       ``(2) Effective date for annual appropriation.--For 
     purposes of paragraph (1), the date specified in this 
     paragraph for a fiscal year is the first day of the fiscal 
     year.
       ``(3) Allocation for general medicareplus incentive 
     account.--Of the amount appropriated in paragraph (1) for a 
     fiscal year, there shall be allocated to the General 
     MedicarePlus Incentive Account the following percentage (as 
     applicable to the fiscal year involved):
       ``(A) For fiscal year 1997, 20 percent.
       ``(B) For fiscal year 1998, 30 percent.
       ``(C) For fiscal year 1999, 40 percent.
       ``(D) For fiscal year 2000 and each subsequent fiscal year, 
     50 percent.
       ``(4) Allocations for general medical education accounts.--
       ``(A) In general.--Of the amount appropriated in paragraph 
     (1) for a fiscal year and remaining after the allocation 
     required in paragraph (3) for the year has been made--
       ``(i) there shall be allocated to the General Indirect-
     Costs Medical Education Account the percentage determined 
     under subparagraph (B)(ii); and
       ``(ii) there shall be allocated to the General Direct-Costs 
     Medical Education Account the percentage determined under 
     subparagraph (B)(iii).
       ``(B) Determination of fixed percentages.--The Secretary of 
     Health and Human Services, acting through the Administrator 
     of the Health Care Financing Administration, shall determine 
     the following:
       ``(i) The total amount of payments that were made under 
     subsections (d)(5)(B) and (h) of section 1886 for fiscal year 
     1994.
       ``(ii) The percentage of such total that was constituted by 
     payments under subsection (d)(5)(B) of such section.
       ``(iii) The percentage of such total that was constituted 
     by payments under subsection (h) of such section.
       ``(e) Transfers From Medicare Program.--Amounts shall, in 
     accordance with section 1886(j), be transferred to the Fund 
     from the trust funds established under parts A and B of title 
     XVIII.
       ``(f) Investment.--
       ``(1) In general.--The Secretary of the Treasury shall 
     invest such amounts of the Fund as such Secretary determines 
     are not required to meet current withdrawals from the Fund. 
     Such investments may be made only in interest-bearing 
     obligations of the United States. For such purpose, such 
     obligations may be acquired on original issue at the issue 
     price, or by purchase of outstanding obligations at the 
     market price.
       ``(2) Sale of obligations.--Any obligation acquired by the 
     Fund may be sold by the Secretary of the Treasury at the 
     market price.
       ``(3) Availability of income.--Any interest derived from 
     obligations acquired by the Fund, and proceeds from any sale 
     or redemption of such obligations, are hereby appropriated to 
     the Fund.
       ``(g) Monetary Gifts to Fund.--There are appropriated to 
     the Fund such amounts as may be unconditionally donated to 
     the Federal Government as gifts to the Fund.

                ``Part B--Payments to Teaching Hospitals

                  ``Subpart 1--Requirement of Payments

     ``SEC. 2211. FORMULA PAYMENTS TO TEACHING HOSPITALS.

       ``(a) In General.--Subject to subsection (d), in the case 
     of each teaching hospital that in accordance with subsection 
     (b) submits to the Secretary a payment document for fiscal 
     year 1997 

[[Page H 12725]]
     or any subsequent fiscal year, the Secretary shall make payments for 
     the year to the teaching hospital for the direct and indirect 
     costs of operating approved medical residency training 
     programs. Such payments shall be made from the Fund, and the 
     total of the payments to the hospital for the fiscal year 
     shall equal the sum of the following:
       ``(1) An amount determined under section 2221 (relating to 
     the MedicarePlus program).
       ``(2) An amount determined under section 2231 (relating to 
     the indirect costs of graduate medical education).
       ``(3) An amount determined under section 2241 (relating to 
     the direct costs of graduate medical education).
       ``(b) Payment Document.--For purposes of subsection (a), a 
     payment document is a document containing such information as 
     may be necessary for the Secretary to make payments under 
     such subsection to a teaching hospital during a fiscal year. 
     The document is submitted in accordance with this subsection 
     if the document is submitted not later than the date 
     specified by the Secretary, and the document is in such form 
     and is made in such manner as the Secretary may require. This 
     subsection is subject to section 2212.
       ``(c) Periodic Payments.--Payments under subsection (a) for 
     a teaching hospital for a fiscal year shall be made 
     periodically, at such intervals and in such amounts as the 
     Secretary determines to be appropriate (subject to applicable 
     Federal law regarding Federal payments).
       ``(d) Special Rules.--
       ``(1) Payments to consortia of providers.--In the case of 
     payments under subsection (a) that are determined under 
     section 2241:
       ``(A) The requirement under such subsection to make the 
     payments to teaching hospitals is subject to the authority of 
     the Secretary under section 2243(a) to make payments to 
     qualifying consortia.
       ``(B) If the Secretary authorizes payments to a consortium 
     under section 2243(a), subsections (a) and (b) of this 
     section (other than subsection (a)(2)) apply to the 
     consortium to the same extent and in the same manner as the 
     subsections apply to teaching hospitals.
       ``(2) Hospitals in states with certain demonstration 
     projects.--Paragraph (2) of subsection (a) is subject to 
     section 2232(d)(1)(B), and paragraph (3) of such subsection 
     is subject to section 2242(d)(1)(B).
       ``(e) Administrator of Programs.--This part, and the 
     subsequent parts of this title, shall be carried out by the 
     Secretary acting through the Administrator of the Health Care 
     Financing Administration.
       ``(f) Approved Medical Residency Training Program .--For 
     purposes of this title, the term `approved medical residency 
     training program' has the meaning given such term in section 
     1886(h)(5)(A).

     ``SEC. 2212. ADDITIONAL PROVISIONS REGARDING ANNUAL PAYMENT 
                   DOCUMENT.

       (a) Periodic Reports.--In collecting information under 
     section 2211(b), the Secretary may require that information 
     be submitted to the Secretary in periodic reports.
       ``(b) Information Relating to Medicare Program.--
     Information collected by the Secretary under section 2211(b) 
     with respect to a teaching hospital for a fiscal year shall 
     include information on the following:
       ``(1) The number of inpatient discharges for the fiscal 
     year attributable to individuals enrolled in the MedicarePlus 
     program under part C of title XVIII.
       ``(2) For each discharge with respect to which payment is 
     received from the Secretary pursuant to part A of title 
     XVIII, the diagnosis-related group within which the discharge 
     is classified (as determined in accordance with section 
     1886(d)(4)(A)).
       ``(3) The medicare patient load of the hospital (as defined 
     in section 1886(h)(3)(C)).

          ``Subpart 2--Amount Relating to MedicarePlus Program

     ``SEC. 2221. DETERMINATION OF AMOUNT RELATING TO MEDICAREPLUS 
                   PROGRAM.

       ``(a) In General.--For purposes of section 2211(a)(1), the 
     amount determined under this section for a teaching hospital 
     for a fiscal year is the product of--
       ``(1) the amount in the General MedicarePlus Incentive 
     Account on the date specified in section 2201(d)(2) (once the 
     appropriation under such section is made); and
       ``(2) the percentage determined for the hospital under 
     subsection (b) for the fiscal year.
       ``(b) Annual Hospital-Specific Percentage.--For purposes of 
     subsection (a)(2), the percentage determined under this 
     subsection for a teaching hospital for a fiscal year is the 
     percentage constituted by the ratio of--
       ``(1) the number of inpatient discharges for the fiscal 
     year attributable to individuals enrolled in the MedicarePlus 
     program under part C of title XVIII; to
       ``(2) the sum of the respective numbers determined under 
     paragraph (1) for the fiscal year for all teaching hospitals.

  ``Subpart 3--Amount Relating to Indirect Costs of Graduate Medical 
                               Education

     ``SEC. 2231. DETERMINATION OF AMOUNT RELATING TO INDIRECT 
                   COSTS.

       ``(a) In General.--For purposes of section 2211(a)(2), the 
     amount determined under this section for a teaching hospital 
     for a fiscal year is the sum of--
       ``(1) the amount determined under subsection (b) (relating 
     to the General Indirect-Costs Medical Education Account); and
       ``(2) the amount determined under subsection (c) (relating 
     to the Medicare Indirect-Costs Medical Education Account), 
     subject to section 2232(d)(1)(B).
       ``(b) Payment From General Account.--
       ``(1) In general.--For purposes of subsection (a)(1), the 
     amount determined under this subsection for a teaching 
     hospital for a fiscal year is the product of--
       ``(A) the amount in the General Indirect-Costs Medical 
     Education Account on the date specified in section 2201(d)(2) 
     (once the appropriation under such section is made); and
       ``(B) the percentage determined for the hospital under 
     paragraph (2).
       ``(2) Fixed hospital-specific percentage.--
       ``(A) In general.--For purposes of paragraph (1)(B), the 
     percentage determined under this paragraph for a teaching 
     hospital is the mean average of the respective percentages 
     determined under subparagraph (C) for each fiscal year of the 
     applicable period (as defined in subparagraph (B)), adjusted 
     by the Secretary (upward or downward, as the case may be) on 
     a pro rata basis to the extent necessary to ensure that the 
     sum of the percentages determined under this paragraph for 
     all teaching hospitals is equal to 100 percent. The preceding 
     sentence is subject to section 2232.
       ``(B) Applicable period regarding relevant data; fiscal 
     years 1992 through 1994.--For purposes of this part, the term 
     `applicable period' means the period beginning on the first 
     day of fiscal year 1992 and continuing through the end of 
     fiscal year 1994.
       ``(C) Respective determinations for fiscal years of 
     applicable period.--For purposes of subparagraph (A), the 
     percentage determined under this subparagraph for a teaching 
     hospital for a fiscal year of the applicable period is the 
     percentage constituted by the ratio of--
       ``(i) the total amount of payments received by the hospital 
     under section 1886(d)(5)(B) for discharges occurring during 
     the fiscal year involved; to
       ``(ii) the sum of the respective amounts determined under 
     clause (i) for the fiscal year for all teaching hospitals.
       ``(3) Availability of data.--If a teaching hospital 
     received the payments specified in paragraph (2)(C)(i) during 
     the applicable period but a complete set of the relevant data 
     is not available to the Secretary for purposes of determining 
     an amount under such paragraph for the fiscal year involved, 
     the Secretary shall for purposes of such subsection make an 
     estimate on the basis of such data as are available to the 
     Secretary for the applicable period.
       ``(c) Payment From Medicare Account.--For purposes of 
     subsection (a)(2), the amount determined under this 
     subsection for a teaching hospital for a fiscal year is an 
     amount determined in accordance with the methodology in 
     effect under section 1886(d)(5)(B) for such year. Payments 
     made under section 2211 pursuant to the preceding sentence 
     shall be made from the Medicare Indirect-Costs Medical 
     Education Account.

     ``SEC. 2232. INDIRECT COSTS; SPECIAL RULES REGARDING PAYMENTS 
                   FROM GENERAL ACCOUNT.

       ``(a) Special Rule Regarding Fiscal Years 1995 and 1996.--
       ``(1) In general.--In the case of a teaching hospital whose 
     first payments under section 1886(d)(5)(B) were for 
     discharges occurring in fiscal year 1995 or in fiscal year 
     1996 (referred to in this subsection individually as a `first 
     payment year'), the percentage determined under paragraph (2) 
     for the hospital is deemed to be the percentage applicable 
     under section 2231(b)(2) to the hospital, subject to 
     paragraph (3).
       ``(2) Determination of fixed percentage.--For purposes of 
     paragraph (1), the percentage determined under this paragraph 
     for a teaching hospital is the percentage constituted by the 
     ratio of the amount determined under subparagraph (A) to the 
     amount determined under subparagraph (B), as follows:
       ``(A)(i) If the first payment year for the hospital is 
     fiscal year 1995, the amount determined under this 
     subparagraph is the total amount of payments received by the 
     hospital under section 1886(d)(5)(B) for discharges occurring 
     during fiscal year 1995.
       ``(ii) If the first payment year for the hospital is fiscal 
     year 1996, the amount determined under this subparagraph is 
     an amount equal to an estimate by the Secretary of the total 
     amount of payments that would have been paid to the hospital 
     under section 1886(d)(5)(B) for discharges occurring during 
     fiscal year 1995 if such section, as in effect for fiscal 
     year 1996, had applied to the hospital for discharges 
     occurring during fiscal year 1995.
       ``(B)(i) If the first payment year for the hospital is 
     fiscal year 1995, the amount determined under this 
     subparagraph is the aggregate total of the payments received 
     by teaching hospitals under section 1886(d)(5)(B) for 
     discharges occurring during fiscal year 1995.
       ``(ii) If the first payment year for the hospital is fiscal 
     year 1996--
       ``(I) the Secretary shall make an estimate in accordance 
     with subparagraph (A)(ii) for all teaching hospitals; and
       ``(II) the amount determined under this subparagraph is the 
     sum of the estimates made by the Secretary under subclause 
     (I).
       ``(3) Adjustment of percentage.--The percentage determined 
     under paragraph (2) shall be adjusted by the Secretary in 
     accordance with section 2231(b)(2)(A) to the extent 
     determined by the Secretary to be necessary with respect to a 
     sum that equals 100 percent.
       ``(b) New Teaching Hospitals.--
       ``(1) In general.--In the case of a teaching hospital that 
     did not receive payments under section 1886(d)(5)(B) for any 
     of the fiscal years 1992 through 1996, the percentage 
     determined under paragraph (3) for the hospital is deemed to 
     be the percentage applicable under section 2231(b)(2) to the 
     hospital, subject to paragraphs (4) and (5).
       ``(2) Designated fiscal year regarding data.--The 
     determination under paragraph (3) of a percentage for a 
     teaching hospital described 

[[Page H 12726]]
     in paragraph (1) shall be made for the most recent fiscal year for 
     which the Secretary has sufficient data to make the 
     determination (referred to in this subsection as the 
     `designated fiscal year').
       ``(3) Determination of fixed percentage.--For purposes of 
     paragraph (1), the percentage determined under this paragraph 
     for the teaching hospital involved is the percentage 
     constituted by the ratio of the amount determined under 
     subparagraph (A) to the amount determined under subparagraph 
     (B), as follows:
       ``(A) The amount determined under this subparagraph is an 
     amount equal to an estimate by the Secretary of the total 
     amount of payments that would have been paid to the hospital 
     under section 1886(d)(5)(B) for the designated fiscal year if 
     such section, as in effect for the first fiscal year for 
     which payments pursuant to this subsection are to be made to 
     the hospital, had applied to the hospital for the designated 
     fiscal year.
       ``(B) The Secretary shall make an estimate in accordance 
     with subparagraph (A) for all teaching hospitals. The amount 
     determined under this subparagraph is the sum of the 
     estimates made by the Secretary under the preceding sentence.
       ``(4) Adjustment of percentage.--The percentage determined 
     under paragraph (3) shall be adjusted by the Secretary in 
     accordance with section 2231(b)(2)(A) to the extent 
     determined by the Secretary to be necessary with respect to a 
     sum that equals 100 percent.
       ``(5) Limitation.--This subsection does not apply to a 
     teaching hospital described in paragraph (1) if the hospital 
     is in a State for which a demonstration project under section 
     1814(b)(3) is in effect.
       ``(c) Consolidations and Mergers.--In the case of two or 
     more teaching hospitals that have each received payments 
     pursuant to section 2231 for one or more fiscal years and 
     that undergo a consolidation or merger, the percentage 
     applicable to the resulting teaching hospital for purposes of 
     section 2231(b)(2) is the sum of the respective percentages 
     that would have applied pursuant to such section if the 
     hospitals had not undergone the consolidation or merger.
       ``(d) States With Certain Demonstration Projects.--
       ``(1) In general.--In the case of a teaching hospital in a 
     State for which a demonstration project under section 
     1814(b)(3) is in effect--
       ``(A) the percentage determined under paragraph (2) for the 
     hospital is deemed to be the percentage applicable under 
     section 2231(b)(2) to the hospital; and
       ``(B) the hospital is not eligible for any payments from 
     the Medicare Indirect-Costs Medical Education Account.
       ``(2) Determination of fixed percentage.--For purposes of 
     paragraph (1)(A):
       ``(A) The Secretary shall make an estimate of the total 
     amount of payments that would have been received under 
     section 1886(d)(5)(b) by the hospital involved with respect 
     to each of the fiscal years of the applicable period if such 
     section (as in effect for such fiscal years) had applied to 
     the hospital for such years.
       ``(B) The percentage determined under this paragraph for 
     the hospital for a fiscal year is a mean average percentage 
     determined for the hospital in accordance with the 
     methodology of section 2231(b)(2), except that the estimate 
     made by the Secretary under subparagraph (A) of this 
     paragraph for a fiscal year of the applicable period is 
     deemed to be the amount that applies for purposes of section 
     2231(b)(2)(C)(i) for such year.

   ``Subpart 4--Amount Relating to Direct Costs of Graduate Medical 
                               Education

     ``SEC. 2241. DETERMINATION OF AMOUNT RELATING TO DIRECT 
                   COSTS.

       ``(a) In General.--For purposes of section 2211(a)(3), the 
     amount determined under this section for a teaching hospital 
     for a fiscal year is the sum of--
       ``(1) the amount determined under subsection (b) (relating 
     to the General Direct-Costs Medical Education Account); and
       ``(2) the amount determined under subsection (c) (relating 
     to the Medicare Direct-Costs Medical Education Account), 
     subject to section 2242(d)(1)(B).
       ``(b) Payment From General Account.--
       ``(1) In general.--For purposes of subsection (a)(1), the 
     amount determined under this subsection for a teaching 
     hospital for a fiscal year is the product of--
       ``(A) the amount in the General Direct-Costs Medical 
     Education Account on the applicable date under section 
     2201(d)(2) (once the appropriation under such section is 
     made); and
       ``(B) the percentage determined for the hospital under 
     paragraph (2).
       ``(2) Fixed hospital-specific percentage.--
       ``(A) In general.--For purposes of paragraph (1)(B), the 
     percentage determined under this paragraph for a teaching 
     hospital is the mean average of the respective percentages 
     determined under subparagraph (B) for each fiscal year of the 
     applicable period (as defined in section 2231(b)(2)(B)), 
     adjusted by the Secretary (upward or downward, as the case 
     may be) on a pro rata basis to the extent necessary to ensure 
     that the sum of the percentages determined under this 
     subparagraph for all teaching hospitals is equal to 100 
     percent. The preceding sentence is subject to section 2242.
       ``(B) Respective determinations for fiscal years of 
     applicable period.--For purposes of subparagraph (A), the 
     percentage determined under this subparagraph for a teaching 
     hospital for a fiscal year of the applicable period is the 
     percentage constituted by the ratio of--
       ``(i) the total amount of payments received by the hospital 
     under section 1886(h) for cost reporting periods beginning 
     during the fiscal year involved; to
       ``(ii) the sum of the respective amounts determined under 
     clause (i) for the fiscal year for all teaching hospitals.
       ``(3) Availability of data.--If a teaching hospital 
     received the payments specified in paragraph (2)(B)(i) during 
     the applicable period but a complete set of the relevant data 
     is not available to the Secretary for purposes of determining 
     an amount under such paragraph for the fiscal year involved, 
     the Secretary shall for purposes of such paragraph make an 
     estimate on the basis of such data as are available to the 
     Secretary for the applicable period.
       ``(c) Payment From Medicare Account.--For purposes of 
     subsection (a)(2), the amount determined under this 
     subsection for a teaching hospital for a fiscal year is an 
     amount determined in accordance with the methodology in 
     effect under section 1886(h) for such year. Payments made 
     under section 2211 pursuant to the preceding sentence shall 
     be made from the Medicare Direct-Costs Medical Education 
     Account.

     ``SEC. 2242. DIRECT COSTS; SPECIAL RULES REGARDING PAYMENTS 
                   FROM GENERAL ACCOUNT.

       ``(a) Special Rule Regarding Fiscal Years 1995 and 1996.--
       ``(1) In general.--In the case of a teaching hospital whose 
     first payments under section 1886(h) were for the cost 
     reporting period beginning in fiscal year 1995 or in fiscal 
     year 1996 (referred to in this subsection individually as a 
     `first payment year'), the percentage determined under 
     paragraph (2) for the hospital is deemed to be the percentage 
     applicable under section 2241(b)(2) to the hospital, subject 
     to paragraph (3).
       ``(2) Determination of fixed percentage.--For purposes of 
     paragraph (1), the percentage determined under this paragraph 
     for a teaching hospital is the percentage constituted by the 
     ratio of the amount determined under subparagraph (A) to the 
     amount determined under subparagraph (B), as follows:
       ``(A)(i) If the first payment year for the hospital is 
     fiscal year 1995, the amount determined under this 
     subparagraph is the total amount of payments received by the 
     hospital under section 1886(h) for cost reporting periods 
     beginning in fiscal year 1995.
       ``(ii) If the first payment year for the hospital is fiscal 
     year 1996, the amount determined under this subparagraph is 
     an amount equal to an estimate by the Secretary of the total 
     amount of payments that would have been paid to the hospital 
     under section 1886(h) for cost reporting periods beginning in 
     fiscal year 1995 if such section, as in effect for fiscal 
     year 1996, had applied to the hospital for fiscal year 1995.
       ``(B)(i) If the first payment year for the hospital is 
     fiscal year 1995, the amount determined under this 
     subparagraph is the aggregate total of the payments received 
     by teaching hospitals under section 1886(h) for cost 
     reporting periods beginning in fiscal year 1995.
       ``(ii) If the first payment year for the hospital is fiscal 
     year 1996--
       ``(I) the Secretary shall make an estimate in accordance 
     with subparagraph (A)(ii) for all teaching hospitals; and
       ``(II) the amount determined under this subparagraph is the 
     sum of the estimates made by the Secretary under subclause 
     (I).
       ``(3) Adjustment of percentage.--The percentage determined 
     under paragraph (2) shall be adjusted by the Secretary in 
     accordance with section 2241(b)(2)(A) to the extent 
     determined by the Secretary to be necessary with respect to a 
     sum that equals 100 percent.
       ``(b) New Teaching Hospitals.--
       ``(1) In general.--In the case of a teaching hospital that 
     did not receive payments under section 1886(h) for any of the 
     fiscal years 1992 through 1996, the percentage determined 
     under paragraph (3) for the hospital is deemed to be the 
     percentage applicable under section 2241(b)(2) to the 
     hospital, subject to paragraphs (4) and (5).
       ``(2) Designated fiscal year regarding data.--The 
     determination under paragraph (3) of a percentage for a 
     teaching hospital described in paragraph (1) shall be made 
     for the most recent fiscal year for which the Secretary has 
     sufficient data to make the determination (referred to in 
     this subsection as the `designated fiscal year').
       ``(3) Determination of fixed percentage.--For purposes of 
     paragraph (1), the percentage determined under this paragraph 
     for the teaching hospital involved is the percentage 
     constituted by the ratio of the amount determined under 
     subparagraph (A) to the amount determined under subparagraph 
     (B), as follows:
       ``(A) The amount determined under this subparagraph is an 
     amount equal to an estimate by the Secretary of the total 
     amount of payments that would have been paid to the hospital 
     under section 1886(h) for the designated fiscal year if such 
     section, as in effect for the first fiscal year for which 
     payments pursuant to this subsection are to be made to the 
     hospital, had applied to the hospital for cost reporting 
     periods beginning in the designated fiscal year.
       ``(B) The Secretary shall make an estimate in accordance 
     with subparagraph (A) for all teaching hospitals. The amount 
     determined under this subparagraph is the sum of the 
     estimates made by the Secretary under the preceding sentence.
       ``(4) Adjustment of percentage.--The percentage determined 
     under paragraph (3) shall be adjusted by the Secretary in 
     accordance with section 2223(b)(2)(A) to the extent 
     determined by the Secretary to be necessary with respect to a 
     sum that equals 100 percent.
       ``(5) Limitation.--This subsection does not apply to a 
     teaching hospital described in paragraph (1) if the hospital 
     is in a State for which a demonstration project under section 
     1814(b)(3) is in effect.
       ``(c) Consolidations and Mergers.--In the case of two or 
     more teaching hospitals that have each received payments 
     pursuant to section 2241 for one or more fiscal years and 
     that undergo a 

[[Page H 12727]]
     consolidation or merger, the percentage applicable to the resulting 
     teaching hospital for purposes of section 2241(b)(2) is the 
     sum of the respective percentages that would have applied 
     pursuant to such section if the hospitals had not undergone 
     the consolidation or merger.
       ``(d) States With Certain Demonstration Projects.--
       ``(1) In general.--In the case of a teaching hospital in a 
     State for which a demonstration project under section 
     1814(b)(3) is in effect--
       ``(A) the percentage determined under paragraph (2) for the 
     hospital is deemed to be the percentage applicable under 
     section 2241(b)(2) to the hospital; and
       ``(B) the hospital is not eligible for any payments from 
     the Medicare Direct-Costs Medical Education Account.
       ``(2) Determination of fixed percentage.--For purposes of 
     paragraph (1)(A):
       ``(A) The Secretary shall make an estimate of the total 
     amount of payments that would have been received under 
     section 1886(h) by the hospital involved with respect to each 
     of the fiscal years of the applicable period if such section 
     (as in effect for such fiscal years) had applied to the 
     hospital for such years.
       ``(B) The percentage determined under this paragraph for 
     the hospital for a fiscal year is a mean average percentage 
     determined for the hospital in accordance with the 
     methodology of section 2241(b)(2), except that the estimate 
     made by the Secretary under subparagraph (A) of this 
     paragraph for a fiscal year of the applicable period is 
     deemed to be the amount that applies for purposes of section 
     2241(b)(2)(B)(i) for such year.

     ``SEC. 2243. DIRECT COSTS; AUTHORITY FOR PAYMENTS TO 
                   CONSORTIA OF PROVIDERS.

       ``(a) In General.--In lieu of making payments to teaching 
     hospitals pursuant to sections 2221 and 2241, the Secretary 
     may make payments under this section to consortia that meet 
     the requirements of subsection (b).
       ``(b) Qualifying Consortium.--For purposes of subsection 
     (a), a consortium meets the requirements of this subsection 
     if the consortium is in compliance with the following:
       ``(1) The consortium consists of a teaching hospital and 
     one or more of the following entities:
       ``(A) Schools of allopathic medicine or osteopathic 
     medicine.
       ``(B) Other teaching hospitals.
       ``(C) Approved medical residency training programs.
       ``(D) Federally qualified health centers.
       ``(E) Medical group practices.
       ``(F) Managed care entities.
       ``(G) Entities furnishing outpatient services.
       ``(H) Such other entities as the Secretary determines to be 
     appropriate.
       ``(2) The members of the consortium have agreed to 
     collaborate in the programs of graduate medical education 
     that are operated by such members.
       ``(3) With respect to the receipt by the consortium of 
     payments made pursuant to this section, the members of the 
     consortium have agreed on a method for allocating the 
     payments among the members.
       ``(4) The consortium meets such additional requirements as 
     the Secretary may establish.
       ``(c) Payments From Accounts.--The total amount of payments 
     to a qualifying consortium for a fiscal year pursuant to 
     subsection (a) shall be the sum of--
       ``(1) the aggregate amount determined for the teaching 
     hospitals of the consortium pursuant to section 2221(a) 
     (relating to the General MedicarePlus Incentive Account);
       ``(2) the aggregate amount determined for the teaching 
     hospitals of the consortium pursuant to section 2241(a)(1) 
     (relating to the General Direct-Costs Account); and
       ``(3) an amount determined for the consortium in accordance 
     with the methodology in effect under section 1886(j)(2)(C)(i) 
     for the fiscal year (relating to the Medicare Direct-Costs 
     Account).
       ``(d) Definition.--For purposes of this title, the term 
     `qualifying consortium' means a consortium that meets the 
     requirements of subsection (b).''.

               CHAPTER 2--AMENDMENTS TO MEDICARE PROGRAM

     SEC. 12511. TRANSFER OF FUNDS.

       Section 1886 (42 U.S.C. 1395ww) is amended--
       (1) in subsection (d)(5)(B), in the matter preceding clause 
     (i), by striking ``The Secretary shall provide'' and 
     inserting the following: ``For discharges occurring on or 
     before September 30, 1996, the Secretary shall provide'';
       (2) in subsection (h)--
       (A) in paragraph (1), in the first sentence, by striking 
     ``the Secretary shall provide'' and inserting ``the Secretary 
     shall, subject to paragraph (6), provide''; and
       (B) by adding at the end the following paragraph:
       ``(6) Limitation.--
       ``(A) In general.--The authority to make payments under 
     this subsection applies only with respect to cost reporting 
     periods ending on or before September 30, 1996, except as 
     provided in subparagraph (B).
       ``(B) Rule regarding portion of last cost reporting 
     period.--In the case of a cost reporting period that extends 
     beyond September 30, 1996, payments under this subsection 
     shall be made with respect to such portion of the period as 
     has lapsed as of such date.
       ``(C) Rule of construction.--This paragraph may not be 
     construed as authorizing any payment under section 1861(v) 
     with respect to graduate medical education.''; and
       (3) by adding at the end the following subsection:
       ``(j) Transfers to Teaching Hospital and Graduate Medical 
     Education Trust Fund.--
       ``(1) Indirect costs of medical education.--
       ``(A) In general.--From the Federal Hospital Insurance 
     Trust Fund, the Secretary shall, for fiscal year 1997 and 
     each subsequent fiscal year, transfer to the Medicare 
     Indirect-Costs Medical Education Account under section 2201 
     an amount determined by the Secretary in accordance with 
     subparagraph (B).
       ``(B) Determination of amounts.--The Secretary shall make 
     an estimate for the fiscal year involved of the nationwide 
     total of the amounts that would have been paid under 
     subsection (d)(5)(B) to hospitals during the fiscal year if 
     such payments had not been terminated for discharges 
     occurring after September 30, 1996. For purposes of 
     subparagraph (A), the amount determined under this 
     subparagraph for the fiscal year is the estimate made by the 
     Secretary under the preceding sentence.
       ``(C) Supplemental transfers.--If the Secretary determines 
     that the amount of a transfer under subparagraph (A) for a 
     fiscal year is insufficient for making payments in the 
     amounts required pursuant to section 2231(a)(2) for the year, 
     the Secretary shall make such additional transfers for the 
     year between the funds and accounts involved as the Secretary 
     determines to be necessary for making the payments.
       ``(2) Direct costs of medical education.--
       ``(A) In general.--From the Federal Hospital Insurance 
     Trust Fund and the Federal Supplementary Medical Insurance 
     Trust Fund, the Secretary shall, for fiscal year 1997 and 
     each subsequent fiscal year, transfer to the Medicare Direct-
     Costs Medical Education Account (under section 2201) the sum 
     of--
       ``(i) an amount determined by the Secretary in accordance 
     with subparagraph (B); and
       ``(ii) as applicable, an amount determined by the Secretary 
     in accordance with subparagraph (C)(ii).
       ``(B) Determination of amounts.--For each hospital (other 
     than a hospital that is a member of a qualifying consortium 
     referred to in subparagraph (C)), the Secretary shall make an 
     estimate for the fiscal year involved of the amount that 
     would have been paid under subsection (h) to the hospital 
     during the fiscal year if such payments had not been 
     terminated for cost reporting periods ending on or before 
     September 30, 1996. For purposes of subparagraph (A)(i), the 
     amount determined under this subparagraph for the fiscal year 
     is the sum of all estimates made by the Secretary under the 
     preceding sentence.
       ``(C) Estimates regarding qualifying consortia.--If the 
     Secretary authorizes payments under section 2243(a) to one or 
     more qualifying consortia, the Secretary shall carry out the 
     following:
       ``(i) The Secretary shall establish a methodology for 
     making payments to qualifying consortia with respect to the 
     reasonable direct costs of such consortia in carrying out 
     programs of graduate medical education. The methodology shall 
     be the methodology established in subsection (h), modified to 
     the extent necessary to take into account the participation 
     in such programs of entities other than hospitals.
       ``(ii) For each qualifying consortium, the Secretary shall 
     make an estimate for the fiscal year involved of the amount 
     that would have been paid to the consortium during the fiscal 
     year if, using the methodology under clause (i), payments had 
     been made to the consortium for the fiscal year as 
     reimbursements with respect to cost reporting periods. For 
     purposes of subparagraph (A)(ii), the amount determined under 
     this clause for the fiscal year is the sum of all estimates 
     made by the Secretary under the preceding sentence.
       ``(D) Allocation between funds.--In providing for a 
     transfer under subparagraph (A) for a fiscal year, the 
     Secretary shall provide for an allocation of the amounts 
     involved between part A and part B (and the trust funds 
     established under the respective parts) as reasonably 
     reflects the proportion of direct graduate medical education 
     costs of hospitals associated with the provision of services 
     under each respective part.
       ``(E) Supplemental transfers.--If the Secretary determines 
     that the amount of a transfer under subparagraph (A) for a 
     fiscal year is insufficient for making payments in the 
     amounts required pursuant to sections 2241(a)(2) and 
     2243(c)(3) for the year, the Secretary shall make such 
     additional transfers for the year between the funds and 
     accounts involved as the Secretary determines to be necessary 
     for making the payments.
       ``(3) Applicability of certain amendments.--Amendments made 
     to subsection (d)(5)(B) and subsection (h) that are effective 
     on or after October 1, 1996, apply only for purposes of 
     estimates under paragraphs (1) and (2) and for purposes of 
     determining the amount of payments under 2211. Such 
     amendments do not require any adjustment to amounts paid 
     under subsection (d)(5)(B) or (h) with respect to fiscal year 
     1996 or any prior fiscal year.
       ``(4) Relationship to certain demonstration projects.--In 
     the case of a State for which a demonstration project under 
     section 1814(b)(3) is in effect, the Secretary, in making 
     determinations of the rates of increase under such section, 
     shall include all amounts transferred under this subsection. 
     Such amounts shall be so included to the same extent and in 
     the same manner as amounts determined under subsections 
     (d)(5)(B) and (h) were included in such determination under 
     the provisions of this title in effect on September 30, 
     1996.''.

                      Title XII--Other Provisions

                 Subtitle F--National Defense Stockpile

     SEC. 12601. DISPOSAL OF CERTAIN MATERIALS IN NATIONAL DEFENSE 
                   STOCKPILE FOR DEFICIT REDUCTION.

       (a) Disposals Required.--(1) During fiscal year 1996, the 
     President shall dispose of all cobalt contained in the 
     National Defense Stockpile 

[[Page H 12728]]
     that, as of the date of the enactment of this Act, is authorized for 
     disposal under any law (other than this Act).
       (2) In addition to the disposal of cobalt under paragraph 
     (1), the President shall dispose of additional quantities of 
     cobalt and quantities of other materials contained in the 
     National Defense Stockpile and specified in the table in 
     subsection (b) so as to result in receipts to the United 
     States in amounts equal to--
       (A) $21,000,000 during the fiscal year ending September 30, 
     1996;
       (B) $338,000,000 during the five-fiscal year period ending 
     on September 30, 2000; and
       (C) $649,000,000 during the seven-fiscal year period ending 
     on September 30, 2002.
       (b) Limitation on Disposal Quantity.--The total quantities 
     of materials authorized for disposal by the President under 
     subsection (a)(2) may not exceed the amounts set forth in the 
     following table:


                     Authorized Stockpile Disposals                     
------------------------------------------------------------------------
           Material for disposal                      Quantity          
------------------------------------------------------------------------
Aluminum..................................  62,881 short tons           
Cobalt....................................  30,000,000 pounds contained 
Columbium Ferro...........................  930,911 pounds contained    
Germanium Metal...........................  40,000 kilograms            
Indium....................................  35,000 troy ounces          
Palladium.................................  15,000 troy ounces          
Platinum..................................  10,000 troy ounces          
Rubber, Natural...........................  125,138 long tons           
Tantalum, Carbide Powder..................  6,000 pounds contained      
Tantalum, Minerals........................  750,000 pounds contained    
Tantalum, Oxide...........................  40,000 pounds contained     
------------------------------------------------------------------------

       (c) Deposit of Receipts.--Notwithstanding section 9 of the 
     Strategic and Critical Materials Stock Piling Act (50 U.S.C. 
     98h), funds received as a result of the disposal of materials 
     under subsection (a)(2) shall be deposited into the general 
     fund of the Treasury for the purpose of deficit reduction.
       (d) Relationship to Other Disposal Authority.--The disposal 
     authority provided in subsection (a)(2) is new disposal 
     authority and is in addition to, and shall not affect, any 
     other disposal authority provided by law regarding the 
     materials specified in such subsection.
       (e) Termination of Disposal Authority.--The President may 
     not use the disposal authority provided in subsection (a)(2) 
     after the date on which the total amount of receipts 
     specified in subparagraph (C) of such subsection is achieved.
       (f) Definition.--The term ``National Defense Stockpile'' 
     means the National Defense Stockpile provided for in section 
     4 of the Strategic and Critical Materials Stock Piling Act 
     (50 U.S.C. 98c).
Subtitle G----Child Protection Block Grant Program And Foster Care and 
                          Adoption Assistance

     SEC. 12701. ESTABLISHMENT OF PROGRAM.

       Title IV of the Social Security Act (42 U.S.C. 601 et seq.) 
     is amended by striking subpart 2 of part B and inserting the 
     following:

``Subpart 2--Block Grants to States for the Protection of Children and 
       Matching Payments for Foster Care and Adoption Assistance

     ``SEC. 430. ELIGIBLE STATES.

       ``(a) In General.--As used in this subpart, the term 
     `eligible State' means a State that has submitted to the 
     Secretary, not later than October 1, 1996, and every 3 years 
     thereafter, a plan which has been signed by the chief 
     executive officer of the State and that includes the 
     following:
       ``(1) Outline of child protection program.--A written 
     document that outlines the activities the State intends to 
     conduct to achieve the child protection goals of the program 
     funded under this subpart, including the procedures to be 
     used for--
       ``(A) receiving and assessing reports of child abuse or 
     neglect;
       ``(B) investigating such reports;
       ``(C) with respect to families in which abuse or neglect 
     has been confirmed, providing services or referral for 
     services for families and children where the State makes a 
     determination that the child may safely remain with the 
     family;
       ``(D) protecting children by removing them from dangerous 
     settings and ensuring their placement in a safe environment;
       ``(E) providing training for individuals mandated to report 
     suspected cases of child abuse or neglect;
       ``(F) protecting children in foster care;
       ``(G) promoting timely adoptions;
       ``(H) protecting the rights of families, using adult 
     relatives as the preferred placement for children separated 
     from their parents where such relatives meet the relevant 
     State child protection standards;
       ``(I) providing services to individuals, families, or 
     communities, either directly or through referral, that are 
     aimed at preventing the occurrence of child abuse and 
     neglect; and
       ``(J) establishing and responding to citizen review panels 
     under section 434.
       ``(2) Certification of state law requiring the reporting of 
     child abuse and neglect.--A certification that the State has 
     in effect laws that require public officials and other 
     professionals to report, in good faith, actual or suspected 
     instances of child abuse or neglect.
       ``(3) Certification of procedures for screening, safety 
     assessment, and prompt investigation.--A certification that 
     the State has in effect procedures for receiving and 
     responding to reports of child abuse or neglect, including 
     the reports described in paragraph (2), and for the immediate 
     screening, safety assessment, and prompt investigation of 
     such reports.
       ``(4) Certification of state procedures for removal and 
     placement of abused or neglected children.--A certification 
     that the State has in effect procedures for the removal from 
     families and placement of abused or neglected children and of 
     any other child in the same household who may also be in 
     danger of abuse or neglect.
       ``(5) Certification of provisions for immunity from 
     prosecution.--A certification that the State has in effect 
     laws requiring immunity from prosecution under State and 
     local laws and regulations for individuals making good faith 
     reports of suspected or known instances of child abuse or 
     neglect.
       ``(6) Certification of provisions and procedures for 
     expungement of certain records.--A certification that the 
     State has in effect laws and procedures requiring the 
     facilitation of the prompt expungement of any records that 
     are accessible to the general public or are used for purposes 
     of employment or other background checks in cases determined 
     to be unsubstantiated or false.
       ``(7) Certification of provisions and procedures relating 
     to appeals.--A certification that not later then 2 years 
     after the date of the enactment of this subpart, the State 
     shall have laws and procedures in effect affording 
     individuals an opportunity to appeal an official finding of 
     abuse or neglect.
       ``(8) Certification of state procedures for developing and 
     reviewing written plans for permanent placement of removed 
     children.--A certification that the State has in effect 
     procedures for ensuring that a written plan is prepared for 
     children who have been removed from their families. Such plan 
     shall specify the goals for achieving a permanent placement 
     for the child in a timely fashion, for ensuring that the 
     written plan is reviewed every 6 months (until such placement 
     is achieved), and for ensuring that information about such 
     children is collected regularly and recorded in case records, 
     and include a description of such procedures.
       ``(9) Certification of state program to provide independent 
     living services.--A certification that the State has in 
     effect a program to provide independent living services, for 
     assistance in making the transition to self-sufficient 
     adulthood, to individuals in the child protection program of 
     the State who are 16, but who are not 20 (or, at the option 
     of the State, 22), years of age, and who do not have a family 
     to which to be returned.
       ``(10) Certification of state procedures to respond to 
     reporting of medical neglect of disabled infants.--
       ``(A) In general.--A certification that the State has in 
     place for the purpose of responding to the reporting of 
     medical neglect of infants (including instances of 
     withholding of medically indicated treatment from disabled 
     infants with life-threatening conditions), procedures or 
     programs, or both (within the State child protective services 
     system), to provide for--
       ``(i) coordination and consultation with individuals 
     designated by and within appropriate health-care facilities;
       ``(ii) prompt notification by individuals designated by and 
     within appropriate health-care facilities of cases of 
     suspected medical neglect (including instances of withholding 
     of medically indicated treatment from disabled infants with 
     life-threatening conditions); and
       ``(iii) authority, under State law, for the State child 
     protective service to pursue any legal remedies, including 
     the authority to initiate legal proceedings in a court of 
     competent jurisdiction, as may be necessary to prevent the 
     withholding of medically indicated treatment from disabled 
     infants with life-threatening conditions.
       ``(B) Withholding of medically indicated treatment.--As 
     used in subparagraph (A), the term `withholding of medically 
     indicated treatment' means the failure to respond to the 
     infant's life-threatening conditions by providing treatment 
     (including appropriate nutrition, hydration, and medication) 
     which, in the treating physician's or physicians' reasonable 
     medical judgment, will be most likely to be effective in 
     ameliorating or correcting all such conditions, except that 
     such term does not include the failure to provide treatment 
     (other than appropriate nutrition, hydration, or medication) 
     to an infant when, in the treating physician's or physicians' 
     reasonable medical judgment--
       ``(i) the infant is chronically and irreversibly comatose;
       ``(ii) the provision of such treatment would--

       ``(I) merely prolong dying;
       ``(II) not be effective in ameliorating or correcting all 
     of the infant's life-threatening conditions; or
       ``(III) otherwise be futile in terms of the survival of the 
     infant; or

       ``(iii) the provision of such treatment would be virtually 
     futile in terms of the survival of the infant and the 
     treatment itself under such circumstances would be inhumane.
       ``(11) Identification of child protection goals.--The 
     quantitative goals of the State child protection program.
       ``(12) Certification of child protection standards.--With 
     respect to fiscal years beginning on or after April 1, 1996, 
     a certification that the State--
       ``(A) has completed an inventory of all children who, 
     before the inventory, had been in foster care under the 
     responsibility of the State for 6 months or more, which 
     determined--
       ``(i) the appropriateness of, and necessity for, the foster 
     care placement;
       ``(ii) whether the child could or should be returned to the 
     parents of the child or should be freed for adoption or other 
     permanent placement; and
       ``(iii) the services necessary to facilitate the return of 
     the child or the placement of the child for adoption or legal 
     guardianship;

[[Page H 12729]]

       ``(B) is operating, to the satisfaction of the Secretary--
       ``(i) a statewide information system from which can be 
     readily determined the status, demographic characteristics, 
     location, and goals for the placement of every child who is 
     (or, within the immediately preceding 12 months, has been) in 
     foster care;
       ``(ii) a case review system for each child receiving foster 
     care under the supervision of the State;
       ``(iii) a service program designed to help children--

       ``(I) where appropriate, return to families from which they 
     have been removed; or
       ``(II) be placed for adoption, with a legal guardian, or if 
     adoption or legal guardianship is determined not to be 
     appropriate for a child, in some other planned, permanent 
     living arrangement; and

       ``(iv) a preplacement preventive services program designed 
     to help children at risk for foster care placement remain 
     with their families; and
       ``(C)(i) has reviewed (or not later than October 1, 1997, 
     will review) State policies and administrative and judicial 
     procedures in effect for children abandoned at or shortly 
     after birth (including policies and procedures providing for 
     legal representation of such children); and
       ``(ii) is implementing (or not later than October 1, 1997, 
     will implement) such policies and procedures as the State 
     determines, on the basis of the review described in clause 
     (i), to be necessary to enable permanent decisions to be made 
     expeditiously with respect to the placement of such children.
       ``(13) Certification of reasonable efforts before placement 
     of children in foster care.--A certification that the State 
     in each case will--
       ``(A) make reasonable efforts prior to the placement of a 
     child in foster care, to prevent or eliminate the need for 
     removal of the child from the child's home, and to make it 
     possible for the child to return home; and
       ``(B) with respect to families in which abuse or neglect 
     has been confirmed, provide services or referral for services 
     for families and children where the State makes a 
     determination that the child may safely remain with the 
     family.
       ``(14) Certification of cooperative efforts.--A 
     certification by the State, where appropriate, that all steps 
     will be taken, including cooperative efforts with the State 
     agencies administering the plans approved under parts A and 
     D, to secure an assignment to the State of any rights to 
     support on behalf of each child receiving foster care 
     maintenance payments under this subpart.
       ``(b) Determinations.--The Secretary shall determine 
     whether a plan submitted pursuant to subsection (a) contains 
     the material required by subsection (a), other than the 
     material described in paragraph (10) of such subsection. The 
     Secretary may not require a State to include in such a plan 
     any material not described in subsection (a).

     ``SEC. 431. GRANTS TO STATES FOR CHILD PROTECTION AND 
                   PAYMENTS FOR FOSTER CARE AND ADOPTION 
                   ASSISTANCE..

       ``(a) Funding of Block Grants.--Each eligible State shall 
     be entitled to receive from the Secretary for each fiscal 
     year specified in subsection (c)(1) a grant in an amount 
     equal to the State share of the child protection amount for 
     the fiscal year.
       ``(b) Maintenance Payments.--
       ``(1) In general.--In addition to the grants described in 
     subsection (a), each eligible State shall be entitled to 
     receive from the Secretary for each quarter of each fiscal 
     year specified in subsection (c)(1) an amount equal to the 
     sum of--
       ``(A) an amount equal to the Federal medical assistance 
     percentage (as defined in section 1905(b) of this Act as in 
     effect on the day before the date of enactment of this 
     subpart) of the total amount expended during such quarter as 
     foster care maintenance payments under the child protection 
     program under this subpart for children in foster family 
     homes or child-care institutions; plus
       ``(B) an amount equal to the Federal medical assistance 
     percentage (as defined in section 1905(b) of this Act (as so 
     in effect)) of the total amount expended during such quarter 
     as adoption assistance payments under the child protection 
     program under this subpart pursuant to adoption assistance 
     agreements.
       ``(2) Estimates by the secretary.--
       ``(A) In general.--The Secretary shall, prior to the 
     beginning of each quarter, estimate the amount to which a 
     State will be entitled to receive under paragraph (1) for 
     such quarter, such estimates to be based on--
       ``(i) a report filed by the State containing its estimate 
     of the total sum to be expended in such quarter in accordance 
     with paragraph (1), and stating the amount appropriated or 
     made available by the State and its political subdivisions 
     for such expenditures in such quarter, and if such amount is 
     less than the State's proportionate share of the total sum of 
     such estimated expenditures, the source or sources from which 
     the difference is expected to be derived;
       ``(ii) records showing the number of children in the State 
     receiving assistance under this subpart; and
       ``(iii) such other information as the Secretary may find 
     necessary.
       ``(B) Payments.--The Secretary shall pay to the States the 
     amounts so estimated under subparagraph (A), reduced or 
     increased to the extent of any overpayment or underpayment 
     which the Secretary determines was made under this subsection 
     to such State for any prior quarter and with respect to which 
     adjustment has not already been made under this paragraph.
       ``(C) Pro Rata Share.-- The pro rata share to which the 
     United States is equitably entitled, as determined by the 
     Secretary, of the net amount recovered during any quarter by 
     the State or any political subdivision thereof with respect 
     to foster care and adoption assistance furnished under this 
     subpart shall be considered an overpayment to be adjusted 
     under this paragraph.
       ``(3) Allowance or disallowance of claim.--
       ``(A) In general.--Within 60 days after receipt of a State 
     claim for expenditures pursuant to paragraph (2)(A), the 
     Secretary shall allow, disallow, or defer such claim.
       ``(B) Notice.--Within 15 days after a decision to defer a 
     State claim, the Secretary shall notify the State of the 
     reasons for the deferral and of the additional information 
     necessary to determine the allowability of the claim.
       ``(C) Decision.--Within 90 days after receiving such 
     necessary information (in readily reviewable form), the 
     Secretary shall--
       ``(i) disallow the claim, if able to complete the review 
     and determine that the claim is not allowable; or
       ``(ii) in any other case, allow the claim, subject to 
     disallowance (as necessary)--

       ``(I) upon completion of the review, if it is determined 
     that the claim is not allowable; or
       ``(II) on the basis of findings of an audit or financial 
     management review.

       ``(c) Definitions.--As used in this section:
       ``(1) Child protection amount.--The term `child protection 
     amount' means--
       ``(A) $1,936,000,000 for fiscal year 1996;
       ``(B) $1,942,000,000 for fiscal year 1997;
       ``(C) $2,063,000,000 for fiscal year 1998;
       ``(D) $2,167,000,000 for fiscal year 1999;
       ``(E) $2,297,000,000 for fiscal year 2000;
       ``(F) $2,432,000,000 for fiscal year 2001; and
       ``(G) $2,593,000,000 for fiscal year 2002;
       ``(2) State share.--
       ``(A) In general.--The term `State share' means the 
     qualified child protection expenses of the State divided by 
     the sum of the qualified child protection expenses of all of 
     the States.
       ``(B) Qualified child protection expenses.--The term 
     `qualified child protection expenses' means, with respect to 
     a State the greater of--
       ``(i) the total amount of--

       ``(I) \1/3\ of the total obligations to the State under the 
     provisions of law specified in clauses (i), (ii), and (iii) 
     of subparagraph (C) for fiscal years 1992, 1993, and 1994; 
     and
       ``(II) \1/3\ of the total claims submitted by the State 
     (without regard to disputed claims) under the provision of 
     law specified in subparagraph (C)(iv) for fiscal years 1992, 
     1993, and 1994; or

       ``(ii) the total amount of--

       ``(I) the total obligations to the State under the 
     provisions of law specified in clauses (i), (ii), and (iii) 
     of subparagraph (C) for fiscal year 1995; and
       ``(II) the total claims submitted by the State (without 
     regard to disputed claims) under the provision of law 
     specified in subparagraph (C)(iv) for fiscal year 1995.

       ``(C) Provisions of law.--The provisions of law specified 
     in this subparagraph are the following (as in effect on the 
     day before the date of enactment of this subpart):
       ``(i) Section 434 of this Act.
       ``(ii) Section 474(a)(4) of this Act.
       ``(iii) Section 474(a)(3) of this Act.
       ``(d) Use of Grant.--
       ``(1) In general.--A State to which a grant is made under 
     this section may use the grant in any manner that the State 
     deems appropriate to accomplish the child protection goals of 
     the State program funded under this subpart.
       ``(2) Timing of expenditures.--A State to which a grant is 
     made under this section for a fiscal year shall expend the 
     total amount of the grant not later than the end of the 
     immediately succeeding fiscal year.
       ``(3) Rule of interpretation.--This subpart shall not be 
     interpreted to prohibit short- and long-term foster care 
     facilities operated for profit from receiving funds provided 
     under this subpart.
       ``(e) Timing of Payments.--The Secretary shall pay each 
     eligible State the amount of the grant payable to the State 
     under this section in quarterly installments.
       ``(f) Penalties.--
       ``(1) For use of grant in violation of this subpart.--If an 
     audit conducted pursuant to chapter 75 of title 31, United 
     States Code, finds that an amount paid to a State under this 
     section for a fiscal year has been used in violation of this 
     subpart, then the Secretary shall reduce the amount of the 
     grant that would (in the absence of this paragraph) be 
     payable to the State under this section for the immediately 
     succeeding fiscal year by the amount so used, plus 5 percent 
     of the grant paid under this section to the State for such 
     fiscal year.
       ``(2) For failure to maintain effort.--
       ``(A) In general.--If an audit conducted pursuant to 
     chapter 75 of title 31, United States Code, finds that the 
     amount expended by a State (other than from amounts provided 
     by the Federal Government) during the fiscal years specified 
     in subparagraph (B), to carry out the State program funded 
     under this subpart is less than the applicable percentage 
     specified in such subparagraph of the total amount expended 
     by the State (other than from amounts provided by the Federal 
     Government) during fiscal year 1995 under subpart 2 of part B 
     and part E of this title (as in effect on the day before the 
     date of the enactment of this subpart), then the Secretary 
     shall reduce the amount of the grant that would (in the 
     absence of this paragraph) be payable to the State under this 
     section for the immediately succeeding fiscal year by the 
     amount of the difference, plus 5 percent of the grant paid 
     under this section to the State for such fiscal year.
       ``(B) Specification of fiscal years and applicable 
     percentages.--The fiscal years and applicable percentages 
     specified in this subparagraph are as follows:
       ``(i) For fiscal years 1996 and 1997, 100 percent.

[[Page H 12730]]

       ``(ii) For fiscal years 1998 through 2002, 75 percent.
       ``(3) For failure to submit required report.--
       ``(A) In general.--The Secretary shall reduce by 3 percent 
     the amount of the grant that would (in the absence of this 
     paragraph) be payable to a State under this section for a 
     fiscal year if the Secretary determines that the State has 
     not submitted the report required by section 436(b) for the 
     immediately preceding fiscal year, within 6 months after the 
     end of the immediately preceding fiscal year.
       ``(B) Rescission of penalty.--The Secretary shall rescind a 
     penalty imposed on a State under subparagraph (A) with 
     respect to a report for a fiscal year if the State submits 
     the report before the end of the immediately succeeding 
     fiscal year.
       ``(4) For failure to comply with sampling methods 
     requirements.--The Secretary may reduce by not more than 1 
     percent the amount of the grant that would (in the absence of 
     this paragraph) be payable to a State under this section for 
     a succeeding fiscal year if the Secretary determines that the 
     State has not complied with the Secretary's sampling methods 
     requirements under section 436(c)(2) during the prior fiscal 
     year.
       ``(5) State funds to replace reductions in grant.--A State 
     which has a penalty imposed against it under this subsection 
     for a fiscal year shall expend additional State funds in an 
     amount equal to the amount of the penalty for the purpose of 
     carrying out the State program under this subpart during the 
     immediately succeeding fiscal year.
       ``(6) Reasonable cause exception.--The Secretary may not 
     impose a penalty on a State under this subsection with 
     respect to a requirement if the Secretary determines that the 
     State has reasonable cause for failing to comply with the 
     requirement.
       ``(7) Corrective compliance plan.--
       ``(A) In general.--
       ``(i) Notification of violation.--Notwithstanding any other 
     provision of law, the Federal Government shall, before 
     assessing a penalty against a State under this subsection, 
     notify the State of the violation of law for which the 
     penalty would be assessed and allow the State the opportunity 
     to enter into a corrective compliance plan in accordance with 
     this subsection which outlines how the State will correct any 
     such violations and how the State will insure continuing 
     compliance with the requirements of this subpart.
       ``(ii) 60-day period to propose a corrective compliance 
     plan.--Any State notified under clause (i) shall have 60 days 
     in which to submit to the Federal Government a corrective 
     compliance plan to correct any violations described in clause 
     (i).
       ``(iii) Acceptance of plan.--The Federal Government shall 
     have 60 days to accept or reject the State's corrective 
     compliance plan and may consult with the State during this 
     period to modify the plan. If the Federal Government does not 
     accept or reject the corrective compliance plan during the 
     period, the corrective compliance plan shall be deemed to be 
     accepted.
       ``(B) Failure to correct.--If a corrective compliance plan 
     is accepted by the Federal Government, no penalty shall be 
     imposed with respect to a violation described in this 
     subsection if the State corrects the violation pursuant to 
     the plan. If a State has not corrected the violation in a 
     timely manner under the plan, some or all of the penalty 
     shall be assessed.
       ``(8) Limitation on amount of penalty.--
       ``(A) In general.--In imposing the penalties described in 
     this subsection, the Secretary shall not reduce any quarterly 
     payment to a State by more than 25 percent.
       ``(B) Carryforward of unrecovered penalties.--To the extent 
     that subparagraph (A) prevents the Secretary from recovering 
     during a fiscal year the full amount of all penalties imposed 
     on a State under this subsection for a prior fiscal year, the 
     Secretary shall apply any remaining amount of such penalties 
     to the grant payable to the State under section 431(a) for 
     the immediately succeeding fiscal year.
       ``(g) Treatment of Territories.--
       ``(1) In general.--A territory, as defined in section 
     1108(b)(1), shall carry out a child protection program in 
     accordance with the provisions of this subpart.
       ``(2) Payments.--Each territory, as so defined, shall be 
     entitled to receive from the Secretary for any fiscal year an 
     amount, in accordance with section 1108, which shall be used 
     for the purpose of carrying out a child protection program in 
     accordance with the provisions of this subpart.
       ``(h) Limitation on Federal Authority.--Except as expressly 
     provided in this Act, the Secretary may not regulate the 
     conduct of States under this subpart or enforce any provision 
     of this subpart.

     ``SEC. 432. REQUIREMENTS FOR FOSTER CARE MAINTENANCE 
                   PAYMENTS.

       ``(a) In general.--Each State operating a program under 
     this subpart shall make foster care maintenance payments 
     under section 431(b) with respect to a child who would meet 
     the requirements of section 406(a) or of section 407 (as in 
     effect on the day before the date of the enactment of this 
     subpart) but for the removal of the child from the home of a 
     relative (specified in section 406(a)(as so in effect)), if--
       ``(1) the removal from the home occurred pursuant to a 
     voluntary placement agreement entered into by the child's 
     parent or legal guardian, or was the result of a judicial 
     determination to the effect that continuation therein would 
     be contrary to the welfare of such child and that reasonable 
     efforts of the type described in section 430(a)(13) have been 
     made;
       ``(2) such child's placement and care are the 
     responsibility of--
       ``(A) the State; or
       ``(B) any other public agency with whom the State has made 
     an agreement for the administration of the State program 
     under this subpart which is still in effect;
       ``(3) such child has been placed in a foster family home or 
     child-care institution as a result of the voluntary placement 
     agreement or judicial determination referred to in paragraph 
     (1); and
       ``(4) such child--
       ``(A) would have been eligible to receive aid under the 
     eligibility standards under the State plan approved under 
     section 402 (as in effect on the day before the date of the 
     enactment of this subpart and adjusted for inflation, in 
     accordance with regulations issued by the Secretary) in or 
     for the month in which such agreement was entered into or 
     court proceedings leading to the removal of such child from 
     the home were initiated; or
       ``(B) would have received such aid in or for such month if 
     application had been made therefore, or the child had been 
     living with a relative specified in section 406(a) (as so in 
     effect) within 6 months prior to the month in which such 
     agreement was entered into or such proceedings were 
     initiated, and would have received such aid in or for such 
     month if in such month such child had been living with such a 
     relative and application therefore had been made.
       ``(b) Limitation on Foster Care Payments.--Foster care 
     maintenance payments may be made under this subpart only on 
     behalf of a child described in subsection (a) of this section 
     who is--
       ``(1) in the foster family home of an individual, whether 
     the payments therefore are made to such individual or to a 
     public or private child-placement or child-care agency; or
       ``(2) in a child-care institution, whether the payments 
     therefore are made to such institution or to a public or 
     private child-placement or child-care agency, which payments 
     shall be limited so as to include in such payments only those 
     items which are included in the term `foster care maintenance 
     payments' (as defined in section 437(6)).
       ``(c) Voluntary Placements.--
       ``(1) Satisfaction of child protection standards.--
     Notwithstanding any other provision of this section, Federal 
     payments may be made under this subpart with respect to 
     amounts expended by any State as foster care maintenance 
     payments under this subpart, in the case of children removed 
     from their homes pursuant to voluntary placement agreements 
     as described in subsection (a), only if (at the time such 
     amounts were expended) the State has fulfilled all of the 
     requirements of section 435(b) or 430(a)(12).
       ``(2) Removal in excess of 180 days.--No Federal payment 
     may be made under this subpart with respect to amounts 
     expended by any State as foster care maintenance payments, in 
     the case of any child who was removed from such child's home 
     pursuant to a voluntary placement agreement as described in 
     subsection (a) and has remained in voluntary placement for a 
     period in excess of 180 days, unless there has been a 
     judicial determination by a court of competent jurisdiction 
     (within the first 180 days of such placement) to the effect 
     that such placement is in the best interests of the child.
       ``(3) Deemed revocation of agreements.--In any case where--
       ``(A) the placement of a minor child in foster care 
     occurred pursuant to a voluntary placement agreement entered 
     into by the parents or guardians of such child as provided in 
     subsection (a); and
       ``(B) such parents or guardians request (in such manner and 
     form as the Secretary may prescribe) that the child be 
     returned to their home or to the home of a relative,
     the voluntary placement agreement shall be deemed to be 
     revoked unless the State opposes such request and obtains a 
     judicial determination, by a court of competent jurisdiction, 
     that the return of the child to such home would be contrary 
     to the child's best interests.

     ``SEC. 433. REQUIREMENTS FOR ADOPTION ASSISTANCE PAYMENTS.

       ``(a) In General.--A State operating a program under this 
     subpart shall enter into adoption assistance agreements with 
     the adoptive parents of children with special needs.
       ``(b) Payments Under Agreements.--Under any adoption 
     assistance agreement entered into by a State with parents who 
     adopt a child with special needs who meets the requirements 
     of subsection (c), the State may make adoption assistance 
     payments to such parents or through another public or 
     nonprofit private agency, in amounts determined under 
     subsection (d).
       ``(c) Children with Special Needs.--For purposes of 
     subsection (b), a child meets the requirements of this 
     subsection if such child--
       ``(1)(A) at the time adoption proceedings were initiated, 
     met the requirements of section 406(a) or section 407 (as in 
     effect on the day before the date of the enactment of this 
     subpart) or would have met such requirements except for such 
     child's removal from the home of a relative (specified in 
     section 406(a) (as so in effect)), either pursuant to a 
     voluntary placement agreement with respect to which Federal 
     payments are provided under section 431(b) (or 403 (as so in 
     effect)) or as a result of a judicial determination to the 
     effect that continuation therein would be contrary to the 
     welfare of such child;
       ``(B) meets all of the requirements of title XVI with 
     respect to eligibility for supplemental security income 
     benefits; or
       ``(C) is a child whose costs in a foster family home or 
     child-care institution are covered by the foster care 
     maintenance payments being made with respect to his or her 
     minor parent;
       ``(2)(A) would have received aid under the eligibility 
     standards under the State plan approved under section 402 (as 
     in effect on the day before the date of the enactment of this 
     subpart, adjusted for inflation, in accordance with 
     regulations issued by the Secretary) in or for the 

[[Page H 12731]]
     month in which such agreement was entered into or court proceedings 
     leading to the removal of such child from the home were 
     initiated;
       ``(B) would have received such aid in or for such month if 
     application had been made therefore, or had been living with 
     a relative specified in section 406(a) (as so in effect) 
     within 6 months prior to the month in which such agreement 
     was entered into or such proceedings were initiated, and 
     would have received such aid in or for such month if in such 
     month such child had been living with such a relative and 
     application therefore had been made; or
       ``(C) is a child described in subparagraph (A) or (B); and
       ``(3) has been determined by the State, pursuant to 
     subsection (g) of this section, to be a child with special 
     needs.
       ``(d) Determination of Payments.--The amount of the 
     payments to be made in any case under subsection (b) shall be 
     determined through agreement between the adoptive parents and 
     the State or a public or nonprofit private agency 
     administering the program under this subpart, which shall 
     take into consideration the circumstances of the adopting 
     parents and the needs of the child being adopted, and may be 
     readjusted periodically, with the concurrence of the adopting 
     parents (which may be specified in the adoption assistance 
     agreement), depending upon changes in such circumstances. 
     However, in no case may the amount of the adoption assistance 
     payment exceed the foster care maintenance payment which 
     would have been paid during the period if the child with 
     respect to whom the adoption assistance payment is made had 
     been in a foster family home.
       ``(e) Payment Exception.--Notwithstanding subsection (d), 
     no payment may be made to parents with respect to any child 
     who has attained the age of 18 (or, where the State 
     determines that the child has a mental or physical disability 
     which warrants the continuation of assistance, the age of 
     21), and no payment may be made to parents with respect to 
     any child if the State determines that the parents are no 
     longer legally responsible for the support of the child or if 
     the State determines that the child is no longer receiving 
     any support from such parents. Parents who have been 
     receiving adoption assistance payments under this subpart 
     shall keep the State or public or nonprofit private agency 
     administering the program under this subpart informed of 
     circumstances which would, pursuant to this section, make 
     them ineligible for such assistance payments, or eligible for 
     assistance payments in a different amount.
       ``(f) Pre-adoption Payments.--For purposes of this subpart, 
     individuals with whom a child who has been determined by the 
     State, pursuant to subsection (g), to be a child with special 
     needs is placed for adoption in accordance with applicable 
     State and local law shall be eligible for adoption assistance 
     payments during the period of the placement, on the same 
     terms and subject to the same conditions as if such 
     individuals had adopted such child.
       ``(g) Determination of Child with Special Needs.--For 
     purposes of this section, a child shall not be considered a 
     child with special needs unless--
       ``(1) the State has determined that the child cannot or 
     should not be returned to the home of the child's parents; 
     and
       ``(2) the State had first determined--
       ``(A) that there exists with respect to the child a 
     specific factor or condition such as the child's ethnic 
     background, age, or membership in a minority or sibling 
     group, or the presence of factors such as medical conditions 
     or physical, mental, or emotional handicaps because of which 
     it is reasonable to conclude that such child cannot be placed 
     with adoptive parents without providing adoption assistance 
     under this subpart or medical assistance under title XIX or 
     XXI; and
       ``(B) that, except where it would be against the best 
     interests of the child because of such factors as the 
     existence of significant emotional ties with prospective 
     adoptive parents while in the care of such parents as a 
     foster child, a reasonable, but unsuccessful, effort has been 
     made to place the child with appropriate adoptive parents 
     without providing adoption assistance under this section or 
     medical assistance under title XIX or XXI.

     ``SEC. 434. CITIZEN REVIEW PANELS.

       ``(a) Establishment.--Each State to which a grant is made 
     under section 431(a) shall establish at least 3 citizen 
     review panels.
       ``(b) Composition.--Each panel established under subsection 
     (a) shall be broadly representative of the community from 
     which drawn.
       ``(c) Frequency of Meetings.--Each panel established under 
     subsection (a) shall meet not less frequently than quarterly.
       ``(d) Duties.--
       ``(1) In general.--Each panel established under subsection 
     (a) shall, by examining specific cases, determine the extent 
     to which the State and local agencies responsible for 
     carrying out activities under this subpart are doing so in 
     accordance with the State plan, with the child protection 
     standards set forth in section 430(a)(12) and 435, and with 
     any other criteria that the panel considers important to 
     ensure the protection of children.
       ``(2) Confidentiality.--The members and staff of any panel 
     established under subsection (a) shall not disclose to any 
     person or government any information about any specific child 
     protection case with respect to which the panel is provided 
     information.
       ``(e) State Assistance.--Each State that establishes a 
     panel under subsection (a) shall afford the panel access to 
     any information on any case that the panel desires to review, 
     and shall provide the panel with staff assistance in 
     performing its duties.
       ``(f) Reports.--Each panel established under subsection (a) 
     shall make a public report of its activities after each 
     meeting.

     ``SEC. 435. FOSTER CARE PROTECTION REQUIRED FOR ADDITIONAL 
                   FEDERAL PAYMENTS.

       ``(a) Reduction of Grant.--A State shall not receive a 
     grant under section 431(a) unless such State--
       ``(1) has conducted an inventory of all children who have 
     been in foster care under the responsibility of the State for 
     a period of 6 months preceding the inventory, and determined 
     the appropriateness of, and necessity for, the current foster 
     placement, whether the child can be or should be returned to 
     his parents or should be freed for adoption, and the services 
     necessary to facilitate either the return of the child or the 
     placement of the child for adoption or legal guardianship; 
     and
       ``(2) has implemented and is operating to the satisfaction 
     of the Secretary--
       ``(A) a statewide information system from which the status, 
     demographic characteristics, location, and goals for the 
     placement of every child in foster care or who has been in 
     such care within the preceding 12 months can readily be 
     determined;
       ``(B) a case review system (as defined in section 437(4)) 
     for each child receiving foster care under the supervision of 
     the State; and
       ``(C) a service program designed to help children, where 
     appropriate, return to families from which they have been 
     removed or be placed for adoption or legal guardianship.
       ``(b) Additional Requirements.--A State shall not receive a 
     grant under section 431(a) unless such State--
       ``(1) has completed an inventory of the type specified in 
     subsection (a)(1);
       ``(2) has implemented and is operating the program and 
     systems specified in subsection (a)(2); and
       ``(3) has implemented a preplacement preventive service 
     program designed to help children remain with their families.
       ``(c) Presumption for Expenditures.--Any amounts expended 
     by a State for the purpose of complying with the requirements 
     of subsection (a) or (b) shall be conclusively presumed to 
     have been expended for child welfare services.

     ``SEC. 436. DATA COLLECTION AND REPORTING.

       ``(a) Annual Reports on State Child Welfare Goals.--On the 
     date that is 3 years after the effective date of this subpart 
     and annually thereafter, each State to which a grant is made 
     under section 431(a) shall submit to the Secretary a report 
     that contains quantitative information on the extent to which 
     the State is making progress toward achieving the goals of 
     the State child protection program.
       ``(b) State Data Reports.--
       ``(1) Biannual reports.--Each State to which a grant is 
     made under section 431(a) shall biannually submit to the 
     Secretary a report that includes the following information 
     with respect to each child within the State receiving 
     publicly-supported child welfare services under the State 
     program funded under this subpart:
       ``(A) Whether the child received services under the program 
     funded under this subpart.
       ``(B) The age, gender, and family income of the parents and 
     child.
       ``(C) The county of residence of the child.
       ``(D) Whether the child was removed from the family.
       ``(E) Whether the child entered foster care under the 
     responsibility of the State.
       ``(F) The type of out-of-home care in which the child was 
     placed (including institutional care, group home care, family 
     foster care, or relative placement).
       ``(G) The child's permanency planning goal, such as family 
     reunification, kinship care, adoption, or independent living.
       ``(H) Whether the child was released for adoption.
       ``(I) Whether the child exited from foster care, and, if 
     so, the reason for the exit, such as return to family, 
     placement with relatives, adoption, independent living, or 
     death.
       ``(J) Other information as required by the Secretary and 
     agreed to by a majority of the States, including information 
     necessary to ensure a that there is a smooth transition of 
     data from the Adoption and Foster Care Analysis and Reporting 
     Systems and the National Center on Abuse and Neglect Data 
     System to the data reporting system required under this 
     section.
       ``(2) Annual reports.--Each State to which a grant is made 
     under section 431(a) shall annually submit to the Secretary a 
     report that includes the following information:
       ``(A) The number of children reported to the State during 
     the year as alleged victims of abuse or neglect.
       ``(B) The number of children for whom an investigation of 
     alleged maltreatment resulted in a determination of 
     substantiated abuse or neglect, the number for whom a report 
     of maltreatment was unsubstantiated, and the number for whom 
     a report of maltreatment was determined to be false.
       ``(C) The number of families that received preventive 
     services.
       ``(D) The number of infants abandoned during the year, the 
     number of such infants who were adopted, and the length of 
     time between abandonment and adoption.
       ``(E) The number of deaths of children resulting from child 
     abuse or neglect.
       ``(F) The number of deaths occurring while children were in 
     the custody of the State.
       ``(G) The number of children served by the State 
     independent living program.
       ``(H) Quantitative measurements demonstrating whether the 
     State is making progress toward the child protection goals 
     identified by the State.
       ``(I) The types of maltreatment suffered by victims of 
     child abuse and neglect.
       ``(J) The number of abused and neglected children receiving 
     services.

[[Page H 12732]]

       ``(K) The average length of stay of children in out-of-home 
     care.
       ``(L) The response of the State to the findings and 
     recommendations of the citizen review panels established 
     under section 434.
       ``(M) Other information as required by the Secretary and 
     agreed to by a majority of the States, including information 
     necessary to ensure a that there is a smooth transition of 
     data from the Adoption and Foster Care Analysis and Reporting 
     Systems and the National Center on Abuse and Neglect Data 
     System to the data reporting system required under this 
     section.
       ``(c) Authority of States to Use Estimates.--
       ``(1) In general.--A State may comply with a requirement to 
     provide precise numerical information described in subsection 
     (b) by submitting an estimate which is obtained through the 
     use of scientifically acceptable sampling methods.
       ``(2) Secretarial review of sampling methods.--The 
     Secretary shall periodically review the sampling methods used 
     by a State to comply with a requirement to provide 
     information described in subsection (b). The Secretary may 
     require a State to revise the sampling methods so used if 
     such methods do not meet scientific standards and shall 
     impose the penalty described in section 431(f)(4) upon a 
     State if a State has not complied with such requirements.
       ``(d) Scope of State Program Funded Under This Subpart.--As 
     used in subsection (b), the term `State program funded under 
     this subpart' includes any equivalent State program.

     ``SEC. 437. DEFINITIONS.

       ``For purposes of this subpart, the following definitions 
     shall apply:
       ``(1) Administrative review.--The term `administrative 
     review' means a review open to the participation of the 
     parents of the child, conducted by a panel of appropriate 
     persons at least one of whom is not responsible for the case 
     management of, or the delivery of services to, either the 
     child or the parents who are the subject of the review.
       ``(2) Adoption assistance agreement.--The term `adoption 
     assistance agreement' means a written agreement, binding on 
     the parties to the agreement, between the State, other 
     relevant agencies, and the prospective adoptive parents of a 
     minor child which at a minimum--
       ``(A) specifies the nature and amount of any payments, 
     services, and assistance to be provided under such agreement; 
     and
       ``(B) stipulates that the agreement shall remain in effect 
     regardless of the State of which the adoptive parents are 
     residents at any given time.
     The agreement shall contain provisions for the protection 
     (under an interstate compact approved by the Secretary or 
     otherwise) of the interests of the child in cases where the 
     adoptive parents and child move to another State while the 
     agreement is effective.
       ``(3) Case plan.--The term `case plan' means a written 
     document which includes at least the following:
       ``(A) A description of the type of home or institution in 
     which a child is to be placed, including a discussion of the 
     appropriateness of the placement and how the agency which is 
     responsible for the child plans to carry out the voluntary 
     placement agreement entered into or judicial determination 
     made with respect to the child in accordance with section 
     432(a)(1).
       ``(B) A plan for assuring that the child receives proper 
     care and that services are provided to the parents, child, 
     and foster parents in order to improve the conditions in the 
     parents' home, facilitate return of the child to his or her 
     own home or the permanent placement of the child, and address 
     the needs of the child while in foster care, including a 
     discussion of the appropriateness of the services that have 
     been provided to the child under the plan.
       ``(C) To the extent available and accessible, the health 
     and education records of the child, including--
       ``(i) the names and addresses of the child's health and 
     educational providers;
       ``(ii) the child's grade level performance;
       ``(iii) the child's school record;
       ``(iv) assurances that the child's placement in foster care 
     takes into account proximity to the school in which the child 
     is enrolled at the time of placement;
       ``(v) a record of the child's immunizations;
       ``(vi) the child's known medical problems;
       ``(vii) the child's medications; and
       ``(viii) any other relevant health and education 
     information concerning the child determined to be appropriate 
     by the State.
     Where appropriate, for a child age 16 or over, the case plan 
     must also include a written description of the programs and 
     services which will help such child prepare for the 
     transition from foster care to independent living.
       ``(4) Case review system.--The term `case review system' 
     means a procedure for assuring that--
       ``(A) each child has a case plan designed to achieve 
     placement in the least restrictive (most family like) and 
     most appropriate setting available and in close proximity to 
     the parents' home, consistent with the best interest and 
     special needs of the child, which--
       ``(i) if the child has been placed in a foster family home 
     or child-care institution a substantial distance from the 
     home of the parents of the child, or in a State different 
     from the State in which such home is located, sets forth the 
     reasons why such placement is in the best interests of the 
     child; and
       ``(ii) if the child has been placed in foster care outside 
     the State in which the home of the parents of the child is 
     located, requires that, periodically, but not less frequently 
     than every 12 months, a caseworker on the staff of the State 
     in which the home of the parents of the child is located, or 
     of the State in which the child has been placed, visit such 
     child in such home or institution and submit a report on such 
     visit to the State in which the home of the parents of the 
     child is located;
       ``(B) the status of each child is reviewed periodically but 
     no less frequently than once every 6 months by either a court 
     or by administrative review (as defined in paragraph (1)) in 
     order to determine the continuing necessity for and 
     appropriateness of the placement, the extent of compliance 
     with the case plan, and the extent of progress which has been 
     made toward alleviating or mitigating the causes 
     necessitating placement in foster care, and to project a 
     likely date by which the child may be returned to the home or 
     placed for adoption or legal guardianship;
       ``(C) with respect to each such child, procedural 
     safeguards will be applied, among other things, to assure 
     each child in foster care under the supervision of the State 
     of a dispositional hearing to be held, in a family or 
     juvenile court or another court (including a tribal court) of 
     competent jurisdiction, or by an administrative body 
     appointed or approved by the court, no later than 18 months 
     after the original placement (and not less frequently than 
     every 12 months thereafter during the continuation of foster 
     care), which hearing shall determine the future status of the 
     child (including whether the child should be returned to the 
     parent, should be continued in foster care for a specified 
     period, should be placed for adoption, or should (because of 
     the child's special needs or circumstances) be continued in 
     foster care on a permanent or long-term basis) and, in the 
     case of a child described in subparagraph (A)(ii), whether 
     the out-of-State placement continues to be appropriate and in 
     the best interests of the child, and, in the case of a child 
     who has attained age 16, the services needed to assist the 
     child to make the transition from foster care to independent 
     living; and procedural safeguards shall also be applied with 
     respect to parental rights pertaining to the removal of the 
     child from the home of his parents, to a change in the 
     child's placement, and to any determination affecting 
     visitation privileges of parents; and
       ``(D) a child's health and education record (as described 
     in paragraph (3)(C)) is reviewed and updated, and supplied to 
     the foster parent or foster care provider with whom the child 
     is placed, at the time of each placement of the child in 
     foster care.
       ``(5) Child-care institution.--The term `child-care 
     institution' means a private child-care institution, or a 
     public child-care institution which accommodates no more than 
     25 children, which is licensed by the State in which it is 
     situated or has been approved, by the agency of such State 
     responsible for licensing or approval of institutions of this 
     type, as meeting the standards established for such 
     licensing, but the term shall not include detention 
     facilities, forestry camps, training schools, or any other 
     facility operated primarily for the detention of children who 
     are determined to be delinquent.
       ``(6) Foster care maintenance payments.--
       ``(A) In general.--The term `foster care maintenance 
     payments' means payments to cover the cost of (and the cost 
     of providing) food, clothing, shelter, daily supervision, 
     school supplies, a child's personal incidentals, liability 
     insurance with respect to a child, and reasonable travel to 
     the child's home for visitation. In the case of institutional 
     care, such term shall include the reasonable costs of 
     administration and operation of such institution as are 
     necessarily required to provide the items described in the 
     preceding sentence.
       ``(B) Special rule.--In cases where--
       ``(i) a child placed in a foster family home or child-care 
     institution is the parent of a son or daughter who is in the 
     same home or institution; and
       ``(ii) payments described in subparagraph (A) are being 
     made under this subpart with respect to such child,
     the foster care maintenance payments made with respect to 
     such child as otherwise determined under subparagraph (A) 
     shall also include such amounts as may be necessary to cover 
     the cost of the items described in that subparagraph with 
     respect to such son or daughter.
       ``(7) Foster family home.--The term `foster family home' 
     means a foster family home for children which is licensed by 
     the State in which it is situated or has been approved, by 
     the agency of such State having responsibility for licensing 
     homes of this type, as meeting the standards established for 
     such licensing.
       ``(8) State.--The term `State' means the 50 States and the 
     District of Columbia.
       ``(9) Voluntary placement.--The term `voluntary placement' 
     means an out-of-home placement of a minor, by or with 
     participation of the State, after the parents or guardians of 
     the minor have requested the assistance of the State and 
     signed a voluntary placement agreement.
       ``(10) Voluntary placement agreement.--The term `voluntary 
     placement agreement' means a written agreement, binding on 
     the parties to the agreement, between the State, any other 
     agency acting on its behalf, and the parents or guardians of 
     a minor child which specifies, at a minimum, the legal status 
     of the child and the rights and obligations of the parents or 
     guardians, the child, and the agency while the child is in 
     placement.''.

     SEC. 12702. CONFORMING AMENDMENTS.

       (a) Repeal of Part E of Title IV of the Social Security 
     Act.--Part E of title IV of the Social Security Act (42 
     U.S.C. 671-679) is hereby repealed.
       (b) Repeal of Section 13712 of the Omnibus Budget 
     Reconciliation Act of 1993.--Section 13712 of the Omnibus 
     Budget Reconciliation Act of 1993 (42 U.S.C. 670 note) is 
     hereby repealed.
       (c) Repeal of Section 435.--Section 435 of the Social 
     Security Act, as amended by section 12701, is repealed on 
     April 1, 1996.

     SEC. 12703. EFFECTIVE DATE; TRANSITION RULE.

       (a) In General.--Except as otherwise provided in this 
     subtitle, this subtitle and the amendments made by this 
     subtitle shall take effect as if enacted on October 1, 1995.

[[Page H 12733]]

       (b) Transition Rule.--
       (1) State option to continue programs.--
       (A) 9-month extension.--A State may continue the State 
     programs under subpart 2 of part B and part E of title IV of 
     the Social Security Act, as in effect on September 30, 1995 
     (for purposes of this paragraph, the ``State programs'') 
     until June 30, 1996.
       (B) No individual or family entitlement under continued 
     state programs.--Notwithstanding any other provision of law 
     or any rule of law, no individual or family is entitled to 
     aid under the State programs of any State on or after the 
     date of the enactment of this Act.
       (C) Limitations on federal obligations.--If a State elects 
     to continue the State programs pursuant to subparagraph (A), 
     the total obligations of the Federal Government to the State 
     under subpart 2 of part B and part E of title IV of the 
     Social Security Act (as such subpart and part are in effect 
     on September 30, 1995) after the date of the enactment of 
     this Act shall not exceed an amount equal to--

       (I) the grant to the State under section 431(a) (as in 
     effect pursuant to the amendment made by section 12701 of 
     this Act)); minus
       (II) any obligations of the Federal Government to the State 
     under such subpart and part (as in effect on September 30, 
     1995) with respect to expenditures by the State during the 
     period that begins on October 1, 1995, and ends on the day 
     before the date of the enactment of this Act.

       (D) Submission of state plan for fiscal year 1996 deemed 
     acceptance of grant limitations and formula.--The submission 
     of a plan by a State under section 430(a) of the Social 
     Security Act (as in effect pursuant to the amendment made by 
     section 12701 of this Act) for fiscal year 1996 is deemed to 
     constitute the State's acceptance of the grant reduction 
     under subparagraph (C) of this paragraph (including the 
     formula for computing the amount of the reduction).
       (2) Claims, actions, and proceedings.--The amendments made 
     by this subtitle shall not apply with respect to--
       (A) powers, duties, functions, rights, claims, penalties, 
     or obligations applicable to aid, assistance, or services 
     provided before the effective date of this subtitle under the 
     provisions amended; and
       (B) administrative actions and proceedings commenced before 
     such date, or authorized before such date to be commenced, 
     under such provisions.
       (3) Closing out account for those programs terminated or 
     substantially modified by this subtitle.--In closing out 
     accounts, Federal and State officials may use scientifically 
     acceptable statistical sampling techniques. Claims made under 
     programs which are repealed or substantially amended in this 
     subtitle and which involve State expenditures in cases where 
     assistance or services were provided during a prior fiscal 
     year, shall be treated as expenditures during fiscal year 
     1995 for purposes of reimbursement even if payment was made 
     by a State on or after October 1, 1995. States shall complete 
     the filing of all claims no later than September 30, 1997. 
     Federal department heads shall--
       (A) use the single audit procedure to review and resolve 
     any claims in connection with the close out of programs; and
       (B) reimburse States for any payments made for assistance 
     or services provided during a prior fiscal year from funds 
     for fiscal year 1995, rather than the funds authorized by 
     this subtitle.
                         Subtitle H--Child Care

     SEC. 12801. SHORT TITLE AND REFERENCES.

       (a) Short Title.--This subtitle may be cited as the ``Child 
     Care and Development Block Grant Amendments of 1995''.
       (b) References.--Except as otherwise expressly provided, 
     whenever in this subtitle an amendment or repeal is expressed 
     in terms of an amendment to, or repeal of, a section or other 
     provision, the reference shall be considered to be made to a 
     section or other provision of the Child Care and Development 
     Block Grant Act of 1990 (42 U.S.C. 9858 et seq.).

     SEC. 12802. AUTHORIZATION OF APPROPRIATIONS AND ENTITLEMENT 
                   AUTHORITY.

       (a) In General.--Section 658B (42 U.S.C. 9858) is amended 
     to read as follows:

     ``SEC. 658B. AUTHORIZATION OF APPROPRIATIONS.

       ``There is authorized to be appropriated to carry out this 
     subchapter $1,000,000,000 for each of the fiscal years 1996 
     through 2002.''.
       (b) Social Security Act.--Part A of title IV of the Social 
     Security Act (as amended by section 12101) is amended by 
     adding at the end thereof the following new section:

     ``SEC. 418. FUNDING FOR CHILD CARE.

       ``(a) General Child Care Entitlement.--
       ``(1) General entitlement.--Subject to the amount 
     appropriated under paragraph (3), each State shall, for the 
     purpose of providing child care assistance, be entitled to 
     payments under a grant under this subsection for a fiscal 
     year in an amount equal to--
       ``(A) the sum of the total amounts of Federal payments for 
     fiscal year 1994 to the State under section--
       ``(i) 402(g)(3)(A) of this Act (as such section was in 
     effect before October 1, 1995) for amounts expended for child 
     care pursuant to paragraph (1) of such section;
       ``(ii) 403(l)(1)(A) of this Act (as so in effect) for 
     amounts expended for child care pursuant to section 
     402(g)(1)(A) of this Act, in the case of a State with respect 
     to which section 1108 of this Act applies; and
       ``(iii) 403(n) of this Act (as so in effect) for child care 
     services pursuant to section 402(i) of this Act; or
       ``(B) the average of the sum of the total amount of Federal 
     payments for each of the fiscal years 1992 through 1994 to 
     the State under the sections referred to in subparagraph (A);
     whichever is greater.
       ``(2) Remainder.--
       ``(A) Grants.--The Secretary shall use any amounts 
     appropriated for a fiscal year under paragraph (3), and 
     remaining after grants are awarded under paragraph (1), to 
     make grants to States under this paragraph.
       ``(B) Amount.--Subject to subparagraph (C), the amount of a 
     grant awarded to a State for a fiscal year under this 
     paragraph shall be based on the formula used for determining 
     the amount of Federal payments to the State for fiscal year 
     1994 under section 403(n) (as such section was in effect 
     before October 1, 1995) for child care services pursuant to 
     section 402(i) as such amount relates to the total amount of 
     such Federal payments to all States for such fiscal year.
       ``(C) Matching requirement.--The Secretary shall pay to 
     each eligible State in a fiscal year an amount, under a grant 
     under subparagraph (A), equal to the Federal medical 
     assistance percentage for such State for fiscal year 1995 (as 
     defined in section 1905(b)) of so much of the expenditures by 
     the State for child care in such year as exceed the State 
     set-aside for such State under subparagraph (A) for such year 
     and the amount of State expenditures in fiscal year 1995 that 
     equal the non-Federal share for the programs described in 
     subparagraphs (A), (B) and (C) of paragraph (1).
       ``(3) Appropriation.--There is authorized to be 
     appropriated, and there is appropriated, to carry out this 
     section--
       ``(A) $1,170,000,000 for fiscal year 1996;
       ``(B) $1,240,000,000 for fiscal year 1997;
       ``(C) $1,320,000,000 for fiscal year 1998;
       ``(D) $1,400,000,000 for fiscal year 1999;
       ``(E) $1,500,000,000 for fiscal year 2000;
       ``(F) $1,625,000,000 for fiscal year 2001; and
       ``(G) $1,745,000,000 for fiscal year 2002.
       ``(4) Redistribution.--With respect to any fiscal year, if 
     the Secretary determines that amounts under any grant awarded 
     to a State under this subsection for such fiscal year will 
     not be used by such State for carrying out the purpose for 
     which the grant is made, the Secretary shall make such 
     amounts available for carrying out such purpose to 1 or more 
     other States which apply for such funds to the extent the 
     Secretary determines that such other States will be able to 
     use such additional amounts for carrying out such purpose. 
     Such available amounts shall be redistributed to a State 
     pursuant to section 402(i) (as such section was in effect 
     before October 1, 1995) by substituting `the number of 
     children residing in all States applying for such funds' for 
     `the number of children residing in the United States in the 
     second preceding fiscal year'. Any amount made available to a 
     State from an appropriation for a fiscal year in accordance 
     with the preceding sentence shall, for purposes of this part, 
     be regarded as part of such State's payment (as determined 
     under this subsection) for such year.
       ``(b) Use of funds.--
       ``(1) In general.--Amounts received by a State under this 
     section shall only be used to provide child care assistance.
       ``(2) Use for certain populations.--A State shall ensure 
     that not less than 70 percent of the total amount of funds 
     received by the State in a fiscal year under this section are 
     used to provide child care assistance to families who are 
     receiving assistance under a State program under this part, 
     families who are attempting through work activities to 
     transition off of such assistance program, and families who 
     are at risk of becoming dependent on such assistance program.
       ``(c) Application of Child Care and Development Block Grant 
     Act.--Notwithstanding any other provision of law, amounts 
     provided to a State under this section shall be transferred 
     to the lead agency under the Child Care and Development Block 
     Grant Act, integrated by the State into the programs 
     established by the State under such Act, and be subject to 
     requirements and limitations of such Act.
       ``(d) Transition Rule.--
       ``(1) In general.--Amounts obligated to a State under this 
     section for fiscal year 1996 shall not exceed--
       ``(A) the amount for which a State is eligible under this 
     section for such fiscal year; less
       ``(B) the amounts obligated to the State for such fiscal 
     year under the provisions of law referred to in subsection 
     (a)(1)(A) (as such provisions were in effect on the day 
     before the date of enactment of this section).
       ``(2) Acceptance of limitation.--The submission of a plan 
     by a State under section 401(a) for fiscal year 1996 is 
     deemed to constitute the State's acceptance of the grant 
     reductions under paragraph (1). If amounts are provided to a 
     State under this section prior to the submission of such a 
     State plan, the acceptance of such amounts by the State shall 
     constitute the State's acceptance of such reductions.''.

     SEC. 12803. LEAD AGENCY.

       Section 658D(b) (42 U.S.C. 9858b(b)) is amended--
       (1) in paragraph (1)--
       (A) in subparagraph (A), by striking ``State'' the first 
     place that such appears and inserting ``governmental or 
     nongovernmental''; and
       (B) in subparagraph (C), by inserting ``with sufficient 
     time and Statewide distribution of the notice of such 
     hearing,'' after ``hearing in the State''; and
       (2) in paragraph (2), by striking the second sentence.

     SEC. 12804. APPLICATION AND PLAN.

       Section 658E (42 U.S.C. 9858c) is amended--
       (1) in subsection (b)--
       (A) by striking ``implemented--'' and all that follows 
     through ``(2)'' and inserting ``implemented''; and
       (B) by striking ``for subsequent State plans'';
       (2) in subsection (c)--
       (A) in paragraph (2)--

[[Page H 12734]]

       (i) in subparagraph (A)--

       (I) in clause (i) by striking ``, other than through 
     assistance provided under paragraph (3)(C),''; and
       (II) by striking ``except'' and all that follows through 
     ``1992'', and inserting ``and provide a detailed description 
     of the procedures the State will implement to carry out the 
     requirements of this subparagraph'';

       (ii) in subparagraph (B)--

       (I) by striking ``Provide assurances'' and inserting 
     ``Certify''; and
       (II) by inserting before the period at the end ``and 
     provide a detailed description of such procedures'';

       (iii) in subparagraph (C)--

       (I) by striking ``Provide assurances'' and inserting 
     ``Certify''; and
       (II) by inserting before the period at the end ``and 
     provide a detailed description of how such record is 
     maintained and is made available'';

       (iv) by amending subparagraph (D) to read as follows:
       ``(D) Consumer education information.--Certify that the 
     State will collect and disseminate to parents of eligible 
     children and the general public, consumer education 
     information that will promote informed child care choices.'';
       (v) in subparagraph (E), to read as follows:
       ``(E) Compliance with state licensing requirements.--
       ``(i) In general.--Certify that the State has in effect 
     licensing requirements applicable to child care services 
     provided within the State, and provide a detailed description 
     of such requirements and of how such requirements are 
     effectively enforced. Nothing in the preceding sentence shall 
     be construed to require that licensing requirements be 
     applied to specific types of providers of child care 
     services.
       ``(ii) Uniform application of requirements.--A 
     certification under clause (i) shall include an assurance by 
     the State that the State shall apply all such licensing 
     requirements in a uniform manner to child care providers of 
     the same type regardless of whether a child care provider is 
     receiving assistance under this subchapter. Nothing in this 
     subchapter shall be construed to require that a State apply, 
     or prohibit a State from applying, licensing requirements 
     with respect to a particular type of child care.
       ``(iii) Indian tribes and tribal organizations.--In lieu of 
     any licensing and regulatory requirements applicable under 
     State and local law, the Secretary, in consultation with 
     Indian tribes and tribal organizations, shall develop minimum 
     child care standards (that appropriately reflect tribal needs 
     and available resources) that shall be applicable to Indian 
     tribes and tribal organization receiving assistance under 
     this subchapter.''; and
       (vi) by striking subparagraphs (F), (G), (H), (I), and (J) 
     and inserting the following:
       ``(F) Meeting the needs of certain populations.--
     Demonstrate the manner in which the State will meet the 
     specific child care needs of families who are receiving 
     assistance under a State program under part A of title IV of 
     the Social Security Act, families who are attempting through 
     work activities to transition off of such assistance program, 
     and families who are at risk of becoming dependent on such 
     assistance program.'';
       (B) in paragraph (3)--
       (i) in subparagraph (A), by striking ``(B) and (C)'' and 
     inserting ``(B) through (D)'';
       (ii) in subparagraph (B)--

       (I) by striking ``.--Subject to the reservation contained 
     in subparagraph (C), the'' and inserting ``and related 
     activities.--The'';
       (II) in clause (i) by striking ``; and'' at the end and 
     inserting a period;
       (III) by striking ``for--'' and all that follows through 
     ``section 658E(c)(2)(A)'' and inserting ``for child care 
     services on sliding fee scale basis, activities that improve 
     the quality or availability of such services, and any other 
     activity that the State deems appropriate''; and
       (IV) by striking clause (ii);

       (iii) by amending subparagraph (C) to read as follows:
       ``(C) Limitation on administrative costs.--Not more than 3 
     percent of the aggregate amount of funds available to the 
     State to carry out this subchapter by a State in each fiscal 
     year may be expended for administrative costs incurred by 
     such State to carry out all of its functions and duties under 
     this subchapter. As used in the preceding sentence, the term 
     `administrative costs' shall not include the costs of 
     providing direct services.''; and
       (iv) by adding at the end thereof the following:
       ``(D) Assistance for certain families.--A State shall 
     ensure that a substantial portion of the amounts available 
     (after the State has complied with the requirement of section 
     419(b)(2) of the Social Security Act) to the State to carry 
     out activities this subchapter in each fiscal year is used to 
     provide assistance to low-income working families other than 
     families described in paragraph (2)(F).''; and 419(b)(2)
       (C) in paragraph (4)(A)--
       (i) by striking ``provide assurances'' and inserting 
     ``certify'';
       (ii) in the first sentence by inserting ``and shall provide 
     a summary of the facts relied on by the State to determine 
     that such rates are sufficient to ensure such access'' before 
     the period; and
       (iii) by striking the last sentence.

     SEC. 12805. LIMITATION ON STATE ALLOTMENTS.

       Section 658F(b) (42 U.S.C. 9858d(b)) is amended--
       (1) in paragraph (1), by striking ``No'' and inserting 
     ``Except as provided for in section 658O(c)(6), no''; and
       (2) in paragraph (2), by striking ``referred to in section 
     658E(c)(2)(F)''.

     SEC. 12806. ACTIVITIES TO IMPROVE THE QUALITY OF CHILD CARE.

       Section 658G (42 U.S.C. 9858e) is amended to read as 
     follows:

     ``SEC. 658G. ACTIVITIES TO IMPROVE THE QUALITY OF CHILD CARE.

       ``A State that receives financial assistance under this 
     subchapter, shall use not less than 3 percent of the total 
     amounts received in each fiscal year for activities that are 
     designed to provide comprehensive consumer education to 
     parents and the public, activities that increase parental 
     choice, and activities designed to improve the quality and 
     availability of child care (such as resource and referral 
     services).''.

     SEC. 12807. ADMINISTRATION AND ENFORCEMENT.

       Section 658I(b) (42 U.S.C. 9858g(b)) is amended--
       (1) in paragraph (1), by striking ``, and shall have'' and 
     all that follows through ``(2)'';
       (2) by striking paragraph (2); and
       (3) by redesignating paragraph (3) as paragraph (2).

     SEC. 12808. PAYMENTS.

       Section 658J(c) (42 U.S.C. 9858h(c)) is amended--
       (1) by striking ``expended'' and inserting ``obligated''; 
     and
       (2) by striking ``3 fiscal years'' and inserting ``fiscal 
     year''.

     SEC. 12809. ANNUAL REPORT AND AUDITS.

       Section 658K (42 U.S.C. 9858i) is amended--
       (1) in the section heading by striking ``annual report'' 
     and inserting ``reports'';
       (2) in subsection (a), to read as follows:
       ``(a) Reports.--
       ``(1) Collection of information by states.--
       ``(A) In general.--A State that receives funds to carry out 
     this subchapter shall collect the information described in 
     subparagraph (B) on a monthly basis.
       ``(B) Required information.--The information required under 
     this subparagraph shall include, with respect to a family 
     unit receiving assistance under this subchapter information 
     concerning--
       ``(i) family income;
       ``(ii) county of residence;
       ``(iii) the gender and age of children receiving such 
     assistance;
       ``(iv) whether the family includes only 1 parent;
       ``(v) the sources of family income, including the amount 
     obtained from (and separately identified)--

       ``(I) employment, including self-employment;
       ``(II) cash or other assistance under part A of title IV of 
     the Social Security Act;
       ``(III) housing assistance;
       ``(IV) assistance under the Food Stamp Act of 1977; and
       ``(V) other assistance programs;

       ``(vi) the number of months the family has received 
     benefits;
       ``(vii) the type of child care in which the child was 
     enrolled (such as family child care, home care, or center-
     based child care);
       ``(viii) whether the child care provider involved was a 
     relative;
       ``(ix) the cost of child care for such families; and
       ``(x) the average hours per week of such care;
     during the period for which such information is required to 
     be submitted.
       ``(C) Submission to secretary.--A State described in 
     subparagraph (A) shall, on a quarterly basis, submit the 
     information required to be collected under subparagraph (B) 
     to the Secretary.
       ``(D) Sampling.--The Secretary may disapprove the 
     information collected by a State under this paragraph if the 
     State uses sampling methods to collect such information.
       ``(2) Biannual reports.--Not later than December 31, 
     following the end of the first fiscal year with respect to 
     which the amendments made by the Child Care and Development 
     Block Grants Amendments of 1995 apply, and every 6 months 
     thereafter, a State described in paragraph (1)(A) shall 
     prepare and submit to the Secretary a report that includes 
     aggregate data concerning--
       ``(A) the number of child care providers that received 
     funding under this subchapter as separately identified based 
     on the types of providers listed in section 658Q(5);
       ``(B) the monthly cost of child care services, and the 
     portion of such cost that is paid for with assistance 
     provided under this subchapter, listed by the type of child 
     care services provided;
       ``(C) the number of payments made by the State through 
     vouchers, contracts, cash, and disregards under public 
     benefit programs, listed by the type of child care services 
     provided;
       ``(D) the manner in which consumer education information 
     was provided to parents and the number of parents to whom 
     such information was provided; and
       ``(E) the total number (without duplication) of children 
     and families served under this subchapter;
     during the period for which such report is required to be 
     submitted.''; and
       (2) in subsection (b)--
       (A) in paragraph (1) by striking ``a application'' and 
     inserting ``an application'';
       (B) in paragraph (2) by striking ``any agency administering 
     activities that receive'' and inserting ``the State that 
     receives''; and
       (C) in paragraph (4) by striking ``entitles'' and inserting 
     ``entitled''.

     SEC. 12810. ALLOTMENTS.

       Section 658O (42 U.S.C. 9858m) is amended--
       (1) in subsection (a)--
       (A) in paragraph (1)
       (i) by striking ``Possessions'' and inserting 
     ``possessions'';
       (ii) by inserting ``and'' after ``States,''; and
       (iii) by striking ``, and the Trust Territory of the 
     Pacific Islands''; and
       (B) in paragraph (2), by striking ``3 percent of the amount 
     appropriated under section 658B'' 

[[Page H 12735]]
     and inserting ``1 percent of the aggregate amount of funds available to 
     the State to carry out this subchapter'';
       (2) in subsection (c)--
       (A) in paragraph (5) by striking ``our'' and inserting 
     ``out''; and
       (B) by adding at the end thereof the following new 
     paragraph:
       ``(6) Construction or Renovation of Facilities.--
       ``(A) Request for use of funds.--An Indian tribe or tribal 
     organization may submit to the Secretary a request to use 
     amounts provided under this subsection for construction or 
     renovation purposes.
       ``(B) Determination.--With respect to a request submitted 
     under subparagraph (A), and except as provided in 
     subparagraph (C), upon a determination by the Secretary that 
     adequate facilities are not otherwise available to an Indian 
     tribe or tribal organization to enable such tribe or 
     organization to carry out child care programs in accordance 
     with this subchapter, and that the lack of such facilities 
     will inhibit the operation of such programs in the future, 
     the Secretary may permit the tribe or organization to use 
     assistance provided under this subsection to make payments 
     for the construction or renovation of facilities that will be 
     used to carry out such programs.
       ``(C) Limitation.--The Secretary may not permit an Indian 
     tribe or tribal organization to use amounts provided under 
     this subsection for construction or renovation if such use 
     will result in a decrease in the level of child care services 
     provided by the tribe or organization as compared to the 
     level of such services provided by the tribe or organization 
     in the fiscal year preceding the year for which the 
     determination under subparagraph (A) is being made.
       ``(D) Uniform procedures.--The Secretary shall develop and 
     implement uniform procedures for the solicitation and 
     consideration of requests under this paragraph.''; and
       (3) in subsection (e), by adding at the end thereof the 
     following new paragraph:
       ``(4) Indian tribes or tribal organizations.--Any portion 
     of a grant or contract made to an Indian tribe or tribal 
     organization under subsection (c) that the Secretary 
     determines is not being used in a manner consistent with the 
     provision of this subchapter in the period for which the 
     grant or contract is made available, shall be allotted by the 
     Secretary to other tribes or organizations that have 
     submitted applications under subsection (c) in accordance 
     with their respective needs.''.

     SEC. 12811. DEFINITIONS.

       Section 658P (42 U.S.C. 9858n) is amended--
       (1) in paragraph (2), in the first sentence by inserting 
     ``or as a deposit for child care services if such a deposit 
     is required of other children being cared for by the 
     provider'' after ``child care services''; and
       (2) by striking paragraph (3);
       (3) in paragraph (4)(B), by striking ``75 percent'' and 
     inserting ``85 percent'';
       (4) in paragraph (5)(B)--
       (A) by inserting ``great grandchild, sibling (if such 
     provider lives in a separate residence),'' after 
     ``grandchild,'';
       (B) by striking ``is registered and''; and
       (C) by striking ``State'' and inserting ``applicable''.
       (5) by striking paragraph (10);
       (6) in paragraph (3)--
       (A) by inserting ``or'' after ``Samoa,''; and
       (B) by striking ``, and the Trust Territory of the Pacific 
     Islands'';
       (7) in paragraph (14)--
       (A) by striking ``The term'' and inserting the following:
       ``(A) In general.--The term''; and
       (B) by adding at the end thereof the following new 
     subparagraph:
       ``(B) Other organizations.--Such term includes a Native 
     Hawaiian Organization, as defined in section 4009(4) of the 
     Augustus F. Hawkins-Robert T. Stafford Elementary and 
     Secondary School Improvement Amendments of 1988 (20 U.S.C. 
     4909(4)) and a private nonprofit organization established for 
     the purpose of serving youth who are Indians or Native 
     Hawaiians.''.
                  Subtitle I--Child Nutrition Programs

                  CHAPTER 1--NATIONAL SCHOOL LUNCH ACT

     SEC. 12901. TERMINATION OF ADDITIONAL PAYMENT FOR LUNCHES 
                   SERVED IN HIGH FREE AND REDUCED PRICE 
                   PARTICIPATION SCHOOLS.

       Section 4(b)(2) of the National School Lunch Act (42 U.S.C. 
     1753(b)(2)) is amended by inserting before the period at the 
     end the following: ``for the 1995 school year and 1 cent more 
     for each of the 1996 and 1997 school years''.

     SEC. 12902. DIRECT FEDERAL EXPENDITURES.

       (a) Administrative Expenses.--Section 6(a) of the National 
     School Lunch Act (42 U.S.C. 1755(a)) is amended by striking 
     the second and fourth sentences.
       (b) Amount of Commodity Assistance.--Section 6(e) of the 
     Act is amended--
       (1) in paragraph (1), by striking subparagraph (E); and
       (2) in paragraph (2), by striking the second sentence and 
     inserting the following: ``Each State agency shall offer and 
     equitably distribute commodities among schools participating 
     in the school lunch program.''.
       (c) Breakfast Commodity Assistance.--Section 6 of the Act 
     is amended--
       (1) by striking subsection (f); and
       (2) by redesignating subsection (g) as subsection (f).
       (d) Commodity Assistance.--
       (1) In general.--Section 6(f) of the Act (as redesignated 
     by subsection (c)) is amended by striking ``12 percent'' and 
     inserting ``8 percent''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall become effective on July 1, 1996.

     SEC. 12903. VALUE OF FOOD ASSISTANCE.

       (a) In General.--Section 6(e)(1) of the National School 
     Lunch Act (42 U.S.C. 1755(e)(1)) is amended--
       (1) in subparagraph (A)--
       (A) in the first sentence--
       (i) by inserting ``for free and reduced price meals'' after 
     ``thereof,'';
       (ii) by striking ``11 cents'' and inserting ``14.5 cents''; 
     and
       (iii) by striking ``1982'' and inserting ``1998''; and
       (B) by inserting after the first sentence the following: 
     ``The national average value of donated foods, or cash 
     payments in lieu thereof, for paid meals, shall be 12 cents, 
     adjusted on July 1, 2001, and each July 1 thereafter to 
     reflect changes in the Price Index for Food Used in Schools 
     and Institutions.''; and
       (2) by striking subparagraph (B) and inserting the 
     following:
       ``(B) Adjustments.--
       ``(i) In general.--Except as provided in subparagraph (A), 
     the value of food assistance for each meal shall be adjusted 
     each July 1 by the annual percentage change in a 3-month 
     average value of the Price Index for Foods Used in Schools 
     and Institutions for March, April, and May each year.
       ``(ii) Method of adjustments.--Except as otherwise provided 
     in this subparagraph, in the case of each school year, the 
     Secretary shall--

       ``(I) base the adjustment made under clause (i) on the 
     amount of the unrounded adjustment for the preceding school 
     year;
       ``(II) adjust the resulting amount in accordance with 
     clause (i); and
       ``(III) round the result to the nearest lower cent 
     increment.

       ``(iii) Adjustment on january 1, 1996.--On January 1, 1996, 
     the Secretary shall adjust the value of food assistance for 
     all meals for the remainder of the school year by rounding 
     the previously established value of food assistance to the 
     nearest lower cent increment.''.
       (b) Effective Date.--The amendment made by subsection 
     (a)(1) shall become effective on July 1, 1996.

     SEC. 12904. REDUCED PRICE LUNCHES.

       (a) Maximum Price.--Section 9(b)(3) of the National School 
     Lunch Act (42 U.S.C. 1758(b)(3)) is amended--
       (1) in the last sentence, by striking ``The'' and inserting 
     ``Except as provided in the succeeding 2 sentences, the''; 
     and
       (2) by adding at the end the following: ``In the case of 
     the school year beginning July 1, 2000, the price charged for 
     a reduced price lunch shall not exceed 45 cents. In the case 
     of the school year beginning July 1, 2001, and each school 
     year thereafter, the price charged for a reduced price lunch 
     shall not exceed 50 cents.''.
       (b) Reduced Price Meal Payment.--Section 11(a)(2) of the 
     Act (42 U.S.C. 1759a(a)(2)) is amended--
       (1) by striking ``cents and the'' and inserting ``cents. 
     Except as provided in the succeeding 2 sentences, the''; and
       (2) by adding at the end the following: ``In the case of 
     the school year beginning July 1, 2000, the special 
     assistance factor for reduced price lunches shall be 45 cents 
     less than the special assistance factor for free lunches. In 
     the case of the school year beginning July 1, 2001, and each 
     school year thereafter, the special assistance factor for 
     reduced price lunches shall be 50 cents less than the special 
     assistance factor for free lunches.''.

     SEC. 12905. LUNCHES, BREAKFASTS, AND SUPPLEMENTS.

       (a) In General.--Section 11(a)(3)(B) of the National School 
     Lunch Act (42 U.S.C. 1759a(a)(3)(B)) is amended--
       (1) by designating the second and third sentences as 
     subparagraphs (C) and (D), respectively; and
       (2) by striking subparagraph (D) (as so designated) and 
     inserting the following:
       ``(D) Rounding.--Except as otherwise provided in this 
     paragraph, in the case of each school year, the Secretary 
     shall--
       ``(i) base the adjustment made under this paragraph on the 
     amount of the unrounded adjustment for the preceding school 
     year;
       ``(ii) adjust the resulting amount in accordance with 
     subparagraphs (B) and (C); and
       ``(iii) round the result to the nearest lower cent 
     increment.
       ``(E) Adjustment on january 1 and july 1, 1996.--The 
     Secretary shall adjust the rates for breakfasts and 
     supplements on January 1, 1996, for the remainder of the 
     school year, and shall adjust the rates for lunches on July 
     1, 1996, by rounding the previously established rates to the 
     nearest lower cent increment.
       ``(F) Adjustment for 24-month period beginning july 1, 
     1996.--In the case of the 24-month period beginning July 1, 
     1996, the national average payment rates for paid lunches, 
     paid breakfasts, and paid supplements shall be the same as 
     the national average payment rate for paid lunches, paid 
     breakfasts, and paid supplements, respectively, for the 
     school year beginning July 1, 1995, rounded to the nearest 
     lower cent increment.
       ``(G) Adjustment for school year beginning july 1, 1998.--
     In the case of the school year beginning July 1, 1998, the 
     Secretary shall--
       ``(i) base the adjustments made under this paragraph for--

       ``(I) paid lunches and paid breakfasts on the amount of the 
     unrounded adjustment for paid lunches for the school year 
     beginning July 1, 1995; and
       ``(II) paid supplements on the amount of the unrounded 
     adjustment for paid supplements for the school year beginning 
     July 1, 1995;

       ``(ii) adjust each resulting amount in accordance with 
     subparagraph (C); and
       ``(iii) round each result to the nearest lower cent 
     increment.''.

[[Page H 12736]]

       (b) Effective Date.--The amendments made by subsection (a) 
     shall become effective on January 1, 1996.

     SEC. 12906. SUMMER FOOD SERVICE PROGRAM FOR CHILDREN.

       (a) Establishment of Program.--Section 13(a) of the 
     National School Lunch Act (42 U.S.C. 1761(a)) is amended--
       (1) in paragraph (1)--
       (A) in the first sentence, by striking ``initiate, 
     maintain, and expand'' and insert ``initiate and maintain''; 
     and
       (B) in subparagraph (E) of the second sentence, by striking 
     ``the Trust Territory of the Pacific Islands,''; and
       (2) in paragraph (7)(A), by striking ``Except as provided 
     in subparagraph (C), private'' and inserting ``Private''.
       (b) Service Institutions.--Section 13(b) of the Act is 
     amended by striking ``(b)(1)'' and all that follows through 
     the end of paragraph (1) and inserting the following:
       ``(b) Service Institutions.--
       ``(1) Payments.--
       ``(A) In general.--Except as otherwise provided in this 
     paragraph, payments to service institutions shall equal the 
     full cost of food service operations (which cost shall 
     include the costs of obtaining, preparing, and serving food, 
     but shall not include administrative costs).
       ``(B) Maximum amounts.--Subject to subparagraph (C), 
     payments to any institution under subparagraph (A) shall not 
     exceed--
       ``(i) $1.82 for each lunch and supper served;
       ``(ii) $1.13 for each breakfast served; and
       ``(iii) 46 cents for each meal supplement served.
       ``(C) Adjustments.--Amounts specified in subparagraph (B) 
     shall be adjusted each January 1 to the nearest lower cent 
     increment in accordance with the changes for the 12-month 
     period ending the preceding November 30 in the series for 
     food away from home of the Consumer Price Index for All Urban 
     Consumers published by the Bureau of Labor Statistics of the 
     Department of Labor. Each adjustment shall be based on the 
     unrounded adjustment for the prior 12-month period.''.
       (c) Administration of Service Institutions.--Section 
     13(b)(2) of the Act is amended--
       (1) in the first sentence, by striking ``four meals'' and 
     inserting ``3 meals, or 2 meals and 1 supplement,''; and
       (2) by striking the second sentence.
       (d) Reimbursements.--Section 13(c)(2) of the Act is 
     amended--
       (1) by striking subparagraph (A);
       (2) in subparagraph (B)--
       (A) in the first sentence--
       (i) by striking ``, and such higher education 
     institutions,''; and
       (ii) by striking ``without application'' and inserting 
     ``upon showing residence in areas in which poor economic 
     conditions exist''; and
       (B) by adding at the end the following: ``The higher 
     education institutions referred to in the preceding sentence 
     shall be eligible to participate in the program under this 
     paragraph without application.'';
       (3) in subparagraph (C)(ii), by striking ``severe need''; 
     and
       (4) by redesignating subparagraphs (B) through (E), as so 
     amended, as subparagraphs (A) through (D), respectively.
       (e) Permitting Offer Versus Serve.--Section 13(f) of the 
     Act is amended--
       (1) by redesignating the first through seventh sentences as 
     paragraphs (1) through (7), respectively; and
       (2) by adding at the end the following:
       ``(8) Offer versus serve.--A school food authority 
     participating as a service institution may permit a child 
     attending a site on school premises operated directly by the 
     authority to refuse not more than 1 item of a meal that the 
     child does not intend to consume. A refusal of an offered 
     food item shall not affect the amount of payments made under 
     this section to a school for the meal.''.
       (f) Effective Date.--The amendments made by subsection (b) 
     shall become effective on January 1, 1996.

     SEC. 12907. CHILD CARE FOOD PROGRAM.

       (a) Establishment of Program.--Section 17 of the National 
     School Lunch Act (42 U.S.C. 1766) is amended--
       (1) in the section heading, by striking ``and adult''; and
       (2) in the first sentence of subsection (a), by striking 
     ``initiate, maintain, and expand'' and inserting ``initiate 
     and maintain''.
       (b) Payments to Sponsor Employees.--Paragraph (2) of the 
     last sentence of section 17(a) of the Act (42 U.S.C. 1766(a)) 
     is amended--
       (1) by striking ``and'' at the end of subparagraph (B);
       (2) by striking the period at the end of subparagraph (C) 
     and inserting ``; and''; and
       (3) by adding at the end the following:
       ``(D) in the case of a family or group day care home 
     sponsoring organization that employs more than 1 employee, 
     the organization does not base payments to an employee of the 
     organization on the number of family or group day care homes 
     recruited, managed, or monitored.''.
       (c) Technical Assistance.--The last sentence of section 
     17(d)(1) of the Act is amended by striking ``, and shall 
     provide technical assistance'' and all that follows through 
     ``its application''.
       (d) Reimbursement of Child Care Institutions.--Section 
     17(f)(2)(B) of the Act (42 U.S.C. 1766(f)(2)(B)) is amended 
     by striking ``two meals and two supplements or three meals 
     and one supplement'' and inserting ``two meals and one 
     supplement''.
       (e) Improved Targeting of Day Care Home Reimbursements.--
       (1) Restructured day care home reimbursements.--Section 
     17(f)(3) of the Act is amended by striking ``(3)(A) 
     Institutions'' and all that follows through the end of 
     subparagraph (A) and inserting the following:
       ``(3) Reimbursement of family or group day care home 
     sponsoring organizations.--
       ``(A) Reimbursement factor.--
       ``(i) In general.--An institution that participates in the 
     program under this section as a family or group day care home 
     sponsoring organization shall be provided, for payment to a 
     home sponsored by the organization, reimbursement factors in 
     accordance with this subparagraph for the cost of obtaining 
     and preparing food and prescribed labor costs involved in 
     providing meals under this section.
       ``(ii) Tier i family or group day care homes.--

       ``(I) Definition.--In this paragraph, the term `tier I 
     family or group day care home' means--

       ``(aa) a family or group day care home that is located in a 
     geographic area, as defined by the Secretary based on census 
     data, in which at least 50 percent of the children residing 
     in the area are members of households whose incomes meet the 
     income eligibility guidelines for free or reduced price meals 
     under section 9;
       ``(bb) a family or group day care home that is located in 
     an area served by a school enrolling elementary students in 
     which at least 50 percent of the total number of children 
     enrolled are certified eligible to receive free or reduced 
     price school meals under this Act or the Child Nutrition Act 
     of 1966 (42 U.S.C. 1771 et seq.); or
       ``(cc) a family or group day care home that is operated by 
     a provider whose household meets the income eligibility 
     guidelines for free or reduced price meals under section 9 
     and whose income is verified by the sponsoring organization 
     of the home under regulations established by the Secretary.

       ``(II) Reimbursement.--Except as provided in subclause 
     (III), a tier I family or group day care home shall be 
     provided reimbursement factors under this clause without a 
     requirement for documentation of the costs described in 
     clause (i), except that reimbursement shall not be provided 
     under this subclause for meals or supplements served to the 
     children of a person acting as a family or group day care 
     home provider unless the children meet the income eligibility 
     guidelines for free or reduced price meals under section 9.
       ``(III) Factors.--Except as provided in subclause (IV), the 
     reimbursement factors applied to a home referred to in 
     subclause (II) shall be the factors in effect on the date of 
     enactment of this subclause.
       ``(IV) Adjustments.--The reimbursement factors under this 
     subparagraph shall be adjusted on August 1, 1996, July 1, 
     1997, and each July 1 thereafter, to reflect changes in the 
     Consumer Price Index for food at home for the most recent 12-
     month period for which the data are available. The 
     reimbursement factors under this subparagraph shall be 
     rounded to the nearest lower cent increment and based on the 
     unrounded adjustment in effect on June 30 of the preceding 
     school year.

       ``(iii) Tier ii family or group day care homes.--

       ``(I) In general.--

       ``(aa) Factors.--Except as provided in subclause (II), with 
     respect to meals or supplements served under this clause by a 
     family or group day care home that does not meet the criteria 
     set forth in clause (ii)(I), the reimbursement factors shall 
     be 90 cents for lunches and suppers, 25 cents for breakfasts, 
     and 10 cents for supplements.
       ``(bb) Adjustments.--The factors shall be adjusted on July 
     1, 1997, and each July 1 thereafter, to reflect changes in 
     the Consumer Price Index for food at home for the most recent 
     12-month period for which the data are available. The 
     reimbursement factors under this item shall be rounded down 
     to the nearest lower cent increment and based on the 
     unrounded adjustment for the preceding 12-month period.
       ``(cc) Reimbursement.--A family or group day care home 
     shall be provided reimbursement factors under this subclause 
     without a requirement for documentation of the costs 
     described in clause (i), except that reimbursement shall not 
     be provided under this subclause for meals or supplements 
     served to the children of a person acting as a family or 
     group day care home provider unless the children meet the 
     income eligibility guidelines for free or reduced price meals 
     under section 9.

       ``(II) Other factors.--A family or group day care home that 
     does not meet the criteria set forth in clause (ii)(I) may 
     elect to be provided reimbursement factors determined in 
     accordance with the following requirements:

       ``(aa) Children eligible for free or reduced price meals.--
     In the case of meals or supplements served under this 
     subsection to children who are members of households whose 
     incomes meet the income eligibility guidelines for free or 
     reduced price meals under section 9, the family or group day 
     care home shall be provided reimbursement factors set by the 
     Secretary in accordance with clause (ii)(III).
       ``(bb) Ineligible children.--In the case of meals or 
     supplements served under this subsection to children who are 
     members of households whose incomes do not meet the income 
     eligibility guidelines, the family or group day care home 
     shall be provided reimbursement factors in accordance with 
     subclause (I).

       ``(III) Information and determinations.--

       ``(aa) In general.--If a family or group day care home 
     elects to claim the factors described in subclause (II), the 
     family or group day care home sponsoring organization serving 
     the home shall collect the necessary income information, as 
     determined by the Secretary, from any parent or other 
     caretaker to make the determinations specified in subclause 
     (II) and shall make the determinations in accordance with 
     rules prescribed by the Secretary.
       ``(bb) Categorical eligibility.--In making a determination 
     under item (aa), a family or group day care home sponsoring 
     organization 

[[Page H 12737]]
     may consider a child participating in or subsidized under, or a child 
     with a parent participating in or subsidized under, a 
     federally or State supported child care or other benefit 
     program with an income eligibility limit that does not exceed 
     the eligibility standard for free or reduced price meals 
     under section 9 to be a child who is a member of a household 
     whose income meets the income eligibility guidelines under 
     section 9.
       ``(cc) Factors for children only.--A family or group day 
     care home may elect to receive the reimbursement factors 
     prescribed under clause (ii)(III) solely for the children 
     participating in a program referred to in item (bb) if the 
     home elects not to have income statements collected from 
     parents or other caretakers.

       ``(IV) Simplified meal counting and reporting procedures.--
     The Secretary shall prescribe simplified meal counting and 
     reporting procedures for use by a family or group day care 
     home that elects to claim the factors under subclause (II) 
     and by a family or group day care home sponsoring 
     organization that sponsors the home. The procedures the 
     Secretary prescribes may include 1 or more of the following:

       ``(aa) Setting an annual percentage for each home of the 
     number of meals served that are to be reimbursed in 
     accordance with the reimbursement factors prescribed under 
     clause (ii)(III) and an annual percentage of the number of 
     meals served that are to be reimbursed in accordance with the 
     reimbursement factors prescribed under subclause (I), based 
     on the family income of children enrolled in the home in a 
     specified month or other period.
       ``(bb) Placing a home into 1 of 2 or more reimbursement 
     categories annually based on the percentage of children in 
     the home whose households have incomes that meet the income 
     eligibility guidelines under section 9, with each such 
     reimbursement category carrying a set of reimbursement 
     factors such as the factors prescribed under clause (ii)(III) 
     or subclause (I) or factors established within the range of 
     factors prescribed under clause (ii)(III) and subclause (I).
       ``(cc) Such other simplified procedures as the Secretary 
     may prescribe.

       ``(V) Minimum verification requirements.--The Secretary may 
     establish any necessary minimum verification requirements.''.

       (2) Grants to states to provide assistance to family or 
     group day care homes.--Section 17(f)(3) of the Act is amended 
     by adding at the end the following:
       ``(D) Grants to states to provide assistance to family or 
     group day care homes.--
       ``(i) In general.--

       ``(I) Reservation.--From amounts made available to carry 
     out this section, the Secretary shall reserve $5,000,000 of 
     the amount made available for fiscal year 1996.
       ``(II) Purpose.--The Secretary shall use the funds made 
     available under subclause (I) to provide grants to States for 
     the purpose of providing--

       ``(aa) assistance, including grants, to family and day care 
     home sponsoring organizations and other appropriate 
     organizations, in securing and providing training, materials, 
     automated data processing assistance, and other assistance 
     for the staff of the sponsoring organizations; and
       ``(bb) training and other assistance to family and group 
     day care homes in the implementation of the amendment to 
     subparagraph (A) made by section 12907(e)(1) of the Balanced 
     Budget Act of 1995.
       ``(ii) Allocation.--The Secretary shall allocate from the 
     funds reserved under clause (i)(I)--

       ``(I) $30,000 in base funding to each State; and
       ``(II) any remaining amount among the States, based on the 
     number of family day care homes participating in the program 
     in a State during fiscal year 1994 as a percentage of the 
     number of all family day care homes participating in the 
     program during fiscal year 1994.

       ``(iii) Retention of funds.--Of the amount of funds made 
     available to a State for fiscal year 1996 under clause (i), 
     the State may retain not to exceed 30 percent of the amount 
     to carry out this subparagraph.
       ``(iv) Additional payments.--Any payments received under 
     this subparagraph shall be in addition to payments that a 
     State receives under subparagraph (A).''.
       (3) Provision of data.--Section 17(f)(3) of the Act (as 
     amended by paragraph (2)) is further amended by adding at the 
     end the following:
       ``(E) Provision of data to family or group day care home 
     sponsoring organizations.--
       ``(i) Census data.--The Secretary shall provide to each 
     State agency administering a child care food program under 
     this section data from the most recent decennial census 
     survey or other appropriate census survey for which the data 
     are available showing which areas in the State meet the 
     requirements of subparagraph (A)(ii)(I)(aa). The State agency 
     shall provide the data to family or group day care home 
     sponsoring organizations located in the State.
       ``(ii) School data.--

       ``(I) In general.--A State agency administering the school 
     lunch program under this Act or the school breakfast program 
     under the Child Nutrition Act of 1966 (42 U.S.C. 1771 et 
     seq.) shall provide to approved family or group day care home 
     sponsoring organizations a list of schools serving elementary 
     school children in the State in which not less than \1/2\ of 
     the children enrolled are certified to receive free or 
     reduced price meals. The State agency shall collect the data 
     necessary to create the list annually and provide the list on 
     a timely basis to any approved family or group day care home 
     sponsoring organization that requests the list.
       ``(II) Use of data from preceding school year.--In 
     determining for a fiscal year or other annual period whether 
     a home qualifies as a tier I family or group day care home 
     under subparagraph (A)(ii)(I), the State agency administering 
     the program under this section, and a family or group day 
     care home sponsoring organization, shall use the most current 
     available data at the time of the determination.

       ``(iii) Duration of determination.--For purposes of this 
     section, a determination that a family or group day care home 
     is located in an area that qualifies the home as a tier I 
     family or group day care home (as the term is defined in 
     subparagraph (A)(ii)(I)), shall be in effect for 3 years 
     (unless the determination is made on the basis of census 
     data, in which case the determination shall remain in effect 
     until more recent census data are available) unless the State 
     agency determines that the area in which the home is located 
     no longer qualifies the home as a tier I family or group day 
     care home.''.
       (4) Conforming amendments.--Section 17(c) of the Act is 
     amended by inserting ``except as provided in subsection 
     (f)(3),'' after ``For purposes of this section,'' each place 
     it appears in paragraphs (1), (2), and (3).
       (f) Reimbursement.--Section 17(f) of the Act is amended--
       (1) in paragraph (3)--
       (A) in subparagraph (B), by striking the third and fourth 
     sentences; and
       (B) in subparagraph (C)--
       (i) in clause (i)--

       (I) by striking ``(i)'';
       (II) in the first sentence, by striking ``and expansion 
     funds'' and all that follows through ``rural areas'';
       (III) by striking the second sentence; and
       (IV) by striking ``and expansion funds'' each place it 
     appears; and

       (ii) by striking clause (ii); and
       (2) by striking paragraph (4).
       (g) Elimination of State Paperwork and Outreach Burden.--
     Section 17 of the Act is amended by striking subsection (k) 
     and inserting the following:
       ``(k) Training and Technical Assistance.--A State 
     participating in the program established under this section 
     shall provide sufficient training, technical assistance, and 
     monitoring to facilitate effective operation of the program. 
     The Secretary shall assist the State in developing plans to 
     fulfill the requirements of this subsection.''.
       (h) Modification of Adult Care Food Program.--Section 17(o) 
     of the Act is amended--
       (1) in the first sentence of paragraph (1)--
       (A) by striking ``adult day care centers'' and inserting 
     ``day care centers for chronically impaired disabled 
     persons'' ; and
       (B) by striking ``to persons 60 years of age or older or''; 
     and
       (2) in paragraph (2)--
       (A) in subparagraph (A)--
       (i) by striking ``adult day care center'' and inserting 
     ``day care center for chronically impaired disabled 
     persons''; and
       (ii) in clause (i)--

       (I) by striking ``adult'';
       (II) by striking ``adults'' and inserting ``persons''; and
       (III) by striking ``or persons 60 years of age or older''; 
     and

       (B) in subparagraph (B), by striking ``adult day care 
     services'' and inserting ``day care services for chronically 
     impaired disabled persons''.
       (i) Unneeded Provisions.--Section 17 of the Act is 
     amended--
       (1) by striking subsections (b) and (q);
       (2) by redesignating subsections (c) through (p), as so 
     amended, as subsections (b) through (o), respectively; and
       (3) in subsection (e), as redesignated by paragraph (2)--
       (A) in paragraph (2)(A), by striking ``subsection (c)'' and 
     inserting ``subsection (b)''; and
       (B) in paragraph (3)(C), by striking ``subsection (d)'' and 
     inserting ``subsection (c)''.
       (j) Conforming Amendments.--
       (1) Section 11(a)(3)(A)(iv) of the Act (42 U.S.C. 
     1759a(a)(3)(A)(iv)) is amended by striking ``17(c)'' and 
     inserting ``17(b)''.
       (2) Section 17A(c) of the Act (42 U.S.C. 1766a(c)) is 
     amended by striking ``17(c)(3)'' and inserting ``17(b)(3)''.
       (3) Section 17B(f) of the Act (42 U.S.C. 1766b(f)) is 
     amended--
       (A) in the subsection heading, by striking ``and Adult''; 
     and
       (B) in paragraph (1), by striking ``and adult''.
       (4) Section 18(e)(3)(B) of the Act (42 U.S.C. 
     1769(e)(3)(B)) is amended by striking ``and adult''.
       (5) Section 25(b)(1)(C) of the Act (42 U.S.C. 
     1769f(b)(1)(C)) is amended by striking ``and adult''.
       (6) Section 3(1) of the Healthy Meals for Healthy Americans 
     Act of 1994 (Public Law 103-448) is amended by striking ``and 
     adult''.
       (k) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall become effective on the 
     date of enactment of this Act.
       (2) Improved targeting of day care home reimbursements.--
     The amendments made by paragraphs (1), (3), and (4) of 
     subsection (e) shall become effective on August 1, 1996.
       (3) Regulations.--
       (A) Interim regulations.--Not later than February 1, 1996, 
     the Secretary shall issue interim regulations to implement--
       (i) the amendments made by paragraphs (1), (3), and (4) of 
     subsection (e); and
       (ii) section 17(f)(3)(C) of the National School Lunch Act 
     (42 U.S.C. 1766(f)(3)(C)).
       (B) Final regulations.--Not later than August 1, 1996, the 
     Secretary shall issue final regulations to implement the 
     provisions of law referred to in subparagraph (A).
       (l) Study of Impact of Amendments on Program Participation 
     and Family Day Care Licensing.--
       (1) In general.--The Secretary of Agriculture, in 
     conjunction with the Secretary of Health and Human Services, 
     shall study the impact of the amendments made by this section 
     on--

[[Page H 12738]]

       (A) the number of family day care homes participating in 
     the child care food program established under section 17 of 
     the National School Lunch Act (42 U.S.C. 1766);
       (B) the number of day care home sponsoring organizations 
     participating in the program;
       (C) the number of day care homes that are licensed, 
     certified, registered, or approved by each State in 
     accordance with regulations issued by the Secretary;
       (D) the rate of growth of the numbers referred to in 
     subparagraphs (A) through (C);
       (E) the nutritional adequacy and quality of meals served in 
     family day care homes that--
       (i) received reimbursement under the program prior to the 
     amendments made by this section but do not receive 
     reimbursement after the amendments made by this section; or
       (ii) received full reimbursement under the program prior to 
     the amendments made by this section but do not receive full 
     reimbursement after the amendments made by this section; and
       (F) the proportion of low-income children participating in 
     the program prior to the amendments made by this section and 
     the proportion of low-income children participating in the 
     program after the amendments made by this section.
       (2) Required data.--Each State agency participating in the 
     child care food program under section 17 of the National 
     School Lunch Act (42 U.S.C. 1766) shall submit to the 
     Secretary data on--
       (A) the number of family day care homes participating in 
     the program on July 31, 1996, and July 31, 1997;
       (B) the number of family day care homes licensed, 
     certified, registered, or approved for service on July 31, 
     1996, and July 31, 1997; and
       (C) such other data as the Secretary may require to carry 
     out this subsection.

     SEC. 12908. PILOT PROJECTS.

       (a) Universal Free Pilot.--Section 18(d) of the National 
     School Lunch Act (42 U.S.C. 1769(d)) is amended--
       (1) by striking paragraph (3); and
       (2) by redesignating paragraphs (4) and (5) as paragraphs 
     (3) and (4), respectively.
       (b) Demo Project Outside School Hours.--Section 18(e) of 
     the Act is amended--
       (1) in paragraph (1)--
       (A) in subparagraph (A)--
       (i) by striking ``(A)''; and
       (ii) by striking ``shall'' and inserting ``may''; and
       (B) by striking subparagraph (B); and
       (2) by striking paragraph (5) and inserting the following:
       ``(5) Authorization of appropriations.--There are 
     authorized to be appropriated to carry out this subsection 
     such sums as are necessary for each of fiscal years 1997 and 
     1998.''.

     SEC. 12909. INFORMATION CLEARINGHOUSE.

       Section 26 of the National School Lunch Act (42 U.S.C. 
     1769g) is repealed.

                     CHAPTER 2--CHILD NUTRITION ACT

     SEC. 12921. SPECIAL MILK PROGRAM.

       (a) In General.--Section 3(a) of the Child Nutrition Act of 
     1966 (42 U.S.C. 1772(a)) is amended--
       (1) in paragraph (3), by striking ``the Trust Territory of 
     the Pacific Islands'' and inserting ``the Commonwealth of the 
     Northern Mariana Islands''; and
       (2) by striking paragraph (8) and inserting the following:
       ``(8) Adjustments.--
       ``(A) In general.--Except as otherwise provided in this 
     paragraph, in the case of each school year, the Secretary 
     shall--
       ``(i) base the adjustment made under paragraph (7) on the 
     amount of the unrounded adjustment for the preceding school 
     year;
       ``(ii) adjust the resulting amount in accordance with 
     paragraph (7); and
       ``(iii) round the result to the nearest lower cent 
     increment.
       ``(B) Adjustment on january 1, 1996.--On January 1, 1996, 
     the Secretary shall adjust the minimum rate for the remainder 
     of the school year by rounding the previously established 
     minimum rate to the nearest lower cent increment.
       ``(C) Adjustment for 24-month period beginning july 1, 
     1996.--In the case of the 24-month period beginning July 1, 
     1996, the minimum rate shall be the same as the minimum rate 
     in effect on June 30, 1996.
       ``(D) Adjustment for school year beginning july 1, 1998.--
     In the case of the school year beginning July 1, 1998, the 
     Secretary shall--
       ``(i) base the adjustment made under paragraph (7) on the 
     amount of the unrounded adjustment for the minimum rate for 
     the school year beginning July 1, 1995;
       ``(ii) adjust the resulting amount to reflect changes in 
     the Producer Price Index for Fresh Processed Milk published 
     by the Bureau of Labor Statistics of the Department of Labor 
     for the most recent 12-month period for which the data are 
     available; and
       ``(iii) round the result to the nearest lower cent 
     increment.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall become effective on January 1, 1996.

     SEC. 12922. FREE AND REDUCED PRICE BREAKFASTS.

       (a) In General.--Section 4(b) of the Child Nutrition Act of 
     1966 (42 U.S.C. 1773(b)) is amended--
       (1) in the second sentence of paragraph (1)(B), by striking 
     ``, adjusted to the nearest one-fourth cent'' and inserting 
     ``(as adjusted pursuant to section 11(a) of the National 
     School Lunch Act (42 U.S.C. 1759a(a))''; and
       (2) in paragraph (2)(B)(ii)--
       (A) by striking ``nearest one-fourth cent'' and inserting 
     ``nearest lower cent increment for the applicable school 
     year''; and
       (B) by inserting before the period at the end the 
     following: ``, and the adjustment required by this clause 
     shall be based on the unrounded adjustment for the preceding 
     school year''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall become effective on July 1, 1996.

     SEC. 12923. CONFORMING REIMBURSEMENT FOR PAID BREAKFASTS AND 
                   LUNCHES.

       (a) In General.--The last sentence of section 4(b)(1)(B) of 
     the Child Nutrition Act of 1966 (42 U.S.C. 1773(b)(1)(B)) is 
     amended by striking ``8.25 cents'' and all that follows 
     through ``Act)'' and inserting ``the same as the national 
     average lunch payment for paid meals established under 
     section 4(b) of the National School Lunch Act (42 U.S.C. 
     1753(b))''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall become effective on January 1, 1996.

     SEC. 12924. SCHOOL BREAKFAST PROGRAM AUTHORIZATION.

       Section 4 of the Child Nutrition Act of 1966 (42 U.S.C. 
     1773) is amended by striking subsections (f) and (g).

     SEC. 12925. MISCELLANEOUS PROVISIONS AND DEFINITIONS.

       Section 15 of the Child Nutrition Act of 1966 (42 U.S.C. 
     1784) is amended--
       (1) in paragraph (1), by striking ``the Trust Territory of 
     the Pacific Islands'' and inserting ``the Commonwealth of the 
     Northern Mariana Islands''; and
       (2) in the first sentence of paragraph (3)--
       (A) in subparagraph (A), by inserting ``and'' at the end; 
     and
       (B) by striking ``, and (C)'' and all that follows through 
     ``Governor of Puerto Rico''.

     SEC. 12926. NUTRITION EDUCATION AND TRAINING.

       (a) Use of Funds.--Section 19(f) of the Child Nutrition Act 
     of 1966 (42 U.S.C. 1788(f)) is amended--
       (1) in paragraph (1)--
       (A) by striking subparagraph (B); and
       (B) in subparagraph (A)--
       (i) by striking ``(A)'';
       (ii) by striking clauses (ix) through (xix);
       (iii) by redesignating clauses (i) through (viii) and (xx) 
     as subparagraphs (A) through (H) and (I), respectively; and
       (iv) in subparagraph (H), as so redesignated, by inserting 
     ``and'' at the end;
       (2) by striking paragraphs (2) and (4); and
       (3) by redesignating paragraph (3) as paragraph (2).
       (b) Authorization of Appropriations.--Section 19(i) of the 
     Act is amended--
       (1) in the first sentence of paragraph (2)(A), by striking 
     ``and each succeeding fiscal year'';
       (2) by redesignating paragraphs (3) and (4) as paragraphs 
     (4) and (5), respectively; and
       (3) by inserting after paragraph (2) the following:
       ``(2) Fiscal years 1997 through 2002.--
       ``(A) In general.--There are authorized to be appropriated 
     to carry out this section $10,000,000 for each of fiscal 
     years 1997 through 2002.
       ``(B) Grants.--
       ``(i) In general.--Grants to each State from the amounts 
     made available under subparagraph (A) shall be based on a 
     rate of 50 cents for each child enrolled in schools or 
     institutions within the State, except that no State shall 
     receive an amount less than $75,000 per fiscal year.
       ``(ii) Insufficient funds.--If the amount made available 
     for any fiscal year is insufficient to pay the amount to 
     which each State is entitled under clause (i), the amount of 
     each grant shall be ratably reduced.''.
           Subtitle J--Food Stamps and Commodity Distribution

     SEC. 13001. SHORT TITLE.

       This subtitle may be cited as the ``Food Stamp Reform and 
     Commodity Distribution Act of 1995''.

                     CHAPTER 1--FOOD STAMP PROGRAM

     SEC. 13011. DEFINITION OF CERTIFICATION PERIOD.

       Section 3(c) of the Food Stamp Act of 1977 (7 U.S.C. 
     2012(c)) is amended by striking ``Except as provided'' and 
     all that follows and inserting the following: ``The 
     certification period shall not exceed 12 months, except that 
     the certification period may be up to 24 months if all adult 
     household members are elderly or disabled. A State agency 
     shall have at least 1 contact with each certified household 
     every 12 months.''.

     SEC. 13012. DEFINITION OF COUPON.

       Section 3(d) of the Food Stamp Act of 1977 (7 U.S.C. 
     2012(d)) is amended by striking ``or type of certificate'' 
     and inserting ``type of certificate, authorization card, cash 
     or check issued in lieu of a coupon, or an access device, 
     including an electronic benefit transfer card or personal 
     identification number,''.

     SEC. 13013. TREATMENT OF CHILDREN LIVING AT HOME.

       The second sentence of section 3(i) of the Food Stamp Act 
     of 1977 (7 U.S.C. 2012(i)) is amended by striking ``(who are 
     not themselves parents living with their children or married 
     and living with their spouses)''.

     SEC. 13014. OPTIONAL ADDITIONAL CRITERIA FOR SEPARATE 
                   HOUSEHOLD DETERMINATIONS.

       Section 3(i) of the Food Stamp Act of 1977 (7 U.S.C. 
     2012(i)) is amended by inserting after the third sentence the 
     following: ``Notwithstanding the preceding sentences, a State 
     may establish criteria that prescribe when individuals who 
     live together, and who would be allowed to participate as 
     separate households under the preceding sentences, shall be 
     considered a single household, without regard to the common 
     purchase of food and preparation of meals.''.

     SEC. 13015. ADJUSTMENT OF THRIFTY FOOD PLAN.

       The second sentence of section 3(o) of the Food Stamp Act 
     of 1977 (7 U.S.C. 2012(o)) is amended--

[[Page H 12739]]

       (1) by striking ``shall (1) make'' and inserting the 
     following: ``shall--
       ``(1) make'';
       (2) by striking ``scale, (2) make'' and inserting ``scale;
       ``(2) make'';
       (3) by striking ``Alaska, (3) make'' and inserting the 
     following: ``Alaska;
       ``(3) make''; and
       (4) by striking ``Columbia, (4) through'' and all that 
     follows through the end of the subsection and inserting the 
     following: ``Columbia; and
       ``(4) on October 1, 1996, and each October 1 thereafter, 
     adjust the cost of the diet to reflect the cost of the diet, 
     in the preceding June, and round the result to the nearest 
     lower dollar increment for each household size, except that 
     on October 1, 1996, the Secretary may not reduce the cost of 
     the diet in effect on September 30, 1996.''.

     SEC. 13016. DEFINITION OF HOMELESS INDIVIDUAL.

       Section 3(s)(2)(C) of the Food Stamp Act of 1977 (7 U.S.C. 
     2012(s)(2)(C)) is amended by inserting ``for not more than 90 
     days'' after ``temporary accommodation''.

     SEC. 13017. STATE OPTION FOR ELIGIBILITY STANDARDS.

       Section 5(b) of the Food Stamp Act of 1977 (7 U.S.C. 
     2014(d)) is amended by striking ``(b) The Secretary'' and 
     inserting the following:
       ``(b) Eligibility Standards.--Except as otherwise provided 
     in this Act, the Secretary''.

     SEC. 13018. EARNINGS OF STUDENTS.

       Section 5(d)(7) of the Food Stamp Act of 1977 (7 U.S.C. 
     2014(d)(7)) is amended by striking ``21'' and inserting 
     ``19''.

     SEC. 13019. ENERGY ASSISTANCE.

       (a) In General.--Section 5(d) of the Food Stamp Act of 1977 
     (7 U.S.C. 2014(d)) is amended by striking paragraph (11) and 
     inserting the following: ``(11) a 1-time payment or allowance 
     made under a Federal or State law for the costs of 
     weatherization or emergency repair or replacement of an 
     unsafe or inoperative furnace or other heating or cooling 
     device,''.
       (b) Conforming Amendments.--
       (1) Section 5(k) of the Act (7 U.S.C. 2014(k)) is amended--
       (A) in paragraph (1)--
       (i) in subparagraph (A), by striking ``plan for aid to 
     families with dependent children approved'' and inserting 
     ``program funded''; and
       (ii) in subparagraph (B), by striking ``, not including 
     energy or utility-cost assistance,'';
       (B) in paragraph (2), by striking subparagraph (C) and 
     inserting the following:
       ``(C) a payment or allowance described in subsection 
     (d)(11);''; and
       (C) by adding at the end the following:
       ``(4) Third party energy assistance payments.--
       ``(A) Energy assistance payments.--For purposes of 
     subsection (d)(1), a payment made under a Federal or State 
     law to provide energy assistance to a household shall be 
     considered money payable directly to the household.
       ``(B) Energy assistance expenses.--For purposes of 
     subsection (e)(7), an expense paid on behalf of a household 
     under a Federal or State law to provide energy assistance 
     shall be considered an out-of-pocket expense incurred and 
     paid by the household.''.
       (2) Section 2605(f) of the Low-Income Home Energy 
     Assistance Act of 1981 (42 U.S.C. 8624(f)) is amended--
       (A) by striking ``(f)(1) Notwithstanding'' and inserting 
     ``(f) Notwithstanding'';
       (B) in paragraph (1), by striking ``food stamps,''; and
       (C) by striking paragraph (2).

     SEC. 13020. DEDUCTIONS FROM INCOME.

       (a) In General.--Section 5 of the Food Stamp Act of 1977 (7 
     U.S.C. 2014) is amended by striking subsection (e) and 
     inserting the following:
       ``(e) Deductions From Income.--
       ``(1) Standard deduction.--The Secretary shall allow a 
     standard deduction for each household in the 48 contiguous 
     States and the District of Columbia, Alaska, Hawaii, Guam, 
     and the Virgin Islands of the United States of $134, $229, 
     $189, $269, and $118, respectively.
       ``(2) Earned income deduction.--
       ``(A) Definition of earned income.--In this paragraph, the 
     term `earned income' does not include income excluded by 
     subsection (d) or any portion of income earned under a work 
     supplementation or support program, as defined under section 
     16(b), that is attributable to public assistance.
       ``(B) Deduction.--Except as provided in subparagraph (C), a 
     household with earned income shall be allowed a deduction of 
     20 percent of all earned income (other than income excluded 
     by subsection (d)) to compensate for taxes, other mandatory 
     deductions from salary, and work expenses.
       ``(C) Exception.--The deduction described in subparagraph 
     (B) shall not be allowed with respect to determining an 
     overissuance due to the failure of a household to report 
     earned income in a timely manner.
       ``(3) Dependent care deduction.--
       ``(A) In general.--A household shall be entitled, with 
     respect to expenses (other than excluded expenses described 
     in subparagraph (B)) for dependent care, to a dependent care 
     deduction, the maximum allowable level of which shall be $200 
     per month for each dependent child under 2 years of age and 
     $175 per month for each other dependent, for the actual cost 
     of payments necessary for the care of a dependent if the care 
     enables a household member to accept or continue employment, 
     or training or education that is preparatory for employment.
       ``(B) Excluded expenses.--The excluded expenses referred to 
     in subparagraph (A) are--
       ``(i) expenses paid on behalf of the household by a third 
     party;
       ``(ii) amounts made available and excluded for the expenses 
     referred to in subparagraph (A) under subsection (d)(3); and
       ``(iii) expenses that are paid under section 6(d)(4).
       ``(4) Deduction for child support payments.--
       ``(A) In general.--A household shall be entitled to a 
     deduction for child support payments made by a household 
     member to or for an individual who is not a member of the 
     household if the household member is legally obligated to 
     make the payments.
       ``(B) Methods for determining amount.--The Secretary may 
     prescribe by regulation the methods, including calculation on 
     a retrospective basis, that a State agency shall use to 
     determine the amount of the deduction for child support 
     payments.
       ``(5) Homeless shelter allowance.--A State agency may 
     develop a standard homeless shelter allowance, which shall 
     not exceed $139 per month, for such expenses as may 
     reasonably be expected to be incurred by households in which 
     all members are homeless individuals but are not receiving 
     free shelter throughout the month. A State agency that 
     develops the allowance may use the allowance in determining 
     eligibility and allotments for the households, except that 
     the State agency may prohibit the use of the allowance for 
     households with extremely low shelter costs.
       ``(6) Excess medical expense deduction.--
       ``(A) In general.--A household containing an elderly or 
     disabled member shall be entitled, with respect to expenses 
     other than expenses paid on behalf of the household by a 
     third party, to an excess medical expense deduction for the 
     portion of the actual costs of allowable medical expenses, 
     incurred by the elderly or disabled member, exclusive of 
     special diets, that exceeds $35 per month.
       ``(B) Method of claiming deduction.--
       ``(i) In general.--A State agency shall offer an eligible 
     household under subparagraph (A) a method of claiming a 
     deduction for recurring medical expenses that are initially 
     verified under the excess medical expense deduction in lieu 
     of submitting information or verification on actual expenses 
     on a monthly basis.
       ``(ii) Method.--The method described in clause (i) shall--

       ``(I) be designed to minimize the burden for the eligible 
     elderly or disabled household member choosing to deduct the 
     recurrent medical expenses of the member pursuant to the 
     method;
       ``(II) rely on reasonable estimates of the expected medical 
     expenses of the member for the certification period 
     (including changes that can be reasonably anticipated based 
     on available information about the medical condition of the 
     member, public or private medical insurance coverage, and the 
     current verified medical expenses incurred by the member); 
     and
       ``(III) not require further reporting or verification of a 
     change in medical expenses if such a change has been 
     anticipated for the certification period.

       ``(7) Excess shelter expense deduction.--
       ``(A) In general.--A household shall be entitled, with 
     respect to expenses other than expenses paid on behalf of the 
     household by a third party, to an excess shelter expense 
     deduction to the extent that the monthly amount expended by a 
     household for shelter exceeds an amount equal to 50 percent 
     of monthly household income after all other applicable 
     deductions have been allowed.
       ``(B) Maximum amount of deduction.--In the case of a 
     household that does not contain an elderly or disabled 
     individual, the excess shelter expense deduction shall not 
     exceed--
       ``(i) in the 48 contiguous States and the District of 
     Columbia, $247 per month; and
       ``(ii) in Alaska, Hawaii, Guam, and the Virgin Islands of 
     the United States, $429, $353, $300, and $182 per month, 
     respectively.
       ``(C) Standard utility allowance.--
       ``(i) In general.--In computing the excess shelter expense 
     deduction, a State agency may use a standard utility 
     allowance in accordance with regulations promulgated by the 
     Secretary, except that a State agency may use an allowance 
     that does not fluctuate within a year to reflect seasonal 
     variations.
       ``(ii) Restrictions on heating and cooling expenses.--An 
     allowance for a heating or cooling expense may not be used in 
     the case of a household that--

       ``(I) does not incur a heating or cooling expense, as the 
     case may be;
       ``(II) does incur a heating or cooling expense but is 
     located in a public housing unit that has central utility 
     meters and charges households, with regard to the expense, 
     only for excess utility costs; or
       ``(III) shares the expense with, and lives with, another 
     individual not participating in the food stamp program, 
     another household participating in the food stamp program, or 
     both, unless the allowance is prorated between the household 
     and the other individual, household, or both.

       ``(iii) Mandatory allowance.--

       ``(I) In general.--A State agency may make the use of a 
     standard utility allowance mandatory for all households with 
     qualifying utility costs if--

       ``(aa) the State agency has developed 1 or more standards 
     that include the cost of heating and cooling and 1 or more 
     standards that do not include the cost of heating and 
     cooling; and
       ``(bb) the Secretary finds that the standards will not 
     result in an increased cost to the Secretary.

       ``(II) Household election.--A State agency that has not 
     made the use of a standard utility allowance mandatory under 
     subclause (I) shall allow a household to switch, at the end 
     of a certification period, between the standard utility 
     allowance and a deduction based on the actual utility costs 
     of the household.

       ``(iv) Availability of allowance to recipients of energy 
     assistance.--

[[Page H 12740]]


       ``(I) In general.--Subject to subclause (II), if a State 
     agency elects to use a standard utility allowance that 
     reflects heating or cooling costs, the standard utility 
     allowance shall be made available to households receiving a 
     payment, or on behalf of which a payment is made, under the 
     Low-Income Home Energy Assistance Act of 1981 (42 U.S.C. 8621 
     et seq.) or other similar energy assistance program, if the 
     household still incurs out-of-pocket heating or cooling 
     expenses in excess of any assistance paid on behalf of the 
     household to an energy provider.
       ``(II) Separate allowance.--A State agency may use a 
     separate standard utility allowance for households on behalf 
     of which a payment described in subclause (I) is made, but 
     may not be required to do so.
       ``(III) States not electing to use separate allowance.--A 
     State agency that does not elect to use a separate allowance 
     but makes a single standard utility allowance available to 
     households incurring heating or cooling expenses (other than 
     a household described in subclause (I) or (II) of 
     subparagraph (C)(ii)) may not be required to reduce the 
     allowance due to the provision (directly or indirectly) of 
     assistance under the Low-Income Home Energy Assistance Act of 
     1981 (42 U.S.C. 8621 et seq.).
       ``(IV) Proration of assistance.--For the purpose of the 
     food stamp program, assistance provided under the Low-Income 
     Home Energy Assistance Act of 1981 (42 U.S.C. 8621 et seq.) 
     shall be considered to be prorated over the entire heating or 
     cooling season for which the assistance was provided.''.

       (b) Conforming Amendment.--Section 11(e)(3) of the Act (7 
     U.S.C. 2020(e)(3)) is amended by striking ``. Under rules 
     prescribed'' and all that follows through ``verifies higher 
     expenses''.

     SEC. 13021. VEHICLE ALLOWANCE.

       Section 5(g) of the Food Stamp Act of 1977 (7 U.S.C. 
     2014(g)) is amended by striking paragraph (2) and inserting 
     the following:
       ``(2) Included assets.--
       ``(A) In general.--Subject to the other provisions of this 
     paragraph, the Secretary shall, in prescribing inclusions in, 
     and exclusions from, financial resources, follow the 
     regulations in force as of June 1, 1982 (other than those 
     relating to licensed vehicles and inaccessible resources).
       ``(B) Additional included assets.--The Secretary shall 
     include in financial resources--
       ``(i) any boat, snowmobile, or airplane used for 
     recreational purposes;
       ``(ii) any vacation home;
       ``(iii) any mobile home used primarily for vacation 
     purposes;
       ``(iv) subject to subparagraph (C), any licensed vehicle 
     that is used for household transportation or to obtain or 
     continue employment to the extent that the fair market value 
     of the vehicle exceeds $4,600; and
       ``(v) any savings or retirement account (including an 
     individual account), regardless of whether there is a penalty 
     for early withdrawal.
       ``(C) Excluded vehicles.--A vehicle (and any other 
     property, real or personal, to the extent the property is 
     directly related to the maintenance or use of the vehicle) 
     shall not be included in financial resources under this 
     paragraph if the vehicle is--
       ``(i) used to produce earned income;
       ``(ii) is necessary for the transportation of a physically 
     disabled household member; or
       ``(iii) is depended on by a household to carry fuel for 
     heating or water for home use and provides the primary source 
     of fuel or water, respectively, for the household.''.

     SEC. 13022. VENDOR PAYMENTS FOR TRANSITIONAL HOUSING COUNTED 
                   AS INCOME.

       Section 5(k)(2) of the Food Stamp Act of 1977 (7 U.S.C. 
     2014(k)(2)) is amended--
       (1) by striking subparagraph (F); and
       (2) by redesignating subparagraphs (G) and (H) as 
     subparagraphs (F) and (G), respectively.

     SEC. 13023. DOUBLED PENALTIES FOR VIOLATING FOOD STAMP 
                   PROGRAM REQUIREMENTS.

       Section 6(b)(1) of the Food Stamp Act of 1977 (7 U.S.C. 
     2015(b)(1)) is amended--
       (1) in clause (i), by striking ``six months'' and inserting 
     ``1 year''; and
       (2) in clause (ii), by striking ``1 year'' and inserting 
     ``2 years''.

     SEC. 13024. DISQUALIFICATION OF CONVICTED INDIVIDUALS.

       Section 6(b)(1)(iii) of the Food Stamp Act of 1977 (7 
     U.S.C. 2015(b)(1)(iii)) is amended--
       (1) in subclause (II), by striking ``or'' at the end;
       (2) in subclause (III), by striking the period at the end 
     and inserting ``; or''; and
       (3) by inserting after subclause (III) the following:
       ``(IV) a conviction of an offense under subsection (b) or 
     (c) of section 15 involving an item covered by subsection (b) 
     or (c) of section 15 having a value of $500 or more.''.

     SEC. 13025. DISQUALIFICATION.

       (a) In General.--Section 6(d) of the Food Stamp Act of 1977 
     (7 U.S.C. 2015(d)) is amended by striking ``(d)(1) Unless 
     otherwise exempted by the provisions'' and all that follows 
     through the end of paragraph (1) and inserting the following:
       ``(d) Conditions of Participation.--
       ``(1) Work requirements.--
       ``(A) In general.--No physically and mentally fit 
     individual over the age of 15 and under the age of 60 shall 
     be eligible to participate in the food stamp program if the 
     individual--
       ``(i) refuses, at the time of application and every 12 
     months thereafter, to register for employment in a manner 
     prescribed by the Secretary;
       ``(ii) refuses without good cause to participate in an 
     employment and training program under paragraph (4), to the 
     extent required by the State agency;
       ``(iii) refuses without good cause to accept an offer of 
     employment, at a site or plant not subject to a strike or 
     lockout at the time of the refusal, at a wage not less than 
     the higher of--

       ``(I) the applicable Federal or State minimum wage; or
       ``(II) 80 percent of the wage that would have governed had 
     the minimum hourly rate under section 6(a)(1) of the Fair 
     Labor Standards Act of 1938 (29 U.S.C. 206(a)(1)) been 
     applicable to the offer of employment;

       ``(iv) refuses without good cause to provide a State agency 
     with sufficient information to allow the State agency to 
     determine the employment status or the job availability of 
     the individual;
       ``(v) voluntarily and without good cause--

       ``(I) quits a job; or
       ``(II) reduces work effort and, after the reduction, the 
     individual is working less than 30 hours per week; or

       ``(vi) fails to comply with section 20.
       ``(B) Household ineligibility.--If an individual who is the 
     head of a household becomes ineligible to participate in the 
     food stamp program under subparagraph (A), the household 
     shall, at the option of the State agency, become ineligible 
     to participate in the food stamp program for a period, 
     determined by the State agency, that does not exceed the 
     lesser of--
       ``(i) the duration of the ineligibility of the individual 
     determined under subparagraph (C); or
       ``(ii) 180 days.
       ``(C) Duration of ineligibility.--
       ``(i) First violation.--The first time that an individual 
     becomes ineligible to participate in the food stamp program 
     under subparagraph (A), the individual shall remain 
     ineligible until the later of--

       ``(I) the date the individual becomes eligible under 
     subparagraph (A);
       ``(II) the date that is 1 month after the date the 
     individual became ineligible; or
       ``(III) a date determined by the State agency that is not 
     later than 3 months after the date the individual became 
     ineligible.

       ``(ii) Second violation.--The second time that an 
     individual becomes ineligible to participate in the food 
     stamp program under subparagraph (A), the individual shall 
     remain ineligible until the later of--

       ``(I) the date the individual becomes eligible under 
     subparagraph (A);
       ``(II) the date that is 3 months after the date the 
     individual became ineligible; or
       ``(III) a date determined by the State agency that is not 
     later than 6 months after the date the individual became 
     ineligible.

       ``(iii) Third or subsequent violation.--The third or 
     subsequent time that an individual becomes ineligible to 
     participate in the food stamp program under subparagraph (A), 
     the individual shall remain ineligible until the later of--

       ``(I) the date the individual becomes eligible under 
     subparagraph (A);
       ``(II) the date that is 6 months after the date the 
     individual became ineligible;
       ``(III) a date determined by the State agency; or
       ``(IV) at the option of the State agency, permanently.

       ``(D) Administration.--
       ``(i) Good cause.--The Secretary shall determine the 
     meaning of good cause for the purpose of this paragraph.
       ``(ii) Voluntary quit.--The Secretary shall determine the 
     meaning of voluntarily quitting and reducing work effort for 
     the purpose of this paragraph.
       ``(iii) Determination by state agency.--

       ``(I) In general.--Subject to subclause (II) and clauses 
     (i) and (ii), a State agency shall determine--

       ``(aa) the meaning of any term in subparagraph (A);
       ``(bb) the procedures for determining whether an individual 
     is in compliance with a requirement under subparagraph (A); 
     and
       ``(cc) whether an individual is in compliance with a 
     requirement under subparagraph (A).

       ``(II) Not less restrictive.--A State agency may not 
     determine a meaning, procedure, or determination under 
     subclause (I) to be less restrictive than a comparable 
     meaning, procedure, or determination under a State program 
     funded under part A of title IV of the Social Security Act 
     (42 U.S.C. 601 et seq.).

       ``(iv) Strike against the government.--For the purpose of 
     subparagraph (A)(v), an employee of the Federal Government, a 
     State, or a political subdivision of a State, who is 
     dismissed for participating in a strike against the Federal 
     Government, the State, or the political subdivision of the 
     State shall be considered to have voluntarily quit without 
     good cause.
       ``(v) Selecting a head of household.--

       ``(I) In general.--For the purpose of this paragraph, the 
     State agency shall allow the household to select any adult 
     parent of a child in the household as the head of the 
     household if all adult household members making application 
     under the food stamp program agree to the selection.
       ``(II) Time for making designation.--A household may 
     designate the head of the household under subclause (I) each 
     time the household is certified for participation in the food 
     stamp program, but may not change the designation during a 
     certification period unless there is a change in the 
     composition of the household.

       ``(vi) Change in head of household.--If the head of a 
     household leaves the household during a period in which the 
     household is ineligible to participate in the food stamp 
     program under subparagraph (B)--

       ``(I) the household shall, if otherwise eligible, become 
     eligible to participate in the food stamp program; and
       ``(II) if the head of the household becomes the head of 
     another household, the household that becomes headed by the 
     individual shall become ineligible to participate in the food 
     stamp program for the remaining period of ineligibility.''.

[[Page H 12741]]


       (b) Conforming Amendment.--
       (1) The second sentence of section 17(b)(2) of the Act (7 
     U.S.C. 2026(b)(2)) is amended by striking ``6(d)(1)(i)'' and 
     inserting ``6(d)(1)(A)(i)''.
       (2) Section 20 of the Act (7 U.S.C. 2029) is amended by 
     striking subsection (f) and inserting the following:
       ``(f) Disqualification.--An individual or a household may 
     become ineligible under section 6(d)(1) to participate in the 
     food stamp program for failing to comply with this 
     section.''.

     SEC. 13026. CARETAKER EXEMPTION.

       Section 6(d)(2) of the Food Stamp Act of 1977 (7 U.S.C. 
     2015(d)(2)) is amended by striking subparagraph (B) and 
     inserting the following: ``(B) a parent or other member of a 
     household with responsibility for the care of (i) a dependent 
     child under the age of 6 or any lower age designated by the 
     State agency that is not under the age of 1, or (ii) an 
     incapacitated person;''.

     SEC. 13027. EMPLOYMENT AND TRAINING.

       (a) In General.--Section 6(d)(4) of the Food Stamp Act of 
     1977 (7 U.S.C. 2015(d)(4)) is amended--
       (1) in subparagraph (A)--
       (A) by striking ``Not later than April 1, 1987, each'' and 
     inserting ``Each'';
       (B) by inserting ``work,'' after ``skills, training,''; and
       (C) by adding at the end the following: ``Each component of 
     an employment and training program carried out under this 
     paragraph shall be delivered through a statewide workforce 
     development system, unless the component is not available 
     locally through the statewide workforce development 
     system.'';
       (2) in subparagraph (B)--
       (A) in the matter preceding clause (i), by striking the 
     colon at the end and inserting the following: ``, except that 
     the State agency shall retain the option to apply employment 
     requirements prescribed under this subparagraph to a program 
     applicant at the time of application:'';
       (B) in clause (i), by striking ``with terms and 
     conditions'' and all that follows through ``time of 
     application''; and
       (C) in clause (iv)--
       (i) by striking subclauses (I) and (II); and
       (ii) by redesignating subclauses (III) and (IV) as 
     subclauses (I) and (II), respectively;
       (3) in subparagraph (D)--
       (A) in clause (i), by striking ``to which the application'' 
     and all that follows through ``30 days or less'';
       (B) in clause (ii), by striking ``but with respect'' and 
     all that follows through ``child care''; and
       (C) in clause (iii), by striking ``, on the basis of'' and 
     all that follows through ``clause (ii)'' and inserting ``the 
     exemption continues to be valid'';
       (4) in subparagraph (E), by striking the third sentence;
       (5) in subparagraph (G)--
       (A) by striking ``(G)(i) The State'' and inserting ``(G) 
     The State''; and
       (B) by striking clause (ii);
       (6) in subparagraph (H), by striking ``(H)(i) The 
     Secretary'' and all that follows through ``(ii) Federal 
     funds'' and inserting ``(H) Federal funds'';
       (7) in subparagraph (I)(i)(II), by striking ``, or was in 
     operation,'' and all that follows through ``Social Security 
     Act'' and inserting the following: ``), except that no such 
     payment or reimbursement shall exceed the applicable local 
     market rate'';
       (8)(A) by striking subparagraphs (K) and (L) and inserting 
     the following:
       ``(K) Limitation on funding.--Notwithstanding any other 
     provision of this paragraph, the amount of funds a State 
     agency uses to carry out this paragraph (including under 
     subparagraph (I)) for participants who are receiving benefits 
     under a State program funded under part A of title IV of the 
     Social Security Act (42 U.S.C. 601 et seq.) shall not exceed 
     the amount of funds the State agency used in fiscal year 1995 
     to carry out this paragraph for participants who were 
     receiving benefits in fiscal year 1995 under a State program 
     funded under part A of title IV of the Act (42 U.S.C. 601 et 
     seq.).''; and
       (B) by redesignating subparagraphs (M) and (N) as 
     subparagraphs (L) and (M), respectively; and
       (9) in subparagraph (L), as redesignated by paragraph 
     (8)(B)--
       (A) by striking ``(L)(i) The Secretary'' and inserting 
     ``(L) The Secretary''; and
       (B) by striking clause (ii).
       (b) Funding.--Section 16(h) of the Act (7 U.S.C. 2025(h)) 
     is amended by striking ``(h)(1)(A) The Secretary'' and all 
     that follows through the end of paragraph (1) and inserting 
     the following:
       ``(h) Funding of Employment and Training Programs.--
       ``(1) In general.--
       ``(A) Amounts.--To carry out employment and training 
     programs, the Secretary shall reserve for allocation to State 
     agencies from funds made available for each fiscal year under 
     section 18(a)(1) the amount of--
       ``(i) for fiscal year 1996, $77,000,000;
       ``(ii) for fiscal year 1997, $80,000,000;
       ``(iii) for fiscal year 1998, $83,000,000;
       ``(iv) for fiscal year 1999, $86,000,000;
       ``(v) for fiscal year 2000, $89,000,000;
       ``(vi) for fiscal year 2001, $92,000,000; and
       ``(vii) for fiscal year 2002, $95,000,000.
       ``(B) Allocation.--The Secretary shall allocate the amounts 
     reserved under subparagraph (A) among the State agencies 
     using a reasonable formula (as determined by the Secretary) 
     that gives consideration to the population in each State 
     affected by section 6(o).
       ``(C) Reallocation.--
       ``(i) Notification.--A State agency shall promptly notify 
     the Secretary if the State agency determines that the State 
     agency will not expend all of the funds allocated to the 
     State agency under subparagraph (B).
       ``(ii) Reallocation.--On notification under clause (i), the 
     Secretary shall reallocate the funds that the State agency 
     will not expend as the Secretary considers appropriate and 
     equitable.
       ``(D) Minimum allocation.--Notwithstanding subparagraphs 
     (A) through (C), the Secretary shall ensure that each State 
     agency operating an employment and training program shall 
     receive not less than $50,000 in each fiscal year.''.
       (c) Additional Matching Funds.--Section 16(h)(2) of the Act 
     (7 U.S.C. 2025(h)(2)) is amended by inserting before the 
     period at the end the following: ``, including the costs for 
     case management and casework to facilitate the transition 
     from economic dependency to self-sufficiency through work''.
       (d) Reports.--Section 16(h) of the Act (7 U.S.C. 2025(h)) 
     is amended--
       (1) in paragraph (5)--
       (A) by striking ``(5)(A) The Secretary'' and inserting 
     ``(5) The Secretary''; and
       (B) by striking subparagraph (B); and
       (2) by striking paragraph (6).

     SEC. 13028. COMPARABLE TREATMENT FOR DISQUALIFICATION.

       (a) In General.--Section 6 of the Food Stamp Act of 1977 (7 
     U.S.C. 2015) is amended--
       (1) by redesignating subsection (i), as added by section 
     12104, as subsection (p); and
       (2) by inserting after subsection (h) the following:
       ``(i) Comparable Treatment for Disqualification.--
       ``(1) In general.--If a disqualification is imposed on a 
     member of a household for a failure of the member to perform 
     an action required under a Federal, State, or local law 
     relating to a means-tested public assistance program, the 
     State agency may impose the same disqualification on the 
     member of the household under the food stamp program.
       ``(2) Rules and procedures.--If a disqualification is 
     imposed under paragraph (1) for a failure of an individual to 
     perform an action required under part A of title IV of the 
     Social Security Act (42 U.S.C. 601 et seq.), the State agency 
     may use the rules and procedures that apply under part A of 
     title IV of the Act to impose the same disqualification under 
     the food stamp program.
       ``(3) Application after disqualification period.--A member 
     of a household disqualified under paragraph (1) may, after 
     the disqualification period has expired, apply for benefits 
     under this Act and shall be treated as a new applicant, 
     except that a prior disqualification under subsection (d) 
     shall be considered in determining eligibility.''.
       (b) State Plan Provisions.--Section 11(e) of the Act (7 
     U.S.C. 2020(e)) is amended--
       (1) in paragraph (24), by striking ``and'' at the end;
       (2) in paragraph (25), by striking the period at the end 
     and inserting a semicolon; and
       (3) by adding at the end the following:
       ``(26) the guidelines the State agency uses in carrying out 
     section 6(i); and''.
       (c) Conforming Amendment.--Section 6(d)(2)(A) of the Act (7 
     U.S.C. 2015(d)(2)(A)) is amended by striking ``that is 
     comparable to a requirement of paragraph (1)''.

     SEC. 13029. DISQUALIFICATION FOR RECEIPT OF MULTIPLE FOOD 
                   STAMP BENEFITS.

       Section 6 of the Food Stamp Act of 1977 (7 U.S.C. 2015), as 
     amended by section 13028, is further amended by inserting 
     after subsection (i) the following:
       ``(j) Disqualification for Receipt of Multiple Food Stamp 
     Benefits.--An individual shall be ineligible to participate 
     in the food stamp program as a member of any household for a 
     10-year period if the individual is found by a State agency 
     to have made, or is convicted in a Federal or State court of 
     having made, a fraudulent statement or representation with 
     respect to the identity or place of residence of the 
     individual in order to receive multiple benefits 
     simultaneously under the food stamp program.''.

     SEC. 13030. DISQUALIFICATION OF FLEEING FELONS.

       Section 6 of the Food Stamp Act of 1977 (7 U.S.C. 2015), as 
     amended by section 13029, is further amended by inserting 
     after subsection (j) the following:
       ``(k) Disqualification of Fleeing Felons.--No member of a 
     household who is otherwise eligible to participate in the 
     food stamp program shall be eligible to participate in the 
     program as a member of that or any other household during any 
     period during which the individual is--
       ``(1) fleeing to avoid prosecution, or custody or 
     confinement after conviction, under the law of the place from 
     which the individual is fleeing, for a crime, or attempt to 
     commit a crime, that is a felony under the law of the place 
     from which the individual is fleeing or that, in the case of 
     New Jersey, is a high misdemeanor under the law of New 
     Jersey; or
       ``(2) violating a condition of probation or parole imposed 
     under a Federal or State law.''.

     SEC. 13031. COOPERATION WITH CHILD SUPPORT AGENCIES.

       Section 6 of the Food Stamp Act of 1977 (7 U.S.C. 2015), as 
     amended by section 13030, is further amended by inserting 
     after subsection (k) the following:
       ``(l) Custodial Parent's Cooperation With Child Support 
     Agencies.--
       ``(1) In general.--At the option of a State agency, subject 
     to paragraphs (2) and (3), no natural or adoptive parent or 
     other individual (collectively referred to in this subsection 
     as `the individual') who is living with and exercising 
     parental control over a child under the age of 18 who has an 
     absent parent shall be eligible to participate in the food 
     stamp program unless the individual cooperates with the State 
     agency administering the program established under part 

[[Page H 12742]]
     D of title IV of the Social Security Act (42 U.S.C. 651 et seq.)--
       ``(A) in establishing the paternity of the child (if the 
     child is born out of wedlock); and
       ``(B) in obtaining support for--
       ``(i) the child; or
       ``(ii) the individual and the child.
       ``(2) Good cause for noncooperation.--Paragraph (1) shall 
     not apply to the individual if good cause is found for 
     refusing to cooperate, as determined by the State agency in 
     accordance with standards prescribed by the Secretary in 
     consultation with the Secretary of Health and Human Services. 
     The standards shall take into consideration circumstances 
     under which cooperation may be against the best interests of 
     the child.
       ``(3) Fees.--Paragraph (1) shall not require the payment of 
     a fee or other cost for services provided under part D of 
     title IV of the Social Security Act (42 U.S.C. 651 et seq.).
       ``(m) Non-Custodial Parent's Cooperation With Child Support 
     Agencies.--
       ``(1) In general.--At the option of a State agency, subject 
     to paragraphs (2) and (3), a putative or identified non-
     custodial parent of a child under the age of 18 (referred to 
     in this subsection as `the individual') shall not be eligible 
     to participate in the food stamp program if the individual 
     refuses to cooperate with the State agency administering the 
     program established under part D of title IV of the Social 
     Security Act (42 U.S.C. 651 et seq.)--
       ``(A) in establishing the paternity of the child (if the 
     child is born out of wedlock); and
       ``(B) in providing support for the child.
       ``(2) Refusal to cooperate.--
       ``(A) Guidelines.--The Secretary, in consultation with the 
     Secretary of Health and Human Services, shall develop 
     guidelines on what constitutes a refusal to cooperate under 
     paragraph (1).
       ``(B) Procedures.--The State agency shall develop 
     procedures, using guidelines developed under subparagraph 
     (A), for determining whether an individual is refusing to 
     cooperate under paragraph (1).
       ``(3) Fees.--Paragraph (1) shall not require the payment of 
     a fee or other cost for services provided under part D of 
     title IV of the Social Security Act (42 U.S.C. 651 et seq.).
       ``(4) Privacy.--The State agency shall provide safeguards 
     to restrict the use of information collected by a State 
     agency administering the program established under part D of 
     title IV of the Social Security Act (42 U.S.C. 651 et seq.) 
     to purposes for which the information is collected.''.

     SEC. 13032. DISQUALIFICATION RELATING TO CHILD SUPPORT 
                   ARREARS.

       Section 6 of the Food Stamp Act of 1977 (7 U.S.C. 2015), as 
     amended by section 13031, is further amended by inserting 
     after subsection (m) the following:
       ``(n) Disqualification for Child Support Arrears.--
       ``(1) In general.--No individual shall be eligible to 
     participate in the food stamp program as a member of any 
     household during any month that the individual is delinquent 
     in any payment due under a court order for the support of a 
     child of the individual.
       ``(2) Exceptions.--Paragraph (1) shall not apply if--
       ``(A) a court is allowing the individual to delay payment; 
     or
       ``(B) the individual is complying with a payment plan 
     approved by a court or the State agency designated under part 
     D of title IV of the Social Security Act (42 U.S.C. 651 et 
     seq.) to provide support for the child of the individual.''.

     SEC. 13033. WORK REQUIREMENT.

       (a) In General.--Section 6 of the Food Stamp Act of 1977 (7 
     U.S.C. 2015), as amended by section 13032, is further amended 
     by inserting after subsection (n) the following:
       ``(o) Work Requirement.--
       ``(1) Definition of work program.--In this subsection, the 
     term `work program' means--
       ``(A) a program under the Job Training Partnership Act (29 
     U.S.C. 1501 et seq.);
       ``(B) a program under section 236 of the Trade Act of 1974 
     (19 U.S.C. 2296); or
       ``(C) a program of employment or training operated or 
     supervised by a State or political subdivision of a State 
     that meets standards approved by the Governor of the State, 
     including a program under section 6(d)(4), other than a job 
     search program or a job search training program.
       ``(2) Work requirement.--Subject to the other provisions of 
     this subsection, no individual shall be eligible to 
     participate in the food stamp program as a member of any 
     household if, during the preceding 12-month period, the 
     individual received food stamp benefits for not less than 4 
     months during which the individual did not--
       ``(A) work 20 hours or more per week, averaged monthly; or
       ``(B) participate in and comply with the requirements of a 
     work program for 20 hours or more per week, as determined by 
     the State agency; or
       ``(C) participate in a program under section 20 or a 
     comparable program established by a State or political 
     subdivision of a State.
       ``(3) Exception.--Paragraph (2) shall not apply to an 
     individual if the individual is--
       ``(A) under 18 or over 50 years of age;
       ``(B) medically certified as physically or mentally unfit 
     for employment;
       ``(C) a parent or other member of a household with 
     responsibility for a dependent child;
       ``(D) otherwise exempt under section 6(d)(2); or
       ``(E) a pregnant woman.
       ``(4) Waiver.--
       ``(A) In general.--On the request of a State agency, the 
     Secretary may waive the applicability of paragraph (2) to any 
     group of individuals in the State if the Secretary makes a 
     determination that the area in which the individuals reside--
       ``(i) has an unemployment rate of over 10 percent; or
       ``(ii) does not have a sufficient number of jobs to provide 
     employment for the individuals.
       ``(B) Report.--The Secretary shall report the basis for a 
     waiver under subparagraph (A) to the Committee on Agriculture 
     of the House of Representatives and the Committee on 
     Agriculture, Nutrition, and Forestry of the Senate.
       ``(5) Subsequent eligibility.--
       ``(A) In general.--Paragraph (2) shall cease to apply to an 
     individual if, during a 30-day period, the individual--
       ``(i) works 80 or more hours;
       ``(ii) participates in and complies with the requirements 
     of a work program for 80 or more hours, as determined by a 
     State agency; or
       ``(iii) participates in a program under section 20 or a 
     comparable program established by a State or political 
     subdivision of a State.
       ``(B) Limitation.--During the subsequent 12-month period, 
     the individual shall be eligible to participate in the food 
     stamp program for not more than 4 months during which the 
     individual does not--
       ``(i) work 20 hours or more per week, averaged monthly;
       ``(ii) participate in and comply with the requirements of a 
     work program for 20 hours or more per week, as determined by 
     the State agency; or
       ``(iii) participate in a program under section 20 or a 
     comparable program established by a State or political 
     subdivision of a State.''.
       (b) Transition Provision.--Prior to 1 year after the date 
     of enactment of this Act, the term ``preceding 12-month 
     period'' in section 6(o) of the Food Stamp Act of 1977, as 
     amended by subsection (a), means the preceding period that 
     begins on the date of enactment of this Act.

     SEC. 13034. ENCOURAGE ELECTRONIC BENEFIT TRANSFER SYSTEMS.

       Section 7(i) of the Food Stamp Act of 1977 (7 U.S.C. 
     2016(i)) is amended--
       (1) by striking paragraph (1) and inserting the following:
       ``(1) Electronic Benefit Transfers.--
       ``(A) Implementation.--Each State agency shall implement an 
     electronic benefit transfer system in which household 
     benefits determined under section 8(a) or 24 are issued from 
     and stored in a central databank before October 1, 2002, 
     unless the Secretary provides a waiver for a State agency 
     that faces unusual barriers to implementing an electronic 
     benefit transfer system.
       ``(B) Timely implementation.--State agencies are encouraged 
     to implement an electronic benefit transfer system under 
     subparagraph (A) as soon as practicable.
       ``(C) State flexibility.--Subject to paragraph (2), a State 
     agency may procure and implement an electronic benefit 
     transfer system under the terms, conditions, and design that 
     the State agency considers appropriate.
       ``(D) Operation.--An electronic benefit transfer system 
     should take into account generally accepted standard 
     operating rules based on--
       ``(i) commercial electronic funds transfer technology;
       ``(ii) the need to permit interstate operation and law 
     enforcement monitoring; and
       ``(iii) the need to permit monitoring and investigations by 
     authorized law enforcement agencies.'';
       (2) in paragraph (2)--
       (A) by striking ``effective no later than April 1, 1992,'';
       (B) in subparagraph (A)--
       (i) by striking ``, in any 1 year,''; and
       (ii) by striking ``on-line'';
       (C) by striking subparagraph (D) and inserting the 
     following:
       ``(D)(i) measures to maximize the security of a system 
     using the most recent technology available that the State 
     agency considers appropriate and cost effective and which may 
     include personal identification numbers, photographic 
     identification on electronic benefit transfer cards, and 
     other measures to protect against fraud and abuse; and
       ``(ii) effective not later than 2 years after the effective 
     date of this clause, to the extent practicable, measures that 
     permit a system to differentiate items of food that may be 
     acquired with an allotment from items of food that may not be 
     acquired with an allotment.'';
       (D) in subparagraph (G), by striking ``and'' at the end;
       (E) in subparagraph (H), by striking the period at the end 
     and inserting ``; and''; and
       (F) by adding at the end the following:
       ``(I) procurement standards.''; and
       (3) by adding at the end the following:
       ``(7) Replacement of benefits.--Regulations issued by the 
     Secretary regarding the replacement of benefits and liability 
     for replacement of benefits under an electronic benefit 
     transfer system shall be similar to the regulations in effect 
     for a paper food stamp issuance system.
       ``(8) Replacement card fee.--A State agency may collect a 
     charge for replacement of an electronic benefit transfer card 
     by reducing the monthly allotment of the household receiving 
     the replacement card.
       ``(9) Optional photographic identification.--
       ``(A) In general.--A State agency may require that an 
     electronic benefit card contain a photograph of 1 or more 
     members of a household.
       ``(B) Other authorized users.--If a State agency requires a 
     photograph on an electronic benefit card under subparagraph 
     (A), the State agency shall establish procedures to ensure 
     that any other appropriate member of the household or any 
     authorized representative of the household may utilize the 
     card.''.

[[Page H 12743]]


     SEC. 13035. VALUE OF MINIMUM ALLOTMENT.

       The proviso in section 8(a) of the Food Stamp Act of 1977 
     (7 U.S.C. 2017(a)) is amended by striking ``, and shall be 
     adjusted'' and all that follows through ``$5''.

     SEC. 13036. BENEFITS ON RECERTIFICATION.

       Section 8(c)(2)(B) of the Food Stamp Act of 1977 (7 U.S.C. 
     2017(c)(2)(B)) is amended by striking ``of more than one 
     month''.

     SEC. 13037. OPTIONAL COMBINED ALLOTMENT FOR EXPEDITED 
                   HOUSEHOLDS.

       Section 8(c) of the Food Stamp Act of 1977 (7 U.S.C. 
     2017(c)) is amended by striking paragraph (3) and inserting 
     the following:
       ``(3) Optional combined allotment for expedited 
     households.--A State agency may provide to an eligible 
     household applying after the 15th day of a month, in lieu of 
     the initial allotment of the household and the regular 
     allotment of the household for the following month, an 
     allotment that is equal to the total amount of the initial 
     allotment and the first regular allotment. The allotment 
     shall be provided in accordance with section 11(e)(3) in the 
     case of a household that is not entitled to expedited service 
     and in accordance with paragraphs (3) and (9) of section 
     11(e) in the case of a household that is entitled to 
     expedited service.''.

     SEC. 13038. FAILURE TO COMPLY WITH OTHER MEANS-TESTED PUBLIC 
                   ASSISTANCE PROGRAMS.

       Section 8 of the Food Stamp Act of 1977 (7 U.S.C. 2017) is 
     amended by striking subsection (d) and inserting the 
     following:
       ``(d) Reduction of Public Assistance Benefits.--
       ``(1) In general.--If the benefits of a household are 
     reduced under a Federal, State, or local law relating to a 
     means-tested public assistance program for the failure of a 
     member of the household to perform an action required under 
     the law or program, for the duration of the reduction--
       ``(A) the household may not receive an increased allotment 
     as the result of a decrease in the income of the household to 
     the extent that the decrease is the result of the reduction; 
     and
       ``(B) the State agency may reduce the allotment of the 
     household by not more than 25 percent.
       ``(2) Rules and procedures.--If the allotment of a 
     household is reduced under this subsection for a failure to 
     perform an action required under part A of title IV of the 
     Social Security Act (42 U.S.C. 601 et seq.), the State agency 
     may use the rules and procedures that apply under part A of 
     title IV of the Act to reduce the allotment under the food 
     stamp program.''.

     SEC. 13039. ALLOTMENTS FOR HOUSEHOLDS RESIDING IN CENTERS.

       Section 8 of the Food Stamp Act of 1977 (7 U.S.C. 2017) is 
     amended by adding at the end the following:
       ``(f) Allotments for Households Residing in Centers.--
       ``(1) In general.--In the case of an individual who resides 
     in a center for the purpose of a drug or alcoholic treatment 
     program described in the last sentence of section 3(i), a 
     State agency may provide an allotment for the individual to--
       ``(A) the center as an authorized representative of the 
     individual for a period that is less than 1 month; and
       ``(B) the individual, if the individual leaves the center.
       ``(2) Direct payment.--A State agency may require an 
     individual referred to in paragraph (1) to designate the 
     center in which the individual resides as the authorized 
     representative of the individual for the purpose of receiving 
     an allotment.''.

     SEC. 13040. CONDITION PRECEDENT FOR APPROVAL OF RETAIL FOOD 
                   STORES AND WHOLESALE FOOD CONCERNS.

       Section 9(a)(1) of the Food Stamp Act of 1977 (7 U.S.C. 
     2018(a)(1)) is amended by adding at the end the following: 
     ``No retail food store or wholesale food concern of a type 
     determined by the Secretary, based on factors that include 
     size, location, and type of items sold, shall be approved to 
     be authorized or reauthorized for participation in the food 
     stamp program unless an authorized employee of the Department 
     of Agriculture, a designee of the Secretary, or, if 
     practicable, an official of the State or local government 
     designated by the Secretary has visited the store or concern 
     for the purpose of determining whether the store or concern 
     should be approved or reauthorized, as appropriate.''.

     SEC. 13041. AUTHORITY TO ESTABLISH AUTHORIZATION PERIODS.

       Section 9(a) of the Food Stamp Act of 1977 (7 U.S.C. 
     2018(a)) is amended by adding at the end the following:
       ``(3) Authorization periods.--The Secretary shall establish 
     specific time periods during which authorization to accept 
     and redeem coupons, or to redeem benefits through an 
     electronic benefit transfer system, shall be valid under the 
     food stamp program.''.

     SEC. 13042. INFORMATION FOR VERIFYING ELIGIBILITY FOR 
                   AUTHORIZATION.

       Section 9(c) of the Food Stamp Act of 1977 (7 U.S.C. 
     2018(c)) is amended--
       (1) in the first sentence, by inserting ``, which may 
     include relevant income and sales tax filing documents,'' 
     after ``submit information''; and
       (2) by inserting after the first sentence the following: 
     ``The regulations may require retail food stores and 
     wholesale food concerns to provide written authorization for 
     the Secretary to verify all relevant tax filings with 
     appropriate agencies and to obtain corroborating 
     documentation from other sources so that the accuracy of 
     information provided by the stores and concerns may be 
     verified.''.

     SEC. 13043. WAITING PERIOD FOR STORES THAT FAIL TO MEET 
                   AUTHORIZATION CRITERIA.

       Section 9(d) of the Food Stamp Act of 1977 (7 U.S.C. 
     2018(d)) is amended by adding at the end the following: ``A 
     retail food store or wholesale food concern that is denied 
     approval to accept and redeem coupons because the store or 
     concern does not meet criteria for approval established by 
     the Secretary may not, for at least 6 months, submit a new 
     application to participate in the program. The Secretary may 
     establish a longer time period under the preceding sentence, 
     including permanent disqualification, that reflects the 
     severity of the basis of the denial.''.

     SEC. 13044. EXPEDITED COUPON SERVICE.

       Section 11(e)(9) of the Food Stamp Act of 1977 (7 U.S.C. 
     2020(e)(9)) is amended--
       (1) in subparagraph (A)--
       (A) by striking ``five days'' and inserting ``7 days''; and
       (B) by inserting ``and'' at the end;
       (2) by striking subparagraphs (B) and (C);
       (3) by redesignating subparagraph (D) as subparagraph (B); 
     and
       (4) in subparagraph (B), as redesignated by paragraph (3), 
     by striking ``, (B), or (C)''.

     SEC. 13045. WITHDRAWING FAIR HEARING REQUESTS.

       Section 11(e)(10) of the Food Stamp Act of 1977 (7 U.S.C. 
     2020(e)(10)) is amended by inserting before the semicolon at 
     the end a period and the following: ``At the option of a 
     State, at any time prior to a fair hearing determination 
     under this paragraph, a household may withdraw, orally or in 
     writing, a request by the household for the fair hearing. If 
     the withdrawal request is an oral request, the State agency 
     shall provide a written notice to the household confirming 
     the withdrawal request and providing the household with an 
     opportunity to request a hearing''.

     SEC. 13046. DISQUALIFICATION OF RETAILERS WHO INTENTIONALLY 
                   SUBMIT FALSIFIED APPLICATIONS.

       Section 12(b) of the Food Stamp Act of 1977 (7 U.S.C. 
     2021(b)) is amended--
       (1) in paragraph (2), by striking ``and'' at the end;
       (2) in paragraph (3), by striking the period at the end and 
     inserting ``; and''; and
       (3) by adding at the end the following:
       ``(4) for a reasonable period of time to be determined by 
     the Secretary, including permanent disqualification, on the 
     knowing submission of an application for the approval or 
     reauthorization to accept and redeem coupons that contains 
     false information about a substantive matter that was a part 
     of the application.''.

     SEC. 13047. DISQUALIFICATION OF RETAILERS WHO ARE 
                   DISQUALIFIED UNDER THE WIC PROGRAM.

       Section 12 of the Food Stamp Act of 1977 (7 U.S.C. 2021) is 
     amended by adding at the end the following:
       ``(g) Disqualification of Retailers Who Are Disqualified 
     Under the WIC Program.--
       ``(1) In general.--The Secretary shall issue regulations 
     providing criteria for the disqualification under this Act of 
     an approved retail food store and a wholesale food concern 
     that is disqualified from accepting benefits under the 
     special supplemental nutrition program for women, infants, 
     and children established under section 17 of the Child 
     Nutrition Act of 1966 (7 U.S.C. 1786).
       ``(2) Terms.--A disqualification under paragraph (1)--
       ``(A) shall be for the same length of time as the 
     disqualification from the program referred to in paragraph 
     (1);
       ``(B) may begin at a later date than the disqualification 
     from the program referred to in paragraph (1); and
       ``(C) notwithstanding section 14, shall not be subject to 
     judicial or administrative review.''.

     SEC. 13048. COLLECTION OF OVERISSUANCES.

       (a) Collection of Overissuances.--Section 13 of the Food 
     Stamp Act of 1977 (7 U.S.C. 2022) is amended--
       (1) by striking subsection (b) and inserting the following:
       ``(b) Collection of Overissuances.--
       ``(1) In general.--Except as otherwise provided in this 
     subsection, a State agency shall collect any overissuance of 
     coupons issued to a household by--
       ``(A) reducing the allotment of the household;
       ``(B) withholding amounts from unemployment compensation 
     from a member of the household under subsection (c);
       ``(C) recovering from Federal pay or a Federal income tax 
     refund under subsection (d); or
       ``(D) any other means.
       ``(2) Cost effectiveness.--Paragraph (1) shall not apply if 
     the State agency demonstrates to the satisfaction of the 
     Secretary that all of the means referred to in paragraph (1) 
     are not cost effective.
       ``(3) Maximum reduction absent fraud.--If a household 
     received an overissuance of coupons without any member of the 
     household being found eligible to participate in the program 
     under section 6(b)(1) and a State agency elects to reduce the 
     allotment of the household under paragraph (1)(A), the State 
     agency shall not reduce the monthly allotment of the 
     household under paragraph (1)(A) by an amount in excess of 
     the greater of--
       ``(A) 10 percent of the monthly allotment of the household; 
     or
       ``(B) $10.
       ``(4) Procedures.--A State agency shall collect an 
     overissuance of coupons issued to a household under paragraph 
     (1) in accordance with the requirements established by the 
     State agency for providing notice, electing a means of 
     payment, and establishing a time schedule for payment.''; and
       (2) in subsection (d)--
       (A) by striking ``as determined under subsection (b) and 
     except for claims arising from an error of the State 
     agency,'' and inserting ``, as determined under subsection 
     (b)(1),''; and
       (B) by inserting before the period at the end the 
     following: ``or a Federal income tax refund 

[[Page H 12744]]
     as authorized by section 3720A of title 31, United States Code''.
       (b) Conforming Amendments.--Section 11(e)(8) of the Act (7 
     U.S.C. 2020(e)(8)) is amended--
       (1) by striking ``and excluding claims'' and all that 
     follows through ``such section''; and
       (2) by inserting before the semicolon at the end the 
     following: ``or a Federal income tax refund as authorized by 
     section 3720A of title 31, United States Code''.
       (c) Retention Rate.--Section 16(a) of the Act (7 U.S.C. 
     2025(a)) is amended by striking ``25 percent during the 
     period beginning October 1, 1990'' and all that follows 
     through ``error of a State agency'' and inserting the 
     following: ``25 percent of the overissuances collected by the 
     State agency under section 13, except those overissuances 
     arising from an error of the State agency''.

     SEC. 13049. AUTHORITY TO SUSPEND STORES VIOLATING PROGRAM 
                   REQUIREMENTS PENDING ADMINISTRATIVE AND 
                   JUDICIAL REVIEW.

       Section 14(a) of the Food Stamp Act of 1977 (7 U.S.C. 
     2023(a)) is amended--
       (1) by redesignating the first through seventeenth 
     sentences as paragraphs (1) through (17), respectively; and
       (2) by adding at the end the following:
       ``(18) Suspension of stores pending review.--
     Notwithstanding any other provision of this subsection, any 
     permanent disqualification of a retail food store or 
     wholesale food concern under paragraph (3) or (4) of section 
     12(b) shall be effective from the date of receipt of the 
     notice of disqualification. If the disqualification is 
     reversed through administrative or judicial review, the 
     Secretary shall not be liable for the value of any sales lost 
     during the disqualification period.''.

     SEC. 13050. LIMITATION OF FEDERAL MATCH.

       Section 16(a)(4) of the Food Stamp Act of 1977 (7 U.S.C. 
     2025(a)(4)) is amended by inserting after the comma at the 
     end the following: ``but not including recruitment 
     activities,''.

     SEC. 13051. WORK SUPPLEMENTATION OR SUPPORT PROGRAM.

       Section 16 of the Food Stamp Act of 1977 (7 U.S.C. 2025) is 
     amended by adding at the end the following:
       ``(c) Work Supplementation or Support Program.--
       ``(1) Definition of work supplementation or support 
     program.--In this subsection, the term `work supplementation 
     or support program' means a program under which, as 
     determined by the Secretary, public assistance (including any 
     benefits provided under a program established by the State 
     and the food stamp program) is provided to an employer to be 
     used for hiring and employing a public assistance recipient 
     who was not employed by the employer at the time the public 
     assistance recipient entered the program.
       ``(2) Program.--A State agency may elect to use an amount 
     equal to the allotment that would otherwise be issued to a 
     household under the food stamp program, but for the operation 
     of this subsection, for the purpose of subsidizing or 
     supporting a job under a work supplementation or support 
     program established by the State.
       ``(3) Procedure.--If a State agency makes an election under 
     paragraph (2) and identifies each household that participates 
     in the food stamp program that contains an individual who is 
     participating in the work supplementation or support 
     program--
       ``(A) the Secretary shall pay to the State agency an amount 
     equal to the value of the allotment that the household would 
     be eligible to receive but for the operation of this 
     subsection;
       ``(B) the State agency shall expend the amount received 
     under subparagraph (A) in accordance with the work 
     supplementation or support program in lieu of providing the 
     allotment that the household would receive but for the 
     operation of this subsection;
       ``(C) for purposes of--
       ``(i) sections 5 and 8(a), the amount received under this 
     subsection shall be excluded from household income and 
     resources; and
       ``(ii) section 8(b), the amount received under this 
     subsection shall be considered to be the value of an 
     allotment provided to the household; and
       ``(D) the household shall not receive an allotment from the 
     State agency for the period during which the member continues 
     to participate in the work supplementation or support 
     program.
       ``(4) Other work requirements.--No individual shall be 
     excused, by reason of the fact that a State has a work 
     supplementation or support program, from any work requirement 
     under section 6(d), except during the periods in which the 
     individual is employed under the work supplementation or 
     support program.
       ``(5) Length of participation.--A State agency shall 
     provide a description of how the public assistance recipients 
     in the program shall, within a specific period of time, be 
     moved from supplemented or supported employment to employment 
     that is not supplemented or supported.
       ``(6) Displacement.--A work supplementation or support 
     program shall not displace the employment of individuals who 
     are not supplemented or supported.''.

     SEC. 13052. AUTHORIZATION OF PILOT PROJECTS.

       The last sentence of section 17(b)(1)(A) of the Food Stamp 
     Act of 1977 (7 U.S.C. 2026(b)(1)(A)) is amended by striking 
     ``1995'' and inserting ``2002''.

     SEC. 13053. EMPLOYMENT INITIATIVES PROGRAM.

       Section 17 of the Food Stamp Act of 1977 (7 U.S.C. 2026) is 
     amended by striking subsection (d) and inserting the 
     following:
       ``(d) Employment Initiatives Program.--
       ``(1) Election to participate.--
       ``(A) In general.--Subject to the other provisions of this 
     subsection, a State may elect to carry out an employment 
     initiatives program under this subsection.
       ``(B) Requirement.--A State shall be eligible to carry out 
     an employment initiatives program under this subsection only 
     if not less than 50 percent of the households that received 
     food stamp benefits during the summer of 1993 also received 
     benefits under a State program funded under part A of title 
     IV of the Social Security Act (42 U.S.C. 601 et seq.) during 
     the summer of 1993.
       ``(2) Procedure.--
       ``(A) In general.--A State that has elected to carry out an 
     employment initiatives program under paragraph (1) may use 
     amounts equal to the food stamp allotments that would 
     otherwise be issued to a household under the food stamp 
     program, but for the operation of this subsection, to provide 
     cash benefits in lieu of the food stamp allotments to the 
     household if the household is eligible under paragraph (3).
       ``(B) Payment.--The Secretary shall pay to each State that 
     has elected to carry out an employment initiatives program 
     under paragraph (1) an amount equal to the value of the 
     allotment that each household would be eligible to receive 
     under this Act but for the operation of this subsection.
       ``(C) Other provisions.--For purposes of the food stamp 
     program (other than this subsection)--
       ``(i) cash assistance under this subsection shall be 
     considered to be an allotment; and
       ``(ii) each household receiving cash benefits under this 
     subsection shall not receive any other food stamp benefit for 
     the period for which the cash assistance is provided.
       ``(D) Additional payments.--Each State that has elected to 
     carry out an employment initiatives program under paragraph 
     (1) shall--
       ``(i) increase the cash benefits provided to each household 
     under this subsection to compensate for any State or local 
     sales tax that may be collected on purchases of food by any 
     household receiving cash benefits under this subsection, 
     unless the Secretary determines on the basis of information 
     provided by the State that the increase is unnecessary on the 
     basis of the limited nature of the items subject to the State 
     or local sales tax; and
       ``(ii) pay the cost of any increase in cash benefits 
     required by clause (i).
       ``(3) Eligibility.--A household shall be eligible to 
     receive cash benefits under paragraph (2) if an adult member 
     of the household--
       ``(A) has worked in unsubsidized employment for not less 
     than the preceding 90 days;
       ``(B) has earned not less than $350 per month from the 
     employment referred to in subparagraph (A) for not less than 
     the preceding 90 days;
       ``(C)(i) is receiving benefits under a State program funded 
     under part A of title IV of the Social Security Act (42 
     U.S.C. 601 et seq.); or
       ``(ii) was receiving benefits under a State program funded 
     under part A of title IV of the Social Security Act (42 
     U.S.C. 601 et seq.) at the time the member first received 
     cash benefits under this subsection and is no longer eligible 
     for the State program because of earned income;
       ``(D) is continuing to earn not less than $350 per month 
     from the employment referred to in subparagraph (A); and
       ``(E) elects to receive cash benefits in lieu of food stamp 
     benefits under this subsection.
       ``(4) Evaluation.--A State that operates a program under 
     this subsection for 2 years shall provide to the Secretary a 
     written evaluation of the impact of cash assistance under 
     this subsection. The State agency, with the concurrence of 
     the Secretary, shall determine the content of the 
     evaluation.''.

     SEC. 13054. REAUTHORIZATION OF PUERTO RICO NUTRITION 
                   ASSISTANCE PROGRAM.

       The first sentence of section 19(a)(1)(A) of the Food Stamp 
     Act of 1977 (7 U.S.C. 2028(a)(1)(A)) is amended by striking 
     ``$974,000,000'' and all that follows through ``fiscal year 
     1995'' and inserting ``$1,143,000,000 for each of fiscal 
     years 1995 and 1996, $1,182,000,000 for fiscal year 1997, 
     $1,223,000,000 for fiscal year 1998, $1,266,000,000 for 
     fiscal year 1999, $1,310,000,000 for fiscal year 2000, 
     $1,357,000,000 for fiscal year 2001, and $1,404,000,000 for 
     fiscal year 2002''.

     SEC. 13055. SIMPLIFIED FOOD STAMP PROGRAM.

       (a) In General.--The Act (7 U.S.C. 2011 et seq.) is amended 
     by adding at the end the following:

     ``SEC. 24. SIMPLIFIED FOOD STAMP PROGRAM.

       ``(a) Definition of Federal Costs.--In this section, the 
     term `Federal costs' does not include any Federal costs 
     incurred under section 17.
       ``(b) Election.--Subject to subsection (d), a State agency 
     may elect to carry out a Simplified Food Stamp Program 
     (referred to in this section as a `Program') in accordance 
     with this section.
       ``(c) Operation of Program.--If a State agency elects to 
     carry out a Program, within the State or a political 
     subdivision of the State--
       ``(1) a household in which all members receive assistance 
     under a State program funded under part A of title IV of the 
     Social Security Act (42 U.S.C. 601 et seq.) shall 
     automatically be eligible to participate in the Program; and
       ``(2) subject to subsection (f), benefits under the Program 
     shall be determined under rules and procedures established by 
     the State under--
       ``(A) a State program funded under part A of title IV of 
     the Social Security Act (42 U.S.C. 601 et seq.);
       ``(B) the food stamp program (other than section 25); or
       ``(C) a combination of a State program funded under part A 
     of title IV of the Social Security Act (42 U.S.C. 601 et 
     seq.) and the food stamp program (other than section 25).
       ``(d) Approval of Program.--
       ``(1) State plan.--A State agency may not operate a Program 
     unless the Secretary approves a State plan for the operation 
     of the Program under paragraph (2).

[[Page H 12745]]

       ``(2) Approval of plan.--The Secretary shall approve any 
     State plan to carry out a Program if the Secretary determines 
     that the plan--
       ``(A) complies with this section; and
       ``(B) contains sufficient documentation that the plan will 
     not increase Federal costs for any fiscal year.
       ``(e) Increased Federal Costs.--
       ``(1) Determination.--During each fiscal year and not later 
     than 90 days after the end of each fiscal year, the Secretary 
     shall determine whether a Program being carried out by a 
     State agency is increasing Federal costs under this Act above 
     the Federal costs incurred under the food stamp program in 
     operation in the State or political subdivision of the State 
     for the fiscal year prior to the implementation of the 
     Program, adjusted for any changes in--
       ``(A) participation;
       ``(B) the income of participants in the food stamp program 
     that is not attributable to public assistance; and
       ``(C) the thrifty food plan under section 3(o).
       ``(2) Notification.--If the Secretary determines that the 
     Program has increased Federal costs under this Act for any 
     fiscal year or any portion of any fiscal year, the Secretary 
     shall notify the State agency not later than 30 days after 
     the Secretary makes the determination under paragraph (1).
       ``(3) Enforcement.--
       ``(A) Corrective action.--Not later than 90 days after the 
     date of a notification under paragraph (2), the State agency 
     shall submit a plan for approval by the Secretary for prompt 
     corrective action that is designed to prevent the Program 
     from increasing Federal costs under this Act.
       ``(B) Termination.--If the State agency does not submit a 
     plan under subparagraph (A) or carry out a plan approved by 
     the Secretary, the Secretary shall terminate the approval of 
     the State agency to operate a Program and the State agency 
     shall be ineligible to operate a future Program.
       ``(f) Rules and Procedures.--
       ``(1) In general.--In operating a Program, a State or 
     political subdivision of a State may follow the rules and 
     procedures established by the State or political subdivision 
     under a State program funded under part A of title IV of the 
     Social Security Act (42 U.S.C. 601 et seq.) or under the food 
     stamp program.
       ``(2) Standardized deductions.--In operating a Program, a 
     State may standardize the deductions provided under section 
     5(e). In developing the standardized deduction, the State 
     shall consider the work expenses, dependent care costs, and 
     shelter costs of participating households.
       ``(3) Requirements.--In operating a Program, a State or 
     political subdivision shall comply with the requirements of--
       ``(A) subsections (a) through (g) of section 7;
       ``(B) section 8(a) (except that the income of a household 
     may be determined under a State program funded under part A 
     of title IV of the Social Security Act (42 U.S.C. 601 et 
     seq.));
       ``(C) subsection (b) and (d) of section 8;
       ``(D) subsections (a), (c), (d), and (n) of section 11;
       ``(E) paragraphs (8), (12), (17), (19), (21), (26), and 
     (27) of section 11(e);
       ``(F) section 11(e)(10) (or a comparable requirement 
     established by the State under a State program funded under 
     part A of title IV of the Social Security Act (42 U.S.C. 601 
     et seq.)); and
       ``(G) section 16.
       ``(4) Limitation on eligibility.--Notwithstanding any other 
     provision of this section, a household may not receive 
     benefits under this section as a result of the eligibility of 
     the household under a State program funded under part A of 
     title IV of the Social Security Act (42 U.S.C. 601 et seq.), 
     unless the Secretary determines that any household with 
     income above 130 percent of the poverty guidelines is not 
     eligible for the program.''.
       (b) State Plan Provisions.--Section 11(e) of the Act (7 
     U.S.C. 2020(e)), as amended by sections 13028(b), is further 
     amended by adding at the end the following:
       ``(27) if a State agency elects to carry out a Simplified 
     Food Stamp Program under section 24, the plans of the State 
     agency for operating the program, including--
       ``(A) the rules and procedures to be followed by the State 
     to determine food stamp benefits;
       ``(B) how the State will address the needs of households 
     that experience high shelter costs in relation to the incomes 
     of the households; and
       ``(C) a description of the method by which the State will 
     carry out a quality control system under section 16(c).''.
       (c) Conforming Amendments.--
       (1) Section 8 of the Act (7 U.S.C. 2017), as amended by 
     section 13039, is further amended--
       (A) by striking subsection (e); and
       (B) by redesignating subsection (f) as subsection (e).
       (2) Section 17 of the Act (7 U.S.C. 2026) is amended--
       (A) by striking subsection (i); and
       (B) by redesignating subsections (j) through (l) as 
     subsections (i) through (k), respectively.

     SEC. 13056. STATE FOOD ASSISTANCE BLOCK GRANT.

       (a) In General.--The Food Stamp Act of 1977 (7 U.S.C. 2011 
     et seq.), as amended by section 13055, is further amended by 
     adding at the end the following:

     ``SEC. 25. STATE FOOD ASSISTANCE BLOCK GRANT.

       ``(a) Definitions.--In this section:
       ``(1) Food assistance.--The term `food assistance' means 
     assistance that may be used only to obtain food, as defined 
     in section 3(g).
       ``(2) State.--The term `State' means each of the 50 States, 
     the District of Columbia, Guam, and the Virgin Islands of the 
     United States.
       ``(b) Establishment.--The Secretary shall establish a 
     program to make grants to States in accordance with this 
     section to provide--
       ``(1) food assistance to needy individuals and families 
     residing in the State; and
       ``(2) funds for administrative costs incurred in providing 
     the assistance.
       ``(c) Election.--
       ``(1) In general.--A State may annually elect to 
     participate in the program established under subsection (b) 
     if the State--
       ``(A) has fully implemented an electronic benefit transfer 
     system that operates in the entire State;
       ``(B) has a payment error rate under section 16(c) that is 
     not more than 6 percent as announced most recently by the 
     Secretary; or
       ``(C) has a payment error rate in excess of 6 percent and 
     agrees to contribute non-Federal funds for the fiscal year of 
     the grant, for benefits and administration of the State's 
     food assistance program, the amount determined under 
     paragraph (2).
       ``(2) State mandatory contributions.--
       ``(A) In general.--In the case of a State that elects to 
     participate in the program under paragraph (1)(C), the State 
     shall agree to contribute, for a fiscal year, an amount equal 
     to--
       ``(A)(i) the benefits issued in the State; multiplied by
       ``(ii) the payment error rate of the State; minus
       ``(B)(i) the benefits issued in the State; multiplied by
       ``(ii) 6 percent.
       ``(B) Determination.--Notwithstanding sections 13 and 14, 
     the calculation of the contribution shall be based solely on 
     the determination of the Secretary of the payment error rate.
       ``(C) Data.--For purposes of implementing subparagraph (A) 
     for a fiscal year, the Secretary shall use the data for the 
     most recent fiscal year available.
       ``(3) Election limitation.--
       ``(A) Re-entering food stamp program.--A State that elects 
     to participate in the program under paragraph (1) may in a 
     subsequent year decline to elect to participate in the 
     program and instead participate in the food stamp program in 
     accordance with the other sections of this Act.
       ``(B) Limitation.--Subsequent to re-entering the food stamp 
     program under subparagraph (A), the State shall only be 
     eligible to participate in the food stamp program in 
     accordance with the other sections of this Act and shall not 
     be eligible to elect to participate in the program 
     established under subsection (b).
       ``(4) Program exclusive.--
       ``(A) In general.--A State that is participating in the 
     program established under subsection (b) shall not be subject 
     to, or receive any benefit under, this Act except as provided 
     in this section.
       ``(B) Contract with federal government.--Nothing in this 
     section shall prohibit a State from contracting with the 
     Federal Government for the provision of services or materials 
     necessary to carry out a program under this section.
       ``(d) Lead Agency.--A State desiring to receive a grant 
     under this section shall designate, in an application 
     submitted to the Secretary under subsection (e)(1), an 
     appropriate State agency responsible for the administration 
     of the program under this section as the lead agency.
       ``(e) Application and Plan.--
       ``(1) Application.--To be eligible to receive assistance 
     under this section, a State shall prepare and submit to the 
     Secretary an application at such time, in such manner, and 
     containing such information as the Secretary shall by 
     regulation require, including--
       ``(A) an assurance that the State will comply with the 
     requirements of this section;
       ``(B) a State plan that meets the requirements of paragraph 
     (3); and
       ``(C) an assurance that the State will comply with the 
     requirements of the State plan under paragraph (3).
       ``(2) Annual plan.--The State plan contained in the 
     application under paragraph (1) shall be submitted for 
     approval annually.
       ``(3) Requirements of plan.--
       ``(A) Lead agency.--The State plan shall identify the lead 
     agency.
       ``(B) Use of block grant funds.--The State plan shall 
     provide that the State shall use the amounts provided to the 
     State for each fiscal year under this section--
       ``(i) to provide food assistance to needy individuals and 
     families residing in the State, other than residents of 
     institutions who are ineligible for food stamps under section 
     3(i); and
       ``(ii) to pay administrative costs incurred in providing 
     the assistance.
       ``(C) Groups served.--The State plan shall describe how and 
     to what extent the program will serve specific groups of 
     individuals and families and how the treatment will differ 
     from treatment under the food stamp program under the other 
     sections of this Act of the individuals and families, 
     including--
       ``(i) elderly individuals and families;
       ``(ii) migrants or seasonal farmworkers;
       ``(iii) homeless individuals and families;
       ``(iv) individuals and families who live in institutions 
     eligible under section 3(i);
       ``(v) individuals and families with earnings; and
       ``(vi) members of Indian tribes or tribal organizations.
       ``(D) Assistance for entire state.--The State plan shall 
     provide that benefits under this section shall be available 
     throughout the entire State.
       ``(E) Notice and hearings.--The State plan shall provide 
     that an individual or family who applies for, or receives, 
     assistance under this section shall be provided with notice 
     of, and an opportunity for a hearing on, any action under 
     this section that adversely affects the individual or family.
       ``(F) Assessment of Needs.--The State plan shall assess the 
     food and nutrition needs of needy persons residing in the 
     State.

[[Page H 12746]]

       ``(G) Eligibility standards.--The State plan shall describe 
     the income, resource, and other eligibility standards that 
     are established for the receipt of assistance under this 
     section.
       ``(H) Receiving benefits in more than 1 jurisdiction.--The 
     State plan shall establish a system for the exchange of 
     information with other States to verify the identity and 
     receipt of benefits by recipients.
       ``(I) Privacy.--The State plan shall provide for 
     safeguarding and restricting the use and disclosure of 
     information about any individual or family receiving 
     assistance under this section.
       ``(J) Other information.--The State plan shall contain such 
     other information as may be required by the Secretary.
       ``(4) Approval of application and plan.--The Secretary 
     shall approve an application and State plan that satisfies 
     the requirements of this section.
       ``(f) No individual or family entitlement to assistance.--
     Nothing in this section--
       ``(1) entitles any individual or family to assistance under 
     this section; or
       ``(2) limits the right of a State to impose additional 
     limitations or conditions on assistance under this section.
       ``(g) Benefits for Aliens.--
       ``(1) Eligibility.--No individual who is an alien shall be 
     eligible to receive benefits under a State plan approved 
     under subsection (e)(4) if the individual is not eligible to 
     participate in the food stamp program due to the alien status 
     of the individual.
       ``(2) Income.--The State plan shall provide that the income 
     of an alien shall be determined in accordance with section 
     5(i).
       ``(h) Employment and Training.--
       ``(1) Work requirements.--No individual or household shall 
     be eligible to receive benefits under a State plan funded 
     under this section if the individual or household is not 
     eligible to participate in the food stamp program under 
     subsection (d) or (o) of section 6.
       ``(2) Work programs.--Each State shall implement an 
     employment and training program in accordance with the terms 
     and conditions of section 6(d)(4) for individuals under the 
     program and shall be eligible to receive funding under 
     section 16(h).
       ``(i) Enforcement.--
       ``(1) Review of compliance with state plan.--The Secretary 
     shall review and monitor State compliance with this section 
     and the State plan approved under subsection (e)(4).
       ``(2) Noncompliance.--
       ``(A) In general.--If the Secretary, after reasonable 
     notice to a State and opportunity for a hearing, finds that--
       ``(i) there has been a failure by the State to comply 
     substantially with any provision or requirement set forth in 
     the State plan approved under subsection (e)(4); or
       ``(ii) in the operation of any program or activity for 
     which assistance is provided under this section, there is a 
     failure by the State to comply substantially with any 
     provision of this section;
     the Secretary shall notify the State of the finding and that 
     no further grants will be made to the State under this 
     section (or, in the case of noncompliance in the operation of 
     a program or activity, that no further grants to the State 
     will be made with respect to the program or activity) until 
     the Secretary is satisfied that there is no longer any 
     failure to comply or that the noncompliance will be promptly 
     corrected.
       ``(B) Other penalties.--In the case of a finding of 
     noncompliance made pursuant to subparagraph (A), the 
     Secretary may, in addition to, or in lieu of, imposing the 
     penalties described in subparagraph (A), impose other 
     appropriate penalties, including recoupment of money 
     improperly expended for purposes prohibited or not authorized 
     by this section and disqualification from the receipt of 
     financial assistance under this section.
       ``(C) Notice.--The notice required under subparagraph (A) 
     shall include a specific identification of any additional 
     penalty being imposed under subparagraph (B).
       ``(3) Issuance of regulations.--The Secretary shall 
     establish by regulation procedures for--
       ``(A) receiving, processing, and determining the validity 
     of complaints made to the Secretary concerning any failure of 
     a State to comply with the State plan or any requirement of 
     this section; and
       ``(B) imposing penalties under this section.
       ``(j) Grant.--
       ``(1) In general.--For each fiscal year, the Secretary 
     shall pay to a State that has an application approved by the 
     Secretary under subsection (e)(4) an amount that is equal to 
     the grant of the State under subsection (m) for the fiscal 
     year, adjusted for any reduction required under subsection 
     (m)(2).
       ``(2) Method of Grant.--The Secretary shall make a grant to 
     a State for a fiscal year under this section by issuing 1 or 
     more letters of credit for the fiscal year, with necessary 
     adjustments on account of overpayments or underpayments, as 
     determined by the Secretary.
       ``(3) Spending of grants by state.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     a grant to a State determined under subsection (m)(1) for a 
     fiscal year may be expended by the State only in the fiscal 
     year.
       ``(B) Carryover.--The State may reserve up to 10 percent of 
     a grant determined under subsection (m)(1) for a fiscal year 
     to provide assistance under this section in subsequent fiscal 
     years, except that the reserved funds may not exceed 30 
     percent of the total grant received under this section for a 
     fiscal year.
       ``(4) Food assistance and administrative expenditures.--In 
     each fiscal year, not more than 6 percent of the Federal and 
     State funds required to be expended by a State under this 
     section shall be used for administrative expenses.
       ``(5) Provision of food assistance.--A State may provide 
     food assistance under this section in any manner determined 
     appropriate by the State, such as electronic benefit transfer 
     limited to food purchases, coupons limited to food purchases, 
     or direct provision of commodities.
       ``(k) Quality Control.--Each State participating in the 
     program established under this section shall maintain a 
     system in accordance with, and shall be subject to section 
     16(c), including sanctions and eligibility for incentive 
     payment under section 16(c).
       ``(l) Nondiscrimination.--
       ``(1) In general.--The Secretary shall not provide 
     financial assistance for any program, project, or activity 
     under this section if any person with responsibilities for 
     the operation of the program, project, or activity 
     discriminates with respect to the program, project, or 
     activity because of race, religion, color, national origin, 
     sex, or disability.
       ``(2) Enforcement.--The powers, remedies, and procedures 
     set forth in title VI of the Civil Rights Act of 1964 (42 
     U.S.C. 2000d et seq.) may be used by the Secretary to enforce 
     paragraph (1).
       ``(m) Grant Calculation.--
       ``(1) State grant.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     from the amounts made available under section 18 for each 
     fiscal year, the Secretary shall provide a grant to each 
     State participating in the program established under this 
     section an amount that is equal to the sum of--
       ``(i) the greater of, as determined by the Secretary--

       ``(I) the total dollar value of all benefits issued under 
     the food stamp program established under this Act by the 
     State during fiscal year 1994; or
       ``(II) the average per fiscal year of the total dollar 
     value of all benefits issued under the food stamp program by 
     the State during each of fiscal years 1992 through 1994; and

       ``(ii) the greater of, as determined by the Secretary--

       ``(I) the total amount received by the State for 
     administrative costs under section 16 for fiscal year 1994; 
     or
       ``(II) the average per fiscal year of the total amount 
     received by the State for administrative costs under section 
     16 for each of fiscal years 1992 through 1994.

       ``(B) Insufficient funds.--If the Secretary finds that the 
     total amount of grants to which States would otherwise be 
     entitled for a fiscal year under subparagraph (A) will exceed 
     the amount of funds that will be made available to provide 
     the grants for the fiscal year, the Secretary shall reduce 
     the grants made to States under this subsection, on a pro 
     rata basis, to the extent necessary.
       ``(2) Reduction.--The Secretary shall reduce the grant of a 
     State by the amount a State has agreed to contribute under 
     subsection (c)(1)(C).''.
       (b) Employment and Training Funding.--Section 16(h) of the 
     Act (7 U.S.C. 2025(a)), as amended by section 13027(d)(2), is 
     further amended by adding at the end the following:
       ``(6) Block grant states.--Each State electing to operate a 
     program under section 25 shall--
       ``(A) receive the greater of--
       ``(i) the total dollar value of the funds received under 
     paragraph (1) by the State during fiscal year 1994; or
       ``(ii) the average per fiscal year of the total dollar 
     value of all funds received under paragraph (1) by the State 
     during each of fiscal years 1992 through 1994; and
       ``(B) be eligible to receive funds under paragraph (2), 
     within the limitations in section 6(d)(4)(K).''.
       (c) Research On Optional State Food Assistance Block 
     Grant.--Section 17 of the Act (7 U.S.C. 2026), as amended by 
     section 13055(c)(2), is further amended by adding at the end 
     the following:
       ``(l) Research On Optional State Food Assistance Block 
     Grant.--The Secretary may conduct research on the effects and 
     costs of a State program carried out under section 25.''.

     SEC. 13057. AMERICAN SAMOA.

       The Food Stamp Act of 1977 (7 U.S.C. 2011 et seq.), as 
     amended by section 13056, is further amended by adding at the 
     end the following:

     ``SEC. 26. TERRITORY OF AMERICAN SAMOA.

       From amounts made available to carry out this Act, the 
     Secretary may pay to the Territory of American Samoa not more 
     than $5,300,000 for each of fiscal years 1996 through 2002 to 
     finance 100 percent of the expenditures for the fiscal year 
     for a nutrition assistance program extended under section 
     601(c) of Public Law 96-597 (48 U.S.C. 1469d(c)).''.

     SEC. 13058. ASSISTANCE FOR COMMUNITY FOOD PROJECTS.

       The Food Stamp Act of 1977 (7 U.S.C. 2011 et seq.), as 
     amended by section 13057, is further amended by adding at the 
     end the following:

     ``SEC. 27. ASSISTANCE FOR COMMUNITY FOOD PROJECTS.

       ``(a) Definition of Community Food Projects.--In this 
     section, the term `community food project' means a community-
     based project that requires a 1-time infusion of Federal 
     assistance to become self-sustaining and that is designed 
     to--
       ``(1) meet the food needs of low-income people;
       ``(2) increase the self-reliance of communities in 
     providing for their own food needs; and
       ``(3) promote comprehensive responses to local food, farm, 
     and nutrition issues.
       ``(b) Authority To Provide Assistance.--
       ``(1) In general.--From amounts made available to carry out 
     this Act, the Secretary may make grants to assist eligible 
     private nonprofit entities to establish and carry out 
     community food projects.
       ``(2) Limitation on grants.--The total amount of funds 
     provided as grants under this 

[[Page H 12747]]
     section for any fiscal year may not exceed $2,500,000.
       ``(c) Eligible Entities.--To be eligible for a grant under 
     subsection (b), a private nonprofit entity must--
       ``(1) have experience in the area of--
       ``(A) community food work, particularly concerning small 
     and medium-sized farms, including the provision of food to 
     people in low-income communities and the development of new 
     markets in low-income communities for agricultural producers; 
     or
       ``(B) job training and business development activities for 
     food-related activities in low-income communities;
       ``(2) demonstrate competency to implement a project, 
     provide fiscal accountability, collect data, and prepare 
     reports and other necessary documentation; and
       ``(3) demonstrate a willingness to share information with 
     researchers, practitioners, and other interested parties.
       ``(d) Preference for Certain Projects.--In selecting 
     community food projects to receive assistance under 
     subsection (b), the Secretary shall give a preference to 
     projects designed to--
       ``(1) develop linkages between 2 or more sectors of the 
     food system;
       ``(2) support the development of entrepreneurial projects;
       ``(3) develop innovative linkages between the for-profit 
     and nonprofit food sectors; or
       ``(4) encourage long-term planning activities and multi-
     system, interagency approaches.
       ``(e) Matching Funds Requirements.--
       ``(1) Requirements.--The Federal share of the cost of 
     establishing or carrying out a community food project that 
     receives assistance under subsection (b) may not exceed 50 
     percent of the cost of the project during the term of the 
     grant.
       ``(2) Calculation.--In providing for the non-Federal share 
     of the cost of carrying out a community food project, the 
     entity receiving the grant shall provide for the share 
     through a payment in cash or in kind, fairly evaluated, 
     including facilities, equipment, or services.
       ``(3) Sources.--An entity may provide for the non-Federal 
     share through State government, local government, or private 
     sources.
       ``(f) Term of Grant.--
       ``(1) Single grant.--A community food project may be 
     supported by only a single grant under subsection (b).
       ``(2) Term.--The term of a grant under subsection (b) may 
     not exceed 3 years.
       ``(g) Technical Assistance and Related Information.--
       ``(1) Technical assistance.--In carrying out this section, 
     the Secretary may provide technical assistance regarding 
     community food projects, processes, and development to an 
     entity seeking the assistance.
       ``(2) Sharing Information.--
       ``(A) In general.--The Secretary may provide for the 
     sharing of information concerning community food projects and 
     issues among and between government, private for-profit and 
     nonprofit groups, and the public through publications, 
     conferences, and other appropriate forums.
       ``(B) Other interested parties.--The Secretary may share 
     information concerning community food projects with 
     researchers, practitioners, and other interested parties.
       ``(h) Evaluation.--
       ``(1) In general.--The Secretary shall provide for the 
     evaluation of the success of community food projects 
     supported using funds under this section.
       ``(2) Report.--Not later than January 30, 2002, the 
     Secretary shall submit a report to Congress regarding the 
     results of the evaluation.''.

               CHAPTER 2--COMMODITY DISTRIBUTION PROGRAMS

     SEC. 13071. EMERGENCY FOOD ASSISTANCE PROGRAM.

       (a) Definitions.--Section 201A of the Emergency Food 
     Assistance Act of 1983 (Public Law 98-8; 7 U.S.C. 612c note) 
     is amended to read as follows:

     ``SEC. 201A. DEFINITIONS.

       ``In this Act:
       ``(1) Additional commodities.--The term `additional 
     commodities' means commodities made available under section 
     214 in addition to the commodities made available under 
     sections 202 and 203D.
       ``(2) average monthly number of unemployed persons.--The 
     term `average monthly number of unemployed persons' means the 
     average monthly number of unemployed persons in each State in 
     the most recent fiscal year for which information concerning 
     the number of unemployed persons is available, as determined 
     by the Bureau of Labor Statistics of the Department of Labor.
       ``(3) Eligible recipient agency.--The term `eligible 
     recipient agency' means a public or nonprofit organization--
       ``(A) that administers--
       ``(i) an emergency feeding organization;
       ``(ii) a charitable institution (including a hospital and a 
     retirement home, but excluding a penal institution) to the 
     extent that the institution serves needy persons;
       ``(iii) a summer camp for children, or a child nutrition 
     program providing food service;
       ``(iv) a nutrition project operating under the Older 
     Americans Act of 1965 (42 U.S.C. 3001 et seq.), including a 
     project that operates a congregate nutrition site and a 
     project that provides home-delivered meals; or
       ``(v) a disaster relief program;
       ``(B) that has been designated by the appropriate State 
     agency, or by the Secretary; and
       ``(C) that has been approved by the Secretary for 
     participation in the program established under this Act.
       ``(4) Emergency feeding organization.--The term `emergency 
     feeding organization' means a public or nonprofit 
     organization that administers activities and projects 
     (including the activities and projects of a charitable 
     institution, a food bank, a food pantry, a hunger relief 
     center, a soup kitchen, or a similar public or private 
     nonprofit eligible recipient agency) providing nutrition 
     assistance to relieve situations of emergency and distress 
     through the provision of food to needy persons, including 
     low-income and unemployed persons.
       ``(5) Food bank.--The term `food bank' means a public or 
     charitable institution that maintains an established 
     operation involving the provision of food or edible 
     commodities, or the products of food or edible commodities, 
     to food pantries, soup kitchens, hunger relief centers, or 
     other food or feeding centers that, as an integral part of 
     their normal activities, provide meals or food to feed needy 
     persons on a regular basis.
       ``(6) Food pantry.--The term `food pantry' means a public 
     or private nonprofit organization that distributes food to 
     low-income and unemployed households, including food from 
     sources other than the Department of Agriculture, to relieve 
     situations of emergency and distress.
       ``(7) Poverty line.--The term `poverty line' has the same 
     meaning given the term in section 673(2) of the Community 
     Services Block Grant Act (42 U.S.C. 9902(2)).
       ``(8) Soup kitchen.--The term `soup kitchen' means a public 
     or charitable institution that, as integral part of the 
     normal activities of the institution, maintains an 
     established feeding operation to provide food to needy 
     homeless persons on a regular basis.
       ``(9) Total value of additional commodities.--The term 
     `total value of additional commodities' means the actual cost 
     of all additional commodities made available under section 
     214 that are paid by the Secretary (including the 
     distribution and processing costs incurred by the Secretary).
       ``(10) Value of additional commodities allocated to each 
     state.--The term `value of additional commodities allocated 
     to each State' means the actual cost of additional 
     commodities made available under section 214 and allocated to 
     each State that are paid by the Secretary (including the 
     distribution and processing costs incurred by the 
     Secretary).''.
       (b) State Plan.--Section 202A of the Act (7 U.S.C. 612c 
     note) is amended to read as follows:

     ``SEC. 202A. STATE PLAN.

       ``(a) In General.--To receive commodities under this Act, a 
     State shall submit a plan of operation and administration 
     every 4 years to the Secretary for approval. The plan may be 
     amended at any time, with the approval of the Secretary.
       ``(b) Requirements.--Each plan shall--
       ``(1) designate the State agency responsible for 
     distributing the commodities received under this Act;
       ``(2) set forth a plan of operation and administration to 
     expeditiously distribute commodities under this Act;
       ``(3) set forth the standards of eligibility for recipient 
     agencies; and
       ``(4) set forth the standards of eligibility for individual 
     or household recipients of commodities, which shall require--
       ``(A) individuals or households to be comprised of needy 
     persons; and
       ``(B) individual or household members to be residing in the 
     geographic location served by the distributing agency at the 
     time of applying for assistance.
       ``(c) State Advisory Board.--The Secretary shall encourage 
     each State receiving commodities under this Act to establish 
     a State advisory board consisting of representatives of all 
     interested entities, both public and private, in the 
     distribution of commodities received under this Act in the 
     State.''.
       (c) Authorization of Appropriations For Administrative 
     Funds.--Section 204(a)(1) of the Act (7 U.S.C. 612c note) is 
     amended--
       (1) in the first sentence--
       (A) by striking ``1991 through 1995' and inserting ``1996 
     through 2002''; and
       (B) by striking ``for State and local'' and all that 
     follows through ``under this title'' and inserting ``to pay 
     for the direct and indirect administrative costs of the State 
     related to the processing, transporting, and distributing to 
     eligible recipient agencies of commodities provided by the 
     Secretary under this Act and commodities secured from other 
     sources''; and
       (2) by striking the fourth sentence.
       (d) Delivery of Commodities.--Section 214 of the Act (7 
     U.S.C. 612c note) is amended--
       (1) by striking subsections (a) through (e) and (j);
       (2) by redesignating subsections (f) through (i) as 
     subsections (a) through (d), respectively;
       (3) in subsection (b), as redesignated by paragraph (2)--
       (A) in the first sentence, by striking ``subsection (f) or 
     subsection (j) if applicable,'' and inserting ``subsection 
     (a)''; and
       (B) in the second sentence, by striking ``subsection (f)'' 
     and inserting ``subsection (a)'';
       (4) by striking subsection (c), as redesignated by 
     paragraph (2), and inserting the following:
       ``(c) Administration.--
       ``(1) In general.--Commodities made available for each 
     fiscal year under this section shall be delivered at 
     reasonable intervals to States based on the grants calculated 
     under subsection (a), or reallocated under subsection (b), 
     before December 31 of the following fiscal year.
       ``(2) Entitlement.--Each State shall be entitled to receive 
     the value of additional commodities determined under 
     subsection (a).''; and
       (5) in subsection (d), as redesignated by paragraph (2), by 
     striking ``or reduce'' and all that follows through ``each 
     fiscal year''.
       (e) Technical Amendments.--The Act (7 U.S.C. 612c note) is 
     amended--
       (1) in the first sentence of section 203B(a), by striking 
     ``203 and 203A of this Act'' and inserting ``203A'';

[[Page H 12748]]

       (2) in section 204(a), by striking ``title'' each place it 
     appears and inserting ``Act'';
       (3) in the first sentence of section 210(e), by striking 
     ``(except as otherwise provided for in section 214(j))''; and
       (4) by striking section 212.
       (f) Report on EFAP.--Section 1571 of the Food Security Act 
     of 1985 (Public Law 99-198; 7 U.S.C. 612c note) is repealed.
       (g) Availability of Commodities Under the Food Stamp 
     Program.--The Food Stamp Act of 1977 (7 U.S.C. 2011 et seq.), 
     as amended by section 13058, is further amended by adding at 
     the end the following:

     ``SEC. 28. AVAILABILITY OF COMMODITIES FOR THE EMERGENCY FOOD 
                   ASSISTANCE PROGRAM.

       ``(a) Purchase of Commodities.--From amounts appropriated 
     under this Act, for each of fiscal years 1997 through 2002, 
     the Secretary shall purchase $300,000,000 of a variety of 
     nutritious and useful commodities of the types that the 
     Secretary has the authority to acquire through the Commodity 
     Credit Corporation or under section 32 of the Act entitled 
     `An Act to amend the Agricultural Adjustment Act, and for 
     other purposes', approved August 24, 1935 (7 U.S.C. 612c), 
     and distribute the commodities to States for distribution in 
     accordance with section 214 of the Emergency Food Assistance 
     Act of 1983 (Public Law 98-8; 7 U.S.C. 612c note).
       ``(b) Basis for Commodity Purchases.--In purchasing 
     commodities under subsection (a), the Secretary shall, to the 
     extent practicable and appropriate, make purchases based on--
       ``(1) agricultural market conditions;
       ``(2) preferences and needs of States and distributing 
     agencies; and
       ``(3) preferences of recipients.''.
       (h) Effective Date.--The amendments made by subsection (d) 
     shall become effective on October 1, 1996.

             Subtitle L--Reform of the Earned Income Credit

     SEC. 13200. AMENDMENT OF 1986 CODE.

       Except as otherwise expressly provided, whenever in this 
     subtitle an amendment or repeal is expressed in terms of an 
     amendment to, or repeal of, a section or other provision, the 
     reference shall be considered to be made to a section or 
     other provision of the Internal Revenue Code of 1986.

     SEC. 13201. EARNED INCOME CREDIT DENIED TO INDIVIDUALS NOT 
                   AUTHORIZED TO BE EMPLOYED IN THE UNITED STATES.

       (a) In General.--Section 32(c)(1) (relating to individuals 
     eligible to claim the earned income credit) is amended by 
     adding at the end the following new subparagraph:
       ``(F) Identification number requirement.--The term 
     `eligible individual' does not include any individual who 
     does not include on the return of tax for the taxable year--
       ``(i) such individual's taxpayer identification number, and
       ``(ii) if the individual is married (within the meaning of 
     section 7703), the taxpayer identification number of such 
     individual's spouse.''.
       (b) Special Identification Number.--Section 32 is amended 
     by adding at the end the following new subsection:
       ``(l) Identification Numbers.--Solely for purposes of 
     subsections (c)(1)(F) and (c)(3)(D), a taxpayer 
     identification number means a social security number issued 
     to an individual by the Social Security Administration (other 
     than a social security number issued pursuant to clause (II) 
     (or that portion of clause (III) that relates to clause (II) 
     of section 205(c)(2)(B)(i) of the Social Security Act.''.
       (c) Extension of Procedures Applicable to Mathematical or 
     Clerical Errors.--Section 6213(g)(2) (relating to the 
     definition of mathematical or clerical errors) is amended by 
     striking ``and'' at the end of subparagraph (D), by striking 
     the period at the end of subparagraph (E) and inserting a 
     comma, and by inserting after subparagraph (E) the following 
     new subparagraphs:
       ``(F) an omission of a correct taxpayer identification 
     number required under section 32 (relating to the earned 
     income credit) to be included on a return and
       ``(G) an entry on a return claiming the credit under 
     section 32 with respect to net earnings from self-employment 
     described in section 32(c)(2)(A) to the extent the tax 
     imposed by section 1401 (relating to self-employment tax) on 
     such net earnings has not been paid.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 13202. REPEAL OF EARNED INCOME CREDIT FOR INDIVIDUALS 
                   WITHOUT CHILDREN.

       (a) In General.--Subparagraph (A) of section 32(c)(1) 
     (defining eligible individual) is amended to read as follows:
       (A) In general.--The term `eligible individual' means any 
     individual who has a qualifying child for the taxable 
     year.''.
       (b) Conforming Amendments.--Each of the tables contained in 
     paragraphs (1) and (2) of section 32(b) are amended by 
     striking the items relating to no qualifying children.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 13203. MODIFICATION OF EARNED INCOME CREDIT AMOUNT AND 
                   PHASEOUT.

       (a) Modification of Phaseout.--Subparagraph (B) of section 
     32(a)(2) is amended to read as follows:
       ``(B) the sum of--
       ``(i) the initial phaseout percentage of so much of the 
     adjusted gross income (or, if greater, the earned income) of 
     the taxpayer for the taxable year as exceeds the initial 
     phaseout amount but does not exceed the final phaseout 
     amount, plus
       ``(ii) the final phaseout percentage of so much of the 
     adjusted gross income (or, if greater, the earned income) of 
     the taxpayer for the taxable year as exceeds the final 
     phaseout amount.''
       (b) Percentages and Amounts.--
       (1) In general.--Subsection (b) of section 32, as amended 
     by section 13202(b), is amended to read as follows:
       ``(b) Percentages and Amounts.--
       ``(1) Percentages.--The credit percentage, the initial 
     phaseout percentage, and the final phaseout percentage shall 
     be determined as follows:

------------------------------------------------------------------------
                                                      The               
                                      The credit    initial    The final
    ``In the case of an eligible      percentage   phaseout    phaseout 
          individual with:                is:     percentage  percentage
                                                      is:         is:   
------------------------------------------------------------------------
1 qualifying child..................         34       15.98          20 
2 or more qualifying children.......         36       21.06          25 
------------------------------------------------------------------------

       ``(2) Amounts.--The earned income amount, the initial 
     phaseout amount, and the final phaseout amount shall be 
     determined as follows:

------------------------------------------------------------------------
                                                     The                
    ``In the case of an eligible     The earned    initial    The final 
          individual with:             income     phaseout     phaseout 
                                     amount is:  amount is:   amount is:
------------------------------------------------------------------------
1 qualifying child.................     $6,340     $11,630      $14,850 
2 or more qualifying children......     $8,910     $11,630   $17,750''. 
------------------------------------------------------------------------

       (2) Increase in credit for lower-income families having 2 
     more qualifying children.--Subsection (d) of section 32 is 
     amended to read as follows:
       ``(d) Increase in Credit for Lower-Income Families Having 2 
     or More Qualifying Children.--
       ``(1) In general.--If an eligible individual has 2 or more 
     qualifying children, for purposes of applying paragraphs (1) 
     and (2)(A) of subsection (a)--
       ``(A) the amount of the taxpayer's earned income shall be 
     treated as being equal to \10/9\ of such income (determined 
     without regard to this paragraph), and
       ``(B) the earned income amount shall be treated as being 
     equal to \10/9\ of such amount (determined without regard to 
     this paragraph).
       ``(2) Phaseout of benefit.--If the applicable income of the 
     taxpayer for the taxable year exceeds $14,000 ($17,000 in the 
     case of a joint return), the amount of each increase under 
     paragraph (1) shall be reduced (but not below zero) by an 
     amount which bears the same ratio to such increase 
     (determined without regard to this subparagraph) as such 
     excess bears to $4,000.
       ``(3) Applicable income.--For purposes of this subsection, 
     the term `applicable income' means adjusted gross income or, 
     if greater, earned income.''
       (3) Conforming amendments.--
       (A) Subsection (j) of section 32 is amended--
       (i) by striking ``subsection (b)(2)(A)'' and inserting 
     ``subsection (b)(2) or (d)'',
       (ii) by striking ``1994'' and inserting ``1996'', and
       (iii) by striking ``1993'' and inserting ``1995''.
       (B) Subsection (e) of section 32 is amended to read as 
     follows:
       ``(e) Other Special Rules--
       ``(1) Married individuals.--In the case of an individual 
     who is married (within the meaning of section 7703), this 
     section shall apply only if a joint return is filed for the 
     taxable year.
       ``(2) Taxable year must be full taxable year.--Except in 
     the case of a taxable year closed by reason of the death of 
     an individual, no credit shall be allowable under this 
     section in the case of a taxable year covering a period of 
     less than 12 months.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 13204. RULES RELATING TO DENIAL OF EARNED INCOME CREDIT 
                   ON BASIS OF DISQUALIFIED INCOME.

       (a) Definition of Disqualified Income.--Paragraph (2) of 
     section 32(i) (defining disqualified income) is amended by 
     striking ``and'' at the end of subparagraph (B), by striking 
     the period at the end of subparagraph (C) and inserting ``, 
     and'', and by adding at the end the following new 
     subparagraph:
       ``(D) the excess (if any) of--
       ``(i) the aggregate income from all passive activities for 
     the taxable year (determined without regard to any amount 
     described in a preceding subparagraph), over
       ``(ii) the aggregate losses from all passive activities for 
     the taxable year (as so determined).
     For purposes of subparagraph (D), the term `passive activity' 
     has the meaning given such term by section 469.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 13205. MODIFICATION OF ADJUSTED GROSS INCOME DEFINITION 
                   FOR EARNED INCOME CREDIT.

       (a) In General.--Subsections (a)(2), (c)(1)(C), (d), and 
     (f)(2)(B) of section 32, as amended by the preceding sections 
     of this subtitle, are each amended by striking ``adjusted 
     gross income'' each place it appears and inserting ``modified 
     adjusted gross income''.
       (b) Modified Adjusted Gross Income Defined.--Section 32(c) 
     (relating to definitions and special rules) is amended by 
     adding at the end the following new paragraph:
       ``(5) Modified adjusted gross income.--
       ``(A) In general.--The term `modified adjusted gross 
     income' means adjusted gross income--
       ``(i) increased by the sum of the amounts described in 
     subparagraph (B), and 

[[Page H 12749]]

       ``(ii) determined without regard to--

       ``(I) the amounts described in subparagraph (C), or
       ``(II) the deduction allowed under section 172.

       ``(B) Nontaxable income taken into account.--Amounts 
     described in this subparagraph are--
     ``(i) social security benefits (as defined in section 86(d)) 
     received by the taxpayer during the taxable year to the 
     extent not included in gross income,
       ``(ii) amounts which--

       ``(I) are received during the taxable year by (or on behalf 
     of) a spouse pursuant to a divorce or separation instrument 
     (as defined in section 71(b)(2)), and
       ``(II) under the terms of the instrument are fixed as 
     payable for the support of the children of the payor spouse 
     (as determined under section 71(c)),

     but only to the extent such amounts exceed $6,000,
       ``(iii) interest receive or accrued during the taxable year 
     which is exempt from tax imposed by this chapter, and
       ``(iv) amounts received as a pension or annuity, and any 
     distributions or payments received from an individual 
     retirement plan, by the taxpayer during the taxable year to 
     the extent not included in gross income.
     Clause (iv) shall not include any amount which is not 
     includible in gross income by reason of section 402(c), 
     403(a)(4), 403(b)(8), 408(d) (3), (4), or (5), or 457(e)(10).
       ``(C) Certain amounts disregarded.--an amount is described 
     in this subparagraph if it is--

       ``(i) the amount of losses form sales or exchanges of 
     capital assets in excess of gains from such sales or 
     exchanges to the extent such amount does not exceed the 
     amount under section 1211(b)(1),
       ``(ii) the net loss from the carrying on of trades or 
     businesses, computed separately with respect to--

       ``(I) trades or businesses (other than farming) conducted 
     as sole proprietorships,
       ``(II) trades or businesses of farming conducted as sole 
     proprietorships, and
       ``(III) other trades or business,

       ``(iii) the net loss from estates and trusts, and
       ``(iv) the excess (if any) of amounts described in 
     subsection (i)(2)(C)(ii) over the amounts described in 
     subsection (i)(2)(C)(i) (relating to nonbusiness rents and 
     royalties).

     For purposes of clause (ii), there shall not be taken into 
     account items which are attributable to a trade or business 
     which consists of the performance of services by the taxpayer 
     as an employee.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 13206. PROVISIONS TO IMPROVE TAX COMPLIANCE.

       (a) Increase in Penalties for Return Preparers.--
       (1) Understatement penalty.--Section 6694 (relating to 
     understatement of income tax liability by income tax return 
     preparer) is amended--
       (A) by striking ``$250'' in subsection (a) and inserting 
     ``$500'', and
       (B) by striking ``$1,000'' in subsection (b) and inserting 
     ``$2,000''.
       (2) Other assessable penalties.--Section 6695 (relating to 
     other assessable penalties) is amended--
       (A) by striking ``$50'' and ``$25,000'' in subsections (a), 
     (b), (c), (d), and (e) and inserting ``$100'' and 
     ``$50,000'', respectively, and
       (B) by striking ``$500'' in subsection (f) and inserting 
     ``$1,000''.
       (b) Aiding and Abetting Penalty.--Section 6701(b) (relating 
     to amount of penalty) is amended--
       (1) by striking ``$1,000'' in paragraph (1) and inserting 
     ``$2,000'', and
       (2) by striking ``10,000'' in paragraph (2) and inserting 
     ``20,000''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to penalties with respect to taxable years 
     beginning after December 31, 1995.
                   Subtitle M--Clinical Laboratories

     SEC. 13301. EXEMPTION OF PHYSICIAN OFFICE LABORATORIES.

       Section 353(d) of the Public Health Service Act (42 U.S.C. 
     263a(d)) is amended--
       (1) by redesignating paragraphs (2), (3), and (4) as 
     paragraphs (3), (4), and (5) and by adding after paragraph 
     (1) the following:
       ``(2) Exemption of physician office laboratories.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     a clinical laboratory in a physician's office (including an 
     office of a group of physicians) which is directed by a 
     physician and in which examinations and procedures are either 
     performed by a physician or by individuals supervised by a 
     physician solely as an adjunct to other services provided by 
     the physician's office is exempt from this section.
       ``(B) Exception.--A clinical laboratory described in 
     subparagraph (A) is not exempt from this section when it 
     performs a pap smear (Papanicolaou Smear) analysis.
       ``(C) Definition.--For purposes of subparagraph (A), the 
     term `physician' has the same meaning as is prescribed for 
     such term by section 1861(r) of the Social Security Act (42 
     U.S.C. 1395x(r)).'';
       (2) in paragraph (3) (as so redesignated) by striking 
     ``(3)'' and inserting ``(4)''; and
       (3) in paragraphs (4) and (5) (as so redesignated) by 
     striking ``(2)'' and inserting ``(3)''.

       And the Senate agree to the same.
     For consideration of the House bill and the Senate amendment, 
     and modifications committed on conference:
     John R. Kasich,
     Robert S. Walker,
     Dick Armey,
     Tom DeLay,
     John Boehner,
     As additional conferees from the Committee on the Budget, for 
     consideration of title XX of the House bill, and 
     modifications committed to conference:
     Jim Kolbe,
     Christopher Shays,
     Dave Hobson,
     As additional conferees from the Committee on Agriculture, 
     for consideration of title I of the House bill, and subtitles 
     A-C of title I of the Senate amendment, and modifications 
     committed to conference:
     Pat Roberts,
     Bill Emerson,
     As additional conferees from the Committee on Banking and 
     Financial Services, for consideration of title II of the 
     House bill, and title III of the Senate amendment, and 
     modifications committed to conference:
     James A. Leach,
     Bill McCollum,
     Marge Roukema,
     As additional conferees from the Committee on Commerce, for 
     consideration of title III of the House bill, and subtitle A 
     of title IV, subtitles A and G of title V, and section 6004 
     of the Senate amendment, and modifications committed to 
     conference:
     Tom Bliley,
     Dan Schaefer,
     As additional conferees from the Committee on Commerce, for 
     consideration of title XV of the House bill, and subtitle A 
     of title VII of the Senate amendment, and modifications 
     committed to conference:
     Tom Bliley,
     Michael Bilirakis,
     J. Dennis Hastert,
     James Greenwood,
     As additional conferees from the Committee on Commerce, for 
     consideration of title XVI of the House bill, and subtitle B 
     of title VII of the Senate amendment, and modifications 
     committed to conference:
     Tom Bliley,
     Michael Bilirakis,
     Billy Tauzin,
     Joe Barton,
     Bill Paxon,
     J. Dennis Hastert,
     James Greenwood,
     Ralph M. Hall,
     As additional conferees from the Committee on Economic and 
     Educational Opportunities, for consideration of title IV of 
     the House bill, and title X of the Senate amendment, and 
     modifications committed to conference:
     William F. Goodling,
     Buck McKeon,
     As additional conferees from the Committee on Government 
     Reform and Oversight, for consideration of title V of the 
     House bill, and title VIII and sections 13001 and 13003 of 
     the Senate amendment, and modifications committed to 
     conference:
     Bill Clinger,
     Steven Schiff,
     As additional conferees from the Committee on International 
     Relations, for consideration of title VI of the House bill, 
     and section 13002 of the Senate amendment, and modifications 
     committed to conference:
     Ben Gilman,
     Dan Burton,
     As additional conferees from the Committee on the Judiciary, 
     for consideration of title VII of the House bill, and title 
     IX and section 12944 of the Senate amendment, and 
     modifications committed to conference:
     Henry Hyde,
     Carlos J. Moorhead,
     As additional conferees from the Committee on National 
     Security, for consideration of title VIII of the House bill, 
     and title II of the Senate amendment, and modifications 
     committed to conference:
     Floyd Spence,
     Duncan Hunter,
     As additional conferees from the Committee on Resources, for 
     consideration of title IX of the House bill, and title V 
     (except subtitles A and G) of the Senate amendment, and 
     modifications committed to conference:
     Don Young,
     Billy Tauzin,
     As additional conferees from the Committee on Transportation 
     and Infrastructure, for consideration of title X of the House 
     bill, and subtitles B and C of title IV and title VI (except 
     section 6004) of the Senate amendment, and modifications 
     committed to conference:
     Bud Shuster,
     Bill Clinger,
     As additional conferees from the Committee on Veterans' 
     Affairs, for consideration of title XI of the House bill, and 
     title XI of the Senate amendment, and modifications committed 
     to conference:
     Robert Stump,
     Tim Hutchinson,
     G.V. Montgomery,
     As additional conferees from the Committee on Ways and Means, 
     for consideration of titles XII, XIII, XIV, and XIX of the 
     House bill, and subtitles H and I of title VII and title XII 
     (except section 12944) of the Senate amendment, and 
     modifications committed to conference:
     Bill Archer,
     Phil Crane,
     Wm. Thomas,
     E. Clay Shaw, Jr.,
     Jim Bunning,
     As additional conferees from the Committee on Ways and Means, 
     for consideration of title XV of the House bill, and subtitle 
     A of title VII of the Senate amendment, and modifications 
     committed to conference:
     Bill Archer,

[[Page H 12750]]

     Wm. Thomas,
     Nancy L. Johnson,
     Jim McCrery,
                                Managers on the Part of the House.

     From the Committee on the Budget for consideration of all 
     titles:
     Pete V. Domenici,
     Chuck Grassley,
     From the Committee on Agriculture, Nutrition, and Forestry:
     Dick Lugar
       (for consideration of all of title I),
     Bob Dole
       (for consideration of all of title I),
     Jesse Helms
       (for consideration of section 113 and subtitle D),
     Thad Cochran
       (for consideration of title I, except sections 1106, 1108, 
     1113, and subtitle D),
     Larry E. Craig
       (for consideration of sections 1106 and 1108),
     From the Committee on Armed Services:
     Strom Thurmond,
     John McCain,
     From the Committee on Banking, Housing and Urban Affairs:
     Alfonse M. D'Amato,
     Phil Gramm,
     From the Committee on Commerce, Science, and Transportation:
     Larry Pressler,
     Ted Stevens,
     John McCain,
     From the Committee on Energy and Natural Resources:
     Frank H. Murkowski,
     Mark O. Hatfield,
     Don Nickles,
     From the Committee on Environment and Public Works:
     John H. Chafee,
     John Warner,
     Bob Smith,
     From the Committee on Finance:
     William V. Roth, Jr.,
     Bob Dole,
     From the Committee on Governmental Affairs (and for 
     consideration of the title of the House bill relating solely 
     to abolishing the Department of Commerce):
     Ted Stevens,
     Fred Thompson,
     From the Committee on the Judiciary:
     Orrin Hatch,
     Chuck Grassley,
     From the Committee on Labor and Human Resources:
     Nancy Landon Kassebaum,
     Dan Coats,
     Bill Frist,
     From the Committee on Veterans Affairs:
     Alan K. Simpson,
     Frank H. Murkowski,
                               Managers on the Part of the Senate.

       JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

       The managers on the part of the House and the Senate at the 
     conference on the disagreeing votes of the two Houses on the 
     amendment of the Senate to the bill (H.R. 2491) to provide 
     for reconciliation pursuant to section 105 of the concurrent 
     resolution on the budget for fiscal year 1996, submit the 
     following joint statement to the House and the Senate in 
     explanation of the effect of the action agreed upon by the 
     managers and recommended in the accompanying conference 
     report:

                          TITLE I--AGRICULTURE

(Numbers in parentheses refer to the section numbers of the provisions 
  in the House Bill (H) the Senate Amendment (S), and the Conference 
                              Report (CR))

       The Managers on the part of the House and the Senate on 
     title I of the bill met to resolve a number of issues in 
     disagreement between the House Bill and the Senate Amendment. 
     A number of provisions agreed to by the Managers are included 
     in the Conference Substitute. However, a number of provisions 
     that were agreed to by the Managers were subsequently removed 
     from the Conference Substitute pursuant to the Manager's 
     agreement that provisions potentially violative of section 
     313 of the Congressional Budget Act of 1974, commonly 
     referred to as the ``Byrd Rule'', be removed from the 
     Conference Substitute.
       The Byrd Rule provides in pertinent part, that during 
     Senate debate on a reconciliation conference report, any 
     Senator may make a point of order against extraneous material 
     that, if sustained, will result in the extraneous material 
     being stricken and result in the Conference Report being sent 
     back to the House. The Rule also provides guidance as to what 
     constitutes extraneous matter in a reconciliation conference 
     report.

           Subtitle A--Agricultural Market Transition Program


                   definitions (H.  , S.  , CR. 1102)

       The House Bill authorized the Secretary to enter into a 7-
     year market transition contract (1996 to 2002) with eligible 
     owners and operators on a farm containing eligible farmland. 
     The land on the farm must have been enrolled in 1 or more of 
     the annual upland cotton, rice, feed grain, or wheat 
     programs, or contain considered planted acreage, for a total 
     of at least 1 of the 1991 through 1995 crop years to be 
     eligible for a Freedom to Farm contract.
       The Senate Amendment required that the land on a farm must 
     have been enrolled in 1 or more of the annual upland cotton, 
     rice, feed grain, or wheat programs, or contain considered 
     planted acreage, for a total of at least 3 of the 1991 
     through 1995 crop years to participate in an annual commodity 
     program in calendar years 1996-2002.
       The Conference Substitute amends the House provision and 
     establishes the 1996 contract acreage and payment yield as 
     the 1996 crop acreage base and yield that would have been 
     established under the Agriculture Act of 1949 (that is 
     repealed, except that certain of its provisions are inserted 
     in the Agricultural Adjustment Act of 1938). To be eligible 
     for a production flexibility contract, the land on a farm 
     must have been enrolled in 1 or more of the annual upland 
     cotton, rice, feed grain, or wheat programs, or contain 
     considered planted acreage, for a total of at least 1 of the 
     1991 through 1995 crop years on the farm.


         production flexibility contracts (H.  , S.  , CR 1103)

       The House Bill describes the terms owner and operator as 
     those eligible to enter into contracts, and instructs the 
     Secretary to provide adequate safeguards to protect the 
     interests of operators who are tenants and sharecroppers. The 
     bill establishes a contract system of guaranteed annual 
     payments to owners and operators over fiscal years 1996-2002 
     that describes eligible farmland as that which contains a 
     crop acreage base, at least a portion of which was enrolled 
     in the acreage reduction programs for the major farm program 
     crops (wheat, feed grains, cotton and rice) during one of the 
     1991 through 1995 crop years, including zero certified 
     considered planted acreage. Conservation reserve program 
     (CRP) acreage that contains crop acreage base was made 
     eligible for transfer into a Freedom to Farm contract.
       The yearly spending limits under the House bill are derived 
     by scoring all the deficiency payments made to producers 
     during crop years 1991-1995 based on budget baseline spending 
     for the farm commodities and then adjusting them by 
     subtracting payments made in fiscal years 1996 and 1997 based 
     on payments due producers based on their 1994 and 1995 
     programs on which payment balances are due. Then, adding 
     producer repayments of deficiency payments received by the 
     Secretary during fiscal years 1996 and 1997; adding market 
     transition contract payments withheld at the request of 
     producers during the preceding fiscal year as an offset 
     against repayments of deficiency payments otherwise due; and 
     adding penalties assessed in market transition contracts 
     which are refunded during the preceding fiscal year.
       Individual owner and operator contract payments are 
     determined by establishing a producer's production history, 
     divided by the total national percentage of programs payments 
     for the program crop, divided by the producer's yield history 
     for the crop. The 1996 and 1997 total contract payments 
     include the 1994 and 1995 crop deficiency payments that are 
     to be made or are unearned and would have been refunded due 
     to favorable market price conditions. Acreage reduction 
     authorities are repealed and 0/50/85/92 programs are 
     repealed.
       The Senate Amendment amends Sec. 302, 303, 304 and 305 of 
     the Agricultural Act of 1949--
       (1) by reauthorizing the rice, upland cotton, feed grain 
     and wheat programs through 2002;
       (2) by increasing unpaid flex acres to 30%;
       (3) by establishing a maximum deficiency payment rate based 
     on the February, 1995 Congressional Budget Office baseline 
     for deficiency payments;

                                CBO BASELINE DEFICIENCY PAYMENTS, FEBRUARY, 1995                                
----------------------------------------------------------------------------------------------------------------
                                                                            Crop year--                         
               Crop                               --------------------------------------------------------------
                                                     1996     1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
Corn.............................  $/bu..........     0.53     0.53     0.57     0.56     0.53     0.54     0.55
Sorghum..........................  $/bu..........     0.59     0.59     0.63     0.61     0.59     0.60     0.61
Barley...........................  $/bu..........     0.45     0.43     0.44     0.42     0.39     0.39     0.40
Oats.............................  $/bu..........     0.12     0.11     0.12     0.11     0.09     0.09     0.10
Wheat............................  $/bu..........     0.89     0.94     0.95     0.89     0.79     0.78     0.71
Cotton...........................  $/lb..........    0.086    0.121    0.131    0.136    0.130    0.120    0.115
Rice.............................  $/cwt.........     4.21     4.19     3.86     3.48     3.23     2.89     2.66
----------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office, February, 1995 Baseline.                                                   


[[Page H 12751]]

        (4) by eliminating the authority to impose acreage 
     reduction requirements;
        (5) by retaining current law provisions regarding haying 
     and grazing;
        (6) in the 0/85 option for feed grains and rice by (1) 
     paying on 85% of the payment acres devoted to conserving 
     uses, planted to alternative crops, reduced yields, and 
     oilseeds options, and (2) terminating 0/85 payments for 
     prevented planting;
        (7) in the 50/85 option for Rice by (1) changing the 50% 
     minimum planting requirement to 25%, (2) paying on 75% of the 
     payment acres devoted to conserving uses or planted to 
     alternative crops instead of 85%, (3) paying on 75% of the 
     payment acres for reduced yields, and oilseeds options, and 
     (4) terminating 0/85 payments for prevented planting;
        (8) in the 50/85 option for upland cotton by (1) 
     eliminating the 50% minimum planting requirement, (2) by 
     paying on 85% of the payment acres devoted to conserving 
     uses, planted to alternative crops, reduced yields, and 
     oilseeds options, and (3) terminating 0/85 payments for 
     prevented planting;
        (9) by terminating the 8 month nonrecourse loan extension 
     for upland cotton; and
        (10) by requiring producers to pay the storage costs for 
     upland cotton put under loan.
        The Conference Substitute adopts the House provision with 
     an amendment to establish a 7-year production flexibility 
     contract. Contract holders must comply with existing 
     conservation compliance and wetlands protection regulations, 
     and planting flexibility restrictions. Contracts are to be 
     entered into by April 15, 1996, and will extend through the 
     2002 crop. (Land may be enrolled in a contract after this 
     date if it is covered by a Conservation Reserve Contract 
     which expires or is voluntarily terminated by a producer 
     after April 15, 1996.)
        Annual payments are to be made by September 30 of each 
     year, with an advance payment of 50% payable to the producer, 
     at his or her option, not later than December 15 of the 
     previous calendar year. (For the 1996 crops, however, the 
     advance is to be paid within 60 days of the date the producer 
     signs his or her contract.)
        Total payments under all contracts are established at 
     levels derived from the February 1995 Congressional Budget 
     Office budget baseline estimate of 1996-2002 crop deficiency 
     payments. Each year, 46.22% of the payments are to be made 
     for corn, 5.11% for grain sorghum, 2.16% for barley, 0.15% 
     for oats, 26.26% for wheat, 11.63% for upland cotton and 
     8.47% for rice.
        The amounts available for contract payments will be 
     adjusted by (1) subtracting any final deficiency payments for 
     the 1994 and 1995 crops made in fiscal years 1996 or 1997; 
     (2) adding repayments of unearned advance deficiency payments 
     for the 1995 crops; (3) adding amounts deducted as offsets 
     requested by producers in lieu of repaying unearned advance 
     deficiency payments; and (4) adding any contract payments 
     refunded by producers who violate or cancel their contracts.
        To calculate contract payments, USDA will establish a 
     payment quantity for each contract commodity on a farm, equal 
     to 85% of the farm's contract acreage multiplied by the 
     farm's payment yield for that commodity. For each commodity, 
     the payment quantity will then be multiplied by the payment 
     rate to obtain the annual payment amount. (The payment rate 
     is determined by dividing the total payment quantities for 
     all contracts covering a particular commodity by the dollars 
     available for that commodity.)


  PLANTING FLEXIBILITY AND LOAN ELIGIBILITY (H.1102, H.1103, S.1109, 
                                CR.1103)

        The House Bill repeals Title V of the Agricultural Act of 
     1949 that provided for the establishment and maintenance of 
     program bases and yields and also provided for planting 
     flexibility under the 1991-1995 acreage reduction programs.
        The House Bill provides that for the 1996 through 2002 
     crop years the Freedom to Farm transition program--
        (1) allows the planting of any program crop, oilseed, 
     industrial or experimental crop, mung beans, lentils and dry 
     peas on payment acres (historical base acres);
        (2) restricts the planting of fruits or vegetables on 
     payment acres;
        (3) restricts haying and grazing on payment acres during a 
     5-month period between April 1 and October 31; and
        (4) makes all program crop production of contract holders 
     eligible for loan programs. (see marketing assistance loans 
     discussed infra.)
       The Senate Amendment amends Title V of the Agricultural Act 
     of 1949--
        (1) by precluding the planting of fruits or vegetables 
     (except lentils and peas), on paid acreage of a crop acreage 
     base (70% of historical base);
        (2) by allowing full planting flexibility and unlimited 
     haying and grazing on unpaid flex acres (30%) of a crop 
     acreage base;
        (3) by allowing the planting of wheat, feed grains, or 
     oilseeds on all acreage on a farm with full loan eligibility;
        (4) by allowing full planting flexibility on wheat or feed 
     grain crop acreage base, without loss of base history or 
     deficiency payments;
        (5) by allowing alternate crops to be planted on up to 
     100% of the upland cotton or rice acreage base without loss 
     of base history, but with loss of deficiency payments;
        (6) by precluding a producer with a wheat or feed grain 
     crop acreage base and an upland cotton or rice crop acreage 
     base from receiving deficiency payments with respect to rice 
     or upland cotton planted in excess of the upland cotton or 
     rice crop acreage base;
        (7) by precluding deficiency payments for rice or upland 
     cotton if planted in excess of the crop acreage base;
        (8) by allowing the receipt of loans for planting upland 
     cotton or rice in excess of the upland cotton or rice crop 
     acreage base on up to 25% of the historical soybean acres, or 
     on the unpaid flex acres of a crop acreage base; and
        (9) by freezing the payment yield at the 1990 level.
       The Conference Substitute adopts an amendment with a Senate 
     approach to establish contract payment acres as 85% of 
     historical base acreage. There are no restrictions on 
     planting or haying and grazing on non-payment acres (15% of 
     the contract acres); haying and grazing is restricted on 
     payment acres during the 5 principal growing months between 
     April 1 and October 31; and planting of fruits or vegetables 
     is not allowed on payment acres. The Conference Substitute 
     allows the planting of any program crop, oilseed, industrial 
     or experimental crop, mung beans, lentils and dry peas on 
     contract acres (historical base acres). All loan commodity 
     production on a farm of contract holders is eligible for the 
     marketing loan program. In the case of a loan for extra long 
     staple cotton and oilseeds, all production is eligible for a 
     marketing loan. In addition, alfalfa may be planted on 
     contract acreage in excess of the acreage limitation except 
     that the payment under the owner or operator's contract will 
     be reduced if the alfalfa acreage, taken together with 
     acreage of fruits and vegetables and haying and grazing, 
     exceeds 15%.
        It is the intent of the Managers that the Secretary 
     utilize random, spot-checks for verification, and rely upon 
     producer certification to enforce the flexibility provisions.


  NONRECOURSE MARKETING ASSISTANCE LOANS AND LOAN DEFICIENCY PAYMENTS 
                    (H.1103, S.Subtitle A, CR.1104)

        The House Bill amends the Agriculture Act of 1949 by 
     inserting after section 102 a new section 102A that 
     establishes a nonrecourse marketing assistance loan for 
     certain crops.
        The House Bill in section 102A(a)(1), directs the 
     Secretary to make nonrecourse marketing assistance loans 
     available to eligible producers of wheat, feed grains, upland 
     cotton, extra long staple cotton, rice, and oilseeds for each 
     of the 1996 through 2002 crops of such commodities at a loan 
     rate calculated at 70 percent of the simple average price 
     received by producers during the immediately preceding five 
     crops years (a rolling average). Loan rate adjustment 
     authority contained in the Agricultural Act of 1949 was 
     repealed. Such marketing assistance loans had a term of nine 
     months, and could not be extended by the Secretary. Only a 
     producer whose land was subject to a market transition 
     contract was eligible for a marketing assistance loan.
        New section 102A(g) provided that the Secretary could not 
     make payments to producers to cover storage charges incurred 
     in connection with marketing assistance loans.
        Provisions were also added that converted these marketing 
     assistance loans into marketing loans, but the Secretary was 
     authorized to reduce the loan level below 70% if it was 
     estimated that the Commodity Credit Corporation would assume 
     ownership of the commodity.
        The Senate Amendment extends loan and marketing loan 
     provisions of the Agriculture Act of 1949 from 1996 through 
     2002, using the same formulas for calculating loan rates, 
     adjusting rates, establishing minimum rates and determining 
     loan repayment levels as in current law. The Senate Amendment 
     repeals the 8-month loan extension for cotton and requires 
     producers to prepay the storage costs for upland cotton put 
     under loan.
        The Conference Substitute adopts the Senate provision with 
     an amendment that would establish a maximum loan rate at the 
     1995 level:
        (1) Rice: $6.50/cwt
        (2) Upland Cotton: $0.5192/lb
        (3) Wheat: $2.58/bu
        (4) Corn: $1.89/bu
        (5) Soybeans: $4.92/bu
        (6) ELS Cotton: $0.7965/lb
        For rice and oilseeds, the Conference Substitute 
     establishes loan rates at the 1995 level. For wheat and feed 
     grains, the Conference Substitute extends authority to reduce 
     loan rates because of the estimated stocks-to-use level, but 
     does not extend authority to reduce loan rates further to 
     maintain competitiveness. Upland cotton loan rates can move 
     between the new cap ($0.5912) and the $0.50 per lb. floor. 
     ELS cotton is eligible for a non-recourse loan only.
        The Conference Substitute also adopts the provision to 
     eliminate the 8-month upland cotton loan extension, but 
     retains a 10-month upland cotton loan and does not require 
     producers to prepay storage costs for upland cotton placed 
     under loan.
        To minimize loan forfeitures and provide for the continued 
     effective operation of the marketing loan, the Managers 
     expect the Secretary to extend the provisions of current 
     regulations to provide that the upland cotton loan repayment 
     rate is the lesser of the Adjusted World Price (AWP) or the 
     loan principal plus accrued interest, storage and other 
     changes. It is the intention of the Managers that the 
     prevailing world market price for upland cotton be 
     established in a manner that is consistent with procedures 
     used for that purpose for 1990-1995 crops. 

[[Page H 12752]]



    COTTON USER MARKETING CERTIFICATES (H.  , S.1103, CR.1104(f)(2))

        The House Bill amends the Agriculture Act of 1949 by 
     repeal of 103B(5)(E), which provides marketing certificates 
     to domestic users and exporters when the price of cotton in 
     the U.S. exceeds the Norther European price by more than 1.25 
     cents per pound.
        The Senate Amendment amends Sec. 103B(5)(E) of the 
     Agricultural Act of 1949 by increasing the price trigger from 
     1.25 cents to 2.50 cents per pound.
        The Conference Report adopts the Senate position with an 
     amendment that retains the trigger at 1.25 cents, but 
     prohibits the Secretary from expending in excess of $701 
     million on this program during fiscal years 1996-2002. 
     Exporters participating in the Cotton User Marketing 
     Certificate program will not be able to lock-in a certificate 
     value until the date of export as determined by the 
     Secretary.
        The Managers intend that upon enactment, the Secretary is 
     directed to issue regulations such that in the event this 
     limitation is reached, the special import quota provided in 
     paragraph (3) will be established following a consecutive 
     four-week period in which the Friday through Thursday average 
     price quotation for the lowest-priced United States growth, 
     as quoted for Middling (M) one and three-thirty seconds inch 
     cotton, delivered C.I.F. Northern Europe exceeds the Northern 
     Europe price by more than 1.25 cents per pound.


      PAYMENT LIMITATIONS (H.1104, H.1401(a)(2), S.1120, CR.1105)

        The House Bill, section 1104(a), amends section 
     1001(5)(C)(i), that directs that the Secretary, in the case 
     of payments to corporations and other entities described in 
     section 1001(B)(i)(II), to attribute payments to individuals 
     in proportion to their ownership interests in the corporation 
     or entity receiving the payment, or in any other corporation 
     or entity that has a substantial beneficial interest in the 
     corporation or entity actually receiving the payment. The 
     provisions of this subparagraph shall apply to individuals 
     who hold or acquire, directly or through another corporation 
     or entity, a substantial beneficial interest in the 
     corporation or entity actually receiving the payment.
        The House Bill amends section 1001(5)(C)(ii), that directs 
     the Secretary, in the case of payments to corporations and 
     other entities described in section 1001(B)(i)(II), to also 
     attribute payments to any State (or political subdivision or 
     agency thereof) or other corporation or entity that has a 
     substantial beneficial interest in the corporation or entity 
     actually receiving the payment in proportion to their 
     ownership interests in the corporation or entity receiving 
     the payment. The provisions of this subparagraph shall apply 
     even if the payments are also attributable to individuals 
     under clause (i).
        The House Bill amends section 1001(5)(C)(iii), and 
     provides that for purposes of subparagraph (C), substantial 
     beneficial interest' means not less than five percent of all 
     beneficial interests in the corporation or entity actually 
     receiving the payment, except that the Secretary may set a 
     lower percentage in order to ensure that the provisions of 
     this section and the scheme or device provisions in section 
     1001B are not circumvented.
        Subsection (b) of section 1104(b) amends section 
     1001A(a)(3) to provide that each entity or individual 
     receiving payments as a separate person shall notify each 
     individual or other entity that acquires or holds a 
     substantial beneficial interest in it of the requirements and 
     limitations of section 1001(A)(a). Each such entity or 
     individual receiving payments shall provide to the Secretary, 
     at such times and in such manner as prescribed by the 
     Secretary, the name and social security number of each 
     individual, or the name and taxpayer identification number of 
     each entity, that holds or acquires a substantial beneficial 
     interest. Payments are tracked by means of social security 
     and taxpayer identification numbers.
       The Senate Amendment extends current payment limitation 
     provisions through 2002.
        The Conference Report adopts the Senate provision with an 
     amendment to reduce the maximum production flexibility 
     payment per person for any fiscal year to $40,000. 
     (Production flexibility payments take the place of deficiency 
     payments in the Conference Substitute.)
       The Managers expect the Secretary to utilize significant 
     latitude and flexibility in defining and enforcing the ``bona 
     fide and substantive'' change provisions of the regulations, 
     particularly in the initial years of this new farm 
     legislation. The Managers intend that the Secretary shall 
     continue to use existing regulations in defining the term 
     ``person''.
       It is the intent of the Conferees that persons who are 
     tenants and sharecroppers and actively engaged in farming 
     shall be eligible for payments under Sec 1103. In effect, any 
     farm now eligible for deficiency payments can qualify for 
     payments under Sec. 1103, if it participated in one of the 
     1991-95 commodity programs.
       Notwithstanding the foregoing, Sec. 1105 payment 
     limitations shall apply to any person determined to be 
     eligible for contract payments.


                PEANUT PROGRAM (H.1301, S.1113, CR.1106)

       The House Bill amends--
       (1) section 108 B of the Agricultural Act of 1949 by 
     setting the quota support rate at $610 for the 1996 through 
     2002 crops, eliminating the price support escalator, reducing 
     the support rate by 15% to any producer who sells peanuts to 
     the government rather than a commercial buyer if the price is 
     equal to greater than the support price. Reform of cross 
     compliance procedures are achieved by segregating quota pool 
     losses from additional pool losses and by increasing the 
     assessment if quota pool losses remain; and
       (2) section 358-1 of the Agricultural Adjustment Act of 
     1938 by requiring reduction of quota from municipalities, 
     airport authorities, schools, colleges, refuges and other 
     public entities; non-resident quota holders who are not 
     producers; and resident quota holders who are not producers; 
     eliminating the quota minimum; allowing spring and fall sale, 
     transfer, lease of quota across county lines; eliminating 
     undermarketings; limiting disaster transfer payments to no 
     more than 70% of quota support rate not to exceed 25% of 
     total quota pounds; and by granting a temporary quota 
     allocation to all growers equal to seed purchases.
       The Senate Amendment--
       (1) amends section 108B of the Agricultural Act of 1949 by 
     reauthorizing the program through 2000 and by reducing the 
     price support rate for quota peanuts to $628 per ton for the 
     1996 through 2000 crops (the price escalator is eliminated);
       (2) amends section 358-1 of the Agricultural Adjustment Act 
     of 1938 by reauthorizing the section through 2000; by 
     eliminating the poundage quota minimum; by setting the 
     national poundage quota at a level equal to the quantity of 
     peanuts that the Secretary estimates will be devoted in each 
     marketing year to domestic edible and related uses, excluding 
     peanuts used for seed on a farm, and including any stocks of 
     peanuts on hand in the inventory of the Commodity Credit 
     Corporation and peanuts or products of peanuts imported into 
     the United States; by eliminating undermarketings of peanuts 
     for the purpose of calculating quota; by establishing a 
     temporary quota for peanuts used for seed; and
       (3) amends section 358b (lease and transfer) of the 
     Agriculture Adjustment Act of 1938 by reauthorizing the 
     section through 2000 and allows limited sale or lease of 
     quota across county lines.
       The Conference Substitute adopts the House position to--
       (1) amend section 108b Agricultural Act of 1949 to 
     authorize the quota price support program through 2002 at 
     $610 per ton and eliminate the price support escalator;
       (2) amend section 358-1 of the Agriculture Adjustment Act 
     of 1938 to eliminate the 1.35 million ton quota poundage 
     floor and undermarketings;
       (3) amend section 358-1 to segregate quota pool losses from 
     additional pools and to increase assessments to cover losses 
     if any quota pool losses remain;
       (4) amend section 358-1 to establish a temporary quota for 
     seed; and
       (5) amend section 358-1(b) to limit the transfer of 
     additional peanuts as a result of natural disaster to 25% of 
     quota pounds at not more than 70% of the quota support rate.
       The Managers agreed to include additional reforms from the 
     House bill that: (1) would prioritize quota reduction to 
     farms controlled by public entities and out-of-state quota 
     holders who are not producers; (2) allow full lease, sale and 
     transfer of quota within a state; and (3) reduce the support 
     rate by 5% to any producer who sells peanuts to the 
     government rather than a commercial buyer if the price is 
     equal to or greater than support price. However, these 
     critical reforms were subsequently deleted from the 
     Conference Substitute in order to comply with the Byrd Rule.


                SUGAR PROGRAM (H.1302, S.1108, CR.1107)

       The House Bill amends--
       (1) section 206 of the Agricultural Act of 1949 by 
     maintaining sugarbeet and sugarcane loan rates at 1995 levels 
     (18/22.9). Reduces the loan rates commensurate to reduction 
     of subsidies by the European Union and other major sugar 
     producing countries, establishes a loan modification 
     threshold, which triggers the non-recourse loan system, at 
     1.256 million short tons in FY 1996 and FY 1997. The 
     threshold increases 3% each year. Increases current marketing 
     assessment for cane sugar from 1.1% to 1.5% of the loan rate 
     per pound and from 1.1794% to 1.6083% of the loan rate for 
     beet sugar;
       (2) section 359b. of the Agricultural Adjustment Act of 
     1938 by eliminating marketing allotments.
       The Senate Amendment amends section 206 of the Agricultural 
     Act of 1949 to--
       (1) reauthorize the program through 2002;
       (2) provide for a recourse loan that becomes a nonrecourse 
     loan when the tariff rate quota for imported sugar is set to 
     equal or exceed 1.34 million short tons;
       (3) increase the marketing assessment for cane sugar to 
     1.375 percent of the support price beginning in FY 1997;
       (4) increase the marketing assessment for beet sugar to 
     1.47425 percent of the support price beginning in FY 1997;
       (5) extend the marketing assessment provision through FY 
     2002; and
       (6) impose a $0.01 per pound penalty on all sugar forfeited 
     under loan.
       Sugar Marketing allotments in section 359 of the 
     Agricultural Adjustment Act of 1938 are repealed.
       The Conference Substitute adopts the House approach to 
     amend section 206 of the Agriculture Act of 1949 to set the 
     sugar cane loan rate at $0.18 per pound, the sugar beet loan 
     rate at $0.229 per pound and reauthorize the 

[[Page H 12753]]
     program through 2002. The Conference Substitute adopts the Senate 
     approach and to provide non-recourse loans when the tariff 
     rate quota for imports is set greater than or equal to 1.5 
     million short tons, raw value. Loans are recourse if the TRQ 
     is set below this amount.
       The Conference Substitute adopts the Senate provision to 
     make 9-month loans and to impose a $0.01 per pound penalty on 
     all sugar forfeited under loan. The Conference Substitute 
     adopts the Senate provision to increase the marketing 
     assessments on sugar cane and sugar beets to 1.375 and 
     1.47425 percent respectively, beginning in FY 1997.
       Sugar Marketing allotments in section 359 of the 
     Agricultural Adjustment Act of 1938 are repealed.
       The Managers agreed to include additional important reforms 
     in the Conference Substitute that would reduce the support 
     rate for sugar if European Union domestic sugar subsidies are 
     reduced. However, these critical reforms were subsequently 
     deleted from the Conference Substitute in order to comply 
     with the Byrd Rule.


     REPEAL OF PERMANENT PRICE SUPPORT AUTHORITY AND MISCELLANEOUS 
                 AUTHORITIES (H.1105, S.1101, CR.1109)

       The House Bill suspends quotas, allotments, parity-based 
     price supports and other outdated permanent law from the 
     Agriculture Adjustment Act of 1938 and the Agricultural Act 
     of 1949 from FY 1996-2002.
       The Senate Amendment would repeal these provisions of 
     permanent law from the from the Agriculture Adjustment Act of 
     1938 and the Agricultural Act of 1949.
       The Conference Substitute adopts the Senate provision with 
     modifications. As amended, the Agricultural Act of 1949 is 
     repealed entirely, while certain necessary sections are 
     transferred to the Agricultural Act of 1938. As part of the 
     total repeal of the Agricultural Act of 1949, the production 
     flexibility contracts, loan programs, peanut, and sugar 
     programs for the 1996 through 2002 crops have been 
     established under a new act, the ``Agricultural Market 
     Transition Act.''


             FARMER OWNED RESERVE (H.1404, S.1101, CR.1109)

       The House Bill repeals the Farmer Owned Reserve Program 
     authorized by section 110 of the Agricultural Act of 1949.
       The Senate Amendment contains an identical provision.
       The Conference Substitute maintains this provision.


       EMERGENCY LIVESTOCK FEED PROGRAM (H.1401, S.1101, CR.1109)

       The House Bill amends section 609 of the Emergency 
     Livestock Feed Assistance Act of 1988 to provide that no 
     person may receive benefits attributable to lost production 
     of a feed commodity if catastrophic insurance protection or 
     noninsured crop disaster assistance is available to the 
     person under the Federal Crop Insurance Act.
       The Senate Amendment repeals Title VI, the Emergency 
     Livestock Feed Assistance Act of 1988, of the Agricultural 
     Act of 1949.
       The Conference Substitute adopts the Senate provision.


                 HONEY PROGRAM (H.   , S.1101, CR.1109)

       The House Bill contains no similar provision.
       The Senate Amendment repeals Sec. 207 of the Agricultural 
     Act of 1949, the Honey Program.
       The Conference Substitute adopts the Senate provision.

                        Subtitle B--Conservation


 livestock environmental assistance program (h.   , s.1201, cr.1201(a))

       The House Bill contains no similar provision.
       The Senate Amendment replaces chapter 2 of subtitle D of 
     title XII of the Food Security Act of 1985 with an 
     Environmental Quality Incentives Program that would combine 
     the functions of the Agricultural Conservation Program, the 
     Water Quality Incentives Program, the Great Plains 
     Conservation Program and the Colorado River Basin Salinity 
     Control Program into a single initiative to provide technical 
     assistance and cost-share and incentive payments to crop and 
     livestock producers who undertake certain conservation 
     practices. The program would receive $100,000,000 in annual 
     mandatory funding directed for practices relating to 
     livestock production.
       The Conference Substitute adopts the Senate provision with 
     an amendment that adds a new chapter 4 establishing a 
     mandatory Livestock Environmental Assistance Program funded 
     at $100,000,000 annually through the Commodity Credit 
     Corporation, to be used for structural and land management 
     practices to protect water, soil and related resources from 
     degradation associated with livestock production. References 
     to assistance primarily for crop production and to the four 
     discretionary programs cited in the Senate amendment are 
     eliminated and species thresholds in the Senate amendment for 
     determining structural practice eligibility are increased for 
     beef cattle and swine and lowered for dairy cattle.
       In determining the practice or combination of practices 
     appropriate for a particular farm or ranch, the Managers 
     emphasize that the Secretary should use the lowest-cost 
     option or options available. By doing so, the Secretary will 
     be able to assist the greatest number of producers possible 
     and maximize the positive impacts on the environment.
       The legislation does not specifically mention all 
     structural or land management practices that are eligible for 
     funding under LEAP because of the broad gamut of measures 
     that may be appropriate depending on the type of operation, 
     its location and other factors. In addition, it is impossible 
     to predict the evolution of new technologies. Accordingly, 
     the Managers strongly urge the Secretary to make new 
     practices eligible for funding under LEAP as soon as 
     reasonable testing indicates their efficacy. The Managers 
     also intend that the term ``site-specific'' refer not only to 
     whole farms or ranches but to discrete locations within an 
     operation.
       The Managers urge the Department to minimize the formal 
     planning that may be necessary to develop LEAP contracts. The 
     Department should, however, take into account the practices 
     contained in other plans the producer may have for commodity 
     program eligibility or for receipt of other conservation 
     assistance. Because of the multi-year nature of the 
     contracts, the Managers suggest that the Department consider 
     the planning process for the Great Plains Conservation 
     Program in developing a similar process for LEAP.
       The Managers believe that voluntary natural resource 
     management plans developed by the producer and the Department 
     (or third parties designated by the Secretary) should be 
     sufficient for the LEAP planning process. Such plans should 
     be confidential, address resource challenges as requested by 
     the producer, and sufficiently flexible to permit innovation. 
     However, the Committee emphasizes that such a voluntary 
     natural resource management plan should not be a prerequisite 
     for receiving assistance under LEAP, nor should it confer 
     preference among producers requesting financial assistance.


         conservation reserve program (h.1402, s.1201, cr.1201)

       The House Bill amends provisions of the Conservation 
     Reserve Program established under subchapter B, Chapter 1, of 
     Subtitle D of the Food Security Act of 1985 by:
       (1) limiting the total number of acres authorized to be 
     enrolled in the Conservation Reserve Program to 36,400,000 
     acres;
       (2) limiting rental rates for contract extensions or new 
     contracts covering land that was previously enrolled in the 
     conservation reserve program to no more than 75 percent of 
     the annual rental payment under the previous contract;
       (3) providing authority for an owner or operator of land 
     enrolled under a conservation reserve contract to terminate 
     the contract upon written notice to the Secretary; and
       (4) striking the proviso relating to the enrollment of new 
     acres beginning in calendar year 1997 in section 727 of the 
     Agriculture, Rural Development, Food and Drug Administration, 
     and Related Agencies Appropriations Act, 1996.
       The Senate Amendment reauthorizes the CRP through 2002 and 
     specifies annual funding levels for the program that reflect 
     a limit on the size of the CRP at the current level of 36.4 
     million acres and an additional reduction in expenditures of 
     approximately $20 million per year.
       The 1996-2002 direct spending for the Conservation Reserve 
     (including contracts extended by the Secretary pursuant to 
     section 1437 of the Food, Agriculture, Conservation, and 
     Trade Act of 1990 (Public Law 101-624;) may not exceed--
       (1) $1,787,000,000 for fiscal year 1996;
       (2) $1,784,000,000 for fiscal year 1997;
       (3) $1,445,000,000 for fiscal year 1998;
       (4) $1,246,000,000 for fiscal year 1999;
       (5) $1,101,000,000 for fiscal year 2000;
       (6) $999,000,000 for fiscal year 2001; and
       (7) $974,000,000 for fiscal year 2002.
       The Conference Substitute adopts the House provision with 
     an amendment removing the maximum rate for contract renewals, 
     and changing the proviso with respect to new enrollments so 
     that it is applicable notwithstanding any other provision of 
     law.
       The Managers also adopted the House amendment to section 
     1235 of the Food Security Act of 1985 to provide that an 
     owner or operator of land enrolled under a conservation 
     reserve contract may terminate the contract upon 60 days' 
     written notice to the Secretary. Owners or operators who 
     voluntarily terminate a contract within the first three years 
     of its term must reimburse the Secretary for any cost-share 
     payments received under the contract.


           wetlands reserve program (h.   , s.1201, cr.1201)

       The House Bill contains no similar provision.
       The Senate Amendment reauthorizes the program through 2002 
     and reduces outlays by setting a maximum enrollment level of 
     975,000 acres and by eliminating authority for the Secretary 
     to enter into permanent easements.
       The Conference Substitute adopts the Senate provision with 
     an amendment striking the reauthorization and setting the 
     maximum easement period at 15 years.

         Subtitle C--Agricultural Promotion and Export Programs


         market promotion program (mpp)(h   , s.1301, cr.1301)

       The House Bill contains no similar provision.
       The Senate Amendment reduces, effective October, 1995, 
     funding for the MPP to not more than $75 million for each of 
     FY 1996-2002.
       The Conference Substitute adopts the Senate provision with 
     an amendment to fund MPP at not more than $100 million for 
     each of FY 1996-2002. 

[[Page H 12754]]



          export enhancement program (h.1405, s.1302, cr.1302)

       The House Bill amends section 301(e)(1) of the Agricultural 
     Trade Act of 1978 to limit the amount of the CCC funds or 
     commodities available for the Export Enhancement Program as 
     follows: $400,000,000 for fiscal years 1996 and 1997; 
     $500,000,000 for fiscal year 1998; $550,000,000 for fiscal 
     year 1999; $579,000,000 for fiscal year 2000; and 
     $478,000,000 for fiscal years 2001 and 2002.
       The Senate Amendment reduces, effective October 1, 1995, 
     funding for the EEP for FY 1996-2002 by 20% each year from 
     the maximum allowed by the Uruguay Round Agreement of GATT. 
     Spending levels under section 301(e)(1) of the Agricultural 
     Trade Act of 1978 available for the Export Enhancement 
     Program are as follows: $767,200,000 for fiscal year 1996; 
     $705,600,000 for fiscal year 1997; $624,800,000 for fiscal 
     year 1998; $544,000,000 for fiscal year 1999; $463,200,000 
     for fiscal year 2000; and $382,400,000 for fiscal years 2001 
     and 2002.
       The Conference Substitute adopts the House provision with 
     an amendment to limit the amount of the CCC funds or 
     commodities available for the Export Enhancement Program as 
     follows: $350,000,000 for fiscal years 1996 and 1997; 
     $500,000,000 for fiscal year 1998; $550,000,000 for fiscal 
     year 1999; $579,000,000 for fiscal year 2000; and 
     $478,000,000 for fiscal years 2001 and 2002.
       The Managers recognize the Uruguay Round Agreement on GATT 
     did not eliminate the use of export subsidies. As a result, 
     U.S. agriculture is still faced with subsidized foreign 
     competition. To help U.S. agriculture counter such subsidized 
     competition, capitalize on potential new market 
     opportunities, and maintain and expand existing export 
     markets, the Managers expect the Secretary of Agriculture to 
     fully utilize and aggressively implement the export programs 
     authorized in this Act or any other Act.


sunflower oil assistance program/cottonseed oil assistance program (h.   
                            ,s.1303, cr.   )

       The House Bill amends section 301 of the Disaster 
     Assistance Act of 1988 and section 420 of the Agricultural 
     Act of 1949 by removing obsolete authority of the Secretary 
     to support the price of cottonseed and cottonseed products 
     through loans, purchases, export assistance, or any other 
     form of assistance.
       The Senate Amendment repeals, effective October, 1995, 
     section 301 of the Disaster Assistance Act of 1988. This 
     would eliminate authority for the Secretary of Agriculture to 
     utilize section 32 funds to promote the export of 
     sunflowerseed oil, cottonseed oild or any other export 
     promotion activities. Both vegetable oils would continue to 
     be eligible for assistance under the Export Enhancement 
     Program.
       The Conference Substitute deletes both provisions.

                       Subtitle D--Miscellaneous


   CATASTROPHIC CROP INSURANCE COVERAGE (H. 1403, S. 1114, CR. 1401)

       The House Bill repeals, beginning with spring-planted 1996 
     crops, the requirement that producers purchase catastrophic 
     crop insurance in order to receive payments, conservation 
     benefits and farm loans from the Consolidated Farm Services 
     Agency. It requires producers who do not purchase the 
     insurance to waive their right to receive any emergency crop 
     loss assistance. The bill also establishes the Office of Risk 
     Management as an agency separate from the Consolidated Farm 
     Services Agency, ends the dual delivery of Federal crop 
     insurance by prohibiting sales through CFSA offices, and 
     creates a business interruption insurance program under which 
     a producer can receive an indemnity payment if the producer 
     suffers a loss of income.
       The Senate Bill contains a similar repeal of the linkage 
     between catastrophic coverage and program benefits, but 
     begins the repeal with 1997 crops, and contains no waiver 
     requirement. The Senate Amendment contains no provision with 
     respect to other items in the House bill.
       The Conference Substitute adopts the House provision with 
     respect to de-linking catastrophic coverage from program 
     benefits in 1996. The Conference Substitute adopts the House 
     provision with respect to dual delivery, with an amendment 
     that will require a more gradual phaseout of dual delivery in 
     states where crop insurance is not widely offered by private 
     companies. The Conference Substitute amends Sec. 519(1)(2)(B) 
     of the Federal Crop Insurance Act to include seed crops.
       The Conference Substitute would eliminate the sale of 
     catastrophic risk protection through local county offices of 
     the Department of Agriculture effective with the Spring-
     planted 1996 crops. The Secretary is required to transfer all 
     existing catastrophic risk protection policies written by 
     local offices of the Department to approved insurance 
     providers.
       However, the Managers did provide for a mechanism under 
     which the Secretary could continue to offer catastrophic risk 
     protection covered through local offices of the Department 
     if, after full consultation and cooperation with approved 
     insurance providers, the Secretary determines that there are 
     not sufficient numbers of approved insurance providers 
     operating in a State, or part of a State, to adequately 
     provide catastrophic risk protection coverage to producers. 
     It is not the intent of the Managers that the Secretary 
     exercise this discretion casually. He should carefully 
     evaluate the availability of private providers and consult 
     fully with the private industry before making a determination 
     that it is necessary for the Department to continue to offer 
     catastrophic risk protection in a particular State, or part 
     of a State.


     AGRICULTURE QUARANTINE AND INSPECTION (H.   , S.   , CR. 1402)

       The House Bill contains no similar provision.
       The Senate Amendment contains no similar provision.
       The Managers agreed to amend section 2509 of the Food, 
     Agriculture, Conservation and Trade Act of 1990 to authorize 
     the Secretary of Agriculture to collect fees to cover the 
     cost of providing quarantine and inspection services for 
     imports. As amended, this section allows the Secretary to 
     utilize fees collected beyond $100 million.


 COMMODITY CREDIT CORPORATION INTEREST RATES (H.   , S. 1112, CR. 1403)

       The House Bill contains no similar provision.
       The Senate Amendment increases the Commodity Credit 
     Corporation interest rate applicable to agriculture commodity 
     loans by 100 basis points.
       The Conference Substitute adopts the Senate provision.


    AGRICULTURE COMPETITIVENESS INITIATIVE (H.   , S. 1106e, CR.   )

       The House Bill contains no similar provision.
       The Senate Amendment amends Sec. 1502 of the Agricultural 
     Act of 1949 to establish competitive agriculture research 
     grants.
       The Conference Substitute deletes the Senate provision.


         EVALUATION OF RICE INDUSTRY (H. , S.   , CR. 1106(d))

       The House Bill contains no similar provision.
       The Senate Bill contains no similar provision.
       The Managers agreed to include in the Conference Substitute 
     provision to direct the Secretary of Agriculture, if he found 
     that the rice industry is threatened by underplantings 
     resulting form the requirements of this subtitle, to take 
     such actions as necessary to strengthen the export and 
     domestic consumption of rice and rice producers income. It is 
     the intent of the Managers that the Secretary should use all 
     tools available to him in order to maintain the domestic rice 
     industry, including, but not limited to EEP, PL480, MPP, FMD, 
     recommendations under section 301, and other programs to 
     enhance market development efforts and allow producers to 
     obtain their income from the marketplace. However, the 
     provision was subsequently deleted from the Conference 
     Substitute in order to comply with the Byrd Rule.


       BALANCED BUDGET ACT EXEMPTION (H. 1102 (l), S.   , CR.   )

       The House Bill amends Sec. 252 of the Balanced Budget and 
     Emergency Deficit Control Act of 1985 to provide an exemption 
     for market transition payments in the `Freedom to Farm' 
     program.
       The Senate Amendment contains no similar provision.
       The Managers agreed to include the House provision in the 
     Conference Substitute, However, these provisions were 
     subsequently deleted from the Conference Substitute in order 
     to comply with the Byrd Rule.


     SENSE OF THE SENATE REGARDING ETHANOL (H.   , S. 1116, CR.   )

       The House Bill contains no similar provision.
       The Senate Amendment expresses the Sense of the Senate in 
     support of the use of ethanol as an alternative fuel.
       The Managers agreed to include the Senate provision in the 
     Conference Substitute. However, these provisions were 
     subsequently deleted from the Conference Substitute in order 
     to comply with the Byrd Rule.


COMMISSION ON THE 21ST CENTURY PRODUCTION AGRICULTURE (H. Subtitle E., 
                             S.   , CR.   )

       The House Bill establishes a commission known as the 
     ``Commission on 21st Century Agriculture''.
       Membership is composed of 11 members (3 appointed by the 
     President and 4 each by the Chairmen of the House and Senate 
     Agriculture Committees), with qualifications of persons 
     involved in agriculture production and related industries.
       The Commission is directed to conduct a review of how the 
     Freedom to Farm Act has performed during the period of 
     operation (a ``Look Back'') and a review of the future of 
     production agriculture in the United States and the role of 
     Federal Government support of production agriculture (a 
     ``Look Forward''). The Commission is to submit a mid-term 
     report (June 1, 1998) on a final report by January 1, 2001.
       The Subtitle authorizes the Commission to conduct hearings, 
     obtain support and information from other Federal Government 
     agencies, employ a staff and otherwise carry out its duties.
       The Committee is to terminate upon the issuance of the 
     report required by January 1, 2001.
       The Senate Amendment contains no similar provision.
       The Managers agreed to include the House provision in the 
     Conference Substitute. However, these provisions were 
     subsequently deleted from the Conference Substitute in order 
     to comply with the Byrd Rule. 

[[Page H 12755]]


                       Deleted Provisions--Dairy


          MILK PRICE SUPPORT PROGRAM (H. 1201, S. 1106 CR.   )

       The House Bill amends the Agricultural Act of 1949 by 
     replacing section 204, and conforming sections 201(a) and 
     301, to authorize the Secretary to enter into market 
     transition contracts with milk producers following the 
     elimination of the dairy price support program.
       The dairy price support program under existing section 204 
     of the Agricultural Act of 1949 continues in operation 
     through December 31, 1995 at which time it is terminated. 
     Producers that are entitled to a refund of their 1995 budget 
     reconciliation assessment (i.e., their marketings of milk in 
     calendar year 1995 did not exceed their marketings of milk in 
     calendar year 1994) will receive those refunds from CCC funds 
     rather than from assessments on producers in 1996.
       Sections 201(a) and 301 of the Agricultural Act of 1949 are 
     conformed to eliminate milk from the designated and 
     undesignated nonbasic agricultural commodities for which the 
     Secretary has general authority to provide price support.
       The Senate Amendment amends the Agricultural Act of 1949 by 
     replacing section 204 to operate a price support program for 
     milk during the period beginning January 1, 1996, and ending 
     December 31, 2002, and set the support price for milk used 
     for cheese at $10.00 per hundredweight for calendar year 
     1996. The support price for milk used to make cheese shall 
     decrease 10 cents per hundredweight each calendar year from 
     1997 through 2002.
       The Secretary is required to decrease the support price of 
     milk used for cheese for an upcoming calendar year by an 
     additional 25 cents per hundredweight if, on November 20 of 
     the preceding calendar year, the Secretary estimates that CCC 
     purchases of cheese and DEIP sales of dairy products will 
     exceed 1.5 billion pounds (milk equivalent, total solids 
     basis) during the upcoming calendar year. Any such additional 
     decrease in the support price shall be applicable only for 
     the calendar year for which the Secretary made the estimate.
       The Conference Substitute deletes both the House and Senate 
     provisions.


recourse loans for commercial processors of dairy products (h. 1202, s. 
                                , cr.   )

       The House Bill amends the Agricultural Act of 1949 to 
     authorize the Secretary to make recourse loans available to 
     commercial processors of cheddar cheese, butter and nonfat 
     dry milk dairy products at 90% of the reference price for a 
     product and at established CCC interest rates to assist those 
     processors in assuring price stability for the dairy 
     industry.
       The Senate Amendment contains no similar provision.
       The Conference Substitute deletes the House provision.


        dairy export incentive program. (h. 1211. s.   , cr.   )

       The House Bill amends section 153(c) of the Food Security 
     Act of 1985 to require the Secretary to use the DEIP program 
     to export the maximum allowable quantities of U.s. dairy 
     products consistent with the obligations of the United States 
     as a member of the World Trade Organization, minus the 
     quantity sold under section 1163 of the Food Security Act of 
     1985 during that year. The House Bill also extends the 
     operations of the DEIP program through the year 2002.
       The Senate Amendment contains no similar provision.
       The Conference Substitute deletes the House provision.


authority to assist in establishment and maintenance of export trading 
                    company (h. 1212, s.   , cr.   )

       The House Bill authorizes the Secretary of Agriculture to 
     assist the United States dairy industry is establishing and 
     maintaining an export trading company under the Export 
     Trading Company Act of 1982 to facilitate the international 
     market development for and exportation of U.s. dairy 
     products.
       The Senate Amendment contains no similar provision.
       The Conference Substitute deletes the House provision.


      standby authority to indicate entity best suited to provide 
 international market development and export services (h. 1213, s.   , 
                                cr.   )

       The House Bill provides standby authority for the Secretary 
     of Agriculture to indicate which entity, autonomous of the 
     U.s. government, is best suited to provide international 
     market development and export services to the U.s. dairy 
     industry and to assist that entity in identifying sources of 
     funding for its activities during the period between July 1, 
     1997 and September 30, 2000.
       The Senate Amendment contains no similar provision.
       The Conference Substitute deletes the House provision.


study and report regarding potential impact of uruguay round on prices, 
        income and government purchases. (h.   , s.   , cr.   )

       The House Bill directs the Secretary of Agriculture to 
     perform a study of the potential impact of new access cheese 
     imports under the Uruguay Round on U.s. milk prices, dairy 
     producer income, and the cost of Federal dairy programs.
       The Senate Amendment contains no similar provision.
       The Conference Substitute deletes the House provision.


  research and promotion activities under fluid milk promotion act of 
                     1990 (h. 1221, s.   , cr.   )

       The House Bill amends the Fluid Milk Promotion Act of 1990 
     (subtitle H of title XIX of Public Law 101-624) to eliminate 
     the automatic termination of any order issued under the Act 
     on December 31, 1996, and to clarify the referendum 
     requirements of the Fluid Milk Promotion Act which were 
     inadvertently impacted by amendments made to the Act in 1993 
     which altered the definition of ``fluid milk processor''. Any 
     future order issued under the Act must now be approved by the 
     affirmative votes of fluid milk processors representing 60 
     percent or more of the volume of fluid milk products marketed 
     by all fluid milk processors voting in the referendum before 
     it can be implemented.
        The Senate Amendment contains no similar provision.
       The Conference Substitute deletes the House provision.


 expansion of dairy promotion program to cover dairy products imported 
  into the united states (h. 1222, s.   , cr.   ) expansion of dairy 
  promotion program to cover dairy products imported into the united 
                    states (h. 1222, s.   , cr.   )

       The House Bill amends the Dairy Production Stabilization 
     Act of 1983 to extend the assessment for generic research and 
     promotion on U.S. dairy producers to imported dairy products.
       Importers of dairy products will be entitled to the same 
     credit for contributions to State or regional promotion or 
     nutrition programs to which domestic producers are entitled.
       The Senate Amendment contains no similar provision.
       The Conference Substitute deletes the House provision.


  promotion of united states dairy products in international markets 
        through dairy promotion program (h. 1223, s.   , cr.   )

       The House Bill amends section 113(e) of the Dairy 
     Production Stabilization Act of 1983 to require that the 
     budget of the National Dairy Promotion and Research Board 
     during each of the fiscal years from 1996 and 2000 shall 
     provide for the expenditure of not less than 10 percent of 
     anticipated revenues available to the Board on the 
     development of international markets for, and the promotion 
     within such markets of, U.s. dairy products.
       The Senate Amendment contains no similar provision.
       The Conference Substitute deletes the House provision.


issuance of amendment order under dairy production stabilization act of 
                     1983 (h. 1224, s.   , cr.   )

       The House Bill establishes an expedited procedure to 
     implement the amendments required by sections 1222 and 1223 
     to the dairy products promotion and research order issued 
     under the Dairy Production Stabilization Act of 1983.
       The Senate Amendment contains no similar provision.
       The Conference Substitute deletes the House provision.


        program to verify milk receipts (h. 1231, s.   , cr.   )

       The House Bill creates a new subsection (l) in section 204 
     of the Agricultural Act of 1949 to establish a program to 
     verify receipts of milk and audit marketing agreements and 
     other contracts for the marketing and receipt of milk between 
     producers and handlers.
       Effective July 1, 1996, the verification program shall 
     supersede any Federal milk marketing order issued under 
     section 8c of the Agricultural Adjustment Act, reenacted with 
     amendments by the Agricultural Marketing Agreement Act of 
     1937 with respect to milk or the products of milk.
       The Senate Amendment contains no similar provision
       The Conference Substitute deletes the House provision.


        federal milk marketing orders(h. 1232, s. 1106, cr.   )

       The House Bill provides that the verification program 
     established by section 1231 will supersede existing Federal 
     milk marketing orders. The House Bill also terminates 
     existing Federal milk marketing orders by striking paragraphs 
     (5) and (18) of section 8c and provides that the amendments 
     made by section 1232 are effective on July 1, 1996.
       The Senate Amendment amends section 8c(5) of the 
     Agricultural Adjustment Act, reenacted with amendments by the 
     Agricultural Marketing Agreement Act of 1937 to classify 
     butter and dry milk as Class IV dairy products. It also 
     establishes a Class IV pool for all milk producers to share 
     the difference, if any between the support price for cheese 
     and the national average price for butter and dry milk, 
     expressed in dollars per hundredweights of milk, each month. 
     The cost of administering the Class IV pool is shared by all 
     producers. Persons who fail to pay into the pool are liable 
     for a civil penalty. The Secretary is to issue regulations 
     without regard to the Administrative Producers Act.
       The Conference Substitute deletes both the House and Senate 
     provisions.


               northeast compact (h.   , s. 1106, cr.   )

       The House Bill contains no similar provision. 

[[Page H 12756]]

       The Senate Amendment provides congressional consent for the 
     Northeast Interstate Dairy Compact for a period of seven 
     years. The Compact Commission is required to compensate the 
     CCC for the cost of any cheese purchased from within the 
     Compact region resulting from increased fluid milk production 
     within Compact region to the extent that such purchases 
     exceed the national average rate of purchases of cheese by 
     the CCC.
       The Conference Substitute deletes the Senate provision.


    extension of transfer authority regarding military and veterans 
                   hospitals (h. 1241, s.   , cr.   )

       The House Bill gives the authority of the Secretary to 
     transfer dairy commodities to military and veterans hospitals 
     is extended through 2002.
       The Senate Amendment contains no similar provision.
       The Conference Substitute deletes the House provision.


     extension of dairy indemnity program (h. 1242, s.   , cr.   )

       The House Bill extends the Dairy Indemnity Program until 
     2002.
       The Senate Amendment contains no similar provision.
       The Conference Substitute deletes the House provision.


extension of report regarding export sales of dairy products (h. 1243, 
                             s.   , cr.   )

       The House Bill requires that the Secretary report on export 
     sales of dairy products is extended through 2002.
       The Senate Amendment contains no similar provision.
       The Conference Substitute deletes the House provision.


          status of producer-handlers (h. 1244, s.   , cr.   )

       The House Bill states that the legal status of producer-
     handlers is not altered or otherwise affected by the 
     provisions of this subtitle.
       The Senate Amendment contains no similar provision.
       The Conference Substitute deletes the House provision.


       repeal of section 102 1990 farm bill (h.   ,s1106, cr.   )

       The House Bill contains no similar provision.
       The Senate Amendment repeals section 102 of the Food, 
     Agriculture, Conservation, and Trade Act of 1990 which 
     prohibits states from having higher ``make allowances'' than 
     that permitted under the federal price support program for 
     milk.
       The Conference Substitute deletes the Senate provision.

            TITLE II--BANKING, HOUSING, AND RELATED PROGRAMS

                   Subtitle A--Financial Institutions


          SECTION 2011--SPECIAL ASSESSMENT TO CAPITALIZE SAIF

     House bill
       The House bill would fully capitalize the Savings 
     Association Insurance Fund (SAIF) to its designated reserve 
     ratio with a one-time special assessment on all SAIF-insured 
     deposits, including those held by SAIF members and those 
     banks which have purchased SAIF deposits, or so-called 
     ``Oakar'' banks. The Federal Deposit Insurance Corporation 
     (FDIC) will determine the size of the special assessment 
     based on the SAIF reserve balance and the most recently 
     available data on insured deposits. The assessment, 
     anticipated to be between seventy to eighty cents per every 
     $100 of deposits, will be applied against the SAIF-deposits 
     held by institutions as of March 31, 1995. The Federal 
     Deposit Insurance Corporation (FDIC) will collect the special 
     assessment on the first business day of January 1996, or such 
     other date as the FDIC prescribes which may not be later than 
     60 days after the date of enactment.
       The bill would provide the FDIC Board of Directors 
     authority to exempt weak institutions from paying the special 
     assessment if the exemption would reduce risk to the SAIF. 
     Institutions exempt from the special assessment would pay 
     regular assessments under the risk-based assessment schedule 
     in effect for SAIF members on June 30, 1995 for the period 
     1996-1999. Institutions exempt from the special assessment 
     have the option--during the period 1997-1999 --of paying a 
     pro rated portion of the special assessment. Such 
     institutions, would then pay on the same risk-based schedule 
     as non-exempted SAIF members.
       FDIC would also have authority to set the special 
     assessment for Oakar banks at a lower rate than for SAIF 
     members so long as such rate is not less than two-thirds of 
     the rate set for SAIF members and would not result in an 
     increased budget outlay or decrease in offsetting receipts.
     Senate amendment
       The Senate language is similar to the House bill on the 
     timing and calculation of the special assessments. However, 
     for purposes of determining the special assessment for Oakar 
     banks, the Senate adopted language would provide those Oakar 
     banks which hold a majority of BIF-insured deposits as of 
     June 30, 1995 with a ten percent reduction in their SAIF 
     assessable deposits. The exemption for weak institutions is 
     also extended to include certain newly chartered savings 
     associations.
     Conference agreement
       The conference agreement provides that the SAIF will be 
     fully capitalized on January 1, 1996, as required under both 
     House and Senate language. The House receded to the Senate on 
     the treatment of Oakar banks with a modification that a 
     twenty percent reduction be made in their SAIF-assessable 
     deposits.
       The conferees took these actions to improve SAIF's 
     undercapitalized position. At present, SAIF reserves would 
     not cover the cost of the failure of one large or a few 
     medium-sized thrifts, or other substantial unanticipated 
     losses. Should the reserves be exhausted, the taxpayer is 
     next in line. The full and immediate capitalization of SAIF 
     will decrease taxpayer risk significantly and ensure that 
     thrifts make a significant contribution in stabilizing their 
     insurance fund.
       The Conference Committee recognizes the importance of 
     recapitalizing SAIF and maintaining public confidence in 
     federal deposit insurance. The legislative imposition of a 
     one-time, special assessment on SAIF-insured institutions is 
     a highly unusual and infrequent event intended to stabilize 
     the SAIF.


SECTION 2012--FINANCING CORPORATION ASSESSMENT SHARED PROPORTIONALLY BY 
                  ALL INSURED DEPOSITORY INSTITUTIONS

     House bill
       Under the House bill, effective January 1, 1996, the 
     assessment base for payments on the interest on obligations 
     issued by the Financing Corporation (FICO) is to be expanded 
     to include all FDIC-insured institutions, i.e., banks and 
     thrifts (thus spreading the FICO obligation pro rata over all 
     FDIC-insured institutions).
     Senate amendment
       The Senate language is identical.
     Conference agreement
       The conference agreement includes this language. Spreading 
     the FICO burden will eliminate the potential for a premium 
     differential, thereby decreasing thrifts' incentives to evade 
     SAIF assessments.


                  SECTION 2013--MERGER OF BIF AND SAIF

     House bill
       The House provision would merge the Bank Insurance Fund 
     (BIF) and the SAIF into the Deposit Insurance Fund on January 
     1, 1998. The exit moratorium, which currently prohibits 
     institutions from switching insurance funds and the Oakar 
     bank provisions, would be repealed on January 1, 1998.
       The provision would also establish a special reserve for 
     the Deposit Insurance Fund. The special reserve would consist 
     of any SAIF excess reserves, i.e., reserves not needed to 
     meet the designated reserve ratio, immediately prior to the 
     merger of the funds. The FDIC would have the authority to 
     transfer amounts from the special reserve to the deposit 
     insurance fund if the Board of Directors determines that the 
     fund's reserve ratio is less than half of the designated 
     reserve ratio and is likely to be remain at or below that 
     level for the next four quarters.
       Because of the merger of the funds, the House bill would 
     also modify the Federal Home Loan Bank System's annual 
     contribution of $300 million toward the interest payments due 
     on Resolution Funding Corporation (REFCORP) bonds. The 
     provision would eliminate the shortfall allocation formula by 
     changing the payment to 23.7% of the system's net earnings, 
     as compared to the flat $300 million payment provided for 
     under current law.
       The House bill would also repeal the Home Owners' Loan Act, 
     which provides for the chartering of federal savings 
     associations and regulation of savings and loan holding 
     companies. The Office of Thrift Supervision (OTS) would also 
     be abolished. State chartered thrifts would be treated as if 
     they were commercial banks for the purposes of all federal 
     banking laws, including the Federal Deposit Insurance Act and 
     the Federal Reserve Act. A number of technical provisions are 
     included to implement the charter conversion, including a 
     clarification that housing creditors may purchase and enforce 
     alternative mortgage transactions in accordance with OTS 
     regulations issued prior to the effective date of Section 
     3(f) of the Home Owners Loan Act (HOLA).
     Senate amendment
       With regard to the merger of the funds, the Senate language 
     differs in that the BIF and the SAIF would be merged on 
     January 1, 1998 only if no insured depository institution is 
     a savings association (as those terms are defined in the 
     Federal Deposit Insurance Act) on that date. The Senate 
     language does not repeal the HOLA or abolish the OTS. The 
     Senate language also maintains the present REFCORP formula.
     Conference agreement
       The House recedes.


             SECTION 2014--CREATION OF SAIF SPECIAL RESERVE

     House bill
       No provision.
     Senate amendment
       No provision.
     Conference agreement
       Analogous to the treatment of the merged insurance funds 
     under Section 2013, the conference agreement includes 
     language establishing a special reserve for the SAIF on 
     January 1, 1998. The SAIF special reserve will initially 
     consist of the amount that SAIF's reserve ratio exceeds the 
     designated reserve 

[[Page H 12757]]
     ratio. As with the Deposit Insurance Fund under Section 2013, the FDIC 
     may transfer amounts from the special reserve to the Deposit 
     Insurance Fund if the Board of Directors determines that the 
     fund's reserve ratio is less than half of the designated 
     reserve ratio and is likely to be less than half of the 
     designated reserve ratio for the next four quarters.


SECTION 2015--REFUND OF AMOUNTS IN DEPOSIT INSURANCE FUND IN EXCESS OF 
                       DESIGNATED RESERVE AMOUNT

     House bill
       The House bill would prohibit the FDIC from setting 
     semiannual assessments in excess of the amount needed to 
     maintain the reserve ratio of any fund at the designated 
     reserve ratio. Further, the FDIC would be required to rebate 
     at the end of any semiannual period any amount--in the BIF or 
     in the merged fund after January 1, 1998--that exceeds the 
     balance required to meet the designated reserve ratio on such 
     basis as the Board of Directors determines to be appropriate. 
     The Board will take into account the factors considered under 
     the risk-based assessment system. The rebate to any member 
     could not exceed the total amount paid by such member for 
     that semiannual period.
     Senate amendment
       The Senate amendment would provide the FDIC with the 
     discretion to rebate in the form of assessment credits the 
     assessments paid by BIF members to the extent that the fund's 
     reserve ratio exceeds the designated reserve ratio. FDIC 
     would make this judgment after considering operating costs, 
     case resolution cost, case resolution expenditures, and 
     income.
     Conference agreement
       The Senate recedes, with an amendment which would exempt 
     from the House provision those institutions that exhibit 
     financial, operational, or compliance weaknesses ranging from 
     moderately severe to unsatisfactory, or are not well-
     capitalized. Assessments paid by these institutions cannot be 
     rebated. This preserves the FDIC's flexibility to continue 
     and refine the risk-based premium system required by the 
     Federal Deposit Insurance Corporation Improvement Act of 
     1991.


 SECTION 2016--ASSESSMENT RATES FOR SAIF MEMBERS MAY NOT BE LESS THAN 
                    ASSESSMENT RATES FOR BIF MEMBERS

     House bill
       The House bill would require that SAIF assessment rates 
     could not be lower than BIF assessment rates.
     Senate amendment
       The Senate language is similar but would extend the 
     requirement until all FICO obligations are paid.
     Conference agreement
       The conference agreement provides that SAIF assessment 
     rates may not be lower than BIF assessment rates beginning on 
     the date of enactment of the reconciliation act and ending on 
     January 1, 1998.


  SECTION 2017--ASSESSMENTS AUTHORIZED ONLY IF NEEDED TO MAINTAIN THE 
               RESERVE RATIO OF A DEPOSIT INSURANCE FUND

     House bill
       The House bill would prohibit the FDIC from setting 
     semiannual assessments in excess of the amount needed to 
     maintain the reserve ratio of any fund at the designated 
     reserve ratio, or, if the reserve ratio is less than the 
     designated reserve ratio, to increase the ratio to the target 
     level.
     Senate amendment
       No provision.
     Conference agreement
       The Senate recedes with an exception. Subsection (c) of 
     Section 2017 provides an exception to the limitations placed 
     on the FDIC in setting semi-annual assessments when the fund 
     is at or above the designated reserve ratio. This subsection 
     permits the FDIC to continue to charge premiums under its 
     risk-based system on institutions that exhibit financial, 
     operational, or compliance weaknesses ranging from moderately 
     severe to unsatisfactory, or are not well-capitalized. These 
     standards are generally the ones used by the FDIC in its 
     current risk-based system. This exception is intended to 
     provide the FDIC with sufficient flexibility to maintain a 
     risk-based assessment system and thereby provide the owners 
     and managers of financial institutions with an incentive to 
     manage their institutions so as to reduce or eliminate their 
     premiums.
       So long as the designated reserve ratio has been met, the 
     exception incorporated in this subsection is not intended to 
     allow the FDIC to impose premiums on a percentage of the 
     banking industry that would be significantly beyond the 
     percentage of the banking industry which currently meets 
     these standards, unless economic and banking industry 
     conditions necessitate such an expansion.


SECTION 2018--LIMITATION ON AUTHORITY OF OVERSIGHT BOARD TO CONTINUE TO 
               EMPLOY MORE THAN 18 OFFICERS AND EMPLOYEES

     House bill
       This provision would terminate the ability of the Thrift 
     Depositor Protection Oversight Board to employ staff on 
     December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The Senate recedes with modification to permit the 
     Oversight Board to employ eighteen individuals during the 
     period beginning on January 1, 1996 and ending May 1, 1996.

                          Subtitle B--Housing


 SECTION 2051--REDUCTION OF SECTION 8 ANNUAL ADJUSTMENT FACTORS (AAF) 
                   FOR UNITS WITHOUT TENANT TURNOVER

     House bill
       This provision makes permanent an FY 1995 appropriation 
     provision that reduces the annual adjustment factor (AAF) by 
     one percentage point for those Section 8 units for which 
     there has been no resident turnover since the preceding 
     annual rental adjustment.
     Senate Amendment
       The Senate provision is similar to the House, and would 
     limit the amount of the annual adjustment factor (AAF) for 
     section 8 assisted housing by: (1) reducing by one percentage 
     point the rent increase for those Section 8 units in which 
     there has been no resident turnover since the preceding 
     annual rental adjustment; and (2) limiting the overall AAF to 
     the cost of operation of a particular project (excluding the 
     portion of the rent for debt service).
     Conference Agreement
       The conference agreement generally adopts the Senate 
     provision and would limit the amount of the annual adjustment 
     factor (AAF) or a rent increase for section 8 assisted 
     housing by: (1) reducing by one percentage point the rent 
     increase for those Section 8 units in which there has been no 
     resident turnover since the preceding annual rental 
     adjustment; and (2) limiting the overall AAF to the cost of 
     operation of a particular project (excluding the portion of 
     the rent for debt service).
       These reforms are needed to maintain reasonable rental 
     costs in federally assisted projects, many of which receive 
     subsidized rents in excess of the fair market rent for a 
     comparable project in the same market area. This provision is 
     a first step to comprehensive reforms that address the 
     escalating costs of the section 8 project-based contract 
     assistance program.


      SECTION 2052--FORECLOSURE AVOIDANCE AND BORROWER ASSISTANCE

     House bill
       The House bill replaces the current Federal Housing 
     Administration (FHA) assignment program and provides the 
     Department of Housing and Urban Development (HUD) with 
     authority to pay partial mortgage insurance claims limited to 
     the amount equivalent to or less than twelve monthly mortgage 
     payments. As a condition for accepting a partial claim 
     payment, the lender agrees, on a short term basis, to modify 
     the terms of the loan to a level where the borrower has the 
     ability to pay and retain the loan in its portfolio. In some 
     circumstances, however, where the default and modification 
     may be for a longer period of time, the replaced program 
     allows HUD to pay the mortgage insurance claim after loan 
     modification and accept the borrower into a new assignment 
     program. HUD will act as the lender for at least two years or 
     whenever the mortgage may be sold to the secondary markets or 
     otherwise disposed. The assignment program will require HUD 
     to use private sector sources for servicing and foreclosure 
     activities.
     Senate Amendment
       No provision.
     Conference Agreement
       The Senate recedes with an amendment to apply the reforms 
     to FHA mortgages originated in FY 1996 and thereafter.
       The FHA assignment program was created in 1959, but was not 
     operational until 1976 after a court consent decree required 
     HUD to implement the program. Subsequent modifications to the 
     temporary mortgage assistance program and the assignment 
     program required HUD to accept defaulted FHA borrowers into 
     the program. As a condition for assignment, a borrower's 
     default must be based on circumstances beyond his or her 
     control, such as sickness or loss of employment. Further, 
     there must be a reasonable expectation that the borrower will 
     resume normal and regular mortgage payments and correct any 
     loan deficiencies within a reasonable time. Currently, the 
     program allows up to 36 months in forbearance in anticipation 
     that a mortgagor will be able to resume his or her mortgage 
     payments. Since the majority of assigned loans are insured 
     under the FHA Mutual Mortgage Insurance Fund (MMIF), the cost 
     of the assignment program is borne by the Fund.
       The Conference Committee notes that the well-intentioned 
     objectives of the current assignment program are not 
     achieved, and could cause some $1.6 billion in future losses 
     to the FHA MMIF. A recent General Accounting Office (GAO) 
     study indicates that there are currently 71,500 loans in the 
     program and that it ``operates at a high cost to FHA's Fund 
     and has not been very successful helping borrowers avoid 
     foreclosures in the long run.'' Approximately 30% of assigned 
     borrowers eventually become current and graduate out of the 
     FHA assignment program, thereby indicating a current failure 
     rate at approximately 70%. Thus, current FHA borrowers are 
     paying higher premiums to meet the capital ratio standards of 
     the MMIF as well as cover the exorbitant costs of the 
     assignment program.
       The replaced assignment program included in the conference 
     report provides HUD with authority to pay partial mortgage 
     insurance claims limited to the amount equivalent to or less 
     than twelve monthly mortgage payments. As a condition for 
     accepting a partial 

[[Page H 12758]]
     claim payment, the lender agrees, on a short term basis, to modify the 
     terms of the loan to a level where the borrower has the 
     ability to pay and retain the loan in its portfolio. In some 
     circumstances, however, where the default and modification 
     may be for a longer period of time, the replaced program 
     allows HUD to pay the mortgage insurance claim and accept the 
     borrower into a new assignment program. Under a new 
     assignment program, it is expected that HUD will use private 
     sector sources for servicing and foreclosure activities. 
     Given HUD's history of management and capacity deficiencies, 
     the Conferees urge HUD to consider carefully the structure of 
     any new or replaced assignment program.


 TERMINATION OF THE RESOLUTION TRUST CORPORATION (RTC) AND THE FEDERAL 
    DEPOSIT INSURANCE CORPORATION (FDIC) AFFORDABLE HOUSING PROGRAMS

     House bill
       The House provision repeals Section 40 of the Federal 
     Deposit Insurance Act in anticipation of the December 31, 
     1995 sunset of the Resolution Trust Corporation (RTC) and 
     terminates the RTC Affordable Housing Advisory Board. 
     Remaining functions and authority vested in the RTC 
     Affordable Housing Program are transferred to the Secretary 
     of Housing and Urban Development. This includes monitoring 
     affordable housing resale restrictions, low-income occupancy 
     requirements, and rent limitations and recapturing resale 
     proceeds.
     Senate Amendment
       No provision.
     Conference Agreement
       House recedes.


   TERMINATION OF HUD-OWNED MULTIFAMILY PROPERTY DISPOSITION PROGRAM

     House bill
       This provision authorizes HUD to sell multifamily housing 
     projects that are HUD-owned or HUD-held mortgages without 
     restrictions. HUD is given authority to delegate this 
     authority to other parties in order to sell the property more 
     quickly.
     Senate Amendment
       No provision.
     Conference Agreement
       House recedes.


    RECAPTURE OF RURAL HOUSING LOAN SUBSIDIES BY RURAL HOUSING AND 
                     COMMUNITY DEVELOPMENT SERVICE

     House bill
       This provision extends statutory authority to the Rural 
     Housing and Community Development Service to recapture 
     government subsidy payments at the time the borrower 
     refinances or repays a single family direct loan mortgage 
     financed under Section 502 of the Housing Act of 1949.
     Senate Amendment
       No provision.
     Conference Agreement
       House recedes.

      TITLE III--COMMUNICATIONS AND SPECTRUM ALLOCATION PROVISIONS

                    Section 3001--Spectrum Auctions


                (a) EXTENSION AND EXPANSION OF AUTHORITY

     House bill
       This subsection amends section 309(j) of the Communications 
     Act of 1934 which grants the Federal Communications 
     Commission (FCC) authority to use a system of competitive 
     bidding as a means of granting licenses. The subsection 
     provides that such authority will apply when there are 
     mutually exclusive applications for an initial license for 
     use of the electromagnetic spectrum. Competitive bidding 
     would not be permitted to be used for unlicensed uses. The 
     FCC is required to continue its obligation under section 
     309(j)(6)(E) to take actions necessary to avoid situations of 
     mutual exclusivity. An example is the 450-470 MHz band, which 
     is shared by low-powered medical telemetry devices.
       The subsection also sets forth specific exemptions from the 
     use of competitive bidding. The subsection does not permit 
     the use of competitive bidding for public safety radio 
     services, including non-government uses that protect the 
     safety of life, health and property and that are not made 
     commercially available to the public.
       Under this subsection, the FCC may not use competitive 
     bidding for initial licenses for broadcast digital television 
     services assigned by the FCC to incumbent broadcast licenses 
     to replace their current analog signal. This subsection also 
     repeals the authority of the FCC to use random selection (or 
     so-called ``lotteries'') as an alternative to competitive 
     bidding. Finally, the expansion of competitive bidding 
     authority under this subsection does not apply to any 
     licenses for which the FCC has accepted mutually exclusive 
     applications prior to the date of enactment.
     Senate amendment
       Section 4001(a) of the Senate bill is similar to the House 
     provisions, but it contains an additional provision, section 
     309(j)(2)(C) of the Communications Act of 1934. This 
     provision directs the FCC to submit to Congress a proposal 
     regarding the use of auction authority for the assignment of 
     licenses for advanced television services within 180 days of 
     enactment of this section. The FCC would be prohibited from 
     awarding ATV spectrum to existing commercial broadcast 
     licenses, until January 1, 1998. The prohibition does not 
     extend to assignment of ATV spectrum to public broadcasters.
     Conference agreement
       The Conferees adopt the Senate provisions with 
     modifications. The Conference Agreement provides further 
     limitations on the exemption of auction authority for public 
     safety radio services by accepting the Senate language 
     requiring that the ``sole or principal purpose'' of the 
     spectrum exempted from auctions be for ``the safety of life, 
     health, and property and which are not made commercially 
     available to the public.''
       Section 3001(a) amends the Communications Act of 1934 and 
     provides that the FCC will employ auctions to assign licenses 
     where there are mutually exclusive applications for such 
     licenses. Section 309(j)(2)(C) of such Act exempts from the 
     new auction authority the grant of licenses or construction 
     permits to existing broadcast television licensees or 
     permittees for advanced television services. Section 
     309(j)(2)(C)(i) directs the Commission, within 180 days after 
     enactment of this bill, to report to Congress on whether 
     auctions of the license to use spectrum currently reserved 
     for advanced television should be authorized.
       The conferees intend that the FCC's report should consider, 
     among other things, the following issues:
       The extent to which television broadcast license holders 
     could provide advanced television services using their 
     existing spectrum, in particular by replacing analog 
     broadcasts with digital broadcasts on the same spectrum;
       The impact of assigning such licenses by auction on the 
     availability and deployment of advanced television service 
     technology, particularly in rural areas and small television 
     markets, and on the ability of consumers to receive digital 
     television services through over-the-air television 
     broadcasts;
       The impact on television broadcasters of a requirement to 
     simultaneously broadcast analog and digital signals for a set 
     period of time, and in particular the impact of such 
     requirements on the cost of broadcasting equipment and on 
     consumer devices (including televisions and converter boxes);
       The feasibility of using the spectrum reserved for advanced 
     television for other purposes, including an estimate of the 
     projected receipts that could be derived from auctioning 
     licenses for the use of such spectrum;
       The assignment of licenses without auction and the 
     reassignment of current broadcast television spectrum under a 
     system of public auctions upon completion of a transition 
     from analog to digital transmission, including the 
     feasibility and desirability of regrouping broadcast spectrum 
     assignments so that contiguous nationwide spectrum would be 
     available for public auction; and
       The costs and uncertainties for broadcasters, including the 
     cost of converting facilities for simulcasting analog/digital 
     signals, and the lack of knowledge of whether consumers will 
     purchase digital equipment, in comparison to the costs and 
     uncertainties if a bidder is not an incumbent broadcaster and 
     has no knowledge of whether new programming services will 
     drive customers' purchases of digital sets.
       To allow time for Congress to consider this report, the 
     Commission may not issue licenses or construction permits for 
     advanced television services that replace existing television 
     licenses until November 15, 1996. The conferees do not intend 
     the suspension of licensing authority to delay or prejudice 
     any ongoing Commission proceedings regarding the 
     authorization of advanced television services.
       The conferees agree to the House effective date with a 
     modification to clarify that amendment to Section 309 shall 
     not apply with respect to any license or permit for a 
     terrestrial radio or television broadcast station for which 
     the FCC has accepted mutually exclusive applications on or 
     before the date of enactment of this Act.


  (b) COMMISSION OBLIGATION TO MAKE ADDITIONAL SPECTRUM AVAILABLE BY 
                                AUCTION

     House bill
       This subsection directs the FCC to auction 100 megahertz 
     (MHz) of spectrum located below 3 gigahertz (GHz) by 
     September 30, 2002, which prior to the date of enactment, 
     have not been designated by the FCC for assignment by auction 
     and have not been identified by the National 
     Telecommunications and Information Administration (NTIA) as 
     reallocable frequencies. The FCC must auction the licenses 
     for the use of bands of frequencies in blocks of at least 25 
     MHz unless the FCC determines that a combination of smaller 
     bands can reasonably be expected to produce greater receipts 
     for the U.S. Treasury.
       In making available such bands of frequencies for 
     competitive bidding under this subsection, the FCC must 
     consider, first and foremost, the promotion of the most 
     efficient use of the spectrum. The FCC must also consider the 
     cost to incumbent licensees of relocating existing uses to 
     other bands of frequencies or other means of communication. 
     The FCC is also directed to take into account the needs of 
     public safety users when making allocation decisions. 
     Finally, in making bands of frequencies available for 
     auction, the FCC must ensure that such assignments comply 
     with the requirements of international agreements concerning 
     spectrum allocations.
       In making available bands of frequencies for competitive 
     bidding pursuant to this section, if the FCC is unable to 
     provide for the effective relocation of incumbent licenses, 
     it 

[[Page H 12759]]
     shall notify the NTIA that it has identified bands of frequencies 
     suitable for relocation and which could be reallocated for 
     private use.
     Senate amendment
       Section 4001(b) of the Senate Amendment is virtually 
     identical to the House provision, except that subsection 
     (b)(1)(D)(iii) and subsection (b)(2)(E) are unique in 
     comparison to the House bill. Subsection (b)(1)(D)(iii) 
     ensures that the frequencies chosen by the FCC must not have 
     been reserved for government use under section 305 of the 
     Communications Act of 1934.
       The Senate included subsection (b)(2)(E) which directs the 
     FCC in exercising its authority to ``take into account costs 
     to satellite service providers that would result from 
     multiple auctions of like spectrum internationally for global 
     satellite systems.''
     Conference agreement
       The Conferees adopt the Senate provisions.


           (c) IDENTIFICATION AND REALLOCATION OF FREQUENCIES

     House bill
       The House provision requires that in response to a Notice 
     from the FCC, the NTIA shall prepare and submit a report to 
     the President and Congress identifying and recommending for 
     reallocation frequencies that are assigned to the Federal 
     government stations and are not required for the present or 
     identifiable future needs of the Federal government and that 
     are suitable for the uses identified in the Commission's 
     Notice.
     Senate amendment
       The Senate provision is identical to the House provision 
     but it adds new subsections (g), (h) and (i) to section 113 
     and 114 of the National Telecommunications and Information 
     Administration Organization Act. Together, these additions to 
     section 113 and 114 provide authority for Federal agencies to 
     accept reimbursement or payment from private parties for the 
     costs of relocation.
     Conference agreement
       The Conference Agreement adopts the Senate provisions with 
     clarifications. The conferees intend that the provisions of 
     this section would apply to the United Postal Service, which 
     has an account in the United States Treasury and operates 
     using government frequencies.


     (d) IDENTIFICATION AND REALLOCATION OF AUCTIONABLE FREQUENCIES

     House bill
       This subsection requires the NTIA to submit a second 
     reallocation report to Congress, identifying and recommending 
     for reallocation a single frequency band of at least 20 MHz, 
     located below 3 GHz, and which meets the criteria of section 
     113(a) of the National Telecommunications and Information 
     Administration Organization Act. Within one year after 
     receipt of the second reallocation report, the FCC shall 
     submit a plan to the President and Congress, and implement 
     such plan for the allocation and assignment of such 
     frequencies in accordance with section 309(j) of the 
     Communications Act of 1934.
     Senate amendment
       The Senate provision is identical to the House provision.
     Conference agreement
       The Conference Agreement accepts the House provision.

               TITLE IV--EDUCATION AND RELATED PROVISIONS

                      Subtitle A--Higher Education

       Unless otherwise noted, all amendments proposed to be made 
     by the conference report refer to the Higher Education Act 
     (HEA) of 1965 and the effective date of these amendments is 
     January 1, 1996.


          participation of institutions in direct loan program

     House bill
       The House bill provides for the repeal of the direct loan 
     program as of July 1996.
     Senate amendment
       The Senate amendment would limit participation in the 
     direct loan program as follows:
       1. Five percent of new student loan volume for academic 
     year 1994-1995.
       2. For academic year 1995-1996, and each succeeding year, 
     direct loans will be provided to those students and parents 
     of students attending institutions which have applied and 
     been accepted for participation in the direct loan program on 
     or before September 30, 1995, not to exceed 30 percent of new 
     student loan volume including direct consolidation loans.
       3. For academic year 1996-1997 (starting July 1, 1996), and 
     each succeeding year, direct loans will be provided only to 
     those students and parents of students attending institutions 
     which have applied and been accepted for participation in the 
     direct loan program on or before September 30, 1995, not to 
     exceed 20 percent of new student loan volume including direct 
     consolidation loans.
     Conference agreement
       The Senate recedes with an amendment to limit the size of 
     the direct loan program as follows:
       1. Five percent of new student loan volume for academic 
     year 1994-1995.
       2. For academic year 1995-1996, and each succeeding year, 
     direct loans will be provided to those students and parents 
     of students attending institutions which have applied and 
     been accepted for participation in the direct loan program on 
     or before September 30, 1995, not to exceed 30 percent of new 
     student loan volume including direct consolidation loans.
       3. For academic year 1996-1997 (starting July 1, 1996), and 
     each succeeding year, direct loans will be provided only to 
     those students and parents of students attending the 102 
     institutions which participated in the direct loan program 
     during the 1994-95 academic year, not to exceed 10 percent of 
     new student loan volume including direct consolidation loans.
       In 1993, Congress accelerated the 5 percent direct loan 
     demonstration enacted in the 1992 amendments to the Higher 
     Education Act to a program that is scheduled to account for 
     60 percent of federal student loan volume by 1998. This 
     change was made through the budget reconciliation process, 
     and the scoring used by the Congressional Budget Office (CBO) 
     at that time made direct lending look significantly cheaper 
     than guaranteed loans.
       The 1993 scoring was flawed and failed to take into account 
     any administrative costs of servicing or collecting on direct 
     loans past the 5-year budget bill. Earlier this year, 
     Congress passed the budget resolution, which contained a 
     provision that changes the scoring so that guaranteed lending 
     and direct lending are now scored in the same way. An October 
     26, 1995, letter from the Congressional Budget Office (CBO) 
     to Senator Domenici confirmed this by stating that, ``the 
     Credit Reform Act amendment allows direct comparisons between 
     the costs of the guaranteed and direct loan programs.'' The 
     CBO letter also stated that, ``By defining the direct 
     administrative costs of direct loans and requiring these 
     costs be calculated over the life of the loan portfolio, the 
     resolution allowed for the costs of direct and guaranteed 
     loans to be evaluated on a similar basis. Thus, all of the 
     program costs for both programs are included in the 
     resolution baseline and are accounted for in the same way.''
       This change in the scoring results in a more accurate 
     accounting of direct lending and, thus, today significant 
     savings can be realized by decreasing the size of the 
     program. The conferees chose to include a decrease in the 
     direct loan program as one of the savings items in the 
     reconciliation bill to achieve required savings rather than a 
     number of other elements that would have increased costs to 
     students.
       In addition, on a policy basis, the conferees are very 
     concerned about the prospects of the Department of Education 
     becoming one of the largest lending institutions in the 
     country. Whether the Department will be able to effectively 
     track and collect the loans which it has made to date is a 
     question which needs to be answered before significant 
     expansion of the direct loan program occurs. A demonstration 
     program will allow questions of this nature to be answered 
     prior to further program expansion.


                              conscription

     Conference agreement
       Both the House bill and Senate amendment eliminate the 
     authority of the Secretary of Education to force schools into 
     the direct loan program. This provision is unnecessary in an 
     environment where direct loan volume is limited.


                          administrative funds

     House bill
       The House bill defines direct administrative expenses for 
     Part D and limits indirect administrative expenses to $110 
     million for fiscal year 1996 with $40 million dollars 
     allotted to cover the costs of the administrative cost 
     allowance for the guaranty agencies accrued prior to January 
     1, 1996, and $70 million per year for fiscal years 1997 
     through 2002.
     Senate amendment
       The Senate amendment defines direct administrative expenses 
     for Part D and limits indirect administrative expenses for 
     Parts B and D to $85 million per year for fiscal years 1996 
     through 2002, except that additional sums shall be available 
     for fiscal year 1996 to cover the costs of the administrative 
     cost allowance for the guaranty agencies accrued prior to 
     January 1, 1996.
     Conference agreement
       The House recedes.
       The conference agreement sets new limits on funds that the 
     Department of Education will receive to administer the direct 
     loan program since the size of the direct loan program is 
     decreased. The Administration claims that such new levels 
     will ``gut'' the Department of Education's administrative 
     control and oversight of both the guaranteed and direct loan 
     programs. However, the yearly funding levels are based on 
     budget information received from the Department of Education. 
     The information received indicates that these amounts are 
     reasonable and appropriate.
       The budget reconciliation bill combined with the proposed 
     fiscal year 1996 Senate appropriations bill would level fund 
     the administrative funds for student aid administration at 
     the 1994 level of $239 million. Under the conference 
     agreement, student aid administrative expenditures for fiscal 
     year 1996 will still double from what was spent to administer 
     student loans just five years ago. However, the agreement 
     will stop the massive increases in administrative costs which 
     have occurred over the last four years. Level funding at the 
     1994 level will fully provide for all necessary personnel, 
     contract, oversight, 

[[Page H 12760]]
     equipment, publications, and administrative costs that are necessary to 
     effectively and efficiently manage the student aid programs.
       Both the House bill and the Senate amendment limit the use 
     of section 458 funds by the Secretary to indirect 
     administrative costs related to direct and guaranteed loans. 
     Activities that were funded historically on a cash basis with 
     discretionary appropriated administrative funds in the 
     guaranteed loan program shall remain on a cash basis for both 
     the guaranteed and direct loan programs and be considered 
     indirect administrative expenses. Indirect administrative 
     expenses can include the cost of Department personnel and 
     required oversight activities. The direct administrative 
     expense account is not intended to be used for guaranteed 
     loan costs nor for the costs of personnel or other 
     administrative costs of the Department of Education for the 
     Part D program. Salaries and expenses for the Department of 
     Education, as for all other government agencies, are funded 
     by annual appropriations. The conferees intend this practice 
     to continue.


                      limitation on indirect costs

     House bill
       The House bill states that indirect costs for direct loans 
     may not exceed 30 percent of the section 458 funds.
     Senate amendment
       No provision.
     Conference agreement
       The House recedes as inclusion of this provision violates 
     the Byrd rule.


                             default rates

     House bill
       No provision.
     Senate amendment
       The Senate amendment clarifies the HEA to reflect 
     congressional intent that the Secretary is required to 
     calculate default rates for direct lending schools and to 
     terminate such schools if they exceed the default rates 
     established in the law, as is the current procedure for 
     schools participating in the guaranteed loan program.
       The Secretary is directed to develop criteria for the 
     calculation of default rates for institutions participating 
     in the direct loan program within 120 days after date of 
     enactment of this legislation. The methodology, criteria, and 
     procedures to be used in determining such default rates must 
     be comparable to those applied to schools participating in 
     the guaranteed loan program under Part B of the HEA. Such 
     standards must be promulgated no later than 120 days after 
     the date of enactment of this legislation or the Secretary 
     may not make any new direct loans.
     Conference agreement
       The House recedes with an amendment to clarify the fact 
     that the conferees intend the Department of Education to 
     apply comparable default rate calculations for both 
     guaranteed loans and direct loans repaid through income 
     contingent repayment. The prohibition on the Secretary making 
     income contingent loans if default rate regulations are not 
     issued within 120 days after enactment is not included in the 
     conference agreement.


                      transition to direct lending

     Conference agreement
       Both the House bill and the Senate amendment eliminated all 
     references to the transition to the direct loan program from 
     the HEA. These references are no longer necessary or correct 
     in the context of the legislation which does not contemplate 
     a transition from guaranteed lending to direct lending.


      administrative fees for schools and alternative originators

     Conference agreement
       Both the House bill and the Senate amendment repeal the 
     authority to pay schools or alternative originators to 
     originate direct loans.


                           state risk-sharing

     House bill
       No provision.
     Senate amendment
       The Senate amendment applies the state risk-sharing 
     provision in current law to direct loan schools. The 
     provision currently applies only to guaranteed loan schools. 
     It mandates that states pay to the federal government a 
     yearly fee based on the cohort default rates of the schools 
     in their state which participate in the federal student loan 
     programs. The Congress anticipates that the Department of 
     Education will implement this provision in the same manner 
     for both guaranteed and direct lending.
     Conference agreement
       The House recedes.


                     grace period interest subsidy

     House bill
       The House bill eliminates payment of the interest on a 
     subsidized Stafford student loan by the federal government on 
     behalf of the student during the six-month period after a 
     student leaves school.
     Senate amendment
       No provision.
     Conference agreement
       The House recedes.


                     same loan terms and conditions

     House bill
       No provision.
     Senate amendment
       Although the Higher Education Act states that the terms and 
     conditions of the direct and guaranteed student loan programs 
     are supposed to be the same, the Department of Education has 
     instituted more flexible repayment options for direct loan 
     borrowers. The legislation clarifies and strengthens 
     congressional intent that direct and guaranteed loans are 
     required to have the same terms, conditions, eligibility 
     requirements, interest rates, loan limits, and administrative 
     requirements for origination, payment, and processing of 
     applications. Additionally, the Secretary is required to 
     issue corresponding regulations not later than 120 days after 
     the enactment of this legislation.
     Conference agreement
       The House recedes.


                              common form

     House bill
       The House bill amends the HEA to clarify that the Part B 
     loan application may be the Free Application for Federal 
     Student Assistance (FAFSA). The bill also clarifies that the 
     application may be in an electronic or other format in order 
     to facilitate use by borrowers and institutions. Finally, 
     this section clarifies that application data shall be 
     available to any guaranty agency that is authorized to 
     receive such data by the appropriate institution for the 
     purpose of processing Part B loan applications.
     Senate amendment
       No provision.
     Conference agreement
       The House recedes as inclusion of this provision violates 
     the Byrd rule. However, the conferees believe that it would 
     be beneficial to students and institutions to have the FAFSA 
     serve as the single loan application for Part B and Part D 
     loans. In 1993, the Advisory Committee on Student Financial 
     Assistance recommended that the FAFSA serve as the single 
     loan application, and that recommendation was adopted for 
     Part D loans, but not for Part B loans. The conferees hoped 
     to correct this disparity, but the budget rules do not permit 
     this change to be made in this legislation. Therefore, the 
     Secretary is encouraged to proceed in that direction and to 
     use his waiver authority, if necessary, under 487A of the 
     Higher Education Act in order to permit this practice for the 
     benefit of students and institutions.


                            electronic forms

     House bill
       The House bill permits the development, production, 
     distribution and use of an electronic version of the free 
     federal common application form by guaranty agencies, 
     lenders, and consortium thereof to expedite the processing of 
     student loans. This authority will enable lenders and 
     guaranty agencies to achieve administrative efficiencies 
     necessary to sustain the subsidy reductions contained 
     elsewhere in this bill. The form must be approved by the 
     Secretary to ensure its consistency with the requirements of 
     the HEA. Certification of the accuracy of the output of the 
     application by the applicant is allowed in a subsequent 
     document. Fees in connection with the use of this form are 
     prohibited.
     Senate amendment
       No provision
     Conference agreement
       The House recedes as inclusion of this provision violates 
     the Byrd Rule. However, in the 1992 reauthorization of the 
     Higher Education Act Congress emphasized the need to simplify 
     and streamline the financial aid delivery system through 
     standardization, electronic forms, and electronic 
     communication linkages. Computerized financial aid 
     applications and administrative processes that allow students 
     to apply for federal, state, and institutional aid 
     electronically, have been developed for the guaranteed loan 
     program. This computerized process would eliminate the need 
     for filling out multiple paper copies and simplify the 
     process for students.
       For example, once a student fills in his or her name and 
     address, these data are incorporated into all of the other 
     applications incorporated into the software. The software 
     used in the process also has internal checks that reduce 
     errors, saving administrative time and costs on the part of 
     the school and frustration on the part of the student. The 
     software will not permit an application to be filed if 
     required information, such as home address, is missing. 
     Schools also benefit by being able to transmit data 
     electronically to the Department's central processor 
     expediting the submission of forms as well as the receipt by 
     students of loan proceeds.
       In 1992, Congress restricted the production, use and 
     distribution of the FAFSA. This was done to prevent questions 
     other than those approved by the Secretary from being 
     included in the FAFSA. However, software that involves 
     reproducing the FAFSA in electronic form, and not adding 
     questions to it, ought to be available to all students. 
     Approval of such software is not in any way inconsistent with 
     congressional intent. The conferees therefore ask the 
     Secretary to exercise his waiver authority under section 487A 
     of the Higher Education Act to obviate any statutory 
     obstacles which, in the opinion of the Department, prevent 
     the production, distribution and processing of the FAFSA in 
     electronic form.
       However, the conferees are sympathetic to various concerns 
     raised by the Department of Education regarding the 
     availability of 

[[Page H 12761]]
     electronic data for analysis by the Department, two-way exchange of 
     electronic information between the Department and outside 
     party processors to coordinate applications and 
     reapplications, and security measures to protect private 
     information. The conferees intend that the Secretary use his 
     authority to approve electronic versions of the FAFSA to 
     assure that these concerns are adequately and reasonably 
     addressed. It is anticipated that entities seeking to 
     produce, use, distribute, and process the electronic FAFSA 
     will cooperate with the Secretary to assure that changes to 
     current law do not result in undermining on-going efforts to 
     simplify the application and processing of Federal student 
     assistance.


                     guaranteed consolidation loans

     Conference agreement
       Both the House bill and the Senate amendment make borrowers 
     of direct loans eligible to consolidate such loans into a 
     guaranteed consolidation loan.


                       direct consolidation loans

     House bill
       No provision.
     Senate amendment
       The Higher Education Act is clarified to reflect 
     congressional intent that a guaranteed loan borrower is only 
     eligible to obtain a direct consolidation loan when he or she 
     is unable to obtain a consolidation loan from a loan holder. 
     The law is also modified to limit eligibility of guaranteed 
     loan borrowers to those students who are unable to obtain a 
     consolidation loan with an income- contingent loan repayment 
     schedule from a loan holder. Since income-contingent 
     repayment is allowed in the guaranteed loan program in the 
     conference bill, students should not need to consolidate into 
     the direct loan program to obtain this repayment method.
       This subsection requires the Secretary to establish 
     appropriate certification procedures to verify eligibility of 
     borrowers for consolidation loans, and it prohibits the 
     Secretary from offering consolidation loans if the Department 
     lacks the administrative capacity or if the projected loan 
     volume of direct consolidation loans would destabilize the 
     availability of guaranteed loans.
     Conference agreement
       The House recedes.


                      Income contingent repayment

     House bill
       No provision.
     Senate amendment
       The legislation authorizes guaranteed student loan 
     borrowers to repay their loans through income-contingent 
     repayment, which is an option currently available only in the 
     direct loan program. The repayment schedules may be 
     comparable to those developed for the Part D direct loan 
     program.
     Conference agreement
       The House recedes with an amendment to require that the 
     repayment schedules must be comparable to those developed for 
     the Part D direct loan program. It is the conferees intent 
     that in the case of a student desiring income-contingent 
     repayment from a lender which lacks the capacity to offer 
     income-contingent repayment, such lender will sell the 
     student's loans to another lender that offers such repayment 
     option.


                            plus loan limits

     House bill
       The House bill establishes annual borrowing limits for 
     borrowers of PLUS loans at $15,000 per student in any 
     academic year.
     Senate amendment
       No provision.
     Conference agreement
       The Senate recedes. The conferees agree that unlimited 
     borrowing by parents without sufficient credit analysis may 
     not be in the best fiscal interests of the federal government 
     or the actual borrower. For this reason, the conferees agreed 
     to a maximum borrowing of $15,000 on parent loans per student 
     per academic year. A $15,000 maximum should not create a 
     hardship for parents and students since the current average 
     parent loan is less than $6,000.


               plus loan interest rate increase and rebate

     House bill
       The House bill provides for an increase in the PLUS program 
     loan interest rate from the 52- week Treasury bill plus 3.1 
     percent capped at 9 percent to the 52-week Treasury bill plus 
     4 percent capped at 11 percent, for loans with a first 
     disbursement after January 1, 1996. The House bill also 
     requires holders of PLUS program loans to pay a rebate to the 
     Secretary equal to .80 percent of the outstanding principal 
     balance of loans held on June 30 and December 31, payable 
     within 60 days after such date.
     Senate amendment
       No provision.
     Conference agreement
       The House recedes.


                  guaranty agency extended withholding

     Conference agreement
       Both the House bill and the Senate amendment require a 
     guaranty agency to use at least 50 percent of its reserve 
     funds to purchase and hold defaulted loans from lenders. 
     Except under certain circumstances, guarantors must wait at 
     least 180 days after such purchase before submitting claims 
     for reimbursement to the Secretary. During this time, 
     guarantors will work with borrowers to attempt to bring the 
     loan into repayment so that no claim for reimbursement from 
     the federal government is ever filed. Currently, guaranty 
     agencies must file for reimbursement from the Secretary after 
     45 days.
       If such an attempt is successful, the loan will be sold to 
     an eligible lender. Defaulted loans that are held by 
     guarantors for the additional 180 days will be considered 
     assets for the purposes of calculating guarantors' reserve 
     levels.
       In addition to saving money for the federal government, 
     this provision gives students an additional 180 days after 
     default to make satisfactory repayment arrangements before 
     having their tax refunds attached by the IRS or facing other, 
     more onerous, collection activities. Borrowers who are able 
     to return their loans to good standing will be eligible for 
     additional aid and other benefits of the loan program.


             guaranty agency administrative cost allowance

     House bill
       The House bill would require originating lenders to pay to 
     the guaranty agency which guarantees a loan, a fee equal to 
     0.70 percent of the principal amount of the loan for loans 
     having a first disbursement after January 1, 1996. These 
     funds are used by guaranty agencies for administrative costs 
     of collections, preclaim assistance, monitoring enrollment 
     and other program costs. No part of these payments may be 
     assessed or collected directly or indirectly from the 
     borrower.
     Senate amendment
       The Senate amendment would decrease the payment of the 
     administrative cost allowance to guaranty agencies from 1 
     percent to either: .85 percent of the total principal amount 
     of the loans for which insurance was issued during the fiscal 
     year, or .08 percent of the original principal amount of the 
     loans guaranteed by the program that are outstanding at the 
     end of the previous fiscal year. The amount required to be 
     paid by the federal government would be limited to $180 
     million per year.
     Conference agreement
       The House recedes with an amendment. The guaranty agencies 
     would only receive .85% of the total principal amount of the 
     loans for which insurance was issued during the fiscal year 
     and the cap for fiscal years 1996, 1997, and 1998 would be 
     increased to $220 million. The decrease in administrative 
     funds paid to guaranty agencies will require more efficiency 
     on the part of all agencies since they are expected to 
     provide a high level of service with reduced operating funds.


                     guaranty agency reserve ratios

     House bill
       Guaranty agencies are required to maintain a minimum 
     reserve level equal to .9 percent of outstanding loans 
     guaranteed.
     Senate amendment
       No provision.
     Conference agreement
       The Senate recedes.


                      guaranty agency reinsurance

     House bill
       The House bill reduces the guaranty agency reinsurance rate 
     from 98 percent, 88 percent, 78 percent (based on the average 
     default rate of the guaranty agency's loans) to 96/86/76 
     percent.
     Senate amendment
       No provision.
     Conference agreement
       The Senate recedes. The conferees agree that all parties 
     should have a greater share of risk in the guaranteed loan 
     program.


                 defaulted consolidation loan retention

     House bill
       No provision.
     Senate amendment
       The Senate amendment lowers the collection retention rate 
     for defaulted loans that are consolidated from 27 cents to 25 
     cents on the dollar.
     Conference agreement
       The House recedes with an amendment to lower the collection 
     retention rate to 18.5 cents on the outstanding principal, 
     interest and collection costs.


                   supplemental preclaims assistance

     Conference agreement
       Both the House bill and the Senate amendment eliminate 
     payment to guaranty agencies for supplemental preclaims 
     assistance to lenders for the purpose of preventing defaults. 
     Currently, these payments equal 1 percent of the principal 
     and interest of loans for which assistance was provided to 
     lenders and the lenders did not file a default claim on or 
     before 270 days after the loan became delinquent. Guaranty 
     agencies are still required to provide this assistance (using 
     their general operating funds) even though they will no 
     longer receive a special payment to do so.


                          mandatory assignment

       Both the House bill and Senate amendment include a 
     provision to ensure that standards for the mandatory 
     assignment of defaulted loans to the Secretary from the 
     guaranty agencies revert to the standards enacted as part of 
     the Higher Education Amendments of 1992. The legislation 
     specifies that general criteria must be established through 
     negotiated rulemaking.
     Conference agreement
       Both the House and Senate recede. 

[[Page H 12762]]



                    termination of guaranty agencies

     House bill
       The House bill deletes the Secretary's authority to 
     terminate a guaranty agency for the purpose of achieving an 
     orderly transition to the direct loan program. In addition, a 
     provision is included requiring a hearing on the record prior 
     to the termination of a guaranty agency agreement. The 
     legislation mandates that funds recovered from a terminated 
     guaranty agency shall be returned to the Treasury and used 
     for the purpose of lowering the federal debt.
     Senate amendment
       The Senate amendment includes the same provisions as the 
     House bill. In addition, the Senate amendment further 
     restores to its pre-1993 state the conditions under which the 
     Secretary may terminate guarantors, essentially the same as 
     those established by the 1992 amendments to the Higher 
     Education Act. The Secretary will still possess ample, yet 
     more closely circumscribed, powers to terminate a guarantor 
     that is in serious trouble and in danger of collapse.
       The subsection further stipulates that, in the event a 
     guarantor is terminated by the Secretary, the Secretary must 
     abide by the recommendations of the affected State for all 
     guarantor portfolio transfers, mergers and consolidations. In 
     addition, the Secretary may take over a guaranty agency's 
     portfolio only in the event that no existing guaranty agency 
     is willing to act as a successor agency for the affected 
     guarantor.
       The Secretary must provide opportunities for hearings on 
     the record in cases where he is exercising his authority to 
     terminate guarantor contracts.
     Conference agreement
       The Senate recedes. The conferees believe that in order to 
     maintain a viable guaranteed loan program, it is necessary to 
     modify these provisions which were adopted in 1993 in order 
     to provide for the easy termination of guaranty agencies as 
     the transition to direct lending was implemented. With the 
     transition effectively terminated in this legislation, 
     guaranty agencies will continue to be critical to the loan 
     program and should not be subject to unilateral termination 
     by the Department. In the event funds are recalled from a 
     guaranty agency, it is the intention of the conferees to 
     require such funds be deposited with the Treasury for 
     purposes of deficit reduction, rather than allowing the 
     Secretary to determine the use of such funds.


                 usage of guaranty agency reserve funds

     House bill
       No provision.
     Senate amendment
       The Senate amendment clarifies that guarantor reserve funds 
     can be used to pay for future as well as current program 
     costs.
     Conference agreement
       The Senate recedes.


                          lender risk-sharing

     Conference agreement
       Both the House bill and the Senate amendment decrease the 
     amount the federal government reimburses lenders and 
     exceptionally well performing lenders for defaulted 
     guaranteed loans in the Federal Family Education Loan Program 
     (FFELP) from 98 cents to 95 cents on the dollar.


                         lender origination fee

     House bill
       The House bill lowers the lender origination fee paid to 
     the federal government from .5 percent to .3 percent.
     Senate amendment
       The Senate amendment increases the lender origination fee 
     on guaranteed loans from .5 percent to 1.0 percent, including 
     consolidation loans.
     Conference agreement
       The House recedes with an amendment to increase the fee to 
     .8%.


                          holder transfer fee

     House bill
       The House bill requires a lender or holder which purchases 
     or takes assignment of a loan from another lender or holder 
     to pay the Secretary a transfer fee equal to 0.20 percent of 
     the principal of the loan.
     Senate amendment
       No provision.
     Conference agreement
       The House recedes.


                            holder rebate fee

     House bill
        No provision.
     Senate amendment
       The Senate amendment imposes a new .05 percent annual fee 
     on loans in repayment by the loan holders on all new 
     guaranteed student loans made after January 1, 1996.
     Conference agreement
       The House recedes with an amendment to add PLUS loans to 
     the loans subject to the rebate fee and to increase the fee 
     to .07 percent.


                         lenders of last resort

     House bill
       Lender of last resort provisions are modified to require 
     applications to be processed within 15 days and borrowers are 
     only required to obtain one lender rejection in order to 
     establish eligibility for lender of last resort.
     Senate amendment
       No provision.
     Conference agreement
       Senate recedes. The conferees agree that loans made under 
     the lender of last resort should be processed in a timely 
     manner without significant burdens on students.


                            eligible lenders

     House bill
       The House bill expands the definition of eligible lender to 
     provide for an additional category of eligible lender under 
     FFELP. This new category would permit certain non-bank 
     lenders, currently eligible pursuant to another subsection 
     but that are experiencing difficulties in lending in certain 
     states, to engage in guaranteed student lending in all 
     states. The new category involves an eligible lender's status 
     as a finance company under state law and would be regulated 
     both by appropriate state regulatory agencies and the 
     Department of Education.
        In addition, the House bill clarifies that loans held in 
     trust by an eligible lender for the benefit of a third party 
     are not to be counted when determining a lender's primary 
     consumer credit function.
     Senate amendment
       No provision.
     Conference agreement
        The House recedes.


                          small lender audits

     Conference agreement
       Both the House bill and Senate amendment exempt lenders who 
     hold or originate less than $5 million a year in student 
     loans from burdensome and costly annual compliance audits. 
     The cost reductions achieved by small lenders with this 
     provision will enable many such lenders to continue to 
     participate in the guaranteed loan program. The cost of the 
     audits currently required sometimes exceeds the annual 
     earnings of some small lenders from the guaranteed loan 
     program.


                            Reauthorization

     Conference agreement
        Both the House bill and Senate amendment reauthorize the 
     student loan programs through the year 2002. This is 
     necessary in order for the Congressional Budget Office to 
     score savings for the loan programs in this bill.


                        connie lee privatization

     Conference agreement
       Both the House bill and Senate amendment include an 
     amendment to sever any and all of the federal government's 
     links to the College Construction Loan Insurance Association 
     (Connie Lee). Connie Lee was authorized in the 1986 
     amendments to the Higher Education Act to assist in financing 
     the construction and renovation of certain education 
     facilities. In the Corporation's authorizing language it was 
     intended that the federal government's ownership interest in 
     the Corporation would eventually terminate. This amendment 
     provides for that termination through the sale of the stock 
     of the Corporation owned by the Secretary of Education.


                          eligible institution

     House bill
       The House bill amends the Higher Education Act by requiring 
     that, for the purposes of determining whether an institution 
     meets the requirements of clause (6) (commonly referred to as 
     the 85/15 rule), the Secretary of Education shall count 
     revenues from programs of education or training that do not 
     meet the definition of an eligible program in subsection (e), 
     but are provided on a contractual basis under federal, state, 
     or local training programs, or to business or industry. The 
     provision also prohibits the Secretary from considering the 
     financial information of any institution for a fiscal year 
     which began on or before April 30, 1994.
     Senate amendment
       No provision.
     Conference agreement
        The House recedes.


                      service contract act of 1965

     House bill
       The House bill repeals the Service Contract Act of 1965.
     Senate amendment
       No provision.
     Conference agreement
       The House recedes. The provision was dropped because it 
     violates the Byrd Rule, section 313 of the Congressional 
     Budget Act of 1974.


   subtitle b--provisions relating to the employee retirement income 
                          security act of 1974

     House bill
       The House bill would amend the Employee Retirement Income 
     Security Act of 1974 (ERISA) to provide that the 30-day 
     minimum waiting period between the date an explanation of the 
     joint and survivor annuity is provided and the date the 
     annuity starts may be waived by the participant. Title XI 
     contains an identical amendment to the tax code; this is a 
     necessary, conforming amendment to ERISA. This waiver would 
     cause a slight acceleration in distribution of qualified 
     plans.
     Senate amendment
        No provision.
     Conference agreement
       The Senate recedes.

[[Page H 12763]]


            TITLE V--ENERGY AND NATURAL RESOURCES PROVISIONS

        Subtitle A--Nuclear Regulatory Commission Annual Charges


              Nuclear Regulatory Commission Annual Charges

     Current law
       The NRC is responsible for ensuring the safety of civilian 
     uses of nuclear materials. The independence and integrity of 
     this agency is essential to maintaining the confidence of the 
     public in the use of nuclear energy and radioactive 
     materials. Thus, a reliable stream of long-term funding is 
     vital to assuring the uninterrupted operation of this 
     important organization.
       The NRC budget is paid for entirely through user fees on 
     licenses, except for work on the high-level nuclear waste 
     repository which is paid for through the Nuclear Waste Fund. 
     User fees are an equitable way of paying for the cost of 
     Federal regulation. Currently, user fees fund several Federal 
     agencies or programs including the Federal Energy Regulatory 
     Commission, the Securities and Exchange Commission, and the 
     pipeline safety program under the authority of the U.S. 
     Department of Transportation.
       By collecting user fees, those who use an agency's 
     resources pay the costs of funding that agency. Those who use 
     the greatest amount of the agency's resources are required to 
     pay the greatest annual fees. In the case of the NRC, nuclear 
     licensees pay for the cost of Federal regulation and then 
     pass that cost on to their customers. The result is an 
     equitable one: those who do not buy electricity or products 
     generated by nuclear power do not bear the cost of regulating 
     it.
       Section 6101 of the Omnibus Reconciliation Act of 1990 
     (P.L. 101-508) requires the Nuclear Regulatory Commission to 
     collect annual charges from its licensees to provide 
     offsetting collections to pay for its programs. Specifically, 
     section 6101 allows the NRC to collect amounts which, when 
     added to other amounts collected by the NRC (such as fees 
     collected under the Independent Offices Appropriations Act of 
     1952, 31 U.S.C. 9701), equals 100 percent. However, current 
     law only provides authority to collect fees and annual 
     charges equal to 100 percent of the NRC budget through fiscal 
     year 1998. Absent an extension, after fiscal year 1998, NRC's 
     permanent authority to collect 33 percent of its budget 
     authority through fees and annual charges would take effect.
       Currently, the NRC budget is made up of money collected 
     through three different methodologies. First, the NRC 
     receives appropriations from the Nuclear Waste Fund 
     established under section 302(c) of the Nuclear Waste Policy 
     Act of 1982 (42 U.S.C. 10222(c)) for licensing the Department 
     of Energy's nuclear waste management program. Charges for 
     these activities are not recovered through annual charges 
     because nuclear utilities are paying for the cost of these 
     activities through their payments to the Nuclear Waste Fund. 
     Thus, recovery of Nuclear Waste Fund appropriations through 
     the annual charge would constitute double payment by the 
     utilities.
       The NRC also recovers a portion of its budget through fees 
     assessed on licensees under the Independent Offices 
     Appropriations Act of 1952 (31 U.S.C. 9701). This Act 
     provides that anyone receiving a service or a thing of value 
     from the NRC shall pay the NRC's cost of providing 
     individually identifiable services to applicants and holders 
     of NRC licensees from the recipients of those services. 
     Finally, generic NRC activities that benefit all licensees 
     generally are recovered through annual charges.
     House bill
       Section 3031 of the House bill extends NRC authority to 
     collect up to 100 percent of its budget through user fees 
     through fiscal year 2002. This extension will generate 
     revenues in amounts sufficient to offset expenditures by the 
     NRC. The NRC is charged by the Omnibus Reconciliation Act of 
     1990 to assess these charges under the principle that 
     licensees who require the greatest expenditures of the NRC's 
     resources should pay the greatest annual charge. This section 
     does not alter, in any way, the fee structure as currently 
     collected by the NRC.
     Senate amendment
       Same provision, except that fees are extended through 
     fiscal year 2005.
     Conference agreement
       The conference agreement includes the House language.

                Subtitle B--Department of Energy Assets

            Chapter 1--United States Enrichment Corporation

     Present Law
       Title IX of the Energy Policy Act of 1992 added a new title 
     II to the Atomic Energy Act of 1954. Title II of the Atomic 
     Energy Act established a wholly owned government corporation 
     known as the United States Enrichment Corporation (USEC) to 
     operate the Federal Government's uranium enrichment 
     enterprise. Chapter 25 of title II set up a process by which 
     ownership of the government-owned corporation would be sold 
     to the private sector.
     House bill
       Title III, subtitle C of the House bill amends title II of 
     the Atomic Energy Act to facilitate the sale of USEC to 
     private investors and to maximize the return to the U.S. 
     Treasury.
     Senate amendment
       The Senate amendment contains a comparable provision. The 
     Senate amendment repeals most of title II of the Atomic 
     Energy Act but provides new statutory authority similar to 
     the House bill.
     Conference agreement
       The conference agreement follows the Senate amendment with 
     minor changes.
       Section 5012(b)(8) of the Senate amendment prohibiting the 
     swap, exchange, or loan of Russian uranium hexafluoride was 
     deleted, although the conferees intend that any of the 
     Russian uranium hexafluoride sold pursuant to paragraph (5) 
     of section 5212(b) of the Conference Agreement may be 
     swapped, exchanged, or loaned solely for the purpose of 
     facilitating the further processing and use as nuclear fuel, 
     and that the Department of Commerce shall establish 
     procedures to ensure that these limitations are not 
     circumvented.
       Section 5013(a) of the Senate amendment relating to low-
     level waste disposal was rewritten to eliminate matter that 
     could have been deemed extraneous under section 313 of the 
     Congressional Budget Act. The conferees intend the revised 
     provision in section 5213(a) of the Conference Agreement to 
     require the Department of Energy to offer low-level waste 
     disposal services to any person licensed by the Nuclear 
     Regulatory Commission to operate a uranium enrichment 
     facility on the same terms as it provides those services to 
     USEC. The conferees believe this policy is essential to avoid 
     anti-competitive effects in the domestic uranium enrichment 
     market.
       Section 5013(c) of the Senate amendment relating to State 
     and interstate compact low-level waste facilities was deleted 
     to eliminate matter that could have been deemed extraneous 
     under section 313 of the Congressional Budget Act. 
     Notwithstanding the elimination of the provision, the 
     conferees believe that nothing in the conference agreement, 
     the Low-Level Radioactive Waste Policy Act, any compact 
     consent act, or any other law can be read to require a State 
     or interstate compact to provide treatment, storage, or 
     disposal to any low-level radioactive waste (including mixed 
     waste) attributable to the operation, decontamination, or 
     decommissioning of any uranium enrichment facility.
       Finally, a provision in the Senate amendment to 
     commercialize gaseous diffusion technology was removed.

                    Chapter 2--Department of Energy


                    Department of Energy Asset Sales

       During the Cold War, the Department of Energy stockpiled 
     large inventories of industrial materials that were needed 
     for weapons production activities. As those activities are 
     reduced in scope and facilities closed, those materials are 
     no longer needed in large quantities. In the past, DOE has 
     had no clear accounting of these inventories on a Department-
     wide basis. However, an initial assessment shows that this 
     inventory includes at least 10,000 pounds of precious metals 
     (such as silver, platinum and gold), and large volumes of 
     non-precious metals, rare gases and fuel. Maintaining these 
     inventories contributes to high overhead costs associated 
     with storage, security and handling of these materials. In 
     total, the value of these assets is estimated to be as much 
     as $300 million. This subpart would require DOE to conduct a 
     program to identify and sell a minimum of $225 million in 
     assets by October 1, 2000. The Subpart would expedite these 
     sales by providing an exemption from the Federal acquisition 
     regulations that govern sales of ``excess'' materials by 
     Federal agencies.
     House bill
       The House bill had no such provision.
     Senate amendment
       The Senate amendment requires the Secretary of Energy to 
     conduct an asset management and disposition program that will 
     result in no less than $225 million in receipts and savings 
     by October 1, 2000. It also requires the Secretary to sell a 
     minimum 1,139,000,000 pounds of fuel, 136,000 tons of 
     chemicals and industrial gases, 557,000 tons of scrap metal, 
     14,000 radiation sources, 17,000 pieces of major equipment, 
     11,000 pounds of precious metals, and 91,000,000 pounds of 
     base metals.
       In order to expedite the sales and maximize the value of 
     the assets, this provision exempts the asset sales under this 
     subsection from provisions of the Federal Property and 
     Administrative Services Act of 1949 and the Surplus Property 
     Act of 1944. It also requires that the Secretary consult with 
     appropriate executive agencies to avoid market disruptions 
     that might result from the asset sales.
       This provision requires that all proceeds from the asset 
     sales be returned to the Treasury as miscellaneous receipts.
     Conference agreement
       The House accedes to the Senate provision.


   Sale of Weeks Island Oil and Lease of Excess Strategic Petroleum 
                            Reserve Capacity

     House bill
       The House bill authorizes the lease of excess Strategic 
     Petroleum Reserve capacity.
     Senate amendment
       The Senate bill authorizes the sale of 32 million barrels 
     of oil contained in the Strategic Petroleum Reserve. It also 
     authorizes the lease of excess Strategic Petroleum Reserve 
     capacity, and it authorizes that beginning in fiscal year 
     2001 one-half of the revenues generated by such lease be 
     available to the Secretary of Energy for the purchase of oil 
     for the Strategic Petroleum Reserve. 

[[Page H 12764]]

     Conference agreement
       The Conference Report provides for the sale of 32 million 
     barrels of oil contained in the Strategic Petroleum Reserve. 
     The Secretary shall, to the greatest extent practicable, sell 
     oil from the reserve in a manner which minimizes the impact 
     of such sale upon supply levels and market forces. The 
     Conference Report also authorizes the lease of excess 
     Strategic Petroleum Reserve capacity, and provides that 
     beginning in fiscal year 2001 (except for years 2003 and 
     2004) one- half of the revenues generated by such lease be 
     available to the Secretary of Energy for the purchase of oil 
     for the Strategic Petroleum Reserve.

                                 OTHER


                      Waste Isolation Pilot Plant

     House bill
       Subtitle D of Title 3 of H.R. 2491 contained the ``Waste 
     Isolation Pilot Plant Land Withdrawal Amendment Act,'' the 
     purpose of which was to eliminate outdated statutory 
     requirements for, and expedite the commencement of, 
     operations at the Waste Isolation Pilot Plant (WIPP). The 
     WIPP is the nation's repository for the permanent disposal of 
     transuranic materials.
       Transuranic (TRU) elements--those with a periodic table 
     value greater than uranium--are generally man-made products 
     synthesized in laboratory conditions. Most TRU waste in the 
     United States consists of trash, such as protective clothing, 
     lab instruments, and equipment which has been contaminated by 
     TRU isotopes in the course of the defense nuclear weapons 
     program. TRU wastes are currently stored on-site at the 
     facilities where they are generated, with a vast majority of 
     these wastes being located at 10 different Department of 
     Energy sites.
       Until 1970, TRU waste was disposed of in a manner similar 
     to that used for low-level radioactive wastes, usually by 
     burial in shallow earth trenches. In 1970, the Atomic Energy 
     Commission (forerunner of the Department of Energy) 
     determined that TRU wastes should be handled in a more 
     comprehensive fashion, and began siting studies which 
     resulted in the decision to construct the WIPP facility about 
     26 miles east of Carlsbad, New Mexico. Congress authorized 
     the construction of the WIPP in 1979 as part of the 
     Department of Energy National Security and Military 
     Application of Nuclear Energy Authorization Act (Public Law 
     96-164).
       In 1992, Congress passed the Waste Isolation Pilot Plant 
     Land Withdrawal Act (Public Law 102-579) to transfer 
     ownership of the land surrounding WIPP to the Department of 
     Energy (DOE), and authorize DOE to begin underground 
     experiments using TRU waste. In October of 1993, DOE 
     announced that it would forego on-site testing of waste at 
     WIPP in favor of laboratory testing at the Sandia National 
     Laboratories to determine the site's suitability for 
     disposing of TRU waste. The Environmental Protection Agency 
     (EPA) and the National Academy of Sciences supported DOE's 
     decision to switch from on-site testing to laboratory 
     testing. Because there is broad agreement that in-situ 
     testing will not be necessary to make a site suitability 
     determination, subtitle D would have removed existing 
     statutory hurdles related to in- situ testing that were 
     imposed by the WIPP Land Withdrawal Act.
       Further, WIPP is currently subject to four major regulatory 
     schemes: 40 CFR Part 191: Environmental Radiation Protection 
     Standards for Management and Disposal of Spent Nuclear Fuel, 
     High Level and Transuranic Radioactive Wastes; 40 CFR Part 
     194: Criteria for the Certification and Determination of the 
     Waste Isolation Pilot Plant's Compliance with Environmental 
     Standards for the Management and Disposal of Spent Nuclear 
     Fuel, High Level and Transuranic Radioactive Wastes; 40 CFR 
     Part 264: Standards for Owners and Operators of Hazardous 
     Waste Treatment, Storage and Disposal Facilities; and 40 CFR 
     Part 268: Land Disposal Restrictions. The overlapping 
     regulatory restrictions of these requirements have 
     contributed to the lack of progress in opening the 
     repository, and pose the risk of substantial cost increases 
     in operating the facility. According to the Department of 
     Energy's own estimates, complying with the overlapping 
     requirements of 40 CFR Part 268: Land Disposal Restrictions 
     could add up to an additional $500 million in operating costs 
     at WIPP over the life of the facility. EPA has agreed with 
     DOE that the current regulatory structure is superfluous. 
     Subtitle D of the House bill would have removed the 
     unnecessary regulatory burdens that are delaying the opening 
     of WIPP.
       Operation of WIPP is a crucial step to the environmental 
     remediation of TRU waste at facilities throughout the DOE 
     weapons complex. Thus, in addition to increasing the cost of 
     compliance at WIPP itself, delays in opening WIPP due to 
     unnecessary regulation have caused increased expenditures for 
     storage costs and have contributed to a lack of movement on 
     cleanup at least nineteen DOE sites. The Congressional Budget 
     Office has estimated that legislation removing unnecessary 
     regulatory hurdles to the opening of WIPP would save $130 
     million in outlays over the 1996-2000 period.
     Senate amendment
       The Senate amendment had no such provision.
     Conference agreement
       The Conferees agree that legislation removing unnecessary 
     regulation applicable to the WIPP facility is needed and 
     would result in significant savings to the American taxpayer. 
     However, the Conferees agreed not to include Subtitle D of 
     Title 3 of H.R. 2491 in the conference report solely because 
     the $130 million in discretionary outlays saved by the 
     provision could be deemed ``extraneous'' under section 313(b) 
     of the Congressional Budget Act.

                     Subtitle C--Natural Resources

           Chapter 1--Department of the Interior Conveyances


              Subchapter A--California Directed Land Sale

     House bill
       Title IX, subtitle C, part 4 of the House bill directs a 
     land conveyance in California in consideration of $501,000 
     and a liability release.
     Senate amendment
       The Senate had no similar provision.
     Conference agreement
       The Conference agreement follows the House bill with minor 
     modifications.


                     Subchapter B--Helium Reserves

     House bill
       The House bill amends the Helium Act of 1960. It authorizes 
     the Secretary of the Interior to enter into contracts with 
     private parties to recover and dispose of helium on Federal 
     lands. Additionally, the Secretary is authorized to store, 
     transport, and sell helium only in accordance with the act.
       The bill authorizes the Secretary to store and transport 
     crude helium and to maintain and operate crude helium storage 
     at the Bureau of Mines Cliffside Field, together with related 
     helium transportation and withdrawal facilities.
       Under the bill, the Secretary must cease producing, 
     refining and marketing refined helium within 18 months after 
     enactment of this bill.
       Further, the Secretary is directed to dispose of all 
     facilities, equipment and other real and personal property 
     held for the refining, producing and marketing of refined 
     helium within two years after the Secretary ceases 
     production, refining and marketing operations. All proceeds 
     from the sale of such facilities shall be applied against the 
     outstanding Helium Fund debt. All costs associated with the 
     sale and disposal, including costs associated with 
     termination of personnel, shall be paid from the Helium 
     Production Fund. Any contract for refined helium in effect on 
     the date of enactment of this bill would stay in effect until 
     the cessation of facility operation. This section also 
     provides for any costs associated with termination of such 
     contracts. Funds for such costs shall be drawn from the 
     Helium Production Fund.
       Under the House bill, full cost recovery for helium 
     storage, withdrawal, or transportation services must be 
     provided to the Secretary by users.
       Also, the bill provides for the sale of crude helium. It 
     amends section 6 of the 1960 Act to require that those 
     individuals who enter into contracts with Federal agencies to 
     provide helium also purchase an equivalent amount from the 
     Secretary. The Secretary is precluded from making sales of 
     crude helium in amounts that would disrupt the market. All 
     funds collected pursuant to this section shall be deposited 
     against the helium debt, which shall be frozen at the amount 
     outstanding on October 1, 1995. The minimum price of crude 
     helium sold by the Secretary would be determined on the basis 
     of the outstanding amount owed against the debt in comparison 
     with the volume of crude helium in the Cliffside Reservoir. 
     All funds received from the sale or disposition of helium 
     produced under a Federal lease would be deposited against the 
     debt.
       The Secretary, no later than 2005, shall commence making 
     sales of the crude helium in the Cliffside Reservoir, and 
     dispose of all such reserves by 2015, except for 600 million 
     cubic feet. Such sales must be made in consultation with the 
     helium industry to provide for minimum market disruption. 
     This subsection ensures repayment of the debt.
       Under the House bill, fiscal reporting by the Inspector 
     General of the Department of the Interior is required. This 
     financial statement shall include: a balance sheet for the 
     Helium Operations, the statement of operations, a statement 
     of cash flows, and a reconciliation of budget reports.
     Senate amendment
       The Senate included a similar provision.
     Conference agreement
       The House recedes to Senate, with modifications.
       One of the most significant modifications agreed to by the 
     conferees was the removal of the GAO audit from the bill. 
     This was due to procedural objections in the Senate. Although 
     the legislative language has been removed, the conferees 
     intend the audit in section 9017 of the House-passed version 
     of the bill, with one change, to be conducted each year.
       It has been brought to the conferees' attention that the 
     audit directed in the House bill would be somewhat 
     duplicative of actions currently carried out by the Inspector 
     General. Therefore, the conferees expect the Department of 
     Interior Inspector General to carry out the audit, rather 
     than the GAO as prescribed by the House provisions. Further, 
     the Conferees urge the Department IG to publish, in detail, 
     this audit in its annual review of the Department's 
     activities in its report to Congress. The conferees emphasize 
     the importance of completing the audit and including in the 
     financial statements the information requested in the House 
     bill. 

[[Page H 12765]]

       The conference agreement requires the Secretary to dispose 
     of excess property and facilities used for the purpose of 
     producing, refining, and marketing helium no later than 24 
     months after the cessation of helium refining and marketing.

        Chapter 2--Arctic Coastal Plain Leasing and Revenue Act

     House bill and Senate amendment
       Both the House bill and the Senate amendment contain 
     provisions authorizing and directing the Secretary of the 
     Interior to lease competitively the Coastal Plain of the 
     Arctic National Wildlife Refuge (``Coastal Plain'') for 
     exploration and production of oil and gas in a manner 
     consistent with protection of the environment.
     Conference agreement
       The conferees agreed to adopt the Senate language with 
     several major modifications.
       The conferees adopted language clarifying that, because of 
     its expertise in onshore oil and gas leasing, the Bureau of 
     Land Management, in consultation with the Fish and Wildlife 
     Service and other federal agencies, manage the oil and gas 
     leasing program on the Coastal Plain and be responsible for 
     all leasing and management of the leases.
       The conferees, in an effort to expedite the leasing process 
     and in recognition of the Congress' long involvement with 
     this issue, added language contained in the House bill which 
     determines that the oil and gas leasing program authorized by 
     this subtitle is compatible with the purposes for which the 
     Arctic National Wildlife Refuge was established and that no 
     further findings or decisions are required to implement this 
     determination.
       The conferees agreed to compromise between the House and 
     Senate language to authorize the Secretary to designate up to 
     45,000 acres of the Coastal Plain as Special Areas and close 
     such areas to leasing if the Secretary determines the lands 
     are of such unique character and interest so as to require 
     special management and regulatory protection. Horizontal 
     drilling beneath the Special Areas is specifically allowed. 
     The conferees expect the Secretary to notify the Committee on 
     Energy and Natural Resources and the Committee on Resources 
     of the House of Representatives ninety days in advance of 
     making such designations. Such notification shall include the 
     reasons and justifications for designating the Special Area.
       The conferees agreed to add language contained in the House 
     bill that provides that the sole authority for the Secretary 
     to close portions of the Coastal Plain to oil and gas leasing 
     is provided for in this subtitle.
       The conferees agreed to add language from the House bill 
     authorizing and directing the Secretary to convey lands and 
     interests therein to the Kaktovik Inupiat Corporation and the 
     Arctic Slope Regional Corporation to the extent necessary to 
     fulfill their entitlement under the Alaska Native Claims 
     Settlement Act. This conveyance is necessary to maximize 
     revenues by settling any clouds on title to lands on Coastal 
     Plain prior to leasing of the area.
       The conferees agreed to modify the Senate language to 
     provide that the rules and regulations necessary to carry out 
     the purposes and provisions of the subtitle be promulgated 
     within fourteen months after date of enactment of the 
     subtitle.
       The conferees agreed to modify the Senate language with 
     respect to the Final Legislative Environmental Impact 
     Statement (FLEIS), which was completed in April of 1987, to 
     provide that such statement is adequate to satisfy the legal 
     and procedural requirements under the National Environmental 
     Policy Act of 1969 (NEPA) with respect to actions authorized 
     to be taken by the Secretary to develop and promulgate the 
     regulations for the establishment of a leasing program, to 
     conduct the first lease sale, any subsequent lease sales, and 
     to grant rights-of-way and easements to carry out the 
     purposes of the subtitle.
       The conference agreement reflects a compromise between the 
     House and Senate language to provide that the first lease 
     sale shall be comprised of no less than 200,000 acres nor 
     more than 300,000 acres. Subsequent lease sales can be no 
     less than 200,000 acres. The conferees also agreed to changes 
     to the Senate language so that the initial lease sale will 
     occur within 20 months after date of enactment; the second 
     sale would be held no later than 24 months after the first 
     lease sale; subsequent sales would be conducted not later 
     than 12 months thereafter.
       The conferees agreed to adopt the House language to 
     authorize the Secretary to close, on a seasonal basis, 
     portions of the Coastal Plain to exploratory drilling 
     activities as necessary to protect caribou calving areas and 
     other species of fish and wildlife.
       The conferees agreed to delete the provision in the Senate 
     bill forbidding the flaring of natural gas. The conferees 
     intend for the operator of wells to minimize the flaring of 
     natural gas to emergency situations and other necessary 
     flaring.
       The conferees agreed to adopt the House language requiring 
     the holder of a lease to use best efforts to assure that a 
     fair share of employment and contracting, as determined by 
     the level of obligation previously agreed to in the 1974 
     agreement implementing section 29 of the Federal Agreement 
     and Grant of Right-of-Way for the Operation of the Trans-
     Alaska Pipeline, be made available for Alaska Natives and 
     Alaska Native Corporations.
       The conferees agreed to modify the provisions of the Senate 
     bill relating to the Park and Wildlife Refuge Renewal Fund to 
     capture a portion of the royalty and other revenues from the 
     Coastal Plain (in addition to bonus bid revenue) and expanded 
     the purposes for which the fund can be used. In addition, a 
     cap of $250,000,000 over the life of the fund contained in 
     the House language was imposed.
       The conferees also agreed to modify language in the House 
     passed bill to provide for the establishment of a $30,000,000 
     community assistance fund in the Treasury from the Federal 
     share of the first lease sale. Not to exceed $5,000,000 a 
     year will be made available from that fund to the Secretary 
     to provide local assistance to organized boroughs, 
     municipalities, and recognized Indian Reorganization Act 
     entities which are directly impacted by activities authorized 
     under this subtitle to provide public and social services and 
     facilities required in connection with the exploration and 
     production of oil and gas on the Coastal Plain.
       The conferees are aware of concerns raised over the 
     possibility that the revenue sharing formula contained in the 
     legislation could be subject to challenge as inconsistent 
     with the provisions in the Mineral Leasing Act with respect 
     to Alaska which were made as part of the Alaska Statehood 
     Act. The conferees want to emphasize that those concerns are 
     not well founded. The conferees have not sought to alter in 
     any manner the provisions of the Alaska Statehood Act nor the 
     Mineral Leasing Act. The provisions contained in this 
     legislation are the sole authority for the conduct of the 
     leasing program on the Coastal Plain and are self-contained. 
     The revenue sharing provisions contained in this Chapter are 
     unique to this particular area and program and do not alter 
     in any manner the revenue sharing provisions applicable to 
     any leasing program elsewhere in Alaska conducted under the 
     Mineral Leasing Act. The conferees note that the solicitor of 
     the Department of the Interior has concurred in this 
     assessment and that the Governor of the State of Alaska, the 
     President of the Senate and Speaker of the house of the 
     Alaska Legislature also have indicated their acquiescence in 
     this particular formula. The conferees note that in 
     establishing the 1002 area, Congress specifically reserved to 
     itself the decision as to whether to open the area to leasing 
     and the terms and conditions under which such a program would 
     be conducted and do not view the specifics of this particular 
     leasing program, including the revenue sharing provisions, as 
     a precedent for any other area in Alaska.

                       Chapter 3--Water Projects


                  Subchapter A--Irrigation Prepayment

     House bill
       The House had no provision.
     Senate amendments
       The Senate had a provision repealing section 213(c) of the 
     Reclamation Reform Act to permit prepayment of outstanding 
     construction debt.
     Conference agreement
       The Conferees agreed to the Senate provision and note that 
     the use of OMB Circular A-129 is solely for the purposes of 
     calculating the discount rate.


                       Subchapter B--Hetch Hetchy

     House bill
       The House-passed bill contained Sec. 9214, which would 
     increase from $30,000 to $8 million the annual payment made 
     by the city of San Francisco under the provisions of the 
     Raker Act (Act of December 13, 1913) for having the Hetch 
     Hetchy system within Yosemite National Park.
     Senate amendments
       The Senate-passed bill contained a provision which would 
     have raised the annual payment from $30,000 to a minimum of 
     $597,000 pursuant to a formula used by the Federal Energy 
     Regulatory Commission.
     Conference agreement
       The conferees reviewed all of the relevant factors and 
     concluded that $2,000,000 was an appropriate figure. The 
     managers also were made aware, by the County of Tuolumne, 
     California, which has responsibility for providing 
     infrastructure support to the Hetch Hetchy facility, that 
     there are impacts on local government from the Raker Act. The 
     managers believe that the Congress should examine those 
     concerns.


                     Subchapter C--Collbran Project

     House bill
       The House had no provision.
     Senate amendment
       The Senate measure contained a provision that would 
     transfer the Collbran Project in Colorado to the local 
     districts.
     Conference agreement
       The conferees agreed to adopt the Senate provisions with 
     modifications.
       The conferees intend that by providing a non-exclusive 
     easement to the Districts and the operators and owners of the 
     associated storage reservoirs, that the Districts will full 
     access to undertake any activities the Districts believe are 
     necessary for project purposes. While the easement is non-
     exclusive, the conferees intend that in allowing any other 
     use, the Forest Service not interfere with the use of the 
     easement by the District for project purposes.
       The conferees agree that the provisions in this legislation 
     dealing with the Collbran Project are unique to that project 
     and are not a precedent for other project transfers. 

[[Page H 12766]]



                         Subchapter D--Sly Park

     House bill
       The House-passed version contained Sec. 9213, to convey the 
     Sly Park Unit of the Central Valley Project to the El Dorado 
     Irrigation District.
     Senate amendment
       The Senate-passed version contained no such provision.
     Conference agreement
       The conferees agreed to adopt the House-passed version, but 
     modified the language to address scoring problems that had 
     been raised by the Congressional Budget Office. The revised 
     language requires the payment for the original construction 
     costs by December 31, 1997.


                   Subchapter E--Central Utah Project

     House bill
       The House-passed bill contained Sec. 9211, to authorize the 
     prepayment of certain repayment contracts between the United 
     States and the Central Utah Water Conservancy District.
     Senate amendment
       The Senate amendment did not contain a prepayment provision 
     specific to the Central Utah Water Conservancy District.
     Conference agreement
       The conferees accepted the House-passed version, with minor 
     modifications intended to clarify the language.

                Chapter 4--Federal Oil and Gas Royalties

     House bill
       The House bill would amend the Federal Oil and Gas Royalty 
     Management Act of 1982 and the Outer Continental Shelf Lands 
     Act to create a more aggressive framework for the way the 
     Department of the Interior's Minerals Management Service 
     (MMS) and delegated states audit and collect federal oil and 
     gas royalties and other monies owed the United States. These 
     changes would provide for: more efficient audit and royalty 
     collection processes, resulting in collection of additional 
     monies owed to the U.S. and the States within a 6-year 
     limitation period; authority for the Secretary to delegate 
     certain royalty management functions to States, where 
     appropriate, to collect additional royalties due States and 
     the U.S. Treasury, thereby resulting in a more economic 
     royalty management program; records retention requirements 
     for industry to determine royalties due during the 6-year 
     limitation period; more efficient appeals processes at the 
     Department of the Interior, resulting in additional 
     collections from stale disputes between the U.S. and royalty 
     payers; establishment of interest requirements analogous to 
     those of the IRS, thereby encouraging accurate royalty 
     payments; limits on the period within which lessees can make 
     adjustments or request refunds, resulting in additional 
     collections; and pre-payment of royalties on ``marginal 
     properties'' and other relief to collect royalties on 
     production that might otherwise be abandoned.
     Senate amendment
       The Senate amendment contained provisions substantially 
     similar to the House version.
     Conference agreement
       The Conference agreement blends the House and Senate 
     provisions, with modifications to eliminate procedural points 
     of order in the Senate, to clarify that delegated States have 
     a direct role in increasing net receipts due States and the 
     U.S., and to make technical corrections.

                           Chapter 5--Mining

                       HARDROCK MINING LAW REFORM

     Short title
       The Senate bill contains a short title in Sec. 5700. The 
     House bill does not. The House recedes to the Senate 
     position.
     Definitions
       The Senate bill contains definitions in Sec. 5701. The 
     House bill defines terms where pertinent. The House recedes 
     to the Senate position with amendment by adding and deleting 
     terms as necessary to reflect the conference report language.
     Rental payments
       The Senate bill contains claim maintenance requirements in 
     Sec. 5702 which extend the current fee of $100 per year per 
     claim and in Sec. 5703 enlarges the ``small miner'' waiver 
     and exemption from the current ten or fewer claims to twenty-
     five or fewer claims. The House bill has parallel provisions 
     in Sec. 9505 which include payment of an annual claim 
     maintenance fee which escalates with time to deter 
     speculative holding of claims. Credit for the value of labor 
     performed to explore and develop one's claim(s) may offset 
     not more than 75% of the following year's fee, with a three-
     year carry forward provision.
       The bill managers believe the current claim maintenance fee 
     has caused a precipitous decrease in exploration of the 
     public lands as evidenced by the huge decline in mining 
     claims of record with the Bureau of Land Management from 
     approximately 1,200,000 in 1989 to a preliminary estimate of 
     less than 300,000 in 1995. Exploration expenditures in the 
     U.S. have also been falling while worldwide exploration 
     expenditures are increasing significantly. Without 
     exploration future mines will not be discovered on which 
     royalties will be paid under the terms of this bill.
       The Senate recedes to the House position with an amendment 
     to reduce the exploration and development credit to not more 
     than 50% of the claim maintenance fee which is renamed the 
     ``claim rental fee.'' The labor credit does not begin until 
     the year 1999. Further, the amendment changes the timing and 
     amount of the payments to $100 per year per claim for years 
     1996 through 1998 and $200 per year per claim in 1999 and 
     thereafter, with the aforementioned exploration credit 
     available. The managers believe the consequences of rental 
     payments should be reviewed periodically to ensure hardrock 
     mineral exploration of the public lands remains viable.
     Patenting
       The Senate bill contains patenting provisions in Sec. 5704 
     requiring the payment of fair market value of the land within 
     the boundaries of claims for which title passes and the 
     reservation of a royalty interest and a right of title 
     reversion to the United States if the land is used for non- 
     mining purposes, except for such claims as were pending 
     application for patent as of September 30, 1995. The House 
     bill contains similar provisions in Sec. 9502, except that 
     those persons holding valid claims as of the date of 
     enactment have opportunity to seek patents under current law 
     within a two-year transition period (or ten-year period for 
     claims for which access has been denied) by making 
     application for mineral survey or patent. The House bill 
     lacks a ``reverter'' provision.
       The bill managers acknowledge persons holding ``valid 
     mining claims,'' (i.e., for which a discovery of a valuable 
     mineral deposit within the meaning of the mining laws can be 
     demonstrated on the date of enactment of this act, as well as 
     for all location and recordation and payment requirements 
     have been met) have a possessory right to the locatable 
     minerals within their claims, as enunciated by the U.S. 
     Supreme Court to be ``property in the fullest sense of the 
     term...'' (Wilbur v. U.S. ex rel. Krushnic, 280 US 306).
       Further, the managers believe a prospectively applied 
     royalty may not be imposed upon claim owners who successfully 
     make such showing, otherwise the royalty becomes an 
     obligation in the nature of a severance tax which is levied 
     by a government merely for permission to mine within the 
     government's boundaries without respect to mineral estate 
     ownership. The managers acknowledge many mining claims are 
     held under the principle of pedis possessio, i.e., possession 
     good against rival claimants but not the United States 
     because a discovery of a mineral deposit is lacking. However, 
     the managers believe there are claim holders with valid 
     existing rights and expressly encourage persons holding such 
     claims to assert their rights.
       Therefore, the House recedes to the Senate position with an 
     amendment which clarifies that the bill applies to all 
     claims, subject to a vested possessory property right against 
     the government. All mining claims would be subject to 
     royalty, fair market value payment, and the reverter 
     provision except claims for which there is a ``vested 
     possessory property right,'' including those mineral patent 
     applications pending at the Department of the Interior, if 
     such claims meet the requirements of existing law. These 
     claimholders are exempted from the new requirements for the 
     same reason: to protect valid property rights that have 
     ripened because of the operation of the general mining laws. 
     Those claimholders who cannot establish a discovery have no 
     valid existing right and are not eligible to receive patents 
     (and that would continue to be the case under the new law). 
     Other existing claim holders may be able to establish a 
     discovery as well, even though they have not applied for 
     patents. Patenting is not and never has been a prerequisite 
     to mining under the general mining laws. The important 
     consideration is not whether miners have sought patents but 
     whether they can show a ``discovery'' of a valuable mineral 
     deposit. If they can, they have a constitutionally protected 
     property right that cannot and should not be abrogated by 
     Congress. The managers therefore intend with this subsection 
     to apply the new royalty, reverter, and fair market value 
     provisions in all cases in which they fairly can be applied, 
     but not to those claimholders who have valid existing 
     property rights.
       The managers note that if a mineral patent ``moratorium'' 
     (i.e., a limitation on the use of appropriated funds by the 
     Secretary to accept or process applications or issue mineral 
     patents) is in effect when this chapter is enacted into law, 
     that such limitation is not part of the ``general mining laws 
     in effect on the date immediately prior to the date of 
     enactment.'' This is consistent with House rules which 
     constitute such funds limitation amendments to not violate 
     the prohibition on legislating on appropriations measures.
       Further, the House recedes to the Senate position on the 
     reservation of a reversionary interest to the United States 
     with an amendment allowing a right of re-entry to the United 
     States with the direction to the Secretary to renounce such 
     interests in certain situations.
     Royalty and abandoned mine reclamation
       The Senate bill contains royalty provisions styled as a 
     ``net smelter return'' in Sec. 5705 with half of receipts to 
     be disbursed to the federal treasury and half to those States 
     whence production occurred, for purposes of reclamation of 
     abandoned locatable minerals 

[[Page H 12767]]
     mines, and establishes a threshold of $500,000 annual gross proceeds 
     below which royalty is exempted. The House bill contains a 
     ``net proceeds'' royalty in Sec. 9503 that chiefly differs 
     from the Senate version in allowing the deduction of mining 
     costs from gross proceeds as well as beneficiation, smelting 
     and refining costs which both bills allow, and establishes a 
     threshold of $50,000 annual net proceeds (aggregated from all 
     production subject to the Act) below which royalty is 
     exempted. The House bill exempts claims which have been the 
     recipient of Urban Development Action Grants (UDAG) funds 
     from payment of royalty. The House bill disburses royalty 
     receipts two-thirds to the federal treasury, one-third to the 
     States without regard as to how such funds may be spent.
       The bill managers acknowledge the need for a ``net'' 
     royalty rather than a ``gross'' royalty in order to levy a 
     fair royalty given the broad class of minerals and methods to 
     which the general mining laws apply, e.g., a net royalty does 
     not favor precious metals versus base metals extraction, 
     open-pit operations versus underground mines, or low-cost 
     labor areas versus remote high-cost areas. A net proceeds 
     royalty conserves resources by not promoting ``high-grading'' 
     of deposits as do ``gross'' royalties which clearly affect 
     behavior. Consequently, the Senate recedes to the House 
     royalty terms, including the net proceeds calculation as the 
     threshold for royalty relief.
       The bill managers acknowledge the need to offset the loss 
     of State revenues, such as from severance taxes, to be 
     expected from the imposition of a federal royalty. The bill 
     managers also acknowledge the desirability of establishing a 
     fund for the reclamation of public lands impacted by 
     abandoned hardrock mines. Therefore, the Senate recedes to 
     the House position on disbursement of receipts with an 
     amendment to require 10 percent of royalty receipts be 
     disbursed to States without spending mandates, and the House 
     recedes to the Senate position on establishing an AML fund 
     with an amendment to set the disbursement at forty percent of 
     royalty receipts, retaining the Senate provisions of Section 
     5706 through 5710 respect to the AML funds except for an 
     amendment limiting the eligible areas for reclamation to be 
     public lands only and deleting Section 5709 relating to the 
     use and objectives of the AML funds.
     General provisions
       The Senate bill contains provisions regarding the effect of 
     the Subtitle on the general mining laws at Sec. 5711, and 
     severability of the provisions of the Subtitle in the event 
     of successful judicial challenge at Sec. 5712. The House has 
     no comparable provisions. The House recedes to the Senate 
     position.
     Mineral materials and sodium
       The House bill contains provisions for the prospective 
     elimination of the applicability of the general mining laws 
     to so-called uncommon varieties of mineral materials, and the 
     modification of the current system for disposition of mineral 
     materials to provide for stable supply of such materials at 
     Sec. 9504. The Senate bill contains no comparable provisions.
       The bill managers acknowledge the untenable situation which 
     exists today for both the federal government and miners 
     claiming alleged ``uncommon varieties'' of mineral materials. 
     The adjudication of the validity of such claims is far more 
     costly and time consuming for claimant and government alike 
     than is usually warranted by the value of the commodity. 
     Therefore, the Senate recedes to the House position with an 
     amendment which strikes explanatory language while retaining 
     language which expressly amends the 1947 Material Sales Act 
     and the 1955 Surface Resources Act.
       The House bill contains provisions affecting the 
     disposition of sodium compounds from federal lands in Subsec. 
     9504 (i). The Senate bill contains no such provisions. The 
     House recedes to the Senate position.

                 Chapter 6--Department of the Interior


                           Aircraft Services

     House bill
       The House bill did not contain language regarding this 
     provision.
     Senate amendment
       The Senate amendment contained provisions to reduce the 
     amount of aircraft owned by the Department of the Interior 
     and increase the use of aircraft contract services with 
     private entities.
     Conference agreement
       The conferees agreed to accept the Senate provision as 
     written. The conferees direct the Secretary of the Interior 
     to contract with private entities for the provision of all 
     aircraft services required by the Department of the Interior 
     (DOI), other than those available from the 13 existing DOI 
     aircraft whose primary purpose is fire suppression. The 
     Secretary is also directed to sell all the aircraft and 
     related facilities owned by the Department, except those 
     specified in the legislation, by September 30, 1998. It is 
     the intention of the Conferees that this sale of assets be 
     made to the highest bidder in each case and that the 
     Secretary seek, to the maximum extent possible, to obtain 
     fair market value for the assets.
       Nothing in this section is intended to affect the use of 
     dual-function pilots. The conferees expect that these 
     personnel will continue to carry out their current role with 
     the use of aircraft owned by private entities. The conferees 
     direct the Secretary to report to the Senate Committee on 
     Energy and Natural Resources and the House Resources 
     Committee as soon as possible, and no later than October 1, 
     1996, identifying aircraft that should not be sold because 
     they are either needed for the primary purpose of law 
     enforcement, are specially equipped, or are not readily 
     available under contract with private entities at a 
     competitive cost. The conferees expect that those committees 
     will review this information and consider the need to amend 
     the requirements of subsection (b).

               Chapter 7--Power Marketing Administrations


             Subchapter A--Bonneville Power Administration

     House bill
       The House bill provides for the refinancing of certain 
     appropriated debt of the Bonneville Power Marketing 
     Administration.
     Senate amendment
       The Senate amendment provides for the refinancing of 
     certain appropriated debt of the Bonneville Power Marketing 
     Administration.
     Conference agreement
       With minor exceptions, the language contained in the House 
     bill is identical to the language contained in the Senate 
     amendment. In the Confederated Tribe of the Colville 
     Reservation Grand Coulee Dam Settlement Act provisions, the 
     Conference Report uses the term ``credit'' contained in the 
     House bill in lieu of the term ``appropriations'' which was 
     contained in the Senate amendment. There is no substantive 
     difference between these terms.
       The Conferees agreed to drop the study provisions contained 
     in the House bill with the understanding that the Bonneville 
     Power Administration would undertake these studies without a 
     specific statutory requirement to do so. Accordingly, the 
     conferees expect that the Administrator shall undertake a 
     study to determine the effect that increases in the rates for 
     electric power sales made by the Administrator may have on 
     the customer base of the Bonneville Power Administration. 
     Such study shall identify other sources of electric power 
     that may be available to customers of the Bonneville Power 
     Administration and shall estimate the level at which higher 
     rates for power sales by the Administration may result in the 
     loss of customers by the Administration. The Administrator 
     shall also undertake a study to determine the total prior 
     costs incurred by the Bonneville Power Administration for 
     compliance with the provisions of the Endangered Species Act 
     of 1973, and the total future costs anticipated to be 
     incurred by the Administration for compliance with such 
     provisions. It is the Conferee's expectation that the 
     Administrator shall complete and submit to the Congress the 
     results of these studies within 180 days after the date of 
     the enactment of this Act.


               Subchapter B--Alaska Power Administration

     House bill
       The House bill provides for the sale of the Alaska Power 
     Marketing Administration's (APA) assets, and the termination 
     of the APA once the sale occurs.
     Senate amendment
       The Senate amendment provides for the sale of the Alaska 
     Power Marketing Administration's (APA) assets, and the 
     termination of the APA once the sale occurs. It also provides 
     for the exemption of the two hydroelectric projects from the 
     licensing requirements of part I of the Federal Power Act.
     Conference agreement
       The Conferees adopted the Senate language with minor 
     changes. The APA's assets will be sold pursuant to the 1989 
     purchase agreements between the Department of Energy and the 
     purchasers. The Snettisham hydroelectric project and related 
     assets will be sold to the State of Alaska. The Eklutna 
     hydroelectric project and related assets will be sold jointly 
     to the Municipality of Anchorage, the Chugach Electric 
     Association, and the Matanuska Electric Association. For both 
     projects, the sale price is determined by calculating the net 
     present value of the remaining debt service payments the 
     Treasury would receive if the Federal government retained 
     ownership.
       This Act and the separate formal agreements provide for the 
     full protection of fish and wildlife. The purchasers, the 
     State of Alaska, the U.S. Department of Commerce National 
     Marine Fisheries Service, and the U.S. Department of the 
     Interior have entered into a formal agreement providing for 
     post-sale protection, mitigation, and enhancement of fish and 
     wildlife resources affected by Eklutna and Snettisham. This 
     Act makes that agreement legally enforceable.
       As a result of the formal agreements, the Department of 
     Energy, the Department of the Interior, and the Department of 
     Commerce all agree that the two hydroelectric projects 
     warrant exemption from FERC licensing under Part I of the 
     Federal Power Act. The August 7, 1991 formal purchase 
     agreement states:
       ``NMFS, USFWS and the State agree that the following 
     mechanism to develop and implement measures to protect, 
     mitigate damages to, and enhance fish and wildlife (including 
     related spawning grounds and habitat) obviate the need for 
     the Eklutna Purchasers and AEA to obtain FERC licenses. 
     (Emphasis supplied.)''
       The Alaska Power Administration employs 34 people in the 
     State of Alaska. The purchasers of the two projects have 
     pledged to 

[[Page H 12768]]
     hire as many of these as possible. For those who do not receive offers 
     of employment, the Department of Energy has pledged it will 
     offer employment to any remaining APA employees, although the 
     DOE jobs are expected to be in the lower-48.
       The House-passed bill did not contain any comparable 
     provisions. The Conference Agreement adopts the Senate-passed 
     bill with two material changes.
       First, the Conference Agreement provides an exemption for 
     Eklutna and Snettisham from Part I of the Federal Power Act 
     (hydroelectric licensing), not from the entire Federal Power 
     Act. That was intended by the Senate. By making this change, 
     the conferees do not intend to imply that the Purchasers who 
     are already exempt from other aspects of the Federal Power 
     Act will lose such exemptions. The conferees do not intend to 
     imply that by reason of this Act the other parts of the 
     Federal Power Act apply to Eklutna and Snettisham. They apply 
     only if they would have applied in the absence of this Act.
       Second, the agreement provides a general rule that upon 
     sale or transfer of any portion of Eklutna or Snettisham from 
     the Purchasers to any other person, the exemption from Part I 
     of the Federal Power Act shall cease to apply to such portion 
     of Eklutna or Snettisham. However, the exemption from Part I 
     will continue to apply if such sale or transfer is from one 
     Purchaser to another Purchaser, as that term is defined in 
     this Act. A loss of the exemption from Part I upon sale or 
     transfer does not automatically trigger licensing under Part 
     I. Licensing will be required only if the circumstances would 
     otherwise require it under Part I. If licensing is not 
     otherwise required under Part I of the Federal Power Act for 
     such portion, it is not required by reason of these 
     provisions. Such sale or transfer, even if it results in the 
     licensing of the portion sold or transferred, does not affect 
     the exemption from Part I for the portion of Eklutna or 
     Snettisham that is not sold or transferred and is retained by 
     a Purchaser.
       The first phrase is an exception to this general rule. It 
     provides that a subsequent assignment of interest in Eklutna 
     by the Eklutna Purchasers to the Alaska Electric Generation 
     and Transmission Cooperative Inc. pursuant to section 19 of 
     the Eklutna Purchase Agreement will not result in the 
     elimination of the exemption from Part I of the Federal Power 
     Act for such interest.
       The provisions on selection and transfer of Eklutna and 
     Snettisham lands provide that notwithstanding the expiration 
     of the right of the State of Alaska to make selections under 
     section 6 of the Alaska Statehood Act, the State may select 
     lands pursuant to the provisions of this Act and the Eklutna 
     and Snettisham Purchase Agreements. Likewise, it is the 
     intent of this legislation that the Secretary of the Interior 
     shall convey lands selected by the State of Alaska 
     notwithstanding any limitations contained in section 6(b) of 
     the Alaska Statehood Act.
       The Conferees agree that the circumstances justifying 
     exemption from licensing under Part I of the Federal Power 
     Act for these two Federally-owned hydroelectric projects are 
     unique, and that they are not a precedent for a similar 
     exemption of any other Federally-owned hydroelectric project 
     in the event that such project were sold. The Conferees agree 
     that in the event that other Federally-owned hydroelectric 
     projects whose generation is marketed by other Federal power 
     marketing administrations are privatized, these circumstances 
     would not justify an exemption from Part I.

      Chapter 8--Outer Continental Shelf Deep Water Royalty Relief

     House bill
       The House bill contained no similar provision.
     Senate amendment
       The Senate version would authorize the Secretary of the 
     Interior to grant royalty relief on existing Outer 
     Continental Shelf oil and gas leases in the western and 
     central Gulf of Mexico to encourage production. For existing 
     leases, the bill provides relief from royalty payment on a 
     certain number of barrels of oil for leases in water depths 
     of 200 meters or deeper, upon a finding by the Secretary that 
     the leases are not otherwise economic. As water depth 
     increases, the amount of relief provided under the bill would 
     increase commensurately, reflecting that the economics of 
     drilling in deep water increase significantly as water depth 
     increases.
       Under the Senate bill, new leases offered for sale in the 
     future would provide terms granting an initial royalty waiver 
     on a specific number of barrels of oil equivalent based on 
     water depth. These new lease terms would be offered for the 
     next seven years. The royalty waiver will increase the dollar 
     value of bonus bids paid upon sale of leases.
       The Senate bill provides relief only to OCS leases in the 
     western and central areas of the Gulf of Mexico west of the 
     Florida-Alabama border and does not affect leasing and 
     development off the coast of Florida. The bill does not 
     affect any planning areas or leases subject to pre- leasing, 
     leasing or development moratoria.
     Conference agreement
       The Conference agreement adopts the Senate provision.

              Chapter 9--Exports of Alaska North Slope Oil

     House bill
       Section 9001 of the House bill authorized exports of 
     Alaskan North Slope (ANS) crude oil; mandated the filing of 
     additional information in an annual report under the Energy 
     Policy and Conservation Act; and required a study by the 
     General Accounting Office (GAO).
     Senate amendment
       The Senate amendment did not include a similar provision.
     Conference agreement
       The Senate receded to the House language with an amendment.
       The committee of conference recommends authorizing exports 
     of ANS oil under terms substantially similar to the House 
     provision.
       Section 13800 amends section 28(b) of the Mineral Leasing 
     Act (30 U.S.C. 185) to authorize ANS exports. Paragraph (1) 
     of section 28(b) of the Mineral Leasing Act, as amended by 
     the conference report, makes inapplicable the general and 
     specific restrictions on such exports in section 7(d) of the 
     Export Administration Act of 1979, (50 U.S.C. App. 
     Sec. 2406(b)), section 28(u) of the Mineral Leasing Act of 
     1920, (30 U.S.C Sec. 185), section 103 of the Energy Policy 
     and Conservation Act, (42 U.S.C. Sec. 6212), and the Short 
     Supply regulations issued thereunder, unless the President 
     determines (within five months of the date of enactment) that 
     they would not be in the national interest. (Other statutory 
     restrictions on the export of U.S. crude oil rendered either 
     inapplicable or superseded with respect to ANS exports are 10 
     U.S.C. Sec. 7430 and 29 U.S.C. Sec. 1354, restricting exports 
     of crude oil from the Naval Petroleum Reserve and the outer 
     continental shelf.)
       Before making his national interest determination, the 
     President must consider an appropriate environmental review 
     (to be completed within four months of enactment). Consistent 
     with the original 1973 legislation, the President also must 
     consider whether exports would diminish the total quantity or 
     quality of petroleum available to the United States. Finally, 
     the President must consider whether exports are likely to 
     cause sustained material oil supply shortages or sustained 
     oil prices significantly above world market levels that would 
     cause sustained material adverse employment effects in the 
     United States or that would cause substantial harm to 
     consumers, in particular in noncontiguous States and Pacific 
     territories.
       In a comprehensive report submitted to Congress, the 
     Department of Energy found ``no plausible evidence of any 
     direct environmental impact from lifting the ANS crude export 
     ban.'' Based on this finding and the weight of the testimony, 
     the provision directs, as the ``appropriate environmental 
     review,'' an abbreviated four-month study. The environmental 
     review is intended to be thorough and comprehensive, but in 
     light of the prior Department of Energy findings and the 
     compressed time frame, neither a full Environmental Impact 
     Statement nor even a more limited Environmental Assessment is 
     contemplated. If any potential adverse effects on the 
     environment are found, the study is to recommend 
     ``appropriate measures'' to mitigate or cure them.
       In making his national interest determination, the 
     President is authorized to impose appropriate terms and 
     conditions, other than a volume limitation, on ANS exports. 
     The provision takes cognizance of the changed condition of 
     national oil demand and available oil resources. The 
     provision permits ANS crude oil to compete with other crude 
     oil in the world market under normal market conditions. To 
     facilitate this competition and in recognition that the 
     provision specifically precludes imposition of a volume 
     limitation, the President should direct that exports proceed 
     under a general license. In further recognition that some 
     information (such as volume and price) will be needed to 
     monitor exports, the President may wish to impose such after-
     the- fact reporting requirements as may be deemed appropriate 
     by the Secretary of Commerce.
       Given the anticipated substantial benefits to the nation of 
     ANS exports, the conferees urge the President to make his 
     national interest determination as promptly as possible. If 
     the President fails to make the required national interest 
     determination within the statutorily imposed deadline, ANS 
     oil exports are authorized without intervening action by the 
     President or the Secretary of Commerce.
       Paragraph (2) requires, with limited exceptions, that ANS 
     exports be carried in U.S.-flag vessels. The only exceptions 
     are exports to Israel under the terms of a specific bilateral 
     treaty that entered into force in 1979 and exports to a 
     country pursuant to the International Emergency Oil Sharing 
     Plan of the International Energy Agency. The conferees concur 
     with the Administration's assessment that the U.S.-flag cargo 
     reservation requirement is consistent with U.S. international 
     obligations and is supported by ample precedent, including, 
     in particular, a comparable provision in the U.S.-Canada Free 
     Trade Agreement as implemented under U.S. law.
       Paragraph (3) preserves any authority the President may 
     have under the Constitution and the enumerated statutes to 
     prohibit ANS exports in an emergency.
       Paragraph (4) directs the Secretary of Commerce to issue 
     any rules necessary to govern ANS exports within 30 days of 
     the President's national interest determination. In light of 
     the clear benefits to the nation of ANS exports, the 
     conferees urge the Secretary of Commerce to promulgate any 
     rules 

[[Page H 12769]]
     necessary to implement that determination, including any licensing 
     requirements and conditions, contemporaneously with the 
     determination.
       Paragraph (5) provides that if the Secretary of Commerce 
     (after consulting with the Secretary of Energy) later finds 
     that exports have caused sustained material oil shortages or 
     sustained prices significantly above the world level and that 
     the shortages or high prices have caused or are likely to 
     cause sustained material job losses, he must recommend 
     appropriate action, including modification or revocation of 
     the authority to export ANS oil. The President has the 
     discretion to adopt, reject, or modify any recommendation 
     made by the Secretary. In recognition that prices fluctuate 
     and supply patterns change under normal market conditions, 
     the authority of the Secretary is limited to addressing 
     activity that causes the specified sustained unanticipated 
     price and supply effects.
       Paragraph (6) provides that administrative action is not 
     subject to notice and comment rulemaking requirements or 
     other requirements of the Administrative Procedures Act.
       Subsection 9001 (b) of the House bill, which would have 
     required the Comptroller General (GAO) to conduct a review of 
     the effects, if any, of ANS oil exports on consumers, 
     independent refiners and shipbuilding and ship repair yards 
     on the West Coast and Hawaii was dropped by the conferees. 
     However, the conferees recommend that GAO complete a report 
     to be submitted four years after the date of enactment. The 
     report should contain a statement of principal findings and 
     recommendations to address job loss in the shipbuilding and 
     ship repair industry on the West Coast and Hawaii, if any, as 
     well as adverse impacts on consumers and refiners on the West 
     Coast and in Hawaii, if any, that the Comptroller General 
     attributes to ANS exports. The conferees believe that the 
     market should be given a reasonable period of time to operate 
     before submission of the report. The conferees want to be 
     sure the Comptroller General has a solid basis on which to 
     make his analysis and offer any recommendations for the 
     Congress and the President.

              Chapter 10--Ski Fees on Forest Service Lands

     House bill
       The House included a provision that called for the 
     establishment of a new formula to calculate fees paid to the 
     Forest Service by ski area operators.
     Senate amendment
       The Senate had no similar provision.
     Conference agreement
       The Senate concurred with the House position with minor 
     modifications. The Conferees agreed on provisions which 
     closely reflect the text of legislation passed by the Senate 
     in 1992.
       The Conferees amended the House provision to insert a 
     payment ``floor'' in the formula. Under the ``floor'' 
     approach, the Conferees expect that the fee charged each 
     individual ski area for the first 3 years of the transition 
     will be either the fee under the new formula, or the actual 
     fee paid by the area for the year prior to the new formula's 
     implementation, whichever amount is higher. Using this 
     approach will mean that no individual area fee will go down, 
     unless overall business dips by more than 10 percent. In the 
     majority of cases the Conferees expect that areas' fees will 
     increase.
       The Conferees expect that no later than five years after 
     the date of enactment of this Act, and every ten years 
     thereafter, the Secretary of Agriculture will submit to the 
     appropriate Senate and House Committees a report analyzing 
     whether the ski area rental charge system legislated by this 
     Act is returning a fair market value rental to the United 
     States together with any recommendations the Secretary may 
     have for modifications in the system.

                     Chapter 11--National Park Fees

     House bill
       The House bill had no similar provision.
     Senate amendments
       The Senate measure contained a provision that established 
     increased caps on National Park admission fees and eliminated 
     a number of prohibitions on implementing fee collection 
     programs at certain park units. The provision would require 
     that 80 percent of the new fees collected be returned to the 
     National Park Service units for annual operating expenses 
     related to visitor services.
     Conference agreement
       The House concurred with the Senate position with some 
     modifications. The conferees included provisions which would 
     authorize the Forest Service and the Bureau of Land 
     Management to collect recreation use fees at certain 
     locations.
       With respect to the collection of fees at units of the 
     National Park Service, the conferees fully expect that fee 
     increases for admission and annual park passes for units of 
     the System, including those units not currently charging such 
     fees, be implemented incrementally over a reasonable period 
     of time so as to minimize, to the greatest extent 
     practicable, rapid escalation of entrance fees. The conferees 
     do not anticipate that the Service will begin charging any of 
     the authorized fee increases described in this legislation at 
     the maximum allowable rate.
       In addition, the conferees expect that no later than 30 
     days after the enactment of this Act, the Secretary of the 
     Interior will submit to the appropriate Senate and House 
     Committees a report on the admission fees proposed to be 
     charged at units of the National Park System. The report 
     shall include a list of units of the National Park System and 
     the admission fee proposed to be charged at each unit. It is 
     also expected that the report shall also identify areas where 
     such fees are authorized but not collected, including an 
     explanation of the reasons that such fees are not collected.
       The conferees agreed that a significant portion of the new 
     fees collected be returned to the areas or units of those 
     land management agencies designated by this Act to augment 
     annual operating expenses related to visitor services. The 
     conferees are very concerned that any increase in fees paid 
     by recreational users translate into increased services to 
     the public. Therefore, the conferees intend to closely 
     monitor implementation of this provision to ensure 
     congressional intent is realized. In order to ensure that 
     fees paid directly benefit users who pay the fees, the 
     conferees have limited the use of the monies to visitor 
     services and facilities. As used in this part, visitor 
     services means services directly associated with the 
     management of recreation visitors to Federal lands, including 
     (but not limited to) such programs as maintenance of 
     facilities which serve primarily visitor recreation use (such 
     as campgrounds, scenic roads, trails, visitor centers and 
     picnic areas), public information and interpretation, 
     wildlife habitat enhancement directly related to public use 
     (such as stream improvement to improve fishing or activities 
     to facilitate watchable wildlife programs), and other 
     activities of personnel assigned predominantly to the 
     management of visitors or public safety programs, but not 
     including costs of regional and Washington headquarters 
     offices and administrative services such as personnel, budget 
     and finance, and procurement.
       The Conferees fully expect that the affected Secretaries 
     will, by January 1 of each year, provide to the appropriate 
     Committees of the Senate and the House a list of proposed 
     expenditures from the fund designated by this Act for each 
     unit or area for that fiscal year and a report detailing 
     expenditures, by unit or area, for the previous year.

                     Chapter 12--Concession Reform

     House bill
       The House provided a comprehensive reform of concession 
     management policies for 6 Federal land management agencies.
     Senate amendment
       The Senate had no comparable provision.
     Conference agreement
       The Senate receded to the House with amendments. The 
     managers expect that each Federal land management agency 
     covered under this title shall implement a program to 
     encourage appropriate development and operation of services 
     and facilities for the accommodation of visitors. The program 
     implemented by each such agency shall consist of actions 
     which--
       (1) recognize the importance of the private sector in 
     providing a quality visitor experience on Federal lands by 
     encouraging private sector investments for facilities and 
     services on Federal lands under a fair and competitive 
     process;
       (2) establish the basis for an effective relationship 
     between the land management agencies and private business 
     operating on public lands in efforts to serve the public and 
     to protect the resources of these areas;
       (3) measure quality and value of services provided by 
     concessionaires and provide incentives for consistent 
     excellence;
       (4) ensure a fair return to the Federal Government;
       (5) are consistent among the various agencies to the extent 
     practicable in order to increase efficiency of the Federal 
     Government and simplify requirements for concessionaires; and
       (6) ensure that concession activities are fully consistent 
     with agency policy and plans.
       In order to ensure the consistent high quality of 
     concession services and facilities, the Secretary concerned 
     shall develop a program of evaluations of the concessionaires 
     operating under a concession service agreement who are 
     providing visitor services in areas under the jurisdiction of 
     the Secretary. The evaluations shall be on an annual basis 
     over the duration of the concession service agreement. In 
     developing the evaluation program, the Secretary concerned 
     shall seek broad public input from concessionaires, State 
     agencies, and other interested persons. The evaluation 
     program shall--
       (1) include the four program areas of: quality of visitor 
     services provided; resource protection (as applicable); 
     financial performance; and compliance with concession service 
     agreement provisions and pertinent laws and regulations;
       (2) define three levels of performance--
       (A) good, which shall be defined as a level of performance 
     which exceeds the requirements outlined in the prospectus, 
     but which is attainable;
       (B) satisfactory, which shall be defined as meeting the 
     requirements as contained in the prospectus; and
       (C) unsatisfactory; which shall be defined as not meeting 
     the requirements contained in the prospectus;
       (3) be based on criteria which--
       (A) are objective, measurable, and attainable; and 

[[Page H 12770]]

       (B) shall include as applicable general standards for all 
     concession operations, industry-specific standards, and 
     standards developed by the Secretary concerned in 
     consultation with the concessioner for each concession 
     service agreement;
       (4) be designed in such a manner that the annual evaluation 
     represents the overall performance of the concessioner 
     without weight to matters of limited importance; and
       (5) take into account factors beyond the control of the 
     concessioner, such as general market and other economic 
     fluctuations, as well as weather and other natural phenomena, 
     so that such factors may not be used as a justification for 
     denial of performance incentives.
       The conferees expect that the Secretary concerned shall 
     annually review the performance of each concessioner and 
     shall assign an overall rating for each concessioner for each 
     year. The procedure for any performance evaluation shall be 
     provided to the concessioner prior to the beginning of any 
     evaluation period. Such procedure shall provide for adequate 
     notification of the concessioner prior to any on-site 
     evaluation and permit a representative of the concessioner to 
     observe the evaluation. The concessioner shall be entitled to 
     a complete explanation of any rating given. If the 
     Secretary's performance evaluation for any year results in an 
     unsatisfactory rating of the concessioner, the Secretary 
     concerned shall so notify the concessioner, in writing. Such 
     notification shall identify the nature of conditions which 
     require corrective action and shall provide the concessioner 
     with a list of corrective actions necessary to meet the 
     standards.
       The conferees intend that the Secretary concerned may 
     suspend or terminate a concession authorization if the 
     concessioner fails to correct the conditions identified by 
     the Secretary within the limitations established by the 
     Secretary at the time notice of the unsatisfactory rating is 
     provided to the concessioner. The Secretary may immediately 
     suspend or revoke a concession authorization where necessary 
     to protect the public health or welfare, until the 
     concessioner corrects the conditions which gave rise to such 
     suspension.
       In order to ensure that provisions of this part are fully 
     carried out, the Managers expect the administering 
     Secretaries to establish such record-keeping procedures as 
     are necessary, including but not limited to:
       (1) The concessioner shall annually submit to the Secretary 
     concerned a statement reflecting total activity in the 
     concession improvement account for the preceding financial 
     year. The statement shall reflect monthly deposits, 
     expenditures by project, interest earned, and such other 
     information as the Secretary concerned requires.
       (2) Each concessioner shall keep such records as the 
     Secretary concerned may prescribe to enable the Secretary to 
     determine that all terms of the concession authorization have 
     been and are being faithfully performed, and the Secretary 
     and his duly authorized representatives shall, for all other 
     purpose of audit and examination, have access at reasonable 
     times and locations to such records and to other books, 
     documents, and papers of the concessioner pertinent to the 
     concession authorization and all the terms and conditions 
     thereof.
       (3) The Secretary of the Interior and the Secretary of 
     Agriculture shall develop a single set of regulations which 
     specify a uniform set of record keeping requirements for all 
     concessionaires with respect to implementation of this part.
       (4) The Comptroller General of the United States or any of 
     his duly authorized representatives shall, until the 
     expiration of five years after the close of the business year 
     of each concessioner have access to and the right to examine 
     any pertinent books, documents, papers, and records of the 
     concessioner related to the concession authorization 
     involved.
       The managers do not intend the following laws or 
     regulations to apply to concession service agreements and 
     concession licenses issued under this part:
       (1) Title III of the Federal Property and Administrative 
     Services Act of 1949 (41 U.S.C. 251-266).
       (2) The Office of Federal Procurement Policy Act (41 U.S.C. 
     401 et seq.)
       (3) The Federal Acquisition Streamlining Act of 1994 
     (Public Law 103-355).
       (4) The Brooks Automatic Data Processing Act (40 U.S.C. 
     759).
       (5) Chapters 137 and 141 of title 10, United States Code.
       (6) The Federal Acquisition Regulation and any laws not 
     listed in paragraphs (1) through (5) providing authority to 
     promulgate regulations in the Federal Acquisition Regulation.
       The managers are aware that successful implementation of 
     this part requires the agencies to develop a fully trained 
     staff of concession professionals and expects the Secretary 
     concerned to specify the minimum training and qualifications 
     required for agency personnel assigned predominantly to 
     concession management duties, including (but not limited to) 
     competency in business management, public health and safety, 
     and the delivery of quality customer services.

         Other Provisions Not Included in the Conference Report


                                Grazing

     House bill
       The House bill contains provisions that would: codify 
     Bureau of Land Management (BLM) livestock grazing regulations 
     in existence prior to the current regulations; require that 
     the Forest Service issue regulations substantially similar to 
     those in effect for lands administered by BLM; establish a 
     formula for determining the fee for livestock grazing on 
     public lands; address application of the National 
     Environmental Policy Act to grazing permits and leases; and 
     extend the term of grazing permits and leases from 10 to 15 
     years.
     Senate amendment
       The Senate version does not contain such provisions.
     Conference agreement
       The House recedes to the Senate position.


                                Mapping

     House bill
       The House bill requires the Secretary of the Interior to 
     conduct a surveying and mapping contracting program. In 
     preparation for this contracting program, the bill requires 
     the Secretary to conduct and publish an inventory of 
     surveying and mapping activities to serve as a baseline. 
     Additionally, the bill requires the Secretary to establish a 
     plan that shall be based on the results of the inventory. The 
     plan shall include, but not be limited to, the following 
     actions:
       A reduction in surveying and mapping activities by 
     Department personnel that duplicate private sector 
     capabilities;
       Reduction in acquisition and maintenance of equipment that 
     duplicates private sector;
       A prohibition on Department performance of services for 
     other government entities that can be obtained by contract 
     from the private sector;
       Increased use of contracts for requirements created through 
     attrition in the Department;
       Enhancement of the Department's role in:
      Performing activities that are inherently governmental in 
     nature,
      Preparation of standards and specifications,
      Research and technology transfer,
      Coordination, cost sharing, and administration, and
      Establishing goals for contracting.
       Additionally, the bill requires annual reports to track 
     program progress. Regarding definitions, the bill defines the 
     terms ``surveying and mapping'' and ``contract'' based on 
     current regulations of the U.S. Army Corps of Engineers, the 
     government's largest contractor of these services.
     Senate amendment
       The Senate had no similar provision.
     Conference agreement
       The House recedes to the Senate, due to Senate procedural 
     requirements.
       It is the conferees' intention that the Secretary of the 
     Interior begin the process of implementing the major 
     provisions of the House provision administratively. It is the 
     conferees intent that, over the next year, hearings will be 
     held and legislation will be drafted which will incorporate--
     to the maximum extent possible--components of the legislation 
     passed by the House. The conferees urge the Secretary to 
     report to the House Committee on Resources and the Senate 
     Committee on Energy and Natural Resources by Spring 1996 on 
     the status of the Department's efforts to increase 
     contracting out of mapping and charting activities.


                  Need for Contracting Out of Mapping

       In the Department of the Interior, there are 1827 employees 
     engaged in surveying and mapping (as of September 30, 1994), 
     according to data from the Office of Personnel Management. An 
     Office of Management and Budget (OMB) survey (OMB Bulletin 
     93-14) estimated $761.7 million in budget authority in the 
     Interior Department for geographic data activities 
     (acquisition, management and dissemination) in FY 1993, and 
     estimated the President's FY 1994 budget request at $801.5 
     million. In FY 1994, only 212 service contracts for 
     geographic data activities totaling just $18.4 million were 
     awarded to the private sector.
       There is a capable and qualified private sector of more 
     than 250 mapping firms and 6,000 surveying firms in the 
     United States. The Interior mapping establishment duplicates 
     the capabilities of the commercial, private sector. Moreover, 
     not only do Federal agencies not contract a significant 
     amount of their own work, but many agencies do work for other 
     Federal agencies, as well as State, local and foreign 
     governments, in direct competition with the private sector.
       The conference report from the Senate-House Budget 
     Resolution specifically addressed surveying and mapping, 
     saying, ``U.S. Geological Survey conducts research and 
     provides basic scientific and information concerning natural 
     hazards and environmental issues, as well as water, land, and 
     mineral resources. The USGS has three main divisions: the 
     National Mapping Division [NMD], the Water Resources Division 
     [WRD] and the Geologic Division. This proposal assumes that 
     the NMD will aggressively price its products for additional 
     revenue to the Treasury. It also assumes greater contracting 
     out to the private sector, appropriate data gathering, and 
     map and digital data production. Finally, it calls for 
     consolidation of overlapping mapping efforts. Within the WRD, 
     savings are first assumed in the Federal program for such 
     subprograms as global change hydrology and core program 
     hydrology research. Savings could also be achieved by 
     increasing the State and local matching formula for the 
     Federal/State Cooperative Program.''
       In sum, the Conferees believe that agencies in the 
     Department of the Interior should 

[[Page H 12771]]
      contract with the private sector where appropriate for surveying and 
     mapping activities. While it is appropriate, proper, and 
     necessary for the Department to be involved in setting 
     standards and specifications, research and technology 
     transfer, and coordination in the area of geographic data, 
     the actual collection of data, through surveying and mapping, 
     is a commercial activity and should be performed by the 
     private sector.


                              Territories

     House bill
       The House measure contained a provision that would 
     terminate further direct annual assistance to the 
     Commonwealth of the Northern Mariana Islands and would also 
     eliminate the Office of Territorial and International Affairs 
     within the Department of the Interior, reduce the number of 
     Assistant Secretaries for the Department by one, and prohibit 
     future discretionary appropriations in certain territory 
     accounts.
     Senate amendment
       The Senate amendment did not contain any language on this 
     subject.
     Conference agreement
       The House and Senate authorizing committees have reported, 
     and the Senate has passed, legislation addressing these 
     issues with markedly different approaches. The Conferees 
     agreed the issue would be best resolved by the authorizing 
     committees within the context of that legislation.


                             Indian Gaming

     House bill
       The House included a provision that increased funding under 
     section 18(a) of the Indian Gaming Regulatory Act from $1.5 
     million to $2.5 million and eliminate funding for the 
     operation of the Commission.
     Senate amendment
       The Senate had no similar provision.
     Conference agreement
       The Conferees agreed to delete this provision.


                              Consultation

     House bill
       The House measure contained a provision that amended 
     section 7 of the Endangered Species Act to prohibit federal 
     agencies and applicants for a permit or license from making 
     any irreversible or irretrievable commitments of resources 
     that would foreclose any reasonable and prudent alternative.
     Senate amendment
       The Senate amendment contained no similar language.
     Conference agreement
       The conferees agreed to delete this provision.


                             Ski Area Sale

     House bill
       The House measure contained a provision that would direct 
     the Secretary of Agriculture to offer for sale at least 40 
     ski areas on Forest Service lands.
     Senate amendment
       The Senate amendment did not contain any language on this 
     subject.
     Conference agreement
       The Conferees agreed to delete this provision.


                                 Folsom

     House bill
       The House Bill contains a provision declaring that for the 
     purpose of water transfers, the city of Folsom, California, 
     shall be considered a Central Valley Project contractor.
     Senate amendment
       The Senate version does not contain such provisions.
     Conference agreement
       The House recedes to the Senate position because of Byrd 
     Rule concerns.


                 Power Marketing Administrations Study

     House bill
       The House provision repealed the current prohibition on 
     studying the ratemaking or privatization of the Power 
     Marketing Administrations (PMA's). In addition, it provided 
     for a study of the Southeastern Power Administration (SEPA), 
     the Southwestern Power Administration (SWPA) and the Western 
     Area Power Administration (WAPA) for purposes of their 
     ultimate sale. The House bill provided for an independent and 
     experienced private sector firm to serve as an advisor in 
     completing such a study. Because of the ongoing deregulation 
     of the electric utility industry, and the competitive issues 
     which currently exist among providers of electric power, the 
     study also called for a review of tax consequences of 
     potential transfers.
       Since federal electric power is generally a by-product of 
     facilities primarily designed and built for water management, 
     the study was set-up to recognize and assume the continued 
     operations and priorities of the projects as they currently 
     exist. In addition, because there are a variety of uses and 
     purposes for facilities that produce PMA power, the study was 
     designed to inventory existing operations and uses so that 
     these operations and uses could be preserved as part of any 
     PMA transfer.
     Senate amendment
       The Senate had no similar provisions.
     Conference agreement
       The conferees recognize that there are numerous problems 
     with the existing Power Marketing Administration operations 
     and the underlying power generation facilities. These 
     include: generating units in the SEPA service area that have 
     been off-line and unable to provide power for years, deferred 
     maintenance in many of the underlying facilities which are 
     causing loss of power production, failure to provide current 
     technology which could improve power output and environmental 
     protection, accounting systems which do not fully recover the 
     costs to the federal government from the systems, and 
     inefficient operations stemming from government operating 
     constraints. The conferees believe that Congress should begin 
     addressing these issues, without preconditions as to the 
     ultimate resolution of the issues.
       The future solutions, for the issues which have been 
     raised, must deal with the recognition of existing uses, 
     priorities, and operations as well as the rapidly developing 
     competitive electric industry and the impacts on ratepayers. 
     Recently released information indicates that a detailed 
     review and analysis of the PMA's is warranted.
       Although only 6% of the nations electricity is generated 
     and transmitted from these sources, the potential for 
     production from these facilities represents an important 
     component of our domestic energy supply. Accordingly, while 
     the study provision in the House bill was removed because of 
     procedural issues with the Senate, the conferees believe and 
     expect that the Congress will investigate and review the 
     information pertaining to the future of the PMA's including 
     operation and maintenance. The conferees believe that a fully 
     considered review by the Congress should precede development 
     of any specific proposal by the Executive Branch.
       The Clinton Administration's 1996 legislative budget 
     proposed to sell all the PMA's to the current customers at 
     the discounted repayment. Such a ``one size fits all'' 
     approach to the PMA's is simplistic and impractical. In 
     addition to responsibilities to current customers, the 
     federal government has important responsibilities for water 
     management at these facilities as well as to Indian Tribes 
     and to others dependent on the projects. Future Congressional 
     reviews should consider the differing situations and problems 
     facing each of the major components that comprise the PMA's.
     House conferees
       The conferees are concerned that the American public has 
     made a substantial investment in these facilities and that 
     all citizens should benefit the rehabilitation and 
     privatization of the PMA's. The conferees believe that those 
     facilities can be operated more efficiently and that any sale 
     can be structured in a way to maximize proceeds while 
     limiting rate increases to the ultimate customers.
       In addition to market forces which are likely to prohibit 
     significant rate increases from any sale, studies of these 
     issues should specifically evaluate alternatives that would 
     address rate increase issues. The conferees are not persuaded 
     by the rate concerns enunciated by sale opponents. As a 
     result of the Energy Policy Act of 1992, customers have been 
     afforded the opportunity to purchase their power from any 
     source they wish. Thus, the conferees believe it impractical 
     that a purchaser of a grouping of PMA assets would raise 
     rates substantially because of the risk attendant with that 
     customer leaving and purchasing from other sources in the 
     competitive wholesale power market.
     Senate conferees
       The Senate conferees share many of the concerns of the 
     House with respect to the present condition of the generating 
     capacity of the PMA's and what the future may hold given 
     sharply reduced budgets for the managing agencies. While 
     consideration of the future of the PMA's is important, the 
     Senate conferees are not prepared to suggest, recommend, or 
     support any particular initiative at this time.

          TITLE VI--FEDERAL RETIREMENT AND RELATED PROVISIONS

        Subtitle A--Civil Service and Postal Service Provisions


 Extension of Delay in Cost-of-Living Adjustments in Federal Employee 
                          Retirement Benefits.

     House bill
       Section 5001 of the House bill continues the current delay 
     in payment of Federal retiree cost-of-living adjustments to 
     April of each year through fiscal year 2002. Under the 
     Omnibus Budget Reconciliation Act of 1993, the effective date 
     for cost-of-living adjustments in Federal employee retirement 
     benefits was delayed from January until April for fiscal 
     years 1994, 1995 and 1996. This section would extend that 
     delay through fiscal year 2002.
     Senate amendment
       The Senate amendment is identical
     Conference Agreement
       The Conference agreement includes the language of the 
     Senate and House provisions.


     INCREASED CONTRIBUTIONS TO FEDERAL CIVILIAN RETIREMENT SYSTEMS

     House bill
       Section 5002 provides for increased contributions to both 
     Federal civilian retirement systems. Agencies will be 
     required to increase their contributions to the Civil Service 
     Retirement System (CSRS) for their employees who participate 
     in CSRS. Employees participating in both CSRS and the Federal 
     Employees Retirement System (FERS) will be required to 
     increase their contributions to the systems.
       The increase in employee contributions to CSRS will apply 
     to all employees participating in that system including 
     Members of 

[[Page H 12772]]
     Congress, congressional employees, law enforcement officers, 
     firefighters, Capitol Police, bankruptcy judges, judges for 
     the U.S. Court of Appeals for the Armed Forces, U.S. 
     magistrates, Claims Court judges, and employees of the United 
     States Postal Service. The change in the contribution rate 
     will also apply to employees participating in the Foreign 
     Service retirement systems.
       The amount deducted from basic pay for an individual 
     participating in CSRS will be increased above the level in 
     effect on the date of enactment by .25 percent in 1996, by an 
     additional .15 percent in 1997, and by an additional .10 
     percent in 1998. The increase will then remain constant at .5 
     percent through 2002.
       The bill also requires all Federal agencies, except for the 
     United States Postal Service, to contribute an additional 1.5 
     percent each year above the percentage an agency is now 
     contributing for each individual employee participating in 
     CSRS. This 1.5 percent increase in employer contributions 
     does not apply to the United States Postal Service which 
     currently contributes the full actuarial cost of each 
     employee's retirement under CSRS.
       This section also provides that repayment for any military 
     service between January 1, 1996, and December 31, 2002, for 
     which an employee or Member of Congress would like to receive 
     retirement credit under CSRS, would be at the contribution 
     rate in effect for employees during the period for which such 
     credit is provided.
       Likewise, the section provides that repayment for any 
     covered volunteer service between January 1, 1996, and 
     December 31, 2002, for which an employee or Member of 
     Congress would like to receive retirement credit under CSRS 
     would be at the contribution rate in effect for employees 
     during the period for which such credit is provided.
       The House bill also requires increased employee 
     contributions from all employees participating in the Federal 
     Employees Retirement System (FERS), including Members of 
     Congress, congressional employees, law enforcement officers, 
     firefighters, Capitol Police, bankruptcy judges, judges for 
     the U.S. Court of Appeals for the Armed Forces, U.S. 
     magistrates, Claims Court judges, and employees of the United 
     States Postal Service. The change in the contribution rate 
     will also apply to employees participating in the Foreign 
     Service retirement systems. and congressional employees. 
     These employees are required to increase their contributions 
     to FERS by .25 percent in 1996, an additional .15 percent in 
     1997, and by an additional .10 percent in 1998. The increase 
     in the contribution over the percentage an employee currently 
     pays into the system will then remain at .5 percent through 
     2002.
       This subsection provides that repayment for any military 
     service between January 1, 1996, and December 31, 2002, for 
     which an employee or Member of Congress would like to receive 
     retirement credit under FERS would reflect the increased 
     employee contributions resulting in the following repayment 
     percentages: calendar year 1996, 3.25 percent; calendar year 
     1997, 3.4 percent; calendar years 1998-2002, 3.5 percent.
       In addition, this subsection provides that the repayment 
     for any covered volunteer service between January 1, 1996 and 
     December 31, 2002 for which an employee or Member of Congress 
     would like to receive retirement credit under FERS would 
     reflect the increased employee contributions resulting in the 
     following repayment percentages: calendar year 1996, 3.25 
     percent; calendar year 1997, 3.4 percent; calendar years 
     1998-2002, 3.5 percent.
       This subsection also prohibits agencies from reducing their 
     contributions to FERS for each individual employee by a 
     percentage equal to any percentage increase in individual 
     employee contributions. Under current law, agency 
     contributions would automatically decrease with any increase 
     in employee contributions. The section prohibits the Postal 
     Service and all other Federal agencies from reducing their 
     contributions to FERS.
       The effective date for the increased contributions for 
     employees and agencies is the first day of the first pay 
     period beginning on or after January 1, 1996.
     Senate amendment
       The Senate amendment is substantially the same as the House 
     bill.
     Conference agreement
       The Conference agreement includes the language of the 
     Senate and House bills with modifications. The percentage by 
     which agencies are required to increase their current 
     contribution rates for their employees who participate in the 
     Civil Service Retirement System, is 1.51% rather than 1.5%. 
     In addition, a distinction is made to ensure that the 
     Washington Metropolitan Airport Authority (WMAA) is not 
     required to pay increased employer contributions on behalf of 
     its employees who participate in the Civil Service Retirement 
     System. The employees of the WMAA are required to make 
     increased contributions to the Civil Service Retirement 
     System or the Federal Employees Retirement System. The WMAA 
     is prohibited from decreasing its contributions to FERS. A 
     drafting error which states the amount the United States 
     Postal Service must contribute on behalf of employees and law 
     enforcement officers is corrected.
       The conference agreement adjusts the contribution rates for 
     United States bankruptcy judges, magistrates, Claims Court 
     judges and judges of the U.S. Court of Appeals for the Armed 
     Forces to ensure their parity with federal and congressional 
     employees. The contribution rates for Capitol Police are 
     adjusted to provide parity with other federal law enforcement 
     officers.


   FEDERAL RETIREMENT PROVISIONS RELATING TO MEMBERS OF CONGRESS AND 
                        CONGRESSIONAL EMPLOYEES.

     House bill
       Section 5003 would reform the pensions of Members of 
     Congress and congressional staff. Under current law, 
     participating Members of Congress and congressional employees 
     contribute a higher percentage of base pay toward retirement. 
     Under CSRS, Members contribute 8 percent, while congressional 
     employees contribute 7.5 percent. Members and congressional 
     employees participating in FERS contribute 1.3 percent. The 
     section amends the contribution rates to bring them into line 
     with those applicable to most General Schedule Federal 
     employees, 7 percent for CSRS and .8 percent for FERS. The 
     accrual rates used to determine the annuities for Members of 
     Congress and congressional employees would be reduced to 
     ensure parity with those of other federal employees. The 
     basic accrual rates for most General Schedule employees (1.5 
     percent for the first five years of service, 1.75 percent for 
     the next five years, and 2 percent for all remaining years) 
     would also apply to Members of Congress and congressional 
     staff. All service prior to January 1, 1996, for which the 
     higher amount was contributed would be computed using the 
     accrual rate in effect during that service.
       The contribution amounts and accrual rates for Members of 
     Congress and congressional employees in CSRS and FERS are 
     amended to conform with those used for the majority of 
     General Schedule. New accrual rates and contribution amounts 
     apply only to service performed on or after January 1, 1996. 
     The changes take effect upon the date of enactment. The 
     Secretary of the Senate and the Clerk of the House are given 
     the authority necessary to prescribe regulations to implement 
     the changes in the retirement benefits of Members of Congress 
     and congressional employees. The House bill also retains the 
     higher congressional accrual rate after January 1, 1996 for 
     Capitol Police who retire at age 55 with 30 years of service.
     Senate amendment
       The Senate amendment is almost identical to the House bill. 
     The Senate amendment however does not include the provision 
     retaining the higher congressional accrual rate after January 
     1, 1996 for Capitol Police who retire at age 55 with 30 years 
     of service.
     Conference agreement
       The Conference agreement includes most of the House 
     language, but adds a provision to clarify that Members of 
     Congress and congressional employees who have paid the higher 
     contribution rate prior to January 1, 1996 would have their 
     annuity computed using the higher accrual rate for that 
     period once they have a total of five years of Member of 
     Congress or congressional employee service. The House Capitol 
     Police language is modified to provide that a member of the 
     Capitol Police who retires as a congressional employee 
     (rather than as a law enforcement officer) would receive the 
     higher accrual rate which was in effect prior to January 1, 
     1996 for any period of service before that date during which 
     the higher contribution rate was paid.
       The conference retains the January 1, 1996 effective date 
     for the reform of Member and staff pensions, but includes an 
     alternate effective date of January 1, 1997 for use only in 
     the event the courts determine that the January 1, 1996 
     violates the Twenty-seventh Amendment to the Constitution.
     Judicial retirement
       The conference agreement adds a new section proposed by the 
     House which prospectively adjusts the accrual rate of Title V 
     of the United States Code bankruptcy judges, judges of the 
     U.S. Court of Appeals for the Armed Forces, United States 
     magistrates and Claims Court judges to conform with that of 
     other federal and congressional employees.


                  Repeal of Postal Transition Payments

     House bill
       The House bill contained a provision (Sec. 5005) to repeal 
     the permanent authorization of transitional appropriations 
     for the United States Postal Service. Under the provision, 
     payments to individuals due compensation from the Federal 
     Employees Compensation Fund would not diminish. The United 
     States Postal Service would instead be required to assume 
     payment without federal reimbursement.
     Senate amendment
       No provision
     Conference agreement
       The Conference Agreement adopts the House provision.

                Subtitle B--Patent and Trademark Office


                              Patent Fees

     House bill
       On September 19, 1995, the House Judiciary Committee 
     forwarded legislation that it had approved extending the 
     patent fees surcharge through Fiscal Year 2002. This 
     extension was contained in Title VII of the House bill.
     Senate amendment
       On September 22, 1995, the Senate Judiciary Committee 
     forwarded legislation that it had approved extending the 
     patent fees surcharge. This extension, title IX of the Senate 
     amendment, is the same provision. 

[[Page H 12773]]

     Conference agreement
       No change to the Senate or House language was necessary 
     because the two versions were identical.
       The action changes Section 10101 of the Omnibus Budget 
     Reconciliation Act of 1990 (35 U.S.C. 41) extending the 
     application of the surcharges on all fees authorized by Title 
     35 of the U.S. Code for Fiscal Years 1999 through 2002. These 
     fees will be credited to a separate account established in 
     the Treasury for Patent and Trademark Office (PTO) activities 
     and will be available to the PTO when appropriated.
       In extending the surcharge, the language specifies the 
     maximum amount which the PTO can collect in patent surcharge 
     fees for deposit into the Treasury. The limit is $119,000,000 
     for each of the four Fiscal Years 1999 through 2002.

                     Subtitle C--GSA Property Sales


                        Sale of Governors Island

     House bill
       Section 10402 of the House bill calls for the General 
     Services Administration, notwithstanding any other provision 
     of law, to sell, at fair market value, Governor's Island, New 
     York. This property is currently being used as a Coast Guard 
     facility. The sale of this 171 acre island, in the New York 
     City harbor, is not subject to laws and regulations that 
     normally apply to the disposal of real property by the 
     Federal Government, including requirements of the National 
     Environmental Policy Act, and the National Historic 
     Preservation Act. It is recognized, however, that State and 
     local environmental and historic preservation laws will 
     protect the property upon sale and during any development of 
     the property. The sale is intended for cash. The language 
     provides for the State and City be given right of first 
     refusal to purchase all or part of Governor's Island. Such 
     right may be exercised either by the State, the city, or both 
     acting jointly. Sale can proceed while environmental 
     remediation is ongoing. If the State or city elects to 
     purchase part of the property, GSA can sell the remainder of 
     the property. GSA would be authorized to fund its cost of 
     disposal of this property from proceeds of the sale. Net 
     proceeds from the sale, estimated to generate approximately 
     $500 million, would be deposited in the miscellaneous account 
     of the Treasury.
     Senate amendment
       There is no comparable provision in the Senate amendment.
     Conference agreement
       The Senate recedes to the House.


                       Union Stations Air Rights

     House bill
       Section 10403 of the House bill directs the sale of air 
     rights over the train tracks at Union Station, Washington 
     D.C. These air rights cover approximately 16.5 acres and are 
     bounded by Union Station on the south, 2nd Street NE on the 
     east, K street NE on the north and 1st Street NE on the west. 
     The provision would direct the General Services 
     Administration, notwithstanding any other provision of law, 
     to sell these air rights, at fair market value, in a manner 
     to be determined, during FY 1996. The air rights are a 
     combination of the Department of Transportation and AMTRAK 
     air rights. The provision calls for the transfer of AMTRAK 
     air rights to DOT without compensation to AMTRAK, then GSA 
     would sell the air rights. It is estimated that the air 
     rights would support the development of 2.8 million square 
     feet of office space, plus parking for 1,500 cars.
       In 1992 the General Services Administration contracted for 
     an appraisal of these air rights, and concluded that the 
     value, net of the construction of any supporting structure 
     over the train tracks, was $50 million. However, the 
     Congressional Budget Office, in scoring the proposed sale, 
     assigned a value of $40 million. Furthermore, CBO estimated 
     that GSA would require about 18 months to effectively market 
     and sell the air rights, which would include updating an 
     appraisal, and any buyer would require some preliminary 
     determination on zoning the property for future development. 
     Proceeds from the sale would be deposited in the 
     miscellaneous account of the Treasury.
     Senate amendment
       There is no comparable provision in the Senate amendment.
     Conference agreement
       The Senate recedes to the House.


        Availability of Surplus Property for Homeless Assistance

     House bill
       The House bill contained a provision that would increase 
     the flexibility of the General Services Administration in 
     disposing of surplus federal land and buildings. The 
     provision would repeal Title V of the Stewart B. McKinney 
     Homeless Assistance Act, which gives homeless assistance 
     groups a priority right to such surplus property. The 
     provision would give the General Services Administration 
     authority to donate, where warranted by the distinct facts 
     and circumstances of each property disposition, surplus 
     federal land and buildings to private-sector, non-profit 
     groups which provide housing assistance for homeless and low-
     income individuals. The provision is intended to increase 
     revenues from the sales of such properties while also 
     allowing the GSA to aid local efforts to address the housing 
     needs of homeless and low-income persons.
     Senate amendment
       There is no comparable provision in the Senate bill.
     Conference agreement
       The Senate recedes to the House language.

           TITLE VII--TRANSPORTATION OF THE MEDICAID PROGRAM


  (Sec. 16000-16002 of House bill; Sec. 7190-7199 of Senate Amendment)

                  Background and Need for Legislation

       Established by President Lyndon Johnson in 1965, Medicaid 
     is a joint Federal-State matching open-ended entitlement 
     program that pays for medically necessary health care 
     services provided to eligible beneficiaries by qualified 
     providers. There are Medicaid programs in all States except 
     Arizona, which runs a similar medical assistance program 
     under a Federal waiver. (Federal funds for the Arizona 
     program come from the Medicaid budget.) In addition, the 
     Medicaid program is operated in the District of Columbia and 
     U.S. territories, such as Puerto Rico and Guam.
       According to the Congressional Budget Office (CBO), the 
     Medicaid program will cost $156.5 billion in Fiscal Year 
     1995. Of this amount, the Federal government will be 
     responsible for an estimated $89.2 billion. This expenditure 
     represents a 11,050 percent increase over the program's 
     initial cost to the Federal government of $800 million in 
     Fiscal Year 1966. Since 1990, Medicaid has been the fastest-
     growing segment of the Federal government's budget, with 
     costs soaring at annual rates as high as 31 percent. Placed 
     in broader context, the Medicaid program's average annual 
     rate of growth since 1990 has been four times that of private 
     sector health care costs, which are rising at roughly 4-5 
     percent annually. Although CBO projects Medicaid spending 
     will rise at a comparatively ``stable'' rate of 10 percent 
     per year, at that rate total program costs will double by the 
     year 2002 absent reform. As detailed in the section entitled 
     ``Program Growth versus Program Cuts'' below, the MediGrant 
     plan replaces the Medicaid program's unsustainable cost 
     spiral with considerable and consistent funding to the 
     States.
       Medicaid's extraordinary rate of growth has made it the 
     single largest item in many State budgets. According to the 
     testimony of Governors and Medicaid officials appearing 
     before the Committees of Congress, States have been compelled 
     by the program's cost to restrict investment in other 
     critical human services, including child welfare, education, 
     mental health, and public safety. As described in the 
     ``Fiscal Impact of Medicaid Growth on the Federal and State 
     Budgets'' section below, the program's cost has been 
     frequently underestimated and continues to threaten the 
     budgetary stability of virtually every State.
       Medicaid was also intended to operate as a joint Federal-
     State matching entitlement program providing medical 
     assistance for low-income persons who are aged, blind, 
     disabled, members of families with dependent children, and 
     certain other pregnant women and children. Accordingly, 
     States were permitted to design and administer their own 
     programs, subject to specified Federal guidelines. In 
     reality, however, the current Medicaid program hardly 
     resembles that which was originally intended. Instead of 
     allowing State and local officials the flexibility to best 
     administer Medicaid, the Federal government created an 
     extensive ``one-size-fits-all'' maze of Federal mandates and 
     administrative requirements. The nature of this centralized 
     approach to program administration is described in the 
     ``Medicaid Micromanagement'' section below.
       Finally, the operational and administrative inflexibility 
     of the current Medicaid program has prevented States from 
     developing innovative and cost-efficient mechanisms designed 
     to meet the health care needs of their residents. Instead, 
     they have been forced to shoulder the uncontrollable costs of 
     what has become a rigid and ineffective health care program. 
     The program's centralized micromanagement, complex 
     bureaucratic requirements, and outdated service delivery is 
     often cited by the States as impeding their ability to 
     provide the quality health coverage, patient responsiveness, 
     and efficient administration common in the private sector. As 
     a result, States have long sought enhanced operational 
     flexibility so that they can better meet the health care 
     needs of their low-income residents. The current program's 
     complex system of waivers and the anticipated impact of the 
     MediGrant plan's flexibility is described below in the 
     section entitled ``Fostering Greater State Innovation.''
     The Fiscal Impact of Medicaid Growth
       During the debate on the new MediGrant Program, the 
     assertion has been repeatedly made that this legislation 
     ``cuts'' health care spending for low-income people. This 
     assertion is categorically false. Over the seven year period 
     ending in Fiscal Year 2002, the average growth rate in the 
     program is a guaranteed 5.2 percent annual increase. Total 
     Federal spending between Fiscal Years 1996-2002 will total 
     $791.1 billion. Total Federal expenditures in fiscal year 
     2002 will be $127.4 billion, a 43 percent cumulative increase 
     over fiscal year 1995.
       Federal expenditures on the Medicaid program during the 
     past seven years have contributed significantly to the 
     Federal budget deficit. However, Federal costs--while great--
     are only half the story. The States have been faced with even 
     more extraordinary fiscal pressures because Medicaid 

[[Page H 12774]]
     mandates have made health care the fastest growing area of State 
     budgets. Since almost all States are Constitutionally 
     required to annually balance their budgets, the Medicaid 
     financial squeeze has had dramatic effects.
       The table below, prepared by the National Association of 
     State Budget Officers (NASBO), documents the extraordinary 
     growth of Medicaid expenditures as a percentage of State 
     expenditures. In 1987, Medicaid represented approximately 
     10.2 percent of all State expenditures. By 1991, Medicaid's 
     State spending share had risen to 14.2 percent, and by 1994 
     it was a striking 19.4 percent of all State spending, nearly 
     double the percentage just seven years earlier.

                            MEDICAID SPENDING AS A PERCENTAGE OF TOTAL STATE SPENDING                           
----------------------------------------------------------------------------------------------------------------
                                                   1987    1988    1989    1990    1991    1992    1993    1994 
----------------------------------------------------------------------------------------------------------------
Medicaid Spending...............................   10.20   10.80   11.30   12.50   14.20   17.50   18.40   19.40
Non-Medicaid Spending...........................   89.90   89.20   88.70   87.50   85.80   82.50   81.60  80.60 
----------------------------------------------------------------------------------------------------------------
Source: National Association of State Budget Officers, 1994 State Expenditure Report.                           

       As State Medicaid spending has experienced uncontrollable 
     rates of growth, other critical State funding initiatives 
     have suffered commensurately. The table below, also prepared 
     by NASBO, documents the decline in State spending for 
     elementary and secondary education, higher education, 
     welfare, and transportation due to the growth in Medicaid. 
     Based on NASBO data, State expenditures for elementary and 
     secondary education declined 11 percent between 1987 and 
     1994; State higher education spending dropped 8 percent over 
     the same time period; State welfare spending experienced a 13 
     percent decrease; and State investment in public 
     transportation declined 16 percent. On the other hand, during 
     the 1987-1994 time period, Medicaid spending increased by 
     more than 90 percent!

                          SECTORAL PROGRAM SPENDING, PERCENTAGE OF TOTAL STATE SPENDING                         
----------------------------------------------------------------------------------------------------------------
                                            1987     1988     1989     1990     1991     1992     1993     1994 
----------------------------------------------------------------------------------------------------------------
Elementary/Secondary Ed.................    22.80    23.00    23.40    22.80    22.00    21.10    21.20    20.30
Higher Education........................    12.30    11.80    12.00    12.20    11.50    10.90    10.60    10.50
Welfare.................................     5.20     5.30     5.10     5.00     5.30     5.00     4.90     4.50
Medicaid................................    10.20    10.80    11.30    12.50    14.20    17.50    18.40    19.40
Transportation..........................    10.60    10.30    10.10     9.90     9.40     9.10     9.00    8.90 
----------------------------------------------------------------------------------------------------------------
Source: National Association of State Budget Officers, 1994 State Expenditure Report.                           

       This data clearly reveals why many States officials have 
     described Medicaid mandates as the worst of all the Federal 
     unfunded mandates placed on the States. As these mandates 
     were enacted into law through budget reconciliation in the 
     late 1980s and early 1990s, they created havoc with State 
     budgets and ultimately drained State funds away from 
     education and welfare programs.
     Federal and state budgetary havoc within budget 
         reconciliation
       One of the most perplexing issues concerning the 
     unconstrained fiscal growth of Medicaid is the manner in 
     which it was achieved. Most of the Medicaid mandates were 
     enacted through reconciliation bills which were supposed to 
     be budget-cutting vehicles.
       How was this accomplished? In the days of the Gramm-Rudman-
     Hollings Budgetary Act, it was accomplished by ``budgetary 
     tricks.'' For example, in the Concurrent Resolution of the 
     Budget for fiscal year 1990 (H. Con. Res. 106), $200 million 
     of new budget entitlement authority became available for 
     fiscal year 1990 for Medicaid spending. With this $200 
     million, the House Energy and Commerce Committee was able to 
     report out five new mandated Medicaid expansions by slipping 
     effective dates on some of the pending provisions so that 
     only one calendar quarter's worth of spending would occur in 
     fiscal year 1990. By this ``budgetary trick'', the Medicaid 
     provisions technically met the budget target in the Budget 
     Resolution. However, in the out-years, these five Medicaid 
     provisions would cost additional billions of dollars. In 
     1989, the Office of Management and Budget (OMB) estimated 
     that, taken together, these Medicaid provisions would 
     increase Federal spending by approximately $8.6 billion over 
     a five-year period.
       Another perplexing issue in the enactment of Medicaid 
     mandates has been the inability of the Congressional Budget 
     Office (CBO) to provide accurate estimates of the projected 
     costs of these laws. The table below documents the astounding 
     inaccuracies in the CBO analysis of a number of Medicaid 
     mandates enacted into law in the Omnibus Reconciliation Act 
     of 1989 (OBRA 1989).

      CBO OBRA 1989 MEDICAID MANDATES--ESTIMATES VS. ACTUAL FLORIDA     
                           EXPENDITURES FY1991                          
                        [In millions of dollars]                        
------------------------------------------------------------------------
                                               CBO scoring     Florida  
                                                 for all       Federal  
                                                  states    expenditures
------------------------------------------------------------------------
Mandatory Coverage of Pregnant Women.........          270            31
ESPDT........................................           25            63
Payment for federally qualified health                                  
 centers.....................................           15             8
Payment for obstetrical and pediatric                                   
 services....................................           11             4
                                              --------------------------
      Total..................................          321           106
------------------------------------------------------------------------
Florida represents 3.8% of all Federal Medicaid Expenditures--but       
  accounted for 33% of Total Estimated Expenditures.                    

       This table lists four major Medicaid mandates enacted into 
     law in 1989: mandatory coverage of pregnant women up to 133 
     percent; mandatory coverage of early and periodic screening, 
     diagnostic, and treatment services (EPSDT); enhanced payment 
     for health care centers; and enhanced payments for 
     obstetrical and pediatric services.1 The first column is 
     the official CBO estimate for all Federal expenditures for 
     these benefits in Fiscal Year 1991. The second column is the 
     actual Florida Federal expenditures provided by the Florida 
     Medicaid Director at that time.
     \1\ In a 1990 official policy document of the National 
     Governors' Association (NGA) entitled ``Short-Term Medicaid 
     Policy,'' the nation's Governors identified several of these 
     mandates as particularly troublesome. In this NGA official 
     document, they asked for relief from mandates in general and 
     specified detailed changes to the EPSDT benefit. Governor 
     Florio of New Jersey chaired the NGA Health Care Task Force 
     which produced this policy, and then-Governor Bill Clinton 
     was a member of the Task Force.
---------------------------------------------------------------------------
       First, compare the totals for Fiscal Year 1991. The CBO 
     calculated that the total Federal expenditures for these four 
     mandates would be $321 million in fiscal year 1991 for all 
     States. However, Florida's actual total was a whopping $106 
     million. Since Florida represents only 3.8 percent of all 
     Federal Medicaid expenditures, the enormity of this error is 
     obvious.
       With regard to the CBO cost estimate of the EPSDT benefit, 
     the picture is even more disturbing. Incredibly, the CBO 
     estimated that the total Federal expenditures for all States 
     would be $25 million for fiscal year 1991. The State of 
     Florida alone spent $63 million in fiscal year 1991 to comply 
     with this mandate, or more than double the CBO official 
     estimate!2
     \2\ In 1990, the American Public Welfare Association (APWA), 
     conducted a study of the effect of the EPSDT expansions of 
     OBRA 1989. Preliminary results from just 13 states showed an 
     increase of $468 million in State and Federal spending in 
     fiscal year 1991. The States responding were: Alabama, 
     Alaska, Arizona, Florida, Idaho, Maryland, Missouri, North 
     Dakota, Oregon, South Dakota, Texas, Utah, and Wisconsin. The 
     APWA study advises the reader to ``be advised that this total 
     figure is likely to increase as more states complete a budget 
     analysis.'' Note that the two largest Medicaid programs--
     California and New York--were not included in this study.
---------------------------------------------------------------------------
       If one projects the Florida cost experience for these OBRA 
     1989 mandates to the entire nation, the analysis leads to a 
     disturbing conclusion. While CBO projected expenditures of 
     $323 million in fiscal year 1991, estimated Federal 
     expenditures were closer to $2.8 billion. Though forecasting 
     is not an exact science, an error in the range of nearly 900 
     percent is truly indefensible. This staggering forecasting 
     error not only contributed to the growth of the Federal 
     budget deficit but was a devastating fiscal blow to the 
     States.
     Medicaid Micromanagement
       According to many State officials, the explosion of 
     Medicaid spending is due in large part to Congressional and 
     Executive directives. As noted above, Federally mandated 
     eligibility changes over the last decade fueled the expansion 
     of the Medicaid-eligible population and the cost of the 
     program. Although States have the discretion of supplementing 
     Medicaid's mandated coverage standards, the Federal 
     government frequently expanded the scope of these standards. 
     As a result, States have been compelled to increase their 
     spending levels in order to receive their share of Federally-
     matched Medicaid spending.
       One of the most frequently heard State complaints regarding 
     the Medicaid program concerns micromanagement by the Health 
     Care Financing Administration (HCFA). At the Federal level, 
     Medicaid is administered by HCFA which, through a network of 
     regional offices, is supposed to work with State Medicaid 
     departments to ensure appropriate management of the Medicaid 
     program. 

[[Page H 12775]]
     However, the reality of HCFA-State relations has been described by many 
     State officials as less a matter of coordinated cooperation 
     than as an example of Federal micromanagement in State 
     affairs.
       When questioned during the hearings on the Medicaid 
     program, State Governors and Medicaid directors pointed to 
     program mandates as evidence of excessive Federal 
     interference. In the House Commerce Committee's June 8, 1995 
     hearing, the Subcommittee on Health and Environment heard 
     from Florida Governor Lawton Chiles, Illinois Governor Jim 
     Edgar, Michigan Governor John Engler, Tennessee Governor Don 
     Sundquist, and Utah Governor Mike Leavitt. Speaking for many 
     of his colleagues, Governor Edgar expressed grave concern 
     over the impact on other critical human service priorities of 
     spiraling Medicaid spending resulting from Federal Medicaid 
     micromanagement.
       ``The Federal government has micromanaged the program by 
     heaping mandate after mandate upon the States. It has told us 
     whom we must serve and dictated how we must provide the 
     service without regard to cost. In 1966, the first year of 
     Medicaid, Illinois spent $87 million on the program. This 
     year, we will spend 64 times that much, or nearly $6 billion. 
     In Illinois, the tab for recent Federal mandates alone tops 
     $480 million this year.''
       Governor Engler cited the Boren Amendment, which requires 
     States to pay ``reasonable rates'' for nursing and hospital 
     care, as one of many Federal directives that have served to 
     impose substantial burdens on State Medicaid programs. 
     Intended to aid States in their efforts to contain program 
     costs, the Boren Amendment's vague payment standard resulted 
     in numerous lawsuits and the imposition of arbitrarily higher 
     reimbursement levels.
       ``Creeping micromanagement has entangled us in a briar 
     patch of perverse incentives that are costing taxpayers 
     dearly. One example . . . is a direct result of the Boren 
     Amendment: in 1989, Michigan Medicaid costs in a nursing 
     facility were $35 a day. In 1994, they were up to $57 a day. 
     We are paying a lot more money, but our patients are not 
     getting a lot more care.''
       Governors Edgar and Engler are neither the first nor the 
     only State Executives to describe to Congress the burdens of 
     HCFA and the Medicaid program it administers. On December 8, 
     1990, then-Governor Bill Clinton told the House Government 
     Operations Committee that 'Medicaid used to be a program with 
     a lot of options and few mandates--now, it's just the 
     opposite.'
       Not surprisingly, many States have sought to take advantage 
     of one of the only forms of relief available to them: waivers 
     granted by the Federal government. Faced with the 
     bureaucratic complexity and escalating costs of the Medicaid 
     program, States have sought to make more efficient use of 
     Medicaid dollars by such means as managed care. In many 
     instances, the savings realized from these measures have been 
     used to help fund program expansions as part of State 
     initiatives to extend coverage to uninsured individuals. 
     Since significant use of managed care in Medicaid is not 
     permitted under current Medicaid rules, States have sought 
     waivers of statutory and regulatory requirements from the 
     Secretary of Health and Human Services.
       Currently, Federal Medicaid law makes two basic types of 
     waivers available to the States. Section 1915 of the Social 
     Security Act provides for ``program waivers,'' which allow 
     States meeting specified conditions to operate certain types 
     of special programs that are listed in the statute. Section 
     1115(a) provides much broader authority to grant 
     ``demonstration waivers,'' under which nearly any provision 
     of Medicaid law may be waived to allow States to experiment 
     with program improvements.
       The experience of those States with waivers permitted under 
     Sections 1915 and 1115(a) has been mixed. While any relief 
     from the Medicaid program's many restrictions is certainly 
     appreciated by the States, the waiver process itself is a 
     source of great dissatisfaction. The process by which States 
     seek Section 1115 waivers is particularly complex and costly. 
     In order to comply with HCFA's numerous application 
     requirements, States must devote staff time and money to the 
     process--resources that could be used to provide health care 
     services to low-income State residents. When the application 
     is complete, it typically contains enough paper to measure 
     almost three feet in height.
       Unfortunately, States still face often insurmountable 
     obstacles to flexibility even after completing their waiver 
     applications. To date, only ten of an estimated twenty-three 
     Section 1115 waiver applications have been approved by HCFA. 
     In addition, the length of Federal waiver application review 
     averages an estimated twelve months.
       According to Ohio's Medicaid Director, Arnold Tompkins, who 
     appeared before the Health Subcommittee of the House Commerce 
     Committee on June 22, 1995, HCFA's slow process for reviewing 
     State waiver applications is largely due to the substantial 
     flaws of the waiver process itself:
       ``Five months into the [waiver] process we learned that our 
     approach to budget neutrality . . . was considered off-base 
     by HCFA. We spent the summer redesigning the budget to meet 
     HCFA's concerns. But this redesign was still not enough. In 
     the ninth month we were told that the redrawn budget had to 
     be redrawn again because Federal thinking had changed about 
     how budget neutrality should be demonstrated.''
     Fostering Greater State Innovation
       All across the nation, States are working to improve the 
     quality, effectiveness, and efficiency of the health care 
     assistance they provide to their low- income residents. 
     However, they have little of the operational or 
     administrative flexibility they need to make their medical 
     assistance programs more responsive and efficient. As a 
     result, Governors and other State officials have long 
     complained that Medicaid has served as an obstacle, rather 
     than as an opportunity, to developing innovative health care 
     delivery strategies.
       This is particularly difficult for many States to 
     understand, given the success achieved by the relatively few 
     States that have received waivers. For example, HCFA data 
     reveals that States have achieved significant program 
     efficiencies by means of waiver-facilitated managed care 
     initiatives. In particular, Section 1915(b) waivers have 
     enabled some States to establish limited managed care 
     programs. Based on State reports to HCFA, the General 
     Accounting Office has calculated that the national weighted 
     average of the savings realized from such Medicaid managed 
     care initiatives is an estimated 9.4 percent. In other words, 
     States were able to serve the populations enrolled in these 
     programs using almost 10 percent fewer dollars than required 
     by the traditional Medicaid program.
       According to State officials, the lesson to be drawn from 
     such experiences is clear: if Medicaid is to be substantially 
     improved and the growth rate of its costs brought under 
     control, States must be empowered to restructure their 
     Medicaid programs. They argue that the millions of low-income 
     Americans who need health care assistance will be more 
     effectively and efficiently served only when Governors and 
     State Legislators are given the flexibility to tailor 
     Medicaid to meet the unique conditions in their States.
       In light of the inflexibility of the current Medicaid 
     program and the ineffectiveness of its waiver process, many 
     States have petitioned Congress for significant Medicaid 
     reform. In fact, State Governors have forged a close working 
     relationship with the 104th Congress in an effort to develop 
     the MediGrant block grant reform initiative. Indeed, the 
     Congress was advised by State Governors, Medicaid Directors, 
     and other program experts to replace the current Medicaid 
     program and its lengthy waiver process with a block grant 
     reform initiative.
       Described as the most effective means for transforming 
     Medicaid into a truly State-driven program, block grants 
     would give States unprecedented operational and 
     administrative flexibility. According to State officials, a 
     block grant program would enable States to develop innovative 
     service delivery strategies to meet the health care needs of 
     their low-income residents. In other words, Medicaid block 
     grants would free States in a manner far surpassing any 
     flexibility they may enjoy under a waiver. In fact, under the 
     proposed block grant reform initiative, Medicaid would become 
     the State-run program it was initially intended to be. In 
     place of the current rigid, bureaucratic, and often 
     inadequate service delivery system, States would be able to 
     develop health service strategies tailored to match the 
     differing characteristics of their communities. These can 
     include capitation and managed care, enhanced maternal, 
     child, and mental health care initiatives, and insurance 
     premium subsidy programs.
       Medicaid block grants would also create compelling 
     incentives for States to achieve unprecedented program 
     efficiency. Currently, the Medicaid program effectively 
     penalizes States which save Medicaid resources. On average, 
     57 percent of all State savings revert to the Federal 
     government, not the States that made the savings possible. 
     Under a block grant approach, States would be able to utilize 
     the full value of any savings they achieve because they would 
     be free to reinvest those resources into better service 
     delivery, expanded benefits, and new program innovations.
       The contribution that the flexibility of block grants can 
     make to State medical assistance programs may be ascertained 
     by examining current State initiatives. While ongoing State 
     innovations have been severely restricted by the current 
     Medicaid system, they are indicative of how States would 
     respond to the flexibility of a Medicaid block grant. As has 
     been proven by initiatives that have been undertaken 
     nationwide, State and managed care provider innovations 
     appear capable of substantially improving Medicaid service 
     delivery and administration while finally bringing an end to 
     the program's explosive rate of growth.


  Purpose; State Plans (Sec. 2100 of MediGrant; Sec. 2100 of Medicaid)

     House bill
       The bill would create an entitlement to States, called 
     MediGrant, under Title XXI of the Social Security Act for 
     block grants to enable States to provide medical assistance 
     to low-income individuals and families. A State would be 
     required to provide the Secretary with a plan that sets forth 
     how the State intends to use the funds provided to provide 
     medical assistance. An approved plan would continue in effect 
     unless and until (1) the State amends the plan, (2) the State 
     terminates participation in the program, or (3) the Secretary 
     finds substantial noncompliance of the plan with the 
     program's requirements. 

[[Page H 12776]]

     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement includes the House provision.

      Part A--Objectives, Goals, and Performance Under State Plans


Description of Strategic Objectives and Performance Goals (Sec. 2101 of 
                   MediGrant; Sec. 2101 of Medicaid)

     House bill
       A State would be required to include in its MediGrant plan 
     a description of its strategic objectives and performance 
     goals for providing health care services, and the manner in 
     which the plan is designed to meet the objectives and goals. 
     Goals and objectives related to rates of childhood 
     immunizations and reductions in infant mortality and 
     morbidity would be required. With regard to other objectives 
     and goals, the State could consider factors such as 
     priorities for providing assistance to low-income 
     populations, priorities for general public health and health 
     status for low-income populations, the State's financial 
     resources and economic conditions, and the adequacy of the 
     State's health care infrastructure. To the extent 
     practicable, a State would be required to establish one or 
     more performance goals for each strategic objective and 
     describe how performance would be measured and compared 
     against goals. Strategic objectives would be required to 
     cover a period of at least 5 years and would have to be 
     updated and revised at least every 3 years. Performance goals 
     would have to be established for dates not more than 3 years 
     apart.
     Senate amendment
       Similar provision.
     Conference agreement
       The conference agreement follows the House provision.


     Annual Reports (Sec. 2102 of MediGrant; Sec. 2102 of Medicaid)

     House bill
       By March 31 (beginning in 1998), each State with a 
     MediGrant plan in effect for the preceding fiscal year would 
     be required to submit a report to the Secretary and the 
     Congress on program activities and performance for that 
     Federal fiscal year. Each report would be required to include 
     data on the following: (1) aggregate expenditures for each 
     category of eligible individuals, expenditures by each 
     category of eligibles for covered services provided on a fee-
     for-service basis, expenditures for payments to capitated 
     organizations by each category of eligibles, and 
     administrative expenditures; (2) utilization of services, 
     including summary statistics, for each category of eligible 
     individuals, of items and services provided on a fee-for-
     service basis and a summary of data reported by capitated 
     health care organizations; (3) achievement of performance 
     goals including actions to be taken in case a goal was not 
     met; (4) program evaluations; (5) fraud and abuse and quality 
     control activities; and (6) plan administration, including a 
     description of the roles and responsibilities of State 
     entities responsible for administering the program and 
     organization charts for each, a description of any interstate 
     compact entered into, and citations to State law and rules 
     governing the State's activities under the program.
       With respect to inpatient hospital services provided on a 
     fee-for-service basis, the plan must include a description of 
     the average amount paid per discharge compared to either the 
     average charge, or to the State's estimate of the average 
     amount paid by commercial insurers. For subsequent fiscal 
     years, expenditures and utilization reports would be required 
     to fit the reporting format specified by the MediGrant Task 
     Force established under Title XXI. Categories of eligible 
     individuals would be children, blind or disabled adults under 
     age 65, persons 65 or older, and other adults.
     Senate amendment
       Similar provision.
     Conference agreement
       The conference agreement follows the Senate amendment with 
     modifications.


Periodic, Independent Evaluations (Sec. 2103 of MediGrant; Sec. 2103 of 
                               Medicaid)

     House bill
       Beginning in fiscal year 1998 and at least every third year 
     thereafter, each State would be required to provide for 
     evaluation of the operation of its MediGrant plan, conducted 
     by an entity that is responsible neither for submission of 
     the State plan nor for administering any activity under the 
     plan.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement includes the House provision.


    Description of Process for State Plan Development (Sec. 2104 of 
                   MediGrant; Sec. 2104 of Medicaid)

     House bill
       State plans would be required to include a description of 
     the process for development and implementation of the plan.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement includes the House provision.


 Consultation in State Plan Development (Sec. 2105 of MediGrant; Sec. 
                           2105 of Medicaid)

     House bill
       Before submitting a plan or amendment to the Secretary, 
     each State would be required to provide a public notice with 
     a description of the plan or amendment, a means for the 
     public to inspect or obtain a copy of the plan or amendment, 
     and an opportunity for submittal and consideration of public 
     comments. This provision would apply except when the State 
     submitted a revision of a plan or amendment in response to a 
     determination of disapproval by HHS.
       Each State would be required to establish and maintain an 
     advisory committee for consultation in the development, 
     revision, and monitoring the performance of the plan. Such 
     consultation would include the development of strategic 
     objectives and performance goals, the annual report, and the 
     research design for evaluating the State's plan operations. 
     Members of the advisory committee should represent different 
     geographic regions of the State although proportional 
     representation would not be required. A State would be 
     permitted to establish more than one advisory committee, 
     including committees that represent the interests of specific 
     population groups, provider groups, or geographic areas.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement includes the House provision. It 
     is the intent of the Conferees that the composition of the 
     advisory committees be chosen in a manner that assures 
     geographical diversity.


                  Task Force (Sec. 2106 of MediGrant)

     House bill
       The Secretary of HHS would be required to establish a 
     MediGrant Task Force consisting of 6 members appointed by the 
     chair of the National Governors Association (NGA) and 6 
     appointed by the vice chair of the NGA. The Task Force would 
     be assisted by an advisory group composed of one 
     representative from each of the following associations: 
     National Committee for Quality Assurance; Joint Commission 
     for the Accreditation of Healthcare Organizations; Group 
     Health Association of America; American Managed Care and 
     Review Association; Association of State and Territorial 
     Health Officers; American Medical Association; American 
     Hospital Association; American Dental Association; American 
     College of Gerontology; American Health Care Association; and 
     associations identified by the Secretary as representing the 
     interests of disabled individuals, children, the elderly, and 
     mentally ill individuals. The Task Force would be required 
     to: (1) specify the format of expenditure and utilization 
     summaries by December 31, 1996; (2) study and report to 
     Congress and the States by April 1, 1997, with 
     recommendations on models for strategic objectives and 
     performance goals; methodologies for measuring and verifying 
     each objective or goal recommended; an assessment of the 
     usefulness to States of quality assurance safeguards, 
     utilization data sets, and accreditation programs used in the 
     private sector; and designs and methodologies for providing 
     for independent evaluations. States would not be required to 
     adopt any of the objectives or goals suggested by the Task 
     Force. The Agency for Health Care Policy and Research, or the 
     Secretary, would be required to provide administrative 
     support for the Task Force.
     Senate amendment
       No provision
     Conference agreement
       The conference agreement does not include the House 
     provision. However, it is the intent of the Conferees that 
     the Secretary of HHS establish a MediGrant Task Force. It is 
     the intent of the Conferees that the MediGrant Task Force 
     consist of 6 members appointed by the chair of the National 
     Governors Association (NGA) and 6 appointed by the vice chair 
     of the NGA. The Task Force would be assisted by an advisory 
     group composed of one representative from each of the 
     following associations: National Committee for Quality 
     Assurance; Joint Commission for the Accreditation of 
     Healthcare Organizations; Group Health Association of 
     America; American Managed Care and Review Association; 
     Association of State and Territorial Health Officers; 
     American Medical Association; American Osteopathic 
     Association; American Hospital Association; Association of 
     American Medical Colleges; American Dental Association; 
     American College of Gerontology; American Health Care 
     Association; National Healthcare Anti-Fraud Association; 
     National Association of Health Data Organizations; American 
     Academy of Actuaries; National Association of State Medicaid 
     Directors; and associations identified by the Secretary as 
     representing the interests of disabled individuals, children, 
     the elderly, and mentally ill individuals.
       It is the intent of the Conferees that the Secretary, 
     through the work of the Task Force: (1) specify the format of 
     expenditure and utilization summaries by December 31, 1996; 
     (2) study and report to Congress and the States by April 1, 
     1997, with recommendations on models for strategic objectives 
     and performance goals; methodologies for measuring and 
     verifying each objective or goal recommended; an assessment 
     of the usefulness to States of quality assurance safeguards, 
     utilization data sets, and accreditation programs used in the 
     private sector; and designs and methodologies for providing 
     for 

[[Page H 12777]]
     independent evaluations. It is the expectation of the conferees that 
     the Task Force will develop recommendations by which States 
     may respond to needs of the chronically mentally ill, 
     particularly those individuals with psychotic symptoms, such 
     as schizophrenia, schizoaffective disorder, manic depression 
     disorder, and autism, as well as severe forms of other mental 
     disorders, such as major depression, panic disorder, and 
     obsessive compulsive disorder. It is the intent of the 
     Conferees that States may, but should not be required to, 
     adopt any of the specific objectives or goals suggested by 
     the Task Force.

             Part B--Eligibility, Benefits, and Set-Asides


     General Description of Eligibility and Benefits (Sec. 2111 of 
                   MediGrant; Sec. 2111 of Medicaid)

     House bill
       The State plan would be required to include a description 
     of (a) the eligible population, including categories, 
     duration of eligibility, financial standards and 
     methodologies, and standards for the protection of income and 
     resources of the community spouses of institutionalized 
     beneficiaries; (b) duration and scope of covered services, 
     including variations by population group; (c) the delivery 
     method, such as use of vouchers, fee-for-service, or managed 
     care arrangements; (d) required beneficiary cost-sharing, 
     including any responsibility of parents and the spouses of 
     recipients; (e) any incentives or requirements to encourage 
     appropriate utilization; and (f) any payment provisions for 
     community health centers, public hospitals, and certain 
     hospitals serving a high share of low-income patients, along 
     with a description of where and how enrollees previously 
     using these facilities under Medicaid would obtain services 
     (if these facilities were no longer available to them). A 
     State using a fee-for-service system would also have to 
     describe how it determines provider qualifications and sets 
     reimbursement rates. The MediGrant plan would have to include 
     coverage of immunizations for eligible children, in 
     accordance with a schedule developed by the State health 
     department in consultation with those responsible for 
     administering the MediGrant plan. Payment rates for rural 
     providers would have to equal those for comparable non-rural 
     providers, except that States could offer incentives for 
     providers in underserved areas. No MediGrant plan could deny 
     or exclude services on the basis of a preexisting condition. 
     If a State contracted with a capitated organization or other 
     entity and allowed the organization to impose preexisting 
     condition exclusions, the State would have to provide 
     alternate coverage for any covered services denied as a 
     result. MediGrant plans would be prohibited from requiring an 
     adult child of moderate means to contribute to the cost of 
     nursing facility and other long-term care services for the 
     child's parent.
     Senate amendment
       Each Medicaid plan would have to meet the following 
     requirements: (1) be designed to serve all political 
     subdivisions in the State; (2) provide for making medical 
     assistance available to any pregnant woman or child under age 
     13 whose family income is not over 100% of poverty; (3) 
     provide for making medical assistance available to any 
     disabled individual receiving cash SSI benefits, or receiving 
     Medicaid under the State's options for SSI beneficiaries; and 
     (4) describe how the State will provide medical assistance to 
     any other population group. The State plan would be required 
     to include a description of (a) the eligible population, 
     including categories, duration of eligibility, financial 
     standards and methodologies, and standards for the protection 
     of income and resources of the community spouses of 
     institutionalized beneficiaries; (b) duration and scope of 
     covered services, including variations by population group; 
     (c) the delivery method, such as use of vouchers, fee-for-
     service, or managed care arrangements; (d) required 
     beneficiary cost-sharing, including any responsibility of 
     parents of recipients under age 19 and the spouses of 
     recipients; (e) any incentives or requirements to encourage 
     appropriate utilization; and (f) any payment provisions for 
     short-term acute general care hospitals or children's 
     hospitals with a specified low-income utilization rate. A 
     State using a fee-for-service system would also have to 
     describe how it determines provider qualifications and sets 
     reimbursement rates. The Medicaid plan would have to include 
     coverage of immunizations for eligible children, in 
     accordance with a schedule developed by the State health 
     department in consultation with those responsible for 
     administering the Medicaid plan. No Medicaid plan could deny 
     or exclude services on the basis of a preexisting condition. 
     If a State contracted with a capitated organization or other 
     entity and allowed the organization to impose preexisting 
     condition exclusions, the State would have to provide 
     alternate coverage for any covered services denied as a 
     result. The bill requires that States provide prepregnancy 
     family planning services and supplies and prohibits the 
     imposition of any treatment limits or financial requirements 
     on mental illness services that are not imposed on services 
     for other illnesses. Each State plan would have to provide 
     that any State law solvency requirements that apply to 
     private sector health plans and providers would apply to 
     Medicaid plans and providers.
     Conference agreement
       The conference agreement follows the Senate provision with 
     modifications. The agreement would require States to provide 
     medical assistance, subject to State flexibility of benefits 
     under Section 2116 of the bill, to the ``disabled'' as 
     defined by the State (and subject to Section 2111(a)). The 
     agreement follows the Senate provision regarding treatment of 
     children's hospitals and certain disproportionate share 
     hospitals. The agreement follows the House provision 
     regarding the prohibition on requiring an adult child to 
     contribute to the cost of long-term services for the child's 
     parent. This ``family responsibility'' provision is not 
     intended to affect estate recoveries. The agreement also 
     establishes requirements relating to solvency standards for 
     MediGrant capitated health care organizations.


Set-Asides of Funds for Population Groups (Sec. 2112 of MediGrant; Sec. 
                           2112 of Medicaid)

     House bill
       States would be required to devote specified minimum 
     percentages of total program spending to services for each of 
     three groups: low-income families, low-income elderly, and 
     low-income blind and disabled. (Funds set aside for low-
     income families would have to be spent on families below 185 
     percent of poverty that included a pregnant woman or child.) 
     For each group, the minimum percentage to be spent would be 
     set equal to 85 percent of the average percentage of the 
     State's Medicaid spending during fiscal year 1992 through 
     fiscal year 1994 devoted to mandatory services for members of 
     that group who were required to be covered under Federal 
     Medicaid law. (The percentage would be set at 75 percent in 
     the case of a State that covered only mandatory services 
     during the base period.)
        For the elderly, there would be an additional set-aside 
     for Medicare premium assistance, again based on the 
     percentage of the State's spending that went for such 
     assistance to mandatory individuals in the base period. For 
     purposes of computing the base period expenditures for the 
     low-income elderly, all elderly persons who were in nursing 
     homes would be treated as persons whose coverage was 
     required. Thus, the computation of the base for elderly 
     includes all current long-term spending for elderly who 
     qualify under options that States may use for covering 
     persons with higher income levels.
        One of these options is the medically needy option. 
     Medically needy persons have incomes too high to qualify for 
     cash welfare, but incur medical expenses that deplete their 
     assets and incomes to levels that make them needy according 
     to State-determined standards. The base also includes State 
     spending under a special income rule referred to as the 
     ``300% rule'', for extending eligibility to persons needing 
     nursing home care. Under this rule, States were allowed to 
     cover persons needing nursing home care so long as their 
     income did not exceed 300% of the basic Supplemental Security 
     Income (SSI) cash welfare payment. Nursing home payments for 
     these two groups of non-poor accounted for 61% of total 
     program payments for all elderly beneficiaries and 
     approximately 90% of all spending on nursing home services. 
     3
     \3\ These calculations are based on a Congressional Research 
     Service memo to the Commerce Committee entitled ``Medicaid 
     Nursing Home Expenditures for the Elderly'' dated October 6, 
     1995.
---------------------------------------------------------------------------
       In computing the base period spending percentages, payments 
     to disproportionate share hospitals (DSH) would not be 
     treated as payments for mandatory services.
        The MediGrant plan prohibits any State from utilizing 
     MediGrant funds for any purpose other than medical assistance 
     for low-income residents and support functions essential to 
     the provision of that assistance.
        A State could establish a set-aside percentage for a 
     population group below the specified minimum percentages if 
     it determined and certified to the Secretary that the health 
     care needs of that group (and any related performance goals 
     in the MediGrant plan) could be met with a lower level of 
     expenditure. Such exceptions could not apply before fiscal 
     year 1998, and determinations would have to be renewed at 
     intervals of no more than three years.
        A State that spent less on any group than the required 
     set-aside amount would not be found in substantial violation 
     of the requirements if its spending for each of the three 
     population groups was at least 95 percent of the required 
     amounts and an independent actuary certified that the 
     MediGrant plan was reasonably designed to result in 
     expenditures of the required amounts.
        Funds not required to be spent under the set-asides could 
     be spent for additional medical assistance, program 
     administration, or medically-related services, defined as 
     services not included in the definition of medical assistance 
     but related to or supporting the attainment of the strategic 
     objectives and performance goals established under the 
     State's MediGrant plan.
      Senate amendment
        Similar provision, except the Senate set-asides would be 
     calculated based on expenditures rather than percentages.
     Conference agreement
       The conference agreement follows the House bill with an 
     amendment establishing a funding set-aside for Federally-
     qualified health centers and rural health clinics.
       It is the Conferees' expectation that actual State 
     MediGrant spending on the recipient 

[[Page H 12778]]
     populations designated by the set-asides will be significantly higher 
     than is mandated be the set-asides. It is also the Conferees' 
     intention that the set-aside calculations on dollar 
     expenditures serve as a floor for providing health assistance 
     for the elderly, disabled, pregnant women, and children. The 
     set-aside floor serve as a federal guarantee that MediGrant 
     expenditures will be fairly and equitably distributed to 
     different types of beneficiaries.
       In providing eligibility for the disabled under the 
     MediGrant program set-aside, the Conferees urge States to 
     consider the special circumstances of women and children with 
     disabilities. An expedited eligibility determination process 
     is especially important for people who have disabilities that 
     are life-threatening and are at risk of dying before such a 
     determination may be made. The Conferees also urge States to 
     provide services to meet the preventive and primary care 
     needs of people with disabilities, including such measures as 
     the prevention of illness through prophylactic and early 
     intervention drugs and the prevention of transmission of 
     illness through measures such as the administration of 
     antiviral drugs to HIV-positive women during pregnancy. Such 
     measures may prevent needless disability and unnecessary 
     medical costs.


    Premiums and Cost-Sharing (Sec. 2113 of MediGrant; Sec. 2113 of 
                               Medicaid)

      House bill
        States would be permitted to impose premiums, copayments, 
     coinsurance, or deductibles pursuant to a public schedule. 
     Cost-sharing could be designed to encourage primary and 
     preventive care and discourage unnecessary or less economical 
     care and inappropriate use of emergency services. Amounts 
     could be scaled to reflect economic factors, employment 
     status, family size, availability of other health insurance, 
     or participation in employment training, drug abuse or 
     alcohol treatment, counseling, or other programs promoting 
     personal responsibility. For a family below 100 percent of 
     poverty and including a pregnant woman or child, no premium 
     could be imposed and cost-sharing amounts would have to be 
     nominal (except for cost-sharing designed to deter 
     inappropriate emergency services).
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House provision.


 Description of Process for Developing Capitation Payment Rates (Sec. 
               2114 of MediGrant; Sec. 2114 of Medicaid)

      House bill
        If a State contracted with HMOs or similar entities on a 
     risk basis for a package of services including at least 
     inpatient hospital and physician care, the MediGrant plan 
     would have to describe: (1) the use of actuarial science in 
     projecting expenditures and utilization for enrollees and 
     setting capitation payment rates; (2) required qualifications 
     for participating organizations; and (3) a process for 
     dissemination to contractors of information on capitation 
     rates and historical fee-for-service cost and utilization 
     data. The State would also have to provide for public notice 
     and an opportunity to comment on this information before each 
     contract year; the notice would have to include the amounts 
     of capitation payments made under the MediGrant plan in the 
     preceding year and expected to be made in the coming year 
     (unless exempt from disclosure under State law).
      Senate amendment
        Similar provision.
     Conference agreement
       The conference agreement follows the House provision.


Preventing Spousal Impoverishment (Sec. 2115 of MediGrant; Sec. 2116 of 
                               Medicaid)

     House bill
        The income eligibility rules would not permit income of 
     community spouses to be used in determining the nursing home 
     spouse's eligibility unless the income were actually made 
     available to the institutionalized spouse. As in current law, 
     after eligibility has been determined, States would be 
     required to set a minimum monthly maintenance needs allowance 
     for living expenses of the community spouse according to 
     statutory limits. (Currently, this minimum is $1,254 per 
     month and the maximum is $1,871 per month. These amounts may 
     be increased depending on the amount of the community 
     spouse's actual shelter costs and other factors.)
        From a couple's combined resources, an amount would be 
     protected for the community spouse. This amount would be the 
     greater of one-half of the couple's resources at the time the 
     institutionalized spouse entered the nursing home, up to a 
     maximum, or a standard established by the State. (Currently, 
     the State resource standard may be no lower than $14,964 and 
     no greater than $74,820.)
     Senate amendment
        Similar provision.
     Conference agreement
       The conference agreement follows the House provision with a 
     Senate amendment to exclude from determinations of income 
     reparations payments from the Federal Republic of Germany.


      Construction (Sec. 2116 of MediGrant; Sec. 2115 of Medicaid)

      House bill
        The bill specifies that no provision shall be construed as 
     creating an individual or group entitlement to medical 
     assistance under Federal law. In addition, the bill grants 
     states flexibility in determining: (a) coverage of any 
     particular service or type of provider or any level of 
     payment; (b) geographical coverage areas; and (c) selection 
     of providers. The MediGrant plan also removes existing 
     limitations on States' ability to contract with managed care 
     plans or individual providers on a capitated or other basis, 
     to contract for case management or coordination services, or 
     to set capitation rates on the basis of competition or 
     negotiation.
      Senate amendment
        Except for provisions related to immunizations for 
     children and pre-pregnancy family planning services, no 
     provision of this title would be construed as requiring a 
     State to (a) cover any particular items or services; (b) 
     provide for any particular type of provider or any level of 
     payment; (c) provide for the same medical assistance in all 
     geographical areas or political subdivisions of the State; or 
     (d) provide for comparability of services to eligible 
     individuals; (e) provide for freedom of choice of providers; 
     or as limiting the State's ability to contract with managed 
     care plans or individual providers on a capitated or other 
     basis, to contract for case management or coordination 
     services, or to set capitation rates on the basis of 
     competition or negotiation.
     Conference agreement
        The conference agreement follows the House provision with 
     an amendment. The amendment moves to Section 7002 the 
     construction that no federal entitlement under federal law 
     has been created in any individual, including any provider.


        Limitations on Causes of Action (Sec. 2117 of MediGrant)

      House bill
        The bill would remove the existing right for an applicant, 
     beneficiary, provider or health plan to sue a State official 
     under 42 U.S.C. Sec. 1983 to require prospective enforcement 
     of the Medicaid statute. However, the plan would have no 
     effect on any action brought under State law.
      Senate amendment
        No provision.
     Conference agreement
        The conference agreement follows the House provision with 
     an amendment. The amendment moves to Section 2154 the 
     limitation on causes of action under federal law.

                       Part C--Payments to States


 Allotment of Funds Among States (Sec. 2121 of MediGrant; Sec. 2121 of 
                               Medicaid)

     House Bill
        Beginning with fiscal year 1996, the bill would limit 
     Federal obligations and outlays for each State to fixed 
     allotments. (Obligations are binding agreements to make 
     Federal payments, immediately or in the future. Outlays are 
     actual payments to liquidate obligations.) The obligation 
     allotments would include adjustments to reflect obligations 
     incurred in one year that did not result in outlays until the 
     following year.
        For fiscal year 1996, the MediGrant outlay allotment for 
     each State and the District of Columbia would be based on 
     Federal Medicaid payments to the State in fiscal year 1994, 
     increased by the ratio of $95,529,490,500 (the total 
     available for outlay allotments to States and the District 
     for fiscal year 1996) to $83,213,431,458 (the total of fiscal 
     year 1994 Federal payments to the States and the District). 
     For fiscal year 1997 and later years, the outlay allotment 
     would be based on a formula allocation from a fixed pool of 
     total MediGrant funds. A State could carry over any unused 
     obligation allotment amount to a subsequent year.
        The pool for fiscal year 1996 would be $95.663 billion 
     (this represents outlay allotments to the States and the 
     District plus allotments to Commonwealths and territories). 
     The pool would be $102.748 billion for fiscal year 1997, 
     $107.268 billion for fiscal year 1998, $111.827 billion for 
     fiscal year 1999, $116.473 billion for fiscal year 2000, 
     $121.311 billion for fiscal year 2001, and $126.351 billion 
     for fiscal year 2002. For later years, the pool amount would 
     be the previous year's amount increased by the lesser of 
     4.1546 percent or the growth in the consumer price index for 
     all urban consumers (CPI-U) for the 12-month period ending in 
     June before the start of the year in question. The increase 
     in the pool amount over that for the preceding year would be 
     designated the ``national MediGrant growth percentage'' 
     (NMGP).
        For fiscal year 1997 and later years, each State's outlay 
     allotment from the pool would equal a needs-based amount 
     times a scalar factor, subject to certain floors and 
     ceilings. The needs-based amount for a State would be the 
     product of its aggregate need and its old Federal medical 
     assistance percentage for the previous year (FMAP; see 
     below). The scalar factor would be a constant multiplier for 
     all States used to ensure that floor and ceiling provisions, 
     along with the allotments for Commonwealths and territories, 
     do not cause total allotments to exceed the pool amount.
        The State's aggregate need would be the product of four 
     factors: residents in poverty, a case mix index, an input 
     cost index, and national average spending per resident in 
     poverty. Residents in poverty would be the 

[[Page H 12779]]
     average number of individuals in the State below the Federal poverty 
     threshold in the most recent period of 3 calendar years for 
     which data were available. The case mix index would equal the 
     3-year average ratio between the State's expected per 
     recipient spending and national average per recipient 
     spending, given the State's relative proportions of aged, 
     disabled, and other recipients and assuming that the State's 
     per recipient spending for each group was equal to the 
     national average for that group. The case mix index could not 
     be less than 0.9 or more than 1.15. The input cost index 
     would be the sum of 0.15 and the product of 0.85 and a 
     hospital wage index. This wage index would equal the ratio 
     between annual average wages for hospital employees in the 
     State and the national average; it would be based on the area 
     wage indices computed under Medicare's prospective payment 
     system for inpatient hospital services (or a comparable index 
     if the Medicare index should no longer be available). 
     National average spending per resident in poverty would be 
     computed for fiscal year 1997 using fiscal year 1994 data; 
     for fiscal year 1998 and later years, the figure would be 
     increased by the NMGP.
        State outlay allotments could not exceed certain floors 
     and ceilings based on the State's prior allotment. In fiscal 
     year 1997, a State would receive at least 103.5 percent of 
     the fiscal year 1996 outlay allotment. In fiscal year 1998, 
     the State minimum allotment (or floor) would equal 103 
     percent. In fiscal year 1999, the State floor would equal 
     102.5 percent. For all fiscal years after 1999, State outlay 
     allotments would not be less than 102 percent. Beginning in 
     fiscal year 1998, a higher floor would apply for certain 
     States based on the one-time increase in the State's 
     allotment from fiscal year 1996 to fiscal year 1997. For a 
     State whose fiscal year 1996-97 outlay allotment increase was 
     greater than 120 percent of the fiscal year 1997 NMGP, the 
     floor would be 104 percent of the previous year's allotment. 
     For those States whose fiscal year 1996-97 outlay allotment 
     increase was greater than 75 percent of the fiscal year 1997 
     NMGP, but less than 120 percent the floor would equal 103 
     percent of the previous year's allotment. In fiscal year 
     1997, the allotment for a State could not exceed 109 percent 
     of the fiscal year 1996 allotment, for each subsequent year 
     the State allotment could not exceed 105.33 percent of the 
     prior year's allotment. However, beginning in fiscal year 
     1998, the ceiling for the 10 States with the lowest rates of 
     Federal Medicaid spending per resident-in-poverty is higher. 
     In fiscal year 1998 and fiscal year 1999 the allotments for 
     these States will not exceed 106 percent. In fiscal year 2000 
     the allotment ceiling for these States equals 106.0657 of the 
     prior year's allotment. In fiscal year 2001 the allotment 
     ceiling for these States equals 106.1488 percent of the prior 
     year's allotment. In fiscal year 2002 and all subsequent 
     years the allotment ceiling is set to 106.2319 percent of the 
     prior year's allotments. Allotments for Commonwealths and 
     territories would equal their previous year's allotments 
     increased by the NMGP (in place of the percentage increases 
     provided under current law).
        To reduce variations in increases in outlay allotments 
     over time, any State or the District could elect an 
     alternative growth rate formula. A portion of the State's 
     allotment for fiscal year 1996 could be deferred and applied 
     to increase its allotment for one or more subsequent years, 
     so long as the total of the increases did not exceed the 
     amount deferred in fiscal year 1996. (Obligation allotments 
     for the State would be adjusted accordingly.)
        In fiscal year 1996 special adjustments are made to the 
     State outlay allotments for Oregon and Tennessee. Oregon's 
     outlay allotment is increased by $155.7 million, Tennessee's 
     outlay allotment is increased by $195.5 million.
        A supplemental allotment to be used by the twelve States 
     with the highest number of undocumented aliens for emergency 
     health care services would also be available between fiscal 
     year 1996 and fiscal year 2002. This supplemental pool could 
     not exceed $3 billion over the seven year period. Allotments 
     to the States in any given year would be based on their 
     relative share of undocumented aliens. Aggregate spending in 
     any given year would be determined by taking into account the 
     total $3 billion and the NMGP.
        The Secretary would publish preliminary allotments for 
     each fiscal year by April 1 of the preceding fiscal year. The 
     General Accounting Office (GAO) would report to Congress by 
     May 15 on the extent to which the allotments comply with 
     statutory requirements. The Secretary would publish final 
     allotments by July 1, taking into account the GAO analysis 
     and explaining any changes from the preliminary allotments; 
     the Secretary could not modify allotments thereafter. By 
     August 1, GAO would report to Congress on the statutory 
     compliance of the final allotments.
     Senate amendment
       Beginning with fiscal year 1996, the bill would limit 
     Federal obligations and outlays for each State to fixed 
     amounts. (Obligations are binding agreements to make Federal 
     payments, immediately or in the future. Outlays are actual 
     payments to liquidate obligations.) Obligation allotments 
     would limit the amount the Secretary could agree to pay a 
     State during a year. They would be based on outlay 
     allotments, which represent the maximum actual payments to 
     the State. The obligation allotments would include 
     adjustments to reflect obligations incurred in 1 year that 
     did not result in outlays until the following year.
       The Medicaid obligation allotment would represent an amount 
     slightly larger than the outlay allotment pool. In fiscal 
     year 1996, the Medicaid obligation allotment for each State 
     and the District of Columbia would equal the outlay pool of 
     Medicaid outlays divided by 95% (i.e., the obligation amount 
     would be roughly 105% of the outlay amount). Since fiscal 
     year 1996 is a transition year, the fiscal year 1996 outlay 
     allotment pool would be reduced to account for any 
     obligations incurred under current law (the outlay pool 
     amount would be reduced by $24.624 billion). For fiscal year 
     1997, the outlay would be divided by 98.6% to determine the 
     obligation allotments. For fiscal year 1998, and all 
     subsequent years the outlay allotment would be divided by 
     99.8% to determine the overall obligation allotment. A 
     similar process is used for individual State obligation 
     allotments.
       The outlay pool for fiscal year 1996 would be $97.245 
     billion (this represents outlay allotments to the States and 
     the District plus allotments to Commonwealths and 
     territories). The pool would be $102.608 billion for fiscal 
     year 1997, $106.712 billion for fiscal year 1998, $110.980 
     billion for fiscal year 1999, $115.420 billion for fiscal 
     year 2000, $120.037 billion for fiscal year 2001, and 
     $124.838 billion for fiscal year 2002. For later years, the 
     pool amount would be the previous year's amount increased by 
     the lesser of 4% or the growth in the gross domestic product 
     (GDP) for the 12-month ending in June before the start of the 
     year in question. The increase in the pool amount over that 
     for the preceding year would be designated the ``national 
     Medicaid growth percentage'' (NMGP).
       In fiscal year 1996, each State's outlay allotment from the 
     pool would equal 109 percent of the greater of: (1) its 
     Federal Medicaid expenditures in fiscal year 1995 (excluding 
     any disproportionate share payments); (2) 103.38 percent of 
     its Federal Medicaid expenditures in fiscal year 1994; or (3) 
     95 percent of Federal Medicaid expenditures in fiscal year 
     1993 (excluding any disproportionate share payments). This 
     initial allotment would be adjusted to take into account the 
     overall obligation allotment total for the program. All 
     States' allotments would be adjusted in order that the sum of 
     the allotments equal the total. A State could carry over any 
     unused outlay allotment amount to a subsequent year.
       For fiscal year 1997 and later years, each State's outlay 
     allotment from the pool would equal a needs-based amount 
     times a scalar factor, subject to certain floors and 
     ceilings. The needs-based amount for a State would be the 
     product of its aggregate need and its Federal medical 
     assistance percentage for the previous year (FMAP; see 
     below). The scalar factor would be a constant multiplier for 
     all States used to ensure that floor and ceiling provisions, 
     along with the allotments for Commonwealths and territories, 
     do not cause total allotments to exceed the pool amount.
       The State's aggregate need would be the product of four 
     factors: residents in poverty, a case mix index, an input 
     cost index, and national average spending per resident in 
     poverty. Residents in poverty would be the average number of 
     individuals in the State below the Federal poverty threshold 
     in the most recent period of 3 calendar years for which data 
     were available. The case mix index would equal the ratio 
     between the State's expected per recipient spending and 
     national average per recipient spending, given the State's 
     relative proportions of aged, disabled, and other recipients 
     and assuming that the State's per recipient spending for each 
     group was equal to the national average for that group. The 
     calculation of these average expenditures would not include 
     disproportionate share payments. This index would be based on 
     data that is available for the most recent 3 fiscal years. 
     The input cost index would be the 3-year average of the sum 
     of 0.15 and the product of 0.85 and a hospital wage index. 
     This index would equal the ratio between annual average wages 
     for hospital employees in the State and the national average; 
     it would be based on the area wage data computed under 
     Medicare's prospective payment system for inpatient hospital 
     services (or a comparable index if the Medicare index should 
     no longer be available). National average spending per 
     resident in poverty would be computed for fiscal year 1997 
     using fiscal year 1995 expenditure data and State three year 
     average numbers of residents in poverty; these average 
     expenditures would then be increased by the NMGP for fiscal 
     year 1997. In later years, the previous year's figure would 
     be increased by the NMGP.
       The minimum State outlay allotment is based on the greatest 
     of three amounts: (1) no State would receive an outlay 
     allotment less than 102% of the State's allotment in the 
     previous year; (2) an amount less than 0.26% of the total 
     pool amount; (3) or if the State's fiscal year 1998 allotment 
     is greater than 103.8% of its fiscal year 1997 allotment:
       A State's fiscal year 1999 allotment could not be less than 
     104.25% of its prior year's allotment;
       For fiscal year 2000 and fiscal year 2001 the State's 
     allotment could not be less than 104% of its prior year's 
     allotment;
       For fiscal year 2002 the State's allotment could not be 
     less than 103.4% of its prior year's allotment.
       State obligation allotments are also subject to a maximum 
     increase. This maximum 

[[Page H 12780]]
     increase from the prior year's outlay allotment is the product of the 
     NMGP and the following schedule. A State's increase its 
     outlay allotment in:
       Fiscal year 1997 can not be greater than 125.5% of the 
     NMGP;
       Fiscal year 1998 can not be greater than 132% of the NMGP;
       Fiscal year 1999 can not be greater than 151% of the NMGP;
       Fiscal year 2000 can not be greater than 156% of the NMGP;
       Fiscal year 2001 can not be greater than 144% of the NMGP;
       Fiscal year 2002 can not be greater than 146% of the NMGP.
       Special outlay allotment rules apply to New Hampshire and 
     Louisiana. For each of fiscal years 1996 through 2000, New 
     Hampshire's outlay allotment would equal $360 million and 
     Louisiana's outlay allotment would equal $2.622 billion. 
     Beginning in fiscal year 1997, allotments for Commonwealths 
     and territories would equal their previous year's allotments 
     increased by the NMGP (in place of the percentage increases 
     provided under current law).
       To reduce variations in outlay allotments over time, any 
     State or the District could elect an alternative growth rate 
     formula. A portion of the State's allotment for fiscal year 
     1996 could be deferred and applied to increase its allotment 
     for one or more subsequent years, so long as the total of the 
     increases did not exceed the amount deferred in fiscal year 
     1996. (Obligation allotments for the State would be adjusted 
     accordingly.) A State could choose to increase its fiscal 
     year 1996 outlay allotment by a portion of its outlays for 
     one or more of the fiscal years 1997 through 1999. This 
     increase in the State's fiscal year 1996 outlay allotment 
     could not be greater than 25% of the outlay allotment 
     estimated under the regular allotment formula.
       The Secretary would publish preliminary allotments for each 
     fiscal year by April 1 of the preceding fiscal year. The 
     General Accounting Office (GAO) would report to Congress by 
     May 15 on the extent to which the allotments comply with 
     statutory requirements. The Secretary would publish final 
     allotments by July 1, taking into account the GAO analysis 
     and explaining any changes from the preliminary allotments; 
     the Secretary could not modify allotments thereafter. By 
     August 1, GAO would report to Congress on the statutory 
     compliance of the final allotments.
     Conference agreement
       The conference agreement follows the House provision with 
     amendments. Under the agreement, the growth rate following 
     2002 is established, the small state minimum is set at 0.24%, 
     and special rules for Louisiana, New Hampshire and Nebraska 
     are incorporated. The conference agreement also includes the 
     House provision providing for a $3.5 billion national fund 
     for emergency services provided to illegal aliens for 15 
     states over a 5 year period.


   Payments to States (Sec. 2122 of MediGrant; Sec. 2122 of Medicaid)

     House bill
       Subject to the allotment limits, payments to States for 
     medical assistance and medically-related services would equal 
     the State's spending for the services times the applicable 
     FMAP. This would be the greater of the old FMAP, computed as 
     under current law, or a new FMAP, (or, if less, the old FMAP 
     plus 10 percentage points). The new FMAP would equal 100 
     percent minus the product of (a) 0.39 and (b) the ratio of 
     the total taxable resources (TTR) ratio for the State to the 
     aggregate expenditure need ratio for the State. The TTR ratio 
     would be the ratio of the most recent 3-year average of the 
     State's TTR, as determined by the Secretary of the Treasury, 
     to the sum of the average TTRs for all States (for the 
     District of Columbia, a per capita income ratio would be 
     substituted). The aggregate expenditure need ratio would be 
     the ratio of the State's aggregate expenditure need (as 
     determined in computing the State's allotment; see above) to 
     the sum of the aggregate expenditure needs for all States. 
     The new FMAP could not be less than 40 percent or greater 
     than 83 percent. The FMAP for Commonwealths and territories 
     would be 50 percent. The FMAP for services in Indian Health 
     Service facilities (and for specified facilities of Indian 
     tribes that are not Indian Health Service facilities) would 
     continue to be 100 percent; in addition, no State matching 
     would be required for services to unlawful aliens. For 
     administrative services, the Federal matching percentage 
     would generally be 50 percent, with enhanced matching for 
     specified expenditures as under current law. Provisions of 
     current Medicaid law relating to periodic payments to States 
     and treatment of overpayments and disallowances would be 
     retained.
     Senate amendment
       Subject to the allotment limits, payments to States for 
     medical assistance and medically-related services would equal 
     the State's spending for the services times the applicable 
     FMAP. The FMAP would be calculated as under current law, 
     except that Alaska's FMAP would be calculated with an 
     adjustment. Alaska's FMAP would equal the average per capita 
     income divided by the input cost index. This adjusted per 
     capita measure would be compared to the per capita income of 
     the continental United States. For all States, the FMAP could 
     not be less than 60% or greater than 83%. The FMAP for 
     Commonwealths and territories would be 50%. The FMAP for 
     services in Indian Health Service facilities (and for 
     specified facilities of Indian tribes that are not Indian 
     Health Service facilities) would continue to be 100%; in 
     addition, no State matching would be required for services to 
     unlawful aliens. For administrative services, the Federal 
     matching percentage would generally be 50%, with enhanced 
     matching for specified expenditures as under current law. 
     Provisions of current Medicaid law relating to periodic 
     payments to States and treatment of overpayments and 
     disallowances would be retained. As under current law, 
     provider-related taxes and donations would be excluded from 
     matching State medical assistance expenditures unless the 
     donations met the definition of a bona fide provider-related 
     donation, or a broad based health care tax. Furthermore, as 
     under current law, donations associated with eligibility 
     determination and outreach activities cannot exceed 10% of 
     administrative spending in the State.
       As under current law, States would be required to provide 
     at least 40% of the non-Federal share of Medicaid 
     expenditures. New Hampshire's state expenditures could not be 
     less than 120% of $203 million in 1996, 140% of $203 million 
     in 1997, 160% of $203 million in 1998, 180% of $203 million 
     in 1999 and 200% of $203 million in 2000. Louisiana's state 
     expenditures must be at least 120% of $355 million in 1996, 
     and will follow the same percentage increase progression as 
     New Hampshire through 2000. If not, federal funding will be 
     reduced on a proportional basis.
       If a State does not use its full outlay allotment, the 
     difference between the payments and the obligation allotment 
     can be used in the next fiscal year. This carryover amount 
     can not be larger than the total carryover amount from the 
     two preceding years. Any obligated allotment amounts that go 
     unused will be reallocated to qualified States. In order to 
     qualify a State can not have any carryover amount and must 
     apply for the payments. These allotments will be obligated to 
     qualifying States in the following order: (1) States with 
     outlay allotments at their ceiling level; (2) States with 
     allotments between the floor and the ceiling; and (3) States 
     at their floor. If their are not enough funds to fulfill the 
     request of any single group of the States, the funds will be 
     proportionately allocated among the qualifying States in the 
     group.
       Special appropriations are provided to the following 
     States: $63 million to Arizona, $250 million to Florida, $34 
     million to Georgia, $76.5 million to Kentucky, $181 million 
     to South Carolina, $250 million to Washington, and $50 
     million to Vermont. These funds do not have to be used in any 
     particular fiscal year and can be added to their outlay 
     allotments.
     Conference agreement
       The conference agreement follows the House bill with a 
     Senate amendment revising the current law FMAP floor.


   Limitation on Use of Funds (Sec. 2123 of MediGrant; Sec. 2123 of 
                               Medicaid)

     House bill
       States could use Federal funds only to carry out the 
     purposes of Title XXI. Federal payments would not be made to 
     a State for nonemergency services provided or ordered by 
     providers excluded under the maternal and child health or 
     social services block grant, Medicare, or Medicaid. Spending 
     for medically-related services could not exceed 5 percent of 
     total spending under the MediGrant plan. Spending for 
     administration could not exceed the sum of $20 million plus 
     10 percent of total spending under the MediGrant plan. This 
     limit would not apply, during the first two years the 
     MediGrant plan was in effect, to spending for quality 
     assurance, utilization review, and similar activities or to 
     spending needed to comply with reporting requirements. As 
     under current law, Federal matching would not be available 
     for services that would have been paid for by a private 
     insurer but for a provision of the insurance contract making 
     the insurer secondary to Medicaid. The definition of 
     allowable emergency services for illegal aliens would be 
     clarified. Payment could not be made for prescription drugs 
     unless the manufacturer had entered into a MediGrant master 
     rebate agreement with the Secretary (see below) and was in 
     compliance with current requirements section 8126 of Title 
     38, including those for a master agreement with the Secretary 
     of Veterans Affairs. Payment for abortions (or for health 
     benefit coverage including abortions) would be permitted only 
     to save the life of the mother, or in cases of rape or 
     incest. Payment could not be made for drugs or services 
     furnished to cause or assist in causing the death, suicide, 
     euthanasia, or mercy killing of a person.
     Senate amendment
       States could use Federal funds only to carry out the 
     purposes of Title XXI. Federal payments would not be made to 
     a State for nonemergency services provided or ordered by 
     providers excluded under the maternal and child health or 
     social services block grant, Medicare, or Medicaid. Spending 
     for medically-related services could not exceed 5% of total 
     spending under the Medicaid plan. As under current law, 
     Federal matching would not be available for services that 
     would have been paid for by a private insurer or other payor 
     but for a provision of the insurance contract making the 
     insurer secondary to Medicaid. The definition of allowable 
     emergency services for illegal aliens would 

[[Page H 12781]]
     be clarified. Federal funds could not be used for: the purchase of 
     land, or to construct or remodel buildings; the payment of 
     room and board (unless for respite care); certain educational 
     services; or vocational rehabilitation services that are 
     offered under other Federally funded programs.
     Conference agreement
       The conference agreement follows the House provision with a 
     Senate amendment that denies Federal financial participation 
     in any MediGrant payment for expenditures for medical 
     assistance if payment could have been made under any other 
     federally operated or financed health care program, other 
     than a program under the Indian Health Service.


  Grant Program for Community Health Centers and Rural Health Centers 
                        (Sec. 2124 of Medicaid)

     House bill
       No provision.
     Senate amendment
       The bill provides for 1% of the pool amount to be set aside 
     and used for grants for primary and preventive health care 
     services provided at rural health clinics and federally 
     qualified health centers.
     Conference agreement
       The conference agreement does not include the Senate 
     Amendment. The agreement includes an alternate provision 
     under Section 2112.

                 Part D--Program Integrity and Quality


Use of Audits to Achieve Fiscal Integrity (Sec. 2131 of MediGrant; Sec. 
                           2131 of Medicaid)

     House bill
       Each MediGrant plan would be required to provide for an 
     annual audit of the State's medical assistance expenditures 
     in compliance with the Single Audit Act (chapter 75 of title 
     31, United States Code). If the Secretary determined that a 
     State's audit was performed in substantial violation of the 
     chapter 75 provision, the Secretary would be permitted to 
     conduct a verification audit or require that the State do so. 
     Within 30 days of completion of an audit or verification 
     audit, the State would be required to provide a copy of the 
     audit report to the Secretary along with the State's response 
     to the auditor's recommendation. The State also would be 
     required to make the audit report available for public 
     inspection.
       Each State would be required to maintain fiscal controls, 
     accounting procedures, and data processing safeguards that 
     are reasonably necessary to assure the fiscal integrity of 
     the State's activities. The State's controls and procedures 
     would be required to be generally consistent with generally 
     accepted accounting principles as recognized by the 
     Governmental Accounting Standards Board or the Comptroller 
     General.
       Each MediGrant plan would be required to provide that the 
     records of any provider could be audited to ensure that 
     proper payments were made under the plan.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement includes the House provision.


    Fraud Prevention Program (Sec. 2132 of MediGrant; Sec. 2132 of 
                               Medicaid)

     House bill
       To detect fraud and abuse by beneficiaries, providers, and 
     others, each MediGrant plan would be required to have a 
     program that follows the following. Certain program 
     contractors and providers would be required to disclose 
     ownership and control information to State agencies in 
     accordance with sections 1124 and 1124(a) of the Social 
     Security Act. An entity (other than an individual 
     practitioner or a group of practitioners) would be required 
     to supply information on ownership, controlling interests, 
     and conviction of certain offenses upon request by the 
     Secretary or the State agency. A State could exclude a 
     provider from participation in the MediGrant plan on its own 
     initiative, and would be required to exclude any entity when 
     required to do so by the Secretary pursuant to section 1128 
     or 1128A of the Act. Whenever a provider was terminated, 
     suspended, sanctioned, or prohibited from participating under 
     a State's plan, the State agency would be required to notify 
     the Secretary and, in the case of a physician, the State 
     medical licensing board. States would be required to provide 
     information and access to information respecting sanctions 
     taken against practitioners and providers by State licensing 
     authorities.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement includes the House provision.


 Information Concerning Sanctions Taken by State Licensing Authorities 
     Against Health Care Practitioners and Providers (Sec. 2133 of 
                   MediGrant; Sec. 2133 of Medicaid)

     House bill
       The provision is identical to the current law provision. 
     Each State would be required to have in effect a system for 
     reporting and providing access to information for use by the 
     Secretary and other officials concerning licensing 
     revocations and other sanctions taken against providers and 
     practitioners by State licensing authorities, peer review 
     organizations, or accreditation entities. A State would be 
     required to report any adverse action taken, whether a 
     provider had surrendered a license or left the State, any 
     other loss of license, and any negative action taken by a 
     reviewing authority. The State would be required to provide 
     the Secretary with access to whatever documents the Secretary 
     needed to determine the facts and circumstances concerning 
     the actions taken. Such information would have to be provided 
     under arrangements made by the Secretary in the form the 
     Secretary determined to be appropriate to (1) provide for the 
     Secretary's activities, and (2) provide information to other 
     specified authorities in order to protect their programs and 
     services.
       The Secretary would be required to safeguard the 
     confidentiality of information furnished. However, any party 
     authorized to disclose information would be permitted to do 
     so. In implementing this section, the Secretary would be 
     required to provide for maximum coordination of section 422 
     of the Health Care Quality Improvement Act of 1986.
     Senate amendment
       Identical provision with technical amendments.
     Conference agreement
       The conference agreement follows the Senate provision.


    State Fraud Control Units (Sec. 2134 of MediGrant; Sec. 2134 of 
                               Medicaid)

     House bill
       Each MediGrant plan would be required to provide for a 
     State MediGrant fraud control unit (FCU) unless the State 
     demonstrated that such a unit would not be cost-effective 
     because minimal fraud existed, and that beneficiaries would 
     be protected from abuse and neglect without such a unit. The 
     FCU would be required to be separate and distinct from the 
     State agency responsible for the operation and administration 
     of the MediGrant plan. It would have to be a part of the 
     State Attorney General's office or coordinate with that 
     office. It would be required to have statewide prosecutorial 
     authority or the ability to refer to local prosecutors. The 
     FCU would investigate and prosecute violations of State fraud 
     laws, and review and prosecute cases involving neglect or 
     abuse of beneficiaries in nursing homes and other facilities. 
     It would be required to provide for the collection of 
     overpayments it had discovered were made to health care 
     providers. It would be required to employ auditors, 
     attorneys, investigators, and other necessary personnel.
     Senate amendment
       Identical provision with technical amendments.
     Conference agreement
       The conference agreement follows the Senate provision.


recoveries from third parties and others (sec. 2135 of medigrant; sec. 
                           2135 of medicaid)

     House bill
       Each MediGrant plan would be required to ascertain the 
     legal liability of third parties to pay for care and services 
     available under the plan and seek reimbursement to the extent 
     of legal liability unless the cost of recovery was expected 
     to exceed the amount of reimbursement.
       MediGrant plans would be required to prohibit a provider 
     from refusing to furnish a covered service to a beneficiary 
     because of a third party's potential liability for the 
     service, and from trying to collect payment from a 
     beneficiary that exceeded payment that would be made under 
     the plan. For violation of the collection provision, a 
     MediGrant plan could provide for a payment reduction up to 3 
     times the amount sought to be collected.
       States would be required to prohibit any health insurer, in 
     enrolling an individual or in making payments for benefits, 
     from taking into account that the individual was eligible for 
     or was provided medical assistance under a MediGrant plan.
       A State would be required to have laws in effect under 
     which the State is considered to have acquired the rights of 
     an individual to payments by a party that is liable for the 
     individual's health care items and services. Each State would 
     be required to provide for mandatory assignment of rights of 
     payment for medical support and care to beneficiaries.
       Each State with a MediGrant plan would be required to have 
     in effect laws relating to medical child support. Each State 
     would have to prohibit an insurer from denying enrollment of 
     a child because the child was born out of wedlock, was not 
     claimed as a dependent on the parent's Federal income tax 
     return, or did not reside with the parent or in the insurer's 
     area. In a case in which a parent was required by a court or 
     administrative order to provide health coverage for a child, 
     and the parent was eligible for family health coverage, State 
     laws would have to require the employer and insurer to permit 
     the parent to enroll the child upon application by either 
     parent or by the State child support agency, and limit the 
     circumstances under which the insurer could disenroll such a 
     child. State laws would be required to prohibit an insurer 
     from imposing requirements on a State agency that has been 
     assigned the rights of an individual that are different from 
     requirements applicable to an agent of any other covered 
     individual; require an insurer, in the case of a child who 
     has health coverage through the insurer of a non- custodial 
     parent, to provide information to the custodial parent; 
     permit the custodial parent 

[[Page H 12782]]
     to submit claims for covered services without the approval of the non- 
     custodial parent, and make payment on claims to the custodial 
     parent, the provider, or the State agency; permit the State 
     agency to garnish the employment income of, and require 
     withholding amounts from State tax refunds to, any person who 
     is required by court or administrative order to cover the 
     medical costs of a child who is eligible for medical 
     assistance, has received payment from a third party for the 
     costs of the child's services, and has not used the payment 
     to reimburse the appropriate party.
       A State would be permitted to take appropriate action to 
     adjust or recover from an individual or the individual's 
     estate amounts paid as medical assistance under a MediGrant 
     plan.
     Senate amendment
       Similar provision.
     Conference agreement
       The conference agreement follows the House provision.


 assignment of rights of payment (sec. 2136 of medigrant; sec. 2136 of 
                               medicaid)

     House bill
       As a condition of eligibility for medical assistance under 
     a State's MediGrant plan, an individual would be required to 
     assign to the State any rights to medical support and payment 
     for medical care from any third party of the individual or 
     any other person who is eligible and on whose behalf the 
     individual has the legal authority to execute an assignment 
     of such rights. An individual would be required to cooperate 
     with the State agency in establishing paternity of a child 
     born out of wedlock and in obtaining support and payments for 
     the individual and child unless the individual was a pregnant 
     woman or was found to have good cause for refusing to 
     cooperate as determined by the State. An individual would be 
     required to cooperate with the State in identifying and 
     providing information to assist the State to pursue any 
     liable third party unless the individual had good cause for 
     refusing to cooperate as determined by the State. The State 
     would be required to provide for entering into cooperative 
     arrangements (including financial arrangements) with any 
     appropriate agency of any State and with appropriate courts 
     and law enforcement officials, to assist the agency or 
     agencies administering the State plan with respect to the 
     enforcement and collection of rights to support or payment 
     that had been assigned.
       Any amount collected by the State under an assignment would 
     be retained by the State to reimburse it for payments made on 
     behalf of an individual with respect to whom the assignment 
     was executed (with appropriate reimbursement to the Federal 
     Government of its share of the payment). The remainder of 
     such amount collected would be paid to the individual.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement includes the House provision.


   quality assurance standards for nursing facilities (sec. 2137 of 
                   medigrant; sec. 2137 of medicaid)

     House bill
       OBRA 87 nursing home reform provisions would be replaced 
     with new requirements. State plans would be required to 
     establish and maintain standards for facilities providing 
     services under the State's program. Such standards would have 
     to require nursing facilities to care for residents in a 
     manner and environment that promote maintenance or 
     enhancement of quality of life. Standards would also be 
     required to address the following areas: the treatment of 
     resident medical records; policies, procedures, and bylaws 
     for operation; quality assurance systems; resident assessment 
     procedures, including care planning and outcome evaluation; 
     the assurance of a safe and adequate physical plant for the 
     facility; qualifications for staff sufficient to provide 
     adequate care, as defined by the State, and utilization 
     review.
       Standards for nursing facilities would also be required to 
     provide for the protection and enforcement of resident 
     rights, including rights to exercise the individual's rights 
     as a resident of the facility and as a citizen or resident of 
     the U.S.; to receive notice of rights and services; to be 
     protected against the misuse of resident funds; to be 
     provided privacy and confidentiality; to voice grievances; to 
     examine the results of State certification program 
     inspections; to refuse to perform services for the facility; 
     to be provided privacy in communications and to receive mail; 
     to have the facility provide immediate access to any resident 
     by any representative of the State's certification program, 
     the resident's individual physician, the State long-term care 
     ombudsman, and any person the resident has designated as a 
     visitor; to retain and use personal property; to be free from 
     abuse, including verbal, sexual, physical and mental abuse, 
     corporal punishment, and involuntary seclusion; to be 
     provided with prior written notice of a pending transfer or 
     discharge; to organize and participate in resident groups in 
     the facility and to have family members meet in the facility 
     with the families of other residents; to participate in 
     social, religious, and community activities that do not 
     interfere with the rights of other residents; to choose a 
     personal attending physician, to be fully informed in advance 
     about care and treatment, and (except with respect to a 
     resident adjudged incompetent) to participate in care 
     planning and treatment or changes in care and treatment. In 
     the case of a resident adjudged incompetent under the laws of 
     a State, the rights of the resident would devolve upon, and, 
     to the extent judged necessary by a court, be exercised by 
     the person appointed under State law to act on the resident's 
     behalf.
       States would be required to promulgate standards either 
     through the State's legislature, regulatory, or other 
     process, and they could take effect only after the State had 
     provided the public with notice and an opportunity for 
     comment.
       State plans would also be required to provide for the 
     establishment and operation of a program for the 
     certification of nursing facilities that meet specified 
     standards as well as the decertification of those facilities 
     that fail to meet the standards. States would be required to 
     ensure public access (as defined by the State) to the 
     certification program's evaluations of participating 
     facilities, including compliance records and enforcement 
     actions and other reports by the State regarding ownership, 
     compliance histories, and services provided by certified 
     facilities. States would be required to audit their 
     expenditures under the program, not less often than every 4 
     years, through an entity designated by the State which is not 
     affiliated with the program.
       States would be required to impose certain sanctions 
     against nursing facilities not meeting requirements. If a 
     State determined that a certified nursing facility no longer 
     substantially met specified requirements and further 
     determined that the facility's deficiencies immediately 
     jeopardized the health and safety of residents, then the 
     State would be required, at a minimum, to terminate the 
     facility's certification for participation. If the facility's 
     deficiencies did not immediately jeopardize the health and 
     safety of residents, the State could, in lieu of termination, 
     provide lesser sanctions, including denial of payment for 
     persons admitted after a specified date.
       States could not impose sanctions until a facility has had 
     a reasonable opportunity to correct its deficiencies, 
     following the initial determination that it no longer 
     substantially met the requirements for certification, and, 
     has been given reasonable notice and opportunity for a 
     hearing. A State's decision to deny payment for new 
     admissions would be effective only after notice to the public 
     and the facility, as may be provided for by the State. Denial 
     of payment for new admissions would end when the State found 
     that the facility was in substantial compliance (or was 
     making good faith efforts to achieve substantial compliance). 
     Facilities would, however, be required to be in compliance by 
     the end of the eleventh month following the month when the 
     decision to deny payments becomes effective. If facilities 
     did not substantially meet the requirements by that time, 
     States would be required to terminate their certification for 
     participation.
     Senate amendment
       Current law nursing home reform provisions contained in 
     section 1919 of the Social Security Act would apply to 
     nursing facilities providing services under the State's plan. 
     States with State law requirements for nursing facilities 
     that are equivalent to or stricter than current law 
     requirements, and contain State oversight and enforcement 
     authority over nursing facilities, including penalty 
     provisions, that are equivalent to or stricter than oversight 
     and enforcement authority in current law, could apply to the 
     Secretary for a waiver of current law requirements. The 
     Secretary would determine whether State law requirements were 
     equivalent to or stricter than current law and would be 
     required to approve or deny a waiver application within 120 
     days after submission. A State granted a waiver would be 
     subject to: (1) a penalty of up to 2 percent of its allotment 
     if the Secretary determines that a State has failed to comply 
     with current law nursing home reform requirements or any 
     State law requirements in effect as a result of a waiver; (2) 
     suspension or termination of the waiver; and (3) any other 
     authority available to the Secretary to enforce the 
     requirements of current law.
     Conference agreement
       The conference agreement follows the Senate provision with 
     modification providing for Federal enforcement of State 
     facilities, and enhanced State enforcement of standards for 
     other nursing facilities. The agreement also provides for 
     Federal enforcement action in the case of failure of State 
     enforcement to correct deficiencies.


 other provisions promoting program integrity (sec. 2138 of medigrant; 
                         sec. 2138 of medicaid)

     House bill
       State agencies responsible for surveying health care 
     facilities or organizations would be required to make public, 
     in readily available form and place, pertinent findings on 
     the compliance of the facility or organization with the 
     requirements of law. Persons or institutions providing 
     services under the State's plan would be required to keep 
     such records (including ledgers, books, and original evidence 
     of costs) as are necessary to fully disclose the extent of 
     the services provided, and to furnish information about 
     payments claimed, as the State may from time to time request.
     Senate amendment
       Identical provision.

[[Page H 12783]]

     Conference agreement
       The conference agreement includes the House provision. It 
     is the expectation of the conferees that States will respond 
     to the needs of the chronically mentally ill. For this 
     purpose, State MediGrant plans will provide under section 
     2139(c) quality assurance programs for individuals with 
     chronic mental illness. For this purpose, chronic mental 
     illness shall be defined through diagnosis, disability, and 
     duration and shall include disorder with psychotic symptoms, 
     such as schizophrenia, schizoaffective disorder, manic 
     depression disorder, and autism, as well as severe forms of 
     other mental disorders, such as major depression, panic 
     disorder, and obsessive compulsive disorder.

           Part E--Establishment and Amendment of State Plans


 submittal and approval of plans (sec. 2151 of medigrant; sec. 2151 of 
                               medicaid)

     House bill
       States would be required to submit to the Secretary a 
     MediGrant plan that meets the requirements of Title XXI. A 
     State with a Title XXI fiscal year 1996 allotment of more 
     than $10 billion would be required to have specific 
     authorization of its State legislature to submit a plan. 
     Unless the Secretary found that a plan substantially violated 
     the requirements of Title XXI, the plan would be approved and 
     would be effective beginning with the calendar quarter 
     specified in the plan, but no earlier than the first calendar 
     quarter that begins at least 60 days after the plan is 
     submitted.
     Senate amendment
       Similar provision.
     Conference agreement
       The conference agreement follows the Senate provision.


submittal and approval of plan amendments (sec. 2152 of medigrant; sec. 
                           2152 of medicaid)

     House bill
       A State would be permitted to submit an amendment to its 
     MediGrant plan at any time. However, any amendment that would 
     eliminate or restrict eligibility or benefits under the plan 
     could not take effect before it was transmitted to the 
     Secretary, unless there was prior or contemporaneous public 
     notice of the change, as provided under State law. Nor could 
     it be effective for longer than a 60-day period unless the 
     amendment had been transmitted to the Secretary before the 
     end of the period. Any other amendment could not remain in 
     effect after the end of a State fiscal year (or if later, the 
     end of the 90-day period on which it becomes effective) 
     unless the amendment had been transmitted to the Secretary. 
     These requirements would not apply to an amendment submitted 
     on a timely basis in response to an order of a court or the 
     Secretary.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement includes the House provision.


   process for state withdrawal from program (sec. 2153 of medigrant)

     House bill
       A State could rescind its plan and discontinue 
     participation in the program at any time after providing 90 
     days prior notice to the public and to the Secretary. Such 
     discontinuation would not apply to Federal payments to States 
     for expenditures made for items and services furnished under 
     the plan before the effective date of the discontinuation.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement includes the House provision.


 sanctions for substantial noncompliance (sec. 2154 of medigrant; sec. 
                           2153 of medicaid)

     House bill
       The Secretary would be required to review promptly 
     MediGrant plans and plan amendments to determine if they 
     substantially comply with requirements. If the Secretary 
     determined that a plan or plan amendment substantially 
     violated the requirements and, within 30 days of submittal, 
     provided written notice to the State, the Secretary would be 
     required to issue an order specifying that the plan or 
     amendment would not be effective at the end of the 30-day 
     period (or 120 days in the case of the initial submission of 
     the MediGrant plan). Before making such a determination, the 
     Secretary would be required to consult with the State and 
     consider any clarifications and additional information 
     submitted. The Secretary would be required to explain and 
     justify any determination inconsistent with any previous 
     determination. A plan or amendment would be considered to 
     substantially violate a requirement if a provision were 
     material and substantial in nature and effect, and were 
     inconsistent with an express requirement. Failure to meet a 
     strategic objective or performance goal would not be 
     considered a substantial violation. A State could appeal the 
     Secretary's determination through administrative and judicial 
     procedures.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement includes the House provision with 
     an amendment that provides for a process by which individuals 
     may register complaints with the Secretary. It is the intent 
     of the Conferees that the appropriate committees of Congress 
     hold oversight hearings in cases where States fail to respond 
     to notifications by the Secretary under section 2154(g).
       The conference agreement also includes in section 2154(c) a 
     provision stating that only the Secretary, in accordance with 
     this Title, may compel a State under federal law to comply 
     with the provisions of this Title and that no other cause of 
     action may be filed under federal law against a State.


 secretarial authority (sec. 2155 of medigrant; sec. 2154 of medicaid)

     House bill
       The Secretary would be permitted to negotiate a 
     satisfactory resolution to any dispute concerning the 
     approval of a plan or the compliance of a plan. The Secretary 
     would be prohibited from delegating authority for approval of 
     plans other than to the Administrator of the Health Care 
     Financing Administration. The Administrator would be 
     prohibited from making any further delegation of such 
     authority. The Secretary would be required to administer the 
     program only through a prospective formal rulemaking process, 
     including issuing notices of proposed rule making, publishing 
     proposed rules or modifications to rules in the Federal 
     Register, and soliciting public comment.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement includes the House provision.

                       Part F--General Provisions


      definitions (sec. 2171 of medigrant; sec. 2171 of medicaid)

     House bill
       ``Medical assistance'' would be defined as including an 
     extensive list of services similar to those specified under 
     current law, and, in addition, enabling services to increase 
     accessibility to primary and preventive services. ``Eligible 
     low- income individual'' would mean an individual who has 
     been determined eligible by the State and whose family income 
     does not exceed a percentage specified in the plan that is 
     not greater than 300% of the poverty line. In determining 
     income, States would be permitted to exclude costs incurred 
     for medical care. ``Medicare cost sharing'' would include 
     Medicare premiums, coinsurance, and deductibles. Definitions 
     of child, pregnant woman, and poverty line would be the same 
     as in current law.
     Senate amendment
       Similar provision. ``Eligible low-income individual'' would 
     be defined as an individual who had been determined eligible 
     by the State and whose family income did not exceed a 
     percentage that was specified in the plan and was not greater 
     than 250% of the poverty line. In determining income, States 
     would be permitted to exclude costs incurred for medical 
     care. The term ``retirement age'' would have the same meaning 
     as in section 216(l)(1) of the Social Security Act.
     Conference agreement
       The conference agreement follows the House provision with 
     amendments including provisions relating to home and 
     community-based health care and supportive services, nursing 
     care services, abortion and assisted suicide, and the 
     definitions of ``low-income individuals'' and an ``elderly 
     individual.''
       It is the Committee's intention that the definition of 
     'medical assistance' shall include services provided by a 
     Christian Science sanatorium (nursing facility) and a 
     Christian Science visiting nurse organization, listed and 
     certified by The First Church of Christ, Scientist, in 
     Boston, Massachusetts, or the Commission for Accreditation of 
     Christian Science Nursing Organizations/Facilities, Inc., and 
     services provided in a home setting by a Christian Science 
     nurse listed in the Christian Science Journal.


    treatment of territories (sec. 2172 of medigrant; sec. 2172 of 
                               medicaid)

     House bill
       The Secretary's waiver authorization would be extended to 
     include Puerto Rico, Guam, and the Virgin Islands.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement includes the House provision.


description of treatment of indian health service facilities (sec. 2173 
                  of medigrant; sec. 2173 of medicaid)

     House bill
       In a State in which there is at least one Indian Health 
     Service facility, the MediGrant plan would have to describe 
     (1) what provision, if any, has been made for payment of 
     items and services furnished by the facilities, and (2) how 
     medical assistance will be provided to eligible Indians, as 
     determined by the State in consultation with appropriate 
     Indian tribes and tribal organizations. For services provided 
     to Indians, the Federal matching rate to state Medicaid 
     programs would be 100%.
     Senate amendment
       In a State in which there is at least one Indian Health 
     Service facility, the State would have to describe (1) what 
     provision, if any, has been made for payment of items and 
     services furnished by the facilities, and (2) how medical 
     assistance will be provided to eligible Indians, as 
     determined by the State in consultation with appropriate 
     Indian tribes and tribal organizations.

[[Page H 12784]]

     Conference agreement
       The conference agreement follows the House provision.


application of certain general provisions (sec. 2174 of medigrant; sec. 
                           2174 of medicaid)

     House bill
       The proposal would clarify that certain sections of Title 
     XI would apply to MediGrant.
     Senate amendment
       Similar provision.
     Conference agreement
       The conference agreement follows the House bill.


 requirements for manufacturers of outpatient prescription drugs (sec. 
               2175 of medigrant; sec. 2175 of medicaid)

     House bill
       The House bill retains the current law Federal drug rebate 
     program, with modifications.
     Senate amendment
       Similar provision with a provision prohibiting states from 
     imposing supplemental rebates. The Senate amendment also 
     would require the Secretary to establish a Medicaid Drug 
     Rebate Program Task Force to study whether the Medicaid drug 
     rebate program should be retained or repealed. By October 1, 
     1998 the Task Force would have to report its study results to 
     the Secretary who would transmit the report to the Senate 
     Committees on Finance and Aging and the House Committee on 
     Commerce.
     Conference agreement
       The conference agreement follows the House provision, with 
     the Senate amendment for supplemental rebates.


    other provisions (sec. 16002 of house bill; sec. 7191 of senate 
                               amendment)

     House bill
       Effective on the date of enactment, Title XIX would cease 
     to be an entitlement program for individuals and Federal 
     obligations to States would be limited to statutory 
     obligation allotments for fiscal year 1996. The Secretary 
     would be prohibited from entering into any obligation with a 
     State for expenses incurred on or after the earlier of 
     October 1, 1996, or the first day the State's plan under 
     Title XXI was effective. A State that submitted claims for 
     payment under Title XIX after the date of enactment would be 
     deemed to have accepted the obligation limitation. State's 
     claims for obligations incurred before the date of enactment 
     would have to be submitted for payment by June 30, 1996.
       Any cause of action that required a State to establish or 
     maintain minimum payment rates under Title XIX that was not 
     final as of the date of enactment would not be continued. For 
     any payment made under Title XIX before October 1, 1995, for 
     which disallowance was not taken or not completed by that 
     date, the Secretary would be required to discontinue the 
     disallowance proceeding. If the disallowance had been taken 
     as of the date of enactment, the Secretary would be required 
     to rescind any effected payment reductions and return 
     payments to the State.
       Any judicial or administrative decision applied to a 
     State's Medicaid program under Title XIX would not apply to 
     the State's MediGrant plan under Title XXI.
       The Vaccines for Children program would be repealed 
     effective on the date of enactment. Although the repeal would 
     not affect the distribution of vaccines purchased and 
     delivered before enactment, no further vaccine purchases 
     could be made under any Title XIX contract.
       A MediGrant plan under title XXI would be added to the term 
     ``State health care program.'' The role of the Inspector 
     General under Title XIX would continue under Title XXI.
       The bill would extend the existing waiver for the Dayton 
     Area Health Plan to the last day of the last calendar quarter 
     in which Ohio has a Title XIX Medicaid plan in effect.
     Senate amendment
       Similar provision, with a provision increasing medical 
     assistance funding to Puerto Rico to $200 million for fiscal 
     year 1996.
     Conference agreement
       The conference agreement follows the House provision.
       The Conferees would like to make special note of the repeal 
     of the Vaccines for Children (VFC) program. The Clinton 
     Administration developed a universal government vaccine 
     purchase program (modified before enactment) based on the 
     premise that cost was the most significant barrier to 
     childhood immunization. It also used out-of-date data showing 
     that immunization rates were very low. However, numerous 
     Congressional witnesses and a June, 1995 General Accounting 
     Office (GAO) report have contradicted these basic premises. 
     GAO stated that there is insufficient evidence to conclude 
     that the cost of vaccine has been a barrier to timely 
     immunization. GAO found that 95 percent of the nation's 
     children are vaccinated by school age, and that immunization 
     rates for preschool children even before VFC were at or near 
     the 90 percent national goals for 1996. GAO found that more 
     important barriers to full immunization resulted from missed 
     opportunities at health clinics and private providers' 
     offices, lack of parental and provider understanding, less 
     than optimal hours and organization.
       GAO also has documented that the Secretary and the Centers 
     for Disease Control have grossly mismanaged the program since 
     its inception. In repealing Section 1928, the Conferees 
     intend that all contracting authority under Section 1928 is 
     terminated. Contracts currently in effect were negotiated 
     under the authority granted to the Secretary under Section 
     1928 of the Social Security Act and Section 317 of the Public 
     Health Service Act and will continue to their conclusion 
     pursuant to authority under Section 317. With respect to 
     subsequent contracts under Section 317, all procedures and 
     requirements for purchase and delivery of vaccine will revert 
     to those in place prior to enactment of Section 1928.
       The Conferees understand that CDC has made representations 
     to the states that federal reimbursement is available for 
     distribution of vaccines pursuant to Section 1928(d). To 
     avoid wastage of vaccine, any products already purchased and 
     delivered to the states, and for which the state has a 
     distribution contract in effect on the date of enactment, 
     shall be eligible for reimbursement for such distribution.


                waivers (sec. 7193 of senate amendment)

     House bill
       No provision.
     Senate amendment
       At State option, Medicaid waivers granted under section 
     1115 of the Social Security Act and implemented as of Sept. 
     1, 1995, could be continued or terminated.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment.


children with special health care needs (sec. 7194 of senate amendment)

     House bill
       No provision.
     Senate amendment
       The Secretary would be required to develop a classification 
     system to identify children with special health needs not 
     later than 18 months after enactment. Upon completion of the 
     system, the Secretary would be required to make grants to up 
     to 5 States for 5-year demonstration projects to test the 
     reliability and validity of the system, develop methods of 
     assuring quality care, and provide for initial methods for 
     identifying children with special health care needs. For each 
     of fiscal years 1997-2001, $2 million would be authorized to 
     be appropriated for demonstration projects.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment.


              cbo reports (sec. 7195 of senate amendment)

     House bill
       No provision.
     Senate amendment
       The Congressional Budget Office would be directed to 
     prepare an annual analysis of the effects of Title XXI on the 
     health insurance status of children, the elderly, and the 
     disabled and report to the Senate Finance Committee and the 
     House Commerce Committee by May 15 of each year.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment.


       adjustment of pool amounts (sec. 7196 of senate amendment)

     House bill
       No provision.
     Senate amendment
       The Senate amendment adjusts the pool amounts under the 
     Medicaid distribution formula for fiscal years 1996, 1997, 
     2000, and 2001.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment.


  state review of mentally ill or retarded nursing facility residents 
   upon change in physical or mental condition (sec. 7197 of senate 
                               amendment)

     House bill
       No provision.
     Senate amendment
       The Senate amendment makes modifications to nursing home 
     reform requirements under current law.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment. A similar provision is included under section 2137 
     of the MediGrant reform plan.


 nurse aide training in nursing facilities subject to extended survey 
     under certain other conditions (sec. 7198 of senate amendment)

     House bill
       No provision.
     Senate amendment
       The Senate amendment makes modifications to nurse aide 
     training requirements under current law.
     Conference agreement
       The conference agreement does not include the Senate 
     Amendment. A similar provision is included under section 2137 
     of the MediGrant reform plan.


   medicare/medicaid integration demonstration project (sec. 7199 of 
                           senate amendment)

     House bill
       No provision.
     Senate amendment
       The Senate amendment requires the Secretary to conduct 
     demonstration projects integrating Medicare and Medicaid 
     financing 

[[Page H 12785]]
     and delivery of health care services for chronically ill elderly and 
     disabled beneficiaries of both programs.
     Conference agreement
       The conference agreement includes the Senate amendment.

                          TITLE VIII--MEDICARE

                Subtitle A--Medicareplus/Medicare Choice


  1. Establishment of Program (Sec. 15001 of House bill; Sec. 7001 of 
                              Senate bill)

     Current law
       Persons enrolling in Medicare have two basic coverage 
     options. They may elect to obtain services through the 
     traditional fee-for-service system under which program 
     payments are made for each service rendered. Under section 
     1876 of the Social Security Act, they may also elect to 
     enroll with a managed care organization which has entered 
     into a payment agreement with Medicare. Three types of 
     managed care organizations are authorized to contract with 
     Medicare: an entity that has a risk contract with Medicare, 
     an entity that has a cost contract with Medicare, or a health 
     care prepayment plan (HCPP) that has a cost contract to 
     provide Medicare Part B services. Risk-contracts are 
     frequently referred to as TEFRA risk contracts and cost 
     contracts are frequently referred to as TEFRA cost contracts. 
     TEFRA refers to the 1982 legislation, the Tax Equity and 
     Fiscal Responsibility Act of 1982, which established the 
     rules governing these types of contracts.
       A beneficiary in an area served by a health maintenance 
     organization (HMO) or competitive medical plan (CMP) with a 
     Medicare risk contract may voluntarily choose to enroll in 
     the organization. Medicare makes a single monthly capitation 
     payment for each of its enrollees. In return, the entity 
     agrees to provide or arrange for the full range of Medicare 
     services through an organized system of affiliated 
     physicians, hospitals and other providers. The beneficiary 
     must obtain all covered services through the HMO or CMP, 
     except in emergencies. The beneficiary may be charged the 
     usual cost-sharing charges or pay the equivalent in the form 
     of a monthly premium to the organization. Beneficiaries are 
     expected to share in the projected savings through the 
     provision of benefits in addition to that included in 
     Medicare's benefit package.
       Beneficiaries may also enroll in organizations with TEFRA 
     cost contracts. These entities must meet essentially the same 
     conditions of participation as risk contractors; however they 
     may have as few as 1,500 enrollees (rather than 5,000) to 
     qualify. Under a cost contract, Medicare pays the actual cost 
     the entity incurs in furnishing covered services (less the 
     estimated value of beneficiary cost-sharing). Enrollees 
     obtain supplemental benefits by paying a monthly premium. The 
     entity must offer a basic package (which covers all or a 
     portion of Medicare cost-sharing charges); any additional 
     benefits must be priced separately. (Conversely, a risk-
     contractor may offer just one package.) Enrollees in TEFRA 
     cost-contract entities may obtain services outside the 
     entity's network; however, the entity has no obligation to 
     cover the beneficiary's cost-sharing in this case.
       A third type of managed care arrangement is the HCPP. A 
     HCPP arrangement is similar to a TEFRA cost-contract except 
     that it provides only Part B services. Further, there are no 
     specific statutory conditions to qualify for a HCPP contract. 
     Some HCPPs are private market HMOs, while others are union or 
     employer plans. HCPPs have no minimum enrollment 
     requirements, no requirement that the plan have non-Medicare 
     enrollees, or a requirement for an open enrollment period. 
     Unlike TEFRA cost contractors (but like risk contractors), 
     HCPPs may offer a single supplemental package that includes 
     both Part B cost-sharing and other benefits; cost-sharing 
     benefits need not be priced separately.
       Any Medicare beneficiary residing in the area served by an 
     HMO/CMP may enroll, with two exceptions. The first exception 
     applies to beneficiaries not enrolled in Part B. The second 
     exception applies to persons qualifying for Medicare on the 
     basis of end-stage renal disease (ESRD); however, persons 
     already enrolled who later develop ESRD may remain enrolled 
     in the entity.
       The HMO/CMP must have an annual open enrollment period of 
     at least 30 days duration. During this period, it must accept 
     beneficiaries in the order in which they apply up to the 
     limits of its capacity, unless to do so would lead to 
     violation of the 50 percent Medicare-Medicaid maximum or to 
     an enrolled population unrepresentative of the population in 
     the area served by the HMO.
       TEFRA risk contractors are required to hold an additional 
     open enrollment period if any other risk-based entity serving 
     part of the same geographic area does not renew its Medicare 
     contract, has its contract terminated, or has reduced its 
     service area to exclude any portion of the service area 
     previously served by both contractors. In such cases, the 
     Secretary must establish a single coordinated open enrollment 
     period for the remaining contractors. These remaining HMOs/
     CMPs must then accept its enrollees during an enrollment 
     period of 30 days.
       An enrollee may request termination of his or her 
     enrollment at any time. An individual may file disenrollment 
     requests directly with the HMO or at the local social 
     security office. Disenrollment takes effect on the first day 
     of the month following the month during which the request is 
     filed. The HMO may not disenroll or refuse to re-enroll a 
     beneficiary on the basis of health status or need for health 
     services.
       The requirement for an open enrollment period does not 
     apply to HCPPs. These entities may deny enrollment or 
     terminate enrollment on medical or other grounds, if in doing 
     so they guse the same criteria for Medicare and non-Medicare 
     enrollees. As a result, employer or union plans may restrict 
     enrollment to covered retirees.
       The Secretary is authorized to prescribe procedures and 
     conditions under which eligible organizations contracting 
     with Medicare may inform beneficiaries about the 
     organization. Brochures, applications forms, or other 
     promotional or informational material may be distributed only 
     after review and approval by the Secretary of HHS. HMOs may 
     not disenroll or refuse to re-enroll a beneficiary because of 
     health status or need for health care services. HMOs must 
     provide enrollees, at the time of enrollment and annually 
     thereafter, an explanation of rights to benefits, 
     restrictions on services provided through nonaffiliated 
     providers, out-of-area coverage, coverage of emergency and 
     urgently needed services, and appeal rights. A terminating 
     HMO must arrange for supplementary coverage for Medicare 
     enrollees for the duration of any preexisting condition 
     exclusion under their successor coverage for the lesser of 6 
     months or the duration of the exclusion period.
     House bill
       a. In General. The Social Security Act would be amended by 
     establishing a MedicarePlus program. Sec. 15001 of the bill 
     establishes a new sec. 1805 of the Social Security Act, 
     relating to increasing choice under Medicare. (Sec. 15001)
       b. Types of Choices. Every individual entitled to Medicare 
     Part A and enrolled under Part B could elect to receive 
     benefits through two options: (1) the existing fee-for-
     service system ("the non-MedicarePlus option") or (2) through 
     a MedicarePlus product ("the MedicarePlus option"). A 
     MedicarePlus product could be a product offered by a 
     provider-sponsored organization; a high deductible policy 
     which would be coupled with a Medisave account; or a product 
     operating on a fee-for-service, or any other basis. It also 
     could be offered by an organization that is a union, Taft-
     Hartley, or association sponsor. (New sec. 1805(a))
       c. Special Rules. In general, an individual would be 
     eligible to elect a MedicarePlus product offered by a 
     MedicarePlus organization only if the organization served the 
     geographic area in which in the individual resided. To enroll 
     in a product offered by a limited-enrollment MedicarePlus 
     organization, an individual would have to be affiliated with 
     it. In the case of a product offered by a union or Taft-
     Hartley sponsor, the individual would have to elect the 
     MedicarePlus product offered by the sponsor during the first 
     enrollment period in which the individual was eligible to 
     make such an election. An individual would not be eligible to 
     elect a product offered by a union or Taft-Hartley sponsor if 
     the individual previously had elected a MedicarePlus product 
     offered by the organization and had subsequently discontinued 
     to elect the product. An individual eligible for an annuity 
     under the Federal Employee Health Benefit Program would not 
     be eligible for a high-deductible/medisave product. (New sec. 
     1805(b))
       d. Enrollment Procedures. The Secretary would be required 
     to establish a process for electing non-MedicarePlus or 
     MedicarePlus coverage in an expedited manner to permit 
     election of MedicarePlus products in an area as soon as they 
     became available. Elections would be made (or changed) only 
     during specified coverage election periods. An individual who 
     wished to elect a MedicarePlus product would do so by filing 
     an appropriate election form with the organization. 
     Disenrollment would be accomplished the same way. An 
     individual failing to make an election during the initial 
     election period would be deemed to have chosen the non-
     MedicarePlus option. An election would continue until the 
     individual changed elections or the MedicarePlus product was 
     discontinued. (New sec. 1805(c))
       e. Assistance. The Secretary could enter into an agreement 
     with the Commissioner of Social Security under which the 
     Commissioner would be responsible for the administration of 
     enrollment and disenrollment in MedicarePlus products. (New 
     sec. 1805(c)(5))
       f. Provision of Beneficiary Information to Promote Informed 
     Choice. The Secretary would provide for activities to 
     disseminate broadly information to current and prospective 
     Medicare beneficiaries on the coverage options available in 
     order to promote an active, informed selection among such 
     options. The information would have to be provided so as to 
     permit individuals to elect the MedicarePlus option during an 
     initial election period. The Secretary would be required to 
     contract with appropriate public and private entities to 
     carry out such activities.
       The Secretary would be required to provide for at least the 
     following in all areas in which MedicarePlus products were 
     offered: (1) publish and disseminate an information booklet 
     during coverage election periods, including information in 
     standardized format and in plain English on benefits and 
     premiums, quality (including consumer satisfaction); and 
     beneficiary rights and responsibilities; (2) maintain a toll-
     free number for inquiries regarding MedicarePlus options; and 
     (3) include information in the Medicare Handbook on the 
     MedicarePlus option. The 

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     information booklet would have to be updated regularly. (New sec. 
     1805(d))
       g. Coverage Election Periods. For individuals newly 
     eligible for Medicare after the transition period, elections 
     would occur at the first time the individual both was 
     entitled to benefits under Part A and enrolled under Part B. 
     The transition period would be the period beginning when a 
     MedicarePlus product first became available in an 
     individual's area and ending with the month preceding the 
     beginning of the first annual coordinated election period 
     occurring in October 1997.
       During the transition period, an individual who elected to 
     enroll in the non-MedicarePlus option could change election 
     to a MedicarePlus option at any time. An individual in a 
     MedicarePlus product could change election to another 
     MedicarePlus product or the non-MedicarePlus option.
       In October, 1996, the Secretary would be required to 
     conduct a MedicarePlus Health Fair which would provide for a 
     nationally coordinated educational and publicity campaign to 
     inform MedicarePlus eligible persons about MedicarePlus 
     products and the election process, including the upcoming 
     annual, coordinated election periods that would begin in 
     October, 1997.
       After the transition period, there would be an annual 
     coordinated election period during October of each year 
     (beginning 1997) in which individuals could change elections. 
     An individual who elected the MedicarePlus product option 
     (other than the high-deductible/medisave option) for the 
     first time could discontinue such election through the filing 
     of an appropriate notice for up to 90 days from the 
     enrollment's effective date. An individual who discontinued 
     an election would be deemed to have elected the Non-
     MedicarePlus option.
       A person who had elected a high-deductible/medisave product 
     could not change to a MedicarePlus option that was not a 
     high-deductible/medisave product unless the individual made 
     such change during an annual, coordinated election period, or 
     the individual had had such election in effect for 12 months. 
     The high-deductible/medisave option would become first 
     available, effective January 1, 1997. Elections for 1997 
     would occur during the October 1996 election period.
       Special election periods would be provided in which an 
     individual could discontinue an election of a MedicarePlus 
     product and make a new election if: (1) the organization's or 
     product's certification was terminated or the organization 
     terminated or otherwise discontinued providing the product; 
     (2) the person who elected a MedicarePlus product was no 
     longer eligible because of a change in residence or certain 
     other changes in circumstances; (3) the individual 
     demonstrated that the organization offering the product 
     violated its contract with Medicare or misrepresented the 
     product in its marketing; or (4) the individual met other 
     conditions specified by the Secretary. (New sec. 1805(e))
       h. Effectiveness of Elections. An election made during the 
     initial election period would become effective when the 
     individual became entitled to Medicare benefits, except as 
     the Secretary might provide in order to prevent retroactive 
     coverage. During the transition an election to discontinue a 
     Medicare Plus option would take effect with the first 
     calendar month after the election was made. In general, after 
     the transition, elections made during an annual election 
     period would take effect as of the first day of the following 
     year. Elections during other periods would take effect in the 
     manner specified by the Secretary to protect continuity of 
     coverage. (New sec. 1805(f))
       i. Payments to Plans in Lieu of Medicare Part A and Part B 
     Payments. Payments under a contract with a MedicarePlus 
     organization with respect to an individual electing a 
     MedicarePlus product offered by an organization would be 
     instead of the amounts which would otherwise been payable 
     under Medicare Parts A and B. (New sec. 1805(g) of the House 
     bill)
       j. Administration. These provisions would be administered 
     through an office in the Department of Health and Human 
     Services that was separate from the Health Care Financing 
     Administration, and whose primary function would be 
     administration of the MedicarePlus and Medicare managed care 
     programs. The director of this Division would be of equal pay 
     and rank to that of the HCFA Administrator. The Secretary 
     would be required to transfer personnel and other resources 
     in HCFA to the newly designated division as are used to 
     administer the current Medicare managed care program and as 
     might be needed to administer than program and the 
     requirements described above. (New sec. 1805(h))
     Senate bill
       a. In General. The Social Security Act would be amended to 
     add a new Part D-Medicare Choice Plans, sections 1895A-1895S. 
     Sec. 1895A provides for definitions; sec. 1895B provides for 
     entitlement to Medicare choices. Additional sections provide 
     for election and enrollment procedures. (New sec. 7001)
       b. Types of Choices. Every individual entitled to Medicare 
     Part A and enrolled in Medicare Part B (except those with end 
     stage renal disease) would be entitled to choose to receive 
     benefits through two options: (1) through the existing (fee-
     for-service system ("traditional Medicare") or (2) by 
     receiving payments toward the individual's enrollment in a 
     Medicare Choice plan. Eligible Medicare Choice plans would 
     include: an indemnity or fee-for-service plan; a coordinated 
     care plan; or any other private plan for the delivery of 
     health care. A coordinated care plan is defined as a private 
     managed or coordinated care plan which provides health care 
     services through an integrated network of providers including 
     a qualified HMO, preferred provider organization plan (PPO), 
     point-of-service plan, provider-sponsored network plan, or 
     another coordinated care plan. A Medicare Choice plan also 
     could be offered by a union, Taft-Hartley, or qualified 
     association sponsor. (New sec. 1895A(b); 1895B)
       c. Special Rules. In general, each Medicare choice eligible 
     individual would be entitled to enroll in any Medicare Choice 
     plan with a Medicare service area including the geographic 
     area in which the individual resided. The Secretary would be 
     required to establish special rules for enrollment of 
     individuals in Medicare Choice plans that were union, Taft-
     Hartley, or association-sponsored plans. Individuals 
     medically determined to have end stage renal disease would 
     not be eligible to elect a Medicare Choice plan. (An 
     individual who developed ESRD while enrolled in a Medicare 
     Choice plan could continue to be enrolled in that plan.) By 
     Dec. 31, 1999, the Secretary would be required to submit to 
     Congress recommendations on expanding the definition 
     of``Medicare Choice eligible individual''to include 
     individuals with ESRD and the enrollment of such individuals 
     in Medicare Choice plans. (New sec. 1895A(c)(2)(B) and 
     1895D(6))
       d. Enrollment Procedures. Medicare Choice eligible 
     individuals would enroll in any Choice plan serving the area 
     in which they resided during (1) the annual open enrollment 
     period; or (2) any specified other enrollment period that 
     applied to the individual. Each eligible individual desiring 
     to enroll or terminate enrollment would be required to 
     provide the Secretary with notice during the enrollment 
     period. To the extent feasible, the Secretary would be 
     required to provide for the receipt of such notice by 
     telephone, through the mail, and in person at local Social 
     Security offices. The Secretary would be required to promptly 
     provide each Choice plan with notice of an individual's 
     enrollment or disenrollment. (New sec. 1895C(a) and 1895C(b))
       e. Assistance in Enrollment Process. The Secretary would be 
     authorized to enter into an agreement with the Commissioner 
     of Social Security under which the Commissioner would perform 
     administrative responsibilities relating to enrollment and 
     disenrollment. (New sec. 1895C(e))
       f. Provision of Information to Beneficiaries. By September 
     30 of each year after 1995, the Secretary would be required 
     to mail a notice of eligibility to each Medicare Choice 
     eligible individual and each individual entitled to benefits 
     under Part A prior to the end of the annual open enrollment 
     period. The Secretary would be required to mail a notice of 
     eligibility to individuals who become newly eligible for 
     Medicare Choice during additional enrollment periods no later 
     than 2 months before their eligibility. The required notice 
     and materials sent by the Secretary would have to include an 
     informational brochure. Such information would have to be 
     written in the most easily understandable manner possible and 
     would have to include at least general information about 
     coverage during the next year, including: (1) the Part B 
     premium rates, (2) the deductible, copayment, and coinsurance 
     amounts for coverage under traditional Medicare, (3) a 
     description of the coverage under traditional Medicare and 
     any changes in its coverage from the prior year, (4) a 
     description of the individual's Medicare payment area, and 
     the standardized per person Medicare payment amount; (4) 
     information and instructions on how to enroll in a Medicare 
     Choice plan, (5) the right of each Medicare Choice plan 
     sponsor by law to terminate or refuse to renew its contract 
     and the effect such termination could have on an enrollee, 
     and (6) to the extent available, quality indicators for 
     traditional Medicare and each Choice plan, including for the 
     latter, disenrollment rates for the previous 2 years and 
     information on satisfaction and health outcomes.
       In addition, plan specific information would be required 
     including: (1) the plan's Medicare service area; (2) the 
     enrollee's rights to benefits under the plan, (including 
     covered items and services and enrollee cost-sharing 
     responsibilities); (3) the extent to which enrollees could 
     select providers of their choice from within or outside the 
     plan's network (if applicable) and the restrictions (if any) 
     on the plan's payment for services furnished to enrollees by 
     other than the plan's participating providers; (4) out-of-
     area coverage; (5) coverage of emergency services and 
     urgently needed care; (6) enrollee appeal rights; (7) whether 
     the plan was out of compliance with any Medicare Choice 
     requirements; (8) the plan's premium price and an indication 
     of the difference between the price and the standardized 
     Medicare payment amount; and (9) any optional supplemental 
     coverage available and its price. The Secretary could require 
     additional information if he or she determined it would 
     assist the individual's enrollment decision. To the maximum 
     extent feasible, the Secretary would be required to contract 
     with appropriate non-Federal entities to assist in providing 
     notice and informational materials to Medicare Choice 
     eligible individuals. (New sec. 1895C(c); 1895C(d); 
     1895C(e)(2))
       g. Coverage Election Periods. Medicare Choice eligible 
     individuals would enroll in any Choice plan serving the area 
     in which they resided during (1) the annual open enrollment 
     period; or (2) any other enrollment period that applied to 
     the individual. With 

[[Page H 12787]]
     exceptions, an individual could not terminate enrollment before the 
     next annual open enrollment period applicable to the 
     individual. An individual could terminate enrollment if: (1) 
     the individual moved to a new Medicare service area, or (2) 
     the individual had experienced a qualifying event (as 
     determined by the Secretary). An individual could terminate 
     enrollment if the plan failed to meet quality or capacity 
     standards or for other causes as determined by the Secretary.
       After initial enrollment in a plan, an individual could 
     terminate enrollment within 90 days and enroll in another 
     Medicare Choice plan or traditional Medicare.
       If an individual was enrolled in a Medicare Choice plan and 
     failed to provide the Secretary with notice of his or her 
     enrollment or disenrollment during any open enrollment period 
     applicable to the individual, the individual would be deemed 
     to have reenrolled in the plan.
       Each Medicare Choice plan sponsor would be required to 
     offer an annual open enrollment period in November of each 
     year for the enrollment and termination of enrollment of 
     Medicare choice eligible individuals for the next year. Each 
     plan sponsor would be required to accept the enrollment of an 
     individual in the plan: (1) during an initial Medicare 
     enrollment period specified in section 1837 of existing law 
     (relating to Medicare enrollment periods); and (2) during the 
     period specified by the Secretary following any termination 
     of the enrollment of the individual in a Medicare Choice 
     plan. (New sec. 1895D(b); 1895(G)(b))
       h. Effectiveness of Elections. An election during the 
     annual open enrollment period would become effective for the 
     calendar year following the open enrollment period. An 
     individual enrolling in a special election period would be 
     enrolled in the plan for the portion of the calendar year on 
     or after the date on which the enrollment became effective 
     (as specified by the Secretary). Except as specified above, 
     an individual could not terminate enrollment before the next 
     annual open enrollment period. (New sec. 1895D(b))
       i. Payments to Plans in Lieu of Medicare Part A and Part B 
     Payments. Payments under a contract to a Medicare Choice plan 
     and any rebates (as described below) would be instead of the 
     amounts which would have otherwise been payable under 
     traditional Medicare for items and services furnished to 
     individuals enrolled with the plan. (New sec. 1895D(c).
       j. Administration. No provision.
     Conference agreement
       The conference agreement follows the House provision with 
     modifications.
       Section 8001 of the conference agreement would amend the 
     Social Security Act to include a new Part C, new sections 
     1851 through 1859. New section 1851 includes provisions 
     relating to: (a) choice of plans; (b) special rules, (c) 
     providing information to promote informed choice, (d) 
     coverage election periods, (e) effectiveness of elections, 
     (f) guaranteed issue and renewal, (g) approval of marketing 
     materials, (h) effect of election of MedicarePlus plan 
     option, and (i) administration. (This represents a reordering 
     of provisions in the House bill.)
       With respect to types of choices, every MedicarePlus 
     eligible individual could elect to receive benefits through 
     FFS Medicare or through enrollment in a MedicarePlus plan 
     which would include: (1) a coordinated care plan, including 
     an HMO and PPO; (2) a combination of high deductible plan and 
     contributions to a High-Deductible Medicare MSA; (3) plans 
     offered by a PSO; (4) union, Taft-Hartley, or qualified 
     association plan; (5) a fee-for-service plan that reimburses 
     hospitals, physicians, and other providers on the basis of a 
     privately determined fee schedule; and (6) other health care 
     plans.
       With respect to special rules, individuals medically 
     determined to have ESRD would not be eligible to elect 
     MedicarePlus, except that an individual who developed ESRD 
     while enrolled could continue in that plan.
       It is the intent of the conferees that not later than 
     December 31, 1999, the Secretary would submit to Congress 
     recommendations on expanding the definition of``MedicarePlus 
     eligible individual''to include individuals with ESRD and the 
     enrollment of such individuals in the MedicarePlus plans.
       In the case of an individual who was enrolled with a 
     coordinated care plan that offers a point-of-service option 
     and who moved to an area outside the plan's service area, the 
     Secretary would have to provide for continued enrollment with 
     the plan.
       An individual who was enrolled in the Federal Employees 
     Health Benefit Plan would not be eligible to enroll in a high 
     deductible plan until such time as the Director of the Office 
     of Management and Budget certified to the Secretary that the 
     Office of Personnel Management had adopted policies which 
     would ensure that the enrollment of such individuals in such 
     plans would not result in increased expenditures for the 
     Federal Government for health benefit plans.
       With respect to the provision of beneficiary information, 
     the Secretary would be required to provide information 
     directly to current and prospective Medicare beneficiaries on 
     the MedicarePlus plans. First, at least 15 days before the 
     beginning of each annual open enrollment period, the 
     Secretary would be required to mail to each MedicarePlus 
     eligible individual residing in an area a notice containing:
       (1) General election information and information about the 
     Medicare fee-for-service program;
       (2) A list of plans and comparison of plan ;
       (3) The Federal contribution amount with respect to the 
     enrollment of the individual under a MedicarePlus plan;
       (4) Additional information that the Secretary determined 
     would assist in the individual's selection.
     The mailing of such information would be coordinated with the 
     mailing of the annual notice specified elsewhere in the bill.
        Second, to the extent practicable and no later than 2 
     months before the beginning of the initial enrollment in 
     Medicare, the Secretary would be required to mail the above 
     described information to the individual. It would have to be 
     written and formatted in the most easily understandable 
     manner possible. The general election and plan information 
     would have to be updated on at least an annual basis to 
     reflect changes in MedicarePlus plans and the benefits and 
     premiums for such plans. The conference agreement specifies 
     the required elements of the general election information and 
     information about the Medicare fee-for-service program and 
     the information comparing plan options.
       The MedicarePlus organizations would be required to provide 
     to the Secretary the information on the organization and the 
     plan it offered as the Secretary needed to meet these 
     information requirements.
       A MedicarePlus organization would be required to disclose, 
     in a clear, accurate, and standarized form to each enrollee 
     with a MedicarePlus plan offered by the organization under 
     this part at the time of the enrollment and at least annually 
     thereafter, the following information regarding the plan: (1) 
     service area, (2) benefits, (3) out-of-area coverage, (4) 
     emergency coverage, (5) optional supplemental coverage, (6) 
     prior authorization rules, (7) plan grievance procedures, and 
     (8) the quality assurance program.
       With respect to coverage election periods, the conference 
     agreement modifies the special 90-day disenrollment option in 
     the House provision. In the case of the first time an 
     individual elected any MedicarePlus plan (other than a high 
     deductible plan) offered by a particular MedicarePlus 
     organization, the individual could disenroll within the first 
     90 days but the disenrollment option would apply only once 
     for an individual with respect to any particular MedicarePlus 
     organization and could not apply more than twice for any 
     individual in a calendar year. The individual could elect a 
     new option, or in the absence of such an election, would be 
     deemed at the time of disenrollment to have elected the fee-
     for-service Medicare option.
       With respect to payments to plans in lieu of Medicare Part 
     A and Part B payments, the conference agreement clarifies 
     that only the MedicarePlus organization would be entitled to 
     receive Medicare payments from the Secretary for services 
     furnished to the individual.


   2. Licensing and Financial Requirements for MedicarePlus/Medicare 
  Choice Plans (Sec. 15002 of the House bill; Sec 7001 of the Senate 
                                 bill)

     Current law
       Under section 1876 of the Social Security Act, Medicare 
     specifies requirements to be met by an organization seeking 
     to become a managed care contractor with Medicare. In 
     general, these include the following: (1) the entity must be 
     organized under the laws of the State and be a Federally 
     qualified HMO or meet specified requirements (provide 
     physician, inpatient, laboratory, and other services, and 
     provide out-of-area coverage); (2) the organization is paid a 
     predetermined amount without regard to the frequency, extent, 
     or kind of services actually delivered to a member; (3) the 
     entity provides physicians' services primarily through 
     physicians who are either employees or partners of the 
     organization or through contracts with individual physicians 
     or physician groups; (4) the entity assumes full financial 
     risk on a prospective basis for the provision of covered 
     services, except that it may obtain stop loss coverage and 
     other insurance for catastrophic and other specified costs; 
     and (5) the entity has made adequate protection against the 
     risk of insolvency.
       There is no provision under current law for high 
     deductible/medisave products.
     House bill
       a. In General. The Social Security Act would be amended to 
     create a new Part C.--Provisions Relating to MedicarePlus 
     Organizations; High Deductible/Medisave Products. (Sec. 15002 
     which establishes new sec. 1851 through 1858 of the Social 
     Security Act)
       b. Entity Defined. A MedicarePlus organization would be 
     defined as a public or private entity certified (as described 
     below) as meeting the requirements described in the following 
     provisions. (New sec. 1851(a))
       c. Organized and Licensed under State Law. In general, a 
     MedicarePlus organization would have to be organized and 
     licensed under State law to offer health insurance or health 
     benefits coverage in each State in which it offered a 
     MedicarePlus product. This would not apply to a union or 
     Taft-Hartley sponsor, a qualified association, or a provider-
     sponsored organization (PSO). (New sec. 1851(b))
       d. Prepaid Payment. A MedicarePlus organization would have 
     to be compensated (except for deductibles, coinsurance, and 
     copayments) by a fixed payment paid on a periodic basis and 
     without regard to the frequency, extent, or kind of health 
     care services actually provided to an enrollee. (New sec. 
     1851(c))
       e. Assumption of Full Financial Risk. The organization 
     would have to assume full financial risk on a prospective 
     basis for the provision of health services (other than 
     hospice 

[[Page H 12788]]
     care) except the organization could obtain insurance or make other 
     arrangements for: stop-loss coverage for aggregate costs in 
     excess of $5,000; services needing to be provided other than 
     through the organization; and for no more than 90 percent of 
     the amount by which its costs for any of its fiscal years 
     exceeded 115 percent of its income for such year. It could 
     also make arrangements with providers or health institutions 
     to assume all or part of the risk on a prospective basis for 
     the provision of basic services. This requirement would not 
     apply to a union or Taft-Hartley sponsor, or a qualified 
     association with respect to MedicarePlus products offered by 
     such organization and issued by an organization required to 
     be organized and licensed under State law or by a provider-
     sponsored organization (PSO). (New sec. 1851(d))
       f. Provision Against Risk of Insolvency. Each MedicarePlus 
     organization would have to meet standards relating to 
     financial solvency and capital adequacy, as specified below. 
     An entity that is a union or Taft-Hartley plan would be 
     deemed to meet this requirement. Additionally, a qualified 
     association would also be deemed to meet this requirement 
     with respect to MedicarePlus products if the product offered 
     by the association and issued by an organization was one that 
     was organized and licensed under State law or was a provider-
     sponsored organization (PSO). (New sec. 1851(e))
       g. High Deductible/Medical Saving Account Definition. The 
     bill authorizes a Medisave option within MedicarePlus. A 
     Medisave plan combines high deductible insurance with a 
     medical savings account. High deductible insurance would 
     provide reimbursement for Medicare benefits and others the 
     plan may elect to provide only after the enrollee incurred 
     annual expenses equal to a deductible of not greater than 
     $10,000. These thresholds would be increased yearly (and 
     rounded to the nearest $50) by the percentage increase in the 
     national average per capita growth rate (described below). 
     For purposes of the deductible, the insurance would have to 
     at a minimum count all expenses that would have been payable 
     by Medicare and the enrollee under parts A and B. After the 
     deductible was met, the insurance would have to reimburse all 
     expenses that would have been paid without regard to 
     deductibles or coinsurance under parts A and B. (New sec. 
     1851(f))
       h. Organizations Treated as MedicarePlus/Medicare Choice 
     Plans During Transition. Certain organizations would be 
     considered qualified as MedicarePlus organizations for 
     contract years beginning before January 1, 1998. These 
     include:
       HMOs organized under State law that are qualified under the 
     Public Health Service Act; an organization that is recognized 
     under State law as an HMO; or a similar organization 
     regulated for solvency in the same manner and extent as an 
     HMO.
       Organizations that are organized under State laws and are 
     licensed by a State agency as a health insurer or as a 
     service benefit plan, but only for individuals residing in an 
     area in which the organization is licensed to offer health 
     insurance coverage; and
       Organizations with Medicare risk contracts as of the date 
     of enactment. (New sec. 1851(g))
       i. Medigrant Demonstration Projects. The Secretary would be 
     required to provide, in at least 10 States, for demonstration 
     projects which would permit Medigrant programs under title 
     XXI of the Social Security Act (Medicaid) to be treated as 
     MedicarePlus organizations for individuals who are qualified 
     to elect the MedicarePlus option and who are eligible to 
     receive medical assistance under Medigrant. The purpose of 
     such projects would be to demonstrate the delivery of 
     primary, acute, and long-term care through an integrated 
     delivery network which emphasized noninstitutional care. (New 
     sec. 1851(h))
     Senate bill
       a. In General. The Social Security Act would be amended to 
     create a new Part D-Medicare Choice Plans. New sections 1895A 
     through 1895S would be added, including provisions 
     establishing licensing and financial requirements for 
     Medicare Choice plans. (New sec. 1895A and 1895I of Senate 
     bill)
        b. Entity Defined. A Medicare Choice plan would be defined 
     to mean an eligible health plan with respect to which there 
     was a contract in effect with Medicare to provide health 
     benefits coverage to Medicare Choice eligible individuals. A 
     Medicare Choice plan sponsor would be defined as a public or 
     private entity which established or maintained a Medicare 
     Choice plan. (New sec. 1895A(a))
       c. Organized and Licensed under State Law. In general, a 
     Medicare Choice plan would be required to be organized and 
     licensed under applicable State law as a risk-bearing entity 
     eligible to offer health insurance or health benefits 
     coverage in each State in which a Medicare Choice plan 
     enrolled individuals under this part. This would not apply to 
     a union, Taft-Hartley, or association plan if the plan were 
     exempt from State law requirements under ERISA. The 
     requirement would apply to coordinated care plans except to 
     the extent that such plans were subject to the temporary 
     Federal certification process described below. (New sec. 
     1895I)
       d. Prepaid Payment. A Medicare Choice plan would be 
     compensated (except for deductibles, coinsurance, and 
     copayments) by a fixed payment paid by the Secretary (and, 
     where appropriate, the individual) on a periodic basis and 
     without regard to the frequency, extent, or kind of health 
     care service actually provided to the enrollee. In the event 
     that a Medicare enrollee in a Medicare Choice plan received 
     additional benefits as a result of a national coverage 
     determination or due to overlapping periods of coverage, only 
     the plan sponsor would be entitled to receive payments from 
     the Secretary for services furnished to the individual. (New 
     sec. 1895I(d))
       e. Assumption of Full Financial Risk. The Medicare Choice 
     plan sponsor would have to assume full financial risk on a 
     prospective basis for the provision of health services except 
     the sponsor could obtain insurance or make other arrangements 
     for: stop-loss coverage for aggregate costs in excess of 
     $5,000; services needing to be provided other than through 
     the plan sponsor; and for no more than 90 percent of the 
     amount by which its costs for any of its fiscal years 
     exceeded 115 percent of its income for such year. It could 
     also make arrangements with providers or health institutions 
     to assume all or part of the risk on a prospective basis for 
     the provision of basic services. (New sec. 1895I(b))
       f. Protection Against Risk of Insolvency. A Medicare Choice 
     plan would be required to make adequate protection against 
     the risk of insolvency (including provision to prevent 
     enrollees from being held liable to any person or entity for 
     the plan sponsor's debts in the event of the plan sponsor's 
     insolvency) as determined by the Secretary, or as determined 
     by a State which the Secretary determined requires solvency 
     standards at least as stringent as those set by the 
     Secretary. In establishing solvency standards for coordinated 
     care plans, the Secretary would be required to consult with 
     interested parties and take into account: (1) a coordinated 
     care plan sponsor's delivery system assets and its ability to 
     provide services directly to enrollees through affiliated 
     providers, and (2) alternative means of protecting against 
     insolvency, including reinsurance, unrestricted surplus, 
     letters of credit, guarantees, organizational insurance 
     coverage, and partnerships with other licensed entities.
       The Secretary would not be required to include the 
     alternative means described above but could consider such 
     alternatives where consistent with the standards. (New sec. 
     1895I(c))
       g. High Deductible/Medical Savings Account Definition. No 
     provision.
       h. Organizations Treated as MedicarePlus/Medicare Choice 
     Plans During Transition. No provision (but see new sec. 
     1895R(e) for treatment of plans that could be considered 
     Federally certified under temporary Federal certification 
     process for coordinated care plans).
       i. Medigrant Demonstration. No provision.
     Conference agreement
       The conference agreement follows the House provision with 
     modifications:
       With respect to the requirement that a entity be organized 
     and licensed under State law, the conference agreement 
     provides that a MedicarePlus organization would be organized 
     and licensed under State law as a risk-bearing entity 
     eligible to offer health insurance or health benefits 
     coverage in each State in which it offered a MedicarePlus 
     plan. The exception for certain union and Taft-Hartley 
     sponsors would apply if the plan was exempt from State law 
     requirements under ERISA.
       An exception to the general requirement that a MedicarePlus 
     plan be organized and licensed in a State would apply if the 
     State required that the organization, as a condition of 
     licensure, to offer any product or plan other than a 
     MedicarePlus plan. In addition, an exception would apply in 
     cases of unreasonable barriers to market entry. The 
     conference agreement would provide for a MeicarePlus 
     organization to apply to the Secretary for a waiver of the 
     requirement, and specifies the standard on which the 
     Secretary would determine whether to grant the waiver and the 
     timing for doing so.
       Special rules for PSOs would apply. In general, a PSO that 
     sought to offer a MedicarePlus plan in a State could apply 
     for a waiver of the State organization and licensure 
     requirement for an organization in that State. The Secretary 
     would be required to act on the application within 60 days 
     after it was filed and would grant a waiver for an 
     organization with respect to a State if the Secretary 
     determined that:
       (1) the State had failed to substantially complete action 
     on a licensing application within 90 days of the receipt of a 
     completed application, or
       (2) the State denied such a licensing application and (a) 
     the State's licensing standards or review process imposed any 
     requirements, procedures, or other standards on such 
     organizations that were not generally applicable to any other 
     entities engaged in substantially similar business; (b) such 
     standards or review process applied solvency standards and 
     the State did not have approval to do so; and (c) the State 
     used solvency standards to deny or discriminate against such 
     an organization that had been provided a Federal certificate 
     of solvency (as provided for in this bill). No period before 
     the date of enactment could be included in determining the 90 
     day period described above.

     In the case of a waiver granted under this paragraph for a 
     PSO:
       (1) the waiver would be effective for a 36-month period 
     except it could be renewed based on a subsequent application 
     filed during the last 6 months of such period;
       (2) the waiver would be conditioned upon the pendency of 
     the licensure application during the period the waiver was in 
     effect; and

[[Page H 12789]]

       (3) any provision of State law related to the licensing of 
     the organization and which prohibited the organization from 
     providing coverage pursuant to a MedicarePlus contract would 
     be preempted.

     In the case of a waiver granted for a PSO, any provision of 
     State law which related to the licensing of the organization 
     and which prohibited the organization from providing coverage 
     under a MedicarePlus contract would be superseded.
       It is the intent of the conferees that nothing in this 
     section restricts the ability of a State to operate a 
     hospital reimbursement system recognized under section 
     1814(b) of the Social Security Act or to require payments by 
     PSOs to be made on the basis of such system.
       With respect to assumption of full financial risk, the 
     conference agreement clarifies that a MedicarePlus 
     organization would not have to accept full financial risk for 
     hospice care. However, MedicarePlus organizations would have 
     the option of assuming full financial risk as under current 
     law.
       The conference agreement includes an amendment relating to 
     solvency requirements for PSOs. In the case of an entity that 
     was a PSO operating in an approved State (as described 
     below), the organization would have to meet solvency 
     standards through licensure by the State. In the case of an 
     entity that was a PSO operating in a State that had not been 
     approved, then the organization would be required to meet 
     solvency standards through application and certification 
     licensure by the Secretary. The Secretary would be required 
     to establish a process under which a State could apply to the 
     Secretary for a determination that the State was applying to 
     PSOs, through its process for licensing PSOs, solvency 
     standards that were consistent with the solvency standards 
     established below (see sec. 1856(c)). The Secretary would be 
     required to approve such a State if he or she determined that 
     the State was applying the standards. If the Secretary denied 
     approval, the State could reapply for a determination. The 
     Secretary would be required to publish a list of States that 
     were approved.
       The conference agreement modifies the definition of the 
     high deductible plan. For the contract year 1997, the 
     deductible could be no more than $6,000.
       The conference agreement does not include the Medigrant 
     Demonstration Projects. However, it is the intent of the 
     conferees that the Secretary provide, in at least 10 States, 
     for demonstration projects which would permit Medigrant 
     programs under title XXI of the Social Security Act 
     (Medicaid) to be treated as MedicarePlus organizations for 
     individuals who are qualified to elect the MedicarePlus 
     option and who are eligible to receive medical assistance 
     under Medigrant. The purpose of such projects would be to 
     demonstrate the delivery of primary, acute, and long-term 
     care through an integrated delivery network which emphasized 
     noninstitutional care.


     3. requirements relating to benefits, provision of services, 
 enrollment,and premiums (new sec. 1852 of house bill; new sec. 1895a, 
    1895c, 1895d, 1895g, 1895h, 1895j, 1895n, 1895r of senate bill)

     Current law
       Section 1876 provides for requirements relating to 
     benefits, payment to the plans by Medicare, and payments to 
     the plans by beneficiaries. In addition, it specifies 
     standards for patient protection, quality assurance, and 
     general contractor requirements.
       A Medicare beneficiary enrolled in an HMO/CMP is entitled 
     to receive all services and supplies covered under Medicare 
     Parts A and B (or Part B only, if only enrolled in Part B). 
     These services must be provided directly by the organization 
     or under arrangements with the organization. Enrollees in 
     risk-based organizations are required to receive all services 
     from the HMO/CMP except in emergencies.
       In general, HMOs/CMPs offer benefits in addition to those 
     provided under Medicare's benefit package. In certain cases, 
     the beneficiary has the option of selecting the additional 
     benefits, while in other cases some or all of the 
     supplementary benefits are mandatory.
       Some entities may require members to accept additional 
     benefits (and pay extra for them in some cases). These 
     required additional services may be approved by the Secretary 
     if it is determined that the provision of such additional 
     services will not discourage enrollment in the organization 
     by other Medicare beneficiaries.
       The amount an HMO/CMP may charge for additional benefits is 
     based on a comparison of the entity's adjusted community rate 
     (ACR, essentially the estimated market price) for the 
     Medicare package and the average of the Medicare per capita 
     payment rate. A risk-based organization is required to offer 
     ``additional benefits'' at no additional charge if the 
     organization achieves a savings from Medicare. This 
     ``savings'' occurs if the ACR for the Medicare package is 
     less than the average of the per capita Medicare payment 
     rates. The difference between the two is the amount available 
     to pay additional benefits to enrollees. These may include 
     types of services not covered, such as outpatient 
     prescription drugs, or waivers of coverage limits, such as 
     Medicare's lifetime limit on inpatient hospital care. The 
     organization might also waive some or all of the Medicare's 
     cost-sharing requirements.
       The entity may elect to have a portion of its ``savings'' 
     placed in a benefit stabilization fund. The purpose of this 
     fund is to permit the entity to continue to offer the same 
     set of benefits in future years even if the revenues 
     available to finance those benefits diminish. Any amounts not 
     provided as additional benefits or placed in a stabilization 
     fund would be offset by a reduction in Medicare's payment 
     rate.
       If the difference between the average Medicare payment rate 
     and the adjusted ACR is insufficient to cover the cost of 
     additional benefits, the HMO/CMP may charge a supplemental 
     premium or impose additional cost-sharing charges. If, on the 
     other hand, the HMO does not offer additional benefits equal 
     in value to the difference between the ACR and the average 
     Medicare payment, the Medicare payments are reduced until the 
     average payment is equal to the sum of the ACR and the value 
     of the additional benefits.
       For the basic Medicare covered services, premiums and the 
     projected average amount of any other cost-sharing may not 
     exceed what would have been paid by the average enrollee 
     under Medicare rules if she or he had not joined the HMO. For 
     supplementary services, premiums and projected average cost-
     sharing may not exceed what the HMO would have charged for 
     the same set of services in the private market.
       HMOs/CMPs contracting with Medicare can pay second to 
     workers' compensation, automobile liability or other 
     specified sources of insurance.
       Current law also provides for Medicare managed care 
     contracts with Health care Prepayment Plans (HCPPs). A HCPP 
     arrangement is similar to a TEFRA cost-contract except that 
     it provides only Part B services. There are no specific 
     statutory conditions to qualify for a HCPP contract.
       Collectively bargained health plans and those sponsored by 
     private multiemployer health plans (most of which are Taft-
     Hartley plans) are regulated under the Employee Retirement 
     Income Security Act (ERISA). Under ERISA, the States are 
     authorized to regulate multiple employer welfare arrangements 
     (MEWAs) to the extent that such regulation does not conflict 
     with ERISA. Association plans may or may not be regulated as 
     MEWAs and are generally regulated by the States.
       Penalties apply for violations of limits on the use of 
     ``physician incentive plans,'' i.e., compensation 
     arrangements between HMOs and physicians that might induce 
     physicians to withhold services. An HMO may not make a 
     specific payment to a physician as an inducement to reduce or 
     limit services to a specific enrollee. In addition, if 
     physicians or physician groups are placed at substantial 
     financial risk for services other than their own, the HMO 
     must provide adequate stop-loss protection to limit the 
     physicians' potential liability and must periodically survey 
     enrollee satisfaction.
       There are no provisions in current law for provider 
     protections, or for the Department of Labor to play a role in 
     establishing and enforcing Medicare contractor standards for 
     employer-sponsored health plans. In addition, there is no 
     provision in current law for high-deductible/medisave 
     products.
     House bill
       a. Basic Benefits Covered. Each MedicarePlus product would 
     be required to provide benefits for at least the items and 
     services for which benefits are available under parts A and B 
     consistent with the standards for coverage of such items and 
     services. A MedicarePlus product would meet this requirement 
     if:
       (1) in the case of benefits furnished through fee-for-
     service providers, the product provided for at least the 
     dollar amount of payment for such items and services as would 
     otherwise have been provided under Medicare Parts A and B; 
     and
       (2) in the case of benefits furnished through providers 
     with a contract with the organization, the individual's 
     liability for payment for services did not exceed (after 
     taking into account any deductible which did not exceed any 
     deductible under Parts A and B) the lesser of: (a) the amount 
     of liability that the individual would have had (based on the 
     provider being a participating provider) if the individual 
     had elected the non-MedicarePlus option, or (b) the 
     applicable coinsurance or copayment amounts (that would have 
     applied under the non-MedicarePlus option) provided under the 
     contract. (New sec. 1852(a))
       b. Antidiscrimination. A MedicarePlus organization could 
     not deny, limit, or condition the coverage or provision of 
     benefits under this part based on the health status, claims 
     experience, receipt of health care, medical history, or lack 
     of evidence of insurability of an individual. (New sec. 
     1852(b))
       c. Guaranteed Issue and Renewal/General Availability and 
     Capacity Limits. Generally, a MedicarePlus organization would 
     be required to provide that at any time during which 
     elections were accepted, it would have to accept without 
     restrictions individuals eligible to make such an election. 
     If the Secretary determined that the organization had a 
     capacity limit and the number of individuals who elected the 
     product exceeded that limit, the organization could limit the 
     election of individuals, but only if priority was given first 
     to those individuals who had already elected the product, and 
     then to others in a manner which did not discriminate. A 
     MedicarePlus organization could not terminate or refuse to 
     accept an individual's election except in the event of 
     nonpayment of premiums, disruptive behavior, or the product 
     was terminated with respect to all eligible Medicare 
     individuals. (Those terminated 

[[Page H 12790]]
     would be deemed to have elected the non-MedicarePlus option). (New sec. 
     1852(c))
       d. Special Rules for Limited Enrollment Organizations. 
     MedicarePlus sponsors would have to limit enrollment for 
     MedicarePlus products to specific individuals. A union 
     sponsor would have to limit eligibility to individuals who 
     were members and affiliated with the sponsor through an 
     employment relationship or were the spouses of such members. 
     A Taft-Hartley sponsor would have to limit eligibility to 
     individuals who were entitled to obtain benefits under the 
     terms of an applicable collective bargaining agreement.
       A qualified association would be defined as an individual-
     membership association, religious fraternal organization, or 
     other organization ( a trade, industry, or professional 
     association, a chamber of commerce, or a public entity 
     association) that the Secretary found (1) was formed for 
     purposes other than the sale of health insurance and did not 
     restrict membership based on the health status, claims 
     experience, receipt of health care, medical history, or lack 
     of insurability, of an individual; (2) did not exist solely 
     or principally for the purposes of selling insurance; and had 
     at least 1,000 individual members. Association sponsors would 
     have to limit eligibility to individuals who were members of 
     the association (or their spouses). Associations could not 
     terminate coverage of an individual because the individual 
     was no longer an association member except pursuant to a 
     change of election during an open election period occurring 
     on or after the date of termination of membership.
       These eligibility rules could not have the effect of 
     denying eligibility to individuals on the basis of health 
     status, claims experience, receipt of health care, medical 
     history, or lack of evidence of insurability. (New sec. 
     1852(c)(4))
       e. Submission and Charging of Premiums. Each MedicarePlus 
     organization would be required annually to file with the 
     Secretary the amount of the monthly premium for coverage 
     under each of its products it would be offering in each 
     payment area, and the enrollment capacity in relation to the 
     product in each such area. The premium charged for a product 
     offered in a payment area would equal 1/12 of the amount (if 
     any) by which the premium exceeded the MedicarePlus 
     capitation rate (see below). Premiums could not vary among 
     individuals who resided in the same payment area. An 
     exception would apply to high-deductible/Medisave products 
     which would be experience-rated based on specified risk 
     factors. (Theses factors would be the identical demographic 
     and other adjustments used for setting the MedicarePlus 
     contribution level.) Each MedicarePlus organization would 
     have to permit monthly payment of premiums. An organization 
     could terminate election of individuals for a MedicarePlus 
     product for failure to make premium payments but only under 
     specified conditions.
       In no case could the portion of a MedicarePlus 
     organization's premium rate and the actuarial value of its 
     deductibles, coinsurance, and copayments attributable to the 
     minimum benefits (and not counting any amount attributable to 
     balance billing) exceed the actuarial value of the 
     coinsurance and deductible applicable in the non-MedicarePlus 
     option. (New sec. 1852(d))
       e. Requirement for Additional Benefits, Part B Premium 
     Discount Rebates, or Both. If the actuarial value of the 
     benefits under the MedicarePlus product (as determined based 
     upon the adjusted community rate (ACR) -- see below) for 
     individuals was less than the average of the capitation 
     payments made to the organization for the product at the 
     beginning of an annual contract period, the organization 
     could provide additional benefits, a monetary rebate (paid on 
     a monthly basis) of the Part B monthly premium, or a 
     combination of both. The value of these benefits, rebates or 
     combination thereof would have to be at least as much as the 
     amount by which the capitation payment exceeded the ACR, and 
     would have to be applied uniformly for all enrollees in a 
     product area. The rebate could not exceed the amount of the 
     Part B premium (not taking into account penalties for late 
     enrollment or the amount incurred as a result of affluence 
     testing). The organization could provide that a part of the 
     excess be withheld for the organization's stabilization fund. 
     A MedicarePlus organization could provide additional benefits 
     (over and above those required to be added as a result of the 
     excess payment), and could impose a premium for such 
     additional benefits. Cash or other types of rebates to induce 
     enrollment or otherwise would be prohibited.
       A MedicarePlus organization could provide that a part of 
     the value of the excess actuarial amount be withheld and 
     reserved in the HI and SMI trust funds (in such proportions 
     as the Secretary determined to be appropriate) by the 
     Secretary for subsequent annual contract periods, to the 
     extent required to stabilize and prevent undue fluctuations 
     in the additional benefits and rebates offered in those 
     subsequent periods. Leftover amounts not provided as 
     additional benefits would revert to the trust funds.
       The Adjusted Community Rate (ACR) would mean, at the 
     election of the MedicarePlus organization, either the rate of 
     payment services which the Secretary annually determined 
     would apply to the individuals electing a MedicarePlus 
     product if the payment were determined under a community 
     rating system, or the portion of the weighted aggregate 
     premium which the Secretary annually estimated would apply to 
     the individual but adjusted for differences between the 
     utilization of individuals under Medicare and the utilization 
     of other enrollees (or through another specified manner). For 
     PSOs, the ACR could be computed using data in the general 
     commercial marketplace or (during the transition period) 
     based on the costs incurred by the organization in providing 
     such a product. (New sec. 1852(e))
       g. Rules Regarding Physician Participation. Each 
     MedicarePlus organization would be required to establish 
     reasonable procedures relating to the participation of 
     physicians by providing: (a) notice of rules of 
     participation, (b) written notice of participation decisions 
     that are adverse to providers, and (c) a process within the 
     organization for appealing adverse decisions, including the 
     presentation of information and views of the provider 
     regarding such decision. The organization would be required 
     to consult with physicians who have entered into 
     participation agreements with the organization regarding the 
     organization's medical policy, quality and credentialing 
     criteria, and medical management procedures.
       Each MedicarePlus organization would be prohibited from 
     operating any physician incentive plan (i.e., any 
     compensation arrangement between a MedicarePlus organization 
     and a physician or physician group that directly or 
     indirectly has the effect of reducing or limiting services 
     provided to enrollees) unless certain requirements were met: 
     (1) No specific payment could be made directly or indirectly 
     under the plan to a physician or physician group as an 
     inducement to reduce or limit medically necessary services 
     provided with respect to a specific enrollee; (2) if a plan 
     placed a physician or physician group at substantial 
     financial risk for services not provided by the physician or 
     group, the organization provided adequate and appropriate 
     stop-loss protection and conducted periodic surveys of both 
     individuals enrolled and previously enrolled to determine 
     their degree of access to services and satisfaction with the 
     quality of those services; and (3) the organization provided 
     to the Secretary descriptive information sufficient to 
     determine the plan's compliance.
       A MedicarePlus organization would not be able to provide 
     (directly or indirectly) for a provider (or group of 
     providers) to indemnify the organization against any 
     liability resulting from a civil action brought by or on 
     behalf of an enrollee for any damage caused to the enrollee 
     by the organization's denial of medically necessary care.
       MedicarePlus fee-for-service plans (those organizations 
     that do not have agreements between physicians and the 
     organizations for the provision of services) would be exempt 
     from these requirements. (New sec. 1852(f))
       h. Provision of Information by Plan to Secretary. Each 
     MedicarePlus organization would be required to provide the 
     Secretary with the information needed to prepare the 
     information booklet described above. (New sec. 1852(g))
       i. Coordinated Acute and Long-Term Care Benefits under 
     MedicarePlus/Medicare Choice. States would be able to 
     coordinate benefits under their MediGrant programs with those 
     provided under a MedicarePlus product to assure continuity of 
     a full range of acute and long-term care services to eligible 
     poor elderly or disabled individuals. (New sec. 1852(h))
       j. Transitional File and Use for Certain Requirements. In 
     the case of MedicarePlus products proposed to be offered 
     during the transition period, contractors could submit 
     information to the Secretary demonstrating that the product 
     met the requirements and standards relating to benefits and 
     premiums. If the Secretary did not disapprove the product 
     within 60 days, the product would be deemed as meeting these 
     requirements. Contractors would still have to meet other 
     MedicarePlus contract requirements and standards. (New sec. 
     1852(i))
       k. Supplemental Benefits. A MedicarePlus Organization would 
     be able to provide health care benefits in addition to 
     benefits otherwise required and could charge a premium for 
     such additional benefits (New sec. 1852(e)(1)(F))
       l. Cost-Sharing. In no case could the portion of a 
     MedicarePlus organization's premium rate and the actuarial 
     value of its deductibles, coinsurance, and copayments 
     attributable to the minimum benefits (and not counting any 
     amount attributable to balance billing) exceed the actuarial 
     value of the coinsurance and deductible applicable in the 
     non-MedicarePlus option. (New sec. 1851(d)(5))
       m. Organization as Secondary-Payer. The MedicarePlus 
     organization could pay second in specified cases. (New sec 
     1852(a)(2))
       n. National Coverage Determination. See sec. 15721 of the 
     House bill as described under Subtitle H.
       o. Point-of-Service Coverage. No provision.
       p. Prompt Payment. No provision.
     Senate bill
       a. Basic Benefits Covered. Each Medicare Choice plan would 
     be required to provide to Medicare enrollees, through 
     providers and other persons that meet the applicable 
     requirements of Medicare and Part A of title XI (relating to 
     General Provisions of the Social Security Act), those items 
     and services covered under Medicare Part A and Part B which 
     are available to individuals residing in the Medicare service 
     area of the plan and additional health services as the 
     Secretary might approve. The Secretary would be required to 
     approve any such additional health care services which the 
     plan proposed to 

[[Page H 12791]]
     offer to Medicare enrollees, unless the Secretary determined that 
     including such additional services would substantially 
     discourage enrollment by Medicare Choice eligible 
     individuals. (New sec. 1895H(a))
       b. Antidiscrimination. Each Medicare Choice plan would have 
     to provide assurances to the Secretary that it would not deny 
     enrollment to, expel, or refuse to reenroll any such 
     individual because of the individual's health status or 
     requirements for health care services, and that it would 
     notify each individual of such fact at the time of their 
     enrollment. (New sec. 1895J(e)(1))
       c. Guaranteed Issue and Renewal/General Availability and 
     Capacity Limits. Each Medicare Choice plan sponsor would be 
     required to provide that each eligible individual would be 
     eligible to enroll in the plan during an applicable 
     enrollment period if the plan's Medicare service area 
     included the geographic area in which the individual resided. 
     Each sponsor would have to provide that, at any time during 
     which enrollments were accepted, the sponsor would accept 
     eligible individuals in the order in which they applied up to 
     the limits of the plan's capacity (as determined by the 
     Secretary) and without restrictions, except as might be 
     authorized in regulations. The preceding sentence would not 
     apply if it would result in the enrollment of enrollees 
     substantially nonrepresentative, as determined in accordance 
     with regulations of the Secretary, of the Medicare population 
     in the Medicare service area of the plan. Each plan sponsor 
     would be required to protide the Secretary with a 
     demonstration of the plan's capacity to adequately service 
     its expected enrollment. A plan could not cancel or refuse to 
     renew a beneficiary except in the case of fraud or nonpayment 
     of premiums. (New sec. 1895G(a), 1895J(d), 1895J(e)(1))
       d. Special Rules for Limited Enrollment Organizations. A 
     Medicare Choice plan sponsor of a union, Taft-Hartley plan, 
     or association plan would be required to limit its enrollment 
     to members of the sponsoring group who were entitled to all 
     rights and privileges of any other members of the group and 
     spouses of such members. An association plan sponsored by a 
     religious fraternal benefit society could limit membership to 
     individuals who shared the same religious convictions as the 
     society.
       A ``union or association plan'' is defined to mean an 
     eligible health plan with a union sponsor, a Taft Hartley 
     sponsor, or a qualified association sponsor that: (1) was 
     organized for purposes other than to market a health plan; 
     (2) could not condition its membership on health status, 
     health claims experience, receipt of health care, medical 
     history, or lack of evidence of insurability of a potential 
     member; (3) could not exclude a member or spouse from health 
     plan coverage based on those factors in item 2; (4) was a 
     permanent entity which received a substantial majority of its 
     financial support from active members; and (5) could not be 
     owned or controlled by an insurance company. A ``qualified 
     association sponsor'' is defined as an association, religious 
     fraternal organization, or other organization (which could be 
     a trade, industry, or professional association, chamber of 
     commerce, or a public entity association) which established 
     or maintained eligible health plans. (New sec. 1895A(b)(2); 
     1895G(a))
       e. Submission and Charging of Premiums. Each Medicare 
     Choice plan sponsor would be required annually to file with 
     the Secretary the amount of the monthly premium for coverage 
     under each of the plans it would be offering in each Medicare 
     service area in which the plan was being offered. The 
     enrolled individual: (1) would receive a rebate (as described 
     below) if the plan's premium was less than the standardized 
     Medicare payment amount; and (2) would be required to pay the 
     plan's premium in excess of the standardized payment amount. 
     The premiums charged by a plan sponsor could not vary among 
     individuals who resided in the same Medicare payment area. 
     Each plan sponsor would be required to permit monthly payment 
     of monthly premiums. (New sec. 1895D(a); 1895N(a))
       f. Requirement for Additional Benefits, Part B Premium 
     Discount Rebates, or Both. If the standardized Medicare 
     payment amount for the Medicare payment area in which an 
     individual resided exceeded the amount of the monthly premium 
     for the plan, the Secretary would be required to: (1) pay to 
     the plan sponsor on behalf of the individual the monthly 
     amount equal to the 100 percent of the excess for 
     supplemental benefits; or (2) pay to the individual an amount 
     equal to 75 percent of the remainder of such excess and 
     deposit the remainder of the excess in the Federal Hospital 
     Insurance Trust Fund. Rebates would have to be paid on a 
     monthly basis from the Trust Funds on a proportional basis as 
     specified. (New sec. 1895N(b))
       g. Rules Regarding Physician Participation. No provision.
       h. Provision of Information by Plan to Secretary. Each 
     Medicare Choice plan sponsor would be required to provide 
     such information as the Secretary requested with respect to 
     its Medicare Choice plan in order to carry out activities 
     relating to the Secretary's provision of plan information to 
     beneficiaries. (New sec. 1895C(e)(3)).
       i. Coordinated Acute and Long-Term Care Benefits under 
     MedicarePlus/Medicare Choice. No provision.
       j. Transitional File and Use for Certain Requirements. No 
     provision (but see 1895R)
       k. Supplemental Benefits. Each Medicare Choice Plan could 
     offer optional supplemental benefits for an additional 
     premium. If the supplemental benefits were offered only to 
     Medicare enrollees, the additional premium would have to be 
     the same for all enrolled individuals in the Medicare payment 
     area. Supplemental benefits could be marketed and sold by the 
     sponsor outside of the enrollment process. (New sec. 
     1895H(b))
       l. Cost-Sharing. The total deductibles, coinsurance, and 
     copayments charged an individual under a Medicare Choice plan 
     for basic benefits for a year could not exceed the average 
     total amount of deductibles, coinsurance, and copayments 
     charged an individual under the traditional Medicare program 
     for a year. If the Secretary determined that adequate data 
     were unavailable to determine the average cost-sharing under 
     the plan, the Secretary could determine the amount with 
     respect to all individuals in the Medicare payment area, the 
     State, or in the US, eligible to enroll in the plan or on the 
     basis of other appropriate data. (New sec. 1895H(c))
       m. Organization as Secondary Payer. The Medicare Choice 
     plan sponsor could pay second in specified cases. (new sec. 
     1895H(f))
       n. National Coverage Determinations. If a national coverage 
     determination was made in the period beginning on the date of 
     an announcement of Medicare payment rates and ending on the 
     date of the next announcement that the Secretary projected 
     would produce a significant change in costs to the Medicare 
     Choice plan and that the change in costs was not reflected in 
     the Medicare payment amounts for that period: (1) the 
     determination would not apply to contracts until the first 
     contract year beginning after the end of such period, and (2) 
     if the coverage determination provided for coverage of 
     additional benefits or under additional circumstances, the 
     individual would not obtain such coverage until the first 
     contract year beginning after the end of such period unless 
     otherwise required by law. (New sec. 1895H(d))
       o. Point-of-Service Coverage. If a Medicare Choice sponsor 
     offered a Choice plan that limited benefits to items and 
     services furnished only by providers in a network of 
     providers which contracted with the sponsor, the sponsor 
     would also have to offer, at the time of enrollment, a 
     Medicare Choice plan that permitted payment to be made under 
     the plan for services obtained out of network by the 
     individual (i.e., a point-of-service option). (New sec. 
     1895G(a)(3))
       p. Prompt Payment. Each Medicare Choice plan sponsor would 
     be required to provide prompt payment consistent with 
     existing provisions of law of claims submitted for services 
     and supplies furnished to Medicare enrollees if the services 
     or supplies were not furnished under a contract between the 
     plan and the provider or supplier. In the case of a plan 
     sponsor which the Secretary determined, after notice and 
     opportunity for a hearing, had failed to make prompt payment, 
     the Secretary could provide for direct payment of the amounts 
     owed. If this occurred, the Secretary would provide for an 
     appropriate reduction in the amount of payments otherwise 
     made to the plan sponsor. (New sec. 1895J(f))
     Conference agreement
       The conference agreement follows the House provision with 
     modifications.
       New section 1852 of the Social Security Act would provide 
     for ``Benefits and Beneficiary Protections,'' which 
     incorporates largely House provisions on benefits and patient 
     protection standards. The conference agreement also 
     establishes a new section 1855, ``Premiums and Rebates,'' 
     which largely incorporates provisions of the House bill on 
     the submission and charging of premiums.
       With respect to basic benefits covered, the MedicarePlus 
     plan would have to provide benefits to members through 
     providers and other persons who meet the applicable 
     requirements of Medicare and part A of title XI of the Social 
     Security Act. The plan would have to provide such additional 
     health services as the Secretary might approve. The Secretary 
     would be required to approve any such additional health care 
     services which the plan proposed to offer to such members, 
     unless the Secretary determined that including such 
     additional services would substantially discourage enrollment 
     by MedicarePlus eligible individuals with the plan.
       It is the conferees' intent that Christian Science nursing 
     facility services that are currently covered under Part A of 
     Medicare should be made available by MedicarePlus plans to 
     enrollees who choose to use such services.
       A MedicarePlus organization would be required to notify 
     each MedicarePlus plan enrollee of the antidiscrimination 
     protections at the time of the individual's enrollment.
       The conference agreement modifies the House provision 
     relating to priority of enrollment in the case of a plan 
     reaching capacity limits. The priority rules would not apply 
     if they would result in the enrollment of enrollees 
     substantially nonrepresentative, as determined in accordance 
     with regulations of the Secretary, of the Medicare population 
     in the service area of the plan.
       The conference agreement modifies the definition of a 
     qualified association plan to require that it not be owned or 
     controlled by an insurance company.
       The conference agreement includes the Senate provision 
     relating to supplemental benefits. Each Medicare Choice Plan 
     could offer optional supplemental benefits for an additional 
     premium. If the supplemental benefits were offered only to 
     Medicare enrollees, the additional premium would have to be 
     the same for all enrolled individuals in 

[[Page H 12792]]
     the Medicare payment area. Supplemental benefits could be marketed and 
     sold by the sponsor outside of the enrollment process.
       The conference agreement includes the Senate provision 
     relating to national coverage determinations. If a national 
     coverage determination was made in the period beginning on 
     the date of an announcement of Medicare payment rates and 
     ending on the date of the next announcement that the 
     Secretary projected would produce a significant change in 
     costs to the MedicarePlus plan and that the change in costs 
     was not reflected in the Medicare payment amounts for that 
     period: (1) the determination would not apply to contracts 
     until the first contract year beginning after the end of such 
     period, and (2) if the coverage determination provided for 
     coverage of additional benefits or under additional 
     circumstances, the individual would not obtain such coverage 
     until the first contract year beginning after the end of such 
     period unless otherwise required by law.
       The conference agreement establishes a new section on 
     ``Premiums and Rebates'' modifying the House bill. The 
     agreement defines the term``monthly premium'' with respect to 
     a MedicarePlus plan as the monthly premium filed with the 
     Secretary for coverage for services, not taking into account 
     the amount of any payment made to the plan by Medicare. It 
     defines the term ``net monthly premium'' with respect to such 
     plan and an individual enrolled with it as the ``monthly 
     premium'' reduced by the payment made toward such premium by 
     Medicare. In no case could the portion of the monthly 
     premiumfor a MedicarePlus plan for an area and year 
     attributable to required services exceed the ACR for the 
     plan.
       The net monthly premium charged by a MedicarePlus 
     organization for a Medicare plan in a payment area to an 
     individual would be equal to the amount (if any) by which
       (1) the amount of the monthly premium for the plan involved 
     exceeded
       (2) \1/12\ of the annual MedicarePlus capitation rate for 
     the area and year involved.
        The requirement that there be a uniform premium within a 
     payment area would apply to both the monthly premium and the 
     net monthly premium (including rebates offered by a 
     MedicarePlus organization).
       With respect to rebates, the conference agreement includes 
     the following provision: To the extent that the adjusted 
     excess amount exceeded the value of additional benefits 
     provided by the organization, then the organization would 
     have to provide for payment of the amount of such excess as 
     follows: (1) If the individual had a Rebate MSA and elected a 
     rebate, the organization would have to pay the excess into 
     the MSA. (2) Otherwise, the organization would have to pay 
     75% of the excess to the individual and 25% to the Hospital 
     Insurance Trust Fund. The conference agreement does not 
     include the House provision limiting cash rebates to the Part 
     B premium amount.


4. patient protection standards (new sec. 1853 of house bill; new sec. 
              1895c, 1895(g), and 1895(j) of senate bill)

     Current law
       Medicare HMOs/CMPs must provide enrollees, at the time of 
     enrollment and annually thereafter, an explanation of rights 
     to benefits, restrictions on services provided through 
     nonaffiliated providers, out-of-area coverage, coverage of 
     emergency and urgently needed services, and appeal rights.
       Medicare HMOs/CMPs must make all Medicare covered services 
     and all other services contracted for available and 
     accessible within its service area, with reasonable 
     promptness and in a manner that assures continuity of care. 
     Urgent care must be available and accessible 24 hours a day 
     and 7 days a week. HMOs must also pay for services provided 
     by nonaffiliated providers when services are medically 
     necessary and immediately required because of an unforeseen 
     illness, injury, or condition and it is not reasonable, given 
     the circumstances, to obtain the services through the HMO.
       Medicare HMOs/CMPs must enroll individuals and provide 
     covered services to enrollees who live within the geographic 
     area served by the organization. Regulations provide that 
     geographic area means the area found by HCFA to be that 
     within which the HMO furnishes, or arranges for furnishing, 
     the full range of services it offers to its Medicare 
     enrollees.
       HMOs/CMPs are required to have arrangements for an ongoing 
     quality assurance program that stresses health outcomes and 
     provides review by physicians and other health care 
     professionals of the process followed in the provision of 
     health services. External review is conducted by a peer 
     review organization (PRO), one of the groups that has 
     contracted with the Secretary for review of the quality and 
     appropriateness of hospital services. PRO reviews of HMOs/
     CMPs covers both inpatient and outpatient care. The Secretary 
     also has the right to inspect or otherwise evaluate the 
     quality, appropriateness, and timeliness of services provided 
     and the facilities of the organization when there is 
     reasonable evidence of some need for inspection.
       In up to 25 States, the Secretary is authorized to 
     designate another external agency, known as a quality review 
     organization or QRO to perform reviews. QROs must meet many 
     of the same standards as PROs, but have not contracted with 
     the Department of HHS for the review of services other than 
     those provided by an HMO/CMP.
       HMOs/CMPs must have meaningful grievance procedures for the 
     resolution of individual enrollee complaints, about such 
     problems as failure to receive covered services or unpaid 
     bills. In addition, an enrollee who believes that the HMO has 
     improperly denied a service or imposed an excessive charge 
     has the right to a hearing before the Secretary if the amount 
     involved is greater than $100. If the amount is greater than 
     $1,000, either the enrollee or the HMO may seek judicial 
     review.
     House bill
       a. Disclosure of Information to Enrollees. Each 
     MedicarePlus organization would be required to disclose in 
     clear, accurate, and standardized forms certain information 
     including: (1) benefits, including coverage exclusions and, 
     for a high-deductible/medisave product, a comparison of its 
     benefits with those under other MedicarePlus products; (2) 
     rules relating to prior authorization or other review 
     requirements that could result in nonpayment; (3) liability 
     for cost-sharing for out-of-network services; (4) the number, 
     mix, and distribution of providers; (5) financial obligations 
     of the enrollee; (6) enrollee satisfaction data; (7) enrollee 
     rights and responsibilities; (8) a statement that use of the 
     911 number is appropriate in emergency situations; and (9) a 
     description of the organization's quality assurance program. 
     (New sec. 1853(a))
       b. Access to Services. A MedicarePlus organization offering 
     a MedicarePlus product could restrict the providers from whom 
     benefits were to be provided so long as: (1) the organization 
     made the benefits available to each individual electing the 
     product within the service area with reasonable promptness 
     and in a manner which assured continuity in the provision of 
     benefits, (2) when medically necessary, the organization made 
     benefits available and accessible 24 hours a day and 7 days a 
     week, (3) the product provided for reimbursement to other 
     organizations if the services were medically necessary and 
     immediately required because of an unforeseen illness, 
     injury, or condition and it was not reasonable given the 
     circumstances to obtain the services through the 
     organization, and (4) coverage was provided for emergency 
     services without regard to prior authorization or the 
     emergency care provider's contractual relationship with the 
     organization.
       Emergency services are defined as covered inpatient and 
     outpatient services that are furnished by an appropriate 
     source other than the organization, are needed immediately 
     because of an injury or sudden illness, and are needed 
     because the time required to each the organization's 
     providers or suppliers would have meant risk of serious 
     damage to the patient's health.
       If the MedicarePlus product provided out-of-network 
     coverage (i.e., under a point of service option), the payment 
     level for services furnished outside the network would have 
     to be at least 70 percent (or, if the cost-sharing was 50 
     percent, at least 40 percent) of the lesser of the payment 
     basis (determined without regard to deductibles and cost-
     sharing) that would have applied under Medicare Parts A and 
     B, or the amount charged by the entity furnishing such items 
     and services.
       In the event that emergency services were furnished by a 
     participating physician or provider of services to an 
     individual enrolled in a MedicarePlus organization, the 
     applicable participation agreement would be deemed to provide 
     that the physician or provider of services would accept as 
     payment in full from the organization the amount that would 
     be payable if the individual were not enrolled with a 
     MedicarePlus organization. In the event that emergency 
     services were furnished by a nonparticipating physician, the 
     limitations on actual charges otherwise applicable under 
     Medicare Part B would apply in the same manner as they do to 
     services furnished to individuals not enrolled in a 
     MedicarePlus organization. (New sec. 1853(b))
       c. Timely Authorization for Promptly Needed Care Identified 
     as a Result of Required Screening Evaluation. No provision.
       d. Confidentiality and Accuracy of Enrollee Records. Each 
     MedicarePlus organization would have to establish procedures 
     to safeguard the privacy of individually identifiable 
     enrollee information, and maintain accurate and timely 
     medical records. (New sec. 1853(d))
       e. Quality Assurance and Accreditation Program. Each 
     MedicarePlus organization would be required to arrange (in 
     accordance with regulations of the Secretary) for an ongoing 
     quality assurance program meeting certain requirements such 
     as: (1) stressing health outcomes; (2) providing the 
     establishment of written protocols for utilization review, 
     (3) providing review by physicians and other health care 
     professionals of the process followed in the provision of 
     services; (4) monitoring and evaluating high volume and high 
     risk services and the care of acute and chronic conditions; 
     (5) evaluating the continuity and coordination of care; (6) 
     establishing mechanisms to detect underutilization and 
     overutilization; (6) making information available on quality 
     and outcomes to facilitate beneficiary comparison and choice; 
     (7) evaluating on an ongoing basis the plan's effectiveness; 
     and (8) providing for external accreditation or review, by a 
     Peer Review Organization or other qualified independent 
     review organization, that the quality of services meets 
     professionally recognized standards of health care (including 
     providing adequate access of enrollees to services). In 
     addition, MedicarePlus fee-for-service plans would be exempt 
     from the requirement that the organization have arrangements 
     for an 

[[Page H 12793]]
     ongoing quality assurance program and that it maintain accurate and 
     timely medical records for enrollees.
       The Secretary would be required to provide that a 
     MedicarePlus organization would be deemed to have met these 
     requirements if it was accredited by a private organization 
     under a process that the Secretary determined assured that 
     the organization met standards that were no less stringent 
     than those required by the bill. (New sec. 1853(d))
       f. Coverage Determinations. Each MedicarePlus organization 
     would have to make determinations regarding authorization 
     requests for nonemergency care on a timely basis. Medical 
     necessity decisions could only be made by a physician. 
     Appeals of a determination would have to be decided within 30 
     days of receiving medical information and no later than 60 
     days after the date of the decision. Appeals relating to a 
     life-threatening or emergency situation would have to be 
     decided on an expedited basis. (New sec. 1853(e))
       g. Grievances and Appeals. Each MedicarePlus organization 
     would have to provide for meaningful procedures for hearing 
     and resolving grievances between the organization (and 
     entities and individuals through which it provides services) 
     and enrollees. An enrollee dissatisfied by reason of the 
     enrollee's failure to receive health services would be 
     entitled, if the amount in controversy was $100 or more, to a 
     hearing before the Secretary. If the amount in controversy 
     was $1,000 or more, the individual or organization, upon 
     notifying the other party, would be entitled to judicial 
     review. The Secretary would be required to contract with an 
     independent, outside entity to review and resolve appeals of 
     denials of coverage related to urgent or emergency services 
     with respect to MedicarePlus products. The Secretary would be 
     required to consult with the Secretary of Labor to ensure 
     that these requirements, as they apply to grievances to which 
     section 503 of ERISA applies, are applied in a manner 
     consistent with the requirements of ERISA. (New sec. 1853(f))
       h. Information on Advance Directives. Each MedicarePlus 
     organization would be required to maintain written policies 
     and procedures respecting advance directives (as specified 
     elsewhere in the Medicare statute). (New sec. 1853(g))
       i. Approval of Marketing Materials. Each MedicarePlus 
     organization could not distribute marketing material unless 
     (1) at least 45 days before distribution, the organization 
     submitted the material to the Secretary for review, and the 
     Secretary did not disapprove the material. Standards 
     established below would include guidelines for the review of 
     such materials. Under these guidelines, the Secretary would 
     be required to disapprove marketing material if it was 
     materially inaccurate or misleading or otherwise made a 
     material misrepresentation. To facilitate Aone stop 
     shopping,@ materials submitted to the Secretary by an 
     organization for a MedicarePlus product in an area that were 
     not disapproved would be considered as such for all other 
     areas covered by the product and organization. Each 
     MedicarePlus organization would be required to conform to 
     fair marketing standards included in the MedicarePlus 
     standards. Such standards would include a prohibition against 
     a plan (or agent of such a plan) completing any portion of 
     any election form on behalf of any individual. (New sec. 
     1853(h))
       j. Supplemental Coverage if Plan Terminates the Contract. 
     No provision.
     Senate Bill
       a. Disclosure of Information to Enrollees. No provision for 
     plan disclosure to enrollees. Secretary would disclose 
     information to enrollees. Each Medicare Choice plan sponsor 
     would be required to provide such information as the 
     Secretary requested regarding the plan in order for the 
     Secretary to provide specific information to enrollees. (New 
     sec. 1895C(e)(3))
       b. Access to Services. Each Medicare Choice plan sponsor 
     would be required to: (1) make the basic services (and other 
     services for which the sponsor contracted) available and 
     accessible to each individual, within the Medicare service 
     area of the plan with reasonable promptness, and in a manner 
     which assured continuity; (2) provide for reimbursement with 
     respect to such services provided to the enrollee other than 
     through the plan's providers if: (A) the services were 
     medically necessary and immediately required because of an 
     unforeseen illness, injury, or condition, and (B) it was not 
     reasonable given the circumstances to obtain the services 
     through the plan's providers. (3) Provide access to 
     appropriate providers, including credentialed specialists, 
     for all medically necessary treatment and services; and (4) 
     except as provided by the Secretary on a case-by-case basis, 
     in the case of a coordinated care plan, provide primary care 
     services within 30 minutes or 30 miles from an enrollee's 
     place of residence if the enrollee resides in a rural area. 
     Each Medicare Choice plan sponsor would be required to 
     provide the Secretary with a demonstration of the plan's 
     capacity to adequately service the plan's expected Medicare 
     enrollment. (New sec. 1895J(d))
       c. Timely Authorization for Promptly Needed Care Identified 
     as a Result of Required Screening Evaluation. A Medicare 
     Choice plan sponsor would be required to provide access 24 
     hours a day, 7 days a week to such persons as might be 
     authorized to make any prior authorizations required by the 
     plan sponsor for coverage of items and services (other than 
     emergency services) that a treating physician or other 
     emergency department personnel identified pursuant to a 
     screening examination required under section 1867(a) of the 
     Social Security Act (relating to examination and treatment in 
     a medical emergency) as being needed promptly by an enrollee. 
     A plan sponsor would be deemed to have approved a request for 
     such services if the physician or other emergency department 
     personnel involved: (1) made a reasonable effort to contact 
     the person for authorization to provide an appropriate 
     referral or to provide the services; or (2) requested such 
     authorization from the person and the person had not denied 
     the authorization within 30 minutes after the request was 
     made. Approval of a request for a prior authorization 
     determination would be treated as approval of a request for 
     any items and services that were requested to treat the 
     medical condition identified as a result of the required 
     screening examination. ``Emergency services'' and ``emergency 
     medical condition'' are specifically defined (New sec. 
     1895J(h))
       d. Confidentiality and Accuracy of Enrollee Records. No 
     provision.
       e. Quality Assurance and Accreditation Program. Each 
     Medicare Choice plan sponsor would be required to meet 
     certain health plan standards, including those relating to 
     quality assurance and accreditation.
       Each sponsor would be required to establish an ongoing 
     internal quality assurance program (in accordance with 
     regulations established by the Secretary for health care 
     services it provides to Medicare enrollees). This program 
     would be required to (1) emphasize health outcomes; (2) 
     provide for establishment of written protocols for 
     utilization review; (3) provide review by physicians and 
     other health care professionals of the process followed in 
     the provision of services; (4) monitor and evaluate high 
     volume and high risk services and the care of acute and 
     chronic conditions; (5) evaluate the continuity and 
     coordination of care; (6) establish mechanisms to detect 
     underutilization and overutilization; (7) after identifying 
     areas for improvement, establish or alter practice 
     parameters; (8) take action to improve quality and assess the 
     effectiveness of such action through systematic follow-up; 
     (9) make information available on quality and outcomes to 
     facilitate beneficiary comparison and choice; and (10) 
     evaluate on an ongoing basis the plan's effectiveness.
       Each sponsor also would be required to have an agreement 
     with an independent quality review and improvement 
     organization approved by the Secretary. Such an organization 
     would be required to: (1) provide an alternative mechanism 
     for addressing enrollee grievances; (2) review plan 
     performance based on accepted quality performance criteria; 
     (3) promote and make plans accountable for improved plan 
     performance; (4) integrate into ongoing external quality 
     assurance activities a new set of quality indicators and 
     standards developed specifically for the Medicare population 
     that would be used to determine whether a plan was providing 
     quality care and appropriate continuity and coordination of 
     care; and (5) report to the Secretary on those plans that 
     demonstrated unwillingness or inability to improve their 
     performance.
       Each sponsor would be required to meet accreditation 
     standards established by the Secretary or to be accredited by 
     an external independent accrediting organization, recognized 
     by the Secretary as requiring standards at least as stringent 
     as those set by the Secretary.
       The Secretary would be required to create incentives for 
     sponsors to report aggregate encounter data, including data 
     on physician visits, nursing home days, home health days, 
     hospital inpatient days and rehabilitation services. (New 
     sec. 1895J(a);1895J(b))
       f. Coverage Determinations. The Secretary would be required 
     to provide an expedited review procedure (under the 
     requirements for the sponsor to provide a hearing for 
     grievances) where a failure to receive any health care 
     service or payment for such service would result in 
     significant harm. (New sec. 1895J(e)(2)(C))
       g. Grievances and Appeals. Each Medicare Choice plan 
     sponsor would have to provide for meaningful procedures for 
     hearing and resolving grievances between the organization 
     (and entities and individuals through which it provides 
     services) and enrollees. An enrollee dissatisfied by reason 
     of the enrollee's failure to receive health services would be 
     entitled, if the amount in controversy was $100 or more, to a 
     hearing before the Secretary. If the amount in controversy 
     was $1,000 or more, the individual or organization, upon 
     notifying the other party, would be entitled to judicial 
     review. The Secretary would be required to contract with an 
     independent, outside entity to review and resolve appeals of 
     denials of coverage related to urgent or emergency services 
     with respect to Medicare Choice plans (see new sec. 
     1895J(b)(2)(B)); 1895J(e)).
       h. Information on Advance Directives. A contract with 
     Medicare would have to provide that a Medicare Choice plan 
     maintain written policies and procedures respecting advance 
     directives (as specified elsewhere in the Medicare statute). 
     (new sec. 1895J(g))
       i. Approval of Marketing Materials. In addition to 
     informational materials required to be distributed by the 
     Secretary, a Medicare Choice Plan sponsor could develop and 
     distribute marketing materials and engage in marketing 
     strategies in accordance with the following: Any marketing 
     material developed or distributed by a Medicare Choice 

[[Page H 12794]]
     plan sponsor and any marketing strategy developed by such a sponsor: 
     (1) would be required to accurately describe differences 
     between health care coverage available under the plan and the 
     coverage available under traditional Medicare; (2) would have 
     to be pursued in a manner not intended to violate the 
     nondiscrimination requirements; and (3) could not contain 
     false or materially misleading information, and would have to 
     conform to any other fair marketing and advertising standards 
     and requirements applicable to such plans under law. A 
     sponsor would not be allowed to distribute marketing material 
     unless at least 45 days before distribution, the plan 
     submitted the material to the Secretary for review, and the 
     Secretary did not disapprove the material. The Secretary 
     would be required to review all marketing materials under 
     guidelines established by the Secretary. Under these 
     guidelines, the Secretary would be required to disapprove 
     marketing material if it was materially inaccurate or 
     misleading or otherwise made a material misrepresentation. 
     Materials submitted to the Secretary or a regional office of 
     the Department of Health and Human Services that were not 
     disapproved with respect to one area would be considered as 
     such for all other areas covered by the plan. (New sec. 
     1895G(c))
       j. Supplemental Coverage if Plan Terminates the Contract. 
     Each Medicare Choice plan sponsor that provided coverage 
     pursuant to a contract with Medicare would be required to 
     provide assurances to the Secretary that in the event that 
     the contract was terminated, the sponsor could provide or 
     arrange for supplemental coverage of benefits under this 
     title related to a preexisting condition with respect to any 
     exclusion period, to all individuals enrolled with the entity 
     who received Medicare benefits, for the lesser of 6 months or 
     the duration of such period. (Sec. 1895(J)(e)(3))
     Conference agreement
       The conference agreement follows the House provision with 
     modifications. (See also previous section.)
       With respect to access to services, the conference 
     agreement does not include the House provision specifying 
     minimum payment levels where providing out-of-network 
     services pursuant to a point-of-service coverage. It does 
     require that the organization provide access to appropriate 
     providers, including credentialed specialists, for all 
     medically necessary treatment and services, and that coverage 
     be provided for emergency services without regard to prior 
     authorization or the emergency care provider's contractual 
     relationship with the organization.
       The conference agreement clarifies that ``certain fee-for-
     service'' plans means ``unrestricted fee-for-service plans.'' 
     The latter is defined as a MedicarePlus FFS plan that 
     provides for coverage of benefits without restrictions 
     relating to utilization and without regard to whether the 
     provider has a contract or other arrangement with the 
     organization offering the plan for the provision of such 
     benefits.
       With respect to the required quality assurance and 
     accreditation program, the conference agreement modifies the 
     provision relating to external review for quality assurance. 
     Each MedicarePlus organization, for each plan it operated, 
     would have to have an agreement with an independent quality 
     review and improvement organization approved by the 
     Secretary.
       With respect to grievances and appeals, the conference 
     agreement modifies the requirement that the Secretary of HHS 
     coordinate with the Secretary of Labor with respect to making 
     the grievance process consistent with the requirements of 
     section 503 of ERISA to ensure that the requirements provide 
     for at least as much protection for beneficiaries as would 
     have applied in its absence.
       It is the intent of conferees that in the provision of 
     information regarding advance directives that no health care 
     provider or employee of a health care provider be required 
     under this section to inform or counsel a patient regarding 
     services which purposely cause the death of a person such as 
     assisted suicide, euthansia, or mercy killing.


  5. provider-sponsored organizations (psos) (new sec. 1854 of house 
                                 bill)

     Current law
       PSOs do not qualify as eligible organizations for Medicare 
     managed care contracts.
     House bill
       a. Provider-Sponsored Organization (PSO) Defined. A PSO 
     means a public or private entity that (in accordance with 
     standards established under this bill) is a provider or group 
     of affiliated providers that provides a substantial portion 
     of health care under the contract directly through the 
     provider or affiliated group of providers. In defining 
     substantial proportion, the Secretary would be required to 
     consider the need for such an organization to assume 
     responsibility for a substantial portion of services in order 
     to assure financial stability and other factors. Affiliation 
     is specifically defined. (New sec. 1854(a))
       b. Process for Establishing Standards. These requirements 
     are specified in other sections of the bill. (New sec. 
     1854(b))
       c. Process for State Certification of PSOs. These 
     requirements are specified in other sections of the bill. 
     (New sec. 1854(c))
       d. Preemption of State Insurance Licensing Requirements. In 
     general, State law would be preempted which required that a 
     PSO meet requirements for insurers of health services or HMOs 
     doing business in the State with respect to initial 
     capitalization and establishment of financial reserves 
     against insolvency or imposed requirements that would have 
     the effect of prohibiting the PSO from complying with the 
     applicable requirements of the bill. The general preemption 
     of State law would not apply with respect to State laws that 
     met the bill's requirements for the Secretary to approve 
     State PSO certification. Nothing in this provision would 
     affect the operation of the Federal preemption of State law 
     under section 514 of ERISA. (New sec. 1854(d))
     Senate bill
       No provision. (See new sec. 1895R on Temporary Federal 
     Certification Process for Coordinated Care Plans.)
     Conference agreement
       The conference agreement follows the House bill with 
     modifications. (See also discussion of conference agreement 
     for Licensing and Financial Requirements.)
       The conference agreement defines a provider-sponsored 
     organization (PSO) as a public or private entity
       (1) that is established or organized by a health care 
     provide, or group of affiliated health care providers,
       (2) that provides a substantial proportion (as defined by 
     the Secretary) of health care under the contract directly 
     through the provider or affiliated group of providers, and
       (3) with respect to which those affiliated providers that 
     share, directly or indirectly, substantial financial risk 
     with respect to the provision of coverage have at least a 
     majority financial interest in the entity.
       The conference agreement provides a definition for``health 
     care provider''and requires that the Secretary issue 
     regulations to carry out this section.
       (See also provisions relating to antitrust under Subtitle 
     A. Part 3 of Conference Report.)


6. payments to medicareplus organizations (new sec. 1855 of house bill; 
       new sec. 1895h, 1895m, 1895n and sec. 7003 of senate bill)

     Current law
       Under a Medicare risk contract, an HMO agrees to provide or 
     arrange the full scope of covered Medicare services in return 
     for a single monthly capitation payment issued by Medicare 
     for each enrolled beneficiary. One of the numbers used to 
     determine this payment is the adjusted average per capita 
     cost, or AAPCC. The other, the adjusted community rate or 
     ACR, is discussed above.
       The AAPCC is Medicare's estimate of the average per capita 
     amount it would spend for a given beneficiary (classified by 
     certain demographic characteristics and county of residence) 
     who was not enrolled in an HMO and who obtained services on 
     the usual fee-for-service basis. Separate AAPCCs are 
     established for enrollees on the basis of age, sex, whether 
     they are in a nursing home or other institution, and whether 
     they are also eligible for Medicaid, and the county of their 
     residence. These AAPCC values are calculated in four basic 
     steps:
       Medicare national average calendar year per capita costs 
     are projected for the future year under consideration. These 
     numbers are known as the U.S. per capita costs (USPCCs) and 
     are estimated average incurred benefit costs per Medicare 
     enrollee and adjusted to include program administration 
     costs. USPCCs are developed separately for Parts A and B of 
     Medicare, and for costs incurred by the aged, disabled, and 
     those with ESRD in those two parts of the program.
       Geographic adjustment factors that reflect the historical 
     relationships between the county's and the Nation's per 
     capita costs are used to convert the national average per 
     capita costs to the county level.
       Expected Medicare per capita costs for the county are 
     adjusted to a fee-for-service basis by removing both 
     reimbursement and enrollment attributable to Medicare 
     beneficiaries in prepaid plans.
       The recalculated county per capita cost is converted into 
     rates that vary according to the demographic variables 
     enumerated above: age, sex, institutional status, Medicaid 
     status.
       For each Medicare beneficiary enrolled under a risk 
     contract, Medicare will pay the HMO 95 percent of the rate 
     corresponding to the demographic class to which the 
     beneficiary is assigned.
     House bill
       a. In General. A MedicarePlus organization under a contract 
     with the Secretary would be paid, with respect to coverage of 
     an individual in a payment area for a month, an amount equal 
     to the monthly adjusted MedicarePlus capitation rate with 
     respect to that individual for that area. Each year, the 
     Secretary would be required to determine and announce no 
     later than September 7 the annual MedicarePlus capitation 
     rate for each payment area for the year, and the factors to 
     be used in adjusting monthly payment rates. (New sec. 
     1855(a))
       b. Notice of Methodological Changes. An explanation of the 
     assumptions and changes in methodology would have to be 
     included in sufficient detail so that organizations could 
     compute monthly adjusted MedicarePlus capitation rates. The 
     Secretary would be required to provide advance notice (at 
     least 45 days prior to the announcement)of the proposed 
     changes in the methodology and assumptions used to develop 
     the rates, and give organizations an opportunity to comment. 
     (New sec. 1855(a))
       c. Calculation of Standardized Medicare Capitation Payment 
     Amounts.

[[Page H 12795]]

       Monthly Adjusted MedicarePlus Capitation rate. Each month, 
     the MedicarePlus organization would be paid for an individual 
     in a payment area, and in a class (as described below), 1/12 
     of that year's annual MedicarePlus capitation rate. This 
     amount would be adjusted to reflect the relative actuarial 
     value of Medicare benefits with respect to individuals in a 
     class compared to the national average for individuals in all 
     classes. A payment area is a county (or equivalent area 
     specified by the Secretary) except for the ESRD population, 
     in which case the area is the State.
       For purposes of calculating rates, the Medicare population 
     would be divided into three separate groups: the aged, the 
     disabled, and those who have been determined to have end 
     stage renal disease (ESRD). The Secretary would be required 
     to define appropriate classes of enrollees, based on age, 
     gender, welfare status, institutionalization, and such other 
     factors as the Secretary determined to be appropriate so as 
     to ensure actuarial equivalence. The Secretary could add, 
     modify, or substitute for such classes to improve 
     determination of actuarial equivalence. The Secretary would 
     be required to conduct the research needed to provide for 
     greater accuracy in the adjustment of capitation rates. This 
     could include research into the addition or modification of 
     classes. The Secretary would have to report to Congress on 
     this research by January 1, 1997. (New sec. 1855(b))
       Per Capita Growth Rates. In general, payment rates for each 
     area would be calculated so as to improve contribution levels 
     in rural and low service utilization markets. Payments to 
     health plans from 1996 onward would be ``decoupled'' from 
     local fee-for-service expenditures and paid instead on a 
     budgeted system. Rates would be established so that over 
     time, payments to areas with higher-than-average utilization 
     of services would be increased more slowly than payments to 
     areas with lower-than-average utilization. In addition, 
     payments would be calculated so as to ensure that legitimate 
     costs of doing business in different areas (based on certain 
     input prices) would be recognized in the contribution levels.
       To establish the payment rates for 1996, areas would be 
     classified according to their average per capita utilization 
     of services (see below). Those areas experiencing the lowest 
     utilization in services would be assigned a per capita growth 
     rate of 9.0 percent, the next lower, 8.0 percent, the median, 
     5.1 percent, the next higher, 4.7 percent, and those with the 
     highest utilization, being assigned a per capita growth rate 
     of 4.0 percent. To assure that total capitation payments 
     during 1996 were the same as the amount they would have been 
     if the per capita growth rate for all such areas for 1996 
     were equal to the national average per capita growth rate, 
     the Secretary would adjust the per capita growth rates as 
     follows:
       (1) The Secretary would first provide for the additional 
     percent increase needed to assure that the annual 
     MedicarePlus capitation rate for each payment area was at 
     least 12 times $300 for 1996.
       (2) For payment areas assigned to the lowest cohort, the 
     Secretary would then provide for the additional percent 
     increase needed to assure that the total capitation payments 
     during 1996 were the same as they would have been if the per 
     capita growth rate for all such areas for 1996 were equal to 
     the national average per capita growth rate. The increase 
     could be applied to a payment area falling into the lowest 
     utilization cohort and would be applied after the increase in 
     the first step was applied.
       To establish the payment rates for years after 1996, the 
     Secretary would be required to compute a per capita growth 
     rate for each year for each of the five service utilization 
     cohorts. This computation of payments for each cohort is 
     pegged to the national average per capita growth rate which 
     is as follows: 1996 = 5.3%; 1997 = 3.8%; 1998 = 4.6%; 1999 = 
     4.3%; 2000 = 3.8%; 2001 = 5.5%; 2002 = 5.6%; Subsequent years 
     = 5.0%.
       The median service utilization cohort would receive the 
     national average per capita growth rate for the year. Those 
     areas assigned to the lowest service utilization cohort would 
     get 187.5 percent of the national average growth rate, and 
     those in the highest would get 75 percent. The Secretary 
     would calculate intermediate growth rates for the second and 
     fourth cohorts at an amount that would assure budget 
     neutrality relative to the national average per capita growth 
     rates. Specifically, the growth rates for each cohort are as 
     follows:
       lowest=187.5% of the national average per capita growth 
     rate (NAGR);
       lower=150% of the NAGR or lower if needed to meet budget 
     neutrality;
       median=the average NAGR;
       higher=gets a rate calculated to achieve budget neutrality, 
     but not less than 75% of the NAGR;
       highest=75% of the NAGR.
       After computing per capita growth rates for a year, the 
     Secretary would be required to make a final adjustment of the 
     growth rates. The Secretary would: (1) reduce the per capita 
     growth rate for areas assigned to the median service 
     utilization cohort by the ratio of .1 to 5.3; (2) if the year 
     is 1997, increase the per capital growth rates for payment 
     areas to the extent needed to assure that the annual 
     MedicarePlus capitation rate for each payment area for that 
     year was at least 12 times $320; and (3) adjust the per 
     capita growth rate for areas assigned to the lowest service 
     utilization cohort by such proportion that would result in no 
     net increase in outlays for the year. (New sec. 1855(c))
       Assignment of Payment Areas to Service Utilization Cohorts. 
     Each year the Secretary would assign each payment area to a 
     utilization cohort based on a service utilization index 
     value: lowest--less than .80; lower--.80-.89; median--.90-
     1.09; higher--1.10-1.19; highest--1.20 or more.
       The service utilization index value would be equal to the 
     annual MedicarePlus capitation rate for each payment area 
     divided by the input-price adjusted national capitation rate 
     for that area for the year. (The utilization index for one 
     year would be used to set cohorts for the update for the next 
     year). The input-price adjusted capitation rate would be 
     calculated by multiplying the weighted average capitation 
     rate by an input price index (separate indices would be 
     applied for different types of services). For 1996, the 
     Secretary would apply an input price adjustment specified in 
     the legislation; for 1997, the Secretary could continue to 
     use the special rules for 1996. The Secretary would develop 
     refined input price adjustments to be used in later years. 
     (New sec. 1855(d))
       d. Payment Process. The Secretary would be required to make 
     monthly payments in advance to the plan for each individual 
     enrolled with a MedicarePlus organization. The payment would 
     be retroactively adjusted to take into account any 
     differences between the actual number of individuals enrolled 
     with an organization and the number of such individuals 
     estimated to be so enrolled in determining the amount of the 
     advance payment. (New sec. 1855(e))
       e. Special Rules for Individuals Electing High-Deductible/
     Medisave Products. In the case of an individual who elected a 
     high-deductible/medisave product, the payment to the 
     MedicarePlus organization could not exceed the premium for 
     the high-deductible product and the difference between the 
     amount that would have otherwise been paid. Anything in 
     addition to that amount would be paid directly into the 
     individual's medisave account on a monthly basis. (New sec. 
     1855(f))
       f. Payments from Trust Funds. Payments to the MedicarePlus 
     organizations would be made from the HI and SMI trust funds 
     in such proportion as the Secretary determined reflected the 
     relative weights that benefits under Parts A and B 
     represented of Medicare's actuarial value of the total 
     benefits. (New sec. 1855(g))
       g. Special Rule for Certain Inpatient Hospital Stays. In 
     the case of an individual receiving inpatient hospital 
     services from a hospital covered under Medicare's prospective 
     payment system as of the effective date of the (1) 
     individual's election of a MedicarePlus product: (a) payment 
     for such services until the date of the individual's 
     discharge would be made as if the individual did not elect 
     coverage under the MedicarePlus organization; (b) the elected 
     organization would not be financially responsible for payment 
     for such services until the date of the individual's 
     discharge; and (c) the organization would nevertheless be 
     paid the full amount otherwise payable to the organization; 
     or (2) termination of enrollment with a MedicarePlus 
     organization: (a) the organization would be financially 
     responsible for payment for such services after the date of 
     termination and until the date of discharge; (b) payment for 
     such services during the stay would not be made under 
     Medicare's PPS system; and (c) the terminated organization 
     would not receive any payment with respect to the individual 
     during the period in which the individual was not enrolled. 
     (New sec. 1855(h))
       h. Demonstration Project on Market-Based Reimbursement and 
     Competitive Pricing. No provision.
       i. Special Rule for Calculation of Payment Rates for 1996. 
     See above under ``per capita growth rates,'' in which the 
     calculation of 1996 growth rates is described. (sec. 1855(c) 
     and 1885(d))
     Senate bill
       a. In General. Beginning with 1996 and no later than July 
     31 of each calendar year, the Secretary would be required to 
     determine a standardized Medicare payment amount (according 
     to the provisions of this section) for the following calendar 
     year for each Medicare payment area. (A Medicare payment area 
     is defined as a metropolitan statistical area (whether or not 
     such an area is in a single State) or, in the case of a 
     consolidated metropolitan statistical area, each primary 
     metropolitan statistical area within the consolidated area; 
     and one area within each State composed of all areas that do 
     not fall within a metropolitan statistical area.) The 
     secretary would be required to announce these amounts in a 
     manner intended to provide notice to interested parties. (New 
     sec. 1895M(a), 1895A(c))
       b. Notice of Methodological Changes. At least 45 days 
     before making the announcement of annual rates (beginning 
     with the announcement for 1998), the Secretary would be 
     required to provide for notice to Medicare Choice plans of 
     proposed changes to be made in the methodology or benefit 
     coverage assumptions from those made in the previous 
     announcement and would have to provide plans an opportunity 
     to comment on proposed changes. In each announcement, the 
     Secretary would be required to include an explanation of the 
     assumptions (including any benefit coverage assumptions) and 
     changes in methodology used in the announcement in sufficient 
     detail so that plans could compute Medicare payment rates for 
     classes of individuals located in each Medicare payment area 
     which were in whole or in 

[[Page H 12796]]
     part within the Medicare service area of the plan. (New sec. 1895M(e))
       c. Calculation of Standardized Medicare Capitation Payment 
     Amounts.
       Calendar year 1997. For calendar year 1997, the 
     standardized Medicare payment amount for a Medicare payment 
     area would be equal to the sum of:
       50% of the modified per capita rate for calendar year 1996 
     and
       50% of the adjusted average national per capita rate for 
     calendar year 1996, increased by the percentage increase in 
     the gross domestic product per capita for the 12-month period 
     ending on June 30, 1996.
       The modified per capita rate for calendar year 1996 for a 
     Medicare payment area would be equal to the per capita rate 
     which would have been determined (without regard to class) to 
     derive the AAPCCs for 1995 if the applicable geographic area 
     were the Medicare payment area, and 50% of any payments 
     attributable to indirect medical education, direct graduate 
     medical education, and disproportionate share hospital 
     payments were not taken into account, increased by the 
     percentage increase which the Secretary estimated would occur 
     in Medicare expenditures per capita for 1996 over those for 
     1995.
       The adjusted average national per capita rate for a 
     Medicare payment area for calendar year 1996 would be equal 
     to the sum, for all types of Medicare services, of the 
     product for each type of:
       the average national per capita rate for 1996;
       the proportion of such rate for the year which is 
     attributable to the type of services; and
       an index that reflects for 1996 and the type of service the 
     relative input price of such services in the Medicare payment 
     area as compared to the national average input price for the 
     service. (In applying this, the Secretary would use those 
     indices that are used in applying (or updating) medical 
     payment areas for specific areas and localities.)
       The average national per capita rate for 1996 would be the 
     weighted average of the modified per capita rates described 
     above for all Medicare payment areas for 1996.
       For succeeding years, the standardized Medicare payment for 
     any calendar year after 1997 in a Medicare payment area would 
     be an amount equal to the standardized Medicare payment 
     amount determined for each area for the preceding year, 
     increased by the percentage increase in the per capita GDP 
     for the 12-month period ending in June 30 of the preceding 
     calendar year.
       However, for 1998, the standardized Medicare payment amount 
     for the preceding calendar year would be the amount which 
     would have been determined if 100% of the adjusted average 
     national per capita rate for calendar year 1996 had been 
     applied instead of 50%.
       A special rule would apply with respect to individuals with 
     ESRD. In computing the standardized Medicare payment amount 
     for any Medicare payment area, individuals with ESRD or 
     medical expenditures on them would not be taken into account. 
     (New sec. 1895M(b))
       Adjustments for Payments to Plan Sponsors. Payment rates to 
     a Medicare Choice plan sponsor would be equal to the 
     standardized Medicare payment amount for the Medicare payment 
     area, adjusted for such risk factors as age, disability 
     status, gender, institutional status, health status, and such 
     other factors as the Secretary determined to be appropriate 
     to ensure actuarial equivalency. The Secretary could add to, 
     modify, or substitute for such classes if such changes would 
     improve the determination of actuarial equivalence. The 
     Secretary would be required to establish a separate rate of 
     payment with respect to ESRD enrollees. This rate would have 
     to be actuarially equivalent to rates paid for other 
     enrollees in the Medicare payment area (or such other area as 
     specified by the Secretary). (New sec 1895M(c))
       Geographical Adjustments. Unless Congress provides 
     otherwise and starting with calendar years after 1999, the 
     Secretary would be required to make annual differential 
     adjustments to the standardized Medicare payment amounts for 
     calendar years 2000 and 2001 so as to achieve appropriate and 
     equitable variation across payment areas by calendar year 
     2002. This variation would be required to be reasonably 
     related to measurable geographic differences in Medicare 
     payment areas. The Secretary would be required to adjust the 
     standardized Medicare payment amounts in a manner that 
     assured that total payments for a year were not greater or 
     less than they would have been in the absence of the 
     geographical adjustment (i.e., budget neutrality). The 
     geographic adjustment process would be informed by an 
     analysis that the Secretary would be required to conduct in 
     consultation with interested parties. Such analysis would 
     focus on the measurable input cost differences across payment 
     areas, including wage differentials, and other measurable 
     variables identified by the Secretary. The Secretary would 
     also be required to determine the degree to which Medicare 
     beneficiaries, including those in rural and underserved 
     areas, have access to more health choices by the year 2000 
     under this Act, and the extent to which standardized payment 
     amounts limited or enhanced such choices. The Secretary would 
     be required to submit a report to the appropriate committees 
     of Congress that included the results of the analysis and the 
     differential adjustments that the Secretary intended to 
     implement for calendar years 2000 and 2001. (New sec. 
     1895M(d))
       d. Payment Process. The Secretary would be required to make 
     monthly payments in advance to the Medicare Choice plan 
     sponsor for each Medicare individual is enrolled consistent 
     with the payment rates described below. The payment would be 
     retroactively adjusted to take into account any differences 
     between the actual number of individuals enrolled in the plan 
     and the number of such individuals estimated to be so 
     enrolled in determining the amount of the advance payment. 
     (New sec. 1895O(a))
       e. Special Rules for Individuals High-deductible/Medisave 
     Products. No provision.
       f. Payments from Trust Funds. Payments to Medicare Choice 
     plan sponsors would be made from the HI and SMI trust funds 
     in such proportion as the Secretary determined reflected the 
     relative weights that benefits under Parts A and B 
     represented of the actuarial value of the total benefits. 
     (New sec. 1895O(b))
       g. Special Rule for Certain Inpatient Hospital Stays. A 
     contract under the Medicare Choice program would provide that 
     in the case of an individual who was receiving inpatient 
     hospital services from a hospital covered under Medicare's 
     prospective payment system as of the effective date of the: 
     (1) individual's enrollment with a Medicare Choice plan: (a) 
     payment for such services until the date of the individual's 
     discharge would be made as if the individual were not 
     enrolled with the plan; (b) the plan sponsor would not be 
     financially responsible for payment for such services until 
     the date of the individual's discharge; and (c) the plan 
     sponsor would nevertheless be paid the full amount otherwise 
     payable to the plan; or (2) termination of enrollment with a 
     Medicare Choice plan: (a) the plan sponsor would be 
     financially responsible for payment for such services after 
     the date of termination and until the date of discharge; (b) 
     payment for such services during the stay would not be made 
     under Medicare's PPS system; and (c) the plan sponsor would 
     not receive any payment with respect to the individual during 
     the period in which the individual was not enrolled. (New 
     sec. 1895H(e))
       h. Demonstration Project on Market-Based Reimbursement and 
     Competitive Pricing. The Secretary would be required to 
     establish one or more demonstration projects to determine the 
     standardized Medicare payment amounts through competitive 
     bidding by Medicare Choice plans in a Medicare payment area. 
     By December 31, 2001, the Secretary would be required to 
     submit a report to Congress on the success of such projects 
     in determining standardized Medicare payment amounts that 
     were reflective of market prices. (New sec. 1895M(f))
       i. Special Rule for Calculation of Payment Rates for 1996.  
     Notwithstanding any other provision of law, the per capita 
     rate under sec. 1876 of the Social Security Act for 1996 for 
     any class for a geographic area would be equal to the sum of: 
     (1) 75% of the updated per capita rate for a class for an 
     area; and (2) 25% of the weighted average of the updated per 
     capita rates for a class for all geographic areas. The latter 
     would be adjusted in the same manner as prescribed under the 
     above provisions for calculating the adjusted average 
     national per capita rate for 1996 to reflect differences in 
     input prices in the geographic area as compared to the 
     national average input prices. In no event would any average 
     per capita rate in a geographic area determined under the 
     preceding sentence be less than the rate determined under 
     section 1876 of the Social Security Act for 1995. For 
     purposes of calculating the per capita rate, the updated per 
     capita rate for any class would equal the per capita rate of 
     payment for 1995 determined under existing law for a county 
     (or equivalent area), increased by the percentage increase 
     which the Secretary estimated would occur in Medicare 
     expenditures per capita for 1996 over those for 1995. The 
     Secretary would be required to publish the rates no later 
     than 30 days after enactment. (Sec. 7003)
     Conference agreement
       The conference agreement follows the Senate provision with 
     modifications.
       In general, under a MedicarePlus contract, the Secretary 
     would be required to make monthly payments in advance to each 
     MedicarePlus organization, with respect to coverage of an 
     individual in a MedicarePlus payment area for a month, in an 
     amount equal to 1/12 of the annual MedicarePlus capitation 
     rate with respect to that individual for that area. The 
     payment would be adjusted for such risk factors as age, 
     disability status, gender, institutional status, and other 
     such factors as the Secretary determined to be appropriate, 
     so as to ensure actuarial equivalence. The Secretary could 
     add to, modify, or substitute for such factors, if such 
     changes would improve the determination of actuarial 
     equivalence.
       Payments to plans would be calculated based on the annual 
     MedicarePlus capitation rate. The Secretary would be required 
     to annually determine, and announce (in a manner intended to 
     provide notice to interested parties) no later than August 1 
     before the calendar year concerned: (1) the annual 
     MedicarePlus capitation rate for each MedicarePlus capitation 
     area for year, and (2) the risk and other factors to be used 
     in adjusting such rates for payments for months in that year.
       Calculation of the annual MedicarePlus capitation rate. The 
     conference agreement modifies the Senate methodology for 
     determining the payment to MedicarePlus plans. The annual 
     MedicarePlus capitation rate, for a payment area for a 
     contract for a calendar year would be equal to the greatest 
     of the following: 

[[Page H 12797]]

       (A) A blended capitation rate, defined as the sum of: (1) 
     the area-specific percentage (as defined below) of the annual 
     area-specific MedicarePlus capitation rate for the year for 
     the payment area and (2) the national percentage (as defined 
     below) of the input-price adjusted annual national 
     MedicarePlus capitation rate for the year. (This sum is 
     multiplied by a budget neutrality adjustment to ensure no 
     more or less is spent on plan payments than would have 
     otherwise been made under this part.)
       (B) A minimum monthly payment amount set at $300 for 1996 
     and $350 for 1997;
       (C) A monthly payment amount representing a minimum 2% 
     increase over the previous year's rate.
       The area-specific and national percentages referred to in 
     (A) above are as follows:
       1996--the area-specific percentage is 90% and the national 
     percentage is 10%.
       1997--the area-specific percentage is 90% and the national 
     percentage is 10%.
       1998--the area-specific percentage is 85% and the national 
     percentage is 15%.
       1999--the area-specific percentage is 80% and the national 
     percentage is 20%.
       2000--the area-specific percentage is 75% and the national 
     percentage is 25%.
       After 2000--the area-specific percentage is 70% and the 
     national percentage is 30%.
       The annual area-specific MedicarePlus capitation rate for a 
     MedicarePlus payment area would be:
       For 1996--the annual per capita rate of payment for 1995 
     (as determined under the current law calculation to derive 
     95% of the AAPCC), increased by the national average per 
     capita growth percentage for 1996 (as defined below), or
       For a subsequent year--the annual area-specific 
     MedicarePlus capitation rate for the previous year, increased 
     by the national average per capita growth percentage for such 
     subsequent year.
       The conference agreement defines the input-price-adjusted 
     annual national MedicarePlus capitation rate for a 
     MedicarePlus payment area for a year to equal the weighted 
     sum, for all types of Medicare services, of:
       the national standardized annual MedicarePlus capitation 
     rate for the year, defined as the weighted average of all 
     area-specific capitation rates for that year multiplied by--
       an index that reflects (for the year and the type of 
     services) the relative input price of such services in the 
     area as compared to the national average input price of such 
     services. (In applying this, the Secretary would use those 
     indices that are used in applying (or updating) national 
     payment rates for specific areas and localities.)
       A special rule would apply in determining the input-price 
     adjusted annual national MedicarePlus capitation rate for 
     1996, and at the Secretary's discretion, for 1997.
       The national average per capita growth percentage would be 
     defined as follows: 1996 = 8.0%; 1997 = 3.8%; 1998 = 4.6%; 
     1999 = 4.3%; 2000 = 3.8%; 2001 = 5.5%; 2002 = 5.6%; 
     Subsequent years = 5.0%.
       A MedicarePlus payment area is defined as a county or 
     equivalent area specified by the Secretary. In the case of 
     individuals who are determined to have ESRD, the MedicarePlus 
     payment area would be each State. The conference agreement 
     would modify the Senate provision for making geographic 
     adjustments. Upon request of a State for a contract year 
     (beginning after 1996) made at least 7 months before the 
     beginning of the year, the Secretary would redefine 
     MedicarePlus payment areas in the State to: (1) a single 
     Statewide MedicarePlus payment area; (2) the metropolitan 
     system described below; or (3) a single MedicarePlus payment 
     area consolidating noncontinuous counties (or equivalent 
     areas) within a State. This adjustment would be effective for 
     payments for months beginning with January of the year 
     following the year in which the request was received. The 
     Secretary would be required to make an adjustment to payment 
     areas in the State to ensure budget neutrality.
       The metropolitan system referred to above follows the 
     Senate bill by providing for a payment system based on 
     metropolitan statistical areas (MSAs) in which all portions 
     of each MSA in the State or in the case of a consolidated 
     MSA, all of the portions of each primary MSA within the 
     consolidated areas within the State, are treated as a single 
     MedicarePlus payment area, and all areas in the State that do 
     not fall within a MSA are treated as a single MedicarePlus 
     payment area.
       The conference agreement does not include the Senate 
     provisions relating to geographical adjustments, including 
     the provision that the Secretary provide analysis of input 
     cost differences across payment areas and the report to 
     Congress on this analysis.
       It is the intent of the conferees that the Secretary 
     conduct an analysis, based on the developments in the 
     MedicarePlus program up to December 31, 1998, of the 
     variation in Medicare payment amounts, taking into 
     consideration measurable input cost differences, and the 
     degree to which MedicarePlus payment amounts have enhanced or 
     limited beneficiary choice of health plans in areas. The 
     Secretary would report the findings to the appropriate 
     committees of the Congress, and the public, not later than 
     December 31, 2000.
       In the case of an individual who elected a high-deductible 
     plan, the amount of the monthly payment to the MedicarePlus 
     organization offering the high deductible plan could not 
     exceed the monthly premium for the plan. Any additional 
     amount would be paid directly into the individual's High 
     Deductible MedicarePlus MSA. No payment would be made unless 
     the individual had established a High Deductible MSA before 
     the beginning of the month and if the case of multiple 
     accounts, the individual had designated one for purposes of 
     receiving the contribution. Deposits would be made to the 
     account as a lump sum in the first month. In the case of a 
     termination of election of this option, the Secretary would 
     be required to provide for a procedure for recovery of 
     deposits attributable to the remaining months of the year.
       The conference agreement includes an amendment providing 
     that effective January 1, 1997, if a member of a Federally 
     qualified HMO certified that a Rebate MedicarePlus MSA had 
     been established for his or her benefit, the HMO could reduce 
     the basic health services payment otherwise determined under 
     the applicable law by requiring the payment of a deductible.
       Rebates would be provided as follows: In general, if the 
     amount of the monthly premium for a MedicarePlus plan (other 
     than a high deducible plan) for a MedicarePlus payment area 
     was less than 1/12 of the annual MedicarePlus capitation rate 
     for the area and year involved, at the election of an 
     individual enrolled under the plan, the Secretary would 
     either:
       (1) In the case of an individual who had a Rebate 
     MedicarePlus MSA account, deposit 100% of such difference 
     into the account specified by the individual,
       (2)(a) pay to the MedicarePlus organization on behalf of 
     the individual 100% of the difference (up to the premium 
     amount) for supplemental benefits; or (b) pay to the 
     individual an amount equal to 75% of the remainder of the 
     difference, and deposit any remainder of the difference in 
     the Federal Hospital Insurance Trust Fund.
       The conference agreement follows the House provision with 
     respect to payments in the case of an individual receiving 
     inpatient hospital services from a hospital covered under 
     Medicare's prospective payment system as of the effective 
     date of the (1) individual's election of a MedicarePlus 
     product.


 7. establishment of standards for medicareplus organizations/medicare 
  choice plans (new sec. 1856 of house bill; new sec. 1895S of senate 
                                 bill)

     Current law
       Under section 1876 of the Social Security Act, Medicare 
     specifies requirements to be met by an organization seeking 
     to become a managed care contractor with Medicare. There is 
     no provision for NAIC to play a role in developing or 
     establishing these requirements. There is no provision for 
     Provider-Sponsored Organizations.
     House bill
       a. Federal Standards Applicable to State-Regulated 
     Organizations and Products. The Secretary would be required 
     to request the National Association of Insurance 
     Commissioners (NAIC) to develop and submit within 12 months 
     after enactment proposed standards consistent with the bill 
     requirements for MedicarePlus organizations (other than 
     sponsoring organizations and PSOs) and products. Such 
     proposed standards could relate to qualified associations 
     only with respect to MedicarePlus products offered by them 
     and only if such products were issued by organizations which 
     were organized and licensed under State law.
       If the NAIC's submission was timely, the Secretary would 
     review the proposed standards within 90 days and promulgate 
     them with modifications to the extent they did not meet the 
     requirements. If the Association's submission was not timely, 
     the Secretary would be required to promulgate proposed 
     standards no later than otherwise required. Until such 
     standards were established, the Secretary would provide 
     interim standards as might be appropriate. Such interim 
     standards would have to be issued no later than June 1, 1996. 
     (New sec. 1856(a))
       b. Standards Applicable to Union and Taft-Hartley Sponsors, 
     and Qualified Associations. The Secretary would also develop 
     and promulgate MedicarePlus standards for sponsoring 
     organizations and products except for products offered by 
     qualified associations organized and licensed under State law 
     to offer health insurance or health benefits coverage. With 
     respect to union and Taft-Hartley sponsors, the Secretary 
     would be required to consult with the Secretary of Labor and 
     the standards would be promulgated about the same time as the 
     general MedicarePlus standards. (New sec. 1856(b))
       c. Standards Applicable to Provider-Sponsored 
     Organizations. With respect to provider-sponsored 
     organizations, the Secretary would establish standards on an 
     expedited basis using the negotiated rule-making process 
     under title 5 United States Code.
       The target publication date for the rule would be September 
     1, 1996.
       Within 45 days after enactment, the Secretary, after 
     consulting with the National Association of Insurance 
     Commissioners, the American Academy of Actuaries, 
     organizations representing Medicare beneficiaries, and other 
     interested parties, would publish the notice required by 
     section 564(a) of title 5.
       The period for submitting comments would be shortened to 15 
     days, and within 30 days thereafter the Secretary would be 
     required to provide for the appointment of a negotiated 
     rulemaking committee. The Secretary would be required to 
     provide for a facilitator no later than 10 days after the 
     establishment of the committee.

[[Page H 12798]]

       The negotiated rulemaking committee would be required to 
     report to the Secretary no later than June 1, 1996, regarding 
     its progress towards reaching consensus and whether that was 
     likely to occur before one month prior to the target 
     publication date. If the committee reported it had failed to 
     make significant progress towards reaching consensus, or if 
     it was unlikely to reach consensus by the target date, the 
     Secretary could terminate the process and provide for the 
     publication of the rule through other methods. Otherwise, the 
     committee would be required to submit a report containing the 
     proposed rule no later than one month before the target 
     publication date.
       The Secretary would publish the rule in the Federal 
     Register by the target publication date. The rule would be 
     effective and final immediately on an interim basis, but 
     subject to revision after public notice and opportunity for 
     comment of not less than 60 days. The Secretary would be 
     required to provide for consideration of such comments and 
     republication of the rule not later than one year after the 
     target publication date.
       With the initial publication of the final rule, the 
     Secretary would be required to specify a process for timely 
     review and approval of entities to be certified as provider-
     sponsored organizations. Completed applications would be 
     acted upon within 60 days of receipt.
       After consulting with the negotiated rulemaking committee, 
     the Secretary by March 1, 1996, would be required to 
     circulate a proposed application form. (New sec. 1856(c))
       d. Coordination Among Final Standards to Promote Equitable 
     Treatment.  In establishing MedicarePlus standards other than 
     on an interim basis, the Secretary would be required to try 
     to be consistent where appropriate in order to promote the 
     equitable treatment of different types of MedicarePlus 
     organizations and the consistent protection for individuals 
     who chose their products. (New sec. 1856(d))
       e. Use of Current Standards for Interim Standards. 
     Standards established on an interim basis could be based on 
     currently applicable standards, such as those established for 
     analogous provisions of section 1876 or the private health 
     insurance market. (New sec. 1856(e))
       f. Application of New Standards to Entities with Existing 
     Contracts. At the time MedicarePlus standards change, an 
     organization with a contract in effect could elect not to 
     have the changes apply until the end of the contract year 
     (or, if there is less than 6 months remaining in the contract 
     year, until one year after its end). (New sec. 1856(f))
       g. Relation to State Laws. Standards under this section 
     would supersede any State law or regulation (to the extent it 
     was inconsistent with the standards) with respect to 
     MedicarePlus products which were offered by MedicarePlus 
     organizations that were organized and licensed under State 
     law to offer health insurance or health benefits coverage. 
     (New sec. 1856(g))
       h. Secretary's Proposal for Conforming Amendments. No 
     provision.
     Senate bill
       a. Federal Standards Applicable to State-Regulated 
     Organizations and Products. The Secretary would be required 
     to establish such regulations as might be necessary to carry 
     out the purposes of the Medicare Choice provisions, including 
     regulations setting forth the requirements to meet all 
     quality, access, and solvency standards specified above.(New 
     Sec. 1895S(a))
       b. Standards Applicable to Union and Taft-Hartley Sponsors, 
     and Qualified Associations. No provision.
       c. Standards Applicable to Provider-Sponsored 
     Organizations. No provision (but see new sec. 1895R on 
     Temporary Federal Certification Process for Coordinated Care 
     Plans).
       d. Coordination Among Final Standards to Promote Equitable 
     Treatment.  No provision.
       e. Use of Interim Standards. The Secretary could, within 
     120 days after enactment, promulgate regulations (as 
     described in (a) above) on an interim basis, after notice and 
     opportunity for comment. (New sec. 1895S(b))
       f. Application of New Standards to Entities with Existing 
     Contracts.  No provision (but see sec. 1895R on Temporary 
     Federal Certification Process for Coordinated Care Plans).
       g. Relation to State Laws. No provision (but see sec. 1895R 
     on Temporary Federal Certification Process for Coordinated 
     Care Plans).
       h. Secretary's Proposal for Conforming Amendments. No later 
     than 90 days after enactment, the Secretary would be required 
     to submit to the appropriate committees of Congress a 
     legislative proposal providing for such technical and 
     conforming amendments in the law as are required by the 
     Medicare Choice provisions. (New sec. 1895S(c))
     Conference agreement
       The conference agreement combines provisions on 
     establishment of standards for MedicarePlus organizations 
     with provisions for certification of MedicarePlus 
     organizations and plans. The agreement is described below.


8. process for certification of medicareplus organizations and products 
      (new sec. 1857 of house bill; new sec. 1895R of senate bill)

     Current law
       Eligibility to be a Medicare managed care contractor is 
     determined by the Department of Health and Human Services. 
     States do not play a role in certifying organizations as 
     eligible to become Medicare managed care contractors.
     House bill
       a. Federal Certification of Plans. Beginning on the date 
     MedicarePlus standards were established, for States for which 
     certification programs were not approved and operating, the 
     Secretary would be required to establish a process for 
     certifying that such organizations (other than unions 
     sponsors, Taft-Hartley sponsors, and PSOs) and their products 
     met the standards. The Secretary would be required to publish 
     and periodically update a list of approved State programs. 
     (New sec. 1857(a)(5))
       1. Coordinated care plans. No provision (but see new sec. 
     1857(a)(5))
       2. Other plans. The Secretary would be required to 
     establish a process for certifying that sponsoring 
     organizations and their respective MedicarePlus products met 
     MedicarePlus standards. With respect to union and Taft-
     Hartley sponsors, the process would be established and 
     operated in cooperation with the Secretary of Labor. To the 
     maximum extent practicable, the Federal process would use 
     private accreditation processes that the Secretary finds 
     apply standards no less stringent than the requirements of 
     this part. The use of private accreditation processes would 
     be valid only for periods specified by the Secretary. The 
     Secretary could impose user fees on organizations seeking 
     certification to finance its cost. (New sec. 1857(b))
       3. Provider-Sponsored Organizations. See new sec. 1856(c) 
     as described above in sec. 7(c) of the House provisions.
       b. State Certification Process. The Secretary would be 
     required to approve a MedicarePlus certification and 
     enforcement program established by a State for applying 
     MedicarePlus standards to MedicarePlus organizations and 
     products if the Secretary determined that the program 
     effectively provided for the application and enforcement of 
     the MedicarePlus standards. State certification would not 
     apply to union or Taft-Hartley sponsors or, except as 
     follows, provider-sponsored organizations. State 
     certification programs would have to provide for 
     certification of compliance of MedicarePlus organizations and 
     products not less often than once every three years. A State 
     could impose user fees on organizations seeking certification 
     to finance its cost. A MedicarePlus organization or product 
     with State certification would be considered to be certified 
     with respect to offerings of the product to individuals 
     residing in the State. (New sec. 1857(a))
       1. Federal approval of State certification. The Secretary 
     would be required to periodically review approved State 
     certification programs to determine if they continued to 
     provide for certification and enforcement. States found to be 
     out of compliance would be allowed an opportunity to adopt a 
     plan of correction. If the failure continued, the Federal 
     certification process would be applied. (New sec. 1857(a))
       2. State certification of PSOs. The Secretary would be 
     required to establish a process under which States could 
     propose to certify provider-sponsored organizations, but 
     State proposals would not be approved unless the Secretary 
     determined that they were identical to the standards of this 
     part and would not result in a lower level or quality of 
     enforcement. (New sec. 1857(c))
       c. Continued State Regulation of Products Offered by 
     Qualified Association Plans. The certification provisions of 
     this section would not limit the authority of States to 
     regulate products offered by MedicarePlus organizations that 
     are qualified associations and meet specified conditions. 
     (New sec. 1857(e))
       d. Notice to Enrollees in Case of Decertification. In the 
     event that a MedicarePlus organization or product was 
     decertified, the plan would have to notify each enrollee. 
     (New sec. 1857(d))
       e. Sunset of Temporary Federal Certification Process. No 
     provision.
       f. Transition Treatment for Existing Risk Contracts. No 
     provision (but see new sec. 1856(f))
       g. Partial Capitation Demonstration. No provision.
       h. Report on Temporary Federal Certification. No provision.
     Senate bill
       a. Federal Certification of Plans. The Secretary would 
     establish a process for certification of a coordinated care 
     plan and its sponsor. The process would (1) set forth 
     standards for certification, (2) provide that final action 
     would be taken within 120 business days of receipt of the 
     completed application, (3) provide that State laws and 
     regulations would apply to the extent they were not found to 
     be unreasonable barriers to market entry, and (4) require any 
     person receiving a certificate to provide the Secretary with 
     all reasonable information to ensure compliance with 
     certification. A certificate issued under these procedures 
     could not be for more than 36 months and could not be 
     renewed. A person receiving the certificate would be required 
     to continue seeking State licensure during the period the 
     certificate is in effect. (New sec. 1895R(b))
       1. Coordinated care plans. The Secretary would evaluate 
     applications from coordinated care plan sponsors if a State 
     failed to substantially complete action within 90 days of 
     receipt of a completed application or if a State denied the 
     application and the Secretary determined that the State's 
     licensing standards or review process created an unreasonable 
     barrier to market entry. State standards or review processes 
     would not be treated as unreasonable barriers if they were 
     applied consistently to all coordinated care 

[[Page H 12799]]
     Medicare Choice plan applications, [and] were not in conflict or 
     inconsistent with Federal standards. (New sec. 1895(a))
       2. Other plans. No provision.
       3. Provider-Sponsored Organizations. No provision.
       b. State Certification Process. No provision (but a person 
     receiving a certificate under this section would be required 
     to continue to seek State licensure during the period the 
     certificate was in effect. (New sec. 1895R(b)(3)(B))
       1. Federal approval of State certification. No provision 
     (but see new sec. 1895R(b))
       2. State certification of PSOs. No provision.
       c. Continued State Regulation of Products Offered by 
     Qualified Association Plans. No provision (but see new sec. 
     1895R(b))
       d. Notice to Enrollees in Case of Decertification. No 
     provision.
       e. Sunset of Temporary Federal Certification Process. No 
     certificate would be issued under Federal procedures after 
     December 31, 2000, and no such certificate would remain in 
     effect after December 31, 2001 (New sect. 1895R(b)(3)(C))
       f. Transition Treatment for Existing Risk Contracts. A 
     Medicare choice plan sponsor that was an eligible 
     organization (under sec. 1876(b) of current law) and that had 
     a risk-sharing contract in effect as of enactment or had an 
     application for such a contract filed before enactment and 
     the contract was entered into before July 1, 1996 would be 
     treated as meeting the Federal standards in effect under this 
     section for any contract years beginning before January 1, 
     2000. (New sec. 1895R(e))
       g. Partial Capitation Demonstration. The Secretary would be 
     required to conduct a demonstration on alternative partial 
     risk-sharing arrangements with health care providers. The 
     Secretary would be required to report to Congress no later 
     than December 31, 1998, on the administrative feasibility of 
     such partial capitation methods and the information necessary 
     to implement the arrangements. (New sec. 1895R(f))
       h. Report on Temporary Federal Certification. The Secretary 
     would be required to report to Congress no later than 
     December 31, 1998, on the temporary Federal certification 
     system. The report would include analysis of State efforts to 
     adopt licensing standards and review processes that take into 
     account the fact that coordinated care plan sponsors provide 
     services directly to enrollees through affiliated providers. 
     (New sec. 1895R(c))
     Conference agreement
       The conference agreement combines provisions on 
     establishment of standards for MedicarePlus organizations 
     with provisions for certification of MedicarePlus 
     organizations and plans.
       The agreement follows the House bill with modifications. 
     The agreement provides that State certification programs (as 
     approved by the Secretary) may apply to provider-sponsored 
     organizations other than with respect to solvency standards. 
     Such organizations would be among those for which the 
     Secretary would ask the National Association of Insurance 
     Commissioners to develop and submit proposed standards 
     (except for solvency). The Secretary would establish solvency 
     standards for provider-sponsored organizations on an 
     expedited basis and using a negotiated rulemaking process as 
     under the House bill. In establishing the latter standards, 
     the Secretary shall consult with interested parties and take 
     into account (1) the delivery system assets of an 
     organization and the ability of the organization to provides 
     services directly to enrollees through affiliated providers 
     and (2) alternative means of protecting against insolvency 
     including reinsurance, unrestricted surplus, letters of 
     credit, guarantees, organizational insurance coverage, 
     partnerships with other licensed entities, and valuation 
     attributable to the ability of such an organization to meet 
     its service obligations through direct delivery of care.


9. contract authority (new sec. 1858 of house bill; new sec. 1895p and 
                         1895q of senate bill)

     Current law
       Contracts with HMOs are for 1 year, and may be made 
     automatically renewable. However, the contract may be 
     terminated by the Secretary at any time (after reasonable 
     notice and opportunity for a hearing) in the event that the 
     organization fails substantially to carry out the contract, 
     or carries out the contract in a manner inconsistent with the 
     efficient and effective administration of Medicare HMO law, 
     or no longer meets the requirements specified for Medicare 
     HMOs. The Secretary also has authority to impose certain 
     lesser sanctions, including suspension of enrollment or 
     payment and imposition of civil monetary penalties. These 
     sanctions may be applied for denial of medically necessary 
     services, overcharging, enrollment violations, 
     misrepresentation, failure to pay promptly for services, or 
     employment of providers barred from Medicare participation.
       To be eligible to be a risk contractor, HMOs/CMPs must have 
     at least 5,000 members; if, however, they primarily serve 
     members outside urbanized areas, they may have fewer 
     enrollees (defined in regulation as at least 1,500). 
     Organizations eligible for Medicare cost contracts may have 
     fewer members than 5,000 (specified in regulation as at least 
     1,500).
       No more than 50 percent of the organization's enrollees may 
     be Medicare or Medicaid beneficiaries. This rule may be 
     waived, however, for an organization that serves a geographic 
     area where Medicare and Medicaid beneficiaries make up more 
     than 50 percent of the population or (for 3 years) for an HMO 
     that is owned and operated by a governmental entity.
       During its annual open enrollment period of at least 30 
     days duration, HMOs must accept beneficiaries in the order in 
     which they apply, up to the limits of its capacity, unless to 
     do so would lead to violation of the 50 percent Medicare-
     Medicaid maximum or to an enrolled population 
     unrepresentative of the population in the area served by the 
     HMO. If an HMO chooses to limit enrollment because of its 
     capacity, regulation provides that it must notify HCFA at 
     least 90 days before the beginning of its open enrollment 
     period and, at that time, provide HCFA with its reasons for 
     limiting enrollment.
       In areas where Medicare has risk contracts with more than 
     one HMO and an HMO's contract is not renewed or is 
     terminated, the other HMOs serving the area must have an open 
     enrollment period of 30 days for persons enrolled under the 
     terminated contract.
     House bill
       a. In General. The Secretary would not permit the election 
     of a MedicarePlus product and no payment would be made to an 
     organization unless the Secretary had entered into a contract 
     with the organization with respect to the product. A contract 
     could cover more than one MedicarePlus product. Contracts 
     would provide that organizations agree to comply with 
     applicable requirements and standards. (New sec. 1858(a))
       b. Minimum Enrollment Requirements. The Secretary would be 
     prohibited from entering into a contract with a MedicarePlus 
     organization other than a union or Taft-Hartley sponsor 
     unless the organization had at least 5,000 individuals (or 
     1,500 individuals in the case of a PSO) who were receiving 
     health benefits through the organization. An exception would 
     apply if the MedicarePlus standards permitted the 
     organization to have a lesser number of beneficiaries (but 
     not less than 500 for a PSO) if the organization primarily 
     served individuals residing outside of urbanized areas. The 
     Secretary could waive this requirement during an 
     organization's first 3 contract years. Minimum enrollment 
     requirements would not apply to a contract that related only 
     to high-deductible/medisave product. (New sec. 1858(b))
       c. Contract Period and Termination. The contract would be 
     for at least one year, could be made automatically renewable 
     in the absence of notice by either party of intention to 
     terminate. The Secretary could terminate any contract at any 
     time or impose intermediate sanctions described below on the 
     organization if the Secretary found that the organization (a) 
     had failed substantially to carry out the contract; (b) was 
     carrying it out in a manner substantially inconsistent with 
     efficient and effective administration; (c) was operating in 
     a manner that was not in the best interests of the 
     individuals covered under the contract; or (d) no longer 
     substantially met MedicarePlus conditions. Contracts would 
     specify their effective date, but those for coverage under a 
     high-deductible/medisave account could not take effect before 
     January 1997. The Secretary would not have to contract with 
     an organization that had voluntarily terminated its contract 
     with Medicare in the previous 5 years. The authority of the 
     Secretary with respect to Medicare Choice plans could be 
     performed without regard to laws or regulations relating to 
     contracts of the United States that the Secretary determined 
     were inconsistent with the purposes of Medicare. (New sec. 
     1858(c))
       d. Protections Against Fraud and Beneficiary Protections. 
     Each contract would provide that the Secretary or his or her 
     designee would have the right to inspect or otherwise 
     evaluate the quality, appropriateness and timeliness of 
     services, as well as the organization's facilities if there 
     were reasonable evidence of need for such inspection; in 
     addition, they would have the right to audit and inspect any 
     books and records that pertain to (1) the ability of the 
     organization to bear risk of financial loss and (2) services 
     performed or determinations of amounts payable under the 
     contract. The contract would also require the organization to 
     provide and pay for written notice in advance of a 
     termination, as well as a description of alternatives for 
     obtaining benefits, to each enrollee. MedicarePlus 
     organizations would be required to report financial 
     information to the Secretary (and to enrollees, if 
     requested), including information demonstrating that the 
     organization was fiscally sound, a copy of the financial 
     report filed with HCFA, and a description of transactions 
     between the organization and parties in interest. The 
     contract would require the organization to notify the 
     Secretary of loans and other special financial arrangements 
     with subcontractors, affiliates, and related parties. (New 
     sec. 1858(d))
       e. Additional Contract Terms. Contracts would contain other 
     terms and conditions (including requirements for information) 
     as the Secretary found necessary and appropriate. (New sec. 
     1858(e))
       f. Intermediate Sanctions. The Secretary would be 
     authorized to carry out specific remedies in the event that a 
     MedicarePlus organization: (1) failed substantially to 
     provide medically necessary items and services required to be 
     provided, if the failure adversely affected (or had the 
     substantial likelihood of adversely affecting) the 
     individual; (2) imposed premiums on individuals that 

[[Page H 12800]]
     were in excess of the premiums permitted; (3) expelled or refused to 
     re-enroll an individual; (4) engaged in any practice that 
     would reasonably be expected to have the effect of denying or 
     discouraging enrolling by eligible individuals with the 
     organization whose medical condition or history indicates a 
     need for substantial future medical services; (5) 
     misrepresented or falsified information; (6) failed to comply 
     with other specified requirements; or (7) employed or 
     contracted with any individual or entity that was excluded 
     from Medicare or Medicaid participation for the provision of 
     health care, utilization review, medical social work, or 
     administrative services, or employed or contracted with any 
     entity for the provision through such an excluded individual 
     or entity.
       The remedies would include civil money penalties of not 
     more than $25,000 for each determination of a failure 
     described above or with respect to certain failures (such as 
     denying enrollment to persons with a preexisting medical 
     condition or misrepresenting information furnished to the 
     Secretary), of not more than $100,000. In cases of the 
     latter, the Secretary could also levy a $15,000 fine for each 
     individual not enrolled. In the case of an organization 
     determined to have charged excess premiums, the Secretary 
     could also recover twice the excess amount and return the 
     excess amount to the affected individual. In addition, the 
     Secretary could suspend enrollment of individuals and payment 
     to the organization after notifying it of an adverse 
     determination, until the Secretary was satisfied that the 
     failure had been corrected or would not recur. The provisions 
     of section 1128A (other than subsections (a) and (b)) would 
     apply to the determinations of failures and the remedies 
     described above.
       Under his or her authority to terminate contracts, if the 
     Secretary determined that a failure had occurred other than 
     those described above, other intermediate sanctions could be 
     imposed. These include: (1) civil money penalties up to 
     $25,000 if the deficiency directly adversely affected (or had 
     the likelihood of adversely affecting) an individual under 
     the organization's contract; (2) penalties of not more 
     $10,000 for each week after the Secretary initiated 
     procedures for imposing sanctions; and (3) suspension of 
     enrollment until the deficiency had been corrected and the 
     Secretary determined it was unlikely to recur. (New sec. 
     1858(f))
       g. Procedures for Imposing Sanctions. The Secretary could 
     terminate a contract or impose the sanctions described above 
     in accordance with formal investigation and compliance 
     procedures under which (A) the Secretary provides the 
     organization with an opportunity to develop and implement a 
     corrective action plan, (B) the Secretary imposes more severe 
     sanctions on organizations that have a history of 
     deficiencies or have not taken steps to correct those the 
     Secretary brought to their attention, (C) there are no 
     unreasonable or unnecessary delays between finding a 
     deficiency and imposing sanctions, and (D) the Secretary 
     provides reasonable notice and opportunity for a hearing, 
     including the right to appeal an initial decision. (New sec. 
     1858(g))
     Senate bill
       a. In General. The Secretary would enter into a contract 
     with any Medicare Choice plan sponsor in a Medicare payment 
     area if requirements pertaining to the plan and sponsor are 
     met. (New sec. 1895P)
       b. Minimum Enrollment Requirements. No provision.
       c. Contract Period and Termination. Except for termination 
     for cause, each contract may be made automatically renewable 
     in the absence of notice by either party of intention to 
     terminate. The Secretary may terminate a contract with a 
     Medicare Choice plan sponsor at any time or may impose the 
     intermediate sanctions described below if the Secretary finds 
     that the sponsor (1) has failed substantially to carry out 
     the contract, (2) is carrying it out in a manner 
     substantially inconsistent with efficient and effective 
     administration, or (3) no longer substantially meets Medicare 
     Choice conditions. The Secretary would not have to have a 
     contract with a sponsor that had voluntarily terminated its 
     contract with Medicare in the previous 5 years. The authority 
     the Secretary with respect to Medicare Choice plans may be 
     performed without regard to laws or regulations relating to 
     contracts of the United States that the Secretary determines 
     are inconsistent with the purposes of Medicare. (New sec. 
     1895Q(b), 1895Q(d), and 1895Q(e))
       d. Protections Against Fraud and Beneficiary Protections. 
     Each contract would provide that the Secretary or his or her 
     designee would have the right to inspect or otherwise 
     evaluate the quality, appropriateness and timeliness of 
     services, as well as the sponsor's facilities if there were 
     reasonable evidence of need for such inspection; in addition, 
     they would have the right to audit and inspect any books and 
     records that pertain to the ability of the sponsor to bear 
     risk of financial loss. The contract would also require the 
     sponsor to provide and pay for written notice in advance of a 
     termination, as well as a description of alternatives for 
     obtaining benefits, to each enrollee. In addition, except as 
     provided by the Secretary, the contract would require the 
     sponsor to comply with Public Health Service Act provisions 
     relating to financial information disclosures and liability 
     arrangements, [and to provide information described in sec. 
     1866(b)(2)(C)(ii)]. The contract would require the sponsor to 
     notify the Secretary of loans and other special financial 
     arrangements with subcontractors, affiliates, and related 
     parties. (New sec. 1895Q(c))
       e. Additional Contract Terms. Contracts would contain other 
     terms and conditions (including requirements for information) 
     as the Secretary finds necessary and appropriate. (New sec. 
     1895Q(c))
       f. Intermediate Sanctions. The Secretary would be 
     authorized to carry out specific remedies in the event that a 
     Medicare Choice plan sponsor: (1) failed substantially to 
     provide medically necessary items and services required to be 
     provided, if the failure adversely affected (or had the 
     substantial likelihood of adversely affecting) the 
     individual; (2) imposed cost sharing on individuals that were 
     in excess of the cost sharing permitted; (3) expelled or 
     refused to re-enroll an individual; (4) engaged in any 
     practice that would reasonably be expected to have the effect 
     of denying or discouraging enrolling by eligible individuals 
     with the sponsor's plan whose medical condition or history 
     indicates a need for substantial future medical services; (5) 
     misrepresented or falsified information; (6) failed to comply 
     with other specified requirements; or (7) employed or 
     contracted with any individual or entity that was excluded 
     from Medicare or Medicaid participation for the provision of 
     health care, utilization review, medical social work, or 
     administrative services, or employed or contracted with any 
     entity for the provision through such an excluded individual 
     or entity.
       The remedies would include civil money penalties of not 
     more than $25,000 for each determination of a failure 
     described above or with respect to certain failures (such as 
     denying enrollment to persons with a preexisting medical 
     condition or misrepresenting information furnished to the 
     Secretary), of not more than $100,000. In cases of the 
     latter, the Secretary could also levy a $15,000 fine for each 
     individual not enrolled. In the case of a plan sponsor 
     determined to have charged excess premiums, the Secretary 
     could also recover twice the excess amount and return the 
     excess amount to the affected individual. In addition, the 
     Secretary could suspend enrollment of individuals and payment 
     to the plan sponsor after notifying it of an adverse 
     determination, until the Secretary was satisfied that the 
     failure had been corrected or would not recur. The provisions 
     of section 1128A (other than subsections (a) and (b)) would 
     apply to the determinations of failures and the remedies 
     described above.
       Under his or her authority to terminate contracts, if the 
     Secretary determined that a failure had occurred other than 
     those described above, other intermediate sanctions could be 
     imposed. These include: (1) civil money penalties up to 
     $25,000 if the deficiency directly adversely affected (or had 
     the likelihood of adversely affecting) an individual under 
     the organization's contract; (2) penalties of not more 
     $10,000 for each week after the Secretary initiated 
     procedures for imposing sanctions; and (3) suspension of 
     enrollment until the deficiency had been corrected and the 
     Secretary determined it was unlikely to recur. (New sec. 
     1895Q(f))
       g. Procedures for Imposing Sanctions. The Secretary could 
     terminate a contract or impose the sanctions described above 
     in accordance with formal investigation and compliance 
     procedures under which (A) the Secretary first provides the 
     sponsor with reasonable opportunity to develop and implement 
     a corrective action plan, which the sponsor fails to do, (B) 
     the Secretary considers aggravating factors such as whether 
     the sponsor has a history of deficiencies or has not taken 
     action to correct those the Secretary brought to its 
     attention, (C) there are no unreasonable or unnecessary 
     delays between finding a deficiency and imposing sanctions, 
     and (D) the Secretary provides reasonable notice and 
     opportunity for a hearing, including the right to appeal an 
     initial decision. (New sec. 1895Q(b))
     Conference agreement
       The conference agreement follows the House bill.
       The conference agreement does not include the provision for 
     termination of contracts if the plan was operating in a 
     manner that was not in the best interests of the individuals 
     covered under the contract.
       Note that New Section 1858 of the Conference Agreement on 
     ``Standards for MedicarePlus Information Transactions and 
     Data Elements,'' are discussed under Subtitle H, Part D of 
     the Conference Report.


  10. duplication and coordination of medicare-related products (sec. 
                          15003 of house bill)

     Current law
       Many Medicare beneficiaries purchase private health 
     insurance to supplement their Medicare coverage. These 
     individually purchased policies are commonly known as Medigap 
     policies. OBRA 90, P.L. 101-508 provided for a 
     standardization of Medigap policies. OBRA 90 also 
     substantially modified the antiduplication provision 
     contained in law. The intent of the OBRA 90 anti-duplication 
     provision was to prohibit sales of duplicative Medigap 
     policies. However, the statutory language applied, with very 
     limited exceptions, to all ``health insurance policies'' sold 
     to Medicare beneficiaries. Observers noted that this 
     provision could thus apply to a broad range of policies 
     including hospital indemnity plans, dread disease policies, 
     and long-term care insurance policies.
       The Social Security Amendments of 1994 (P.L. 103-432) 
     included a number of technical modifications to the Medigap 
     statute, including modifications to the anti-duplication 

[[Page H 12801]]
     provisions. Under the revised language, it is illegal to sell or issue 
     the following policies to Medicare beneficiaries: (i) a 
     health insurance policy with knowledge that it duplicates 
     Medicare or Medicaid benefits to which a beneficiary is 
     otherwise entitled; (ii) a Medigap policy, with knowledge 
     that the beneficiary already has a Medigap policy, or (iii) a 
     health insurance policy (other than Medigap) with knowledge 
     that it duplicates private health benefits to which the 
     beneficiary is already entitled. A number of exceptions to 
     these prohibitions are established. The sale of a medigap 
     policy is not in violation of the provisions relating to 
     duplication of Medicaid coverage if: (i) the State Medicaid 
     program pays the premiums for the policy; (ii) in the case of 
     qualified Medicare beneficiaries (QMBs), the policy includes 
     prescription drug coverage; or (iii) the only Medicaid 
     assistance the individual is entitled to is payment of 
     Medicare Part B premiums.
       The sale of a health insurance policy (other than a Medigap 
     policy) that duplicates private coverage is not prohibited if 
     the policy pays benefits directly to the individual without 
     regard to other coverage. Further, the sale of a health 
     insurance policy (other than a Medigap policy to an 
     individual entitled to Medicaid) is not in violation of the 
     prohibition relating to selling of a policy duplicating 
     Medicare or Medicaid, if the benefits are paid without regard 
     to the duplication in coverage. This exception is conditional 
     on the prominent disclosure of the extent of the duplication, 
     as part of or together with, the application statement.
       P.L. 103-432 provided for the development by the National 
     Association of Insurance Commissioners (NAIC) of disclosure 
     statements describing the extent of duplication for each of 
     the types of private health insurance policies. Statements 
     were to be developed, at a minimum, for policies paying fixed 
     cash benefits directly to the beneficiary and policies 
     limiting benefits to specific diseases. The NAIC identified 
     10 types of health insurance policies requiring disclosure 
     statements and developed statements for them. These were 
     approved by the Secretary and published in the Federal 
     Register on June 12, 1995.
     House bill
       The provision would modify the anti-duplication provisions. 
     It would be unlawful to sell to a Medicare beneficiary 
     (including a person under MedicarePlus) a health insurance 
     policy (other than a Medigap policy) with knowledge that it 
     duplicated benefits under Medicare or Medicaid. It would be 
     unlawful to sell, to persons not electing MedicarePlus, a 
     Medigap policy with knowledge that the person is entitled to 
     benefits under another Medigap policy. It would be unlawful 
     to sell to a person electing MedicarePlus a Medigap policy 
     duplicating benefits to which the individual is otherwise 
     eligible under Medicare or another Medigap policy. A policy 
     would be considered duplicative if the policy provided 
     specific reimbursement for identical items and services to 
     the extent paid for under Medicare. A policy would not be 
     considered duplicative if it provided for payment of benefits 
     without regard to other health benefits coverage of the 
     individual. The provision would change the disclosure 
     requirements contained in P.L. 103-432 to require plans to 
     disclose the extent to which they may coordinate benefits 
     with Medicare as part of their outlined coverage.
       A health insurance policy (or a rider to an insurance 
     contract which is not a health insurance policy) that 
     coordinates against or excludes items and services covered 
     under Medicare, and for policies sold after January 1, 1996, 
     discloses such coordination or exclusion in the policy's 
     outline of coverage would not be considered duplicative. For 
     this purpose, health insurance policies would include 
     policies providing benefits for long-term care, nursing home 
     care, home health care, or community-based care.
       The provision would prohibit the imposition of criminal or 
     civil penalties or the bringing or continuing of legal action 
     relating to selling duplicative policies if the penalty or 
     action was based on actions occurring after November 1, 1991 
     and before enactment of OBRA of 1995 and if the policy was 
     not duplicative under the revised language. The provision 
     would also prohibit a State from imposing any requirement 
     related to the sale or issuance of a policy (or rider) to a 
     Medicare beneficiary based on the premise that the policy or 
     rider was duplicative. The provision would require the 
     Secretary to report within 3 years of enactment on the 
     advisability of restricting the sale to Medicare 
     beneficiaries of health insurance policies that duplicate 
     other insurance policies the individual may have.
       The provision would specifically exclude MedicarePlus 
     products from the definition of Medigap policies. It would 
     also exempt health insurance products sold to persons 
     electing MedicarePlus from requirements relating sale of 
     standardized benefits packages and minimum loss ratios.
       The provision would make it unlawful to sell or issue a 
     health insurance policy covering expenses which would 
     otherwise be counted toward meeting the annual deductible 
     amount under a high deductible/medisave product.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the House provision with 
     a modification.
       It is the intent of the conferees that this provision be 
     administered as though it were included in OBRA 1990. The 
     agreement specifies that it is illegal to sell suppplemental 
     policies that cover the deductible for persons who have high-
     deductible MedicarePlus plans.


11. transitional rules for current medicare hmo program (sec. 15004 of 
                 house bill; sec. 7002 of senate bill)

     Current law
       No provision.
     House bill
       a. Termination of Current Contracts. The Secretary would be 
     prohibited from entering into any new risk sharing contract 
     under section 1876 with an eligible organization for any 
     contract year beginning on or after the date MedicarePlus 
     standards are first established with respect to MedicarePlus 
     organizations that are insurers or health maintenance 
     organizations unless a contract with the organization had 
     been in effect under section 1876 for the previous contract 
     year. The Secretary could not extend or continue any risk-
     sharing contract for any contract year beginning on or after 
     one year after the MedicarePlus standards are established.
       The Secretary would also be prohibited from entering into 
     any cost reimbursement contract under section 1876 beginning 
     in any contract year starting on or after the enactment of 
     this legislation. The Secretary could not extend or continue 
     any cost reimbursement contract for any contract year 
     beginning on or after January 1, 1998.
       b. Conforming Payment Rates. For individuals entitled to 
     benefits under both part A and part B, payments for risk-
     sharing contracts for months beginning with January 1996 
     would be computed by substituting the payment rates specified 
     in this bill in as timely a manner as possible. For 
     individuals entitled to benefits only under part B, the 
     substitution would be based upon the proportion of those 
     rates that reflects the proportion of payments under title 
     XVIII attributable to part B. Payments under cost 
     reimbursement contracts under section 1876(a) would take into 
     account the adjustments to part A and part B payments made by 
     this legislation.
       c. Elimination of 50:50 Rule. The 50:50 rule under section 
     1876(f)] would not apply to contract years beginning on or 
     after January 1, 1996.
       d. HMO Limits on Deductibles. No provision.
     Senate bill
       a. Termination of Current Contracts. Section 1876 would not 
     apply to risk-sharing contracts effective for contract years 
     beginning on or after January 1, 1997. An individual who is 
     enrolled in part B only and is enrolled in an organization 
     with an 1987 contract on December 31, 1996, may continue his 
     or her enrollment. The Secretary would be required to issue 
     regulations relating to such individuals and organizations 
     not later than July 1, 1996.
       b. Conforming Payment Rates. (See sec. 7003 of the bill, as 
     described under F(i) of the Senate provisions above.)
       c. Elimination of 50:50 Rule. No specific provision, but 
     section 1876 of the Social Security Act would terminate in 
     1997.
       d. HMO Limits on Deductibles. If a member certifies that a 
     Medicare Choice account has been established for his or her 
     benefit, an HMO may reduce the basic health services payment 
     otherwise determined under section 1301(a) of the Public 
     Health Service Act by requiring payment of a deductible by 
     the member.
     Conference agreement
       The conference agreement follows the House provision with a 
     modification.
       The Secretary would be prohibited from entering into, 
     renewing, or continuing any risk-sharing contract for any 
     contract year beginning on or after the date standards are 
     established for MedicarePlus organization or in the case of 
     such an organization with a contract in effect as of the date 
     standards were established, one year after such date. The 
     Secretary could not enter into, renew, or continue any risk-
     sharing contract for any contract year beginning on or after 
     January 1, 2000.
       An individual who is enrolled in part B only and was 
     enrolled in an organization with a risk-sharing contract on 
     December 31, 1996, could continue his or her enrollment. The 
     Secretary would be required to issue regulations relating to 
     such individuals and organizations not later than July 1, 
     1996.

    Part 2. Special Rules for MedicarePlus Medical Savings Accounts


    1. description of taxation of medicare medical savings accounts

     Present law
       Under present law, the value of Medicare coverage and 
     benefits is not includible in taxable income. There are no 
     specific tax provisions for Medicare medical savings accounts 
     (``MMSAs'') or Rebate MSAs.
     House bill
       In general
       Under the House bill, individuals who are eligible for 
     Medicare may choose either the traditional Medicare program 
     or a plan with a high deductible insurance policy and an 
     MMSA. To the extent an individual chooses such a plan, the 
     Secretary of Health and Human Services makes a specified 
     contribution directly into an MMSA designated by the 
     individual. Only contributions by the Secretary of Health and 
     Human Services 

[[Page H 12802]]
     could be made to an MMSA and such contributions are not taxable. Income 
     earned on amounts held in an MMSA are not currently 
     includible in taxable income. Withdrawals from an MMSA are 
     excludable from taxable income if used for the qualified 
     medical expenses of the MMSA holder.
     Taxation of distributions from an MMSA
       Distributions from an MMSA that are used to pay the 
     qualified medical expenses of the account holder are 
     excludable from taxable income. Qualified medical expenses 
     generally are defined as under the rules relating to the 
     itemized deduction for medical expenses (sec. 213). However, 
     for this purpose, qualified medical expenses do not include 
     any insurance premiums other than premiums for long-term care 
     insurance. Distributions from an MMSA that are excludable 
     from gross income cannot be taken into account for purposes 
     of the itemized deduction for medical expenses.
       Distributions for purposes other than qualified medical 
     expenses are includible in taxable income. An additional tax 
     of 50 percent of the amount includible in taxable income 
     applies to the extent the total distributions for purposes 
     other than qualified medical expenses in a taxable year 
     exceed the amount by which the value of the MMSA as of 
     December 31, of the preceding taxable year exceeds 60 percent 
     of the deductible of the plan under which the individual is 
     covered. The additional tax does not apply to distributions 
     on account of the disability or death of the account holder.
       The provision includes rules that apply on the death of the 
     MMSA owner. No estate tax applies, and the income tax 
     treatment depends on who is the beneficiary.
     Effective date
       The provision is effective with respect to taxable years 
     beginning after December 31, 1996.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill, with 
     modifications. Under the conference agreement, as under the 
     House bill, individuals enrolled in a high deductible plan 
     automatically have contributions made to a high deductible 
     MMSA. In addition, under the conference agreement, if an 
     individual chooses a MedicarePlus option other than the high 
     deductible plan, the individual may direct that the 
     difference between the Medicare payment amount and the cost 
     of the plan is deposited in a rebate MMSA. The Rebate MSA is 
     separate from and cannot be commingled with the high 
     deductible MMSA.
       Rebate MMSAs are generally subject to the same rules as 
     high deductible MMSAs, except with respect to the taxation of 
     distributions for nonmedical purposes. With respect to rebate 
     MMSAs, such distributions are includible in income, and 
     subject to a 10-percent additional tax unless the 
     distribution is made after death or disability. The 50-
     percent excise tax rule does not apply to a Rebate MSA.


                      2. tax treatment of rebates

     Present law
       Present law does not provide for cash payments to 
     individuals under Medicare.
     House bill
       Under the House bill, certain individuals are entitled to 
     cash rebates under the MedicarePlus program. These rebates 
     are not includible in income.
       Effective date.--The provision applies to rebates received 
     after the date of enactment.
     Senate amendment
       Under the Senate amendment, certain individuals are 
     entitled to cash rebates under the Medicare Choice program. 
     These rebates are includible in income.
       Effective date.--Same as the House bill.
     Conference agreement
       The conference agreement generally follows the House bill 
     with modifications.

  Part 3. Special Antitrust Rules for Provider Sponsored Organizations


1. application of antitrust rule of reason to provider service networks 
                     (sec. 15021 of the house bill)

     Current law
       Under Federal antitrust law, agreements among competitors 
     that fix prices or allocate markets are per se 
     (automatically) illegal. Some joint activities, however, if 
     deemed to create an entity separate from and in addition to 
     the competitors who create them (i.e., true joint ventures), 
     are judged under the rule of reason, which finds them legal 
     if they are considered reasonable. The Department of Justice 
     and the Federal Trade Commission have issued Statements of 
     Enforcement Policy Relating to Health Care and Antitrust, 
     pursuant to which they have attempted to indicate the limited 
     circumstances under which they will consider ``physician 
     network joint ventures'' not violations of Federal antitrust 
     law.
     House bill
       Rule of Reason Standard. This provision states that the 
     conduct of a provider service network in negotiating, making, 
     or performing a contract (including the establishment and 
     modification of a fee schedule and the development of a panel 
     of physicians), to the extent such contract is for the 
     purpose of providing health care services to individuals 
     under the terms of a health benefit plan, would not be a per 
     se violation of Federal or State antitrust laws. In addition, 
     the conduct of any member of such a provider service network 
     for the purpose of providing such health care services under 
     a contract to provide health care services to individuals 
     would not be deemed illegal per se under Federal or State 
     antitrust laws. Such conduct shall be judged on the basis of 
     its reasonableness, taking into account all relevant factors 
     affecting competition in properly defined markets.
       Definitions. This section defines ``antitrust laws'' to 
     include those set out in subsection (a) of the first section 
     of the Clayton Act, 15 U.S.C. ' 12, as well as ' 5 of the 
     Federal Trade Commission Act, 15 U.S.C. ' 45, to the extent 
     that ' 5 applies to unfair methods of competition. ``Health 
     benefit plan'' is defined as a hospital or medical expense 
     incurred policy or certificate, a hospital or medical service 
     plan contract, a health maintenance subscriber contract, or a 
     multiple employer welfare arrangement or employee benefit 
     plan (as defined under ERISA). ``Health care provider'' is 
     defined as any individual or entity engaged in the delivery 
     of health care services that must be licensed or certified by 
     State law or regulation to deliver such services. ``Health 
     care service'' means any service for which payment may be 
     made under a health benefit plan, including services related 
     to the delivery or administration of such service. ``Provider 
     services network'' is defined as an organization that meets 
     the following requirements: It is organized by, operated by, 
     and composed of members who are health care providers and for 
     purposes that include health care services. It is funded in 
     part by capital contributions made by the members of such 
     organization. With respect to each contract made by such 
     organization for the purpose of providing a type of health 
     care service to individuals under the terms of a health 
     benefit plan, the organization requires all members of the 
     organization to agree to provide health care services of such 
     type under such contract, receives the compensation paid for 
     the provision of such health care services, and provides for 
     the distribution of such compensation. It has established 
     programs based on written guidelines to review the quality, 
     efficiency, and appropriateness of treatment methods, health 
     care services, and all patients participating in the health 
     benefit plan, as well as internal procedures to correct any 
     identified deficiencies, to monitor and control utilization 
     of health care services in order to improve efficient care 
     and eliminate the provision of unnecessary health care 
     services. It coordinates the delivery of health care services 
     by all health care providers to all patients participating in 
     the health care plan so as to enhance the quality of health 
     care services provided. And, it has established a grievance 
     and appeal process to review and promptly resolve patient or 
     beneficiary grievances or complaints. ``State'' is defined as 
     the States, the District of Columbia, the Commonwealth of 
     Puerto Rico, and any other territory or possession of the 
     United States.
       Issuance of Guidelines. This provision requires the 
     Attorney General and the Federal Trade Commission, within 120 
     days after enactment of this bill, to issue joint guidelines 
     specifying the enforcement policies and analytical principles 
     they will apply with respect to the operation of the rule of 
     reason standard.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement generally follows the House bill 
     with modifications.
       The Rule of Reason standard is made applicable to members 
     of a provider-sponsored organization and to members of an 
     unaffiliated group of health care providers.
       Protected conduct includes the exchange of information 
     among health care providers relating to costs, sales, 
     profitability, marketing, prices, or fees of any health care 
     product or service if the exchange of information was solely 
     for the purpose of establishing a provider-sponsored 
     organization and reasonably required to do so.

                          Part 4. Commissions


   1. medicare payment review commission. (sec. 15031 of house bill)

     Current Law
       The Prospective Payment Assessment Commission was 
     established by Congress through the Social Security Act 
     Amendments of 1983 (P.L. 98-21). The Commission is charged 
     with reporting each year its recommendation of an update 
     factor for PPS payment rates and for other changes in 
     reimbursement policy. It is also required each year to submit 
     a report to Congress which provides background information on 
     trends in health care delivery and financing. The Physician 
     Payment Review Commission was established by the Congress 
     through the Consolidated Omnibus Budget Reconciliation Act of 
     1985 (P.L. 99-272). It was charged with advising and making 
     recommendations to the Congress on methods to reform payment 
     to physicians under the Medicare program. In subsequent laws, 
     Congress mandated additional responsibilities relating to the 
     Medicare and Medicaid programs as well as the health care 
     system more generally. Both Commissions are appointed by the 
     Director of the Office of Technology Assessment and are 
     funded through appropriations from the Medicare trust funds.
     House Bill
       The provision would establish the Medicare Payment Review 
     Commission (hereafter referred to as ``the Commission'') to 
     review and make recommendations to Congress concerning 
     payment policies under this title. 

[[Page H 12803]]
      The Commission would be required to submit a report to Congress by 
     June 1 of each year containing an examination of issues 
     affecting the Medicare program, including implications of 
     changes in health care delivery and in the market for health 
     care services on the Medicare program. The Commission would 
     be authorized to submit from time to time other reports as it 
     deemed appropriate. By May 1, 1997, it would be required to 
     submit a report to Congress on major issues in implementation 
     and further development of the MedicarePlus program. The 
     Secretary would be required to respond to recommendations of 
     the Commission in notices of rulemaking proceedings.
       The Commission would be charged with the following specific 
     responsibilities, including reviewing: (1) the 
     appropriateness of the methodology for making payments to the 
     health plans; (2) the appropriateness of the risk adjustment 
     mechanisms and the need to adjust such mechanisms to take 
     into account health status; (3) implications of risk 
     selection; (4) the development and implementation of quality 
     assurance mechanisms with respect to MedicarePlus 
     organizations; (5) the impact of the MedicarePlus program on 
     beneficiary access to care; (6) the feasibility and 
     desirability of extending the rules for open enrollment that 
     apply during the transition period to apply in each county 
     during the first 2 years in which MedicarePlus products are 
     made available; and (7) other issues in implementation and 
     further development of the MedicarePlus program.
       The Commission would also be required to review specific 
     aspects of the failsafe budget mechanism established under 
     the bill, including: (1) the appropriateness of the 
     expenditure projections by the Secretary and growth factors 
     for each Medicare sector; (2) the appropriateness of the 
     mechanism for implementing reductions in payment amounts for 
     different sectors; (3) the impact of the failsafe mechanism 
     on provider participation; and (4) the appropriateness of the 
     Medicare benefit budget, especially for fiscal years after 
     2002.
       In addition, the Commission would be required to review 
     payments policies under Medicare parts A and B (fee-for-
     service), including: (1) factors affecting expenditures in 
     different sectors; (2) payment methodologies; and (3) the 
     impact of payment policies on access and quality of care. It 
     would also look at the effect of Medicare payment policies on 
     the delivery of Medicare services and assess the implications 
     of changes in the health services market on Medicare.
       The Commission would be composed of 15 members appointed by 
     the Comptroller General, with the first appointments being 
     made by March 31, 1996. These members would have to meet 
     specific qualifications, (such as national recognition for 
     their expertise in health finance), including representatives 
     of consumers and the elderly. Consideration in the initial 
     appointment would be given to individuals who were already 
     serving on the Physician Payment Review Commission or the 
     Prospective Payment Assessment Commission. Commissioners 
     would serve for 3-year terms. The bill provides for a 
     mechanism for filling vacancies, compensating commissioners, 
     appointing a chair and vice chair; convening meetings; and 
     providing for staff, experts, and consultants. The Commission 
     would be authorized to secure directly from any department or 
     agency information to carry out these provisions. It would be 
     required to collect and assess information (which would be 
     available on an unrestricted basis to GAO). The Commission 
     would be subject to periodic audit by GAO.
       The provision authorizes such sums as may be necessary to 
     be appropriated from the Medicare trust funds (60 percent 
     part A and 40 percent from part B). The Comptroller General 
     would be required to provide for appointment of members to 
     the Commission by March 31, 1996. The Prospective Payment 
     Assessment Commission and Physician Payment Review Commission 
     would be abolished within 30 days after a majority of the 
     Medicare Payment Review Commission were appointed. To the 
     extent possible, the Comptroller General would be required to 
     provide for the transfer from the former to the new 
     commission assets and staff without any loss of benefits or 
     seniority by virtue of such transfers. The Commission would 
     be responsible for the preparation and submission of reports 
     required by law to be submitted (and which had not been 
     submitted by the time it was established) by the former 
     commissions.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the House provision with 
     modifications.
       With respect to Commission responsibilities, the conference 
     agreement deletes ``appropriateness'' in the charge to the 
     Commission to review payment and risk adjustment methodology.
       The conference agreement does not include the provision 
     requiring the Commission to review specific aspects of the 
     failsafe budget mechanism established under the bill.
       It is the intent of the conferees that to the extent 
     possible, in first appointing members to the Commission, the 
     Comptroller General consider appointing individuals who (as 
     of the date of enactment of this section) were serving on 
     ProPAC and PPRC.
       In addition, it is the intent of the conferees that the 
     Commission analyze and report on the reasonableness of the 
     ACR, looking at any amounts being charged above the 
     contribution rate and assessing the relationship between that 
     charge and insuring companies' commercial rates. The 
     Commission would also analyze and assess the prevalence of 
     plans in major areas that provide MedicarePlus for the 
     Government's capitated amount.


2. commission on the effect of the baby boom generation on the medicare 
                   Program (sec. 15032 of house bill)

     Current Law
       No provision.
     House bill
       The provision would establish a commission to be known as 
     the Commission on the Effect of the Baby Boom Generation on 
     the Medicare Program, hereafter referred to as ``the 
     Commission.'' It would be required to: (1) examine the 
     financial impact on the Medicare program of the significant 
     increase in the number of Medicare eligible individuals which 
     will occur approximately during 2010 and lasting for 
     approximately 25 years, and (2) make specific recommendations 
     to Congress with respect to a comprehensive approach to 
     preserve the Medicare program for the period during which 
     such individuals are eligible for Medicare. In making its 
     recommendations, the Commission would be required to 
     consider: (1) the amount and sources of Federal funds to 
     finance Medicare, including innovative financing methods; (2) 
     the most efficient and effective manner of administering the 
     program, including the appropriateness of continuing the 
     failsafe mechanism after 2002; (3) methods used by other 
     nations to respond to comparable demographics; (4) modifying 
     age-based eligibility to correspond to that under the OASDI 
     program; and (5) trends in employment-related health care for 
     retirees, including the use of medical savings accounts and 
     similar financing devices.
       The Commission would be composed of 15 members, 3 appointed 
     by the President, 6 by the Majority Leader of the Senate in 
     consultation with the Minority Leader, of whom no more than 4 
     are of the same party; and 6 by the Speaker of the House, 
     after consultation with the Minority Leader, of whom no more 
     than 4 are in the same party. The provision spells out the 
     appointment of a chair and vice chair, appointment of staff 
     and consultants, compensation, the procedure for filling 
     vacancies, and requirements relating to meetings and quorums. 
     Upon request of the Commission, the Comptroller General would 
     be required to conduct such studies or investigations as the 
     Commission determined were needed to carry out its duties. 
     The Director of CBO would be required to provide the 
     commission with cost estimates, for which CBO would be 
     compensated. The Commission would be authorized to detail to 
     it employees of Federal agencies, and to obtain technical 
     assistance and information from Federal agencies.
       The Commission would be required to submit to Congress a 
     report, no later than May 1, 1997, containing its findings 
     and recommendations regarding how to protect and preserve the 
     Medicare program in a financially solvent manner until 2030 
     (or, if later, throughout a period of projected solvency of 
     the Federal Old-Age and Survivors Insurance Trust Fund). The 
     report would be required to include detailed recommendations 
     for appropriate legislative initiatives respecting how to 
     accomplish this objective. The Commission would terminate 60 
     days after the date of submission of the mandated report. An 
     amount of $1.5 million would be authorized to be 
     appropriated.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


3. change in appointment of administrator of hcfa (sec. 15033 of house 
                                 bill)

     Current Law
       The Administrator of HCFA is appointed by the President 
     with the advise and consent of the Senate.
     House Bill
       Under the bill, the Administrator of HCFA would be 
     appointed by the Secretary of Health and Human Services. The 
     amendment would become effective on the date of enactment and 
     would apply to Administrators appointed on or after the date 
     of enactment.
     Senate bill
       No provision.
     Conference Agreement
       The conference agreement does not include the House 
     provision.

   Part 5. Tax treatment of hospitals which participate in provider-
         sponsored organizations (sec. 15041 of the House Bill)

     Present law
       To qualify as a charitable tax-exempt organization 
     described in Internal Revenue Code (``Code'') section 
     501(c)(3), an organization must be organized and operated 
     exclusively for religious, charitable, scientific, testing 
     for public safety, literary, or educational purposes, or to 
     foster international sports competition, or for the 
     prevention of cruelty to children or animals. Although 
     section 501(c)(3) does not specifically mention furnishing 
     medical care and operating a nonprofit hospital, such 
     activities have long 

[[Page H 12804]]
     been considered to further charitable purposes, provided that the 
     organization benefits the community as a whole. 1
     \1\ Although not-for-profit hospitals generally are 
     recognized as tax-exempt by virtue of being ``charitable'' 
     organizations, some may also qualify for exemption as 
     ``educational organizations'' because they are organized and 
     operated primarily for medical education purposes.
---------------------------------------------------------------------------
       No part of the net earnings of a 501(c)(3) organization may 
     inure to the benefit of any private shareholder or 
     individual. No substantial part of the activities of a 
     501(c)(3) organization may consist of carrying on propaganda, 
     or otherwise attempting to influence legislation, and such 
     organization may not participate in, or intervene in, any 
     political campaign on behalf of (or in opposition to) any 
     candidate for public office. In addition, under section 
     501(m), an organization described in section 501(c)(3) or 
     501(c)(4) is exempt from tax only if no substantial part of 
     its activities consists of providing commercial-type 
     insurance.
       A tax-exempt organization may, subject to certain 
     limitations, enter into a joint venture or partnership with a 
     for-profit organization without affecting its tax-exempt 
     status. Under current ruling practice, the IRS examines the 
     facts and circumstances of each arrangement to determine (1) 
     whether the venture itself and the participation of the tax-
     exempt organization therein furthers a charitable purpose, 
     and (2) whether the sharing of profits and losses or other 
     aspects of the arrangement entail improper private inurement 
     or more than incidental private benefit. 2
     \2\ See IRS General Counsel Memorandum 39862; Announcement 
     92-83, 1992-22 I.R.B. 59 (IRS Audit Guidelines for 
     Hospitals). Even where no prohibited private inurement 
     exists, however, more than incidental private benefits 
     conferred on individuals may result in the organization not 
     being operated ``exclusively'' for an exempt purpose. See, 
     e.g., American Campaign Academy v. Commissioner, 92 T.C. 1053 
     (1989).
---------------------------------------------------------------------------
     House bill
       The House bill provides that an organization shall not fail 
     to be treated as organized and operated exclusively for a 
     charitable purpose for purposes of Internal Revenue Code (the 
     ``Code'') section 501(c)(3) solely because a hospital which 
     is owned and operated by such organization participates in a 
     provider-sponsored organization (``PSO'') (as defined in 
     section 1845(a)(1) of the Social Security Act), whether or 
     not such PSO is exempt from tax. Thus, participation by a 
     hospital in a PSO (whether taxable or tax-exempt) would be 
     deemed to satisfy the first part of the inquiry under current 
     IRS ruling practice. 3
     \3\ The qualification of a hospital as a tax-exempt 
     charitable organization under section 501(c)(3) would be 
     determined as under present law. See Rev. Rul. 69-545, 1969-2 
     C.B. 117.
---------------------------------------------------------------------------
       The House bill does not change present-law restrictions on 
     private inurement and private benefit. However, the House 
     bill provides that any person with a material financial 
     interest in such a PSO shall be treated as a private 
     shareholder or individual with respect to the hospital for 
     purposes of applying the private inurement prohibition in 
     Code section 501(c)(3). Accordingly, the facts and 
     circumstances of each PSO arrangement will be evaluated to 
     determine whether the arrangement entails impermissible 
     private inurement or more than incidental private benefit 
     (e.g., where there is a disproportionate allocation of 
     profits and losses to the non-exempt partners, the tax-exempt 
     partner makes loans to the joint venture that are 
     commercially unreasonable, the tax-exempt partner provides 
     property or services to the joint venture at less than fair 
     market value, or a non-exempt partner receives more than 
     reasonable compensation for the sale of property or services 
     to the joint venture).
       The House bill does not change present-law restrictions on 
     lobbying and political activities. In addition, the 
     restrictions of section 501(m) on the provision of 
     commercial-type insurance continue to apply.
       Effective date.--The House bill is effective on the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.

                      SUBTITLE B--FRAUD AND ABUSE

                       Part 1--General Provisions


 1. increasing awareness of fraud and abuse (sec. 15101 of house bill; 
                sec. 7103 and sec. 7121 of senate bill)

     Current Law
       No provision.
     House bill
       a. Beneficiary Outreach Efforts. This provision would 
     require the Secretary to make ongoing efforts to alert 
     individuals entitled to Medicare benefits of the existence of 
     fraud and abuse committed against the program, of the costs 
     of such fraud and abuse, and of a toll-free telephone line 
     operated by the Secretary to receive information about such 
     fraud and abuse.
       b. Clarification of Requirement to Provide Explanation of 
     Medicare Benefits. The Secretary would be required to provide 
     an explanation of Medicare benefits with respect to each item 
     or service for which payment may be made, without regard to 
     whether a deductible or coinsurance may be imposed with 
     respect to the item or service.
       c. Provider Outreach Efforts; Publication of Fraud Alerts. 
     Any person may, at any time, request the Secretary to publish 
     a special fraud alert, which is defined as a notice that 
     informs the public of practices the Secretary considers to be 
     suspect or of particular concern under the Medicare program 
     or a State health care program. Upon receipt of a request for 
     a special fraud alert, the Secretary would be required to 
     investigate to determine whether to issue a special fraud 
     alert. If he determines issuance of a special fraud alert 
     appropriate, he would be required, in consultation with the 
     Attorney General, to publish a special fraud alert in the 
     Federal Register. In determining whether to issue a special 
     fraud alert, the Secretary could consider whether and to what 
     extent the practices in question may result in the 
     consequences described in the criteria used to modify and 
     establish safe harbors, and the extent and frequency of the 
     conduct in question. Each notice issued by the Health Care 
     Financing Administration that informs the public of practices 
     the Secretary considers to be suspect or of particular 
     concern under the Medicare program or a State health care 
     program would be required to be published in the Federal 
     Register, without regard to whether it was issued by a 
     regional office of the Health Care Financing Administration.
       d. Establishment of the Health Care Fraud and Abuse Data 
     Collection Program. No provision.
     Senate bill
       a. Beneficiary Outreach Efforts. No provision.
       b. Clarification of Requirement to Provide Explanation of 
     Medicare Benefits. No provision.
       c. Provider Outreach Efforts; Publication of Fraud Alerts. 
     Any person may request the Inspector General to issue a 
     special fraud alert informing the public of practices which 
     the Inspector General considers to be suspect or of 
     particular concern under section 1128B(b) of the Social 
     Security Act (anti-kickback provisions). After investigation 
     the subject matter of the request, and, if appropriate, the 
     Inspector General shall issue a special fraud alert in 
     response to the request, published in the Federal Register.
       d. Establishment of the Health Care Fraud and Abuse Data 
     Collection Program
        In General. The Secretary of Health and Human Services is 
     required to establish a national health care fraud and abuse 
     data collection program for reporting final adverse actions 
     (not including settlements in which no findings of liability 
     have been made) against health care providers, suppliers, or 
     practitioners.
       Each government agency and health plan would, on a monthly 
     basis, report any final adverse action taken against a health 
     care provider, supplier, or practitioner. Certain information 
     would be included in the report, including a description of 
     the acts or omissions and injuries upon which the final 
     adverse action was taken. The Secretary would, however, 
     protect the privacy of individuals receiving health care 
     services.
       The Secretary would, by regulation, provide for disclosure 
     of the information about adverse actions, upon request, to 
     the health care provider, supplier, or licensed practitioner 
     and provide procedures in the case of disputed accuracy of 
     the information. Each government agency and health plan is 
     required to report corrections of information already 
     reported about any final adverse action taken against a 
     health care provider, supplier, or practitioner in such form 
     and manner that the Secretary prescribes by regulation.
       The information in the database would be available to 
     Federal and State government agencies and health plans. The 
     Secretary may approve reasonable fees for the disclosure of 
     information in the database (other than with respect to 
     requests by Federal agencies). The amount of such a fee shall 
     be sufficient to recover the full costs of operating the data 
     base.
       No person or entity would be held liable in any civil 
     action with respect to any report made as required by this 
     section, unless the person or entity knows the information is 
     false.
        Improved Prevention in Issuance of Medicare Provider 
     Numbers. The Secretary may impose appropriate fees on 
     physicians to cover the costs of investigation and 
     recertification activities with respect to the issuance of 
     identifiers for physicians who furnish services for which 
     Medicare payments are made.
     Conference agreement
       a. Beneficiary Outreach Efforts. The conference agreement 
     does not include the House provision.
       b. Clarification of Requirement to Provide Explanation of 
     Medicare Benefits. The conference agreement includes the 
     House provision.
       c. Provider Outreach Efforts; Publication of Fraud Alerts. 
     The conference agreement includes the Senate provision with a 
     modification that fraud alerts may be issued with regard to 
     practices under the Medicare program or a State health care 
     program.
       d. Establishment of the Health Care Fraud and Abuse Data 
     Collection Program. The conference agreement includes the 
     Senate provision with a modification eliminating the 
     definitions of ``health care provider'' and ``supplier''. The 
     conference agreement also clarifies that this program is an 
     authorized use of funds under the fraud and abuse control 
     program.


2. beneficiary incentive programs (Sec. 15102 of house bill; Sec. 7152 
                            of senate bill)

     Current law
       No provision.

[[Page H 12805]]

     House bill
       a. Program to Collect Information on Fraud and Abuse. This 
     provision would require the Secretary, within three months 
     after enactment of this bill, to establish a program to 
     encourage individuals to report to the Secretary information 
     on individuals and entities who are engaging or who have 
     engaged in acts or omissions that constitute grounds for 
     sanctions under sections 1128, 1128A, or 1128B of the Social 
     Security Act, or who have otherwise engaged in fraud and 
     abuse against the Medicare program. If an individual reports 
     information to the Secretary under this program that serves 
     as a basis for the collection by the Secretary or the 
     Attorney General of any amount of at least $100 (other than 
     amounts paid as a penalty under section 1128B), the Secretary 
     may pay a portion of the amount collected to the individual, 
     under procedures similar to those applicable under section 
     7623 of the Internal Revenue Code of 1986.
       b. Program to Collect Information on Program Efficiency. 
     The Secretary would be required, within three months after 
     enactment of this bill, to establish a program to encourage 
     individuals to submit to the Secretary suggestions on methods 
     to improve the efficiency of the Medicare program. If the 
     Secretary adopts a suggestion and savings to the program 
     result, the Secretary could make a payment to the individual 
     of an amount the Secretary considers appropriate.
     Senate bill
       a. Program to Collect Information on Fraud and Abuse. This 
     provision would require the Secretary, within three months 
     after enactment of this bill, to establish a program to 
     encourage individuals to report to the Secretary information 
     on individuals and entities who are engaging or who have 
     engaged in acts or omissions that constitute grounds for 
     sanctions under sections 1128, 1128A, or 1128B of the Social 
     Security Act, or who have otherwise engaged in fraud and 
     abuse against the Medicare program. If an individual reports 
     information to the Secretary under this program that serves 
     as a basis for the collection by the Secretary or the 
     Attorney General of any amount of at least $100 (other than 
     amounts paid as a penalty under section 1128B), the Secretary 
     may pay a portion of the amount collected to the individual, 
     under procedures similar to those applicable under section 
     7623 of the Internal Revenue Code of 1986.
       b. Program to Collect Information on Program Efficiency. 
     The Secretary would be required, within three months after 
     enactment of this bill, to establish a program to encourage 
     individuals to submit to the Secretary suggestions on methods 
     to improve the efficiency of the Medicare program. If the 
     Secretary adopts a suggestion and savings to the program 
     result, the Secretary could make a payment to the individual 
     of an amount the Secretary considers appropriate.
     Conference agreement
       The conference agreement includes the Senate provision with 
     a modification adding a requirement to provide explanations 
     of Medicare benefits under certain circumstances.


3. intermediate sanctions for medicare health maintenance organizations 
          (sec. 15103 of house bill; sec. 7115 of senate bill)

     Current Law
       A contract between the Secretary and a Medicare Health 
     Maintenance Organization (HMO) is generally for a one year 
     term, with an option for automatic renewal. However, the 
     Secretary may terminate any such contract at any time, after 
     reasonable notice and an opportunity for a hearing, if the 
     Medicare HMO has failed substantially to carry out the 
     contract, or is carrying out the contract in a manner 
     inconsistent with the efficient and effective administration 
     of the requirements of section 1876 of the Social Security 
     Act, or if the Medicare HMO no longer substantially meets the 
     statutory requirements contained in Section 1876(b),(c),(e) 
     and (f).
     House bill
        a. Application of Intermediate Sanctions for Any Program 
     Violations. This provision would add a ground for termination 
     of a Medicare HMO contract by the Secretary, specifying that 
     the Secretary may terminate such a contract if the 
     organization is operating in a manner that is not in the best 
     interests of the individuals covered under the contract. In 
     addition, the Secretary would have the discretion to either 
     terminate the contract or to impose certain intermediate 
     sanctions on the eligible organization.
       If the basis for the determination by the Secretary that an 
     intermediate sanction should be imposed on an eligible 
     organization is other than that the organization has failed 
     substantially to carry out its contract with the Secretary, 
     then the Secretary may apply intermediate sanctions as 
     follows: civil money penalties of not more than $25,000 for 
     each determination if the deficiency that is the basis of the 
     determination has directly adversely affected (or has the 
     substantial likelihood of adversely affecting) an individual 
     covered under the organization's contract; civil money 
     penalties of not more than $10,000 for each week of a 
     continuing violation; and suspension of enrollment of 
     individuals until the Secretary is satisfied that the 
     deficiency has been corrected and is not likely to recur.
       Whenever the Secretary seeks to either terminate a Medicare 
     HMO contract or impose intermediate sanctions on such an 
     organization, the Secretary must do so pursuant to a formal 
     investigation and under compliance procedures which provide 
     the organization with an opportunity to develop and implement 
     a corrective action plan to correct the deficiencies that 
     were the basis of the Secretary's adverse determination. The 
     Secretary would impose more severe sanctions on organizations 
     that have a history of deficiencies or that have not 
     corrected deficiencies brought to their attention. The 
     Secretary's compliance procedures must also include 
     reasonable notice and opportunity for a hearing (including 
     the right to appeal an initial decision) before the Secretary 
     imposes any sanction or terminates the contract of a Medicare 
     HMO, and there must not be any unreasonable or unnecessary 
     delay between the finding of a deficiency and the imposition 
     of sanctions.
       b. Effective Date. The amendments made by this section 
     would apply to contract years of eligible organizations 
     beginning on or after January 1, 1996.
     Senate bill
       a. Application of Intermediate Sanctions for Any Program 
     Violations. Under this section the Secretary may terminate a 
     contract with a Medicare Health Maintenance Organization 
     (HMO) or may impose certain intermediate sanctions on the 
     organization if the Secretary determines that the Medicare 
     HMO has failed substantially to carry out the contract; is 
     carrying out the contract in a manner substantially 
     inconsistent with the efficient and effective administration 
     of this section; or, if the Medicare HMO no longer 
     substantially meets the statutory requirements contained in 
     Section 1876(b),(c),(e) and (f) of the Social Security Act.
       If the basis for the determination by the Secretary that 
     intermediate sanctions should be imposed on an eligible 
     organization is other than that the organization has failed 
     substantially to carry out its contract with the Secretary, 
     then the Secretary may apply intermediate sanctions as 
     follows: civil money penalties of not more than $25,000 for 
     each determination if the deficiency that is the basis of the 
     determination has directly adversely affected (or has the 
     substantial likelihood of adversely affecting) an individual 
     covered under the organizations's contract; civil money 
     penalties or not more than $10,000 for each week of a 
     continuing violation; and suspension of enrollment of 
     individuals until the Secretary is satisfied that the 
     deficiency has been corrected and is not likely to recur.
       Whenever the Secretary seeks to either terminate a Medicare 
     HMO contract or impose intermediate sanctions on such an 
     organization, the Secretary must do so pursuant to a formal 
     investigation and under compliance procedures which provide 
     the organization with a reasonable opportunity to develop and 
     implement a corrective action plan to correct the 
     deficiencies that were the basis of the Secretary's adverse 
     determination. In making a decision whether to impose 
     sanctions the Secretary is required to consider aggravating 
     factors such as whether an entity has a history of 
     deficiencies or has not taken action to correct deficiencies 
     the Secretary has brought to their attention. The Secretary's 
     compliance procedures must also include notice and 
     opportunity for a hearing (including the right to appeal an 
     initial decision) before the Secretary imposes any sanction 
     or terminates the contract of a Medicare HMO, and there must 
     not be any unreasonable or unnecessary delay between the 
     finding of a deficiency and the imposition of sanctions.
       b. Agreements with Peer Review Organizations. Under this 
     section each risk-sharing contract with a Medicare HMO must 
     provide that the organization will maintain a written 
     agreement with a utilization and quality control peer review 
     organization or similar organization for quality review 
     functions.
       Effective Date. The amendments made by this section shall 
     apply to contract years beginning on or after January 1, 
     1996.
     Conference agreement
       The conference agreement includes the Senate provision.


       4. voluntary disclosure program (sec. 15104 of house bill)

     Current law
       Current law does not provide for a program permitting the 
     Secretary to mitigate penalties for parties who voluntarily 
     disclose acts or omissions under Section 1128, 1128A, or 
     1128B. Section 1128 directs the Secretary to impose mandatory 
     exclusions from the Medicare program and State health care 
     programs for convictions of criminal offenses related to the 
     delivery of an item or service under Medicare or State health 
     care programs, as well as for convictions relating to patient 
     abuse in connection with the delivery of a health care item 
     or service. The Secretary has permissive exclusion authority 
     for a number of criminal offenses relating to health care-
     related fraud, theft, embezzlement, financial misconduct, 
     kickbacks, misuse of controlled substances, and activities 
     relating to license revocations or suspensions, claims for 
     excessive charges or unnecessary services, and the like. 
     Section 1128A prescribes civil money penalties for a number 
     of illegal activities relating to the submission of claims 
     for reimbursement under the Medicare and Medicaid programs. 
     Violations which are subject to civil money penalties include 
     submitting claims for items or services not provided or which 
     were false or fraudulent, providing services when not a 
     properly licensed physician, and providing 

[[Page H 12806]]
     items or services by an excluded practitioner. Civil money penalties 
     may also be imposed on a hospital which knowingly makes a 
     payment to a physician, or a physician who knowingly accepts 
     payment from a hospital, as inducement to limit or reduce 
     care to a Medicare or Medicaid patient. Section 1128B sets 
     forth criminal penalties under Medicare and State health care 
     programs for offenses such as false statements in benefit 
     applications or in determining rights under such benefits, 
     concealing information relating to benefits, submitting 
     claims from non-licensed physicians, and soliciting and 
     receiving kickbacks for referrals or soliciting or receiving 
     remuneration for admitting a Medicaid patient.
     House bill
       Under this section a new provision would be added to Title 
     XI of the Social Security Act directing the Secretary of the 
     Department of Health and Human Services to establish a 
     program encouraging individuals and entities to voluntarily 
     disclose to the Secretary information on acts or omissions 
     which constitute grounds for the imposition of a sanction 
     under Section 1128, 1128A, or 1128B of the Social Security 
     Act.
       Under this program the Secretary would have the authority 
     to mitigate any applicable sanction which the Secretary might 
     otherwise have imposed under Section 1128, 1128A or 1128B. 
     The Secretary would not be required to reduce or mitigate 
     applicable sanctions, but may do so, following a voluntary 
     disclosure. This section would specify that no qui tam 
     lawsuit could be brought under the False Claims Amendments 
     Act of 1986, by private parties against the individual or 
     entity with respect to a voluntarily disclosed act or 
     omission under sections 1128, 1128A or 1128B.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


  5. revisions to current sanctions. (sec. 15105 of house bill; secs. 
           7102, 7111, 7112, 7113, 7114, 7131 of senate bill)

     Current law
       Section 1128 of the Social Security Act authorizes the 
     Secretary to impose mandatory and permissive exclusions of 
     individuals and entities from participation in the Medicare 
     program, Medicaid program and programs receiving funds under 
     the Maternal and Child Health Service Block Grant, or the 
     Social Services Block Grant. Mandatory exclusions are 
     authorized for convictions of criminal offenses related to 
     the delivery of health care services under Medicare and State 
     health care programs, as well as for convictions relating to 
     patient abuse in connection with the delivery of a health 
     care item or service. In the case of an exclusion under the 
     mandatory exclusion authority the minimum period of exclusion 
     could be no less than five years, with certain exceptions. 
     Permissive exclusions are authorized for a number of offenses 
     relating to fraud, kickbacks, obstruction of an 
     investigation, and controlled substances, and activities 
     relating to license revocations or suspensions, claims for 
     excessive charges or unnecessary services, and the like.
       Under Section 1128A of the Social Security Act civil 
     monetary penalties may be imposed for false and fraudulent 
     claims for reimbursement under the Medicare and State health 
     care programs.
       Under section 1128B, upon conviction of a program-related 
     felony, an individual may be fined not more than $25,000 or 
     imprisoned for not more than five years, or both.
     House bill
       a. Doubling the Amount of Civil Monetary Penalties. The 
     maximum amount of civil monetary penalties set forth in Sec. 
     1128A of the Social Security Act would be doubled.
       b. Establishment of Minimum Period of Exclusion for Certain 
     Individuals and Entities Subject to Permissive Exclusion. 
     This section would establish a minimum period of exclusion of 
     three years for permissive exclusions of individuals or 
     entities convicted, under Federal or State law, of health 
     care criminal offenses relating to fraud, theft, 
     embezzlement, breach of fiduciary responsibility or other 
     financial misconduct, as well as for convictions relating to 
     obstruction of an investigation, or of a criminal offense 
     involving misuse of controlled substances. The Secretary may 
     determine that a shorter period than three years is 
     appropriate in cases of mitigating circumstances, or that a 
     longer period is appropriate because of aggravating 
     circumstances.
       Permissive exclusions in cases relating to license 
     revocations or suspensions for reasons bearing on an 
     individual's or entity's professional competence or financial 
     integrity, and permissive exclusions following the 
     suspension, exclusion or sanction or an individual or entity 
     from any Federal or State health care program for reasons 
     bearing on professional competence or financial integrity, 
     would be not less than the period during which the 
     individual's or entity's license to provide health care has 
     been revoked or suspended, or the individual or entity has 
     been excluded or suspended from a Federal or State health 
     care program.
       In cases where the Secretary has permissive authority to 
     exclude an individual or entity from Medicare or State health 
     care programs due to submission of claims for excessive 
     charges or for medically unnecessary services, the period of 
     exclusion would be not less than one year.
       Effective Date. The amendments made by this section would 
     apply to acts or omissions occurring on or after January 1, 
     1996.
       c. Application of Certain health Anti-Fraud and Abuse 
     Sanctions to Fraud and Abuse Against Federal Health Programs. 
     No provision.
       d. Mandatory Exclusion From Participation in Medicare and 
     State Health Care Programs. No provision.
       e. Permissive Exclusion of Individuals With Ownership or 
     Control Interest in Sanctioned Entities. No provision.
       f. Sanctions Against Practitioners and Persons for Failure 
     to Comply With Statutory Obligations. No provision.
       g. Social Security Act Civil Monetary Penalties. No 
     provision.
     Senate bill
       a. Doubling the Amount of Civil Monetary Penalties. No 
     provision.
       b. Establishment of Minimum Period of Exclusion for Certain 
     Individuals and Entities Subject to Permissive Exclusion. 
     This section would establish a minimum period of exclusion 
     for certain permissive exclusions from participation in 
     Medicare and State health care programs.
       For convictions of misdemeanor criminal health care fraud 
     offenses, criminal offenses relating to fraud in non-health 
     care Federal or State programs, convictions relating to 
     obstruction of an investigation of health care fraud 
     offenses, and convictions of misdemeanor offenses relating to 
     controlled substances, the minimum period of exclusion would 
     be three years, unless the Secretary determines that a longer 
     or shorter period is appropriate, due to aggravating or 
     mitigating circumstances.
       For permissive exclusions from Medicare or State health 
     care programs due to the revocation or suspension of a health 
     care license of an individual or entity, the minimum period 
     of exclusion would not be less than the period during which 
     the individual's or entity's license was revoked or 
     suspended.
       For permissive exclusions from Medicare or State health 
     care programs due to exclusion from any Federal health care 
     program or State health care program for reasons bearing on 
     an individual's or entity's professional competence or 
     financial integrity, the minimum period of exclusion would 
     not be less than the period the individual or entity is 
     excluded or suspended from a Federal or State health care 
     program.
        For permissive exclusions from Medicare or State health 
     care programs due to a determination by the Secretary that an 
     individual or entity has furnished items or services to 
     patients substantially in excess of the needs of such 
     patients or of a quality which fails to meet professionally 
     recognized standards of health care, the period of exclusion 
     would be not less than one year.
       c. Application of Certain Health Anti-Fraud and Abuse 
     Sanctions to Fraud and Abuse Against Federal Health Programs.
       This section would extend certain criminal penalties for 
     fraud and abuse violations under the Medicare and Medicaid 
     programs to similar violations in other Federal health care 
     programs generally. Other Federal health care programs 
     include health insurance plans or programs funded, in whole 
     or part, by the Federal government, such as the Department of 
     Defense CHAMPUS program and the Office of Personnel 
     Management Federal Employees Health Benefit Program. 
     Violations would include willful submission of false 
     information or claims and anti-kickback activities in Federal 
     health care programs. Penalties include misdemeanor and 
     felony fines and possible imprisonment.
       The Secretary may identify community service opportunities 
     for the satisfaction of court--imposed community service 
     obligations in cases resulting from convictions of offenses 
     under this section.
       Effective Date. January 1, 1996.
       d. Mandatory Exclusion From Participation in Medicare and 
     State Health Care Programs.
       Individual Convicted of Felony Relating to Health Care 
     Fraud. This section would require the Secretary to exclude 
     individuals and entities from Medicare and State health care 
     programs who have been convicted of felony offenses relating 
     to health care fraud for a minimum five year period. The 
     Secretary would also retain the discretionary authority to 
     exclude individuals from Medicare and State health care 
     programs who have been convicted of misdemeanor criminal 
     health care fraud offenses, or who have been convicted of a 
     criminal offense relating to fraud, theft, embezzlement, 
     breach of fiduciary responsibility, or other financial 
     misconduct in programs (other than health care programs) 
     funded in whole or part by any Federal, State or local 
     agency.
        Individual Convicted of Felony Relating to Controlled 
     Substance. This section would require the Secretary to 
     exclude individuals and entities from Medicare and State 
     health care programs who have been convicted of felony 
     offenses relating to controlled substances for a minimum five 
     year period. The Secretary would retain the discretionary 
     authority to exclude individuals from Medicare and State 
     health care programs who have been convicted of misdemeanor 
     offenses relating to controlled substances.
       Effective Date. This section would apply to convictions 
     after the date of the enactment of this statute.
       e. Permissive Exclusion of Individuals With Ownership or 
     Control Interest in Sanctioned Entities.
       Entities owned, controlled, or managed by a sanctioned 
     individual are already subject 

[[Page H 12807]]
     to permissive exclusion from participation in Medicare and State health 
     programs by the Secretary. Under this new authority an 
     individual who has a direct or indirect ownership or control 
     interest of 5 percent or more in an entity, or who is an 
     officer or managing employee of an entity may also be 
     excluded from participation in Medicare and State health care 
     programs by the Secretary if the entity has previously been 
     convicted of an offense listed in Section 1128(a) or 
     (b)(1),(2) or (3) or otherwise excluded form program 
     participation. Under the new provision, the culpable 
     individual would also be subject to program exclusion, even 
     if not initially convicted or excluded.
       f. Sanctions Against Practitioners and Persons for Failure 
     to Comply With Statutory Obligations.
       Minimum Period of Exclusion for Practitioners and Persons 
     Failing to Meet Statutory Obligations. Under this section the 
     Secretary may exclude a practitioner or person for such 
     period as the Secretary may prescribe, except that such 
     period shall be not less than one year.
       Repeal of ``Unwilling or Unable'' Conditions for Imposition 
     of Sanction. The Secretary, in making his determination that 
     a practitioner or person should be sanctioned for failure to 
     comply with certain statutory obligations relating to quality 
     of health care, will no longer be required to prove that the 
     individual was either unwilling or unable to comply with such 
     obligations.
       g. Social Security Act Civil Monetary Penalties.
       General Civil Monetary Penalties. The provisions under the 
     Medicare and Medicaid programs which provide for civil money 
     penalties for specified fraud and abuse violations would 
     apply to similar violations involving other Federal health 
     care programs. Federal health care programs would include any 
     health insurance plans or programs funded, in whole or part, 
     by the Federal government, such as CHAMPUS and FEHBP.
       Civil money penalties and assessments received by the 
     Secretary would be deposited into the Health Care Fraud and 
     Abuse Control Account established under this Act.
       Excluded Individual Retaining Ownership or Control Interest 
     in Participating Entity. Any person who has been excluded 
     from participating in Medicare or a State health care program 
     and who retains a direct or indirect ownership or control 
     interest of 5 percent or more in an entity, or who is an 
     officer or managing employee of an entity that is 
     participating in Medicare or a State health care program 
     would be subject to a civil money penalty of not more than 
     $10,000 for each day the prohibited relationship occurs.
       Modification of Amounts of Penalties and Assessments. This 
     section would amend the civil money penalty provisions of 
     Section 1128A(a) by increasing the amount of a civil money 
     penalty from $2,000 to $10,000 for each item or service 
     involved. This section also increases the assessment which a 
     person may be subject to from ``not more than twice the 
     amount'' to ``not more than three times the amount'' claimed 
     for each such item or service in lieu of damages sustained by 
     the United States or a State agency because of such claim.
       Claim for Item or Service Based on Incorrect Coding or 
     Medically Unnecessary Services. This section would add two 
     practices to the list of prohibited practices for which civil 
     money penalties may be assessed. The first occurs when a 
     person (including an organization or agency, but excluding a 
     beneficiary) engages in a pattern or practice of presenting a 
     claim for an item or service based on a code that the person 
     knows or has reason to know will result in greater payments 
     than appropriate. The second is the practice whereby a person 
     submits a claim or claims that the person knows or has reason 
     to know is for a medical items or services that are not 
     medically necessary.
       Permitting Secretary to Impose Civil Monetary Penalty. This 
     section would permit the Secretary to impose an intermediate 
     civil money penalty of not more than $10,000 per violation 
     for violations of the Medicare/Medicare anti-kickback 
     statute. In addition, such person (or entity, but not a 
     beneficiary) shall be subject to an assessment of not more 
     than twice the total amount of the remuneration offered, 
     paid, solicited, or received in the prohibited activity. 
     Calculation of the assessment amount shall be without regard 
     to whether some portion may have been intended to serve a 
     non-prohibited purpose.
       Sanctions Against Practitioners and Persons for Failure to 
     Comply with Statutory Obligations. The Secretary has the 
     authority to impose administrative sanctions against 
     practitioners and persons who have failed to comply with 
     certain statutory obligations relating to the quality of 
     medical care rendered. Under this section the Secretary may 
     require, in cases involving medically improper or unnecessary 
     health care services, that the practitioner or person pay the 
     United States an amount up to $10,000 for each instance of 
     medically improper or unnecessary health care services. In 
     such cases the practitioner or person would be permitted to 
     continue to be eligible to receive reimbursement for health 
     care services rendered to program beneficiaries.
       Procedural Provisions. The procedural provisions outlined 
     in Section 1128A, such as notice, hearings, and judicial 
     review rights shall apply to civil money penalties assessed 
     against Medicare Health Maintenance Organizations in the same 
     manner as they apply to civil money penalties assessed 
     against health care providers generally.
       Prohibition Against Offering Inducements to Individuals 
     Enrolled Under Programs or Plans. This section would add a 
     new practice to the list of prohibited practices for which 
     civil money penalties may be assessed. Any person (including 
     an organization or agency, but excluding a beneficiary) who 
     offers remuneration to an individual eligible for benefits 
     under Medicare or a State health plan to induce that 
     individual to order or receive from a particular provider, 
     practitioner or supplier any item or service reimbursable 
     under Medicare or a State health care program shall be 
     subject to the various civil money penalties, assessments and 
     exclusion provisions of section 1128A of the Social Security 
     Act.
       The term ``remuneration'' is defined to include the waiver 
     of part or all of coinsurance and deductible amounts, as well 
     as transfers of items or services for free, or for other than 
     fair market value. There are exceptions to this definition. 
     The waiver of part or all of coinsurance and deductible 
     amounts would not be considered remuneration under this 
     section if the waiver is not offered as part of any 
     advertisement or solicitation, the person does not routinely 
     waive coinsurance or deductible amounts, and the person 
     either waives the coinsurance and deductible amounts because 
     the individual is in financial need, or fails to collect the 
     amounts after reasonable collection efforts, or provides for 
     a permissible waiver under regulations issued by the 
     Secretary. In addition, the term remuneration would not 
     include differentials in coinsurance and deductible amounts 
     as part of a benefit plan design if the differentials have 
     been disclosed in writing to all beneficiaries, third party 
     payors, and providers, and if the differentials meet the 
     standards defined in the Secretary's regulations. 
     Remuneration would also not include incentives given to 
     individuals to promote the delivery of preventive care under 
     the Secretary's regulations.
       Effective Date. January 1, 1996.
     Conference agreement
       a. Doubling the Amount of Civil Monetary Penalties. The 
     conference agreement does not include the House provision.
       b. Establishment of Minimum Period of Exclusion for Certain 
     Individuals and Entities Subject to Permissive Exclusion. The 
     conference agreement includes the Senate provision.
       c. Application of Certain Health Anti-Fraud and Abuse 
     Sanctions to Fraud and Abuse Against Federal Health Programs. 
     The conference agreement includes the Senate provision with a 
     clarification of the term ``Federal Health Care Program''.
       d. Mandatory Exclusion From Participation in Medicare and 
     State Health Care Programs. The conference agreement includes 
     the Senate provision.
       e. Permissive Exclusion of Individuals With Ownership of 
     Control Interest in Sanctioned Entities. The conference 
     agreement includes the Senate provision with a clarification 
     regarding certain individuals who are liable under this 
     provision.
       f. Sanctions Against Practitioners and Persons for Failure 
     to Comply With Statutory Obligations. The conference 
     agreement includes the Senate provision.
       g. Social Security Act Civil Monetary Penalties. The 
     conference agreement includes the Senate provision with a 
     clarification regarding excluded individuals who retain an 
     ownership interest in certain entities participating in 
     Medicare or State health care programs, and a clarification 
     regarding the applicable level of intent. In addition, the 
     provision permitting the Secretary to impose civil monetary 
     penalties for violations of the anti-kickback statute is 
     eliminated.


6. consolidated funding for anti-fraud and abuse activities (sec. 15106 
                of house bill; sec. 7101 of senate bill)

     Current law
       Currently Medicare's program integrity functions are 
     subsumed under Medicare's general administrative budget. 
     These functions are performed, along with general claims 
     processing functions, by insurance companies under contract 
     with the Health Care Financing Administration.
     House bill
       a. Establishment of Medicare Integrity Program. This 
     provision would establish a Medicare Integrity Program under 
     which the Secretary would promote the integrity of the 
     Medicare program by entering into contracts with eligible 
     private entities to carry out certain activities. These 
     activities would include the following: (1) review of 
     activities of providers of services or other individuals and 
     entities furnishing items and services for which payment may 
     be made under the Medicare program, including medical and 
     utilization review and fraud review, (2) audit of cost 
     reports, (3) determinations as to whether payment should not 
     be, or should not have been, made by reason of the Medicare 
     as secondary payor provisions, and recovery of payments that 
     should not have been made, and (4) education of providers of 
     services, beneficiaries, and other persons with respect to 
     payment integrity and benefit quality assurance issues. The 
     Secretary would impose certain eligibility requirements on 
     entities entering into contracts under this Medicare 
     Integrity Program.
       The Secretary would be authorized to establish, by 
     regulation, procedures for entering into contracts, including 
     procedures relating to the number of contracts and the timing 
     of contracts, competitive procedures for new contracts, and 
     waiver of competitive procedures for renewed contracts under 
     certain circumstances.

[[Page H 12808]]

       The Secretary would be required to provide, by regulation, 
     for the limitation of a contractor's liability under the 
     Medicare Integrity Program. The Secretary would employ, to 
     the extent he finds appropriate, the same or comparable 
     standards and other substantive and procedural provisions as 
     are contained in section 1157 of the Social Security Act.
       The Secretary would be required to transfer, for each 
     fiscal year, from the Federal Hospital Insurance Trust Fund 
     and the Federal Supplementary Medical Insurance Trust Fund, 
     to the Medicare Anti-Fraud and Abuse Trust Fund an amount 
     equal to the total amount of expenditures that the Secretary 
     would have made under this title during the year to carry out 
     the activities described herein if the Medicare Integrity 
     Program had not been in effect. Such transfer would be in an 
     allocation as reasonably reflects the proportion of such 
     expenditures associated with part A and part B.
       There would be established in the Treasury of the United 
     States the Anti-Fraud and Abuse Trust Fund, which would 
     consist of such gifts and bequests as may be made 
     unconditionally to the Trust Fund and such amounts as may be 
     deposited in the Trust Fund as provided in this section. The 
     Secretary of the Treasury would be required to invest such 
     amounts of the Funds as he determines are not required to 
     meet current withdrawals from the Fund in government account 
     serial securities. Any interest derived from investments 
     would be credited to the Fund.
       Certain amounts would be deposited in the Trust Fund, 
     including moneys from fines, penalties and damages assessed 
     under various Medicare and State health care programs. There 
     would be appropriated from the Trust Fund for each fiscal 
     year such amounts as are necessary to carry out the Medicare 
     Integrity Program, subject to specific limitations for fiscal 
     years 1996 through 2002. The Secretary would submit an annual 
     report to Congress on the revenues generated and disbursed by 
     the Trust Fund each fiscal year.
       Elimination of FI and Carrier Responsibility for Carrying 
     Out Activities Subject to Program. This provision prohibits 
     any agency, organization, or carrier, from carrying out (or 
     receiving payment for carrying out) any activity pursuant to 
     an agreement under this section to the extent that the 
     activity is carried out pursuant to a contract under the 
     Medical Integrity Program.
       Conforming Amendment. This section specifies that certain 
     penalties and assessments be deposited in the Trust Fund as 
     provided herein.
       Direct Spending for Medicare-Related Activities of 
     Inspector General. Under this section certain amounts, 
     subject to specified limitations, are appropriated form the 
     Federal Hospital Insurance Trust Fund and the Federal 
     Supplementary Medical Insurance Trust Fund to the Inspector 
     General of HHS for activities relating to the Medicare 
     program. These activities include prosecuting medicare-
     related matters through criminal, civil, and administrative 
     proceedings, conducting investigations, audits and 
     inspections, and conducting provider and consumer education 
     activities regarding fraud and abuse provisions.
       b. Fraud and Abuse Control Program. No provision.
     Senate bill
       a. Establishment of Medicare Integrity Program. No 
     provision.
       b. Fraud and Abuse Control Program. The Secretary of the 
     Department of Health and Human Services (acting through the 
     Office of the Inspector General) and the Attorney General 
     would be required to jointly establish a national health care 
     fraud and abuse control program to coordinate Federal, State 
     and local law enforcement efforts to combat fraud and abuse 
     in the delivery of and payment for health care in the United 
     States. To facilitate the enforcement of this fraud and abuse 
     control program the Secretary and Attorney General would be 
     authorized to conduct investigations, audits, evaluations and 
     inspections relating to the delivery and payment for health 
     care, and would be required to arrange for the sharing of 
     data with representatives of public and private third party 
     payers. This program, implemented by guidelines issued by the 
     Secretary and the Attorney General, would also facilitate the 
     enforcement of applicable Federal statutes relating to health 
     care fraud and abuse, and would provide for the provision of 
     guidance to health care providers through the issuance of 
     safe harbors, interpretive rulings and special fraud alerts.
       The Secretary and Attorney General would consult with and 
     share data with representatives of health plans. Guidelines 
     issued by the Secretary and Attorney General would ensure the 
     confidentiality of information furnished by health plans, 
     providers and others, as well as the privacy of individuals 
     receiving health care services. The Inspector General would 
     retain all current authorities and would receive 
     reimbursements for costs of investigations, audits and other 
     functions under this section.
       For purposes of this section the term ``health plan'' means 
     a plan or program that provides health benefits through 
     insurance or otherwise. Such plans include health insurance 
     policies, contracts of service benefit organizations, and 
     membership agreements with health maintenance organizations 
     or other prepaid health plans.
       Establishment of Health Care Fraud and Abuse Control 
     Account in Federal Hospital Insurance Trust Fund. The Health 
     Care Fraud and Abuse Control Account would be established as 
     an expenditure account within the Federal Hospital Insurance 
     Trust Fund. Monies derived from the coordinated health care 
     anti-fraud and abuse program from imposition of civil money 
     penalties, fines, forfeitures and damages assessed in 
     criminal, civil or administrative health care cases, along 
     with any gifts or bequests would be transferred into the 
     Medicare HI trust fund. There are also appropriated from the 
     HI trust fund to the Account such sums as the Secretary and 
     the Attorney General certify are necessary to carry out 
     certain functions, subject to specified limits for each of 
     fiscal years 1996 through 2002. These functions include 
     prosecuting health care matters, investigations, audits of 
     health care programs and operations, inspections and other 
     evaluations, and provider and consumer education regarding 
     compliance with fraud and abuse provisions. Amounts in the 
     Account would also be available to the various State Medicaid 
     fraud control units to reimburse such units for the costs of 
     certain activities. The Secretary and the Attorney General 
     are required to submit a joint annual report to Congress on 
     the revenues and expenditures, and the justification for such 
     disbursements of the Health Care Fraud and Abuse Control 
     Account.
     Conference agreement
       a. Establishment of Medicare Integrity Program. The 
     conference agreement includes the House provision with 
     clarifications to the conflict of interest requirements for 
     eligible entities and the competitive bidding procedures.
       b. Fraud and Abuse Control Program. The conference 
     agreement includes the Senate provision with modifications. 
     The fraud and abuse control program coordinates Federal, 
     State, and local law enforcement programs to control fraud 
     and abuse with respect to health plans. The funding mechanism 
     for the Federal Bureau of Investigations authorizes 
     appropriations for the FBI from general revenues.


  7. permitting carriers to carry out prior authorization for certain 
  items of durable medical equipment (dme) (sec. 15107 of house bill)

     Current law
       The Secretary is authorized to develop and periodically 
     update a list of DME items that are subject to unnecessary 
     utilization throughout a carrier's entire service area or a 
     portion of such area. The Secretary may also develop and 
     update a list of DME suppliers with a substantial number of 
     denied claims or a pattern of overutilization resulting from 
     the business practices of suppliers. Carriers are required to 
     make advance coverage determinations for items on the lists 
     developed by the Secretary.
     House bill
       a. In General. Carriers would be authorized to develop the 
     same lists of DME items and suppliers that the Secretary is 
     authorized to develop. Carriers would also be authorized to 
     make advance coverage determinations, regardless of whether 
     or not the Secretary has promulgated a regulation for the 
     list, except that carriers could not make such advance 
     determinations with respect to an item or supplier on a list 
     until the expiration of the 30-day period beginning on the 
     date the Secretary or carrier places the item on the list.
       b. Effective Date. This amendment would take effect as if 
     included in the enactment of the Social Security Act 
     Amendments of 1994.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the House provision as 
     part of the Medicare Integrity Program.


  8. national health care anti-fraud task force (sec. 15108 of house 
                    bill; sec. 7101 of senate bill)

     Current law
       No provision.
     House bill
       Within 120 days of enactment of this bill the Attorney 
     General, in consultation with the Secretary of HHS, would 
     establish, within the Department of Justice, a nation-wide 
     Health Care Anti-Fraud Task Force to prosecute health care 
     fraud offenses. This Task Force would be composed of 
     representatives of Federal agencies which prosecute health 
     care fraud and abuse, including the Department of Justice, 
     the FBI, the Department of Health and Human Services and its 
     Office of Inspector General, the Department of Defense, the 
     Department of Veterans Affairs, the U.S. Postal Service and 
     the IRS. The Task Force would coordinate Federal law 
     enforcement activities relating to health care fraud and 
     abuse in order to better control fraud and abuse in the 
     delivery of health care in the United States.
     Senate bill
       See Senate bill summary, item 6(b), above.
     Conference agreement
       The conference agreement does not include the House 
     provision. The conference agreement (see item 6(b), above) 
     includes the Senate provision.


9. study of adequacy of private quality assurance programs (sec. 15109 
                             of house bill)

     Current law
       No provision.

[[Page H 12809]]

     House bill
       The Administrator of the Health Care Financing 
     Administration, through the Office of Research, would be 
     required to contract for a study of the adequacy of quality 
     assurance programs and consumer protections used by plans 
     enrolling medicare beneficiaries under part C of title XVIII 
     of the Social Security Act, including an analysis of the 
     effectiveness of such programs in protecting plan enrollees 
     against the risk of insufficient provision of benefits which 
     may result from utilization controls. A report would be 
     submitted to Congress on the study not later than 6 months 
     after the conclusion of the 5-year period for the study.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


  10. penalty for false certification for home health services (sec. 
                          15110 of house bill)

     Current law
       No provision.
     House bill
       a. In General. This provision would add an additional civil 
     monetary penalty of not more than three times the amount of 
     the payments, or $5,000, whichever is greater, for a 
     physician who certifies that an individual meets all of 
     Medicare's requirements to receive home health care while 
     knowing that the individual does not meet all such 
     requirements.
       b. Effective Date. The amendment made by this section would 
     apply to certifications made on or after the date of 
     enactment of this Act.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the House provision.


             11. pilot projects (sec. 15111 of house bill)

     Current law
       No provision.
     House bill
       The Secretary of HHS would establish and operate five pilot 
     projects in various parts of the country implementing 
     innovative approaches to monitor Medicare program payment 
     claims to detect claims that are wasteful or fraudulent.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


  12. elimination of reasonable cost reimbursement for certain legal 
                  fees. (section 7122 of senate bill)

     Current law
       The determination of reasonable costs under the Medicare 
     program do not include the costs incurred by a provider of 
     services representing a beneficiary in an unsuccessful appeal 
     of a determination of an individual's entitlement to benefits 
     under part A or part B, or the amount of such benefits, or 
     certain other allowable grounds for appeal under Sec. 1869(b) 
     of the Social Security Act.
     House bill
       No provision.
     Senate bill
       This provision would also disallow the costs incurred by a 
     provider of services in representing a beneficiary in an 
     unsuccessful appeal of a determination of entitlement to 
     benefits under part A or part B, and in an appeal of an 
     unsuccessful determination of the amount of benefits under 
     part A or part B, and in any other appeal of a determination 
     with respect to a claim for benefits under part A or a claim 
     for benefits with respect to home health services under part 
     B under Section 1869(a) of the Social Security Act.
     Conference agreement
       The conference agreement does not include the Senate 
     provision.

                   Part 2--Revisions to Criminal Law


1. definition of health care fraud offense. (sec. 15121 of house bill; 
                    sec. 7142(a) of the senate bill)

     Current law
       No provision.
     House bill
       This section sets forth a series of offenses against the 
     federal government or private entities that would be 
     considered as federal health care offenses when they relate 
     to health care. These include (1) a violation of, or criminal 
     conspiracy to violate section 226, 227, 669, 1035, 1347, or 
     1518 of title 18; (2) a violation of, or criminal conspiracy 
     to violate section 1128B of the Social Security Act; (3) a 
     violation of, or criminal conspiracy to violate section 201, 
     287, 371, 664, 666, 1001, 1027, 1341, 1343, or 1954 of this 
     title, if the violation or conspiracy relates to a health 
     care benefit program; (4) a violation of, or criminal 
     conspiracy to violate section 501 or 511 of the Employee 
     Retirement Income Security Act of 1974, if the violation or 
     conspiracy relates to a health care benefit program; (5) the 
     commission of, or attempt to commit, an act which constitutes 
     grounds for the imposition of a penalty under section 303 of 
     the Federal Food, Drug, and Cosmetic Act, if the act or 
     attempt relates to a health care benefit program; or (6) a 
     violation of, or criminal conspiracy to violate, section 3 of 
     the Anti-Kickback Act of 1986, if the violation or conspiracy 
     relates to a health care benefit program.
     Senate bill
       This section sets forth those offenses that will be 
     considered as ``Federal Health Care Offenses'' under this 
     subtitle. These include a violation of, or a criminal 
     conspiracy to violate--(i) section 1347 of title 18; (ii) 
     section 1128B of the Social Security Act; and (iii) sections 
     287, 371, 664, 666, 669, 1001, 1027, 1341, 1343, 1920, or 
     1954 of title 18, if the violation or conspiracy relates to 
     health care fraud.
     Conference agreement
       The conference agreement includes the Senate provision.


  2. health care fraud (sec. 15122 of house bill; sec. 7141 of senate 
                                 bill)

     Current law
       Depending on the facts of a particular case, criminal 
     penalties may be imposed on persons engaged in health care 
     fraud under federal mail and wire fraud statutes, the False 
     Claims Act, false statement statutes, money laundering 
     statutes, racketeering, and other related laws.
     House bill
       Criminal penalties would be imposed for devising, 
     committing, or attempting a scheme (1) to defraud any health 
     care benefit program; or (2) to obtain, by means of false or 
     fraudulent pretenses, money or property owned by, or under 
     the custody or control of, any health care benefit program. A 
     ``health care benefit program'' is defined to include 1) any 
     public or private plan or contract under which any medical 
     benefit, item, or service is provided to any individual, and 
     2) includes any individual or entity who is providing a 
     medical benefit, item, or service for which payment may be 
     made under the plan or contract. Penalties include fines and 
     up to 10 years imprisonment. If the violation results in 
     serious bodily injury, the person may be imprisoned up to 20 
     years. If the violation results in death, the person may be 
     imprisoned for life.
     Senate bill
       Criminal penalties would be imposed for knowingly and 
     willfully executing a scheme, or artifice, or attempting to 
     execute a scheme or artifice to defraud any ``health plan'' 
     or any other person in connection with the payment or 
     delivery of health care benefits, items or services. 
     Penalties may also be imposed for obtaining money or property 
     owned or under the custody or control of a health plan 
     through false or fraudulent pretenses, representations or 
     promises. Persons who violate the above provisions may be 
     subjected to up to ten years in prison or applicable fines. 
     If the violation results in serious bodily injury, the person 
     may be imprisoned for any term of years. An amount equal to 
     the criminal fines imposed by this section shall be deposited 
     in the Federal Hospital Insurance Trust Fund.
       The term ``health plan'' means a plan or program that 
     provides health benefits through insurance or otherwise. Such 
     plans include health insurance policies, contracts of service 
     benefit organizations, and membership agreements with health 
     maintenance organizations or other prepaid health plans. 
     Later provisions under this subtitle generally provide 
     protections to a ``health plan'' or person against fraud, 
     theft, embezzlement, bribery, graft.
     Conference agreement
       The conference agreement includes the Senate provision, 
     with a modification to cover only those offenses involving 
     federal health care programs.


3. theft or embezzlement (sec. 15123 of house bill; sec. 7147 of senate 
                                 bill)

     Current law
       No provision.
     House bill
       Criminal penalties would be imposed for willfully 
     embezzling, stealing, converting or intentionally misapplying 
     the moneys, funds, securities, premiums, credits, property, 
     or other assets of a ``health care benefits program'' to the 
     use of any person other than the rightful owner. Violations 
     of this section may include a fine under Title 18 and 
     imprisonment not more than 10 years, or both.
     Senate bill
       Criminal penalties would be imposed for willfully 
     embezzling, stealing, converting, or misapplying any of the 
     moneys, funds, securities, premiums, credits, property, or 
     other assets of a ``health plan.'' A person convicted under 
     this provision will be subject to a fine under title 18 of 
     the United States Code, or imprisoned not more than 10 years, 
     or both.
     Conference agreement
       The conference agreement includes the Senate provision, 
     with a modification to cover only those offenses involving 
     federal health care programs.


  4. false statements (sec. 15124 of house bill; sec. 7145 of senate 
                                 bill)

     Current law
       The Federal false statements provision at 18 U.S.C. 
     Sec. 1001 generally prohibits false statements with regard to 
     any matter within the jurisdiction of a Federal department or 
     agency.
     House bill
       Criminal penalties would be imposed for knowingly and 
     willfully falsifying, concealing, or covering up by any 
     trick, scheme, or 

[[Page H 12810]]
     device a material fact, or making false, fictitious, or fraudulent 
     statements or representation, or making or using any false 
     writing or document knowing the same to contain any false, 
     fictitious, or fraudulent statement or entry in any matter 
     involving a health care benefit program. A person convicted 
     under this provision may be punished by the imposition of 
     fines under title 18 of the United States Code, or by 
     imprisonment of not more than 5 years, or both. ``Health care 
     benefit program'' shall have the meaning as set for in 
     Sec. 15121.
     Senate bill
       Criminal penalties would be imposed for knowingly and 
     willfully falsifying, concealing, or covering up by any 
     trick, scheme, or device a material fact, or making false, 
     fictitious, or fraudulent statements or representation, or 
     making or using any false writing or document knowing the 
     same to contain any false, fictitious, or fraudulent 
     statement or entry in any matter concerning a health plan. A 
     person convicted under this provision may be punished by the 
     imposition of fines under title 18 of the United States Code, 
     or by imprisonment of not more than 5 years, or both.
     Conference agreement
       The conference agreement includes the Senate provision with 
     a clarification that false statements or writings must be 
     ``material'' and must be related to a federal health care 
     program.


            5. bribery and graft (sec. 15125 of house Bill)

     Current law
       No provision.
     House bill
       Criminal penalties may be applied to a person who 
     ``corruptly'' gives, offers, or promises anything of value to 
     any person in order to influence a health care officials 
     actions relating to a health care benefit program; to 
     influence such an official to commit a fraud on a health care 
     benefit program; or to induce such an official to engage in 
     any conduct in violation of their lawful duty. The section 
     also penalizes a health care official who corruptly demands 
     or accepts anything of value for the above purposes. A health 
     care official is an administrator, officer, trustee, 
     fiduciary, custodian, counsel, agent, or employee of any 
     health care benefit program; an officer, counsel, agent, or 
     employee, of an organization that provides services under 
     contract to any health care benefit program; or an official, 
     employee, or agent of an entity having regulatory authority 
     over any health care benefit program. Penalties include fines 
     under title 18 or imprisonment for not more than 15 years, or 
     both.
       This section also provides that anyone who directly or 
     indirectly gives, offers, or promises anything of value to a 
     health care official (otherwise than as provided by law) 
     ``for or because'' of any of the health care officials 
     actions, decisions, or duties relating to a health care 
     benefit program, or attempts to violate this subsection; or 
     (2) being a health care official, directly or indirectly, 
     demands, seeks, receives, accepts or agrees to accept 
     anything of value the giving of which violates the above, 
     would be fined under title 18, or imprisoned not more than 2 
     years, or both.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


 6. illegal remuneration with respect to health care benefit programs 
          (sec. 15126 of house bill; sec. 7102 of senate bill)

     Current law
       No provision.
     House bill
       This section would transfer the anti-kickback provisions 
     from Sec. 1128B of the Social Security Act to title 18, and 
     would expand the statute to all health care benefit programs, 
     rather than just Medicare and Medicaid. It specifically 
     provides criminal penalties for a person who knowingly and 
     willfully receives or pays any remuneration (including any 
     kickback, bribe, or rebate) in return for referrals covered 
     by a health care benefit program; or in return for 
     purchasing, leasing, ordering, or arranging for any service 
     or item for which payment may be made in whole or in part by 
     any health care benefit program, or attempting to do so, 
     shall be fined under this title or imprisoned for not more 
     than 5 years, or both. Any person injured in his business or 
     property by reason of a violation of this section may sue and 
     recover treble damages.
       This would not apply to (1) a discount or other reduction 
     in price obtained by a provider of services if the reduction 
     in price is reflected in the costs charges made by the 
     provider; (2) any amount paid by a bona-fide employee; (3) 
     any amount paid by a vendor of goods or services to a 
     purchasing agent for a group of individuals or entities who 
     are furnishing services reimbursed under a health care 
     benefit program if--(A) the person has a written contract, 
     with each such individual or entity, which specifies the 
     amount to be paid the person, which amount may be a fixed 
     amount or a percentage of the value of the purchases made by 
     each such individual or entity under the contract, and (B) in 
     the case of an entity that is a provider of services (as 
     defined in section 1861(u) of the Social Security Act, the 
     person discloses to the entity and, upon request, to the 
     Secretary the amount received from each such vendor; (4) a 
     waiver of any coinsurance under part B of Medicare by a 
     federally qualified health care health care center; (5) any 
     payment practice specified by the Secretary of HHS pursuant 
     to section 14(a) of the Medicare and Medicaid Patient and 
     Program Protection Act of 1987.
     Senate bill
       This section extends the existing Anti-Kickback statute 
     found in Sec. 1128B of the Social Security Act to all federal 
     health care programs, rather than just Medicare and Medicaid.
     Conference agreement
       The conference includes the Senate provision.


7. obstruction of criminal investigations of health care offenses (sec. 
             15127 of house bill; sec. 7146 of senate bill)

     Current law
       Criminal penalties are imposed for obstructing, delaying or 
     preventing the communication of information to law 
     enforcement officials regarding the violation of criminal 
     statutes by using bribery, intimidation, threats, corrupt 
     persuasion or harassment.
     House bill
       Criminal penalties would be imposed for willfully 
     preventing, obstructing, misleading, delaying or attempting 
     to prevent, obstruct, mislead or delay the communication of 
     information or records relating to a health care offense to a 
     criminal investigator. A person convicted under this 
     provision may be punished by the imposition of fines under 
     title 18 of the United States Code, or by imprisonment of not 
     more than 5 years, or both. Health care offenses would have 
     the same meaning given such term in Sec. 15121. A criminal 
     investigator would mean any individual duly authorized by a 
     department, agency or armed force of the United States to 
     conduct or engage investigations for prosecutions for 
     violations of health care offenses.
     Senate bill
       Criminal penalties would be imposed for willfully 
     preventing, obstructing, misleading, delaying or attempting 
     to prevent, obstruct, mislead or delay the communication of 
     information or records relating to a Federal health care 
     offense to a criminal investigator. A person convicted under 
     this provision may be punished by the imposition of fines 
     under title 18 of the United States Code, or by imprisonment 
     of not more than 5 years, or both. Federal health care 
     offenses would have the same meaning given such term in 
     Sec. 7142 of the Act, and criminal investigator would mean 
     any individual duly authorized by a department, agency or 
     armed force of the United States to conduct or engage 
     investigations for prosecutions for violations of health care 
     offenses.
     Conference agreement
       The conference agreement includes the Senate provision.


8. civil penalties for violations of federal health care offenses (sec. 
                                 15128)

     Current law
       No provision.
     House bill
       A civil penalty may be sought by the Attorney General 
     against any person who engages in conduct constituting a 
     violation of Federal health care offense (as defined in 
     Sec. 15121), and would be subject to a civil penalty of not 
     more than $50,000 for each violation or the amount of 
     compensation or proceeds which the person received or offered 
     for the prohibited conduct, whichever amount is greater.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


 9. injunctive relief relating to health care offenses (sec. 15129 of 
                 house bill; sec. 7143 of senate bill)

     Current law
       Depending on the facts of a particular case, injunctive 
     relief may be imposed on persons who are committing or about 
     to commit health care fraud under federal racketeering 
     statutes and other related laws.
     House bill
       If a person is violating or about to commit a Federal 
     health care offense, the Attorney General of the United 
     States may commence a civil action in any Federal court to 
     enjoin such a violation.
     Senate bill
       If a person is violating or about to commit a Federal 
     health care offense, the Attorney General of the United 
     States may commence a civil action in any Federal court to 
     enjoin such a violation. If a person is alienating or 
     disposing of property or intends to alienate or dispose of 
     property obtained as a result of a Federal health care 
     offense, the Attorney General may seek to enjoin such 
     alienation or disposition, or may seek a restraining order to 
     prohibit the person from withdrawing, transferring, removing, 
     dissipating or disposing of any such property or property of 
     equivalent value and appoint a temporary receiver to 
     administer such restraining order.

[[Page H 12811]]

     Conference agreement
       The conference agreement includes the Senate provision.


  10. Authorized Investigative Demand Procedures (Sec. 15130 of House 
                    bill; Sec. 7149 of Senate bill)

     Current law
       No provision.
     House bill
       This section would provide procedures for the Attorney 
     General to make investigative demands in cases regarding 
     Federal health care offenses. The Attorney General could 
     issue a summons for witnesses or records, although a witness 
     shall not be required to appear at any hearing more than 500 
     miles distant from the place where he was served with a 
     subpoena. Administrative summons are authorized for 
     investigations of Federal health care offenses or of any 
     investigation with respect to concealing escaped prisoners, 
     flight to avoid prosecution or testimony, or fleeing after 
     conviction of such offenses. This section would also provide 
     for service of a subpoena and enforcement of a subpoena in 
     all United States courts, as well as grants of immunity to 
     persons responding to a subpoena from civil liability for 
     disclosure of such information.
     Senate bill
       This section would provide procedures for the Attorney 
     General to make investigative demands in cases regarding 
     health care fraud. Under this section, the Attorney General 
     could issue a summons for records and/or a witness to 
     authenticate the records, although a witness would not be 
     required to appear at any hearing more than 500 miles distant 
     from the place where he was served with a subpoena. 
     Administrative summons are authorized for investigations of 
     any scheme to defraud any health plan or other person in 
     connection with the delivery of or payment for health care; 
     or to fraudulently obtain money or property of a health plan 
     or person in connection with the delivery of or health care. 
     This section would provide for service of a subpoena and 
     enforcement of a subpoena in all United States curtseys well 
     as a grant of immunity to persons responding to a subpoena 
     from civil liability for disclosure of such information.
       The section would also provide that health information 
     about an individual that is disclosed under this section may 
     not be used in, or disclosed to any person for use in, any 
     administrative, civil, or criminal action or investigation 
     directed against the individual who is the subject of the 
     information unless the action or investigation arises out of 
     and is directly related to receipt of health care or payment 
     for health care or action involving a fraudulent claim 
     related to health; or if good cause is shown.
     Conference agreement
       The conference agreement includes the Senate provision, 
     with a modification to limit applicability to matters 
     involving federal health care programs.


   11. Grand Jury Disclosure (Sec. 15131 of House bill; Sec. 7144 of 
                              Senate bill)

     Current law
       Attorneys for the United States government are generally 
     forbidden from disclosing matters occurring before the grand 
     jury under Rule 6(e)(2) of the Federal Rules of Criminal 
     Procedure. Exceptions to this requirement include the 
     following: Rule 6(e)(3)(A)(I), which allows a government 
     attorney to disclose matters occurring before a grand jury 
     (excluding deliberations and the vote of any grand juror) to 
     an attorney for the government for use in the performance of 
     such attorney's duties; Rule 6(e)(3)(A)(ii), which allows 
     similar disclosure to such government personnel as are deemed 
     necessary to an attorney for the government to assist in the 
     enforcement of federal criminal law; and Rule 6(e)(3)(C)(I), 
     which allows a court to direct disclosure of grand jury 
     proceedings in connection with or preliminary to a judicial 
     proceeding. The Supreme Court has interpreted these 
     exceptions narrowly, however, holding that the disclosure 
     allowed under Rule 6(e)(3)(A)(I) and (ii) must be relevant to 
     the criminal process which is the focus of the grand jury, 
     and that disclosure under Rule 6(e)(3)(C)(I) will only be 
     directed by a court under a strong showing of particularized 
     need. United States v. Sells Engineering, Inc., 463 U.S. 418 
     (1983). Thus, a government attorney prosecuting a criminal 
     case before a grand jury may not be able to divulge 
     information occurring before the grand jury to a government 
     attorney engaged in a civil investigation or proceeding on 
     the same matters.
     House bill
       A person who is privy to grand jury information concerning 
     a Federal health care offense received in the course of duty 
     as an attorney for the Government or disclosed under Federal 
     Rules of Criminal Procedure Rule 6(e)(3)(A)(I) may disclose 
     such information to another attorney for the Government to 
     use in any investigation or civil proceeding relating to 
     health care fraud.
     Senate bill
       A person who is privy to grand jury information concerning 
     a Federal health care offense received in the course of duty 
     as an attorney for the Government or disclosed under Federal 
     Rules of Criminal Procedure Rule 6(e)(3)(A)(I) may disclose 
     such information to another attorney for the Government to 
     use in any investigation or civil proceeding relating to 
     health care fraud.
     Conference agreement
       The conference agreement does not include either the House 
     or Senate provisions.


12. Miscellaneous Amendment to Title 18, United States Code (Sec. 15132 
             of House bill; Sec. 7148, 7142 of Senate bill)

       a. Laundering of Monetary Instruments
     Current law
       The current Federal money laundering provision is found at 
     18 U.S.C. Sec. 1956(c)(7), but does not include money 
     laundering as related to health care fraud.
     House bill
       An act or activity constituting a Federal health care 
     offense would be considered a``specified unlawful 
     activity''for purposes of the prohibition on money 
     laundering, so that any person who engages in money 
     laundering in connection with a Federal health care offense 
     would be subject to existing criminal penalties.
     Senate bill
       An act or activity constituting a Federal health care 
     offense would be considered a``specified unlawful 
     activity''for purposes of the prohibition on money 
     laundering, so that any person who engages in money 
     laundering in connection with a Federal health care offense 
     would be subject to existing criminal penalties.
     Conference agreement
       The conference agreement includes the Senate provision.
       b. Enhanced Penalties (Telemarketing)
     Current law
       18 U.S.C. Sec. 2325 provides for enhanced penalties for 
     offense occurring during a telemarketing scheme. The present 
     law does not apply specifically to Federal Health Care 
     offense.
     House bill
       This section would provide that a person convicted of a 
     Federal Health Care offense which occurred in the course of a 
     telemarketing scheme which targeted persons over fifty--five, 
     or which victimized ten or more persons over 55, may be 
     imprisoned up to an additional ten years.
     Senate bill
       No provision.
     Conference Agreement
       The conference agreement does not include the House 
     provision.
       c. Authorization for Interception of Wire, Oral, or 
     Electronic Communication
     Current law
       18 U.S.C. Sec. 2516 sets forth the federal statutes for 
     which authorization to place a wire-tap may be sought from 
     the courts. Federal Health Care offenses are not specifically 
     included in this list.
     House bill
       This section would establish a court's authority to approve 
     an application for a wire--tap to be placed in order to 
     gather evidence related to a Federal Health Care Offense, as 
     defined in Sec. 15121.
     Senate bill
       No provision.
     Conference Agreement
       The conference agreement does not include the House 
     provision.
       d. Definitions (RICO)
     Current law
       A RICO violation may be summarized as follows: whoever 
     participates in a commercial``enterprise''or 
     an``enterprise''which has an impact on commerce through a 
     pattern of specific criminal``racketeering''activity can be 
     found to be in violation of RICO. 
     Typical``racketeering''activity includes murder, kidnapping, 
     robbery, arson, bribery, loan--sharking, mail fraud, wire 
     fraud, obstruction of justice, witness retaliation, or 
     extortion. Federal Health Care Offenses are not specifically 
     listed as a``racketeering activity.''
     House bill
       This section would establish a Federal Health Care Offense 
     as a predicate offense for purposes of establishing a pattern 
     of``racketeering activity''under RICO.
     Senate bill
       No provision.
     Conference agreement
       The conference provision does not include the House 
     provision.
       e. Criminal Forfeiture
     Current law
       Depending on the facts of a particular case, criminal 
     forfeiture may be imposed on persons convicted under federal 
     money laundering statutes, racketeering statutes, and other 
     related laws.
     House bill
       A court imposing a sentence on a person convicted of a 
     Federal health care offense would order the person to forfeit 
     all real or personal property that is derived, directly or 
     indirectly, from proceeds traceable to the commission of the 
     offense.
     Senate bill
       A court imposing a sentence on a person convicted of a 
     Federal health care offense would order the person to forfeit 
     all real or personal property that is derived, directly or 
     indirectly, from proceeds traceable to the commission of the 
     offense. After payment of the costs of asset forfeiture have 
     been made, the Secretary of the Treasury would deposit 

[[Page H 12812]]
     into the Federal Hospital Insurance Trust Fund an amount equal to the 
     net amount realized from the forfeiture of property by reason 
     of a federal health care offense.
     Conference agreement
       The conference agreement includes the Senate provision.


  13. State Health Care Fraud Control Units (Sec. 7151 of Senate bill)

     Current Law
       State Medicaid Fraud Control Units are presently authorized 
     under the Medicaid program and are certified annually by the 
     Secretary if they meet certain requirements. Such units must 
     be a unit of State government with either (a) statewide 
     authority to investigate and prosecute individuals for 
     criminal violations of State laws regarding fraud in the 
     provision of medical assistance under the Medicaid program, 
     or (b) have formal procedures providing effective 
     coordination with the activities of the State Attorney 
     General's office or other office with prosecutive authority. 
     State Medicaid Control Units must also have procedures for 
     reviewing complaints of abuse and neglect of patients of 
     health care facilities receiving Medicaid payments and, where 
     appropriate, acting on such complaints or referring them for 
     action.
     House bill
       No provision.
     Senate bill
        a. Extension of Concurrent Authority to Investigate and 
     Prosecute Fraud in Other Federal Programs. This section 
     changes the State Medicaid Fraud Control Unit authorization 
     language to specify that those units will have concurrent 
     authority to investigate and prosecute health care fraud in 
     other Federal programs at the approval of the relevant 
     Federal agency.
       b Extension of Authority to Investigate and Prosecute 
     Patient Abuse in Non--Medicaid Board and Care Facilities. 
     States have the option, under this section, to establish 
     procedures for reviewing complaints of abuse or neglect of 
     patients residing in board and care facilities and, where 
     appropriate, acting on such complaints or referring them for 
     action. ``Board and care facility''is defined as a 
     residential setting which receives payment from or on behalf 
     of two or more unrelated adults who reside in such facility, 
     and for whom either nursing care services are provided, or 
     personal care services are provided, or both.
     Conference agreement
       The conference agreement includes the Senate provision with 
     a clarification that concurrent authority of Medicaid Fraud 
     Control Units to investigate and prosecute health care fraud 
     requires approval of the chief executive officer of the State 
     or such officer's designee, as well as of the relevant 
     Federal agency.

     Subtitle C--Regulatory Relief


               a. physician ownership and referral reform

  1. repeal of prohibitions based on compensation arrangements (sec. 
                          15201 of house bill)

     Current law
        The law establishes a ban on certain financial 
     arrangements between a referring physician and an entity. 
     Specifically, if a physician (or immediate family member) has 
     an ownership or investment interest in or a compensation 
     arrangement with an entity, the physician is prohibited from 
     making a referral to the entity for services for which 
     Medicare would otherwise pay. Further, the entity may not 
     bill for such services. For purposes of the ban, an ownership 
     or investment interest may be through equity or debt or other 
     means and includes an interest in an entity that holds an 
     ownership or investment interest in any entity providing 
     designated health services. A compensation arrangement is 
     generally defined as any arrangement involving any 
     remuneration between a physician (or immediate family member) 
     and an entity.
       The law includes general exceptions to the ban. Some are 
     general exceptions to both the ownership and compensation 
     arrangement prohibitions, while others relate only to 
     ownership or only to compensation arrangements.
     House bill
       The provision would repeal the prohibitions based on 
     compensation arrangements.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the House provision.


2. revision of designated health services subject to prohibition (sec. 
                          15202 of house bill)

     Current law
       OBRA 89, which established the initial self-referral ban 
     applied the ban to referrals for clinical laboratory services 
     only. OBRA 93 (as modified by P.L. 103-432) extended the ban 
     to additional ``designated health services'', effective 
     January 1, 1995. These designated health services are: (i) 
     physical therapy services; (ii) occupational therapy 
     services; (iii) radiology, including magnetic resonance 
     imaging, computerized axial tomography scans, and ultrasound 
     services; (iv) radiation therapy services and supplies; (v) 
     durable medical equipment and supplies; (vi) parenteral and 
     enteral nutrients, equipment and supplies; (vii) prosthetics, 
     orthotics, and prosthetic devices; (viii) home health 
     services and supplies; (ix) outpatient prescription drugs; 
     and (x) inpatient and outpatient hospital services.
     House bill
       The provision revises the list of ``designated health 
     services''. Under the provision, the referral ban would apply 
     only to: (i) clinical laboratory services, (ii) parenteral 
     and enteral nutrients, equipment and supplies; (iii) magnetic 
     resonance imaging and computerized tomography services; and 
     (iv) outpatient physical or occupational therapy services.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the House provision with 
     an amendment modifying the description of item (iii) to read 
     ``radiology services, including magnetic resonance imaging, 
     computerized tomography, and ultrasound services.''


  3. delay in implementation until promulgation of regulations (sec. 
                          15203 of house bill)

     Current law
       The self-referral provisions included in OBRA 89 applied to 
     Medicare referrals for clinical laboratory services made on 
     or after January 1, 1992. OBRA 93 expanded the referral ban 
     to a list of ``designated health services'' and extended the 
     prohibition to Medicaid. OBRA 93 also included significant 
     revisions to the OBRA 89 provisions. In general, the 
     amendments made by OBRA 93 (as amended by P.L.103-432) apply 
     with respect to referrals made on or after January 1, 1995; 
     however some provisions had a retroactive effective date of 
     January 1, 1992.
       On August 14, 1995, DHHS issued final regulations 
     implementing the OBRA 89 requirements. These regulations are 
     effective September 13, 1995. DHHS noted that these 
     regulations relate only to referrals for clinical laboratory 
     services and address only those provisions that had an 
     effective date, including a retroactive effective date, of 
     January 1, 1992.
     House bill
       The proposal specifies that the amendments made by OBRA 93 
     would not apply to any referrals made before the effective 
     date of the final implementing regulations promulgated by the 
     Secretary of DHHS.
     Senate bill
       No provision
     Conference agreement
       The conference agreement includes the House provision.


        4. exception to prohibitions (sec. 15204 of house bill)

     Current law
       a. In-Office Ancillary Services. The law includes general 
     exceptions to the self-referral ban. Some are general 
     exceptions to both the ownership and compensation arrangement 
     prohibitions, while others relate only to ownership or only 
     to compensation arrangements.
       A general exception applies to in-office ancillary services 
     which are defined as furnished by the physician making the 
     referral, another physician in the same group practice, or 
     personally by individuals directly supervised by the 
     physician or another physician in the same group practice.
       The in-office ancillary services exception contains a site-
     of-service requirement. To meet the exception, the services 
     must be furnished in: (i) a building in which the referring 
     physician or other member of the group practice provides 
     services unrelated to the furnishing of designated health 
     services; or (ii) in a building used for the centralized 
     provision of the group's designated health services. OBRA 93 
     specified that for clinical laboratory services only, the 
     exception only applies if the services are provided in a 
     centralized location.
       b. Rural Providers. The law includes an exception, related 
     only to the ownership and investment prohibition, for rural 
     providers. To be eligible for an exception, the entity must 
     be in a rural area. Further, the exception only applies if 
     substantially all of the designated health services furnished 
     by the entity are furnished to individuals residing in rural 
     areas.
       c. Prepaid Health Plans. The law includes a general 
     exception for services provided by a prepaid health plan to 
     enrollees. The definition of prepaid plans includes those 
     either meeting Medicare requirements, operating as prepaid 
     plans under a Medicare demonstration project, or meeting the 
     requirements of a federally-qualified health maintenance 
     organization.
       d. Exceptions for Other Entities. No provision
     House bill
       a. In-Office Ancillary Services. The provision would modify 
     the exception for in-office ancillary services. It would 
     repeal the site-of-service requirement. It would also provide 
     that non-physician personnel must be under the general 
     supervision (rather than the direct supervision) of a 
     physician. An individual would be under the general 
     supervision of a physician (or a group practice of which the 
     physician is a member) if the physician is legally 
     responsible for the services performed by the individual and 
     for ensuring the individual meets licensure and certification 
     requirements regardless of whether or not the physician is 
     physically present when the services are delivered.
       b. Rural Providers. The provision would modify the 
     provision relating to rural providers. To qualify for an 
     exception, not less 

[[Page H 12813]]
     than 75 percent of the designated health services must be furnished to 
     individuals residing in rural areas.
       c. Prepaid Plans. The provision would modify the definition 
     of prepaid plans to refer to managed care plans. It would 
     expand the definition to include HMOs which have a contract 
     under MedicarePlus or which have a contract with the State to 
     provide Medicaid services. It would add an exception for 
     other entities under the following conditions. The entity 
     must provide for or arrange for the provision of services 
     pursuant to a written agreement between the organization and 
     an individual or entity. The agreement must place the 
     individual or entity at substantial financial risk for the 
     cost or utilization of services which the individual or 
     entity is obligated to provide. This obligation may be 
     through withhold, capitation, incentive pool, per diem 
     payment, or any other similar risk arrangement which places 
     the individual or entity at substantial financial risk.
       d. Exceptions for Other Entities. The provision would add a 
     new exception for shared facility services. The services must 
     be furnished by the facility to patients of shared facility 
     physicians; the physicians must have a financial relationship 
     under a shared facility arrangement with the facility. A 
     shared facility arrangement is one: (i) which is only between 
     physicians who are providing services (unrelated to shared 
     facility services) in the same building; (ii) in which the 
     overhead expenses are shared among the physicians in 
     accordance with previously determined methods; and (iii) 
     which, in the case of a corporation, is wholly owned and 
     controlled by shared facility physicians.
       The provision would add a new exception for services 
     furnished in communities which the Secretary of DHHS 
     determines do not have access to alternative providers.
       The provision would add an exception for services furnished 
     in ambulatory surgical centers, renal dialysis facilities, 
     comprehensive outpatient rehabilitation facilities, and 
     hospice programs.
     Senate bill
       a. In-Office Ancillary Services. No provision
       b. Rural Providers. No provision
       c. Prepaid Health Plans. No provision
       d. Exceptions for Other Entities. No provision
     Conference agreement
       a. In-Office Ancillary Services. The conference agreement 
     includes the House provision.
       b. Rural Providers. The conference agreement includes the 
     House provision.
       c. Prepaid Health Plans. The conference agreement includes 
     the House provision.
       d. Exceptions for Other Entities. The conference agreement 
     includes the House provision.


     5. repeal of reporting requirements (sec. 15205 of house bill)

     Current law
       The law establishes a reporting requirement for entities 
     providing services under Medicare. Reports are to include 
     information on the entity's ownership, investment and 
     compensation arrangements.
     House bill
       The provision would delete the reporting requirements.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


         6. preemption of state law (sec. 15206 of house bill)

     Current law
       No provision.
     House bill
       The provision would specify that the self-referral 
     provisions preempt State law to the extent State law was 
     inconsistent.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


              7. effective date (sec. 15207 of house bill)

     Current law
       No provision.
     House bill
       The provision would apply to referrals made on or after 
     August 14, 1995, regardless of whether or not regulations are 
     promulgated to carry out such amendments. The provision 
     delaying the applicability of the effective date of OBRA 93 
     changes until issuance of regulations would be effective as 
     if included in OBRA 93.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the House provision 
     modified to revise the effective date to ``upon enactment.''


                  b. other medicare regulatory relief

 1. repeal of medicare and medicaid coverage data bank (sec. 15211 of 
                              house bill)

     Current law
       Under the Medicare secondary payer (MSP) program, the 
     individual's employer-based group health insurance, liability 
     insurance, or no-fault insurance may be the primary payer in 
     certain cases. The OBRA 93 provided for the establishment of 
     a Medicare and Medicaid Coverage Data Bank by the Secretary 
     of DHHS. OBRA 93 required employers having or contributing to 
     a group health insurance plan to submit employee health 
     insurance information to the Secretary, on an annual basis, 
     for calendar years 1994-1997. The 1994 submission was due by 
     February 1995. The information was intended to facilitate the 
     identification of both Medicare secondary payer cases and 
     those circumstances in which employer-based insurance, rather 
     than Medicaid, should be the primary payer.
       A number of employers voiced strong opposition to the Data 
     Bank requirements. One of the principal concerns was that 
     employers would be required to report information which they 
     did not routinely collect. In response to these concerns, the 
     Conference agreement accompanying the FY 1995 Labor, DHHS, 
     and Education appropriations bill (P.L.103-333) contained 
     specific language relating to the Data Bank. It directed that 
     no DHHS funds should be used for the implementation of or 
     planning for implementation of the Bank.
     House bill
       The provision would repeal the Data Bank requirement.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


2. Clarification of Level of Knowledge Required for Imposition of Civil 
            Monetary Penalties (Sec. 15212(a) of House bill)

     Current law
       Civil money penalties may be imposed for seeking 
     reimbursement under the Medicare and Medicaid programs for 
     items or services not provided or for services provided by 
     someone who was not a licensed physician, whose license was 
     obtained through misrepresentation, or who misrepresented his 
     or her qualification as a specialist, or where the claim is 
     otherwise fraudulent. Civil penalties may also be sought for 
     presenting a claim for payments which are in violation of: 1) 
     contracts limiting payment due to assignment of a patient, 2) 
     agreements with state agencies limiting permitted charges, 3) 
     agreement with participating physicians or suppliers, and 4) 
     agreements with providers of service. Civil penalties may 
     also be sought against persons who provide false or 
     misleading information that could reasonably be expected to 
     influence a decision to discharge a person from a hospital. A 
     person is subject to these provisions if they presented a 
     claim and he or she ``knows or should have known'' that the 
     claim fell into one of the categories listed above.
     House bill
       This section adds a requirement, similar to the False 
     claims Act, that a person is subject to this provision when 
     the person ``knowingly'' presents a claim that the person 
     ``knows or should know'' fell into one of the prohibited 
     categories. Thus, an assessment under this provision would 
     only be made where a person had actual knowledge that he or 
     she had submitted a claim or had provided false or misleading 
     information, and where the person had actual knowledge of the 
     fraudulent nature of the claim, acted in deliberate 
     ignorance, or acted in reckless disregard. The requirement 
     that a person ``knowingly'' presents a claim or ``knowingly'' 
     makes a false or misleading statement which influences 
     discharge would prevent charging persons who inadvertently 
     perform these acts.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the House provision.


 3. Clarification of Effect and Application of Safe Harbor Exceptions 
                    (Section 15212(b) of House bill)

     Current law
       The Medicare and Medicaid anti-kickback provisions 
     generally prohibit anyone from providing or offering to 
     provide remuneration in cash or in kind in return for a 
     patient referral whose treatment is paid for in whole or in 
     part by Medicare or Medicaid. The provisions in section 
     1128B(b) of the Social Security Act also prohibit the 
     solicitation or receipt of such remuneration and arranging or 
     recommending a referral for remuneration. Violations are 
     felonies and are subject to a fine of up to $25,000 or 
     imprisonment for up to five years, or both. Certain business 
     practices are exempted from the application of these 
     provisions and the DHHS Office of Inspector General is 
     directed to issue safe harbor regulations for additional 
     payment practices that would not be subject to criminal 
     prosecution or provide a basis for exclusion from 
     participation in Medicare and Medicaid. If an individual or 
     entity engages in a business arrangement which is the subject 
     of a safe harbor provision and complies with all of the 
     applicable requirements of the provision that individual or 
     entity will be assured that he or she will not be prosecuted.
     House bill
       This section provides that the specification of any payment 
     practice by the Secretary under this provision is to be 
     solely for the purpose of adding additional exceptions to the 
     types of conduct, and are not for the purpose of limiting the 
     scope of such exceptions. In addition, an acceptable payment 
     practice shall apply notwithstanding the intent of the party 
     engaging in that practice.
     Senate bill
       No provision.

[[Page H 12814]]

     Conference agreement
       The conference agreement does not include the House 
     provision.


   4. limiting imposition of anti-kickback penalties to actions with 
 significant purpose to induce referrals (sec. 15212(c) of house bill)

     Current law
       The anti-kickback provisions in Section 1128B(b) prescribe 
     criminal penalties for individuals or entities who knowingly 
     and willfully offer or pay remuneration to induce business 
     reimbursed under Medicare or State health care programs.
     House bill
       This section would amend Section 1128B(b)(2) to provide 
     that person was subject to the anti-kickback provisions only 
     if the remuneration which is offered is done so ``for the 
     significant purpose of inducing'' business which would be 
     reimbursed under Medicare or State health care programs. This 
     would narrow the application of the anti-kickback provisions 
     to only those situations where inducement was a significant 
     purpose of remuneration.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


   5. clarification of and additions to exceptions to anti-kickback 
     penalties (sec. 15213 of house bill; sec. 7116 of senate bill)

     Current law
       The anti-kickback provisions in Section 1128B(b) contain 
     several exceptions. These exceptions include discounts or 
     other reductions in price obtained by a provider of services 
     or other entity under Medicare or a State health care program 
     if the reduction in price is properly disclosed and 
     appropriately reflected in the costs claimed or charges made 
     by the provider or entity under Medicare or a State health 
     care program; any amount paid by an employer to an employee 
     for employment in the provision of covered items or services; 
     any amount paid by a vendor of goods or services to a person 
     authorized to act as a purchasing agent for a group of 
     individuals or entities under specified conditions; a waiver 
     of any coinsurance under Part B of Medicare by a Federally 
     qualified health care center with respect to an individual 
     who qualifies for subsidized services under a provision of 
     the Public Health Service Act; and any payment practice 
     specified by the Secretary as a Safe Harbor exception.
     House bill
       This section would add new exception to the anti-kickback 
     provisions allowing remuneration between a MedicarePlus 
     organization under part C of Title XVIII and an individual or 
     entity providing services pursuant to a written agreement 
     between the MedicarePlus organization and the individual or 
     entity. Remuneration would also be allowed between an 
     organization and an individual or entity if a written 
     agreement places the individual or entity at substantial 
     financial risk for the cost or utilization of the items or 
     services which the individual or entity is obligated to 
     provide. The risk arrangement may be provided through a 
     withhold, capitation, incentive pool, per diem payment or 
     other similar risk arrangement. This amendment would apply to 
     acts or omissions occurring after January 1, 1996.
     Senate bill
       The Secretary of DHHS is directed to conduct a study 
     evaluating the benefits of discounting and other reductions 
     in price obtained by a provider of services or other entity 
     under Medicare or State health care programs. The study would 
     identify mechanisms to assure that the Medicare program 
     benefits from such discounts. The Secretary would report on 
     the findings of the study to Congress and develop budget 
     neutral regulations based on study's findings.
     Conference agreement
       The conference agreement includes the House provision with 
     a clarification.


   6. solicitation and publication of modifications to existing safe 
 harbors and new safe harbors (sec. 15214 of house bill; sec. 7103 of 
                              senate bill)

     Current law
       The 1987 Medicare and Medicaid Patient and Program 
     Protection Act specified various payment practices which, 
     although potentially capable of inducing referrals of 
     business under Medicare or State health care programs, are 
     protected from criminal prosecution or civil sanction under 
     the anti-kickback provisions of the law. The 1987 law also 
     established authority for the Secretary to promulgate 
     regulations specifying additional payment practices, known as 
     ``safe harbors'', which will not be subject to sanctions 
     under the fraud and abuse provisions.
     House bill
       The Secretary would publish an annual notice in the Federal 
     Register soliciting proposals for modifications to existing 
     safe harbors, new safe harbors, interpretive rulings and 
     special fraud alerts. After considering such proposals the 
     Secretary, in consultation with the Attorney General, would, 
     after notice and comment, issue final rules modifying 
     existing safe harbors and establishing new safe harbors, as 
     appropriate. The Secretary, in considering these proposals, 
     may consider the extent to which such a proposal would affect 
     access to health care service, quality of health care 
     services, patient freedom of choice among health care 
     providers, competition among health care providers, cost of 
     health care programs to Government, over-utilization of 
     health care services, and any other factors appropriate to 
     prevent fraud and abuse in health care programs of the 
     Federal Government. The Inspector General would issue an 
     annual report on the proposals received by the Secretary, the 
     proposals issued by the Secretary, and an explanation of the 
     reason for rejection of any of the proposals received.
     Senate bill
       The Secretary would publish an annual notice in the Federal 
     Register soliciting proposals for modifications to existing 
     safe harbors and new safe harbors. After considering such 
     proposals the Secretary, in consultation with the Attorney 
     General, would issue final rules modifying existing safe 
     harbors and establishing new safe harbors, as appropriate. 
     The Inspector General would submit an annual report to 
     Congress describing the proposals received, as well as the 
     action taken regarding the proposals. The Secretary, in 
     considering proposals, may consider a number of factors 
     including the extent to which the proposals would affect 
     access to health care services, quality of health care 
     services, patient freedom of choice among health care 
     providers, competition among health care providers, ability 
     of health care facilities to provide services in medically 
     underserved areas or to medically underserved populations, 
     and the like.
       The Secretary of Health and Human Services would publish 
     the first notice in the Federal Register soliciting proposals 
     for new or modified safe harbors no later than January 1, 
     1996.
     Conference agreement
       The conference agreement includes the Senate provision.


7. issuance of advisory opinions/interpretative rulings under title xi 
          (sec. 15215 of house bill; sec. 7103 of senate bill)

     Current law
       No provision.
     House bill
       The Secretary would issue regulations to provide for a 
     procedure by which a party may seek an advisory opinion from 
     the Secretary. These opinions would be binding, and could 
     include matters such as what constitutes prohibited 
     remuneration, what arrangements are excluded from these 
     prohibitions, whether an arrangement satisfies the criteria 
     established by the Secretary for activities which do not 
     result in prohibited remuneration, what constitutes an 
     inducement to reduce or limit services, and whether an 
     activity constitutes grounds for imposition of penalties. 
     Such opinions would not address whether the fair market value 
     was received for goods and whether an individual is a bona 
     fide employee for tax purposes. The Secretary would respond 
     to advisory opinion requests within 30 days, and a fee equal 
     to the costs incurred would be charged. The effective date of 
     this section is January 1, 1996.
     Senate bill
       Interpretive rulings may be requested, at any time, by any 
     person, and would be issued by the Inspector General, in 
     consultation with the Attorney General, not later than 90 
     days after receiving such a request. Interpretive rulings 
     would be published in the Federal Register, but would not 
     have the force of law. If the Inspector General does not 
     issue an interpretive ruling, he or she would notify the 
     requester within sixty days of the request and give the 
     reasons for denial.
     Conference agreement
       The conference agreement includes the Senate provision.


      8. prior notice of changes in billing and claims processing 
                 requirements for physicians' services

     Current Law
       No provision.
     House bill
       The provision would require the Secretary, unless otherwise 
     specifically provided by Congress, to give at least 120 days 
     notice before making changes in billing and processing 
     requirements for physicians claims.
     Senate bill
       No provision
     Conference agreement
       The conference agreement does not include the House 
     provision.

                  C. Promoting Physician Self-Policing


  1. exemption from antitrust laws for certain activities of medical 
          self-regulatory entities (sec. 15221 of house bill)

     Current law
       No provision.
     House bill
       The provision would provide an exemption from Federal and 
     State antitrust laws for health care service activities which 
     are considered safe harbors under the provision. A safe 
     harbor is generally described as any activity of a medical 
     self-regulatory entity relating to standard setting or 
     standard enforcement activities that are designed to promote 
     the quality of health care services provided to patients. 
     However, no activity of a medical self-regulatory entity 
     could be deemed to be a safe harbor under this section if the 
     activity was conducted for purposes of financial gain, or the 
     activity interfered with the provision of health care 
     services by any health care provider who was not a member of 
     the specific profession which was 

[[Page H 12815]]
     subject to the authority of the medical self-regulatory entity.
       For purposes of the provision, the term ``antitrust laws'' 
     would have the meaning given it in subsection (a) of the 
     first section of the Clayton Act, except that the term 
     includes section 5 of the Federal Trade Commission Act to the 
     extent that section applies to unfair methods of competition. 
     A ``medical self-regulating entity'' would be defined as a 
     medical society or association, a specialty board, a 
     recognized accrediting agency, or a hospital medical staff, 
     and includes the members, officers, employees, consultants, 
     and volunteers or committees of such an entity. ``Standard 
     setting or standard enforcement activities'' mean 
     accreditation of health care practitioners, health care 
     providers, medical education institutions, or medical 
     education programs, as well as technology assessment and risk 
     management activities, the development and implementation of 
     practice guidelines or practice parameters, or official peer 
     review proceedings undertaken by a hospital medical staff or 
     a medical society for purposes of evaluating the professional 
     conduct or quality of health care provided by a medical 
     professional. This section also defines ``health care 
     service'', ``health care provider'' and ``health benefit 
     plan''.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.

                  Subtitle D--Medical Liability Reform


                         A. General Provisions

1. federal reform of health care liability actions (sec. 15301 of house 
                                 bill)

     Current law
       There are no uniform Federal standards governing health 
     care liability actions.
     House bill
       The provision would provide for Federal reform of health 
     care liability actions. It would apply to any health care 
     liability action brought in any State or Federal court. The 
     provisions would not apply to any action for damages arising 
     from a vaccine-related injury or death or to the extent that 
     the provisions of the National Vaccine Injury Compensation 
     Program apply. The provisions would also not apply to actions 
     under the Employment Retirement Income Security Act. The 
     provisions would preempt State law to the extent State law 
     provisions were inconsistent with the new requirements. 
     However, it would not preempt State law to the extent State 
     law provisions were more stringent.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


               2. definitions (sec. 15302 of house bill)

     Current law
       No provision.
     House bill
       The provision would define the following terms for purposes 
     of the Federal reforms: actual damages; alternative dispute 
     resolution system; claimant; clear and convincing evidence; 
     collateral source payments; drug; economic loss; harm; health 
     benefit plan; health care liability action; health care 
     liability claim; health care provider; health care service; 
     medical device; noneconomic damages; person; product seller; 
     punitive damages; and State.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


              3. effective date (sec. 15303 of house bill)

     Current Law
       No provision.
     House bill
       The provision would specify that Federal reforms apply to 
     any health care liability action brought in any State or 
     Federal court that is initiated after the date of enactment. 
     The provision would also apply to any health care liability 
     claim subject to an alternative dispute resolution system, 
     Any health care liability claim or action arising from an 
     injury occurring prior to enactment would be governed by the 
     statute of limitations in effect at the time the injury 
     occurred.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


         B. Uniform Standards for Health Care Liability Actions

          1. statute of limitations (sec. 15311 of house bill)

     Current law
       To date reforms of the malpractice system have occurred 
     primarily at the State level and have generally involved 
     changes in the rules governing tort cases. (A tort case is a 
     civil action to recover damages, other than for a breach of 
     contract.)
     House bill
       The provision would establish uniform standards for health 
     care liability claims. It would establish a uniform statute 
     of limitations. Actions could not be brought more than two 
     years after the injury was discovered or reasonably should 
     have been discovered. In no event could the action be brought 
     more than five years after the date of the alleged injury.
     Senate bill
       No provision.
     Conference Agreement
       The conference agreement does not include the House 
     provision.


    2. calculation and payment of damages (sec. 15312 of house bill)

     Current law
       No provision.
     House bill
       The provision would limit noneconomic damages to $250,000 
     in a particular case. The limit would apply regardless of the 
     number of persons against whom the action was brought or the 
     number of actions brought.
       The provision would specify that a defendant would only be 
     liable for the amount of noneconomic damages attributable to 
     that defendant's proportionate share of the fault or 
     responsibility for that claimant's injury.
       The provision would permit the award of punitive damages 
     (to the extent allowed under State law) only if the claimant 
     established by clear and convincing evidence either that the 
     harm was the result of conduct that specifically intended to 
     cause harm or the conduct manifested a conscious flagrant 
     indifference to the rights or safety of others. The amount of 
     punitive damages awarded could not exceed $250,000 or three 
     times the amount of economic damages, whichever was greater. 
     The determination of punitive damages would be determined by 
     the court and not be disclosed to the jury The provision 
     would not create a cause of action for punitive damages. 
     Further, it would not preempt or supersede any State or 
     Federal law to the extent that such law would further limit 
     punitive damage awards.
       The provision would permit either party to request a 
     separate proceeding (bifurcation) on the issue of whether 
     punitive damages should be awarded and in what amount. If a 
     separate proceeding was requested, evidence related only to 
     the claim of punitive damages would be inadmissible in any 
     proceeding to determine whether actual damages should be 
     awarded.
       The provision would prohibit the award of punitive damages 
     in a case where the drug or device was subject to premarket 
     approval by the Food and Drug Administration, unless there 
     was misrepresentation or fraud. A manufacturer or product 
     seller would not be held liable for punitive damages related 
     to adequacy of required tamper resistant packaging unless the 
     packaging or labeling was found by clear and convincing 
     evidence to be substantially out of compliance with the 
     regulations.
       The provision would permit the periodic (rather than lump 
     sum) payment of future losses in excess of $50,000. The 
     judgment of a court awarding periodic payments could not, in 
     the absence of fraud, be reopened at any time to contest, 
     amend, or modify the schedule or amount of payments. The 
     provision would not preclude a lump sum settlement.
       The provision would permit a defendant to introduce 
     evidence of collateral source payments. Such payments are 
     those which are any amounts paid or reasonably likely to be 
     paid by health or accident insurance, disability coverage, 
     workers compensation, or other third party sources. If such 
     evidence was introduced, the claimant could introduce 
     evidence of any amount paid or reasonably likely to be paid 
     to secure the right to such collateral source payments. No 
     provider of collateral source payments would be permitted to 
     recover any amount against the claimant or against the 
     claimant's recovery.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


      3. Alternative Dispute Resolution (Sec. 15313 of House bill)

     Current law
       No provision.
     House bill
       The provision would require that any alternative dispute 
     resolution system used to resolve health care liability 
     actions or claims must include provisions identical to those 
     specified in the bill.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.

       Subtitle E--Teaching Hospitals; Graduate Medical Education


A. Establishment of Fund; Payments to Teaching Hospitals (Sec. 15401 of 
                              House bill)

     Current law
       Medicare recognizes the costs of graduate medical education 
     in teaching hospitals and the higher costs of providing 
     services in those institutions. Medicare recognizes the costs 
     of graduate medical education under two mechanisms: direct 
     graduate medical education (GME) payments and an indirect 
     medical education (IME) adjustment. The direct costs of 
     approved GME programs include the salaries of residents and 
     faculty, and other education costs for residents, nurses, and 
     allied health professionals trained in provider-operated 
     programs and are paid on 

[[Page H 12816]]
     the basis of a formula that reflects each hospital's per resident 
     costs. The IME is designed to reimburse hospitals for 
     indirect costs due to a variety of factors, including the 
     extra demands placed on the hospital staff as a result of the 
     teaching activity, greater severity of patient illness, or 
     additional tests and procedures that may be ordered by 
     residents.
     House bill
       The proposal would add a new title XXII to the Social 
     Security Act (SSA) creating a trust fund in the Treasury 
     known as the Teaching Hospital and Graduate Medical Education 
     Trust Fund, which would make annual payment distributions to 
     teaching hospitals. The Fund would consist of three accounts: 
     the Indirect-Costs Medical Education Account, the Medicare 
     Direct-Costs Medical Education Account, and the General 
     Direct-Costs Medical Education Account.
       Beginning in FY1997 and each subsequent year thereafter, 
     the bill would appropriate amounts from the Treasury and 
     allocations would be made from Medicare's Part A and B trust 
     funds, and would be transferred into the Trust Fund for 
     allocation to accounts within the Trust Fund. Appropriations 
     from the Treasury would be: $1.3 billion in FY1997; $1.5 
     billion in FY1998; $2.3 billion in FY1999; $3.1 billion in 
     FY2000; $3.6 billion in FY2001; and $4.00 billion in FY2002. 
     For FY2003 and each subsequent fiscal year, the appropriation 
     amount would be the greater of the amount appropriated for 
     the preceding fiscal year, or the product of the amount 
     appropriated for the preceding fiscal year and an amount 
     equal to 1 plus the percentage increase in the nominal gross 
     domestic product for the one-year period ending upon July 1 
     of the preceding fiscal year. The appropriated amounts would 
     be allocated to the accounts by the Secretary based on the 
     total amount of payments made under Medicare for indirect 
     medical education (IME) and direct graduate medical education 
     (GME) payments for FY1994, and the percentage of the total 
     amount of payments for IME and GME.
       The proposal would require that teaching hospitals submit a 
     payment document for FY1997 and any subsequent fiscal year to 
     the Secretary to receive a payment from the Fund equal to the 
     sum of amounts related to IME and direct GME. The payment 
     document would contain such information as necessary for the 
     Secretary to make payments, and the Secretary would be 
     permitted to require that the information be submitted by the 
     teaching hospitals in periodic reports. The proposal would 
     also authorize the Secretary to make payments to authorized 
     consortia of providers.
       For a teaching hospital's indirect costs, the proposal 
     would determine an amount for a fiscal year as the product 
     of: (1) the amount in the Indirect-Costs Medical Education 
     Account for the applicable date, and (2) the hospital-
     specific percentage determined for the hospital. Once 
     determined, the hospital-specific percentage would remain in 
     effect for all subsequent fiscal years. The hospital-specific 
     percentage would be the mean average of the respective 
     percentages for the applicable period, adjusted by the 
     Secretary on a pro rata basis to ensure that the sum of the 
     percentages for all teaching hospitals would be equal to 100 
     percent. Generally, the applicable period would be fiscal 
     years 1992-1994. The percentage determined for a teaching 
     hospital for a fiscal year of the applicable period would be 
     constituted by the ratio of: (1) the total amount of IME 
     payments received by the hospital for the fiscal year 
     involved, to (2) the sum of the respective amounts of IME 
     payments for all teaching hospitals.
       To determine the direct costs of graduate medical education 
     for a teaching hospital for a fiscal year, the proposal would 
     determine an amount equal to the sum of the amount determined 
     under the General Direct-Cost Medical Education Account, and 
     the amount determined under the Medicare Direct-Costs Medical 
     Education Account. A teaching hospital's payment amount from 
     the General Account would be equal to the product of: (1) the 
     amount in the General Direct-Costs Medical Education Account, 
     and (2) the hospital-specific percentage. A teaching 
     hospital's hospital-specific percentage for each fiscal year 
     of the applicable period (1992-1994), would be determined in 
     the same manner as for IME payments, except using data on GME 
     payments received by the hospitals.
       Payment from the Medicare Direct-Costs Medical Education 
     Account for a teaching hospital for a fiscal year would be 
     the product of (1) the amount in the Medicare Direct-Costs 
     Medical Education Account, and (2) the hospital-specific 
     percentage determined for the teaching hospital. Unlike the 
     other accounts, the hospital-specific percentage for Medicare 
     Direct-Costs would be determined annually based on the 
     Secretary's estimate of what the hospital would have received 
     for the year if the Medicare rules for GME were applicable. 
     The hospital-specific percentage would be the ratio of: (1) 
     the estimate made by the Secretary of the GME payment amount 
     for a teaching hospital in a fiscal year under Medicare's GME 
     if the payments had not been discontinued; to (2) the sum of 
     the respective estimates of GME payments for all teaching 
     hospitals.
       Special rules would be applied to teaching hospitals that 
     consolidated or merged and to new teaching hospitals. In the 
     case of two or more teaching hospitals consolidating or 
     merging that had received IME and GME payments under 
     Medicare, the applicable percentage would be the sum of the 
     percentage that would have been determined if the 
     consolidation or merger had not occurred. For new teaching 
     hospitals that had not received IME and GME payments under 
     Medicare, the Secretary would be required to estimate the 
     appropriate hospital-specific percentage based on the amount 
     of IME and GME payments the teaching hospital would have 
     received under Medicare. Special rules would also be applied 
     to teaching hospitals that first received IME or GME payments 
     under Medicare in FY1995 and FY1996, with the hospital-
     specific percentages being estimated by the Secretary based 
     on the most recent data available.
       The proposal would make payments to qualifying consortium 
     for the costs of graduate medical education. Qualifying 
     consortium would consist of a medical residency training 
     program of a teaching hospital and one or more of the 
     following entities: schools of medicine or osteopathic 
     medicine; other teaching hospitals; community health centers; 
     medical group practices; managed care entities; entities 
     furnishing outpatient services; and other such entities the 
     Secretary determines to be appropriate. Payments from the 
     accounts in the Trust Fund for consortium would equal the sum 
     of: (1) the aggregate amount determined for the teaching 
     hospitals of the consortium under the proposal; and (2) an 
     amount determined using the methodology provided under the 
     Medicare Direct-Costs Medical Education Account for consortia 
     payments. Aggregate total payments to qualifying consortia 
     could not exceed the sum of the aggregate total amount that 
     would have been paid to the teaching hospitals of the 
     consortia, and an amount equal to 1 percent of the amount in 
     the Medicare Direct-Costs Medical Education Account.
       The Secretary would be required to collect data to 
     determine whether the estimates of Medicare's payments for 
     the costs of IME and GME in each fiscal year were 
     substantially accurate, and make corrective adjustments in 
     subsequent transfers to the Trust Fund and payments to 
     teaching hospitals.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the House provision with 
     modifications. The Fund would include five accounts: the 
     General MedicarePlus Incentive Account; the General Indirect-
     Costs Medical Education Account; the General Direct-Costs 
     Medical Education Account; the Medicare Indirect-Costs 
     Medical education Account; and the Medicare Direct-Costs 
     Medical Education Account.
       Appropriations from the Treasury into the Trust Fund would 
     be as follows: $1.1 billion for FY1997; $1.3 billion for 
     FY1998; $2.0 billion for FY1999; $2.6 billion for FY2000; 
     $3.1 billion for FY2001; and $3.4 billion for FY2002. For 
     FY2003 and each subsequent fiscal year, the appropriation 
     amount would be the greater of the amount appropriated for 
     the preceding fiscal year, or the product of the amount 
     appropriated for the preceding fiscal year and an amount 
     equal to 1 plus the percentage increase in the nominal gross 
     domestic product for the one-year period ending upon July 1 
     of the preceding fiscal year. Of the appropriated amounts, 
     the following percentage amounts would be allocated to the 
     MedicarePlus Incentive Account: 20 percent for FY1997; 30 
     percent for FY1998; 40 percent for FY1999; and 50 percent for 
     FY2000 and each subsequent year. Each teaching hospital that 
     serves MedicarePlus patients will receive an amount from the 
     MedicarePlus Incentive Account corresponding to it's share of 
     total MedicarePlus patients served at all U.S. teaching 
     hospitals. The remaining amounts would be allocated to the 
     General Indirect-Costs Medical Education Account and the 
     General Direct-Costs Medical Education Account, with the 
     percentages determined by the Secretary based on: (1) the 
     total amount of payments that were made under Medicare for 
     IME and GME in FY1992-1994; (2) the percentage of such total 
     constituted by payments under IME; and (3) the percentage of 
     such total constituted by payments under GME. Formula 
     payments for teaching hospitals for the fiscal year would be 
     equal to the sum of: (1) the amount determined relating to 
     the MedicarePlus program; (2) the amount determined relating 
     to indirect costs of graduate medical education; and (3) the 
     amount determined relating to direct costs of graduate 
     medical education.
       The Secretary would be permitted to require hospitals to 
     submit periodic reports providing information relating to 
     Medicare patients when teaching hospitals submit the payment 
     document. The information would include: (1) the number of 
     inpatient discharges attributable to individuals enrolled in 
     the MedicarePlus program; (2) the Medicare patient load of 
     the hospital as defined for the purposes of the Medicare 
     direct GME payment formula; and (3) for each discharge with 
     respect to which payment is received from the Secretary under 
     Medicare Part A, the diagnosis-related group (DRG) within 
     which the discharge is classified.
       Qualifying consortia can receive payments for direct costs. 
     Such consortia would consist of a teaching hospital and one 
     or more of the following entities: schools of allopathic or 
     osteopathic medicine; other teaching hospitals; approved 
     medicine residency programs; Federally qualified health 
     centers; medical group practices; managed care entities; 
     entities furnishing outpatient services; and, such other 
     entities as the Secretary determines to be appropriate. 

[[Page H 12817]]



b. transfers to teaching hospital and graduate medical education trust 
                    fund (sec. 15411 of house bill)

     Current law
       No provision.
     House bill
       The proposal would amend Medicare law by adding a new 
     subsection (j) at the end of section 1886 of the SSA, under 
     which the Secretary would, beginning in FY1997 transfer 
     amounts to the Teaching Hospital and Graduate Medical 
     Education Trust Fund. Amounts transferred to the Indirect-
     Costs Medical Education Account would be from the Medicare 
     Part A trust fund on the basis of an estimate of the 
     nationwide total of the amount that would have been paid to 
     hospitals under Medicare's IME payment. Also, the Secretary 
     would be required to transfer from Medicare Part A and B 
     Trust Funds into the Medicare Direct-Costs Medical Education 
     Account the amount estimated to be spent for teaching 
     hospitals and consortia under Medicare's direct GME payment.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the House provision.


    c. modification in payment policies regarding graduate medical 
                  education (sec. 15412 of house bill)

     Current law
       1. Indirect Medical Education. Medicare makes payments to 
     teaching hospitals under PPS for the indirect costs 
     attributable to approved medical education programs. These 
     indirect costs may be due to a variety of factors, including 
     the extra demands placed on the hospital staff as a result of 
     the teaching activity or additional tests and procedures that 
     may be ordered by residents. Congressional reports on the PPS 
     authorizing legislation indicated that the indirect medical 
     education payments are also to account for factors not 
     necessarily related to medical education which may increase 
     costs in teaching hospitals, such as more severely ill 
     patients, increased use of diagnostic testing, and higher 
     staff-to-patient ratios.
       The additional payment to a hospital is based on a formula 
     that provides an increase of approximately 7.7 percent in the 
     Federal portion of the DRG payment, for each 0.1 percent 
     increase in the hospital's intern and resident-to-bed ratio 
     on a curvilinear basis (i.e., the increase in the payment is 
     less than proportional to the increase in the ratio of 
     interns and residents to beds).
       2. Direct Graduate Medical Education. The direct costs of 
     approved graduate medical education (GME) programs (such as 
     the salaries of residents and faculty, and other costs 
     related to medical education programs) are excluded from PPS 
     and are paid on the basis of a formula that reflects 
     Medicare's share of each hospital's per resident costs. 
     Medicare's payment to each hospital equals the hospital's 
     costs per full-time-equivalent (FTE) resident, times the 
     weighted average number of FTE residents, times the 
     percentage of inpatient days attributable to Medicare Part A 
     beneficiaries. Each hospital's per FTE resident amount is 
     calculated using data from the hospital's cost reporting 
     period that began in FY1984, increased by 1 percent for 
     hospital cost reporting periods beginning July 1, 1985, and 
     updated in subsequent cost reporting periods by the change in 
     the CPI. OBRA 93 provided that the per resident amount would 
     not be updated by the CPI for costs reporting periods during 
     FY1994 and FY1995, except for primary care residents in 
     obstetrics and gynecology. The number of FTE residents is 
     weighted at 100 percent for residents in their initial 
     residency period (i.e., the number of years of formal 
     training necessary to satisfy specialty requirements for 
     board eligibility). Residents in preventive care or 
     geriatrics are allowed a period of up to 2 additional years 
     in the initial residency training period. For residents not 
     in their initial residency period, the weighing factor is 50 
     percent. On or after July 1, 1986, residents who are foreign 
     medical graduates can only be counted as FTE residents if 
     they have passed designated examinations.
     House bill
       1. Indirect Medical Education. The proposal would reduce 
     the IME amount under Medicare by changing the current formula 
     multiplier to 1.48, resulting in a 6.0 percent aggregate 
     payment adjustment for FY1996-FY1998, with a further 
     reduction of the multiplier to 1.38 beginning in FY1999 and 
     for each subsequent fiscal year, which would result in a 5.6 
     percent aggregate payment adjustment, for every 10 percent 
     increase in teaching intensity measured by the ratio of 
     interns and residents per bed, and the number of discharges 
     expected under PPS.
       2. Direct Graduate Medical Education. The GME formula would 
     be modified to limit the number of residents that could be 
     counted by a teaching hospital. The total number of full-
     time-equivalent (FTE) residents in an approved residency 
     program would be limited to the total number of residents at 
     a hospital as of August 1, 1995, for cost reporting periods 
     beginning on or after October 1, 1995, and on or before 
     September 30, 2002. For hospital cost reporting periods 
     beginning on or after October 1, 1997, the weighting factor 
     for a resident in the initial residency period would be 1.0 
     FTEs, and the weighting factor for a resident who had 
     completed the initial residency period would be 0.0 FTEs. For 
     cost reporting periods beginning during FY1996, the FTE 
     amount paid for medical residents who are not citizens, 
     nationals, or permanent resident aliens of the United States, 
     or Canadian citizens, would be reduced and ultimately 
     eliminated by lowering the FTE weight that a hospital would 
     be allowed to count for GME payments to: 0.75 in FY1996; 0.50 
     in FY1997; and 0.25 in FY1998 and for any subsequent fiscal 
     year.
       The effective date for these provisions, unless otherwise 
     specified would, apply to hospital cost reporting periods 
     beginning on or after October 1, 1995.
     Senate bill
       1. Indirect Medical Education. The proposal would reduce 
     the IME amount under Medicare by changing the current formula 
     multiplier to 1.65 resulting in a 6.7 percent aggregate 
     payment adjustment for FY1996; to 1.48 resulting in a 6.0 
     percent aggregate adjustment in FY1997; to 1.33 resulting in 
     a 5.4 percent aggregate adjustment in FY1998; and to 1.23 
     resulting in a 5.0 percent aggregate adjustment in FY1999 
     through FY2001.
       2. Direct Graduate Medical Education. No provision.
     Conference agreement
       1. Indirect Medical Education. The conference agreement 
     includes the Senate provision with modifications. The IME 
     formula multiplier would be set at 1.654 for FY 1996, 
     resulting in a 6.7 percent aggregate payment adjustment; at 
     1.481 in FY1997 and FY1998, resulting in a 6.0 percent 
     aggregate adjustment; at 1.383 in FY1999, resulting in a 5.6 
     percent aggregate adjustment; at 1.309 in FY2000, resulting 
     in a 5.3 percent aggregate adjustment: and at 1.235 in FY2001 
     and thereafter, resulting in a 5.0 percent aggregate 
     adjustment.
       2. Direct Graduate Medical Education. The conference 
     agreement includes the House provision with modifications. 
     For cost reporting periods beginning on or after October 1, 
     1997, the weighting factor for a resident who had completed 
     the initial residency period would be 0.25 FTEs. For cost 
     reporting periods beginning on or after October 1, 1995, and 
     on or before September 30, 2002, the Secretary is required to 
     adjust payments to approved medical residency training 
     programs in the fields of allopathic medicine and osteopathic 
     medicine if the total number of such FTE residents in the 
     fiscal year exceeds the number of FTE residents with respect 
     to all such programs as of August 1, 1995. The Secretary is 
     required to adjust payments to such approved medical 
     residency training programs so that the total amount of 
     payments does not exceed the amount that would have been paid 
     if the number of FTE residents for all programs in a fiscal 
     year did not exceed the number of FTE residents in all such 
     programs as of August 1, 1995. The Secretary is authorized to 
     provide that approved medical residency training programs 
     that reduced or did not expand the number of FTE residents 
     for a cost reporting period are not subject to the reduction 
     in payments. The conference agreement does not include the 
     House provision related to non-citizen medical residents.


d. establishment of advisory panel for recommending policies regarding 
teaching hospitals and graduate medical education (sec. 15421 of house 
                                 bill)

     Current law
       No provision.
     House bill
       The bill would require the Chair of the Medicare Payment 
     Review Commission to establish an advisory panel on reform in 
     the financing of teaching hospitals and graduate medical 
     education. The advisory panel would be required to study and 
     make recommendations on reforming Federal policies regarding 
     teaching hospitals and financing of graduate medical 
     education. The recommendations of the panel would include the 
     following: (1) the financing of graduate medical education, 
     including consideration of alternative broad-based sources of 
     funding; (2) the financing of teaching hospitals, including 
     consideration of the competitive difficulties such hospitals 
     face; (3) the methodology for making payments and the 
     selection of entities to receive the payments; (4) Federal 
     policies regarding international medical graduates; (5) the 
     dependence of schools of medicine on service generate income; 
     (6) the effects of the amendments made by the Omnibus Budget 
     Reconciliation Act of 1995; and (7) the feasibility and 
     desirability of reducing payments for graduate medical 
     education for high-cost residency programs under Medicare.
       The advisory panel would be composed of 19 members with 
     expertise on matters related to graduate medical education. 
     The advisory panel would be required to provide Congress with 
     a first interim report (not later than one year after 
     enactment), a second interim report (not later than 2 years 
     after enactment), and final report (not later than 3 years 
     after enactment). The advisory panel would terminate 180 days 
     after the date on which the final report was submitted to 
     Congress. The bill would authorize appropriations of such 
     sums as may be necessary for each of the fiscal years 1996 
     through 2000.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision. The conferees believe that further study of 
     graduate medical education funding is needed. Included among 
     the 

[[Page H 12818]]
     issues requiring further study are: (1) the financing of graduate 
     medical education, including consideration of alternative 
     broad-based sources of funding for such education and the 
     method of financing used for the MedicarePlus program under 
     Part C of Title XVIII of the Social Security Act; (2) Federal 
     policies regarding international medical graduates; and (3) 
     the dependence of schools of medicine on service-generated 
     income. The conferees would expect that Prospective Payment 
     Assessment Commission would study these issues and forward 
     its findings to the relevant congressional committees.

           Subtitle F--Provisions Relating To Medicare Part A

               A. General Provisions Related to Hospitals


  1. reductions in inflation updates for pps hospitals (sec. 15501 of 
                 house bill; sec. 7011 of senate bill)

     Current law
       Hospitals are paid on the basis of a prospectively fixed 
     payment rate for costs associated with each discharge. Each 
     hospital's basic payment rate is based on a national 
     standardized payment amount, which is higher for hospitals in 
     large urban areas than for other hospitals. Each standardized 
     payment amount is adjusted by a wage index. Payment also 
     depends on the relative costliness of the case, based on the 
     diagnosis related group (DRG) to which the discharge is 
     assigned. Additional payments are made for: extraordinary 
     costs (outliers); indirect costs of medical education; and 
     for hospitals serving a disproportionate share of low-income 
     patients. Other exceptions and adjustments are made.
       PPS payment rates are annually updated using an ``update 
     factor.'' The annual update factor applied to increase the 
     Federal base payment amounts is determined, in part, by the 
     projected increase in the hospital market basket index, which 
     measures the costs of goods and services purchased by 
     hospitals. Under the Omnibus Budget Reconciliation Act of 
     1993 (OBRA 93), the PPS update factor for all PPS hospitals 
     is equal to the percentage increase in the market basket 
     minus 2 percentage points.
     House bill
       The proposal sets the update factor for FY1996 at MBI minus 
     2.5 percentage points for all hospitals in all areas, for 
     FY1997-2002, at MBI minus 2.0 percentage points for all 
     hospitals in all areas, and for FY2003 and each subsequent 
     fiscal year equal to the MBI for all hospitals in all areas.
     Senate bill
       The bill sets the update factor for FY1996 through FY2002 
     for hospitals in all areas, the greater of: (1) the MBI minus 
     2.5 percentage points, or (2) 1.1 percent (1.3 percent for 
     discharges during FY1996, 1.2 percent for discharges during 
     FY1997). For FY2003 and each subsequent year, equal to the 
     MBI for all hospitals in all areas.
     Conference agreement
       The conference agreement includes the House provision.


2. reductions in disproportionate share payment adjustments (sec. 15502 
                of house bill; sec. 7014 of senate bill)

     Current law
       Under PPS, an adjustment is made to the payment to 
     hospitals that serve a disproportionate share of low-income 
     patients. The DSH adjustment is intended to compensate 
     hospitals that treat large proportions of low-income 
     patients. The factors considered in determining whether a 
     hospital qualifies for a DSH payment adjustment include the 
     number of beds, the number of patient days, and the 
     hospital's location. A hospital's disproportionate patient 
     percentage is the sum of (1) the total number of inpatient 
     days attributable to Federal SSI beneficiaries divided by the 
     total number of Medicare patient days, and (2) the number of 
     Medicaid patient days divided by total patient days, 
     expressed as a percentage. A hospital is classified as a DSH 
     under any of the following circumstances:
       (1) If its disproportionate patient percentage equals or 
     exceeds:
       (a) 15 percent for an urban hospital with 100 or more beds, 
     or a rural hospital with 500 or more beds (the latter is set 
     by regulation);
       (b) 30 percent for a rural hospital with more than 100 beds 
     and fewer than 500 beds or is classified as a sole community 
     hospital;
       (c) 40 percent for an urban hospital with fewer than 100 
     beds; or
       (d) 45 percent for a rural hospital with 100 or fewer beds, 
     or
       (2) if it is located in an urban area, has 100 or more 
     beds, and can demonstrate that, during its cost reporting 
     period, more than 30 percent of its net inpatient care 
     revenues are derived from State and local government payments 
     for care furnished to indigent payments. (This provision is 
     intended to help hospitals in States that fund care for low-
     income patients through direct grants rather than expanded 
     Medicaid programs.)
       For a hospital qualifying on the basis of (1)(a) above, if 
     its disproportionate patient percentage is greater than 20.2 
     percent, the applicable PPS payment adjustment factor is 5.88 
     percent plus .825 percent of the difference between 20.2 
     percent and the hospital's disproportionate patient 
     percentage. If the hospital's disproportionate patient 
     percentage is less than 20.2 percent, the applicable payment 
     adjustment factor is equal to: 2.5 percent plus 65 percent of 
     the difference between 15 percent and the hospital's 
     disproportionate patient percentage. If the hospital 
     qualifies as a DSH on the basis of (1)(b), the payment 
     adjustment factor is determined as follows:
       (a) if the hospital is classified as a rural referral 
     center, the payment adjustment factor is 4 percent plus 60 
     percent of the difference between the hospital's 
     disproportionate patient percentage and 30 percent;
       (b) if the hospital is a SCH, the adjustment factor is 10 
     percent;
       (c) if the hospital is classified as both a rural referral 
     center and a SCH, the adjustment factor is the greater of 10 
     percent or 4 percent plus 60 percent of the difference 
     between the hospital's disproportionate patient percentage 
     and 30 percent; and
       (d) if the hospital is not classified as either a SCH or a 
     rural referral center, the payment adjustment factor is 4 
     percent.
     If the hospital qualifies on the basis of (1)(c), the 
     adjustment factor is equal to 5 percent. If the hospital 
     qualifies on the basis of (1)(d), the adjustment factor is 4 
     percent. If the hospital qualifies on the basis of (2) above, 
     the payment adjustment factor is 35 percent.
     House bill
       The proposal would reduce the DSH payment by 20 percent for 
     discharges occurring on or after October 1, 1995, and on or 
     before September 30, 1996; 25 percent for discharges 
     occurring on or after October 1, 1996, and on or before 
     September 30, 1997; and 30 percent for discharges occurring 
     on or after October 1, 1997.
     Senate bill
       The bill would reduce the DSH payment by 5 percent for 
     discharges occurring during FY1996; 10 percent in FY1997; 15 
     percent in FY1998; 20 percent in FY1999; and 25 percent for 
     fiscal years 2000 through 2002.
     Conference agreement
       The conference agreement includes the Senate provision with 
     modifications. The DSH payment would be reduced from current 
     law spending by 5.0 percent in FY1996; an additional 5 
     percent in FY1997; an additional 7.5 percent in FY1998; an 
     additional 7.5 percent in FY1999; an additional 5 percent in 
     FY2000; and remain at 30 percent for FY2001 through FY2002.


 3. Payments for Capital-Related Costs for Inpatient Hospital Services 
          (Sec. 15503 of House bill; Sec. 7013 of Senate bill)

     Current law
       In FY1992, Medicare began phasing in prospectively-
     determined per case rates for capital-related costs. During 
     the 10-year transition to a single capital rate, payments 
     will reflect both hospital-specific costs and a single 
     Federal capital payment rate. During the transition, 
     hospitals are paid according to either a fully prospective 
     method or a ``hold harmless'' method of payment.
       Capital payment rates are updated annually. For the first 5 
     years of the transition to prospectively determined per-case 
     rates, historical cost increases were used to increase the 
     Federal and hospital-specific rates. Under a budget 
     neutrality requirement, per case capital rates were adjusted 
     in the first 5 years of the transition so that total payments 
     equaled 90 percent of estimated Medicare-allowed capital 
     costs. In fiscal year 1996, the budget neutrality requirement 
     will be lifted. In addition, the cost-based updates will be 
     replaced by an ``update framework'' (developed by HCFA and 
     proposed in the June 2, 1995 Federal Register), which will 
     determine payment rate growth. This analytical framework is 
     to take into account changes in the price of capital and 
     appropriate changes in capital requirements resulting from 
     development of new technologies and other factors.
       Capital costs for PPS exempt hospitals are reimbursed on a 
     reasonable cost basis.
       Medicare's capital-related costs include local property 
     taxes and property ``fees'' paid by nonprofit hospitals. The 
     hospital-specific component of capital payments is based on a 
     hospital's spending in a base year (generally 1990). 
     Hospitals that have changed from nonprofit or public to 
     proprietary may become subject to property taxes not included 
     in their base; this may also occur as a result of changes in 
     State or local law.
     House bill
       The provision would reduce aggregate payments for PPS and 
     PPS-exempt capital payments by 15 percent of the allowable 
     amount for FY1996 through FY2002. The capital payment 
     reduction would not apply to payments for sole community 
     hospitals or rural primary care hospitals (defined in the 
     bill).
       The provision would provide an adjustment for the amount of 
     capital-related tax costs for eligible hospitals for 
     discharges occurring after September 30, 1995. Eligible 
     hospitals would be facilities that may otherwise receive 
     capital payments, are not public hospitals, and incur 
     capital-related tax costs for the fiscal year.
       The provision would also amend the provision of additional 
     exception payments for PPS-exempt hospital capital costs as 
     follows: (1) urban hospitals with 100 beds would be eligible 
     without regard to its DSH patient percentage or whether it 
     qualifies for capital additional payments amounts; (2) the 
     minimum payment level for qualifying hospitals would be 85 
     percent; (3) hospitals would be considered to meet the 
     requirement that it completed a project involved no later 
     than the end of the hospital's last cost reporting period 
     beginning after October 1, 2001, if (I) the hospital obtained 
     a certificate of need for the project approved by the State 
     or a local planning authority, and (ii) by September 1, 1995, 
     the hospital had expended on the 

[[Page H 12819]]
     project at least $750,000 or 10 percent of the estimated cost of the 
     project; and (4) the amount of the exception payment made 
     would not be reduced by any offsetting amounts.
     Senate bill
       The provision would reduce aggregate payments for PPS and 
     PPS-exempt capital payments by 15 percent of the allowable 
     amount for FY1996 through FY2002. The capital payment 
     reduction would not apply to payments for sole community 
     hospitals or rural primary care hospitals (defined in the 
     bill).
       The provision would provide an adjustment for the amount of 
     capital-related tax costs for eligible hospitals for 
     discharges occurring after September 30, 1995. Eligible 
     hospitals would be facilities that may otherwise receive 
     capital payments, are not public hospitals, and incur 
     capital-related tax costs for the fiscal year.
       The provision would also amend the provision of additional 
     exception payments for PPS-exempt hospital capital costs as 
     follows: (1) urban hospitals with 100 beds would be eligible 
     without regard to its DSH patient percentage or whether it 
     qualifies for capital additional payments amounts; (2) the 
     minimum payment level for qualifying hospitals would be 80 
     percent; (3) hospitals would be considered to meet the 
     requirement that it completed a project involved no later 
     than the end of the hospital's last cost reporting period 
     beginning after October 1, 2001, if (I) the hospital obtained 
     a certificate of need for the project approved by the State 
     or a local planning authority, and (ii) by September 1, 1995, 
     the hospital had expended on the project at least $750,000 or 
     10 percent of the estimated cost of the project; and (4) the 
     amount of the exception payment made would not be reduced by 
     any offsetting amounts.
     Conference agreement
       The conference agreement includes the Senate provision with 
     an amendment to reduce capital payments for PPS-exempt 
     hospitals by 10 percent. Capital exceptions would have a 
     minimum payment amount of 85 percent.


 4. Reduction in Adjustment for Indirect Medical Education (Sec. 15504 
                of House bill; Sec. 7015 of Senate bill)

     House bill
        The proposal would reduce the IME amount under Medicare by 
     changing the current formula multiplier to 1.48, resulting in 
     a 6.0 percent aggregate payment adjustment for FY1996-FY1998, 
     with a further reduction the multiplier beginning in FY1999 
     and for each subsequent fiscal year, for a 5.6 percent 
     aggregate payment adjustment, for every 10 percent increase 
     in teaching intensity measured by the ratio of interns and 
     residents per bed, and the number of discharges expected 
     under PPS. (See Subtitle E above)
     Senate bill
       The proposal would reduce the IME amount under Medicare by 
     changing the current formula multiplier to 1.65 resulting in 
     a 6.7 percent aggregate payment adjustment for FY1996; to 
     1.48 resulting in a 6.0 percent aggregate adjustment in 
     FY1997; to 1.33 resulting in a 5.4 percent aggregate 
     adjustment in FY1998; and to 1.23 resulting in a 5.0 percent 
     aggregate adjustment in FY1999 through FY2001.
     Conference agreement
       The conference agreement includes the Senate provision with 
     modifications. (See Subtitle E above)


 5. Treatment of PPS-Exempt Hospitals (Sec. 15505 of House bill; Sec. 
                            7012 of Senate)

     Current law
       Under Medicare, five types of specialty hospitals 
     (psychiatric, rehabilitation, long-term care, children's and 
     cancer) and two types of distinct-part units in general 
     hospitals (psychiatric and rehabilitation) are exempt from 
     PPS. They are subject to the payment limitations and 
     incentives established in the Tax Equity and Fiscal 
     Responsibility Act of 1982 (TEFRA). Each provider is paid on 
     the basis of reasonable cost subject to a rate of increase 
     ceiling on inpatient operating costs. The ceiling is based on 
     a target amount per discharge. The target amount for a cost 
     reporting period is equal to the hospital's allowable 
     inpatient operating costs (excluding capital and medical 
     education costs) per discharge in a base year increased by 
     applicable update factors for subsequent years. This amount 
     is then multiplied by Medicare discharges, to yield the 
     ceiling or upper limit on operating costs.
       OBRA 93 provided that the applicable rate of increase 
     percentage, or update, would be equal to the MBI minus 1.0 
     percent for FY1994-1997.
     House bill
       The provision would extend the target amount updates of the 
     MBI minus 1 percentage point through FY2002.
       The provision would also provide for rebasing the target 
     amount for certain long-term care hospitals for discharges 
     occurring on or after October 1, 1995.
       The provision would also apply to long-term care units of 
     hospitals not treated as PPS hospitals for discharges 
     occurring on or after September 30, 1995. Not later than 12 
     months after the majority of the members of the Medicare 
     Payment Review Commission have been appointed, the Commission 
     would be required to report to Congress their recommendations 
     for appropriate revisions in the treatment of long-term care 
     hospitals located in the same building or the same campus as 
     another hospital. The Secretary would also be required to 
     report to Congress by June 1, 1996, after consultation with 
     the Prospective Payment Assessment Commission and other 
     appropriate parties, on the advisability and feasibility of 
     providing for payment based on a prospective payment system 
     for inpatient services of rehabilitation hospitals and units 
     under Medicare.
     Senate bill
       The provision would set the update factor to the cost 
     limits for PPS-exempt hospitals equal to the MBI minus 2.5 
     percentage points for FY1996 through FY2002. The update 
     adjustment would vary for hospitals above and below TEFRA 
     limits.
       The Secretary would also be required to adjust, for 
     hospitals receiving updates, the inflation update to be no 
     less than 1.4 percent in FY1996; 1.3 percent in FY1997; and 
     1.1 percent for fiscal years 1998-2002.
       The provision would adjust the TEFRA limits for new and 
     existing PPS-exempt rehabilitation hospitals and units, and 
     long-term care hospitals that begin receiving PPS-exempt 
     payments on or after October 1, 1995.
       The Secretary would also be directed to report on a 
     prospective payment system for PPS-exempt hospitals no later 
     than June 1, 1996.
     Conference agreement
       The conference agreement includes the Senate provision with 
     several modifications. The conference agreement includes 
     House language regarding rebasing of certain long term care 
     hospitals with modifications. The conference agreement 
     includes House language regarding classification of long term 
     care hospitals within other hospitals. There are no market 
     basket floors. There is no requirement for the Secretary to 
     report on a prospective payments system for PPS-exempt 
     hospitals.


 6. Reduction in Payments to Hospitals for Enrollees' Bad Debts (Sec. 
                          15506 of House bill)

     Current law
       Certain hospital and other provider bad debts are 
     reimbursed by Medicare on an allowable cost basis. To be 
     qualified for reimbursement, the debt must be related to 
     covered services and derived from deductible and coinsurance 
     amounts left unpaid by Medicare beneficiaries. The provider 
     must be able to establish that reasonable collection efforts 
     were made and that sound business judgement established that 
     there was no likelihood of recovery at any time in the 
     future.
     House bill
       The proposal would reduce bad debt payments to providers by 
     75 percent for cost reporting periods beginning during 
     FY1996; 60 percent for cost reporting periods beginning 
     during FY1997; and 50 percent for subsequent cost reporting 
     periods.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the House provision.


    7. ProPAC Recommendations on Urban Medicare Dependent Hospitals 
                     (Section 7077 of Senate bill)

     Current law
       No provision.
     House bill
       No provision.
     Senate bill
       The provision would require ProPAC to report its 
     recommendations to Congress, beginning in 1996, on an 
     appropriate update to be used for urban hospitals with a high 
     proportion of Medicare patient days and on actions to ensure 
     that Medicare beneficiaries served by such hospitals retain 
     the same access and quality of care as Medicare beneficiaries 
     nationwide.
     Conference agreement
       The conference agreement does not include the House or 
     Senate provision. The conference agreement establishes a 
     separate payment update for certain hospitals with a high 
     proportion of Medicare patient days. Hospitals qualifying 
     include: (1) urban hospitals with no Medicare teaching or 
     disproportionate share payments, 60 percent Medicare patient 
     days; and (2) rural hospitals with more than 100 beds with no 
     Medicare teaching or disproportionate share payments. 
     Qualifying hospitals could receive an annual inflation update 
     of market basket minus 2.0 percentage points in FY1996; 
     market basket minus 1.7 percentage points in FY1997; and 
     market basket minus 2.0 percentage points in FY1998 through 
     FY2002.


8. Permanent Extension of Hemophilia Pass-Through (Sec. 15507 of House 
                                 bill)

     Current law
       Medicare makes additional payments for the costs of 
     administering blood clotting factor to Medicare beneficiaries 
     with hemophilia admitted for hospital stays where the 
     clotting factor was furnished between June 19,1990 and 
     September 30,1994.
     House bill
       The proposal would make the payment permanent.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the House provision. 

[[Page H 12820]]



9. Conforming Amendment to Certification of Christian Science Providers 
        (Sec. 15508 of House bill; Sec. 7057(b) of Senate bill)

     Current law
       Certain services furnished by a Christian Science 
     sanatorium are covered under Medicare Part A if the 
     institution is operated or listed and certified by the First 
     Church of Christ, Scientists, Boston, Mass. Such a sanatorium 
     qualifies as both a hospital and as a skilled nursing 
     facility.
     House bill
       The provision would expand coverage of Christian Science 
     sanatorium to include facilities (both hospitals and skilled 
     nursing facilities) certified by the Commission for 
     Accreditation of Christian Science Nursing Organizations/
     Facilities, Inc.
     Senate bill
       The provision would expand coverage of Christian Science 
     sanatorium to include facilities (both hospitals and skilled 
     nursing facilities) certified by the Commission for 
     Accreditation of Christian Science Nursing Organizations/
     Facilities, Inc.
     Conference agreement
       The conference agreement includes the Senate provision.


        10. Sole Community Hospitals (Sec. 15511 of House bill)

     Current law
       Sole Community Hospitals (SCHs) are facilities located in 
     geographically isolated areas and are the sole provider of 
     inpatient, acute cure hospital services in a geographic area 
     based on distance, travel time, severe weather conditions, 
     and/or market share. SCHs are paid the greater of what would 
     be payable under PPS or a target amount comparable to that 
     for PPS-exempt hospitals. Target amounts for SCHs are updated 
     by an ``applicable percentage increase'' which is specified 
     by statute and is generally pegged to the hospital market 
     basket index. OBRA 93 provided separate SCH updates of MBI 
     minus 2.2 percent for FY1995 and MBI minus 2.0 percent for 
     FY1996. For FY1997 and thereafter, the update for SCHs is the 
     same as for all PPS hospitals.
     House bill
       The provision would set the target amount update to the MBI 
     minus 1 percentage point for fiscal years 1996-2000; and for 
     FY2001 and each subsequent fiscal year, the applicable update 
     would be applied.
       The provision would require the Medicare Payment Review 
     Commission to conduct a study of the impact of the 
     designation of hospitals as SCHs on the delivery of health 
     care services to individuals in rural areas, and include an 
     analysis of the characteristics of the hospitals so 
     designated. The Commission would be required to submit the 
     report to Congress within 12 months after a majority of 
     Commission members are first appointed.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the Senate provision.


 11. Clarification of Taxes Credited to Fund (Sec. 15531 of House bill)

     Current law
       The Social Security Amendments of 1983 made up to half of 
     Social Security benefits taxable for beneficiaries with 
     incomes above a threshold level. That legislation provided 
     that the Federal income tax revenue accruing from taxation of 
     benefits would be credited to the Social Security trust 
     funds. When OBRA of 1993 raised the maximum proportion of 
     Social Security benefits subject to income taxation from 50% 
     to 85%, effective Jan. 1, 1994, the additional income tax 
     revenue was credited to the HI Trust Fund, effective upon 
     enactment.
     House bill
       A House-passed tax bill (H.R. 1215) would repeal the 1993 
     legislation that raised the maximum taxable portion of Social 
     Security benefits from 50% to 85%. That legislation was added 
     to OBRA of 1995 before House passage of OBRA. Without 
     corrective amendments, that legislation would result in a 
     loss of revenue for the HI Trust Fund. Thus, Sec. 15531 of 
     OBRA of 1995 would add language to Sec. 121(e) of the Social 
     Security Amendments of 1983 to direct the Secretary of the 
     Treasury to credit the HI Trust Fund with receipts from the 
     taxation of Social Security benefits without regard to 
     changes in the taxation of Social Security benefits that take 
     affect after Dec. 31, 1993. Coupled with Sec. 19001(a)(2) of 
     OBRA of 1995, which amends the provisions of H.R. 1215 that 
     repeal the higher taxation of Social Security benefits, this 
     language would place the HI fund in the same position 
     financially with respect to credits from income tax revenue 
     as it would be if taxation of Social Security benefits were 
     not changed by OBRA of 1995. These transfers to HI would come 
     from the general fund.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


   12. Graduate Medical Education and Disproportionate Share Payment 
       Adjustments for Medicare Choice (Sec. 7016 of Senate bill)

     Current law
       Medicare's HMO payment amount includes the costs of 
     graduate medical education (direct graduate medical education 
     (GME) payments and indirect medical education (IME) 
     adjustments) in an area. Hospitals incurring graduate medical 
     education and disproportionate share hospital (DSH) costs 
     associated with Medicare HMO patients do not receive a direct 
     payment from Medicare for such costs. The current formulas 
     used to calculate a hospital's IME and GME payment amounts do 
     not account for Medicare HMO patients.
     House bill
       No provision. (See Part VII)
     Senate bill
       The provision would change Medicare's current formulas for 
     GME, IME, and DSH payments to count Medicare Choice patients 
     in determining Medicare's hospital payments. In addition, the 
     provision removes area hospitals' costs for IME, GME, and DSH 
     from the calculation of Medicare Choice payments. Hospitals 
     that care for Medicare Choice patients would bill Medicare 
     and receive an additional Medicare payment or adjustment 
     under GME, IME, and DSH.
     Conference agreement
       The conference agreement includes the House provision.

      B. Payments for Hospice Services (Sec. 7017 of Senate bill)

     Current law
       Medicare covers hospice care for terminally ill 
     beneficiaries with a life expectancy of 6 months or less. 
     Payment for hospice care is based on one of four 
     prospectively determined rates, which correspond to four 
     different levels of care, for each day a beneficiary is under 
     the care of the hospice. The four categories are routine home 
     care, continuous home care, inpatient respite care, and 
     general inpatient care. These rates are updated annually by 
     the hospital market basket index (MBI). OBRA 93 decreased the 
     update for the payment rates as follows: FY 1994--MBI minus 
     2.0 percentage points; FY 1995--MBI minus 1.5 percentage 
     point; FY 1996--MBI minus 1.0 percentage point; and FY 1997--
     MBI minus 0.5 percentage point. Beginning with FY 1998, the 
     full hospital market basket percentage update will again 
     apply.
     House bill
       No provision.
     Senate bill
       For each of the fiscal years 1996 through 2002, hospice 
     payment rates would be updated by the greater of the market 
     basket minus 2.5 percentage points, or 1.1 percent (1.4 
     percent in FY 1996 and 1.2 percent in 1997).
     Conference agreement
       The conference agreement includes the Senate provision with 
     two amendments. Hospice payment rates would be updated by the 
     market basket minus 2 percentage points for each of the 
     fiscal years 1996 through 2002. There are no minimum market 
     basket updates.

  C. Extension of HI Tax to All State and Local Government Employees 
                       (Sec. 7108 of Senate bill)

     Current law
       Medicare Part A coverage and payment of the HI tax apply to 
     State and local government employees who are not under a 
     retirement plan or who were hired after Mar. 31, 1986. State 
     and local employees hired on or before that date may be 
     covered at the election of the employer, however.
     House bill
       No provision.
     Senate bill
       Effective for services performed after Dec. 31, 1995, Sec. 
     3121(u)(2) of the Internal Revenue Code of 1986 and Sec. 
     210(p) of the Social Security Act would be amended to extend 
     Medicare coverage to employees of State and local governments 
     on the same basis as for other employees. Thus, all State and 
     local employees would pay the HI tax. Appropriations would be 
     authorized to the HI Trust Fund to cover benefits and 
     administrative costs resulting from this provision and to 
     offset losses in trust fund interest income associated with 
     these expenditures. The Secretary of Health and Human 
     Services would be directed to provide information to State 
     and local employees about their Medicare coverage.
     Conference agreement
       The conference agreement does not include the Senate 
     provision.

            D. Payments to Skilled Nursing Facilities (SNFs)


1. Definition of Routine Service Costs (Sec. 15521 of House bill; Sec. 
                          7031 of Senate bill)

     Current law
       SNFs are generally reimbursed on the basis of reasonable 
     costs, subject to limits that are applied to per diem routine 
     service costs (nursing, room and board, administrative, and 
     other overhead). Non-routine, or ancillary services (such as 
     therapy and certain equipment), and capital-related costs are 
     excluded from the cost limits and are generally paid on the 
     basis of reasonable costs.
       Separate per diem limits for routine service costs are 
     established for freestanding and hospital-based SNFs by urban 
     or rural area. Freestanding SNF cost limits are set at 112 
     percent of the average per diem labor-related and nonlabor-
     related costs. Hospital-based SNF limits are set at the limit 
     for freestanding SNFs, plus 50 percent of the difference 

[[Page H 12821]]
     between the freestanding limits and 112 percent of the average per diem 
     routine services costs of hospital-based SNFs. The limits are 
     adjusted by the hospital wage index to reflect differences in 
     wage levels. The law authorizes the Secretary to allow for 
     exceptions to the limits, based on case mix or circumstances 
     beyond the control of the facility. The Secretary is required 
     to rebase cost limits every 2 years, i.e. to develop cost 
     limits using the latest available SNF cost report data every 
     2 years. In the interim the Secretary applies a SNF market 
     basket developed by the Health Care Financing Administration 
     (HCFA) to reflect changes in the price of goods and services 
     purchased by SNFs.
       SNFs providing less than 1,500 days of care per year to 
     Medicare patients in the preceding year have the option of 
     being paid a prospective payment rate set at 105 percent of 
     the regional mean for all SNFs in the region. The rate covers 
     routine and capital-related costs (and not ancillary 
     services) and is calculated separately for urban and rural 
     areas, adjusted to reflect differences in wage levels. 
     Prospective rates can not exceed the routine service cost 
     limit that would be applicable to the facility, adjusted to 
     take into account average capital-related costs with respect 
     to the type and location of the facility. For low-volume 
     SNFs, the Secretary is required to establish on an annual 
     basis, prospective payments that reflect current SNF costs 
     using the most recent data available from SNF cost reports. 
     For SNFs receiving prospectively determined payment rates, 
     the Secretary may pay for ancillary services on a reasonable 
     charge basis, rather than on a cost basis, if the Secretary 
     determines that a reasonable charge basis provides an 
     equitable level of payment and eases the SNF's reporting 
     burden.
     House bill
       For cost reporting periods beginning in FY 1997, the 
     Secretary would be required to redefine routine service costs 
     that would be subject to the routine cost limits. These would 
     include all items used in the current definition--nursing, 
     room and board, administrative, and other overhead--and, in 
     addition, all ancillary services (including supplies and 
     equipment), with the exception of non-routine services listed 
     below.
     Senate bill
       In establishing an interim payment system (that would be in 
     effect before the implementation of a prospective payment 
     system for SNF care), the Secretary would be required, for 
     cost reporting periods beginning in FY 1996, to redefine 
     routine service costs that would be subject to the routine 
     cost limits. These would include all items used in the 
     current definition--nursing, room and board, administrative, 
     and other overhead--and, in addition, all ancillary services 
     (including supplies and equipment), with the exception of 
     non-routine services listed below.
     Conference agreement
       The conference agreement includes the Senate provision.


  2. Incentives for Cost Effective Management of Covered Non-Routine 
     Services (Sec. 15522 of House bill; Sec. 7032 of Senate bill)

     Current law
       Currently non-routine ancillary services are generally paid 
     on the basis of reasonable costs and are not subject to 
     limits.
     House bill
       For cost reporting periods beginning in FY 1997, new 
     payment limits would be established for non-routine services 
     provided to Medicare beneficiaries receiving SNF care. For 
     these purposes, non-routine services would be defined to 
     include therapy services (physical and occupational therapy, 
     speech language pathology, and respiratory therapy, including 
     supplies and support services incident to the therapy 
     services); prescription drugs; complex medical equipment; 
     intravenous therapy and solutions (including enteral and 
     parenteral nutrients, supplies, and equipment); radiation 
     therapy; and diagnostic services, including laboratory, 
     pulmonary, and radiology services (including tomography and 
     imaging services).
       The non-routine limit for a stay would be the sum of the 
     following two amounts: 50 percent would be the facility-
     specific amount for these services; and 50 percent would 
     represent the national average amount paid for these services 
     for all SNF stays. The facility-specific amount would be 
     calculated by summing (1) the average amount of payments made 
     to a facility under Part A for non-routine services during a 
     stay and (2) the Secretary's best estimate of the average 
     amount of payments made under Part B for covered non-routine 
     services furnished to all residents provided SNF care under 
     Part A.
       In establishing base year payments for the new limits, the 
     Secretary would be required to use cost reporting periods 
     ending September 30, 1994. These base year payments would be 
     updated to FY 1997 by the SNF market basket. In subsequent 
     years, per stay limits would be updated by the SNF market 
     basket minus 2 percentage points. National average payments 
     used for determining a facility's per stay limit would be 
     calculated separately for freestanding and hospital-based 
     SNFs. Separate per stay limits would apply to residents of 
     SNFs who require intensive nursing or therapy services. The 
     Secretary, after consulting with the Medicare Payment Review 
     Commission and SNF experts, would be required to develop and 
     publish this separate limit by June 30, 1996, and would be 
     required to ensure its budget neutrality. The Secretary would 
     also be required to rebase facility-specific amounts for cost 
     reporting periods beginning October 1, 1999, and every 2 
     years thereafter. A SNF stay would be defined by the number 
     of continuous days a beneficiary spent in the facility during 
     a covered spell of illness.
       An aggregate payment limit for non-routine services would 
     also be determined annually for each SNF. This would be 
     calculated by multiplying the number of SNF stays for which 
     payments for these services were made times the blended 
     payment limit. This amount would be compared to actual 
     interim payments made to the SNF for these services; these 
     payments would be based on the facility's reasonable costs of 
     providing these services. If total payments for the year were 
     below the SNF's aggregate payment limit, then the SNF would 
     be allowed to retain 50 percent of the difference, up to 5 
     percent of total amount paid to the facility for covered non-
     routine services. In the event that total payments exceeded 
     the SNF's payment limit, the Secretary would be required to 
     reduce payments for new stays in the next fiscal year at such 
     times and in a manner the Secretary considers appropriate.
       SNFs would be required to bill Medicare for all services 
     provided to beneficiaries eligible for SNF care, regardless 
     of whether the service was provided by the facility, by 
     others under arrangements with the facility, or under any 
     other contracting or consulting arrangement. For 
     beneficiaries residing in SNFs not eligible for Part A SNF 
     benefits but receiving covered non-routine services, the SNF 
     would again be required to bill for covered Part B services 
     (except for portable x-ray or portable electrocardiogram 
     services treated as a physician service). SNFs would be 
     required to maintain records of all covered non-routine 
     services furnished beneficiaries.
       The Secretary could provide for exceptions to the per stay 
     limits, so long as additional payments were budget neutral 
     and did not exceed 5 percent of aggregate payments to all 
     SNFs for covered non-routine services. New SNFs not receiving 
     payments for non-routine services in the base year period of 
     FY 1994 would be subject to the national average payment 
     limit described above. Low-volume SNFs receiving prospective 
     payments would not be subject to the new non-routine limits. 
     Before furnishing a covered x-ray service to a Medicare 
     beneficiary, SNFs would be required to consider the 
     appropriateness of portable x-ray services, taking into 
     account the cost effectiveness of the service and the 
     convenience to the resident.
     Senate bill
       Under the interim payment system, new payment limits would 
     be established for non-routine services provided to Medicare 
     beneficiaries receiving SNF care during cost reporting 
     periods beginning in FY 1996. For these purposes, non-routine 
     services would be defined to include therapy services 
     (physical and occupational therapy, speech language 
     pathology, and respiratory therapy); prescription drugs; 
     complex medical equipment; intravenous therapy and solutions 
     (including enteral and parenteral nutrients, supplies, and 
     equipment); radiation therapy; and diagnostic services, 
     including laboratory, pulmonary, and radiology services 
     (including tomography and imaging services).
       The non-routine limit for a stay would be a facility-
     specific amount. The facility-specific amount would be 
     calculated by summing (1) the amount of payments made to a 
     facility under Part A for non-routine services during a stay 
     and (2) the Secretary's best estimate of the amount of 
     payments made under Part B for covered non-routine services 
     furnished to all residents provided SNF care under Part A, 
     and then dividing this sum by the average number of days per 
     stay for all residents of the SNF.
       In establishing base year payments for the new limits, the 
     Secretary would be required to use cost reporting periods 
     ending September 30, 1994. These base year payments would be 
     updated to FY 1996 by the SNF market basket. In subsequent 
     years, per stay limits would be updated by the greater of the 
     SNF market basket minus 2.5 percentage points or 1.2 percent 
     (1.1 percent for fiscal years after 1997). Separate per stay 
     limits would apply to residents of SNFs who require intensive 
     nursing or therapy services. The Secretary, after consulting 
     with the Prospective Payment Assessment Commission and SNF 
     experts, would be required to develop and publish this 
     separate limit and would be required to ensure its budget 
     neutrality. A SNF stay would be defined by the number of 
     continuous days a beneficiary spent in the facility during a 
     covered spell of illness.
       An aggregate payment limit for non-routine services would 
     also be determined annually for each SNF. This would be 
     calculated by multiplying the number of SNF stays for which 
     payments for these services were made times the per stay 
     payment limit. This amount would be compared to actual 
     interim payments made to the SNF for these services; these 
     payments would be based on the facility's reasonable costs of 
     providing these services. If total payments exceeded the 
     SNF's aggregate payment limit, the Secretary would be 
     required to reduce payments for new stays in the next fiscal 
     year at such times and in a manner the Secretary considers 
     appropriate.
       SNFs would be required to bill Medicare for all services 
     provided to beneficiaries eligible for SNF care, regardless 
     of whether the 

[[Page H 12822]]
     service was provided by the facility, by others under arrangements with 
     the facility, or under any other contracting or consulting 
     arrangement. For beneficiaries residing in SNFs not eligible 
     for Part A SNF benefits but receiving covered non-routine 
     services, the SNF would again be required to bill for covered 
     Part B services. SNFs would be required to maintain records 
     of all covered non-routine services furnished beneficiaries.
       The Secretary could provide for exceptions to the per stay 
     limits, so long as additional payments were budget neutral 
     and did not exceed 5 percent of aggregate payments to all 
     SNFs for covered non-routine services. New SNFs not receiving 
     payments for non-routine services in the base year period of 
     FY 1994 would be subject to the national average payment 
     limit described above. The Secretary would be required to 
     determine an appropriate manner in which to apply the non-
     routine limits to low-volume SNFs receiving prospective 
     payments.
     Conference agreement
       The conference agreement includes the Senate provision with 
     amendments. In establishing base year payments for new non-
     routine limits, the Secretary would be required to use cost 
     reporting periods ending December 31, 1994. Beginning in FY 
     1997, per stay non-routine limits would be updated by the SNF 
     market basket minus 2 percentage points. Non-routine services 
     would include supplies and support services directly related 
     to therapy. SNFs would be required to bill for all covered 
     Part B services, except for portable x-ray or portable 
     electrocardiogram services treated as a physician service, 
     and physician services that are not covered routine or non-
     routine services. Before furnishing a covered x-ray service 
     to a Medicare beneficiary, SNFs would be required to consider 
     the appropriateness of portable x-ray services, taking into 
     account the cost effectiveness of the service and the 
     convenience to the resident.


3. Prospective Payment System for Skilled Nursing Facilities (Sec. 7025 
                            of Senate bill)

     Current law
       No provision.
     House bill
       No provision.
     Senate bill
       For cost reporting periods beginning in FY 1998, the 
     Secretary would be required to establish a prospective 
     payment system for SNF care under which fixed payments would 
     be made for episodes of care. Payments would be required to 
     cover all services, including all routine and non-routine 
     services (except for physician services) and capital costs. 
     Payment amounts would be required to take into account case-
     mix, patient acuity, and such other factors as the Secretary 
     determines appropriate. Total payments under the new 
     prospective system could not exceed 90 percent of amounts 
     that would have been made for routine and non-routine and 
     capital expenditures if the system were not established. The 
     Secretary would be required to reduce the prospective payment 
     rates to take into account beneficiary coinsurance payments. 
     The prospective payment system would also be required to 
     reflect savings from the new payment limits established for 
     non-routine services, savings from the OBRA 93 freeze on 
     routine costs limits, and the 15 percent reduction in capital 
     payments.
     Conference agreement
       The conference agreement includes the Senate provision.


    4. Revised Salary Equivalence Limits (Sec. 7037 of Senate bill)

     Current law
       Medicare statute authorizes the Secretary to set limits on 
     allowable costs incurred by a provider of services for which 
     payment may be made under Medicare.
     House bill
       No provision.
     Senate bill
       The Secretary would be required to determine the non-
     routine facility-specific per stay payment amounts as if 
     salary equivalency guidelines were in effect for 
     occupational, physical, respiratory, and speech pathology 
     therapy services for the last 12-month cost reporting period 
     of the facility on or before September 30, 1994.
     Conference agreement
       The conference agreement does not include the Senate 
     provision.


 5. Payments for Routine Service Costs (Sec. 15523 of House bill; Sec. 
                          7033 of Senate bill)

     Current law
       OBRA 93 required that there be no changes in SNF cost 
     limits (including no adjustments for changes in the wage 
     index or updates of data) for cost reporting periods 
     beginning in FY 1994 and FY 1995, or in prospective payment 
     amounts for low-volume SNFs during these cost reporting 
     periods. The Secretary was also required, when granting or 
     extending exceptions to cost limits, to limit any exception 
     to the amount that would have been granted if there were no 
     restriction on changes in cost limits. OBRA 93 also repealed 
     the requirement that additional payments be made to hospital-
     based SNFs for costs attributable to excess overhead 
     allocations, effective for cost reporting periods beginning 
     on or after October 1, 1993. Payments to proprietary SNFs for 
     return on equity were also eliminated, effective for cost 
     reporting periods beginning on or after October 1, 1993.
     House bill
       Beginning in FY 1996, the proposal would permanently extend 
     the savings stream, but not the OBRA 93 freeze on SNF cost 
     limits, by not allowing for the inflation that occurred 
     during the freeze years. Low-volume SNFs receiving 
     prospective payments would be subject to the permanent 
     extension of the savings stream of the freeze.
       Reimbursements for exceptions to routine cost limits in FY 
     1997 would be limited to aggregate payments made in FY 1996, 
     adjusted for increases in the SNF market basket. In future 
     fiscal years, increases in aggregate payments for exceptions 
     to the limits would be limited by percentage increases in the 
     SNF market basket. The Secretary would be required to provide 
     exceptions only to those facilities that make annual 
     applications for adjustments.
     Senate bill
       Beginning in FY 1996, the proposal would permanently extend 
     the savings stream, but not the OBRA 93 freeze on SNF cost 
     limits, by not allowing for the inflation that occurred 
     during the freeze years. Low-volume SNFs receiving 
     prospective payments would be subject to the permanent 
     extension of the savings stream of the freeze. Beginning in 
     FY 1996, the Secretary would be required to take into account 
     the new definition of routine service costs in determining 
     routine cost limits.
       Reimbursements for exceptions to routine cost limits in FY 
     1996 would be limited to aggregate payments made in FY 1994, 
     updated to FY 1996 by the SNF market basket. In future fiscal 
     years, increases in aggregate payments for exceptions to the 
     limits would be limited by percentage increases in the SNF 
     market basket. The Secretary would be required to provide 
     exceptions only to those facilities that make annual 
     applications for adjustments.
     Conference agreement
       The conference agreement includes the Senate provision.


6. Reductions in Payment for Capital-Related Costs (Sec. 15524 of House 
                    bill; Sec. 7034 of Senate bill)

     Current law
       Capital-related costs of SNFs are paid on the basis of 
     reasonable costs and are excluded from cost limits.
     House bill
       SNF capital cost payments would be reduced by 15 percent 
     for cost reporting periods occurring during FY 1996-2002.
     Senate bill
       SNF capital cost payments would be reduced by 15 percent 
     for cost reporting periods occurring during FY 1996-2002.
     Conference agreement
       The conference agreement includes the Senate provision with 
     an amendment to reduce capital payments by 10 percent.


7. Treatment of Items and Services Paid for under Part B (Sec. 15525 of 
                 House bill; Sec. 7035 of Senate bill)

     Current law
       Certain covered Part B services provided in SNFs are paid 
     the lesser of reasonable costs or charges.
     House bill
       For services billed at the lesser of costs or charges, 
     reasonable costs would be reduced by 5.8 percent from amounts 
     currently recognized as reasonable for cost reporting periods 
     occurring during fiscal years 1996 through 2002. For Medicare 
     covered Part B services (except for portable x-ray or 
     portable electrocardiogram services treated as a physician 
     service), payments would have to be made to the SNF, 
     regardless of whether the service was provided by the 
     facility, by others under arrangements with the facility, or 
     under any other arrangement. These services would be excluded 
     from coverage if not billed by the SNF.
     Senate bill
       For services billed at the lesser of costs or charges, 
     reasonable costs would be reduced by 5.8 percent from amounts 
     currently recognized as reasonable for cost reporting periods 
     occurring during fiscal years 1996 through 2002. For Medicare 
     covered Part B services (except for physicians providing 
     evaluation and management services to patients under their 
     care), payments would have to be made to the SNF, regardless 
     of whether the service was provided by the facility, by 
     others under arrangements with the facility, or under any 
     other contracting or consulting arrangement. These services 
     would be excluded from coverage if not billed by the SNF.
     Conference agreement
       The conference agreement includes the Senate provision with 
     an amendment. Payments would have to be made to SNFs for 
     covered Part B services, except for portable x-ray and 
     portable electrocardiogram services treated as a physician 
     service, and physician services that are not covered routine 
     or non-routine services.


  8. Certification of Facilities Meeting Revised Nursing Home Reform 
                  Standards (Sec. 15526 of House bill)

     Current law
       OBRA 87 comprehensively revised Medicare and Medicaid 
     requirements for nursing homes participating in the programs. 
     These 

[[Page H 12823]]
     provisions, collectively referred to as nursing home reform law, are 
     virtually identical in Medicare and Medicaid statutes. They 
     have three major parts: (1) requirements that nursing homes 
     must meet in order to be certified to participate in Medicare 
     and/or Medicaid, including requirements about assessments of 
     residents, available services, nurse staffing, nurse aide 
     training, and resident rights; (2) provisions revising the 
     survey and certification process that State survey agencies 
     must use for determining whether nursing homes comply with 
     the requirements for participation; and (3) provisions that 
     expand the range of sanctions and penalties that States and 
     the Secretary of HHS may impose against nursing homes found 
     to be out of compliance with the requirements for 
     participation.
       The Commerce Committee has reported legislation 
     transforming the Medicaid program into a new MediGrant 
     program authorized under Title XXI of the Social Security 
     program. The new program would replace the OBRA 87 nursing 
     home reform provisions with more general requirements for 
     assuring quality care in nursing homes.
     House bill
       Effective for cost reporting periods beginning in FY 1996, 
     the proposal would repeal OBRA 87 nursing home reform 
     requirements and require that SNFs participating in Medicare 
     either be certified by the Secretary as meeting new 
     requirements that would replace OBRA 87 reforms or be State-
     certified. State-certified facilities would include 
     facilities licensed or certified as a SNF by the State in 
     which it is located, or a facility which otherwise meets the 
     requirements for nursing facilities specified under the 
     Medicaid or new MediGrant authorities.
       The Secretary would be required to establish and maintain 
     standards in the following areas for SNFs providing Medicare 
     covered services: the treatment of resident medical records; 
     policies, procedures, and bylaws for operation; quality 
     assurance systems; resident assessment procedures, including 
     care planning and outcome evaluation; the assurance of a safe 
     and adequate physical plant for the facility; qualifications 
     for staff sufficient to provide adequate care; and 
     utilization review.
       Standards for SNFs would also be required to provide for 
     the protection and enforcement of resident rights, including 
     rights to exercise the individual's rights as a resident of 
     the facility and as a citizen or resident of the U.S.; to 
     receive notice of rights and services; to be protected 
     against the misuse of resident funds; to be provided privacy 
     and confidentiality; to voice grievances; to examine the 
     results of certification program inspections; to refuse to 
     perform services for the facility; to be provided privacy in 
     communications and to receive mail; to have the facility 
     provide immediate access to any resident by any 
     representative of the certification program, the resident's 
     individual physician, the State long-term care ombudsman, and 
     any person the resident has designated as a visitor; to 
     retain and use personal property; to be free from abuse, 
     including verbal, sexual, physical and mental abuse, corporal 
     punishment, and involuntary seclusion; and to be provided 
     with prior written notice of a pending transfer or discharge.
       Standards established by the Secretary for SNFs could take 
     effect only after public notice and an opportunity for 
     comment.
       The Secretary would also be required to provide for the 
     establishment and operation of a program for the 
     certification of SNFs that meet specified standards as well 
     as the decertification of those facilities that fail to meet 
     the standards. The Secretary would be required to ensure 
     public access (as defined by the Secretary) to the 
     certification program's evaluations of participating 
     facilities, including compliance records and enforcement 
     actions and other reports regarding ownership, compliance 
     histories, and services provided by certified facilities. The 
     Secretary would be required to audit expenditures under the 
     program, not less often than every 4 years, through an entity 
     designated by the Secretary and not affiliated with the 
     program.
       The Secretary would be required to impose certain sanctions 
     against SNFs not meeting requirements. If the Secretary 
     determines that a facility certified either by the Secretary 
     or State no longer substantially meets the requirements for 
     participation and further determines that the facility's 
     deficiencies immediately jeopardize the health and safety of 
     residents, then the Secretary would be required, at a 
     minimum, to terminate the facility's certification for 
     participation. If the facility's deficiencies do not 
     immediately jeopardize the health and safety of residents, 
     the Secretary could, in lieu of termination, provide lesser 
     sanctions, including denial of payment for persons admitted 
     after a specified date.
       The Secretary could not impose sanctions until a facility 
     has had a reasonable opportunity to correct its deficiencies, 
     following the initial determination that it no longer 
     substantially meets the requirements for certification, and, 
     has been given reasonable notice and opportunity for a 
     hearing. The Secretary's decision to deny payment for new 
     admissions would be effective only after notice to the public 
     and the facility, as may be provided for by the Secretary. 
     Denial of payment for new admissions would end when the 
     Secretary finds that the facility is in substantial 
     compliance (or is making good faith efforts to achieve 
     substantial compliance). Facilities would, however, be 
     required to be in compliance by the end of the eleventh month 
     following the month when the decision to deny payments 
     becomes effective. If facilities did not substantially meet 
     the requirements by that time, the Secretary would be 
     required to terminate their certification for participation.
     Senate bill
       No provision; current law nursing home reform provisions 
     would be retained.
     Conference agreement
       The conference agreement does not include the House 
     provision.


   9. Medical Review Process (Sec. 15527 of House bill; Sec. 7036 of 
                              Senate bill)

     Current law
       No Provision.
     House bill
       The Secretary would be required to implement a medical 
     review process to examine the effects of the amendments of 
     this part on the quality of care received by Medicare 
     beneficiaries, placing a particular emphasis on the quality 
     of non-routine covered services.
     Senate bill
       The Secretary would be required to implement a medical 
     review process to examine the effects of the amendments of 
     this part on the quality of care received by Medicare 
     beneficiaries, placing a particular emphasis on the quality 
     of non-routine covered services.
     Conference agreement
       The conference agreement includes the Senate provision.


    10. Report (Sec. 15528 of House bill; Sec. 7038 of Senate bill)

     Current law
       The Prospective Payment Assessment Commission has been 
     authorized to review and make recommendations on prospective 
     payment for SNF care.
     House bill
       The newly established Medicare Payment Review Commission 
     would be required to report on Medicare's method for paying 
     for SNF care and would be required to include in the report: 
     (1) an analysis of the effect of the new payment limits for 
     non-routine services on payments for and the quality of SNF 
     services (2) an analysis of the advisability of determining 
     the amount of payment for covered non-routine services on the 
     basis of amounts paid for such services under Part B of the 
     program; (3) an analysis of the desirability of maintaining 
     separate limits for hospital-based and freestanding SNFs; (4) 
     an analysis of the quality of services furnished by SNFs; and 
     (5) an analysis of the adequacy of the process and standards 
     used for exceptions to routine cost limits.
     Senate bill
       The Prospective Payment Assessment Commission would be 
     required to report on Medicare's method for paying for SNF 
     care and would be required to include in the report: (1) an 
     analysis of the effect of the new payment limits for non-
     routine services on payments for and the quality of SNF 
     services (2) an analysis of the advisability of determining 
     the amount of payment for covered non-routine services on the 
     basis of amounts paid for such services under Part B of the 
     program; (3) an analysis of the desirability of maintaining 
     separate routine cost limits for hospital-based and 
     freestanding SNFs; (4) an analysis of the quality of services 
     furnished by SNFs; (5) an analysis of the adequacy of the 
     process and standards used for exceptions to routine cost 
     limits; and (6) an analysis of the effect of the new SNF 
     prospective payment methodology on the payments for and 
     quality of SNF services, including an evaluation of the 
     baseline used in establishing a system for payment of SNF 
     services.
     Conference agreement
       The conference agreement includes the Senate provision.


11. Effective Date (Sec. 15529 of House bill; Sec. 7039 of Senate bill)

     Current law
       No provision.
     House bill
       Except as otherwise noted, the provisions would be 
     effective for services furnished during cost reporting 
     periods beginning on or after October 1, 1996.
     Senate bill
       Except as otherwise noted, the provisions would be 
     effective for services furnished during cost reporting 
     periods beginning on or after October 1, 1996.
     Conference agreement
       The conference agreement includes the Senate provision.


   12. Nurse Aide Training in Skilled Nursing Facilities Subject to 
               Extended Survey (Sec. 7019 of Senate bill)

     Current law
       Skilled nursing facilities (SNFs) are prohibited from 
     offering a nurse aide training program by or in the facility 
     if within the previous 2 years it has had a waiver of the 
     registered nurse staffing requirement, or has been subject to 
     an extended survey as a result of a finding that it has 
     provided substandard care, or has been subject to sanctions 
     for noncompliance with requirements.
     House bill
       No provision.
     Senate bill
       The provision would allow SNFs otherwise prohibited from 
     offering a nurse aide training program to do so, if the State 
     determines 

[[Page H 12824]]
     that there would be no other program offered within a reasonable 
     distance, provided notice of the approval to the State long-
     term care ombudsman, and assured through an oversight effort 
     that an adequate environment exists for the program.
     Conference agreement
       The conference agreement includes the Senate provision.

                  Provisions Relating to Rural Issues


 1. medicare-dependent, small rural hospitals (section 7071 of senate 
                                 bill)

     Current law
       Medicare dependent hospitals are hospitals located in a 
     rural area, with 100 beds or less, that are not classified as 
     a sole community provider, and for which not less than 60 
     percent of inpatient days or discharges in the hospital cost 
     reporting period are attributable to Medicare. These 
     hospitals are reimbursed on the same basis as sole community 
     hospitals. The designation for Medicare-dependent, small 
     rural hospitals expired on July 30, 1994.
     House bill
       No provision.
     Senate bill
       The provision would re-institute the Medicare-dependent 
     hospital program effective for cost reporting periods on or 
     after September 1, 1995 and before October 1, 2000.
     Conference agreement
       The conference agreement includes the Senate provision.


         2. critical access hospital (sec. 7072 of senate bill)

     Current law
       No provision.
     House bill
       No provision.
     Senate bill
       The provision would amend section 1820 to provide the 
     Medicare Rural Hospital Flexibility Program, a limited 
     service hospital program available to all States. Certain 
     grants would be available to States to establish rural 
     hospital networks consisting of at least one critical access 
     hospital and limited service hospitals. Hospitals seeking to 
     become limited service hospitals would be required to have an 
     average length of stay of 72 hours and 6 beds; hospitals 
     participating in the swing bed program could use 12 beds. 
     Medicare would pay these facilities on a reasonable cost 
     basis. The provision would authorize appropriations of $25 
     million for the program from the Federal Hospital Insurance 
     Trust Fund for grants to States.
     Conference agreement
       The conference agreement includes the Senate provision.


3. rural emergency access care hospitals (reachs) (Sec. 15513 of house 
                    bill; Sec. 7073 of senate bill)

     Current law
       No provision.
     House bill
       The bill would provide for the establishment of a new 
     category of hospitals under Medicare to provide for medical 
     screening examinations and treatment for emergency medical 
     conditions and active labor for rural facilities that are in 
     danger of closing due to low inpatient utilization rates and 
     operating losses and whose closing would reduce access to 
     emergency services. Such facilities would have to meet 
     specific requirements including those relating to appropriate 
     medical staffing, referral arrangements; and diagnostic and 
     laboratory services. Facilities would be reimbursed on a 
     reasonable cost basis.
     Senate bill
       The bill would provide for the establishment of a new 
     category of hospitals under Medicare to provide for medical 
     screening examinations and treatment for emergency medical 
     conditions and active labor for rural facilities that are in 
     danger of closiong due to low inpatient utilization rates and 
     operating losses and whose closing would reduce access to 
     emergency services. Such facilities would have to meet 
     specific requirements including those relating to appropriate 
     medical staffing, referral arrangements; and diagnostic and 
     laboratory services. Facilities would be reimbursed on a 
     reasonable cost basis.
     Conference agreement
       The conference agreement includes the Senate provision.


 4. classification of rural referral centers (sec. 15514 of house bill)

     Current law
       Referral centers are paid prospective payments based on the 
     applicable urban payment amount rather than the rural payment 
     amount, as adjusted by the hospital's area wage index. The 
     applicable amount is the ``other urban'' rate (i.e., the rate 
     for urban areas with 1 million or fewer people) for all 
     referral centers except those (if any) located in MSAs 
     greater than 1 million. These centers are defined as:
       (1) rural hospitals having 275 or more beds;
       (2) hospitals having at least 50 percent of their Medicare 
     patients referred from other hospitals or from physicians not 
     on the hospital's staff, at least 60 percent of their 
     Medicare patients residing more than 25 miles from the 
     hospital, and at least 60 percent of the services furnished 
     to Medicare beneficiaries are furnished to those who live 25 
     miles or more from the hospital; or
       (3) rural hospitals meeting the following criteria for 
     hospital cost reporting periods beginning on or after October 
     1, 1985:
       (a) a case mix index equal to or greater than the median 
     case mix for all urban hospital (the national standard), or 
     the median case mix for urban hospitals located in the same 
     census region, excluding hospitals with approved teaching 
     programs;
       (b) a minimum of 5,000 discharges, the national discharge 
     criterion (3,000 in the case of osteopathic hospitals), or 
     the median number of discharges in urban hospitals for the 
     region in which the hospital is located; and
       (c) at least one of the following three criteria: more than 
     50 percent of the hospital's medical staff are specialists, 
     at least 60 percent of discharges are for inpatients who 
     reside more than 25 miles from the hospital, or at least 40 
     percent of inpatients treated at the hospital have been 
     referred either from physicians not on the hospital's staff 
     or from other hospitals.
       OBRA 93 extended the classification through FY1994 for 
     those referral centers classified as of September 30, 1992.
     House bill
       The bill would prohibit the Medicare Geographic 
     Classification Review Board from denying a referral centers 
     request for classification on the basis of any comparison 
     between the average hourly wage of the hospital and the 
     average hourly wage of hospitals in the area in which it is 
     located. Hospitals would be allowed to submit applications to 
     the Board during the 30-day period beginning on the date of 
     enactment requesting a change in classification for purposes 
     of determining the area wage index applicable to the hospital 
     for FY1997, if the hospital would be eligible for such change 
     except for its failure to meet the deadline for applications.
       The bill would, beginning in FY1996, extend the referral 
     center classification of any hospital classified as a 
     referral center for FY1994, and such hospitals would continue 
     to classified as a referral center for each subsequent fiscal 
     year.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the House provision.


         5. floor on area wage index (sec. 15515 of house bill)

     Current law
       As part of the methodology for determining prospective 
     payments to hospitals under PPS, the Secretary is required to 
     adjust a portion of the standardized amounts for area 
     differences in hospital wage levels by a factor reflecting 
     the relative hospital wage level in the geographic area of 
     the hospital compared to the national average hospital wage 
     level.
     House bill
       For discharges occurring on or after October 1, 1995, the 
     area wage index applicable for any hospital which was not 
     located in a rural area could not be less than the average of 
     the area wage indices applicable to hospitals located in 
     rural areas in the State in which the hospital was located. 
     The Secretary would be required to make any adjustments in 
     the wage index in a budget neutral manner.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the House provision.


 6. clarification of treatment of essential access community hospital/
rural primary care hospital (each/rpch) (sec. 15512 of house bill; sec. 
                          7072 of senate bill)

     Current law
       Under the EACH demonstration program up to 7 States may be 
     designated by the Secretary to receive grants to develop 
     rural health networks consisting of essential access 
     community hospitals (EACHs) and rural primary care hospitals 
     (RPCHs). Individual hospitals may be designated as EACHs and 
     RPCHs. In order to receive designation by a State as a RPCH, 
     a facility must meet certain criteria, including a 
     requirement that inpatient stays not exceed 72 hours.
       Montana also has a limited hospital program called the 
     Medical Assistance Facility (MAF).
     House bill
       The provision would allow the EACHs to continue to receive 
     special payments under Medicare determined in the same manner 
     as for sole community hospitals (SCHs), and RPCHs to continue 
     to receive Medicare payments for their services, even in 
     fiscal years in which the program did not receive 
     appropriations.
     Senate bill
       The provision would allow EACHs to continue to receive 
     payments under Medicare determined in the same manner as for 
     SCHs, and RPCHs to continue to receive Medicare payments for 
     their services. The MAF program would also be continued for 
     all qualifying facilities in Montana.
     Conference agreement
       The conference agreement includes the Senate provision.


 7. additional payments for services furnished in shortage areas (sec. 
                          7074 of senate bill)

       The law authorizes a bonus payment of an additional 10 
     percent for physicians services furnished in a health 
     professional shortage area.

[[Page H 12825]]

     House bill
       No provision
     Senate bill
       The provision would increase the bonus payment in health 
     professional shortage areas from 10 percent to 20 percent and 
     limit the bonus to primary care services. Such payments would 
     be continued for the three year period following the 
     withdrawal of the health professional shortage area 
     designation for an area, provided such withdrawal occurs on 
     or after January 1, 1996. Carriers would be required to 
     provide information periodically to the Secretary on the 
     types of providers to whom the carrier makes bonus payments.
       The Physician Payment Review Commission would be required 
     to conduct a study of the effectiveness of bonus payments in 
     recruiting physicians to provide services in health 
     professional shortage areas. Within one year of enactment, 
     the Secretary would be required to submit a report to 
     Congress, together with recommendations, on such study.
     Conference agreement
       The conference agreement includes the Senate provision.


8. payments to physician assistants and nurse practitioners (sec. 7075 
                            of senate bill)

     Current law
       Physician assistants are paid directly for their services, 
     when provided under the supervision of a physician: (i) in a 
     hospital, skilled nursing facility, or nursing facility, (ii) 
     as an assistant at surgery; or (iii) in a rural area 
     designated as a health manpower shortage area. Payments equal 
     a percentage of what would be paid if the services were 
     performed by a physician, namely 65% of the fee schedule 
     amount for services performed as an assistant at surgery, 75% 
     for other hospital services, and 85% for other services.
       Nurse practitioners are paid directly for services provided 
     in collaboration with a physician which are furnished in a 
     nursing facility. Payments equal 85% of the physician fee 
     schedule amount. Nurse practitioners are also paid directly 
     for services provided in collaboration with a physician in a 
     rural area. Payments equal 75% of the physician fee schedule 
     amount for services furnished in a hospital and 85% of the 
     fee schedule amount for other services.
     House bill
       No provision.
     Senate bill
       The provision would permit direct payment for services in 
     outpatient or home settings provided by physician assistants 
     and nurse practitioners in collaboration with a physician. 
     Payment would equal 80% of the lesser of either the actual 
     charge or 85% of the physician fee schedule amount.
     Conference agreement
       The conference agreement includes the Senate provision.


        9. telemedicine demonstration (sec. 7075 of senate bill)

     Current law
       Certain grants have been available through the Office of 
     Rural Health Policy's Rural Telemedicine Grant Program to 
     demonstrate and collect information on the feasibility, cost, 
     appropriateness, and acceptability of telemedicine 
     consultations for improving access to health services for 
     rural residents and reducing the isolation of rural 
     practitioners.
     House bill
       No provision.
     Senate bill
       The provision would establish a new grant program through 
     the Office of Rural Health to award grants to eligible 
     entities to establish demonstration projects under which are 
     eligible entity would establish a rural-based consortium that 
     would enable members of the consortium to utilize the 
     telecommunications network in the delivery of health care 
     services in rural areas through the use of telemedicine. The 
     provision would authorize appropriations of $10 million for 
     each of the fiscal years 1996 through 1998.
     Conference agreement
       The conference agreement includes the Senate provision.

           Subtitle G--Provisions Relating to Medicare Part B


                   A. Provider/Practitioner Payments`

  1. Payments for Physicians Services (Sec. 15601 of House bill; Sec. 
                          7041 of Senate bill)

     Current law
       Payments for physicians services are made on the basis of a 
     fee schedule. The fee schedule assigns relative values to 
     services based on the time, skill, and intensity it takes 
     physicians to provide them. The relative values are adjusted 
     for geographic variations in the costs of practicing 
     medicine. The adjusted relative values are converted into a 
     dollar payment amount by a conversion factor. There are three 
     conversion factors: one for surgical services, one for 
     primary care services, and one for all other services. The 
     1995 conversion factors are $39.45 for surgical services, 
     $36.38 for primary care services, and $34.62 for other 
     services.
       Conversion factors are updated each year by a default 
     formula. The update equals inflation as measured by the 
     Medicare Economic Index (MEI), plus or minus the difference 
     between actual physician spending for the category of 
     services in a base period compared to the Medicare Volume 
     Performance Standard (MVPS) for that category for the period. 
     (If spending was below the MVPS, the update is larger than 
     the MEI; if spending exceeded the MVPS, the update is less 
     than the MEI).
       The MVPS is a goal for the rate of expenditure growth from 
     one fiscal year to the next. The calculation of the MVPS for 
     a year is based on estimates of several factors (changes in 
     fees, enrollment, volume and intensity, and laws and 
     regulations). The MVPS derived from the calculation is 
     subject to a reduction which is known as the performance 
     standard factor. The performance standard factor is four 
     percentage points for FY 1995 and subsequent years.
     House bill
       a. Replacement of Medicare Volume Performance Standard. The 
     provision would replace the MVPS with a sustainable growth 
     rate beginning for FY 1996. The provision would establish the 
     sustainable growth rate for FY 1996 based on: (I) changes in 
     the MEI, (ii) changes in Medicare enrollment (excluding 
     Medicare Plus and HMO enrollees), (iii) growth in the real 
     gross domestic product from FY 95 to FY 96 plus 2 percentage 
     points; and (iv) changes resulting from changes in law 
     (determined without taking into account changes in volume or 
     intensity or changes resulting from changes in the 
     calculation of the conversion factor update). For each 
     subsequent fiscal year beginning in 1997, the sustainable 
     growth rate would equal the previous year's rate, updated by 
     the same factors used to set the FY 96 rate.
       b. Conversion Factor Update. The provision would modify the 
     calculation of the update beginning in 1997. The provision 
     would specify that the update for a year would equal the MEI, 
     subject to an adjustment to match the cumulative sustainable 
     growth rate. Specifically, the update for a year would equal 
     the MEI, plus or minus the difference between the percentage 
     increase in actual physician spending for the 12-month period 
     ending the previous June compared to the allowable growth 
     rate for the year. The allowable growth rate would be based 
     on the cumulative sustainable growth rate from the base year 
     1995. If spending was below the cumulative sustainable growth 
     rate, the update would be larger than the MEI; if spending 
     exceeded the cumulative sustainable growth rate, the update 
     would be less than the MEI. However, limits would be 
     established on allowable variation from the MEI. The update 
     could not be more than 103 percent of the MEI. It could not 
     be less than 93 percent of the MEI in 1996, 92.25 percent of 
     the MEI in 1998, or 92 percent of the MEI in 1999 and 
     subsequent years.
       The provision would require the Secretary to submit to 
     Congress by November 1 of each year, beginning in 1996, a 
     report describing the update in the conversion factor for the 
     following year. The Medicare Review Commission would review 
     the report and submit to Congress by December 1 a report 
     containing an analysis of the conversion factor.
       c. Single Conversion Factor. The provision would provide 
     for the establishment of a single conversion factor, rather 
     than three conversion factors, effective January 1, 1996. It 
     would set the factor for 1996 at $35.42.
     Senate bill
       a. Replacement of Medicare Volume Performance Standard. The 
     provision would require the Secretary to transmit to the 
     Congress by April 15 of each year (beginning with 1996) a 
     recommendation on the sustainable growth rate for the 
     upcoming fiscal year. In making the recommendation, the 
     Secretary would be required to confer with organizations 
     representing physicians. The Secretary is to consider 
     inflation; changes in numbers of enrollees (other than 
     Medicare Choice and HMO enrollees); changes in the age 
     composition of enrollees; (other than Medicare Choice and HMO 
     enrollees); changes in technology; evidence of inappropriate 
     utilization of services; evidence of lack of access to 
     necessary physicians services; and other factors the 
     Secretary considers appropriate. The Physician Payment Review 
     Commission would review the recommendation and make its 
     recommendation to Congress by May 15. The Secretary would be 
     required to publish the sustainable growth rate published in 
     the last 15 days of October of that year. For 1997, the 
     Secretary would be required to publish the sustainable growth 
     rate as specified in the law by January 1, 1997.
       The provision would replace the MVPS with a sustainable 
     growth rate beginning for FY 1996. The provision would 
     establish the sustainable growth rate for FY 1996 based on: 
     (I) changes in the MEI, (ii) changes in Medicare enrollment 
     (excluding Medicare Choice and HMO enrollees), (iii) growth 
     in the real gross domestic product from FY 95 to FY 96 plus 2 
     percentage points; and (iv) changes resulting from changes in 
     law (determined without taking into account changes in volume 
     or intensity or changes resulting from changes in the 
     calculation of the conversion factor update). For each 
     subsequent fiscal year beginning in 1997, the sustainable 
     growth rate would equal the previous year's rate, updated by 
     the same factors used to set the FY 96 rate.
       b. Conversion Factor Update. The provision would require 
     the Secretary by April 15 of each year (beginning in 1996) to 
     transmit a report to Congress that includes a recommendation 
     on the appropriate update in the conversion factor taking 
     into account the change in the MEI; factors that enter into 
     the calculation of the update adjustment factor and access to 
     services. The Secretary may also consider unexpected changes 
     made by physicians in response to implementation of the fee 
     schedule, unexpected 

[[Page H 12826]]
     changes in outlay projections, changes in the quality or 
     appropriateness of care, any other relevant factors not 
     measured in the resource based payment methodology; and 
     changes in the volume or intensity of services. The Physician 
     Payment Review Commission would be required to review the 
     report and submit its recommendations to Congress by May 15.
       Unless The Congress otherwise provided, the update for a 
     year (beginning in 1997) would be determined under a modified 
     update calculation. The provision would specify that the 
     update for a year would equal the MEI, subject to an 
     adjustment to match the cumulative sustainable growth rate. 
     Specifically, the update for a year would equal the MEI, plus 
     or minus the difference between the percentage increase in 
     actual physician spending for the 12-month period ending the 
     previous June compared to the allowable growth rate for the 
     year. The allowable growth rate would be based on the 
     cumulative sustainable growth rate from the base year 1995. 
     If spending was below the cumulative sustainable growth rate, 
     the update would be larger than the MEI; if spending exceeded 
     the cumulative sustainable growth rate, the update would be 
     less than the MEI. However, limits would be established on 
     allowable variation from the MEI. The update could not be 
     more than 103 percent of the MEI or less than 93 percent of 
     the MEI.
       c. Single Conversion Factor. The provision would provide 
     for the establishment of a single conversion factor, rather 
     than three conversion factors, effective January 1, 1996. It 
     would set the factor for 1996 at $35.42.
     Conference agreement
       The conference agreement includes the Senate provision with 
     a clarification of one of the factors used to the calculate 
     the sustainable growth rate for FY 1997 and subsequent years. 
     The factor for changes resulting from changes in law must 
     include changes made by the Secretary in response to the 
     failsafe provision. The provision further clarifies that the 
     recommendations are to be made by the Medicare Payment Review 
     Commission rather than the Physician Payment Review 
     Commission.
       It is the conferees understanding that HCFA has 
     commissioned a study of practice expenses. The conferees 
     intend that the Secretary consider analyzing the codes for 
     portable x-ray/EKGs and transportation separately in this 
     cost study to ensure fair and accurate evaluation of such 
     resource-based practice expenses.


 2. Elimination of Formula-Driven Overpayments for Certain Outpatient 
 Hospital Services (Sec. 15602 of House bill; Sec. 7042 of Senate bill)

     Current law
       Medicare payments for hospital outpatient ambulatory 
     surgery, radiology, and other diagnostic services equals the 
     lesser of: (1) the lower of a hospital's reasonable costs or 
     its customary charges, net of deductible and coinsurance 
     amounts, or (2) a blended amount comprised of a cost portion 
     and a charge portion, net of beneficiary cost-sharing. The 
     cost portion of the blend is based on the lower of the 
     hospital's costs or charges, net of beneficiary cost sharing, 
     and the charge portion is based, in part, on ambulatory 
     surgery center payment rates, net of beneficiary coinsurance.
       A hospital may bill a beneficiary for the coinsurance 
     amount owed for the outpatient service provided. The 
     beneficiary coinsurance is based on 20 percent of the 
     hospital's submitted charges for the outpatient service, 
     whereas Medicare usually pays based on the blend of the 
     hospital's costs and the amount paid to ambulatory surgery 
     centers for the same service. This results in an anomaly 
     whereby the amount a beneficiary pays in coinsurance does not 
     equal 20 percent of the program's payment and does not result 
     in a dollar-for-dollar decrease in Medicare program payments.
     House bill
       The provision would require that beneficiary coinsurance 
     amounts be deducted later in the reimbursement calculation 
     for hospital outpatient services, so that Medicare payments 
     for covered services would be lower. Medicare's payment for 
     hospital outpatient services would equal the blended amount 
     less any amount the hospital may charge the beneficiary as 
     coinsurance for services furnished during portions of cost 
     reporting periods occurring on or after October 1, 1995.
     Senate bill
       The provision would require that beneficiary coinsurance 
     amounts be deducted later in the reimbursement calculation 
     for hospital outpatient services, so that Medicare payments 
     for covered services would be lower. Medicare's payment for 
     hospital outpatient services would equal the blended amount 
     less any amount the hospital may charge the beneficiary as 
     coinsurance for services furnished during portions of cost 
     reporting periods occurring on or after October 1, 1995.
     Conference agreement
       The conference agreement includes the Senate provision.


3. Durable Medical Equipment (DME) (Sec. 15603 of House bill; Sec. 7044 
                        and 7045 of Senate bill)

     Current law
       a. Freeze in DME Updates. DME is reimbursed on the basis of 
     a fee schedule. Items are classified into five groups for 
     purposes of determining the fee schedules and making 
     payments: (1) inexpensive or other routinely purchased 
     equipment (defined as items costing less than $150 or which 
     is purchased at least 75 percent of the time); (2) items 
     requiring frequent and substantial servicing; (3) customized 
     items; (4) oxygen and oxygen equipment; and (5) other items 
     referred to as capped rental items. In general, the fee 
     schedules establish national payment limits for DME. The 
     national limits have floors and ceilings. The floor is equal 
     to 85 percent of the weighted median of local payment amounts 
     and the ceiling is equal to 100 percent of the weighted 
     median of local payment amounts. Fee schedule amounts are 
     updated annually by the consumer price index for all urban 
     consumers, CPI-U. OBRA 93 changed the basis for the floors 
     and ceiling for the DME fee schedules from the weighted 
     average to the weighted median, effective January 1, 1994.
       b. Freeze in Orthotics and Prosthetics Update. Prosthetics 
     and orthotics are reimbursed on the basis of a fee schedule. 
     Items covered by this fee schedule include leg, arm, and neck 
     braces, artificial limbs and eyes, and items that replace all 
     or part of an internal body organ. The fee schedule 
     establishes regional payment limits for covered items. The 
     regional limits have floors and ceilings. The floor is equal 
     to 90 percent of the weighted average of local payment 
     amounts and the ceiling is equal to 120 percent of the 
     weighted average of local payment amounts. Fee schedule 
     amounts are updated annually by CPI-U. OBRA 93 eliminated 
     updates for prosthetics and orthotics for 1994 and 1995.
       c. Oxygen and Oxygen Equipment. Oxygen and oxygen equipment 
     is paid according to a DME fee schedule.
       d. Upgraded DME. If a beneficiary wishes to purchase a more 
     expensive or upgraded DME item or supply, the beneficiary 
     must make full payment to the supplier and submit a claim to 
     Medicare for reimbursement of the amount of the approved 
     standard item. For approved items, on the other hand, the 
     beneficiary pays suppliers only the 20 percent coinsurance 
     required for the covered item, and the supplier bills 
     Medicare for the remaining 80 percent of the approved fee 
     schedule amount.
       e. Freeze for Parenteral and Enteral Nutrients (PEN), 
     Supplies, and Equipment. Parenteral and enteral nutrients, 
     supplies, and equipment are paid on the basis of the lowest 
     reasonable charge levels at which items are widely and 
     consistently available in the community. OBRA 93 froze 1994 
     and 1995 reasonable charge payments for PEN at 1993 levels.
     House bill
       a. Freeze in DME Updates. The 1 provision would eliminate 
     updates to the DME fee schedules for the period 1996 through 
     2002.
       b. Freeze in Orthotics and Prosthetics Update. The update 
     for prosthetics and orthotics would be limited to 1 percent 
     for each of years 1996 through 2002.
       c. Oxygen and Oxygen Equipment. The provision would reduce 
     in 1996 the national payment limit for oxygen and oxygen 
     equipment by 20 percent.
       d. Upgraded DME. The provision would authorize payment for 
     upgraded DME to be made in the same manner as payment for a 
     standard item, with the supplier receiving payment for the 
     item as if it were a standard item and the beneficiary paying 
     the difference between the supplier's charge and the amount 
     paid by Medicare. The supplier's charge for an upgraded item 
     could not exceed the applicable fee schedule amount (if any) 
     for the item. The Secretary would be required to issue 
     regulations providing for consumer protection standards for 
     upgraded DME. These regulations would be required to provide 
     for full disclosure by the supplier of the availability and 
     price of standard items and proof of disclosure to the 
     beneficiary; conditions of participation for suppliers of 
     upgraded items, including conditions relating to billing 
     procedures; sanctions (including exclusion) of suppliers who 
     are determined to have engaged in coercive or abusive 
     practices; and such other safeguards as the Secretary 
     determines necessary.
       e. Freeze for Parenteral and Enteral Nutrients (PEN), 
     Supplies, and Equipment. Payments for PEN would be frozen at 
     1993 levels for the period 1996 through 2002.
     Senate bill
       a. Freeze in DME Updates. The provision would eliminate 
     updates to the DME fee schedules for the period 1996 through 
     2002.
       b. Freeze in Orthotics and Prosthetics Update. The update 
     for prosthetics and orthotics would be eliminated for the 
     period 1996 through 2002.
       c. Oxygen and Oxygen Equipment. The provision would reduce 
     in 1996 the national payment limit for oxygen and oxygen 
     equipment by 40 percent.
       d. Upgraded DME. The provision would authorize payment for 
     upgraded DME to be made in the same manner as payment for a 
     standard item, with the supplier receiving payment for the 
     item as if it were a standard item and the beneficiary paying 
     the difference between the supplier's charge and the amount 
     paid by Medicare. The supplier's charge for an upgraded item 
     could not exceed the applicable fee schedule amount (if any) 
     for the item. The Secretary would be required to issue 
     regulations providing for consumer protection standards for 
     upgraded DME. These regulations would be required to provide 
     for full disclosure by the supplier of the availability and 
     price of standard items 

[[Page H 12827]]
     and proof of disclosure to the beneficiary; conditions of participation 
     for suppliers of upgraded items, including conditions 
     relating to billing procedures; sanctions (including 
     exclusion) of suppliers who are determined to have engaged in 
     coercive or abusive practices; and such other safeguards as 
     the Secretary determines necessary.
       e. Freeze for Parenteral and Enteral Nutrients (PEN), 
     Supplies, and Equipment. Payments for PEN would be frozen at 
     1993 levels for the period 1996 through 2002.
     Conference agreement
       a. Freeze in DME Updates. The conference agreement includes 
     the Senate provision.
       b. Freeze in Orthotics and Prosthetics Update. The 
     conference agreement includes the House provision.
       c. Oxygen and Oxygen Equipment. The conference agreement 
     includes the House provision with an amendment to reduce the 
     national payment limit for oxygen and oxygen equipment by 20 
     percent in 1996, 21 2/3 percent in 1997, 23 1/3 percent in 
     1998, 25 percent in 1999, 26 2/3 percent in 2000, 28 1/3 
     percent in 2001, and 30 percent in 2002.
       d. Upgraded DME. The conference agreement does not include 
     either provision.
       e. Freeze for Parenteral and Enteral Nutrients (PEN), 
     Supplies, and Equipment. The conference agreement includes 
     the Senate provision.
       The conferees are concerned that there are no specific on-
     going quality or service standards required of a durable 
     medical equipment provider. The conferees strongly encourage 
     the Secretary to implement a process to establish quality 
     standards for DME.


 4. Payments for Clinical Laboratory Tests (Sec. 15604 of House bill; 
                       Sec. 7043 of Senate bill)

     Current law
       Medicare pays for clinical laboratory services on the basis 
     of areawide fee schedules which are periodically updated. 
     There is no update for 1994 and 1995. In addition, the law 
     establishes a ceiling on payment amounts. In 1995, this 
     ceiling is set at 80 percent of the median of all fee 
     schedules for the test; in 1996 and subsequent years the 
     ceiling is set at 76 percent of the national median. No 
     beneficiary cost-sharing is required.
     House bill
       a. Update. The provision would provide for no update in the 
     fee schedules through 2002.
       b. Cap. The provision would lower the ceiling on payment 
     amounts to 65 percent of the median, effective January 1, 
     1997.
       c. Study. No provision.
     Senate bill
       a. Update. The provision would provide for no update in the 
     fee schedules through 2002.
       b. Cap. The provision would lower the ceiling on payment 
     amounts to 65 percent of the median, effective January 1, 
     1997.
       c. Study. The provision would require the Secretary to 
     conduct a study of the laboratory fee schedule and the 
     options for rebasing or otherwise revising the payment 
     amounts, taking into account the amounts paid for services by 
     other large payers. A report on the study is to be submitted 
     to Congress within one year of enactment.
     Conference agreement
       a. Update. The conference agreement includes the Senate 
     provision.
       b. Cap. The conference agreement includes the Senate 
     provision.
       c. Study. The conference agreement does not include the 
     Senate provision.


5. Extension of Reductions in Payments for Costs of Hospital Outpatient 
 Services (Sec. 15605 of House bill; Sec. 7046 and 7047 of Senate bill)

     Current law
       a. Capital-Related Costs. Hospitals receive payments for 
     Medicare's share of capital costs associated with outpatient 
     departments. OBRA 93 extended a 10 percent reduction in 
     payments for the capital costs of outpatient departments 
     through FY 1998.
       b. Non-Capital-Related Costs. Certain hospital outpatient 
     services are paid on the basis of reasonable costs. OBRA 93 
     extended a 5.8 percent reduction for those services paid on a 
     cost-related basis through FY 1998.
     House bill
       a. Capital-Related Costs. The provision would extend the 10 
     percent reduction in payments for outpatient capital through 
     FY 2002.
       b. Non-Capital-Related Costs. The 5.8 percent reduction for 
     outpatient services paid on a cost basis would be extended 
     through FY 2002.
     Senate bill
       a. Capital-Related Costs. The provision would reduce 
     payments for outpatient capital by an additional 5 percent 
     for FY 1996-1998 (above OBRA 93's 10 percent reduction) and 
     reduce capital payments by 15 percent for FY 1999-2002.
       b. Non-Capital-Related Costs. The 5.8 percent reduction for 
     outpatient services paid on a cost basis would be extended 
     through FY 2002.
     Conference agreement
       a. Capital-Related Costs. The conference agreement includes 
     the House provision.
       b. Non-Capital-Related Costs. The conference agreement 
     includes the House provision.


  6. Freeze in Payments for Ambulatory Surgical Center Services (Sec. 
             15606 of House bill; Sec. 7048 of Senate bill)

     Current law
       Medicare pays for ambulatory surgical center (ASC) services 
     on the basis of prospectively determined rates. These rates 
     are updated annually by CPI-U. OBRA 93 eliminated updates for 
     ASCs for FY 1994 and FY 1995.
     House bill
       The provision would eliminate the inflation update for ASCs 
     for each of the fiscal years 1996 through 2002.
     Senate bill
       The provision would eliminate the inflation update for ASCs 
     for each of the fiscal years 1996 through 2002.
     Conference agreement
       The conference agreement includes the Senate provision.


7. Rural Emergency Access Care Hospitals (Sec. 15607 of the House bill; 
                    Sec. 7073(c)(1) of Senate bill)

     Current law
       See II. Medicare Part A, item 2 above.
     House bill
       The provision would make conforming amendments to Part B.
     Senate bill
       The provision would make conforming amendments to Part B.
     Conference agreement
       The conference agreement includes the House provision.


  8. Payments for Anesthesia Services (Sec. 15608 of House bill, Sec. 
                          7050 of Senate bill)

     Current law
       a. Payment for Jointly Furnished Services. The law 
     specifies how payment amounts are to be determined when 
     anesthesia services are furnished by an anesthesiologist 
     practicing alone and when an anesthesiologist is medically 
     directing or medically supervising two to four certified 
     registered nurse anesthetists (CRNAs). When an 
     anesthesiologist and a CRNA are involved in a single case and 
     no exceptional medical requirement exists, only the 
     anesthesiologist is reimbursed.
       b. Physician Supervision of CRNAs. Reimbursement for CRNA 
     services is conditioned on physician supervision.
     House bill
       a. Payment for Jointly Furnished Services. The provision 
     would specify how payments are to be calculated when services 
     for a single case are furnished jointly by a physician and a 
     CRNA and the carrier determines that the use of both the 
     physician and the CRNA are not medically necessary. In 1996 
     and 1997, the fee schedule amount for the physician's 
     services are to equal 55% of the amount that would be paid if 
     the physician were practicing alone. In 1998 and subsequent 
     years, the amount paid would equal 50% of the amount that 
     would be paid if the physician were practicing alone. The 
     amount paid to the CRNA would equal 40% of the amount that 
     would otherwise be paid to a physician practicing alone in 
     1996 and 1997 and 50% in subsequent years.
       b. Physician Supervision of CRNAs. No provision.
     Senate bill
       a. Payment for Jointly Furnished Services. No provision.
       b. Physician Supervision of CRNAs. The provision would 
     require the Secretary to revise any regulations describing 
     conditions under which payment may be made for anesthesia 
     services in a hospital or ambulatory surgical center. The 
     revision would defer to State law in determining whether 
     physician supervision of CRNAs is required as a condition of 
     payment.
     Conference agreement
       a. Payment for Jointly Furnished Services. The conference 
     agreement includes the House provision.
       b. Physician Supervision of CRNAs. The conference agreement 
     does not include the Senate provision.


  9. Statewide Fee Schedule Area for Physicians Services in Wisconsin 
                       (Sec. 15609 of House bill)

     Current law
       No provision
     House bill
       The provision would require the Secretary to treat the 
     State of Wisconsin as a single fee schedule area for 
     physicians services beginning in 1997. The provision would be 
     implemented in a budget neutral fashion. Nothing in the 
     section is to be construed as limiting the availability to 
     the Secretary, the contractor or the physicians in the State 
     of otherwise applicable administrative procedures for 
     subsequently modifying the fee schedule areas.
     Senate bill
       No provision
     Conference agreement
       The conference agreement does not include the House 
     provision.


 10. Payments for Ambulance Services (Sec. 15609A of House bill; Sec. 
                          7049 of Senate bill)

     Current law
       Payments for ambulance services are based on reasonable 
     charge screens developed by individual carriers based on 
     local billings (which may take a variety of forms). Based on 
     these local billing methods, carriers develop screens for one 
     or more of the following main billing methods: (i) a single 
     all-inclusive charge reflecting all services and supplies, 
     and mileage; (ii) one charge reflecting all services and 
     supplies, with separate charge for mileage; (iii) one charge 
     for all services and mileage, with separate charges for 
     supplies; and (iv) separate charges for 

[[Page H 12828]]
     services, mileage, and supplies. Within each broad payment method, 
     additional distinctions are made based on whether the service 
     is basic life support or advanced life support service, 
     whether emergency or nonemergency transport was used, and if 
     specialized advanced life support services were rendered.
     House bill
       a. Payment Amount. The provision would specify that 
     beginning January 1,1998, payment for ambulance services 
     would equal 80% of the lesser of the actual charge for the 
     service or the fee schedule amount.
       b. Fee Schedule. The provision would require the Secretary 
     to establish a fee schedule through a negotiated rulemaking 
     process. In establishing a fee schedule, the Secretary would 
     be required to: (i) establish mechanisms to control increases 
     in expenditures which fairly reflect the changing nature of 
     the ambulance service industry; (ii) establish definitions 
     for ambulance services which promote efficiency and link 
     payments (including fees for assessment and treatment 
     services) to the type of services provided; (iii) take into 
     account regional differences which affect cost and 
     productivity, including differences in the costs of resources 
     and the costs of uncompensated care; (iv) apply dynamic 
     adjustments to payment rates to account for inflation, 
     demographic changes in the population of Medicare 
     beneficiaries, and changes in the number of participating 
     providers; (v) phase-in the application of the payment rates 
     in an efficient and fair manner.
       The provision would require the Secretary to implement the 
     provision in 1998 in a budget neutral fashion. Beginning in 
     1999, the payment amounts under the fee schedule would equal 
     the previous year's payment amount updated by the increase in 
     the consumer price index for the 12-month period ending the 
     previous June.
       The provision would require the Secretary to regularly 
     consult with the following groups when establishing the fee 
     schedule: American Ambulance Association, the National 
     Association of State Medical Directors, and other national 
     organizations representing individuals and entities who 
     furnish or regulate ambulance services. The Secretary in 
     establishing the fee schedule would be required to share with 
     the associations and organizations the data and data analysis 
     used in establishing the fee schedule, including data on 
     variations in payments for years prior to 1998 among 
     geographic areas and types of providers.
     Senate bill
       a. Payment Amount. The provision would provide that when 
     determining the reasonable cost or charge of ambulance 
     services for fiscal years 1996 through 2002, the Secretary 
     could not recognize any costs in excess of those recognized 
     as reasonable in fiscal year 1995.
       b. Fee Schedule. No provision
     Conference agreement
       a. Payment Amount. The conference agreement includes the 
     Senate provision.
       b. Fee Schedule. The conference agreement does not include 
     the House provision.


  11. Standards for Physical Therapy Services Furnished by Physicians 
                      (Sec. 15609B of House Bill)

     Current law
       No provision.
     House bill
       The provision would prohibit payment under Medicare for 
     physicians services consisting of outpatient physical therapy 
     services or outpatient occupational therapy services if such 
     services are furnished by a physician who does not meet the 
     requirements specified in the law for such services when 
     furnished by a clinic or rehabilitation agency.
     Senate bill
       No provision
     Conference agreement
       The conference agreement does not include the House 
     provision.


                        B. Beneficiary Payments

1. Extension of Part B Premium (Sec. 15611 of House bill; Sec. 7052 of 
                              Senate bill)

     Current law
       When Medicare was established in 1965, the Part B monthly 
     premium was set at a level to finance one-half of Part B 
     program costs. Beginning in 1974, however, Congress limited 
     the percentage increase in the premium to the same percentage 
     by which Social Security cash benefits were adjusted for 
     changes in cost of living (i.e. cost-of-living adjustments or 
     COLAs). Under this formula, revenues from premiums soon 
     dropped from 50 percent to below 25 percent of program costs. 
     This was because Part B program costs increased much faster 
     than inflation as measured by the Consumer Price Index on 
     which the Social Security COLA is based.
       Since the early 1980s, Congress has regularly voted to set 
     Part B premiums at a level to cover 25 percent of program 
     costs, in effect overriding the COLA limitation. The 25 
     percent provision first became effective January 1, 1984. 
     General revenues cover the remaining 75 percent of Part B 
     program costs. Congress took this general approach again in 
     the Omnibus Budget Reconciliation Act of 1990 (OBRA 90), but 
     instead of leaving the calculations to the Secretary, the law 
     set specific premium amounts for each year, 1991-1995, based 
     on estimates of the program's costs. For 1995, the Part B 
     premium is set at $46.10 per month. Part B program cost 
     estimates have since proven to be too large, and the 1995 
     premium is now projected to cover approximately 31.5 percent 
     of program costs. Most recently, OBRA 93 extended the policy 
     of setting the Part B premium at a level to cover 25 percent 
     of program costs through 1998, leaving the calculations to 
     the Secretary. This would mean that the 1996 premium would be 
     lower than the 1995 premium. Under current law, the provision 
     limiting the annual percentage increase to the percentage 
     increase in the social security COLA would again apply, 
     beginning in 1999.
     House bill
       The provision would permanently set the Part B premium at 
     31.5 percent of program costs, beginning in 1996.
     Senate bill
       The provision would set the Part B premium at the following 
     levels for the years 1996--2002: $53 in 1996, $57 in 1997, 
     $61 in 1998, $66 in 1999, $74 in 2000, $80 in 2001, and $89 
     in 2002.
     Conference agreement
       The conference agreement includes the House provision.


 2. Income-Related Part B Premium (Sec. 15612 of House bill; Sec. 7053 
                            of Senate bill)

     Current law.
       Under current law, all beneficiaries, regardless of income 
     pay the same Part B premium. The remaining costs of the Part 
     B program are paid from Federal General revenues.
     House bill
       a. Amount. Under the provision, individuals with incomes 
     over $75,000 and couples with incomes over $125,000 would be 
     responsible for increases in the Part B premium. The Federal 
     subsidy would be gradually phased out. Individuals with 
     incomes at $100,000, couples (with one spouse enrolled in 
     Part B) with incomes at $150,000, and couples (with both 
     spouses enrolled in Part B) with incomes at $175,000 would be 
     required to pay a premium equal to 100 percent of Part B 
     program costs. The provision would apply to monthly Part B 
     premiums beginning in 1997.
       b. Administration. The Secretary of DHHS would be required 
     to make an initial determination of the amount of an 
     individual's actual adjusted gross income (AGI) for a year. 
     The determination would be based on information supplied by 
     the Secretary of the Treasury. Not later than October 1 of 
     the preceding year, the Secretary would be required to notify 
     each individual subject to an increased premium. The notice 
     would include the Secretary's estimate of the individual's 
     AGI for the year. The individual would have a 30-day period 
     (beginning with the date on which the notice is provided) to 
     provide information on the individual's anticipated AGI for 
     the forthcoming year.
       The Secretary would required to make a premium adjustment 
     if he or she determined (based on information provided by the 
     Secretary of the Treasury) that actual AGI was different from 
     the amount initially determined. The adjustment would be made 
     to the subsequent year's premium to adjust for any 
     overpayments or underpayments in the previous year. The 
     Secretary would be authorized to make appropriate recovery 
     efforts in the case of an individual who owed an additional 
     amount, but was not enrolled in Part B in such subsequent 
     year. The Secretary would also be authorized, in the case of 
     a deceased individual, to make a payment to the surviving 
     spouse, or an individual's estate, in the case of 
     overpayments to the program.
       The provision would generally define AGI as such term is 
     used in the tax code. The determination of AGI would be made 
     without regard to the provisions in the code relating to: 
     income from U.S. savings bonds used to pay higher education 
     costs; income for persons living abroad; and income from 
     sources within the U.S. possessions and Puerto Rico. The 
     definition of AGI would include interest income which is 
     exempt from Federal taxes.
       The provision would authorize the Secretary of the 
     Treasury, upon written request from the Secretary of DHHS, to 
     disclose to officers and employees of the Health Care 
     Financing Administration (HCFA) return information for 
     taxpayers required to pay a monthly Part B premium. The 
     information would be limited to: taxpayer identity 
     information, filing status, AGI, amounts excluded from gross 
     income (under provisions relating to savings bonds used to 
     pay higher education costs and citizens or residents living 
     abroad); tax-exempt interest income to the extent such 
     information is available; and amounts excluded from gross 
     income (under provisions relating to income from sources 
     within the U.S. possessions and Puerto Rico) to the extent 
     such information is available. The information disclosed to 
     HCFA could only be used for purposes of establishing the 
     monthly Part B premium.
     Senate bill
       a. Amount. Under the provision, individuals with incomes 
     over $50,000 and couples with incomes over $75,000 would be 
     responsible for increases in the Part B premium. The Federal 
     subsidy would be gradually phased out. Individuals with 
     incomes at $100,000, couples with incomes at $150,000 would 
     be required to pay a premium equal to 100 percent of Part B 
     program costs. The provision would apply to monthly Part B 
     premiums beginning in 1997.
       b. Administration. Medicare enrollees would declare during 
     the annual open enrollment period or during an enrollment 
     period applicable to a specific individual, an estimate of 

[[Page H 12829]]
     their AGI for the forthcoming year. If an individual does not file an 
     enrollment form for an enrollment period (and the 
     individual's coverage therefore continues without 
     modification), the AGI would be determined on the basis of 
     the most recent available information. If the Secretary 
     determines that an individual has filed incorrect 
     information, based on information from the Secretary of the 
     Treasury, the Secretary shall use the information obtained 
     from the Secretary of the Treasury.
       The Secretary would be required to notify the Social 
     Security Administration of the amount of premium to be 
     deducted from each enrollees check. The premium would be 
     effective in the month in which the enrollment was effective 
     or the month in which the notice was received, whichever was 
     later.
       The difference, if any, between the amount of the premium 
     owed and the amount paid in a year would be reconciled in 
     conjunction with the annual income tax filing process. If an 
     additional amount was owed, a separate payment would be made 
     to the Secretary, together with any interest owed. In the 
     case of overpayments, the Secretary would credit the excess 
     against any supplemental premium required or make a payment 
     to the individual. The Secretary would also be authorized to 
     make further adjustments, if required, based on information 
     received from the Secretary of the Treasury.
       The provision would generally define AGI as such term is 
     used in the tax code. The determination of AGI would be made 
     without regard to the provisions in the code relating to: 
     income from U.S. savings bonds used to pay higher education 
     costs; income for persons living abroad; and income from 
     sources within the U.S. possessions and Puerto Rico. The 
     definition of AGI would include interest income which is 
     exempt from Federal taxes.
       The provision would authorize the Secretary to enter into 
     agreements with the Commissioner of Social Security or the 
     head of any other appropriate Federal agency which performs 
     administrative responsibilities under this section.
       The provision would require the Secretary of the Treasury, 
     upon written request from the Secretary of DHHS, to disclose 
     whether or not and the amount by which an individual's AGI 
     exceeds the minimum level subject to supplemental premiums. 
     Return information could only be used by officers and 
     employees of DHHS (or any other Federal agency with which an 
     agreement was in effect) for the purpose of establishing an 
     individual's correct supplemental premium amount.
     Conference agreement
       a. Amount. The conference agreement includes the House 
     provision.
       b. Administration. The conference agreement includes the 
     House provision with a technical amendment. Individuals would 
     be permitted to pay the Secretary if the amount of the 
     estimated AGI is too low and results in a portion of the 
     required premium not being deducted from the beneficiary's 
     social security check.
       It is the conferees intent that the Secretary of HHS not 
     obtain any income-related information that is not necessary 
     for the determination of the increase in the monthly premium.


            3. part b deductible (sec. 7051 of senate bill)

     Current law
       Beneficiaries enrolled in Part B must pay the first $100 
     each year of the programs recognized costs or charges for 
     covered services.
     House bill
       No provision.
     Senate bill
       The provision would increase the deductible to $150 in 1996 
     and increase it by $10 each year thereafter.
     Conference agreement
       The conference agreement does not include the Senate 
     agreement.


                  c. other provider-related provisions

  1. administration of laboratory services (sec. 15621 of house bill)

     Current law
       No provision.
     House bill
       The provision would require the Secretary to adopt uniform 
     coverage, administration and payment policies for clinical 
     diagnostic laboratory tests within one year of enactment. The 
     Secretary would be required to select 15 carrier medical 
     directors to develop recommendations to the Secretary for 
     such policies. The directors would be representative of 
     geographic areas and have a varied range of interest in 
     relevant fields including pathology and clinical laboratory 
     practice. The directors would be required to consult with 
     independent experts in each major discipline of clinical 
     laboratory medicine (including clinical laboratory personnel, 
     bioanalysts, pathologists, and practicing physicians). The 
     medical directors would also solicit comments from other 
     individuals and groups wishing to participate. The provision 
     would provide that the process would be conducted as 
     negotiated rule-making as provided under the Administrative 
     Procedures Act.
       The provision would provide that the negotiated rule-making 
     would result in recommendations for uniform policies in the 
     following areas: (I) beneficiary information required to be 
     submitted with each claim; (ii) physicians' obligations 
     regarding documentation and record keeping; (iii) procedures 
     for filing claims and for providing remittances 
     electronically; (iv) performance of post-payment review; (v) 
     prohibition of documentation of medical necessity except 
     where determined to be appropriate after identification of 
     aberrant medical patterns through focused medical review; and 
     beneficiary responsibility for payment.
       The provision would prohibit carriers and intermediaries 
     from implementing any new requirements for submission of 
     claims retroactive to January 1, 1995 during the period when 
     the Secretary is adopting new policies. Further, carriers 
     would be prohibited from issuing new coverage, administration 
     or payment policies unless they promote the goal of 
     administrative simplification.
       The provision would require the medical directors to 
     forward their recommendations to the Secretary within six 
     months of enactment. The Secretary would provide for 
     publication of recommendations for public comment using 
     negotiated rule-making. The Secretary would publish final 
     uniform policies which would become effective 180 days 
     following publication. Following publication, the Secretary 
     would implement uniform documentation and processing 
     policies.
       The provision would permit any independent laboratory to 
     select one carrier for processing all of its claims for 
     payment regardless of where the laboratory, patient, or 
     provider resides or conducts business. The election would be 
     made by the laboratory and an agreement between the carrier 
     and the laboratory would be forwarded to the Secretary. No 
     laboratory would be required to select a single carrier.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


  2. direct billing for laboratory services (sec. 15622 of house bill)

     Current law
       In general, payment may only be made under Medicare to 
     persons or entities who perform or personally supervise the 
     performance of a laboratory test. This is known as direct 
     billing. Payment may be made to a physician with whom the 
     physician performing the test shares a practice.
       A limited exception to the direct billing requirement is 
     provided for referring labs. A referring lab may bill for 
     tests performed by another lab only if one of the following 
     three conditions are met: (1) the referring laboratory is 
     located in or is part of a rural hospital; (2) the referring 
     laboratory is wholly-owned by the entity performing the test, 
     the referring lab wholly-owns the entity performing the test; 
     or both entities are wholly-owned by a third entity; or (3) 
     not more than 30 percent of the clinical diagnostic tests for 
     which the referring laboratory (not described in paragraph 
     (2)) receives requests for testing during the year are 
     performed by another laboratory.
     House bill
       The provision would establish a direct billing requirement 
     for labs. Any person collecting amounts in violation of the 
     requirement would be liable for the amounts. Any person that 
     furnished clinical lab services for which payment is made 
     under Medicare's clinical laboratory fee schedules would be 
     subject to a penalty of $10,000 for each violation. The 
     Secretary would be authorized to exclude from participation 
     in any Federal health care program any individual the 
     Secretary determined had repeatedly violated the direct 
     billing requirement. A Federal health program would be 
     defined as any plan or program that provides health benefits, 
     whether directly, through insurance or otherwise, which is 
     funded in whole or in part by the U.S. Government. Also 
     included are State Medicaid programs, maternal and child 
     health block grant and social services block grant programs.
       The Secretary would also be authorized to suspend, revoke, 
     or limit a laboratory's certification under the Clinical 
     Laboratory Improvement Act if it violated the direct billing 
     requirement on a repeated basis. The lab would be given 
     reasonable notice and opportunity for hearing before such 
     action was taken.
       The provision would require the Secretary, on July 31, 
     1999, to prepare an actuarial estimate to determine whether 
     the cost of clinical lab services under Medicare for the FY 
     1997-FY 2002 period were expected to be at least three 
     percent less than projected on enactment. If not, the 
     Secretary would be required to adjust the payment ceiling 
     (set under the bill at 65% of the national median) in fiscal 
     years 2000, 2001 and 2002 to achieve the requisite savings by 
     September 30, 2002. The Congressional Budget Office would be 
     required to make its own 1999 estimate.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


3. recommendations for quality standards for durable medical equipment 
                    (dme) (sec. 15631 of house bill)

     Current law
       No provision.
     House bill
       The Secretary of DHHS would be required to establish a 
     broadly based task force to develop recommendations for 
     quality standards for DME covered under Part B. The Secretary 
     would be required to include on the 

[[Page H 12830]]
     task force representatives of DME suppliers, consumers, and other users 
     of equipment, and would also be required to assure 
     representation from various geographic regions. The task 
     force would be required to submit its recommendations for 
     quality standards not later than 1 year after enactment.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.

       Subtitle H--Provisions Relating to Medicare Parts A and B


                        a. home health services

 1. prospective payment for home health services (sec. 15701 of house 
                    bill; sec. 7061 of senate bill)

     Current law
       In provisions contained in the Orphan Drug Act of 1993, 
     OBRA 87 and OBRA 90, Congress required the Secretary to 
     develop alternative methods for paying for home health care 
     on a prospective basis. In 1994, the Office of Research and 
     Demonstration in the Health Care Financing Administration 
     (HCFA) completed a demonstration project that tested 
     prospective payment on a per visit basis. Preliminary 
     analysis indicates that the per visit prospective payment 
     methodology had no effect on cost per visit or volume of 
     visits. HCFA has begun a second project, referred to as Phase 
     II, to test prospective payment on a per episode basis.
     House bill
       The proposal would establish a prospective payment system 
     for home health services. This system would be based on 
     prospectively determined per visit rates that are subject to 
     per episode limits applied in the aggregate. The proposal 
     would have the following specific components.
       Beginning in FY 1997, the Secretary would be required to 
     establish national average per visit rates for each of the 
     home health service disciplines covered under Medicare--
     skilled nursing care, physical therapy, speech pathology, 
     occupational therapy, medical social services, and home 
     health aide services. The per visit rates would be based on 
     amounts paid during cost reporting periods ending June 30, 
     1994, updated by the home health market basket for fiscal 
     years 1995 through 1997. The home health market basket is 
     currently used to update cost limits. To reflect regional 
     differences in the costs of providing services, the labor-
     related portion of the per visit rates would be adjusted by 
     the hospital wage index. These adjusted per visit rates would 
     be the amounts that home health care agencies would receive 
     throughout the year for each of the particular mix of visits 
     provided to a given home health care beneficiary.
       Per visit rates would be subject to a per episode limit. 
     The Secretary would calculate separate per episode limits for 
     each of 18 different case categories of home health care. 
     These 18 categories would be the same as those being used in 
     HCFA's Phase II demonstration (or an alternative methodology 
     developed by the Secretary), and would serve as a substitute 
     for a true case-mix adjustment not yet available. The per 
     episode limit for a category would cover all care provided to 
     a beneficiary during a period of 120 days. No new episode of 
     care would be recognized for reimbursement purposes until 
     after a beneficiary has been discharged for a period of 60 
     days.
       The per episode limit would be calculated as follows. For 
     each of the 18 case categories, the Secretary would determine 
     the mean number of visits of each type of home health 
     services furnished during a period of 120 days following the 
     initial admission of the beneficiary to the case during the 
     base year FY 1994. The Secretary would then multiply the 
     results by the per visit payment rates for services. This 
     would become the target per episode limit for a case. 
     Calculation of per episode limits would be done on an 
     areawide basis; for these purposes the area in which an 
     agency is located would be that area the Secretary finds most 
     appropriate.
       Each agency would be paid per visit payments throughout the 
     year. At the end of the year, an agency's aggregate limit 
     would be calculated by first multiplying the Secretary's 
     regional target per episode limit for each of the 18 case 
     categories times the number of episodes admitted by an agency 
     to each of the 18 categories. The sum of these products 
     becomes the agency aggregate payment limit.
       Total per visit payments to an agency would be compared 
     with the aggregate payment limit, i.e. the mix of an agency's 
     episodes times the per episode limits. For these purposes, 
     all visits provided during the first 165 days of care per 
     episode would be counted against an agency's aggregate limit. 
     If total payments for the year are below the agency's 
     aggregate payment limit, then agencies would be allowed to 
     retain 50 percent of the difference, up to 5 percent of an 
     agency's aggregate Medicare payments in a year. For agencies 
     with aggregate payments over the limit, the Secretary would 
     be required to reduce payments to agencies in the following 
     fiscal year in a manner the Secretary considers appropriate 
     (including on an installment basis).
       If a beneficiary continues to need home health visits after 
     a period of 165 days, then an agency may request that 
     additional payments be made on a per visit basis. These 
     payments would not be subject to the aggregate limit. In 
     order for fiscal intermediaries to approve such requests, 
     agencies would be required to submit a physician's 
     certification of the continuing need for care, as well as the 
     reason for the need for additional visits, and a description 
     of services to be furnished during the visits.
       Beginning in FY 1998, per visit payment rates would be 
     updated annually by the home health market basket minus 2 
     percentage points. The Secretary would be required to rebase 
     the update at least once every 5 years with the most recent 
     available data. Beginning in FY 1999, the Secretary would 
     also be required to revise the mean number of visits in each 
     case category to reflect the most recently available data on 
     number of visits per episode. To deal with case-mix 
     ``creep,'' the Secretary would also be required to adjust per 
     episode limits to assure that aggregate payments in a year do 
     not exceed the previous year's payments because of changes in 
     the number and type of home health visits within each 
     episode.
       The Secretary would be required to implement a medical 
     review process for the new payment system, giving particular 
     attention to fiscal years 1997 and 1998. The purpose of the 
     medical review process would be to assess patterns of care to 
     assure that beneficiaries receive appropriate services under 
     the new prospective payment system. Medical reviews would be 
     required to focus on short stay cases and cases over 165 
     days. Recertification of the need for care would have to done 
     at 30, 60, 90, 120, and 165 days of home health care.
       The Secretary would be required make adjustments in 
     payments to home health care agencies that circumvent the new 
     payment system by discharging patients to another home health 
     agency or similar provider; by altering corporate structure 
     or name to avoid being subject to payment limits or for 
     purposes of increasing Medicare payments; and by undertaking 
     any other actions that are unnecessary for effective patient 
     care and that are intended to maximize Medicare payments.
       The Secretary would be required to develop a system to 
     track home health patients who receive care from more than 
     one agency during an episode. For such situations, the 
     Secretary would be required to adjust payments to assure that 
     total amounts paid to these agencies do not exceed the 
     payment that would otherwise have been made if the patient 
     had completed the episode in a single agency.
       The Secretary would also be required to develop a system to 
     adjust payments to agencies to eliminate any increase in 
     growth in the percentage of low-cost episodes over the 
     percentage of such cases occurring at the agency for the 12-
     month cost reporting period ending June 30, 1994. The 
     Secretary would be required to define low-cost episode in a 
     manner to assure that a home health agency has an incentive 
     to be cost efficient in delivering services and that the 
     volume of services does not increase as a result of factors 
     other than patient needs.
       Reimbursements for exceptions to the per episode limits 
     would be limited to aggregate payments made in FY 1994 
     adjusted for increases in the home health market basket.
       Separate Part B billings would be prohibited for any 
     services covered under the per episode limit while the 
     beneficiary is receiving home health services, and payment 
     would have to be made to the home health agency, regardless 
     of whether a service was provided by the agency, by others 
     under arrangements with the agency, or under any other 
     arrangement. Services would be excluded from coverage if not 
     billed by the agency. Agencies would be required to bill 
     prosthetics and orthotics furnished as part of a home health 
     visit under Part B's prosthetics and orthotics fee schedule, 
     just as durable medical equipment (DME) furnished by an 
     agency as part of home health must now be billed under the 
     fee schedules for DME.
       Home health coverage under Medicare Part A would be limited 
     to 165 days per spell of illness. Visits beyond this limit 
     would be reimbursed under Part B and the Secretary would be 
     prohibited from including these costs in the calculation of 
     the Part B premium.
       The Medicare Review Commission would be required to report 
     on the effectiveness of the new payment system for each of 
     the first three years of its operation. The Commission would 
     also be required to make recommendations to Congress on (1) 
     case-mix and volume increases, (2) quality monitoring of home 
     health agency practices, (3) whether a capitated payment 
     system for home health care patients using over 165 days of 
     service is warranted; (4) whether public providers of service 
     are adequately reimbursed; (5) the adequacy of the exemptions 
     and exceptions to the limits; (6) the appropriateness of 
     methods used to adjust the per episode limits and annual 
     payment updates to reflect changes in the mix of services, 
     number of visits, and assignment to case categories to 
     reflect changing patterns of home health care; and (7) the 
     geographic areas used to determine per episode limits.
     Senate bill
       The proposal would establish a prospective payment system 
     for home health services. This system would be based on 
     prospectively determined per visit rates that are subject to 
     per episode limits applied in the aggregate. The proposal 
     would have the following specific components.
       Beginning in FY 1997, the Secretary would be required to 
     establish national average per visit rates for each of the 
     home health service disciplines covered under Medicare--

[[Page H 12831]]
     skilled nursing care, physical therapy, speech pathology, occupational 
     therapy, medical social services, and home health aide 
     services. For FY 1997, the per visit rates would be based on 
     amounts paid during cost reporting periods ending June 30, 
     1994. To reflect regional differences in the costs of 
     providing services, the labor-related portion of the per 
     visit rates would be adjusted by the hospital wage index. 
     These adjusted per visit rates would be the amounts that home 
     health care agencies would receive throughout the year for 
     each of the particular mix of visits provided to a given home 
     health care beneficiary.
       Per visit rates would be subject to a per episode limit. 
     The Secretary would calculate separate per episode limits for 
     each of 18 different case categories of home health care. 
     These 18 categories would be the same as those being used in 
     HCFA's Phase II demonstration (or an alternative methodology 
     developed by the Secretary), and would serve as a substitute 
     for a true case-mix adjustment not yet available. The per 
     episode limit for a category would cover all care provided to 
     a beneficiary during a period of 120 days. No new episode of 
     care would be recognized for reimbursement purposes until 
     after a beneficiary has been discharged for a period of 60 
     days.
       The per episode limit would be calculated as follows. For 
     each of the 18 case categories, the Secretary would determine 
     the mean number of visits of each type of home health 
     services furnished during a period of 120 days following the 
     initial admission of the beneficiary to the case during the 
     base year FY 1994. The Secretary would then multiply the 
     results by the per visit payment rates for services. This 
     would become the target per episode limit for a case. 
     Calculation of per episode limits would be done on an 
     areawide basis; for these purposes the area in which an 
     agency is located would be determined according to the same 
     metropolitan statistical area/rural classification system 
     used for the hospital wage index.
       Each agency would be paid per visit payments throughout the 
     year. At the end of the year, an agency's aggregate limit 
     would be calculated by first multiplying the Secretary's 
     regional target per episode limit for each of the 18 case 
     categories times the number of episodes admitted by an agency 
     to each of the 18 categories. The sum of these products 
     becomes the agency aggregate payment limit.
       Total per visit payments to an agency would be compared 
     with the aggregate payment limit, i.e. the mix of an agency's 
     episodes times the per episode limits. For these purposes, 
     all visits provided during the first 165 days of care per 
     episode would be counted against an agency's aggregate limit. 
     If total payments for the year are below the agency's 
     aggregate payment limit, then agencies would be allowed to 
     retain 50 percent of the difference, up to 5 percent of an 
     agency's aggregate Medicare payments in a year. For agencies 
     with aggregate payments over the limit, the Secretary would 
     be required to reduce payments to agencies in the following 
     fiscal year in a manner the Secretary considers appropriate 
     (including on an installment basis).
       If a beneficiary continues to need home health visits after 
     a period of 165 days, then an agency may request that 
     additional payments be made on a per visit basis. These 
     payments would not be subject to the aggregate limit. In 
     order for fiscal intermediaries to approve such requests, 
     agencies would be required to submit a physician's 
     certification of the continuing need for care, as well as the 
     reason for the need for additional visits, and a description 
     of services to be furnished during the visits.
       Beginning in FY 1998, per visit payment rates would be 
     updated annually by the greater of the home health market 
     basket minus 2.5 percentage points, or 1.1 percent (1.2 
     percent in FY 1997). The Secretary would be required to 
     rebase the per visit rates with the most recent available 
     data at least once every 2 years beginning with FY 2000. 
     Beginning in FY 1999, the Secretary would also be required to 
     revise the mean number of visits in each case category to 
     reflect the most recently available data on number of visits 
     per episode. To deal with case-mix ``creep,'' the Secretary 
     would also be required to adjust per episode limits for each 
     of the fiscal years 1997-2000 to assure that aggregate 
     payments in a year do not exceed the previous year's payments 
     because of changes in the number and type of home health 
     visits within each episode. In subsequent years, the 
     Secretary would be required to adjust the limits to remove 
     the effects of case-mix increases due to reporting 
     improvements instead of real changes in patients' resource 
     usage.
       The Secretary would be required to implement a medical 
     review process for the new payment system, giving particular 
     attention to fiscal years 1997 and 1998. The purpose of the 
     medical review process would be to assess patterns of care to 
     assure that beneficiaries receive appropriate services under 
     the new prospective payment system. Medical reviews would be 
     required to focus on short stay cases and cases over 165 
     days. Recertification of the need for care would have to done 
     at 30, 60, 90, 120, and 165 days of home health care. The 
     Secretary could use public or private organizations to 
     conduct medical reviews.
       The Secretary would be required make adjustments in 
     payments to home health care agencies that circumvent the new 
     payment system by discharging patients to another home health 
     agency or similar provider; by altering corporate structure 
     or name to avoid being subject to payment limits or for 
     purposes of increasing Medicare payments; and by undertaking 
     any other actions that are unnecessary for effective patient 
     care and that are intended to maximize Medicare payments.
       The Secretary would be required to develop a system to 
     track home health patients who receive care from more than 
     one agency during an episode. For such situations, the 
     Secretary would be required to adjust payments to assure that 
     total amounts paid to these agencies do not exceed the 
     payment that would otherwise have been made if the patient 
     had completed the episode in a single agency.
       The Secretary would also be required to develop a system to 
     adjust payments to agencies to eliminate any increase in 
     growth in the percentage of low-cost episodes over the 
     percentage of such cases occurring at the agency for the 12-
     month cost reporting period beginning during FY 1994. For 
     these purposes, the Secretary would be required to profile 
     each agency to determine the distribution of all episodes by 
     length of stay and define low-cost episodes as those at the 
     25th percentile. The Secretary would be required to define 
     low-cost episode in a manner to assure that a home health 
     agency has an incentive to be cost efficient in delivering 
     services and that the volume of services does not increase as 
     a result of factors other than patient needs.
       Reimbursements for exceptions to the per episode limits 
     would be limited to aggregate payments made in FY 1994 
     adjusted for increases in the home health market basket.
       Separate Part B billings would be prohibited for any 
     services covered under the per episode limit while the 
     beneficiary is receiving home health services, and payment 
     would have to be made to the home health agency, regardless 
     of whether a service was provided by the agency, by others 
     under arrangements with the agency, or under any other 
     arrangement. Services would be excluded from coverage if not 
     billed by the agency. Agencies would be required to bill 
     prosthetics and orthotics furnished as part of a home health 
     visit under Part B's prosthetics and orthotics fee schedule, 
     just as durable medical equipment (DME) furnished by an 
     agency as part of home health must now be billed under the 
     fee schedules for DME.
       The Prospective Payment Assessment Commission would be 
     required to report on the effectiveness of the new payment 
     system for each of the first three years of its operation. 
     The Commission would also be required to make recommendations 
     to Congress on (1) case-mix and volume increases, (2) quality 
     monitoring of home health agency practices, (3) whether a 
     capitated payment system for home health care patients using 
     over 165 days of service is warranted; (4) whether public 
     providers of service are adequately reimbursed; (5) the 
     adequacy of the exemptions and exceptions to the limits; (6) 
     the appropriateness of methods used to adjust the per episode 
     limits and annual payment updates to reflect changes in the 
     mix of services, number of visits, and assignment to case 
     categories to reflect changing patterns of home health care; 
     and (7) the geographic areas used to determine per episode 
     limits.
     Conference agreement
       The conference agreement includes the Senate provision with 
     amendments. Beginning in FY 1998, per visit payment rates 
     would be updated annually by the home health market basket 
     minus 2 percentage points. The Secretary would be required to 
     rebase the per visit rates with the most recently available 
     data at least once every 5 years for cost reporting periods 
     beginning in FY 2000. Beginning in FY 1999, the Secretary 
     would also be required to rebase at least once every 5 years 
     the mean number of visits furnished during an episode for 
     each case category to reflect the most recently available 
     data. Recertification of the need for care would be have to 
     done at 60 and 165 days of care.


   2. maintaining savings resulting from temporary freeze on payment 
increase for home health services (sec. 15702 of house bill; sec. 7062 
                            of senate bill)

     Current law
       Home health care agencies are currently reimbursed on the 
     basis of reasonable costs, up to specified limits. Cost 
     limits are determined separately for each type of covered 
     home health service (skilled nursing care, physical therapy, 
     speech pathology, occupational therapy, medical social 
     services, and home health aide), and according to whether an 
     agency is located in an urban or rural area. Costs limits, 
     however, are applied to aggregate agency expenditures; that 
     is, an aggregate cost limit is set for each agency that 
     equals the limit for each type of service multiplied by the 
     number of visits of each type provided by the agency. Limits 
     for the individual services are set at 112 percent of the 
     mean labor-related and nonlabor per visit costs for 
     freestanding agencies. Cost limits are updated annually by 
     applying a market basket index to base year data derived from 
     home health agency cost reports. The labor-related portion of 
     a service limit is adjusted by the current hospital wage 
     index.
       The Omnibus Budget Reconciliation Act of 1993 (OBRA 93) 
     required that there be no changes in home health cost limits 
     (including no adjustments for changes in the wage index or 
     other updates of data) for cost reporting periods beginning 
     on or after July 1, 

[[Page H 12832]]
     1994, and before July 1, 1996. The Secretary was also required, when 
     granting or extending exceptions to cost limits, to limit any 
     exception to the amount that would have been granted if there 
     were no restriction on changes in the cost limits. OBRA 93 
     also repealed the requirement that additional payments be 
     made to hospital-based home health agencies for costs 
     attributable to excess overhead allocations, effective for 
     cost reporting periods beginning on or after October 1, 1993.
     House bill
       The provision would permanently extend the savings stream, 
     but not the freeze, in setting future home health limits, by 
     not allowing for the inflation that occurred during the 
     freeze years.
     Senate bill
       The provision would permanently extend the savings stream, 
     but not the freeze, in setting future home health limits, by 
     not allowing for the inflation that occurred during the 
     freeze years.
     Conference agreement
       The conference agreement includes the Senate provision.


3. extension of waiver of presumption of lack of knowledge of exclusion 
from coverage for home health agencies (sec. 15703 of house bill; sec. 
                          7063 of senate bill)

     Current law
       When a provider furnishes services that are not covered 
     under Medicare, the provider is not normally entitled to 
     Medicare payment for those services. The program, however, 
     has recognized that circumstances may exist where providers 
     of services or beneficiaries could not have reasonably known 
     that services would not be covered. Medicare has paid for a 
     limited number of services which are not covered services, so 
     long as it is determined that the provider or beneficiary did 
     not know and could not reasonably have been expected to know 
     that services would be uncovered. The provider is presumed 
     not to know that coverage for certain services would be 
     denied--it qualifies for a ``favorable presumption''--when 
     its denial rate is below a certain level. With this favorable 
     presumption, its liability for denied claims below the 
     threshold is waived and it is paid for these claims. The 
     provider receives waiver of liability protection for denied 
     claims below the threshold.
       For home health agencies, waiver of liability protection is 
     available for two separate categories of denials. One waiver 
     applies to medical denials, i.e., to claims that are denied 
     because the care was not medically necessary or was 
     determined to be custodial in nature. Another waiver applies 
     to services determined to be non-covered because the 
     beneficiary was not homebound or did not require intermittent 
     skilled nursing care. These are referred to as technical 
     denials.
       For both categories, the principal criterion for meeting 
     the favorable presumption test is a denial rate of 2.5 
     percent or less. Waiver of liability protection for both 
     medical and technical denials expires December 31, 1995.
     House bill
       Waiver of liability for home health agencies would be 
     extended through September 30, 1996.
     Senate bill
       Waiver of liability for home health agencies would be 
     extended through September 30, 1996.
     Conference agreement
       The conference agreement includes the Senate provision.


 4. report on recommendations for payments and certification for home 
  health services of christian science providers (sec. 15704 of House 
                                 bill)

     Current law
       No provision.
     House bill
       The Secretary would be required to submit recommendations 
     to Congress, not later than July 1, 1996, on an appropriate 
     methodology for making payments under the Medicare program 
     for home health services furnished by Christian Science 
     providers who meet applicable requirements of the First 
     Church of Christ, Scientist, Boston, and appropriate criteria 
     for certifying these providers.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the House provision with 
     a modification to require that payments be made for home 
     health services furnished by Christian Science providers. 
     Providers must meet applicable requirements of the First 
     Church of Christ, Scientist, and be certified under criteria 
     established by the Secretary. Payments are to be made 
     according to a methodology established by the Secretary. The 
     provision is effective for services furnished during cost 
     reporting periods which begin after the earlier of the date 
     on which the Secretary establishes the payment methodology 
     and certification criteria, or July 1, 1996.


5. extension of period of home health agency certification (sec. 15705 
                             of house bill)

     Current law
       In order to determine compliance with requirements for 
     participation, home health agencies must be subject to an 
     unannounced standard survey that must be conducted not later 
     than 15 months after the date of the previous standard 
     survey. The average interval between standard surveys in a 
     state must not exceed 12 months.
     House bill
       The provision would require that standard surveys for home 
     health agencies be conducted not later 36 months after the 
     date of the previous standard survey. The Secretary would be 
     required to establish a frequency within this 36-month 
     interval commensurate with the need to assure the delivery of 
     quality home health services.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the House provision.


                      B. medicare secondary payer

  1. extension and expansion of existing requirements (sec. 15711 of 
              house bill; sec. 7055(a)-(c) of senate bill)

     Current law
       Generally Medicare is the ``primary payer,'' that is, it 
     pays health claims first, with an individual's private or 
     other public insurance filling in some or all of Medicare's 
     coverage gaps. However, in certain instances, the 
     individual's other coverage pays first, while Medicare is the 
     secondary payer. This phenomenon is referred to as the MSP 
     program. A group health plan offered by an employer (with 20 
     or more employees is required to offer workers age 65 or over 
     (and workers spouses age 65 or over) the same group health 
     insurance coverage as is offered to younger workers. If the 
     worker accepts the coverage, the employer is the primary 
     payer, with Medicare becoming the secondary payer
       Similarly, a group health plan offered by a large employer 
     (100 or more employees) is the primary payer for employees or 
     their dependents who are on the Medicare disability program. 
     The provision applies only to persons covered under the group 
     plan because the employee is in ``current employment status'' 
     (i.e. is an employee or is treated as an employee by the 
     employer). The MSP provision for the disabled population 
     expires October 1, 1998.
       The MSP provisions apply to apply to end-stage renal 
     disease (ESRD) beneficiaries with employer group health 
     plans, regardless of employer size. The group health plan is 
     the primary payer for 18 months for persons who become 
     eligible for Medicare ESRD benefits. The employer's role as 
     primary payer is limited to a maximum of 21 months (18 months 
     plus the usual 3-month waiting period for Medicare ESRD 
     coverage). The MSP provisions for the ESRD population expire 
     October 1, 1998.
       The law authorizes a data match program which is intended 
     to identify potential secondary payer situations. Medicare 
     beneficiaries are matched against data contained in Social 
     Security Administration (SSA) and Internal Revenue Service 
     (IRS) files to identify cases in which a working beneficiary 
     (or working spouse) may have employer-based health insurance 
     coverage. Cases of previous incorrect Medicare payments are 
     identified and recoveries are attempted. The authority for 
     the program extends through Sept. 30, 1998.
     House bill
       The provision would make permanent the MSP provisions for 
     the disabled and the ESRD population. It would extend the 
     period during which the employer group health plan is primary 
     payer for an ESRD beneficiary from 18 to 24 months. The 
     provision would also make permanent the data match 
     requirement.
     Senate bill
       The provision would make permanent the MSP provisions for 
     the disabled and the ESRD population. It would extend the 
     period during which the employer group health plan is primary 
     payer for an ESRD beneficiary to 30 months. The provision 
     would also make permanent the data match requirement.
     Conference agreement
       The conference agreement includes the Senate provision.


            2. payment recoveries (sec. 15712 of house bill)

     Current Law
       Recent court action may lessen the effectiveness of the 
     data match program. In many cases where recoveries are 
     sought, claims have never been filed with the primary payer. 
     Identification of potential recoveries under the data match 
     process usually takes in excess of the time period most 
     health plans allow for claims filing. Two May 1994 decisions 
     by the U.S. Court of Appeals for the District of Columbia 
     held certain portions of the MSP overpayment recovery 
     procedures invalid. In particular, it held invalid provisions 
     authorizing payment recoveries without regard to a health 
     plan's timeliness requirements. The U.S. Supreme Court denied 
     a HCFA petition to review the 1994 decisions.
     House bill
       The provision would specifically permit MSP recoveries from 
     third party administrators of health plans, except in cases 
     of insolvency or bankruptcy of the employer or plan.. It 
     would also permit recovery actions up to three years from the 
     date the item or service was furnished to the beneficiary.
     Senate bill
       No provision.

[[Page H 12833]]

     Conference agreement
       The conference agreement includes the House provision.


  3. prohibition of retroactive application of policy regarding esrd 
 beneficiaries (sec. 15713 of house bill; sec. 7055(d) of senate bill)

     Current law
       Medicare remains the primary payer if a group health plan 
     was already secondary for an individual entitled on the basis 
     of age or disability when the individual becomes entitled on 
     the basis of ESRD. Following enactment of OBRA 93, HCFA 
     stated that the private plan would become primary in such 
     cases. On April 24, 1995, HCFA corrected its construction of 
     the statute; it issued guidelines stating that Medicare 
     remains the primary payer in these cases.
     House bill
       The provision would specify that the policy change 
     specified in the April 24, 1995 HCFA guidelines would only 
     apply with respect to items and services furnished on or 
     after such date.
     Senate bill
       The provision would prohibit a retroactive application of 
     the policy. In the event age-based or disability-based 
     Medicare entitlement preceded ESRD-based eligibility, 
     Medicare would be the secondary payer for the period August 
     10, 1993 to April 24, 1995.
     Conference agreement
       The conference agreement does not include either provision.


                 c. failsafe (sec. 15721 of house bill)

     Current law
       Although the Federal Government is required by law to pay 
     Medicare claims on behalf of eligible participants, total 
     Medicare spending is limited in two ways: (1) by availability 
     of reserves in the Medicare trust funds; and (2) by 
     provisions of OBRA of 1990, P.L. 101-508. These limitations 
     are intended to set ongoing aggregate limits on spending, not 
     to regulate the annual rate of growth in Medicare.
       Limitation created by trust fund reserves. Part A claims 
     for hospitalization are paid from the Hospital Insurance (HI) 
     Trust Fund. Part B claims for physicians' services are paid 
     from the Supplementary Medical Insurance (SMI) Trust Fund. 
     These two trust funds are accounting devices by which the 
     Government determines the extent to which spending on 
     Medicare claims is authorized without new legislation or 
     appropriations. Trust fund balances represent spending 
     authority. An insolvency in either fund would force a 
     stoppage in Government reimbursement for Medicare claims 
     until the fund had accrued new credits.
       The sources of trust fund credits are: (1) payroll tax 
     revenue; (2) enrollee premiums; (3) Government general fund 
     contributions; and (4) interest on Government debt held by 
     the funds. The earmarked revenue for the HI fund comes from a 
     payroll tax of 1.45 percent applicable to both employees and 
     employers. The SMI fund is credited with monthly premium 
     payments made by Part B enrollees (currently $46.10 a month) 
     and transfers of general Government funds. The HI fund is 
     projected to be depleted in FY 2002. The SMI fund will not be 
     depleted, however, since general fund transfers are credited 
     each year in amounts sufficient to maintain the fund's 
     solvency.
       Limitation created by OBRA of 1990. A provision in OBRA of 
     1990 requires that legislated increases in entitlement 
     spending and decreases in revenue be offset by entitlement 
     decreases and/or revenue increases on a pay-as-you-go (PAYGO) 
     basis. A violation of PAYGO rules can trigger sequestration, 
     a process by which all budget accounts subject to 
     sequestration are reduced by the percentage necessary to make 
     up any spending overrun or revenue shortfall. However, the 
     law limits the sequestration percentage that can be applied 
     to Medicare benefits to 4.0 percent or less. These budget 
     rules apply through FY 1998.
       Sequestration has not occurred because of a PAYGO 
     violation, but OBRA of 1990 restricted increases in certain 
     Medicare payment rates beginning in FY 1991 as part of the 
     budget agreement set forth by that law. Sequestration did 
     occur in FY 1988 under an earlier law, the Balanced Budget 
     and Emergency Deficit Control Reaffirmation Act of 1987 (P.L. 
     100-119). The sequestration percentage applied to Medicare 
     spending was 2.0 percent, the maximum allowed for Medicare 
     under that law. It was achieved by reducing payment rates for 
     covered services.
     House bill


                 1. recommendation of spending controls

       A new section 1895 would be added to Title XVIII of the 
     Social Security Act to provide a ``failsafe budget 
     mechanism'' by which certain Medicare spending would be 
     reduced automatically if it were anticipated that spending 
     would exceed budget targets during the next fiscal year.


                           2. effective date

       The failsafe budget mechanism would be effective for FY 
     1998 and all subsequent fiscal years.


               3. expenditure measure subject to control

       The failsafe budget mechanism would apply to both Parts A 
     and B of Medicare, but only to fee-for-service expenditures. 
     Distinct limits would be specified for the following fee-for-
     service sectors: inpatient hospital services; home health 
     services; extended care services; hospice care; physicians' 
     services; outpatient hospital services and ambulatory 
     facility services; durable medical equipment and supplies; 
     diagnostic tests; and other items and services. The Secretary 
     of Health and Human Services would classify each item and 
     service paid for separately by Medicare into one of these 
     sectors by Oct. 1, 1996.


                       4. maximum spending levels

     a. Overall spending level
       The total Medicare budget allotment for a fiscal year would 
     equal the Medicare benefit budget less the payments the 
     Secretary estimates would be made under MedicarePlus (the new 
     Part C). The Medicare benefit budget would be set forth in 
     law as follows:

                        [In billions of dollars]         Benefit budget
Fiscal year:
  1997............................................................208.0
  1998............................................................217.1
  1999............................................................228.4
  2000............................................................246.4
  2001............................................................265.5
  2002............................................................288.0

       The benefit budget for a subsequent fiscal year would equal 
     the benefit budget for the preceding fiscal year increased by 
     the product of: (1) 1.05; and (2) 1.0 plus the annual 
     percentage increase in the average numb.
     b. Limit by Sector
       The budget allotment for a sector for a fiscal year would 
     be determined by multiplying the total fee-for-service 
     allotment for that year by an allotment proportion for each 
     sector. This proportion would equal the ratio of (1) the 
     baseline projection of expenditures for the sector for the 
     year to the sum of all such baseline expenditures for all 
     sectors for that year. Baseline projections would be 
     determined by applying annual growth rates for each sector, 
     as specified in the new law, to the prior year's baseline 
     expenditure for the sector. Baseline projections for FY 1996 
     would equal actual FY 1995 expenditures increased by the 
     appropriate growth rate. In subsequent years, baseline 
     projections would be determined by applying annual growth 
     rates for each sector, as specified in the new law, to the 
     prior year's baseline expenditure for each sector. These 
     fiscal year growth rates (expressed in percents) are 
     specified as follows:

----------------------------------------------------------------------------------------------------------------
                         Sector                            1996    1997    1998    1999    2000    2001    2002 
----------------------------------------------------------------------------------------------------------------
Inpatient care..........................................     5.7     5.6     6.0     6.1     5.7     5.5     5.2
Home health care........................................    17.2    15.1    11.7     9.1     8.4     8.1     7.9
Extended care...........................................    19.7    12.3     9.3     8.7     8.6     8.4     8.0
Hospice care............................................    32.0    24.0    18.0    15.0    12.0    10.0     9.0
Physician services......................................    12.4     9.7     8.7     9.0     9.3     9.6    10.1
Outpatient services.....................................    14.7    13.9    14.5    15.0    14.1    13.9    14.0
Durable equipment & supplies............................    16.1    15.5    13.7    12.4    13.2    13.9    14.5
Diagnostic tests........................................    13.1    11.3    11.0    11.4    11.4    11.5    11.9
Other items & services..................................    11.2    10.2    10.9    12.0    11.6    11.6    11.8
----------------------------------------------------------------------------------------------------------------

       The growth rates shown above for FY 2002 would also apply 
     to subsequent years.
       In providing for adjustments to Medicare payments for a 
     particular sector, the Secretary would be required to take 
     into account the impact of the adjustment on the volume or 
     type of services provided in that sector and any delays in 
     payments from one year to the next that might be expected in 
     that sector.


                    5. Lookback Spending Adjustment

       If the actual fee-for-service expenditures for a sector 
     were to exceed the total allotments for the second preceding 
     year, then the sector's allotment would be reduced for the 
     next fiscal year by 133\1/3\ percent of the excess amount. 
     Should spending in the second preceding year fall below a 
     sector's allotment for that year, the excess allotment could 
     be added to the allotment for the next fiscal year. These 
     adjustments would be made after adjusting the prior-year 
     allotments to reflect actual Part C expenditures for the 
     second preceding year.


                   6. Method for Spending Reductions

       If the Secretary determines that expenditures for a sector 
     for a fiscal year would exceed the sector's budget allotment 
     for that year, then Medicare payment rates applicable to that 
     sector would be adjusted so that expenditures would be 
     reduced by 133\1/3\ percent of the amount of the excess. The 
     Secretary would be required to publish the size of any 
     necessary adjustments and the methodology to be used by May 
     15 preceding the fiscal year in question. A final 
     determination on adjustments would have to be published by 
     September 1 prior to that year.


                     7. Congressional Modification

       If the President submits a legislative proposal to revise 
     the baseline annual growth rates specified for fee-for-
     service sectors, 

[[Page H 12834]]
     Congress would be required to consider the proposal under an expedited 
     procedure. Passage of a joint resolution of approval would be 
     required within 60 days of submittal for the changes to 
     become law. Procedure for consideration of a joint resolution 
     would be the same as that used under the Defense Base Closure 
     and Realignment Act of 1990.


                          8. Required Reports

       Beginning with the budget documents for FY 1999, the 
     President's Budget would be required to include information 
     on actual Medicare fee-for-service expenditures by sector for 
     the second preceding year, with a comparison to the 
     corresponding Medicare benefit budget and sector allotments. 
     Data on actual annual growth rates for each fee-for-service 
     sector would also be required.
       Annual reports of the Trustees on Part A of Medicare would 
     be required to include information on the annual rate of 
     program expenditures that would maintain the solvency of the 
     trust fund and the extent to which the failsafe budget 
     mechanism restrained the expenditure growth rate.
       Beginning in 1997, the Medicare Payment Review Commission 
     would be required to submit by March 1 of each year a report 
     analyzing the past operation of the failsafe mechanism and 
     making recommendations with respect to its application to the 
     following fiscal year.
     Senate bill
       No provision.
     Conference agreement


                 1. Recommendation of Spending Controls

       The conference agreement includes the House provision.


                           2. Effective Date

       The conference agreement includes the House provision.


               3. Expenditure Measure Subject to Control

       The conference agreement includes the House provision.


                       4. Maximum Spending Levels

     a. Overall spending level
       The conference agreement includes the House provision with 
     a modification to set the levels as follows:

        Fiscal Year                         Benefit Budget ($ billions)
1998..............................................................217.8
1999..............................................................229.2
2000..............................................................247.2
2001..............................................................266.4
2002..............................................................289.0

     b. Limit by sector
       The conference agreement includes the House provision with 
     an amendment. The limit would be applied in the aggregate, 
     with cuts applied proportionately to excess spending sectors. 
     modification to apply the limit in the aggregate.


                    5. Lookback Spending Adjustment

       The conference agreement replaces the House provision with 
     the new provision described below.
       Beginning in FY 1998, if the fee-for-service expenditures 
     for all sectors for the second preceding fiscal year are 
     estimated to exceed the total adjusted allotments for that 
     year, then the current year's allotment for each sector with 
     excess spending would be reduced by the ``sector reduction 
     amount.'' This sector reduction amount is defined as the 
     product of: (1) the amount of excess spending for a sector 
     and year; and (2) the ratio of (a) the net excess spending 
     for all fee-for-service sectors to (b) the gross sum of 
     excess spending in only those sectors with excess spending.
        These lookback adjustments would be made after adjusting 
     the original allotments to reflect actual Part C expenditures 
     in the second preceding fiscal year.


                   6. Method for Spending Reductions

       The conference agreement includes the House provision with 
     the following modification. Instead of reducing an excess 
     spending sector's payment rates to reduce spending by 133\1/
     3\ percent of the estimated excess spending amount, the 
     sector's payment rates would be modified to achieve a 133\1/
     3\ percent reduction of that sector's ``reduction target.'' A 
     sector's ``reduction target'' is defined as the product of: 
     (1) the amount of excess spending for the sector in the 
     fiscal year; and (2) the ratio of (a) net excess spending for 
     all fee-for-service sectors, to (b) the gross sum of excess 
     spending amounts for only those sectors with excess spending 
     in the fiscal year.


                          7. Required Reports

       The conference agreement includes the House provision.


      D. Administrative Simplification (Sec. 15731 of House bill)

     Current law
       No provision.
     House bill
       The provision would provide for the adoption of standards 
     for Medicare information transactions and data elements. The 
     Secretary would be required to adopt standards which were 
     consistent with reducing administrative costs and which were 
     developed or modified by a standard setting organization 
     accredited by the American National Standards Institute. The 
     Secretary could adopt or modify a standard relating to data 
     elements that was different from such standard if, compared 
     to the alternative, it would substantially reduce 
     administrative costs to providers and health plans and it was 
     promulgated in accordance with Federal rule making 
     procedures.
       The provision would require each person who maintains or 
     transmits Medicare information or data elements to maintain 
     reasonable and appropriate administrative, technical, and 
     physical safeguards to: (I) ensure integrity and 
     confidentiality of information; and (ii) protect against any 
     reasonably anticipated threats or hazards to security or 
     unauthorized uses or disclosures.
       The Secretary would be required to establish security 
     standards and modifications to those standards that take into 
     account technical capability of record systems, costs of 
     security measures, need for training personnel who have 
     access to information, and the value of audit trails. The 
     standards would assure that a Medicare information network 
     service that was part of a larger organization had policies 
     which isolated its activities. Security standards would be 
     based on those developed by standard setting organizations 
     or, if such standards do not exist, by the Medicare 
     Information Advisory Committee. The Secretary would be 
     required to establish specifications for implementing each of 
     the standards and modifications. The Secretary would rely on 
     the recommendations of the Medicare Information Advisory 
     Committee and consult with appropriate Federal and State 
     agencies and private organizations. The Secretary would 
     publish the recommendations of the Advisory Committee in the 
     Federal Register.
       The Secretary would be required to adopt standards for 
     transactions and data elements to make Medicare information 
     uniformly available to be exchanged electronically. The 
     standards would provide for unique health identifiers for 
     each individual, plan, employer, and provider. Penalties 
     would be imposed for improper disclosure of this number. In 
     addition, the Secretary would: (i) provide for the 
     establishment of code sets in consultation with the Medicare 
     Information Advisory Committee and other experts.; (ii) 
     promulgate regulations specifying procedures for the 
     electronic transmission and authentication of signatures; 
     (iii) develop rules for transfer of information between 
     health plans needed for coordination of benefits. and (iv) 
     develop further transaction standards if, after 5 years, they 
     were deemed necessary for coordination of benefits. The 
     provision would provide for protection of trade secrets.
       The provision would require the development of the 
     standards within 18 months of enactment. Additional or 
     modified standards could be adopted not more than once every 
     12 months. Additions or modifications would be completed in a 
     manner that minimized disruption and cost of compliance. 
     Health plans would be required to conduct standard 
     transactions in a timely manner and comply with transaction 
     and data element standards within 24 months of adoption. 
     Compliance with any modified standards would be required 
     within an appropriate period but not less than 180 days after 
     adoption of the modified standard. Penalties would be 
     established for failure to comply with requirements and 
     standards.
       The provision would supersede any contrary provision of 
     state law unless the Secretary determined that the provision 
     of State law should be continued for any reason including for 
     reasons relating to prevention of fraud and abuse or 
     regulation of controlled substances.
       The provision would establish a Medicare Information 
     Advisory Committee to advise the Secretary in development of 
     standards and to advise the Secretary and the Congress on the 
     status and future of the Medicare information network. The 
     Committee would be composed of 9 members--three appointed by 
     the President, three appointed by the Speaker of the House, 
     and three by the President pro tempore of the Senate. The 
     Committee would be required to submit an annual report to the 
     Congress which would include information on the extent to 
     which entities using the Medicare information network were 
     meeting the standards, forming an integrated network, and 
     meeting security standards.
     Senate bill
       No provision
     Conference agreement
       The conference agreement includes the House provision with 
     an amendment. The provision is incorporated in the new title 
     C, MedicarePlus. The requirements apply to Medicare Plus and 
     Medicare information and the advisory committee is the 
     Medicare Plus and Medicare Advisory Committee. The National 
     Council for Prescription Drug Program is an approved Standard 
     Setting Organization.


              E. Other Provision Relating to Parts A and B

1. Clarification of Medicare Coverage of Items and Services Associated 
  with Certain Medical Devices Approved for Investigational Use (Sec. 
                          15741 of House bill)

     Current law
       Medicare law does not provide an all-inclusive list of 
     specific items, services, treatments, procedures, or 
     technologies covered by the program. The law, however, 
     provides that no payment may be made for any expenses which 
     are not reasonable and necessary for the diagnosis or 
     treatment of illness. While HCFA has not explicitly defined 
     ``reasonable'' and ``necessary'' for purposes of making 
     decisions about the appropriateness of Medicare's coverage 
     for specific services and items, it has applied a general 
     policy that services be safe and effective and 

[[Page H 12835]]
     not experimental or investigational. In 1994, HCFA clarified its 
     coverage policy to prohibit coverage and payment of services 
     associated with the use of investigational devices.
     House bill
       The provision specifies that nothing in Medicare law could 
     be construed as prohibiting coverage of items and services 
     associated with the use of a medical device in the furnishing 
     of inpatient hospital services (including outpatient 
     diagnostic imaging services) on the grounds that the device 
     is not an approved device if (1) the device is an 
     investigational device; and (2) the device is used instead of 
     an approved device or a covered procedure. The amount of 
     payment for items and services associated with the use of 
     investigational devices in inpatient hospital services could 
     not exceed the amount that Medicare would have paid if the 
     item or service were associated with an approved device. The 
     provision would define approved device as a medical device 
     which has been approved for marketing under pre-market 
     approval or cleared for marketing under the Federal Food, 
     Drug, and Cosmetic Act. An investigational device would be 
     defined as a medical device approved for investigational use 
     under the Food, Drug, and Cosmetic Act.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


 2. Additional Exclusion from Coverage (Sec. 15742 of House bill; Sec. 
                          7056 of Senate bill)

     Current law
       Medicare excludes coverage for certain defined items and 
     services.
     House bill
       The provision would exclude Medicare coverage for expenses 
     associated with items or services or the purchase of health 
     benefit coverage used for the purpose of causing, or 
     assisting in causing, the death, suicide, euthanasia, or 
     mercy killing of a person.
     Senate bill
       The provision would exclude Medicare coverage for expenses 
     associated with items or services or the purchase of health 
     benefit coverage used for the purpose of causing, or 
     assisting in causing, the death, suicide, euthanasia, or 
     mercy killing of a person. Medicare's requirements for 
     providers to maintain policies and procedures for advance 
     directives would be amended to specify that no health care 
     provider or employee of a health care provider could be 
     required to inform or counsel a patient regarding assisted 
     suicide, euthanasia, mercy killing, or other service which 
     purposefully causes the death of a person.
     Conference agreement
       The conference agreement does not include either provision. 
     It is the conferees intent that notwithstanding any other 
     provision of Medicare, no payment may be made under Part A or 
     Part B for any expenses incurred for items or services where 
     such expenses are for items or services, or to assist in the 
     purchase, in whole or in part, of health benefit coverage 
     that includes items or services, for the purpose of causing, 
     or assisting in causing, the death, suicide, euthanasia, or 
     mercy killing of a person.


           3. Competitive Bidding (Sec. 15743 of House bill)

     Current law
       No provision.
     House bill
       The Secretary would be required to operate over a 2-year 
     period a demonstration project in two geographic regions 
     under which payments for a selected item or service (other 
     than clinical diagnostic laboratory tests) would be made 
     according to a competitive bidding process. The competitive 
     bidding process used in the demonstration would be required 
     to meet requirements imposed by the Secretary to ensure the 
     cost-effective delivery of items and services of high 
     quality. The Secretary would be required to select items and 
     services for the demonstration that would be appropriate and 
     cost-effective, and in determining which items and services 
     to select, the Secretary would be required to consult an 
     advisory taskforce which includes representatives of 
     providers and suppliers of items and services in each 
     geographic region in which the project would be effective.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


  4. Disclosure of Criminal Convictions Relating to Provision of Home 
               Health Services (Sec. 15744 of House bill)

     Current law
       No provision.
     House bill
       The Secretary and each State or local survey agency or 
     other State agency responsible for monitoring compliance of 
     home health agencies with requirements for participation 
     would be required to make available, upon request of any 
     person, information the Secretary or agency has on 
     individuals who have been convicted of felonies relating to 
     the provision of home health services.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


5. Requiring Renal Dialysis Facilities to Make Services Available on a 
                24-Hour Basis (Sec. 15745 of House bill)

     Current law
       Medicare covers persons who suffer from end-stage renal 
     disease. Facilities providing dialysis services must meet 
     certain requirements.
     House bill
       Renal dialysis facilities would be required to make 
     institutional dialysis services and supplies available on a 
     24-hour basis (either directly or through arrangements with 
     providers of services or other renal dialysis facilities) and 
     would be required to inform patients about arrangements with 
     other providers.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement does not include the House 
     provision.


   6. Indian Health Service Facilities (Sec. 7057(a) of Senate bill)

     Current law
       Indian Health Service (IHS) facilities are eligible for 
     Medicare payments for services provided to Medicare 
     beneficiaries.
     House bill
       No provision.
     Senate bill
       The provision clarifies that nothing in the bill can be 
     interpreted as meaning any change in Medicare payment to 
     eligible IHS facilities.
     Conference agreement
       The conference agreement includes the Senate provision.


 7. Sense of the Senate Regarding Coverage for Treatment of Breast and 
       Prostate Cancer under Medicare (Sec. 7058 of Senate bill)

     Current law
       No provision.
     House bill
       No provision.
     Senate bill
       The provision sets forth the sense of the Senate that 
     Medicare should not discriminate among breast and prostate 
     cancer victims by providing drug treatment coverage for some 
     but not all such cancers, and that the budget reconciliation 
     conferees should amend Medicare to provide coverage for these 
     important cancer drug treatments.
     Conference agreement
       The conference agreement includes the Senate provision with 
     a modification. Under the modification, Medicare coverage is 
     authorized for a self-administered oral drug prescribed for 
     use as an anticancer nonsteroidal antiestrogen for treatment 
     of breast cancer. Coverage is only authorized if the 
     manufacturer of the drug has a rebate agreement with the 
     Secretary under substantially similar terms and conditions as 
     apply to Medicaid rebate agreements on the date of enactment.

         Subtitle I--Clinical Laboratory Improvement Amendments


  1. Exemption of Physicians Office Laboratories (Sec. 15801 of House 
                                 bill)

     Current law
       The Clinical Laboratory Improvement Amendments of 1988 
     (CLIA 88) significantly strengthened Federal regulation of 
     laboratories and expanded Federal oversight to virtually all 
     labs in the country, including physicians office 
     laboratories. All labs are required to register with DHHS. 
     Labs performing only simple tests receive a certificate of 
     waiver. Other labs (performing moderate complexity and/or 
     high complexity testing) must meet performance standards 
     issued by the Secretary.
       A special category of tests, physician performed microscopy 
     procedures, was established in 1993. This category was 
     expanded and renamed provider-performed microscopy procedures 
     earlier this year. These are specified procedures which are 
     personally performed by physicians, dentists, and certain 
     mid-level personnel; the procedures must be performed on 
     specimens derived from their patients as part of a physical 
     examination and evaluation. The tests are labelled moderate 
     complexity; however physicians (or other personnel) 
     performing only these tests and waivered tests are not 
     subject to routine inspections, though most other moderate 
     complexity requirements continue to apply.
     House bill
       The provision would exempt a clinical laboratory in a 
     physician's office from the CLIA requirements. Exempted labs 
     would be those in the office of a physician (including an 
     office of a group of physicians) which is directed by a 
     physician. The examinations and procedures must be performed 
     by a physician or by individuals supervised by a physician 
     solely as an adjunct to other services provided by the 
     physician's office.
       A clinical office laboratory would not be exempt form CLIA 
     when it performed Papanicolaou (PAP) Smears.
     Senate bill
       No provision.
     Conference agreement
       The conference agreement includes the House provision.

[[Page H 12836]]


Subtitle J--Lock Box Provisions For Medicare Part B Savings From Growth 
                               Reductions


1. Treatment of Part B Savings (Sec. 15901 of House bill; Sec. 7172 of 
                              Senate bill)

     Current law
       No provision.
     House bill
       a. Authorize New Trust Fund. A new Sec. 1841 would be added 
     to Title XVIII, Part B of the Social Security Act. It would 
     establish a Federal Medicare Growth Reduction Trust Fund 
     under the Department of the Treasury. The new fund would be 
     authorized to receive gifts, bequests, and appropriations.
       b. Appropriations of Part B Savings. The Secretary of the 
     Treasury would transfer from the general fund to the Federal 
     Medicare Growth Reduction Trust Fund amounts equal to all 
     Medicare savings estimated to result from the provisions of 
     OBRA of 1995.
       c. Authorization of Spending from Fund. Effective in FY 
     2003, funds could be spent from the new trust fund to pay 
     obligations of the Medicare program, but these trust fund 
     outlays would be limited to amounts authorized in advance by 
     Congress through legislative action.
     Senate bill
       a. Authorize New Trust Fund. No provision.
       b. Appropriations of Part B Savings. The Secretary of the 
     Treasury would transfer from the general fund to the HI Trust 
     Fund amounts equal to certain Medicare savings under OBRA of 
     1995. The savings eligible for this transfer would be those 
     resulting from changes to: the Part B deductible, the part B 
     premium, and the part B premium for high-income individuals.
       c. Authorization of Spending from Fund. No provision.
     Conference agreement
       a. Authorize New Trust Fund.
       The conference agreement does not include the House 
     provision.
       b. Appropriations of Part B Savings.
       The conference agreement includes the Senate provision with 
     a modification. The amount of the difference between the 
     premium set at 31.5% of program costs and an amount equal to 
     25% of program costs would be transferred to the HI Trust 
     Fund. Monies derived from additional income-related premium 
     amounts would also be transferred to the HI Trust Fund. In 
     addition, the reference to the Part B deductible is struck.
       c. Authorization of Spending from Fund.
       The conference agreement does not include the House 
     provision.


 2. Nondischargeability of Certain Medicare Debts (Sec. 7171 of Senate 
                                 bill)

     Current law
       No provision.
     House bill
       No provision.
     Senate bill
       Section 523(a) of Title 11, U.S. Code, which concerns the 
     discharging of individual debt during a bankruptcy 
     proceeding, would be amended. The amendment would not allow a 
     discharging of debt owed by a health care provider or 
     supplier because of an overpayment to that provider or 
     supplier from the HI Trust Fund or the SMI Trust Fund.
     Conference agreement
       The conference agreement does not include the Senate 
     provision.

            TITLE IX--TRANSPORTATION AND RELATED PROVISIONS


                Minimum Allocation for Highway Programs

     Current law
       The minimum allocation program guarantees that a State will 
     receive at least 90 percent of the percent of its 
     contribution to the Federal aid highway program in the 
     Highway Account of the Highway Trust Fund. Less minimum 
     allocation program funds will be needed in fiscal year 1996 
     than were necessary in fiscal year 1995 because of changes 
     enacted under the 1991 Intermodal Surface Transportation 
     Efficiency Act (ISTEA). As provided by ISTEA, the Interstate 
     Construction and Interstate Transfer program end in fiscal 
     year 1995 and a new category, Reimbursement, begins in fiscal 
     year 1996. This will reduce the amount of money required in 
     the minimum allocation category. This change occurs because 
     fewer states need money and some states need less money in 
     the minimum allocation program to receive a 90 percent return 
     from the program compared to the revenues they contribute to 
     the Highway Trust Fund.
     House bill
       House bill had no provision on the minimum allocation 
     program.
     Senate amendment
       The Senate amendment reduces minimum allocation funds that 
     are not needed in fiscal year 1996. Sufficient funds are 
     provided to meet minimum allocation requirements under ISTEA. 
     The balance that is not needed is applied to reconciliation 
     savings. The minimum allocation reduction produces an 
     estimated $512 million in savings over the period fiscal year 
     1996 through fiscal year 2002.
       Savings in the minimum allocation program occur in fiscal 
     year 1996 on a one-time basis only. The savings are not a 
     result of any reduction in minimum allocation funds to which 
     states are entitled.
       The ISTEA and previous surface transportation acts have 
     exempted the minimum allocation program from other controls 
     on highway spending because the program is designed to bring 
     some equity to the apportionment formulas. This section does 
     not implement any limitation on the minimum allocation 
     program in fiscal year 1996 or in any future year. Any State 
     that is eligible to receive funding under the minimum 
     allocation category is assured that sufficient funds are 
     available to provide the full amount due each State.
     Conference agreement
       The Conference agreement includes the Senate amendment.


               Extension of Higher Vessel Tonnage Duties

     Current law
       The United States imposes a tonnage duty on a vessel that 
     enters the United States from any port or place. The duty is 
     also imposed on a vessel that departs from and returns to a 
     U.S. port or place on a ``voyage to nowhere''.
       The tonnage duty is imposed on the cargo-carrying capacity 
     of the vessel and is assessed regardless of whether the 
     vessel is empty or is carrying cargo.
       A vessel arriving from a foreign port in the northern 
     Western Hemisphere--Canada, Mexico, Central America--and a 
     vessel returning from a ``voyage to nowhere'' must pay a 
     tonnage duty of 9 cents per ton. However, the maximum payment 
     for any vessel in a single year is 45 cents per ton.
       A vessel arriving from a foreign port anywhere else in the 
     world must pay a tonnage duty of 27 cents per ton, not to 
     exceed $1.35 per ton in a single year.
       Under Current law, after fiscal year 1998, the tonnage 
     duties will revert to earlier, lesser amounts--2 cents per 
     ton, not to exceed 10 cents per ton in a single year for 
     vessels entering from the northern Western Hemisphere and 
     from ``voyages to nowhere''--6 cents per ton, not to exceed 
     30 cents per ton for other vessels subject to the duty.
     House bill
       The House bill maintains the current level of vessel 
     tonnage duties through fiscal year 2002.
     Senate amendment
       The Senate amendment did not contain a similar provision.
     Conference agreement
       The conference agreement includes the House language.


             FEMA Radiological Emergency Preparedness Fees

     Current law
       Under Public Law 96-295, the Congress established emergency 
     planning and preparedness as new legal basis for licensing of 
     commercial nuclear power plants. The Federal Emergency 
     Management Agency (FEMA) Radiological Emergency Preparedness 
     (REP) Program was created to ensure that communities in close 
     proximity to commercial nuclear power plants are prepared in 
     the event of radiological emergencies at the facilities. The 
     REP Program consists of research development and training 
     exercises which are designed to prevent emergency occurrences 
     and to improve community and facility response plans. In 
     March of 1995, in response to a directive in the fiscal year 
     1993 VA-HUD Independent Agencies Appropriations Act, FEMA 
     developed final regulations for the assessment and collection 
     of fees to cover the costs associated with the development of 
     community radiological emergency response plans and other 
     related features of the REP Program. The collection of fees 
     has been directed on a year-by-year basis.
     House bill
       The House bill places in statute authority for FEMA to 
     collect fees from licensees of commercial nuclear power 
     plants to recover costs associated with the REP Program. The 
     authority is extended through fiscal year 2002.
     Senate amendment
       The Senate amendment contained a similar provision, except 
     that the authorization to collect fees was extended through 
     fiscal year 2005.
     Conference agreement
       The Conference agreement accepted the House language. The 
     fees established shall be fair and equitable and shall 
     reflect the full amount of FEMA's costs of providing 
     radiological emergency services.

                TITLE X--VETERANS AND RELATED PROVISIONS

             Subtitle A--Extension of Temporary Authorities


AUTHORITY TO REQUIRE THAT CERTAIN VETERANS MAKE CO-PAYMENTS IN EXCHANGE 
                   FOR RECEIVING HEALTH-CARE BENEFITS

     Current law
       Section 1710 of title 38, United States Code, as amended by 
     section 8013 of the Omnibus Budget Reconciliation Act of 
     1990, Public Law 101-508 (OBRA 90), provides that, in 
     addition to already existing copayment obligations (enacted 
     in Public Law 99-272), certain veterans would be required to 
     make per diem payments of $10 for hospital care provided by 
     the Department of Veterans Affairs (VA) and $5 for nursing 
     home care. That per diem copayment provision, which would 
     have expired under OBRA 90 on September 30, 1997, was 
     extended through September 30, 1998, by section 12002 of the 
     Omnibus Budget Reconciliation Act of 1993, Public Law 103-66 
     (OBRA 93).
       Section 1722A of title 38 (a) requires a veteran (other 
     than a veteran who has a service-connected disability rated 
     50 percent or more or whose income is at or below the maximum 


[[Page H 12837]]
     annual rate of VA pension) to pay $2 for each 30-day supply of a 
     medication furnished on an outpatient basis; (b) prohibits a 
     reduction in the amount of the co-payment if the initial 
     amount of medication is less than a 30-day supply; (c) states 
     that VA may not require a veteran to pay a copayment which 
     exceeds the cost to VA of the prescription medication in 
     question; and (d) requires that amounts collected under this 
     authority be credited to VA's Medical Care Cost Recovery 
     Fund. This provision, which would have expired under OBRA 90 
     on September 30, 1997, was extended through September 30, 
     1998, by section 12002 of OBRA 93.
     House bill
       Section 11011 would extend for four years, through 
     September 30, 2002, the OBRA 90 per diem copayment 
     requirements, and VA's authority to collect medication 
     copayments from certain veterans.
     Senate amendment
       Section 11011 would extend for four years, through 
     September 30, 2002, the OBRA 90 authority for VA to collect 
     medication copayments from certain veterans.
     Compromise agreement
       Section 10011 follows section 11011 the House bill.
       According to CBO, the enactment of section 10011 would 
     result in savings of $120 million in outlays over fiscal 
     years 1996-2000, and in savings of $255 million in outlays 
     over fiscal years 1996-2002.


                  MEDICAL CARE COST RECOVERY AUTHORITY

     Current law
       Section 1729(a) of title 38 authorizes VA to collect from a 
     health care payment plan the reasonable cost of medical care 
     furnished for a non-service-connected disability of a veteran 
     who has a service-connected disability and who is entitled to 
     non-VA care (or payment of the costs associated with 
     receiving non-VA care) under the health care payment plan. 
     This provision was initially enacted as section 8011 of OBRA 
     90 and would have expired, under OBRA 90, on October 1, 1993. 
     Section 12003 of OBRA 93 extended the expiration date of this 
     provision to October 1, 1998. That date is codified at 
     section 1729(a)(2)(E) of title 38.
     House bill
       Section 11012 would extend for four years, through 
     September 30, 2002, VA's authority to collect from a health 
     care payment plan the reasonable cost of medical care 
     furnished to a veteran who has a service-connected disability 
     for treatment of a non- service-connected disability.
     Senate amendment
       Section 11012 contains a substantially identical provision.
     Compromise agreement
       Section 10012 contains this provision.
       According to CBO, the enactment of section 10012 would 
     result in savings of $405 million in outlays over fiscal 
     years 1996-2000, and in savings of $855 million in outlays 
     over fiscal years 1996-2002.


                     INCOME VERIFICATION AUTHORITY

     Current law
       Section 5317 of title 38, and section 6103 of the Internal 
     Revenue Code, 26 U.S.C. Sec. 6103, authorize VA to verify the 
     eligibility of recipients of, or applicants for VA need-based 
     benefits and VA ``means-tested'' medical care by gaining 
     access to income-relevant records of the Department of Health 
     and Human Services/Social Security Administration (SSA) and 
     Internal Revenue Service (IRS). These provisions were 
     initially enacted as section 8051 of OBRA 90 and would have 
     expired, under OBRA 90, on September 30, 1997. Section 12004 
     of OBRA 93 extended these provisions to September 30, 1998.
     House bill
       Section 11013 would extend for four years, through 
     September 30, 2002, VA's authority under section 5317 of 
     title 38 to verify income data furnished to VA by gaining 
     access to income relevant records of the IRS and SSA.
     Senate amendment
       Section 11014 contains a substantially identical provision, 
     except that it also extends section 6103 of the Internal 
     Revenue Code.
     Compromise agreement
       Section 10013 follows section 11013 of the House bill. The 
     Committees note that the title of this Reconciliation 
     compromise pertaining to the Internal Revenue Code contains a 
     provision extending section 6103 of the Internal Revenue 
     Code.
       According to CBO, the enactment of section 10013 would 
     result in savings of $42 million in outlays over fiscal years 
     1996-2000, and in savings of $140 million in outlays over 
     fiscal years 1996-2002.


   LIMITATION ON PENSION FOR CERTAIN RECIPIENTS OF MEDICAID-COVERED 
                           NURSING HOME CARE

     Current law
       Section 5503(f) of title 38 limits to $90 a month the 
     maximum amount of VA needs-based pension that may be paid to 
     Medicaid-eligible veterans and surviving spouses who have no 
     dependents and who are in nursing homes that participate in 
     Medicaid. This section treats such individuals as if the care 
     were being furnished at VA expense. This provision was 
     initially enacted as section 8003 of OBRA 90 and would have 
     expired, under OBRA 90, on September 30, 1997. Section 12005 
     of OBRA 93 extended these provisions to September 30, 1998.
     House bill
       Section 11014 would extend for four years, through 
     September 30, 2002, the $90 limitation on the maximum amount 
     of VA pension which can be received by Medicaid-eligible 
     veterans and surviving spouses who have no dependents and who 
     are in nursing homes that participate in Medicaid.
     Senate amendment
       Section 11015 contains a substantially identical provision.
     Compromise Agreement
       Section 10014 contains this provision.
       According to CBO, the enactment of section 10014 would 
     result in savings of $437 million in outlays over fiscal 
     years 1996-2000, and in savings of $827 million in outlays 
     over fiscal years 1996-2002.


                             HOME LOAN FEES

     Current law
       Section 3729 of title 38 specifies fees that will be paid 
     by borrowers who obtain home purchase loans guaranteed, 
     insured, or made by VA.
       For borrowers obtaining the first such loan, fees generally 
     range from 0.50% to 2.0% of the loan amount, depending on the 
     amount of the down payment to be made by the borrower and the 
     type of military or naval service (active duty vs. selected 
     reserve) upon which eligibility for home loan benefits is 
     based. Pursuant to subsection (a)(4) of section 3729, an 
     additional fee of 0.75% is added to the fees set forth in 
     section 3729, except as otherwise specified, for ``first 
     use'' loans closed between September 30, 1993 and October 1, 
     1998. The ``additional fee'' provision was enacted as section 
     12007(a) of OBRA 93.
       With respect to borrowers obtaining subsequent housing 
     assistance loans, section 3729 specifies that the fee to be 
     charged shall be 3.0% of the total loan amount. This 
     provision applies to loans which close between September 30, 
     1993 and October 1, 1998. This provision was enacted as 
     section 12007(b) of OBRA 93.
     House bill
       Section 11015 would extend for four years, through 
     September 30, 2002, the loan fees currently specified in 
     section 3729 of title 38.
     Senate amendment
       Section 11013 contains a substantially identical provision.
     Compromise agreement
       Section 10015 contains this provision.
       According to CBO, the enactment of section 10015 would 
     result in savings of $289 million in outlays over fiscal 
     years 1996-2000, and in savings of $581 million in outlays 
     over fiscal years 1996-2002.


  PROCEDURES APPLICABLE TO LIQUIDATION SALES ON DEFAULTED HOME LOANS 
            GUARANTEED BY THE DEPARTMENT OF VETERANS AFFAIRS

     Current law
       Section 3732 of title 38 specifies that VA has two options 
     when a property, the financing of which is guaranteed under 
     the VA Home Loan Guaranty Program, goes into foreclosure. VA 
     may simply pay off the guaranty, or the VA may elect to 
     purchase the property securing the loan in default and resell 
     it. The decision on the course of action to take will depend, 
     generally, on VA calculations as to which action would be 
     less costly and, therefore, more advantageous to the 
     Government.
       The provisions governing the above calculations, and the 
     circumstances under which VA shall exercise the latter option 
     are set forth in subsection (c) of section 3732. Subsection 
     (c) applies only with respect to properties financed with VA-
     guarantied home loans which close before October 1, 1998. 
     That period of applicability was extended to that date by 
     section 13004 of OBRA 93.
     House bill
       Section 11016 would extend for four years, through 
     September 30, 2002, the provisions of subsection (c) of 
     section 3732.
     Senate amendment
       The Senate amendment contains no comparable provision.
     Compromise agreement
       Section 10016 follows section 11016 of the House bill.
       According to CBO, the enactment of section 10016 would 
     result in savings of $8 million over fiscal years 1996-2000, 
     and in savings of $16 million in outlays over fiscal years 
     1996-2002.


                   ENHANCED LOAN ASSET SALE AUTHORITY

     Current law
       Section 3720(h) authorizes VA to guarantee the timely 
     payment of principal and interest to purchasers of real 
     estate mortgage investment conduits (REMICs). REMICs are used 
     to ``bundle'' and market a number vendee loan notes--that is, 
     notes on direct loans made by VA to purchasers of VA-acquired 
     real estate--so that they may be sold for cash under 
     favorable terms. Under this authority, VA guarantees to REMIC 
     purchasers that principal and interest will be paid timely. 
     That assurance facilitates the marketing of such securities 
     and enhances their value in the marketplace. It thus 
     increases the return to the Treasury when such securities are 
     sold.
       VA's authority to guarantee REMICs expires on December 31, 
     1995.
     House bill
       Section 11024 would extend, through September 30, 1996, 
     VA's authority to guarantee 

[[Page H 12838]]
     the timely payment of principal and interest to purchasers of REMICs.
     Senate amendment
       The Senate amendment contains no comparable provision.
     Compromise agreement
       Section 10017 follows section 11024 of the House bill, 
     except that it extends VA's authority to guarantee the timely 
     payment of principal and interest to the purchasers of REMICs 
     through September 30, 2002.
       According to CBO, the enactment of section 10017 would 
     result in savings of $5 million in fiscal year 1996, in 
     savings of $25 million in outlays over fiscal years 1996-
     2000, and in savings of $35 in outlays over fiscal years 
     1996-2002.

                       Subtitle B--Other Matters


                REVISION TO PRESCRIPTION DRUG COPAYMENT

     Current law
       Section 1722A of title 38: (a) requires that certain 
     veterans pay $2 for each 30-day supply of a medication 
     furnished on an outpatient basis; (b) prohibits a reduction 
     in the amount of the co-payment if the initial amount of 
     medication is less than a 30-day supply; (c) states that VA 
     may not require a veteran to pay a copayment which exceeds 
     the cost to VA of the prescription medication in question; 
     and (d) requires that amounts collected under this authority 
     be credited to VA's Medical Care Cost Recovery Fund. Section 
     1722A, however, exempts the following categories of veteran 
     from the copayment requirement: veterans with a service-
     connected disability rated 50% or more; and veterans with an 
     annual income at or below the maximum annual rate of VA 
     pension. This provision is currently scheduled to expire on 
     September 30, 1998.
       Section 5302 of title 38 authorizes the Secretary of 
     Veterans Affairs to waive, on equitable grounds, the recovery 
     of any payment owed to VA.
     House bill
       Section 11021 would: (a) increase the copayment amount to 
     $3; (b) repeal the requirement that the copayment not exceed 
     the cost of the medication in question; and (c) specify that 
     the VA's ``waiver of indebtedness'' authority under section 
     5302 not apply to veterans' obligations to make medication 
     copayments under section 1722A.
     Senate amendment
       The Senate amendment contains no comparable provision.
     Compromise agreement
       Section 10021 follows section 11021 of the House bill, 
     except that it increases the copayment amount to $4, and adds 
     former prisoners of war to the listing of veterans who are 
     exempt from the medication copayment requirement.
       According to CBO, the enactment of section 10021 would 
     result in savings of $74 million in fiscal year 1996, in 
     savings of $496 million in outlays over fiscal years 1996-
     2000, and in savings of $742 million in outlays over fiscal 
     years 1996-2002.


  ROUNDING DOWN OF COST-OF-LIVING ADJUSTMENTS IN COMPENSATION AND DIC 
                                 RATES

     Current law
       Under chapter 11 of title 38, VA pays a monthly cash 
     benefit, compensation, to veterans who have service-connected 
     disabilities. The amount of the payment varies with the 
     degree of service-connected disability suffered by the 
     veteran.
       Under chapter 13 of title 38, VA pays monthly cash 
     benefits, Dependency and Indemnity Compensation (DIC), to 
     survivors of service members or veterans who died, on or 
     after January 1, 1957, from a disease or injury incurred or 
     aggravated during active service. Until 1992, the basic 
     monthly benefit received by the DIC recipient varied with the 
     pay grade at which the deceased service member or veteran was 
     compensated during service. In 1992, chapter 13 was amended 
     to put into place a new system of DIC that pays a ``flat 
     rate''--that is, a rate which pays all beneficiaries of DIC 
     the same basic monthly benefit irrespective of the deceased's 
     former military or naval pay grade. ``Old-law'' DIC 
     recipients, however, are ``grandmothered''--that is, if the 
     basic DIC benefit the beneficiary would receive under the 
     ``old-law'' grade-based program exceeds the ``new-law'' flat 
     rate amount, the beneficiary continues to receive the ``old-
     law'' benefit.
       Compensation and DIC payments are not indexed. The Congress 
     has, however, enacted legislation which, for a given year, 
     has adjusted compensation and DIC benefits to reflect the 
     percentage of change in the consumer price index (CPI) 
     relative to the prior year. When such a cost-of-living 
     adjustment (COLA) is legislated and new compensation and DIC 
     rates are thereby computed, the prior year's benefit--which 
     is paid in ``round dollar'' amounts--is multiplied by a 
     fraction which expresses the change in the CPI, and the 
     product is then converted to a whole-dollar amount using 
     ``normal'' rounding techniques. That is, if the product of 
     the whole dollar amount multiplied by the CPI is a fractional 
     dollar amount of $0.50 or more, the compensation or DIC 
     payment is rounded up; if it is a fractional amount of $0.49 
     or less, it is rounded down.
     House bill
       Section 11022 requires VA to ``round down'' any cost-of-
     living (COLA) adjustments that might be made during fiscal 
     years 1996 through 2002.
       Section 11022 also specifies a method for calculating COLAs 
     for ``old-law'' DIC recipients during fiscal years 1996 
     through 2002. It states that (a) all DIC recipients shall 
     receive the same dollar-amount COLA; and (b) that ``flat 
     rate'' COLA shall be equal to the whole dollar amount that is 
     yielded when the ``new-law'' DIC rate is calculated by 
     reference to the percentage change in the CPI, rounded down.
     Senate amendment
       Section 11021 contains a ``round down'' provision that is 
     substantially identical to the House bill. It contains no 
     provision which is comparable to the House bill's ``flat 
     rate'' COLA for ``old-law'' DIC beneficiaries.
     Compromise agreement
       Section 10022 follows the House bill.
       According to CBO, the enactment of section 10022 would 
     result in savings of $17 million in outlays in fiscal year 
     1996, in savings of $333 million in outlays over fiscal years 
     1996-2000, and in savings of $634 million in outlays over 
     fiscal years 1996-2002.


 REVISED STANDARD FOR LIABILITY FOR INJURIES RESULTING FROM DEPARTMENT 
                     OF VETERANS AFFAIRS TREATMENT

     Current law
       Section 1151 of title 38 states that if a veteran/patient 
     suffers an injury as a result of VA medical care (and not as 
     a result of the veteran/patient's own willful misconduct), 
     and that injury results in additional disability or death, 
     then the veteran/patient and his or her survivors shall be 
     entitled to compensation and DIC benefits as if the 
     additional disability or death were service-connected. VA 
     regulations also set forth standards for the awarding of 
     compensation or DIC for injuries or death resulting from VA 
     medical care. Until recently, those regulations had specified 
     that compensation or DIC would be paid only if the 
     requirements set forth in the text of section 1151 were met 
     and the injury in question had been a result of either VA 
     fault or an ``accident,'' defined by VA regulations as an 
     ``unforeseen, untoward'' event.
       Recent litigation, culminating in the U.S. Supreme Court's 
     decision in Brown v. Gardner,----U.S. ----, 115 S.Ct. 552, 
     130 L.Ed.2d 462 (1994), challenged the imposition, by VA 
     regulation, of a ``fault-or-accident'' requirement not set 
     forth in the text of section 1151. The courts ruled, inter 
     alia, that no such requirement was set forth in statute; that 
     the statute did not authorize VA to impose such a requirement 
     by regulation; and that, therefore, VA could not deny 
     compensation for failure to satisfy the ``fault-or-accident'' 
     requirement. The courts also indicated that their decisions 
     were premised on the text of section 1151 as enacted by 
     Congress, which text Congress--but not VA--may modify.
       VA has amended its regulations to conform to the standards 
     specified in the above-referenced court rulings.
     House bill
       Section 11023 would amend section 1151 to establish a new 
     standard similar to VA's invalidated ``fault-or-accident'' 
     requirement with respect to all medical injuries for which a 
     claim for section 1151 benefits was received by VA on or 
     after October 1, 1995. It would also provide for VA liability 
     for medical injuries caused by an event which was not 
     reasonably foreseeable.
     Senate amendment
       Section 11041 contains a substantially identical provision.
     Compromise agreement
       Section 10023 contains this provision.
       According to CBO, the enactment of section 10023 would 
     result in savings of $89 million in fiscal year 1996, in 
     savings of $1.601 billion in outlays over fiscal years 1996-
     2000, and in savings of $2.498 billion in outlays over fiscal 
     years 1996-2002.


                  WITHHOLDING OF PAYMENTS AND BENEFITS

     Current law
       Section 3726 of title 38 states that, except as noted, no 
     Federal agency may offset any payment owed to a veteran (or a 
     deceased veteran's surviving spouse) in order to collect on a 
     debt owed to VA by the veteran (or surviving spouse) under 
     VA's home loan guaranty program unless one of two 
     requirements are met: the debtor consents to the offset; or a 
     judgement against the debtor from a court of competent 
     jurisdiction is secured. The only exception to the rule is 
     that veterans' benefits may be so offset.
     House bill
       Section 11025 would amend section 3726 to authorize VA to 
     refer a veteran's (or surviving spouse's) home loan guaranty 
     debt to another Federal agency for offset under certain 
     circumstances. Referrals would be allowed if (a) the debtor 
     is given notice, in writing, of VA's authority to waive debts 
     under section 5302 of title 38; (b) VA makes an affirmative 
     determination that the debtor should not be released from 
     liability under section 3713(b) of title 38; and ( c) the 
     debtor has been notified of procedures available to appeal a 
     determination that a release of liability is not warranted. 
     In effect, this provision allows VA to refer such debts to 
     the Internal Revenue Service for offset against income tax 
     refunds or, in the case of debtors who are Federal employees, 
     to the debtor's employing agency for offset against salary or 
     wages.
     Senate amendment
       The Senate amendment contains no comparable provision.
     Compromise Agreement
       Section 10024 follows section 11025 of the House bill.

[[Page H 12839]]

       According to CBO, the enactment of section 10024 would 
     result in savings of $90 million in outlays in fiscal year 
     1996, in savings of $90 million in outlays over fiscal years 
     1996-2000, and in savings of $90 in outlays over fiscal years 
     1996-2002.


   HEALTH CARE ELIGIBILITY REFORM (HOUSE BILL)/EDUCATIONAL BENEFITS 
                     AMENDMENTS (SENATE AMENDMENT)

     Current law
       Eligibility for VA Health Care Services: Section 1710(a)(1) 
     of title 38 states that VA shall provide needed hospital 
     care, and may provide needed nursing home care, to specified 
     classes of veterans for treatment of specified conditions. 
     Those classes include: veterans who have service-connected 
     disabilities for treatment of those service-connected 
     disabilities; veterans who were discharged from service due 
     to disabilities for treatment of any disability; veterans who 
     would receive disability compensation but for the operation 
     of laws which preclude ``dual compensation'' for treatment of 
     any disability; veterans who have a service-connected 
     disability rated at 50% or more for treatment of any 
     disability; veterans who have a service-connected disability 
     rated less than 50% for treatment of any disability; veterans 
     who are former prisoners of war for treatment of any 
     disability; veterans of the Persian Gulf War who VA finds 
     might have been exposed to toxic substances or environmental 
     hazards for treatment of conditions other than those 
     determined by VA not to have been caused by that exposure; 
     veterans of the Mexican border period or World War I for 
     treatment of any disabilities; and veterans with non-service-
     connected disabilities if the veteran is of limited means as 
     determined in accordance with section 1722(a) of title 38. 
     Other veterans are eligible for VA hospital care, but only to 
     the extent that resources and space are available to provide 
     such care, and only if the veteran makes copayments.
       Section 1712 of title 38 establishes various rules 
     governing VA provision of outpatient medical services. VA 
     shall furnish needed outpatient medical services to veterans 
     who have a service connected disability (including veterans 
     who were discharged from service due to disabilities and 
     veterans eligible for compensation under section 1151) for 
     treatment of that disability, and to veterans who have a 
     service-connected disability rated at 50% or more for 
     treatment of any disability. Section 1712 also states that VA 
     shall provide needed ``pre-, post-, and obviate'' outpatient 
     treatment to veterans who have a service-connected disability 
     rated at 30% or 40%, and to veterans whose income does not 
     exceed the maximum amount of VA pension. VA may furnish all 
     needed medical services to classes of veterans including 
     former prisoners of war, World War I veterans, and those 
     receiving increased benefits based on need of aid and 
     attendance or permanent housebound status. VA may furnish 
     ``pre-, post-, and obviate'' services to other veterans who 
     are eligible for care under the ``means test'' in section 
     1722(a).
       Educational Benefits: Chapter 30 of title 38 states rules 
     applicable to the All-Volunteer Force Educational Assistance 
     Program, or the ``Montgomery GI Bill'' (MGIB). Recipients of 
     MGIB benefits who are pursuing full time programs of study 
     receive monthly benefits checks (which vary from $328.97 to 
     $404.88 per month for 36 months depending on the period of 
     the beneficiary's initial obligated period of active duty) if 
     they had not ``opted out'' of participation while in service. 
     The military or naval pay of service members who do not ``opt 
     out'' of MGIB participation is reduced $100 per month during 
     the first 12 months of service.
     House bill
       Eligibility for VA Health Care Services: Sections 11031 
     through 11037 affect a broad revision of the statutes 
     governing eligibility for VA hospital care and outpatient 
     treatment (including the provision of prosthetics). That 
     revision substitutes a single uniform eligibility standard--
     ``medical need''--for eligibility for hospital and outpatient 
     care which would be applied to all veterans for whom VA, 
     under current law, shall provide all needed hospital care 
     (other than veterans whose only eligibility for hospital care 
     is based on a service- connected disability rated at 0%). 
     Thus, those veterans to whom VA, under current law, shall 
     provide all needed hospital care would also be eligible for 
     all needed outpatient medical treatment.
       The measure would also require VA to establish an annual 
     enrollment system for VA hospital and outpatient care and to 
     manage that system in accordance with specified priorities. 
     It would also grant to VA greater flexibility to contract for 
     hospital care and medical services from ``outside'' sources, 
     and to ``share'' VA resources with outside providers, while 
     directing that VA maintain its ``in-house'' capacity to 
     provide specialized treatment and rehabilitation services to 
     disabled veterans, including those with spinal cord 
     dysfunction, blindness, amputations and mental illness. 
     Finally, the measure would extend expiring provisions of law 
     (section 204 of Public Law 102- 585) authorizing VA to enter 
     into agreements to provide services to certain beneficiaries 
     of the Department of Defense, and authorize VA to recover 
     payments from health plans for care for which the patient (or 
     the provider) would be eligible for payment under the plan 
     furnished certain beneficiaries of the Department of Defense.
       Educational Benefits: The House bill contains no provision 
     pertaining to educational benefits.
     Senate amendment
       Eligibility for VA Health Care Services: The Senate bill 
     contains no provision pertaining to eligibility for VA health 
     care services.
       Educational Benefits: Section 11031 limits, through 
     September 30, 2002, the annual adjustment in MGIB benefits to 
     one-half of the Consumer Price Index.
       Section 11032 raises, for fiscal year 1996, the monthly pay 
     reduction of service members who do not ``opt out'' of MGIB 
     from $100 per month for twelve months to $134.96 per month 
     for twelve months. It also ``pegs'' the monthly pay 
     reduction, for fiscal years 1997 through 2002, to the same 
     index to which MGIB benefits are tied.
     Compromise agreement
       Eligibility for VA Health Care Services: The bill follows 
     the Senate bill provision. That is, it contains no provision 
     pertaining to eligibility for VA health care services. The 
     conferees note, however, that the Senate Committee on 
     Veterans Affairs intends to hold legislative hearings during 
     the 104th Congress to consider the issue of eligibility 
     reform.
       Educational Benefits: The bill follows the House bill 
     provision. That is, it contains no provision pertaining to 
     educational benefits.

                  TITLE XI. REVENUE PROVISIONS 1

     \1\ Rule XXI5(c) of the Rules of the House of Representatives 
     provides that ``No bill or joint resolution, amendment, or 
     conference report carrying a Federal income tax rate increase 
     shall be considered as passed or agreed to unless so 
     determined by a vote of not less than three-fifths of the 
     Members voting.'' The House conferees have carefully reviewed 
     the provisions of title XI of the conference agreement, and 
     all other provisions of the conference agreement, to 
     determine whether any of these provisions constitutes a 
     Federal income tax rate increase within the meaning of the 
     House Rules. It is the opinion of the House conferees that 
     there is no provision of the conference agreement that 
     constitutes a Federal income tax rate increase within the 
     meaning of House Rule XXI5(c) or (d).
---------------------------------------------------------------------------

                          I. FAMILY TAX RELIEF


 A. Child Tax Credit for Children Under Age 18 (sec. 6101 of H.R. 1215 
                and sec. 12001 of the Senate amendment)

     Present Law
       Present law does not provide tax credits based solely on 
     the taxpayer's number of dependent children. Taxpayers with 
     dependent children, however, generally are able to claim a 
     personal exemption for each of these dependents.
     House Bill
       The House bill allows taxpayers a nonrefundable tax credit 
     of $500 for each qualifying child under the age of 18. The 
     credit amount is indexed for inflation after 1996.
       The credit is phased out ratably for taxpayers with 
     modified AGI over $200,000, and is fully phased out at 
     modified AGI of $250,000. For purposes of the AGI phaseout, 
     the taxpayer's AGI is increased by the amount otherwise 
     excluded from gross income under Code sections 911, 931, or 
     933 (relating to the exclusion of income of U.S. citizens or 
     residents living abroad; residents of Guam, the Northern 
     Mariana Islands, and American Samoa; and residents of Puerto 
     Rico, respectively). After 1996, the beginning point of the 
     phaseout range ($200,000) is indexed for inflation. The size 
     of the phaseout range will change as needed so as to remain 
     100 times the maximum amount of the credit per child.
       Married taxpayers filing separate returns generally may not 
     claim the credit.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 1995.
     Senate Amendment
       The Senate amendment allows taxpayers a nonrefundable tax 
     credit of $500 for each qualifying child under the age of 18. 
     The credit amount is not indexed for inflation.
       For taxpayers with AGI in excess of certain thresholds, the 
     allowable child credit is reduced by $25 for each $1,000 of 
     AGI (or fraction thereof) in excess of the threshold. For 
     married taxpayers filing joint returns, the threshold is 
     $110,000. For taxpayers filing single or head of household 
     returns, the threshold is $75,000. For married taxpayers 
     filing separate returns, the threshold is $55,000. These 
     thresholds are not indexed for inflation.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 1995.
     Conference Agreement
       The conference agreement follows the Senate amendment, 
     except that the credit is effective October 1, 1995. The 
     portion of the child credit that is effective for the period 
     from October 1, 1995, through December 31, 1995, will be 
     provided to taxpayers through a special procedure. The 
     Internal Revenue Service has raised significant concerns 
     about making the credit available through the normal return 
     filing process for the 1995 income tax return. In light of 
     these concerns, the conferees have directed the IRS to use a 
     special procedure to help taxpayers obtain their 1995 child 
     tax credit. Under this procedure, the IRS is directed to 
     issue a form on which taxpayers can file for their 1995 child 
     tax credit following the completion of the normal tax return 
     filing season (i.e., after April 15, 1996). The IRS is 
     directed to mail a notice to taxpayers on or before February 
     1, 1996.
       The text of the notice will read as follows: ``The Balanced 
     Budget Act of 1995 was recently passed by the Congress. The 
     Act's 

[[Page H 12840]]
     child tax credit allows taxpayers to reduce their taxes by $500 per 
     child. The credit is effective October 1, 1995. You may wish 
     to check with your employer about changing your tax 
     withholding to take immediate advantage of the credit to 
     which you are entitled for the current tax year. In addition, 
     the Internal Revenue Service will be sending you a form in 
     June of this year which you may use to claim the credit to 
     which you are entitled for the period from October 1 through 
     December 31, 1995 ($125 per child for 1995). In order to 
     obtain your 1995 credit, you should file this form by August 
     15, 1996. Your refund will be sent to you sometime after 
     October 1, 1996.''
       The IRS will mail to taxpayers on or before June 1, 1996, 
     the form on which taxpayers may request their 1995 child tax 
     credit. If taxpayers file their requests for their 1995 child 
     tax credit on or before August 15, 1996, the IRS will mail 
     their checks to them between October 1, 1996, and October 15, 
     1996.
       In the case where a taxpayer's 1995 income tax liability 
     had been reduced by a refundable credit, the amount of the 
     1995 child credit that is allowable would be calculated as if 
     the taxpayer had been able to claim the 1995 child credit at 
     the time that the taxpayer filed his or her 1995 income tax 
     return. For example, suppose a taxpayer had a 1995 income tax 
     liability of $110 prior to the application of a $1,000 
     refundable tax credit. The refundable credit would reduce the 
     income tax liability to zero and a refund of $890 would be 
     paid to the taxpayer. If the taxpayer has one qualifying 
     child for the 1995 portion of the child tax credit, the 
     taxpayer may receive an additional $110 refund, since he 
     would have been able to use $110 of the $125 of 1995 child 
     tax credit to offset his or her 1995 income tax liability, 
     had the child tax credit been available on the 1995 income 
     tax return.
       The amount of the 1995 child credit generally will be 
     treated as an overpayment of taxes for purposes of the 
     appropriation of funds to pay the credit amounts.


B. Marriage Penalty Relief: Tax Credit; Increase in Standard Deduction 
for Joint Returns (sec. 6102 of H.R. 1215 and sec. 12002 of the Senate 
                               amendment)

     Present Law


                            Marriage penalty

       A married couple generally is treated as one tax unit that 
     must pay tax on the unit's total taxable income. Although 
     married couples may elect to file separate returns, the rate 
     schedules and provisions are structured so that filing 
     separate returns usually results in a higher tax than filing 
     joint returns. Other rate schedules apply to single persons 
     and to single heads of household.
       A ``marriage penalty'' exists when the sum of the tax 
     liabilities of two unmarried individuals filing their own tax 
     returns (either single or head of household returns) is less 
     than their tax liability under a joint return (if the two 
     individuals were to marry). A ``marriage bonus'' exists when 
     the sum of the tax liabilities of the individuals is greater 
     than their combined tax liability under a joint return.
       While the size of any marriage penalty or bonus under 
     present law depends upon the individuals' incomes, number of 
     dependents, and itemized deductions, as a general rule 
     married couples whose earnings are split more evenly than 70-
     30 suffer a marriage penalty. Married couples whose earnings 
     are largely attributable to one spouse generally receive a 
     marriage bonus.
       Under present law, the size of the standard deduction and 
     the tax bracket breakpoints follow certain customary ratios 
     across filing statuses. The standard deduction and tax 
     bracket breakpoints for single filers are roughly 60 percent 
     of those for joint filers. With these ratios, unmarried 
     individuals have standard deductions whose sum exceeds the 
     standard deduction they would receive as a married couple 
     filing a joint return. Thus, their taxable income as joint 
     filers may exceed the sum of their taxable incomes as 
     unmarried individuals.
       Standard deduction
       Taxpayers who do not itemize deductions may choose the 
     standard deduction, which is subtracted (along with certain 
     other items) from adjusted gross income (AGI) in arriving at 
     taxable income. The size of the standard deduction varies 
     according to filing status and is indexed for inflation. For 
     1996, the size of the standard deduction is projected to be 
     as follows:

        Filing status                                Standard deduction
Married, joint return............................................$6,700
Head of household return..........................................5,900
Single return.....................................................4,000
Married, separate return..........................................3,350

       For 1996, the standard deduction for joint returns is 
     projected to be 1.675 times the standard deduction for single 
     returns.
     House Bill
       Under the House bill, married couples who file a joint 
     return may be eligible for a nonrefundable credit of up to 
     $145 against their income tax liability. The Secretary of the 
     Treasury is directed to issue tables calculating the marriage 
     penalty credit applicable for married taxpayers based on the 
     qualified earned income of each of the spouses.
       The amount of the credit is based on the hypothetical tax 
     liabilities that would result if the individual income tax 
     rates applicable to single filers were applied to each 
     spouse's qualified earned income, allowing for one personal 
     exemption and the standard deduction allowed for single 
     filers. The sum of those hypothetical tax liabilities is 
     compared to the hypothetical tax liability that would result 
     if the individual income tax rates applicable to married 
     couples filing joint returns were applied to the aggregate 
     qualified earned income of the spouses, allowing for two 
     personal exemptions and the standard deduction allowed for 
     joint filers.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 1995.
     Senate Amendment
       The Senate amendment increases the standard deduction for 
     married taxpayers filing a joint return according to the 
     following schedule:


        For taxable years beginning inThe standard deduction would be--
1996.............................................................$6,800
1997..............................................................7,150
1998..............................................................7,500
1999..............................................................7,950
2000..............................................................8,200
2001..............................................................8,600
2002..............................................................9,100
2003..............................................................9,500
2004..............................................................9,950
2005.............................................................10,800

     For calendar years after 2005, the $10,800 amount is indexed 
     for inflation.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 1995.
     Conference Agreement
       The conference agreement follows the Senate amendment, 
     except that the conference agreement modifies the schedule 
     for increasing the standard deduction for joint returns. In 
     addition, the amount of the standard deduction for joint 
     returns is expressed relative to the standard deduction for 
     single returns as follows:

     The ratio of the standard deduction for joint returns relative to 
                                              single returns would be--
1996...............................................................1.68
1997...............................................................1.71
1998...............................................................1.72
1999...............................................................1.73
2000...............................................................1.75
2001...............................................................1.77
2002...............................................................1.78
2003...............................................................1.88
2004...............................................................1.91
2005 and after.....................................................2.00

     The dollar values of the standard deduction for joint filers 
     will be published each year in the instructions for the 
     income tax returns; taxpayers will not be required to perform 
     the multiplications described above.


  C. Tax Credit for Adoption Expenses; Exclusion for Certain Adoption 
     Expenses (sec. 6401 of H.R. 1215 and sec. 12003 of the Senate 
                               amendment)

     Present law
       Present law does not provide a tax credit for adoption 
     expenses. Present law also does not provide an exclusion from 
     gross income for employer-provided adoption assistance.
     House bill
       The House bill provides a nonrefundable tax credit of up to 
     $5,000 per child for qualified adoption expenses paid or 
     incurred by the taxpayer. The credit is denied for any 
     expense to the extent that such expenses are also funded by 
     any Federal, State or local grant program. An exception from 
     this rule is provided solely in the case of certain special-
     needs adoptions.
       The credit is phased out ratably between $60,000 and 
     $100,000 of modified adjusted gross income (AGI). The House 
     bill does not include an exclusion for employer-provided 
     adoption assistance.
       Effective date.--Taxable years beginning after December 31, 
     1995.
     Senate amendment
       The Senate amendment differs from the House bill in five 
     respects. Unlike the House bill, the Senate amendment:
       (1) Allows the credit to be carried forward for up to five 
     taxable years;
       (2) Phases out the credit based on taxable income, not 
     modified AGI;
       (3) Does not allow a credit in the case of special-needs 
     adoptions to the extent funded by Federal, State or local 
     grant programs;
       (4) Requires a finalized adoption for credit eligibility; 
     and
       (5) Provides an exclusion from income (up to $5,000 per 
     child) for employer-provided adoption assistance.
       Effective date.--Same as the House bill.
     Conference agreement
       The conference agreement follows the Senate amendment with 
     three modifications. First, the phaseout ranges for the 
     credit and exclusion start at $75,000 of modified AGI and end 
     at $115,000 of modified AGI. Second, the requirement of a 
     finalized adoption is applied only in the case of 
     international adoptions. Third, the exception relating to 
     special-needs adoptions in the House bill is included in the 
     conference agreement
       Effective date.--Taxable years beginning after December 31, 
     1995.


   D. Interest on Student Loans (sec. 12004 of the Senate amendment)

     Present law
       The Tax Reform Act of 1986 repealed the deduction for 
     personal interest. Student loan interest generally is treated 
     as personal interest and thus is not allowable as an itemized 
     deduction from income. There is no tax credit allowed for 
     student loan interest paid by a taxpayer.

[[Page H 12841]]

     House bill
       No provision.
     Senate amendment
       In general
       The Senate amendment allows individuals who have paid 
     interest on qualified education loans a nonrefundable credit 
     against income tax liability equal to 20 percent of such 
     interest. The maximum credit allowed is $500 ($1,000 in the 
     case of a taxpayer paying interest on loans for two or more 
     students). Unused amounts of credit cannot be carried forward 
     or backward to other taxable years.
       A qualified education loan generally is any indebtedness 
     incurred to pay for the qualified higher education expenses 
     of the taxpayer or the taxpayer's spouse or dependents in 
     attending (1) higher education institutions and certain area 
     vocational education schools (i.e., eligible educational 
     institutions defined in Code section 135(c)(3)) or (2) 
     institutions conducting internship or residency programs 
     leading to a degree or certificate from an institution of 
     higher education, a hospital, or a health care facility 
     conducting postgraduate training.
       Qualified higher education expenses are the student's cost 
     of attendance as defined in section 472 of the Higher 
     Education Act of 1965 (generally, tuition, fees, room and 
     board, and related expenses). At the time the expenses are 
     incurred, the student has to be the taxpayer or the 
     taxpayer's spouse or dependent.
       Income phaseout range for credit
       The credit is phased out ratably over the following 
     modified adjusted gross income (modified AGI) ranges: joint 
     filers ($60,000-$75,000) and unmarried individuals ($40,000-
     $55,000). The beginning of the phaseout ranges (but not the 
     size of the phaseout range) is indexed for inflation for 
     taxable years beginning after 1996. Modified AGI is defined 
     as the taxpayer's AGI (1) increased by the amount otherwise 
     excluded from gross income under Code sections 135, 911, 931, 
     or 933 (relating to educational savings bonds and to the 
     exclusion of income of U.S. citizens or residents living 
     abroad; residents of Guam, the Northern Mariana Islands, and 
     American Samoa; and residents of Puerto Rico, respectively) 
     and (2) calculated after the inclusion of Social Security 
     benefits in income, the deduction for contributions to 
     individual retirement arrangements, and the limitation on 
     passive losses.
       Credit claimed for interest on borrowing for expenses of 
           taxpayer or spouse
       In the case of qualified education loans used to pay the 
     qualified higher education expenses of the taxpayer or the 
     taxpayer's spouse, the credit is allowed only with respect to 
     interest paid on a qualified education loan during the first 
     60 months in which interest payments are required. For 
     purposes of counting the 60 months, any qualified education 
     loan and all refinancing (that is treated as a qualified 
     education loan) of such loan is treated as a single loan.
       Credit claimed for interest on borrowing for expenses of 
           taxpayer's dependent
       In the case of qualified education loans used to pay the 
     qualified higher education expenses of an individual other 
     than the taxpayer or the taxpayer's spouse, no credit is 
     allowed unless the individual is claimed as a dependent of 
     the taxpayer for that taxable year and the individual is at 
     least a half-time student during that taxable year.
       Limitations on claiming credit
       No credit is allowed to an individual if that individual is 
     claimed as a dependent on another taxpayer's return for the 
     taxable year beginning in the calendar year in which such 
     individual's taxable year begins. No credit is allowed for 
     interest on any amount of education loan indebtedness for 
     which a deduction is claimed under any other provision.
       Couples who are married at the end of the taxable year have 
     to file a joint return to claim the credit unless they lived 
     apart for the last six months of the taxable year and the 
     individual claiming the credit (1) maintained as his or her 
     home a household for a dependent child for more than one-half 
     of the taxable year and (2) furnished over one-half of the 
     cost of maintaining that household in that taxable year. An 
     individual legally separated from his spouse under a decree 
     of divorce or separate maintenance is not considered married 
     for purposes of this provision.
       Information reporting on student loan interest
       Any person in a trade or business or any governmental 
     agency who receives $600 or more in qualified education loan 
     interest from an individual during a calendar year is 
     required to file an information report on such interest to 
     the IRS and to the payor. In the case of interest received by 
     any person on behalf of another person, generally only the 
     first person receiving the interest is required to file the 
     information reports.
       Effective date
       The provision is effective for payments of interest due 
     after December 31, 1995, on any qualified education loan. 
     Thus, in the case of already existing qualified education 
     loans used to pay the qualified higher education expenses of 
     the taxpayer or the taxpayer's spouse, interest payments will 
     qualify for the credit to the extent that the 60-month period 
     has not expired.
       Conference agreement
       In general
       The conference agreement provides that certain individuals 
     who have paid interest on qualified education loans may claim 
     an above-the-line deduction for such interest expenses, up to 
     a maximum deduction of $2,500 per year. The definitions of 
     qualified education loans and qualified education expenses 
     follow the Senate amendment, except that in order for the 
     interest to be deductible under this provision, the 
     indebtedness must be incurred to pay for the qualified higher 
     education expenses of the taxpayer or the taxpayer's spouse.
       Income phaseout range for deduction
       The conference agreement follows the Senate amendment, 
     except that the deduction is phased out ratably over the 
     following modified AGI ranges: joint filers ($65,000-$85,000) 
     and unmarried individuals ($45,000-$65,000).
       Deduction claimed for interest on borrowing for expenses of 
           taxpayer or spouse
       The conference agreement follows the Senate amendment, with 
     the clarification that months during which the qualified 
     education loan is in deferral or forbearance do not count 
     against the 60-month period.
       Limitations on claiming deduction
       The conference agreement follows the Senate amendment.
       Information reporting on student loan interest
       The conference agreement follows the Senate amendment. The 
     conferees expect that the Secretary of the Treasury will 
     clarify in regulations the information reporting requirements 
     on qualified educational loans.
       Effective date
       The conference agreement follows the Senate amendment.


   E. Custodial Care of Certain Elderly Family Members in Taxpayer's 
                      Home(sec. 6402 of H.R. 1215)

     Present law
       Generally, present law does not provide for tax credits 
     based on custodial care of parents and grandparents.
     House bill
       The House bill provides a nonrefundable income tax credit 
     of $500 for each qualified family member. Generally, a 
     qualified family member is a parent or grandparent who lives 
     with the taxpayer and is physically or mentally incapable of 
     caring for himself or herself.
       Effective Date.--Taxable years beginning after December 31, 
     1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement provides for an above-the-line 
     deduction of up to $1,000 of certain expenses incurred in the 
     care of each qualified family member. The conference 
     agreement generally follows the definition of qualified 
     persons contained in the House bill with the addition of a 
     support test.
       Effective Date.--Taxable years beginning after December 31, 
     1995


 F. Inclusion in Income of Social Security Benefits (sec. 6201 of H.R. 
                                 1215)

     Present law
       In general
       Under present law, taxpayers receiving Social Security and 
     Railroad Retirement Tier 1 benefits are not required to 
     include any such benefits in gross income if their 
     ``provisional income'' does not exceed $25,000 in the case of 
     unmarried taxpayers or $32,000 in the case of married 
     taxpayers filing joint returns. For purposes of these 
     computations, a taxpayer's provisional income is defined as 
     adjusted gross income plus tax-exempt interest plus certain 
     foreign source income plus one-half of the taxpayer's Social 
     Security or Railroad Retirement Tier 1 benefit.
       Certain taxpayers with provisional income in excess of 
     those thresholds are required to include in gross income up 
     to 50 percent of their Social Security or Railroad Retirement 
     Tier 1 benefit. Under a provision added by the Revenue 
     Reconciliation Act of 1993 (``1993 Act''), taxpayers with 
     provisional income in excess of a second-tier threshold 
     ($34,000 in the case of unmarried taxpayers or $44,000 in the 
     case of married taxpayers filing joint returns) are required 
     to include in gross income up to 85 percent of their Social 
     Security or Railroad Retirement Tier 1 benefit.
       If the taxpayer's provisional income exceeds the lower 
     threshold but does not exceed the second-tier threshold, then 
     the amount of the inclusion is the lesser of (1) 50 percent 
     of the taxpayer's Social Security or Railroad Retirement Tier 
     1 benefit, or (2) 50 percent of the excess of the taxpayer's 
     provisional income over the lower threshold.
       If the amount of provisional income exceeds the second-tier 
     threshold, then the amount of the inclusion is the lesser of: 
     (1) 85 percent of the taxpayer's Social Security or Railroad 
     Retirement Tier 1 benefit or (2) the sum of: (a) 85 percent 
     of the excess of the taxpayer's provisional income over the 
     second-tier threshold, plus, (b) the smaller of (I) the 
     amount of benefits that would have been included if the 50-
     percent inclusion rule (the rule in the previous paragraph) 
     were applied, or (ii) one-half of the difference between the 
     taxpayer's second-tier threshold and lower threshold.
       Treatment of nonresident alien individuals
       If a nonresident alien individual is engaged in a trade or 
     business within the United States during the taxable year, 
     the individual is subject to U.S. tax at the normal graduated 
     rates on net taxable income that is effectively connected 
     with the conduct of the U.S. trade or business. For purposes 
     of taxing the income of nonresident alien individuals, the 
     income thresholds for including Social Security and Railroad 
     Retirement Tier 1 

[[Page H 12842]]
     benefits do not apply. Instead, a fixed percentage of any such benefit 
     is included in gross income. Until January 1, 1995, that 
     percentage was 50 percent.
       The implementing legislation for the General Agreement on 
     Tariffs and Trade (P.L. 103-465) increased from 50 percent to 
     85 percent the amount of Social Security or Railroad 
     Retirement Tier 1 benefits included in the gross income of a 
     nonresident alien individual, effective for benefits paid 
     after December 31, 1994, in taxable years ending after such 
     date.
       Trust funds
       Revenues from the income taxation of Social Security and 
     Railroad Retirement Tier 1 benefits attributable to the 1993 
     Act increase in the portion of benefits included in gross 
     income are credited quarterly to the Medicare Hospital 
     Insurance (HI) Trust Fund. The remainder of the proceeds from 
     the income taxation of Social Security and Railroad 
     Retirement Tier 1 benefits are credited quarterly to the Old-
     Age and Survivors Insurance Trust Fund, the Disability 
     Insurance Trust Fund, or the Social Security Equivalent 
     Benefit Account (of the Railroad Retirement system), as 
     appropriate.
     House bill
       In general
       The House bill phases in a repeal of the higher rate of 
     income inclusion for taxpayers with provisional incomes in 
     excess of the second-tier threshold.
       For taxable years beginning in calendar years 1996 through 
     1999, if the amount of provisional income exceeds the second-
     tier threshold, then the amount of the inclusion is 
     calculated as under present law, except that the following 
     rates are substituted for ``85 percent'':

        For taxable years beginning in calendar yearThe percentage is--
1996.........................................................75 percent
1997.........................................................65 percent
1998.........................................................60 percent
1999........................................................55 percent.

       For taxable years beginning after December 31, 1999, Social 
     Security and Railroad Retirement Tier 1 benefits will be 
     treated as under the law prior to 1994: if the amount of 
     provisional income exceeds $25,000 in the case of unmarried 
     taxpayers or $32,000 in the case of married taxpayers filing 
     joint returns, then the amount of the inclusion is the lesser 
     of (1) 50 percent of the taxpayer's Social Security or 
     Railroad Retirement Tier 1 benefit, or (2) 50 percent of the 
     excess of the taxpayer's provisional income over the 
     threshold.
       Treatment of nonresident alien individuals
       The House bill phases in a reduction in the amount of 
     Social Security or Railroad Retirement Tier 1 benefits 
     included in the gross income of a nonresident alien 
     individual. The inclusion percentage for any taxable year 
     beginning in calendar years 1996 through 1999 is as given in 
     the table above. For taxable years beginning after December 
     31, 1999, the amount of Social Security or Railroad 
     Retirement Tier 1 benefits included in the gross income of a 
     nonresident alien individual will be 50 percent.
       Trust funds
       Revenues from the income taxation of Social Security and 
     Railroad Retirement Tier 1 benefits attributable to the 
     increased portion of benefits included in gross income under 
     the 1993 Act (as phased out under the provision) will be 
     credited to the Old-Age and Survivors and Disability 
     Insurance Trust Funds.
       Effective date
       In general, the provision is effective for taxable years 
     beginning after December 31, 1995. The provision crediting 
     revenues to the Old-Age and Survivors and Disability 
     Insurance Trust Funds applies to tax liabilities for taxable 
     years beginning after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision. II.

                 II. Savings and Investment Incentives


  A. Provisions Relating to Individual Retirement Arrangements (secs. 
 6103-6104 of H.R. 1215, secs. 19002(d) and (e) of the House bill and 
      secs. 12101-12103, 12111, and 12121 of the Senate amendment)

     Present law
       Deductible IRA contributions
           In general
       An individual may make deductible contributions to an 
     individual retirement arrangement (``IRA'') up to the lesser 
     of $2,000 or the amount of the individual's compensation if 
     the individual is not an active participant in an employer-
     sponsored qualified retirement plan (and, if married, the 
     individual's spouse also is not an active participant). An 
     individual who makes excess contributions to an IRA, i.e., 
     contributions in excess of $2,000, is subject to an excise 
     tax on such excess contributions unless they are distributed 
     from the IRA before the due date for filing the individual's 
     tax return for the year (including extensions).
           Income phase-out range
       If the individual (or his or her spouse, if married) is an 
     active participant, the $2,000 limit is phased out between 
     $40,000 and $50,000 of adjusted gross income (``AGI'') for 
     married couples and between $25,000 and $35,000 of AGI for 
     single individuals.
       Inflation adjustment for IRA contribution limit
       The $2,000 limit on IRA contributions is not indexed for 
     inflation.
       Spousal IRAs
       In the case of a married individual whose spouse has no 
     compensation (or elects to be treated as having no 
     compensation) the $2,000 limit on IRA contributions is 
     increased to the lesser of $2,250 or the individual's 
     compensation.
       Nondeductible tax-free IRAs
       No provision. (However, present law does permit individuals 
     to make nondeductible contributions to an IRA to the extent 
     an individual is not permitted to (or does not) make 
     deductible contributions. Earnings on such contributions are 
     includible in gross income when withdrawn.)
       Taxation of distributions
       Amounts withdrawn from an IRA are includible in gross 
     income (except to the extent of nondeductible contributions).
       In addition, a 10-percent additional tax applies to 
     distributions from IRAs made before age 59\1/2\, unless the 
     distribution is on account of death or disability or is made 
     in the form of annuity payments.
       House bill
       In general
       The House bill permits a deductible IRA contribution of up 
     to $2,000 to be made to an IRA for each spouse in a married 
     couple. The House bill does not otherwise modify the rules 
     relating to deductible IRAs.
       The House bill replaces present-law nondeductible IRAs with 
     new American Dream Savings Accounts (``ADSAs'') to which 
     individuals can make nondeductible contributions. 
     Contributions to an ADSA are in addition to any contributions 
     that can be made to a deductible IRA under the present-law 
     rules. In general, an ADSA is an IRA which is designated at 
     the time of establishment as an ADSA. An ADSA is generally 
     subject to the same rules applicable to IRAs, but certain 
     special rules apply. Qualified distributions from an ADSA are 
     not includible in income.
       Deductible IRA contributions
       No provision.
       Spousal IRAs
       The House bill permits annual contributions of up to $2,000 
     for each spouse in a married couple. The aggregate 
     contributions for both spouses cannot exceed the combined 
     compensation of both spouses.
       Nondeductible tax-free IRAs
           In general
       The House bill replaces the present-law rules relating to 
     nondeductible contributions with new provisions that permit 
     individuals to make nondeductible contributions to an ADSA. 
     Generally, ADSAs are subject to the same rules applicable to 
     deductible IRAs. However, a number of special rules apply.
           Contribution limit
       The maximum annual contribution that can be made to an ADSA 
     is the lesser of $2,000 or the individual's compensation. 
     This amount is in addition to any contributions that may be 
     made to present-law IRAs. The $2,000 limit is indexed 
     annually for inflation beginning in 1996. Inflation 
     adjustments are rounded to the nearest $50.
           Contributions for nonworking spouse
       The compensation of both spouses is taken into account in 
     determining the contribution limit for each spouse.
           Miscellaneous
       The House bill permits contributions to be made to an ADSA 
     after age 70\1/2\. In addition, ADSAs are not subject to the 
     pre-death minimum distribution rules applicable to IRAs and 
     tax-qualified plans and are not subject to the excess 
     distribution tax applicable to distributions from IRAs and 
     qualified plans.
           Taxation of distributions
       Distributions are not includible in income if the 
     distribution (1) is made after the 5-taxable year period 
     beginning with the first taxable year for which the 
     individual first made a contribution to any ADSA and (2) is 
     (a) made on or after the date on which the individual attains 
     age 59\1/2\, (b) made to a beneficiary after the death of the 
     individual, (c) attributable to the individual's being 
     disabled, or (d) is for a special purpose (i.e., the purchase 
     of a first home, higher education expenses, medical expenses, 
     or long-term care insurance premiums). Other distributions 
     are includible in income (to the extent of earnings on 
     contributions) and subject to the 10-percent tax on early 
     withdrawals unless an exception applies (see below).
           Rollover contributions
       Under the House bill, amounts withdrawn from IRAs can be 
     rolled over into an ADSA after December 31, 1995, and before 
     January 1, 1998. The amount rolled over is includible in 
     gross income ratably over a 4-year period. The 10-percent 
     early withdrawal tax does not apply to amounts rolled over 
     from an IRA to an ADSA. Amounts rolled over from an IRA to an 
     ADSA are then subject to the rules applicable to ADSAs.
       Tax-free rollovers from one ADSA to another ADSA are 
     permitted as under the present-law rules relating to IRAs.
       Special purpose withdrawals
           In general
       Under the House bill, special purpose withdrawals from an 
     ADSA are not subject to the 10-percent early withdrawal tax. 
     In addition, 

[[Page H 12843]]
     as described above, special purpose withdrawals are not includible in 
     income if the individual has had an ADSA account for at least 
     5 years. In general, special purpose withdrawals include 
     first-time homebuyer expenses, higher education expenses, and 
     medical expenses.
           First-time homebuyer expenses
       First-time homebuyer expenses of the individual are 
     expenses used within 60 days to pay the costs of acquiring, 
     contracting, or reconstructing the principal residence of the 
     individual. An individual is considered a first-time 
     homebuyer if the individual (and, if married, his or her 
     spouse) did not own an interest in a principal residence 
     during the prior 3 years.
           Higher education expenses
       Higher education expenses are tuition, fees, books, 
     supplies, and equipment required for the enrollment or 
     attendance of the individual, the individual's spouse, or a 
     child or grandchild of the individual at an eligible 
     educational institution. The amount of higher education 
     expenses is reduced by any amount excludable form income 
     under the rules relating to education savings bonds.
           Medical expenses
       Medical expenses are defined as under the itemized 
     deduction for medical expenses (without regard to the 7.5 
     percent of adjusted gross income floor), and include the 
     expenses of the individual and his or her spouse or 
     dependents.
           Distributions to unemployed persons
       No provision.
       Effective date
       The provision is effective for taxable years beginning 
     after December 31, 1995.
     Senate amendment
       In general
       The Senate amendment phases up the income limits on the 
     deductibility of IRA contributions and modifies the 
     definition of active participant so that an individual is not 
     considered an active participant merely because his or her 
     spouse is an active participant in an employer-sponsored 
     retirement plan. The Senate amendment indexes the $2,000 IRA 
     contribution limit for inflation.
       In addition, the Senate amendment replaces present-law 
     nondeductible IRAs with a new IRA Plus to which nondeductible 
     contributions can be made. The limits on contributions to 
     deductible IRAs and an IRA Plus are coordinated, so that no 
     more than $2,000 per year can be contributed to an 
     individual's IRAs. In general, an IRA Plus is an IRA that is 
     designated at the time of establishment as an IRA Plus. An 
     IRA Plus is generally subject to the same rules as IRAs, but 
     certain special rules apply. If certain requirements are 
     satisfied, distributions from an IRA Plus are excludable from 
     income.
       Deductible IRA contributions
           In general
       The Senate amendment provides that an individual is not 
     considered an active participant for purpose of the IRA 
     deduction rules merely because his or her spouse is an active 
     participant in an employer-sponsored retirement plan.
           Income phase-out range
       Beginning in 1996, for single individuals, the Senate 
     amendment phases up the income limits on deductible IRA 
     contributions in $5,000 increments until the phaseout range 
     is $85,000 to $95,000 of AGI (in 2007). Also beginning in 
     1996, for married couples, the deduction is phased out over a 
     $20,000 income range (rather than $10,000) and the phase-out 
     range is increased in $5,000 increments until the phase-out 
     range is $100,000 to $120,000 of AGI (in 2007). After these 
     new ranges are reached, the income limits are indexed for 
     inflation in $5,000 increments.
       Inflation adjustment for IRA contribution limit
       The Senate amendment indexes the $2,000 limit on IRA 
     contributions in $500 increments.
       Spousal IRAs
       The Senate amendment is the same as the House bill.
       Nondeductible tax-free IRAs
           In general
       The Senate amendment replaces the present-law rules 
     relating to nondeductible contributions with new provisions 
     that permit individuals to make nondeductible contributions 
     to an IRA Plus. In general, an IRA Plus is subject to the 
     same rules applicable to deductible IRAs. However, a number 
     of special rules would apply.
           Contribution limit
       An individual can make contributions to an IRA Plus to the 
     extent he or she does not make deductible contributions to an 
     IRA. For this purpose, the active participant rule is 
     disregarded in determining the maximum deductible IRA 
     contribution the individual is permitted to make. That is, 
     the income limits applicable to deductible IRAs do not apply 
     to an IRA Plus.
           Contributions for nonworking spouse
       The Senate amendment is the same as the House bill.
           Miscellaneous
       Under the Senate amendment, contributions cannot be made to 
     an IRA Plus after age 70\1/2\, IRA Plus accounts are subject 
     to the minimum distribution rules, and the excess 
     distribution tax applies to distributions from an IRA Plus.
           Taxation of distributions
       The Senate amendment is the same as the House bill, except 
     that the 5-year holding period is calculated differently, and 
     the definition of special purpose withdrawals differs. (See 
     item 6, below.) Under the Senate amendment, the 5-year 
     holding period is satisfied if the contribution to which the 
     distribution relates has been in the IRA Plus for at least 5 
     years. All contributions for a year are treated as made on 
     January 1 of the year.
           Rollover contributions
       The Senate amendment permits amounts withdrawn from IRAs to 
     be rolled over into an IRA Plus. The amount rolled over is 
     includible in gross income in the year the withdrawal was 
     made, except that amounts rolled over to an IRA Plus before 
     January 1, 1998, are includible in income ratably over a 4-
     year period. The 10-percent early withdrawal tax does not 
     apply to amounts rolled over from an IRA to an IRA Plus.
       Tax-free rollovers from one IRA Plus to another are 
     permitted as under the rules relating to present-law IRAs.
       Special purpose withdrawals
           In general
       Under the Senate amendment, special purpose withdrawals 
     from a deductible IRA are not subject to the 10-percent early 
     withdrawal tax. In addition, as described above, special 
     purpose withdrawals from an IRA Plus are not includible in 
     income (or subject to the 10-percent early withdrawal tax) if 
     made after the 5-year holding requirement is satisfied. In 
     general, special purpose withdrawals include withdrawals for 
     first-time homebuyer expenses (up to $10,000), higher 
     education expenses, medical expenses in excess of 7.5 percent 
     of AGI, and distributions to unemployed individuals.
           First-time homebuyer expenses
       The definition of first-time homebuyer expenses is the same 
     under the Senate amendment as under the House bill, with the 
     following modifications. The maximum amount that can be 
     treated as first-time homebuyer expenses is limited to 
     $10,000. First-time homebuyer expenses include not only the 
     expenses of the individual account holder, but also of the 
     individual's spouse, or a child, grandchild, or ancestor of 
     the individual or his or her spouse (as long as that person 
     is a first-time homebuyer). A person is considered a first-
     time homebuyer if the individual (and, if married, his or her 
     spouse) did not own an interest in a principal residence 
     during the prior 2 years and the period for tax-free rollover 
     of the gain on a personal residence has not been extended.
           Higher education expenses
       The definition of higher education expenses is the same 
     under the Senate amendment as under the House bill, except 
     that higher education expenses include expenses of the 
     individual's ancestors and any child, grandchild, or ancestor 
     of the individual's spouse.
           Medical expenses
       The Senate amendment is the same as the House bill, except 
     that only medical expenses in excess of 7.5 percent of AGI 
     are treated a special purpose withdrawals. In addition, 
     medical expenses include the expenses of a child, grandchild, 
     or ancestor of the individual and his or her spouse, whether 
     or not a dependent for tax purposes.
           Distributions to unemployed individuals
       Under the Senate amendment, distributions are treated as a 
     special purpose distribution if the individual has received 
     unemployment compensation for 12 weeks under Federal or State 
     law and the distribution is made during any taxable year 
     during which such unemployment compensation is paid or the 
     next taxable year. A self-employed individual is treated as 
     meeting the requirements for unemployment compensation if the 
     individual would have received such compensation if he or she 
     had not been self employed.
       Effective date
       The provision is effective for taxable years beginning 
     after December 31, 1995.
     Conference agreement
       In general
       In general, the conference agreement follows the Senate 
     amendment with respect to deductible IRA contributions (with 
     modifications), and follows the House bill with respect to 
     nondeductible tax-free IRAs (with modifications). Under the 
     conference agreement, nondeductible tax-free IRAs are called 
     American Dream IRAs (AD IRA's). The conference agreement 
     adopts the Senate amendment definition of special purpose 
     withdrawals.
       Under the conference agreement, as under the Senate 
     amendment, an individual is not considered an active 
     participant in an employer-sponsored retirement plan merely 
     because his or her spouse is an active participant. As under 
     the House bill and the Senate amendment, under the conference 
     agreement, annual contributions of up to $2,000 can be made 
     to an IRA for each spouse in a married couple. The conference 
     agreement phases up the income limits on deductible IRA 
     contributions as under the Senate amendment, except that the 
     phase-out range for married couples is increased to $20,000 
     in $2,500 increments.
       Under the conference agreement, the $2,000 IRA contribution 
     limit is indexed for inflation in $500 increments.
       The conference agreement replaces present-law nondeductible 
     IRAs with new 

[[Page H 12844]]
     provisions that permit individuals to make contributions to an AD IRA. 
     Amounts withdrawn from an AD IRA are not includible in gross 
     income if the withdrawal is made after the individual has had 
     an AD IRA for at least 5 years and the withdrawal is for a 
     special purpose or made after the individual is age 59-\1/2\.
       Penalty-free withdrawals can be made for special purposes 
     from an deductible IRA or an AD IRA. Special purposes are 
     first-time homebuyer expenses, higher education expenses, 
     catastrophic medical expenses, and distributions to 
     unemployed individuals.
       Deductible IRA contributions
       The conference agreement follows the Senate amendment 
     regarding deductible IRAs, with the following modifications. 
     Beginning in 1996, the conference agreement increases the 
     income phase-out range for married couples to $20,000 in 
     $2,500 increments. In addition, under the conference 
     agreement, indexing of the income thresholds (after they 
     reach $85,000 for singles and $100,000 for couples) is in 
     $1,000 increments.
       Inflation adjustment for IRA contribution limit
       The conference agreement follows the Senate amendment.
       Spousal IRAs
       The conference agreement follows the House bill and the 
     Senate amendment.
       Nondeductible tax-free IRAs
           In general
       The conference agreement generally follows the House bill 
     with respect to nondeductible IRAs.2 However, as under 
     the Senate amendment, the conference agreement coordinates 
     the limits on deductible IRAs and nondeductible IRAs. In 
     addition, under the conference agreement, special purpose 
     withdrawals are defined as under the Senate amendment.
     \2\ As under the House bill and the Senate amendment, an AD 
     IRA is treated as an IRA, except as specifically provided. 
     Thus, for example, the exception from the rules requiring 
     capitalization of certain policy acquisition expenses applies 
     to an AD IRA just as it applies to a deductible IRA.
---------------------------------------------------------------------------
           Contribution limit
       An individual can make contributions to all IRAs to the 
     extent he or she does not make deductible contributions to an 
     IRA. Thus, the maximum annual total contributions that can be 
     made by an individual to all IRAs (including deductible IRAs 
     and ADS IRAs) is $2,000. The income limits applicable to 
     deductible IRAs do not apply to ADS IRAs.
           Miscellaneous
       The conference agreement follows the House bill. Thus, 
     contributions can be made to an ADS IRA after age 70-1/2, and 
     the pre-death minimum distribution rules do not apply to an 
     ADS IRA. Distributions from an ADS IRA are not subject to the 
     excise tax on excess distributions (sec. 4980A).
       The conference agreement clarifies the application of the 
     excise tax on excess contributions to an IRA. Under the 
     conference agreement, the excise tax applies separately to 
     deductible IRAs and to total contributions to deductible IRAs 
     and ADS IRAs. Thus, the excise tax applies to contributions 
     in excess of the amount allowable as a deduction, unless the 
     excess contributions are distributed before the due date for 
     the individual's tax return for the year (including 
     extensions). It is intended that the excise tax on excess 
     contributions to a deductible IRA does not apply to the 
     extent the individual transfers excess contributions to an 
     ADS IRA by such date. In such a case, the contribution is 
     treated as made to the ADS IRA for the taxable year for which 
     the contribution was made to the deductible IRA. In addition, 
     the excise tax applies to total contributions to deductible 
     IRAs and the individual's contributions to an ADS IRA 
     (including any amounts transferred as described above). Thus, 
     the excise tax applies if such total contributions for a year 
     exceed $2,000 (unless the excess contributions are 
     distributed).
           Taxation of distributions
       The conference agreement generally follows the House bill. 
     Thus, amounts withdrawn from an ADS IRA are excludable from 
     income if the withdrawal is made after the 5-taxable year 
     period beginning with the taxable year for which the 
     individual first makes a contribution to an ADS IRA,3 
     and either (a) the individual has attained age 59-\1/2\ or 
     (b) the withdrawal is a special purpose withdrawal. Special 
     purpose withdrawals made within the 5-taxable year period are 
     includible in income (to the extent attributable to 
     earnings), but are not subject to the 10-percent tax on early 
     withdrawals. Other withdrawals are includible in income to 
     the extent attributable to earnings on contributions. 
     Distributions from an AD IRA that are not includible in 
     income are referred to as ``qualified distributions.''
     \3\ As is the case with IRAs in general, a contribution to an 
     AD IRA for a taxable year can be made by the due date for 
     filing the individual's tax return for the year (without 
     regard to extensions). In such a case, the 5-year holding 
     period begins to run with the taxable year to which the 
     contribution relates, not the year in which the contribution 
     is actually made.
---------------------------------------------------------------------------
       The conference agreement includes an ordering rule for 
     purposes of determining what portion of a distribution that 
     is not a qualified distribution is includible in income. 
     Under the conference agreement, distributions are treated as 
     made from contributions first. Thus, no portion of a 
     distribution is treated as attributable to earnings until the 
     total of all distributions from the AD IRA exceeds the amount 
     of contributions.
           Rollover contributions
       The conference agreement follows the House bill, but 
     clarifies that the conversion of an IRA to an AD IRA can be 
     made without taking a distribution. For example, an 
     individual could make the conversion by notifying the IRA 
     trustee. Or, the individual could make the conversion in 
     connection with a change in IRA trustees through a rollover 
     or a trustee-to-trustee transfer. An individual can convert 
     all or any part of the amount in an IRA into an AD IRA. If 
     only part of the IRA account balance is converted into an AD 
     IRA, the AD IRA amounts must be held separately.
       As under the House bill, a conversion of an IRA into an AD 
     IRA can only be made after December 31, 1996, and before 
     January 1, 1998. The amount that would have been includible 
     in income if the individual had withdrawn the converted 
     amounts from the IRA is includible in income ratably over a 
     4-year period beginning with the year of the conversion. The 
     trustee is required to make reports regarding the conversion 
     and the amount involved as specified by the Treasury.4
     \4\ In the case of amounts attributable to a conversion of an 
     IRA into an AD IRA, the 5-year holding period starts with the 
     taxable year in which the conversion is made.
---------------------------------------------------------------------------
       Special purpose withdrawals
       Under the conference agreement, special purpose withdrawals 
     from an AD IRA or a deductible IRA are not subject to the 10-
     percent early withdrawal tax. Special purpose withdrawals are 
     defined as under the Senate amendment.
       Effective date
       The provisions are effective for taxable years beginning 
     after December 31, 1995.


 B. Establish SIMPLE Retirement Plans (secs. 12131-12132 of the Senate 
                               amendment)

     Present law
       Present law does not contain rules relating to SIMPLE 
     retirement plans. However, present law does provide a number 
     of ways in which individuals can save for retirement on a 
     tax-favored basis. These include employer-sponsored 
     retirement plans that meet the requirements of the Internal 
     Revenue Code (a ``qualified plan'') and individual retirement 
     arrangements (``IRAs''). Employees can earn significant 
     retirement benefits under employer-sponsored retirement 
     plans. However, in order to receive tax-favored treatment, 
     such plans must comply with a variety of rules, including 
     complex nondiscrimination and administrative rules (including 
     top-heavy rules). Such plans are also subject to certain 
     requirements under the labor law provisions of the Employee 
     Retirement Income Security Act of 1974 (``ERISA'').
       IRAs are not subject to the same rules as qualified plans, 
     but the amount that can be contributed in any year is 
     significantly less. The maximum deductible IRA contribution 
     for a year is limited to $2,000. Distributions from IRAs and 
     employer-sponsored retirement plans are generally taxable 
     when made. In addition, distributions prior to age 59-\1/2\ 
     generally are subject to an additional 10-percent early 
     withdrawal tax.
       Contributions to an IRA can also be made by an employer on 
     behalf of employees under a simplified employee pension 
     (``SEP''). Under SEPs, which are not qualified plans, 
     employees can elect to have contributions made to the SEP or 
     to receive the contributions in cash. The amount the employee 
     elects to have contributed to the SEP is not currently 
     includible in income. The annual amount an employee can elect 
     to contribute to a SEP is limited to $9,240 for 1995. This 
     dollar limit is indexed for inflation in $500 increments. The 
     election to have amounts contributed to a SEP or received in 
     cash is available only if at least 50 percent of the eligible 
     employees of the employer elect to have amounts contributed 
     to the SEP. In addition, such election is available for a 
     taxable year only if the employer maintaining the SEP had 25 
     or fewer eligible employees at all times during the prior 
     taxable year. Elective deferrals under SEP's are subject to a 
     special nondiscrimination test.
       Under one type of qualified plan that can be maintained by 
     an employer, employees can elect to reduce their taxable 
     compensation and have nontaxable contributions made to the 
     plan. Such contributions are called elective deferrals, and 
     the plans which allow such contributions are called qualified 
     cash or deferred arrangements (or ``401(k) plans''). Like 
     SEPs, the maximum annual amount of elective deferrals that 
     can be made by an individual is $9,240 for 1995. A special 
     nondiscrimination test applies to elective deferrals. An 
     employer may make contributions based on an employee's 
     elective contributions. Such contributions are called 
     matching contributions, and are subject to a special 
     nondiscrimination test similar to the special 
     nondiscrimination test applicable to elective deferrals.
     House bill
       No provision.
     Senate amendment
       In general
       The Senate amendment creates a simplified retirement plan 
     for small business called the savings incentive match plan 
     for employees (``SIMPLE'') retirement plan. 

[[Page H 12845]]
      SIMPLE plans can be adopted by employers who normally employ 100 or 
     fewer employees on any day during the year and who do not 
     maintain another employer-sponsored retirement plan. A SIMPLE 
     plan can be either an IRA for each employee or part of a 
     qualified cash or deferred arrangement (``401(k) plan''). If 
     established in IRA form, a SIMPLE plan is not subject to the 
     nondiscrimination rules generally applicable to qualified 
     plans (including the top-heavy rules) and simplified 
     reporting requirements apply. Within limits, contributions to 
     a SIMPLE plan are not taxable until withdrawn. A SIMPLE plan 
     is subject to certain provisions contained in Parts 1 and 4, 
     Subtitle B, Title I of ERISA.
       A SIMPLE plan can also be adopted as part of a 401(k) plan. 
     In that case, the plan does not have to satisfy the special 
     nondiscrimination tests applicable to 401(k) plans and is not 
     subject to the top-heavy rules. The other qualified plan 
     rules continue to apply. A simple plan adopted as part of a 
     401(k) plan is subject to the provisions contained in 
     Subtitle B, Title I of ERISA applicable to qualified plans.
       SIMPLE retirement plans in IRA form
           In general
       A SIMPLE retirement plan allows employees to make elective 
     contributions to an IRA. Employee contributions have to be 
     expressed as a percentage of the employee's compensation, and 
     cannot exceed $6,000 per year. The $6,000 dollar limit is 
     indexed for inflation in $500 increments.
       The employer generally is required to match employee 
     elective contributions on a dollar- for-dollar basis up to 3 
     percent of the employee's compensation. Under a special rule, 
     the employer can elect a lower percentage matching 
     contribution for all employees (but not less than 1 percent 
     of each employee's compensation). In order for the employer 
     to lower the matching percentage, the employer must notify 
     employees of the applicable match within a reasonable time 
     before the 60-day election period for the year (described 
     below). In addition, a lower percentage cannot be elected for 
     more than 2 out of any 5 years. No contributions other than 
     employee elective contributions and employer matching 
     contributions can be made to a SIMPLE account.
       Only employers who normally employ 100 or fewer employees 
     on any day during the year and who do not currently maintain 
     a qualified plan can establish SIMPLE retirement accounts for 
     their employees.
       Each employee of the employer who received at least $5,000 
     in compensation from the employer during each of the 2 
     preceding years and who is reasonably expected to receive at 
     least $5,000 in compensation during the year must be eligible 
     to participate in the SIMPLE plan. Nonresident aliens and 
     employees covered under a collective bargaining agreement do 
     not have to be eligible to participate in the SIMPLE plan. 
     Self-employed individuals can participate in a SIMPLE plan.
       All contributions to an employee's SIMPLE account must be 
     fully vested.
       Distributions from a SIMPLE plan generally are taxed as 
     under the rules relating to IRAs, except that an increased 
     early withdrawal tax (25 percent) applies to distributions 
     within the first 2 years the SIMPLE is established.
           Tax treatment of SIMPLE accounts, contributions, and 
           distributions
       Contributions to a SIMPLE account generally are deductible 
     by the employer. In the case of matching contributions, the 
     employer is allowed a deduction for a year only if the 
     contributions are made by the due date (including extensions) 
     for the employer's tax return. Contributions to a SIMPLE 
     account are excludable from the employee's income. SIMPLE 
     accounts, like IRAs, are not subject to tax. Distributions 
     from a SIMPLE retirement account generally are taxed under 
     the rules applicable to IRAs. Thus, they are includible in 
     income when withdrawn. Tax-free rollovers can be made from 
     one SIMPLE account to another. To the extent an employee is 
     no longer participating in a SIMPLE plan (e.g., the employee 
     has terminated employment), the employee's SIMPLE account 
     shall be treated as an IRA.
       Early withdrawals from a SIMPLE account generally are 
     subject to the 10-percent early withdrawal tax applicable to 
     IRAs. However, withdrawals of contributions during the 2-year 
     period beginning on the date the employee first participated 
     in the SIMPLE plan are subject to a 25-percent early 
     withdrawal tax (rather than 10 percent).
           Administrative requirements
       Each eligible employee can elect, within the 60-day period 
     before the beginning of the year, to participate in the 
     SIMPLE plan (i.e., to make elective deferrals), and to modify 
     any previous elections regarding the amount of contributions. 
     An employer is required to contribute employees' elective 
     deferrals to the employee's SIMPLE account within 30 days 
     after the end of the month to which the contributions relate. 
     Employees must be allowed to terminate participation in the 
     SIMPLE plan at any time during the year (i.e., to stop making 
     contributions). The plan could provide that an employee who 
     terminates participation could not resume participation until 
     the following year. A plan can permit (but is not required to 
     permit) an individual to make other changes to his or her 
     salary reduction contribution election during the year (e.g., 
     reduce contributions).
       No fee can be imposed on the employee with respect to the 
     employee's initial investment decision with respect to any 
     contributions. This rule is not intended to preclude the 
     imposition of a reasonable fee based on the rate of return on 
     assets held in a SIMPLE account.
           Reporting requirements
       Trustee requirements.--The trustee of a SIMPLE account is 
     required each year to prepare, and provide to the employer 
     maintaining the SIMPLE plan, a summary description containing 
     the following basic information about the plan: the name and 
     address of the employer and the trustee; the requirements for 
     eligibility; the benefits provided under the plan; the time 
     and method of making salary reduction elections; and the 
     procedures for and effects of, withdrawals from the SIMPLE 
     account. At least once a year, the trustee also is required 
     to furnish an account statement to each individual 
     maintaining a SIMPLE account. In addition, the trustee is 
     required to file an annual report with the Secretary. A 
     trustee who fails to provide any of such reports or 
     descriptions is subject to a penalty of $50 per day until 
     such failure is corrected, unless the failure is due to 
     reasonable cause.
       Employer reports.--The employer maintaining a SIMPLE plan 
     is required to notify each employee of the employee's 
     opportunity to make salary reduction contributions under the 
     plan immediately before the employee becomes eligible to make 
     such election. This notice must include a copy of the summary 
     description prepared by the trustee. An employer who fails to 
     provide such notice is subject to a penalty of $50 per day on 
     which such failure continues, unless the failure is due to 
     reasonable cause.
           Definitions
       For purposes of the rules relating to SIMPLE plans, 
     compensation is compensation required to be reported by the 
     employer on Form W-2, plus any elective deferrals of the 
     employee. In the case of a self-employed individual, 
     compensation is net earnings from self-employment. 
     ``Employer'' includes the employer and related employers. 
     Related employers include trades or businesses under common 
     control (whether incorporated or not), controlled groups of 
     corporations, and affiliated service groups. In addition, the 
     leased employee rules apply.
       For purposes of the rule prohibiting an employer from 
     establishing a SIMPLE plan, if the employer has another 
     qualified plan, an employer is treated as maintaining a 
     qualified plan if the employer (or a predecessor employer) 
     maintained a qualified plan with respect to which 
     contributions were made, or benefits were accrued, with 
     respect to service for any year in the period beginning with 
     the year the SIMPLE plan became effective and ending with the 
     year for which the determination is being made. A qualified 
     plan includes a qualified retirement plan, a qualified 
     annuity plan, a governmental plan, a tax-sheltered annuity, 
     and a simplified employee pension.
       SIMPLE 401(k) plans
       In general, under the Senate amendment, a cash or deferred 
     arrangement (i.e., 401(k) plan), is deemed to satisfy the 
     special nondiscrimination tests applicable to employee 
     elective deferrals and employer matching contributions if the 
     plan satisfies the contribution requirements applicable to 
     SIMPLE plans. In addition, the plan is not subject to the 
     top-heavy rules for any year for which this safe harbor is 
     satisfied. The plan is subject to the other qualified plan 
     rules.
       The safe harbor is satisfied if, for the year, the employer 
     does not maintain another qualified plan and (1) employee's 
     elective deferrals are limited to no more than $6,000, (2) 
     the employer matches employees' elective deferrals up to 3 
     percent of compensation, and (3) no other contributions are 
     made to the arrangement. Contributions under the safe harbor 
     must be 100 percent vested. The employer cannot reduce the 
     matching percentage below 3 percent of compensation.
       Effective date
       The provisions relating to SIMPLE plans are effective for 
     years beginning after December 31, 1995.
     Conference agreement
       SIMPLE retirement plans in IRA form
       The conference agreement follows the Senate amendment with 
     the following modifications. An employer is eligible to 
     maintain a SIMPLE plan if the employer employs 100 or fewer 
     employees on any day during the year. An employee must be 
     eligible to participate in the SIMPLE plan in a year if the 
     employee received at least $5,000 in compensation from the 
     employer during any two prior years and the employee is 
     reasonably expected to receive at least $5,000 in 
     compensation in the current year. The prohibition on fees 
     with respect to an employee's initial investment decision 
     with respect to any contributions is eliminated. A SIMPLE 
     account may be rolled over to an individual retirement 
     arrangement (``IRA'') on a tax-free basis after a two-year 
     period has expired since the individual first participated in 
     the SIMPLE plan. The conference agreement also clarifies that 
     the summary description required to be prepared by the 
     trustee of a SIMPLE account must provide information on 
     rolling over amounts from a SIMPLE account.
       The conference agreement also amends parts 1 and 4, 
     Subtitle B, Title I of ERISA so that only simplified 
     reporting requirements 

[[Page H 12846]]
     apply to SIMPLE plans and so that the employer will not be subject to 
     fiduciary liability resulting from the employee (or 
     beneficiary) exercising control over the assets in the SIMPLE 
     account. For this purpose, an employee (or beneficiary) is 
     treated as exercising control over the assets in his or her 
     account upon the earlier of (1) an affirmative election with 
     respect to the initial investment of any contributions, (2) a 
     rollover contribution (including a trustee-to-trustee 
     transfer) to another SIMPLE account or IRA, or (3) one year 
     after the SIMPLE account is established.
       It is intended that an employee's elective contributions, 
     but not an employer's matching contributions, to a SIMPLE 
     account are to be treated as wages for employment tax 
     purposes.
       SIMPLE 401(k) plans
       The conference agreement follows the Senate amendment.
       Repeal of SEPs
       Under the conference agreement, the present-law rules 
     governing SEPs will no longer apply after December 31, 1995, 
     unless the SEP was established before January 1, 1996. 
     Consequently, an employer will not be permitted to establish 
     a SEP after December 31, 1995. SEPs established before 
     January 1, 1996, may continue to receive contributions under 
     present-law rules, and new employees of the employer hired 
     after December 31, 1995, may participate in the SEP in 
     accordance with such rules.
       Effective date
       The conference agreement follows the Senate amendment.


                      C. Capital Gains Provisions

 1. Individual capital gains (sec. 6301 of H.R. 1215 and sec. 12141 of 
                         the Senate amendment)

     Present law
       In general, gain or loss reflected in the value of an asset 
     is not recognized for income tax purposes until a taxpayer 
     disposes of the asset. On the sale or exchange of capital 
     assets, the net capital gain is taxed at the same rate as 
     ordinary income, except that individuals are subject to a 
     maximum marginal rate of 28 percent of the net capital gain. 
     Net capital gain is the excess of the net long-term capital 
     gain for the taxable year over the net short-term capital 
     loss for the year. Gain or loss is treated as long-term if 
     the asset is held for more than one year.
       Prior to the enactment of the Tax Reform Act of 1986, 
     individuals were allowed a deduction equal to 60 percent of 
     net capital gain. The deduction resulted in a maximum 
     effective tax rate of 20 percent on such gains.
       Capital losses are generally deductible in full against 
     capital gains. In addition, individuals may deduct capital 
     losses against up to $3,000 of ordinary income in each year. 
     Capital losses in excess of the amount deductible are carried 
     forward indefinitely. Prior to the Tax Reform Act of 1986, 
     individuals were required to use two dollars of long-term 
     capital loss to offset each dollar of ordinary income.
       An alternative minimum tax is imposed at rates up to 28 
     percent on alternative minimum taxable income (AMTI), which 
     is taxable income plus tax adjustments and preferences. 
     Capital gains are included in AMTI.
     House bill
       The House bill allows individuals a deduction equal to 50 
     percent of net capital gain for the taxable year. The House 
     bill makes the present-law maximum 28-percent rate 
     inapplicable. Thus, under the House bill, the effective rate 
     under the regular tax on the net capital gain of an 
     individual in the highest (i.e., 39.6 percent) marginal rate 
     bracket is 19.8 percent.
       Collectibles are excluded from net capital gain. A maximum 
     rate of 28 percent applies to the net gain from the sale or 
     exchange of collectibles held for more than one year (unless 
     the individual indexes the basis of the collectible, as 
     described below).
       The House bill reinstates the rule in effect prior to the 
     Tax Reform Act of 1986 that required two dollars of the long-
     term capital loss of an individual to offset one dollar of 
     ordinary income. The $3,000 limitation on the deduction of 
     capital losses against ordinary income would continue to 
     apply.
       Effective date.--The provision generally applies to sales 
     and exchanges (and installment payments received) after 
     December 31, 1994. The capital loss rule does not apply to 
     losses arising in taxable years beginning before January 1, 
     1996.
     Senate amendment
       The Senate amendment is the same as the House bill, except 
     that one-half of the capital gains deduction is a preference 
     for purposes of the alternative minimum tax. Also, the 28-
     percent rate for collectibles does not require an election to 
     forgo indexing (as the Senate amendment contains no indexing 
     provision).
       Effective date.--The provision generally applies to sales 
     and exchanges (and installment payments received) after 
     October 13, 1995. The capital loss rule is effective the same 
     as in the House bill.
     Conference agreement
       The conference agreement follows the House bill.


 2. Small business stock (sec. 6301 of H.R. 1215 and secs. 12142-12143 
                        of the Senate amendment)

     Present law
       The Revenue Reconciliation Act of 1993 provided individuals 
     a 50-percent exclusion for the sale of certain small business 
     stock acquired at original issue and held for at least five 
     years. One-half of the excluded gain is a minimum tax 
     preference.
       The amount of gain eligible for the 50-percent exclusion by 
     an individual with respect to any corporation is the greater 
     of (1) ten times the taxpayer's basis in the stock or (2) $10 
     million.
       In order to qualify as a small business, when the stock is 
     issued, the gross assets of the corporation may not exceed 
     $50 million. The corporation also must meet an active trade 
     or business requirement.
     House bill
       The House bill repeals the exclusion for small business 
     stock.
       Effective date.--A taxpayer holding small business stock on 
     the date of enactment may elect, within one year from the 
     date of enactment, to have the provisions of present law 
     (rather than the provisions of the House bill) apply to any 
     gain from the sale of the stock.
     Senate amendment
       The taxable portion of the gain from the sale of small 
     business stock is eligible for the individual capital gains 
     deduction added by the Senate amendment. Thus, only 25 
     percent of the gain from a qualified sale of small business 
     stock is subject to tax. The effective rate under the regular 
     tax on the gain of an individual in the highest (i.e., 39.6 
     percent) marginal rate bracket is 9.9 percent.
       The Senate amendment increases the size of an eligible 
     corporation from gross assets of $50 million to gross assets 
     of $100 million. The Senate amendment also repeals the 
     limitation on the amount of gain an individual can exclude 
     with respect to the stock of any corporation.
       The Senate amendment provides that certain working capital 
     must be expended within five years (rather than two years) in 
     order to be treated as used in the active conduct of a trade 
     or business. No limit on the percent of the corporation's 
     assets that are working capital is imposed.
       The Senate amendment provides that if the corporation 
     establishes a business purpose for a redemption of its stock, 
     that redemption is disregarded in determining whether other 
     newly issued stock can qualify as eligible stock.
       The Senate amendment allows an individual to roll over gain 
     from the sale or exchange of small business stock otherwise 
     qualifying for the exclusion where the individual uses the 
     proceeds to purchase other qualifying small business stock 
     within 60 days of the sale of the original stock. If the 
     individual sells the replacement stock, the gain attributable 
     to the original stock is eligible for the small business 
     stock exclusion and the capital gain deduction, and any 
     remaining gain is eligible for the capital gain deduction if 
     held more than one year and the small business exclusion if 
     held for at least five years. In addition, any gain that 
     otherwise would be recognized from the sale of the 
     replacement stock can be rolled over to other small business 
     stock purchased within 60 days.
       Effective date.--The increase in the size of corporations 
     whose stock is eligible for the exclusion applies to stock 
     issued after the date of the enactment of the proposal. The 
     remaining provisions apply to stock issued after August 10, 
     1993 (the original effective date of the small business stock 
     provision).
     Conference agreement
       The conference agreement generally follows the Senate 
     amendment.
       Under the conference agreement, the maximum rate of tax on 
     qualifying gain from the sale of small business stock by a 
     taxpayer other than a corporation is 14 percent. The 
     conference agreement repeals the present-law 50-percent 
     exclusion for gain from qualifying small business stock, 
     since that gain will be eligible for the 50-percent capital 
     gains deduction that is generally applicable to gain 
     recognized by individual taxpayers as provided for by the 
     conference agreement. In addition, the conference agreement 
     repeals the minimum tax preference for gain from the sale of 
     small business stock.
       The conference agreement does not contain the rollover 
     provision in the Senate amendment.


         3. Indexing of capital gains (sec. 6302 of H.R. 1215)

     Present law
       Under present law, a taxpayer's gain or loss from the 
     disposition of an asset is determined without regard to any 
     adjustment for inflation.
     House bill
       The House bill allows a taxpayer other than a C corporation 
     to index the basis of certain assets for purposes of 
     determining gain (but not loss) upon the sale or other 
     disposition of the assets.
       Assets eligible for indexing generally include common stock 
     of C corporations and tangible property that are capital 
     assets or property used in a trade or business and which are 
     held more than three years.
       The inflation adjustment is computed by multiplying the 
     taxpayer's adjusted basis in the indexed asset by an index 
     based on changes in the GDP deflator.
       Special rules are provided for RICS, REITS, partnerships, S 
     corporations and common trust funds.
       Effective date.--The provision applies to property the 
     holding period of which begins after December 31, 1994, and 
     to principal residences held on January 1, 1995 (for 
     inflation 

[[Page H 12847]]
     after that date). A taxpayer holding an indexed asset (other than a 
     principal residence) on January 1, 1995, may elect to treat 
     the asset as having been sold (and reacquired) on that date 
     for its fair market value, i.e., ``marked to market.'' If the 
     election is made, any gain is recognized (and any loss is 
     disallowed).
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill except that 
     the effective date is for assets acquired on or after, and 
     principal residences held on, January 1, 2001 (rather than 
     January 1, 1995), for inflation after that date. The date of 
     the ``mark to market'' election under the House bill is also 
     moved forward from January 1, 1995, to January 1, 2001. The 
     election will apply to eligible assets held on January 1, 
     2001.


 4. Corporate capital gains (sec. 6311 of H.R. 1215 and sec. 12151 of 
                         the Senate amendment)

     Present law
       Under present law, the net capital gain of a corporation is 
     taxed at the same rate as ordinary income, and subject to tax 
     at graduated rates up to 35 percent. Prior to the Tax Reform 
     Act of 1986, the net capital gain of a corporation was 
     subject to an alternative tax rate of 28 percent.
     House bill
       The House bill provides an alternative tax of 25 percent on 
     the net capital gain of a corporation if that rate is less 
     than the corporation's regular tax rate.
       Effective date.--The provision generally applies to sales 
     and exchanges (and installment payments received) after 
     December 31, 1994.
     Senate amendment
       The Senate amendment provides an alternative rate of 28 
     percent on the net capital gain of a corporation if that rate 
     is less than the corporation's regular tax rate.
       The Senate amendment also provides an alternative rate of 
     21 percent on the gain from the sale or exchange of qualified 
     small business stock (other than stock of a subsidiary 
     corporation) held more than five years.
       Effective date.--The provision generally applies to sales 
     and exchanges (and installment payments received) after 
     October 13, 1995. The small business stock provision applies 
     to stock issued after date of enactment.
     Conference agreement
       The conference agreement follows the Senate amendment, 
     except that the 28-percent rate is effective the same as in 
     the House bill.


   5. Capital loss deduction on the sale or exchange of a principal 
                   residence (sec. 6316 of H.R. 1215)

     Present law
       Under present law, the sale or exchange of a principal 
     residence is treated as a nondeductible personal loss.
     House bill
       The House bill provides that a loss from the sale or 
     exchange of a principal residence is treated as a deductible 
     capital loss.
       Effective date.--The provision applies to sales and 
     exchanges after December 31, 1994.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


d. alternative minimum tax (amt) provisions (sec. 19002(f) of the house 
        bill and secs. 12161 and 12162 of the senate amendment)

     Present law
       Present law imposes an alternative minimum tax (``AMT'') on 
     an individual or a corporation to the extent the taxpayer's 
     tentative minimum tax exceeds its regular tax liability. The 
     individual minimum tax is imposed at graduated rates of 26 
     and 28 percent on alternative minimum taxable income in 
     excess of a phased-out exemption amount; the corporate 
     minimum tax is imposed at a rate of 20 percent on alternative 
     minimum taxable income in excess of a phased-out $40,000 
     exemption amount. Alternative minimum taxable income 
     (''AMTI'') is the taxpayer's taxable income increased by 
     certain preference items and adjusted by determining the tax 
     treatment of certain items in a manner that negates the 
     deferral of income resulting from the regular tax treatment 
     of those items.
       Individuals and corporations must adjust their regular tax 
     depreciation deductions in computing their AMTI. Under the 
     AMT, depreciation on property placed in service after 1986 
     must be computed by using the class lives prescribed by the 
     alternative depreciation system of section 168(g) and either 
     (1) the straight-line method in the case of property subject 
     to the straight-line method under the regular tax or (2) the 
     150-percent declining balance method in the case of other 
     property. Under the regular tax, depreciation on such 
     property generally is determined using shorter recovery 
     periods and more accelerated recovery methods.
       If a taxpayer is subject to the AMT in one year, such 
     amount of tax is allowed as a credit (''AMT credit'') in a 
     subsequent taxable year to the extent the taxpayer's regular 
     tax liability exceeds its tentative minimum tax in such 
     subsequent year. If the taxpayer is an individual, the AMT 
     credit is allowed to the extent the taxpayer's AMT liability 
     is a result of adjustments that are timing in nature (e.g., 
     the adjustment for depreciation). The AMT credit has an 
     unlimited carryforward but cannot be carried back.
     House bill
       The House bill eliminates the depreciation adjustment of 
     the individual AMT and reduces the corporate AMT rate to 
     zero.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 1994. The effects of the 
     two modifications are suspended for taxable years beginning 
     in 1995 and 1996. These suspended amounts are refunded 
     ratably as credits for the first three taxable years 
     beginning after 1996.
     Senate amendment
       For purposes of the individual and corporate AMTs, the 
     Senate amendment conforms the AMT depreciation method to the 
     regular tax method. Thus, property that is recovered using 
     the 200-percent declining balance method for regular tax 
     purposes (generally, shorter-lived tangible personal 
     property) will use that method under the AMT. The Senate 
     amendment does not change the class lives applicable to any 
     property for AMT purposes.
       In addition, the Senate amendment allows a corporation with 
     certain AMT credits to offset a portion of its tentative 
     minimum tax in excess of its regular tax. The portion so 
     allowed would be the least of: (1) the amount of the 
     taxpayer's long-term minimum tax credit (i.e., those credits 
     that arose at least five years ago); (2) 50 percent of the 
     taxpayer's tentative minimum tax; or (3) the amount by which 
     the taxpayer's tentative minimum tax exceeds it regular tax 
     for the year.
       Effective date.--The depreciation provision is effective 
     for property placed in service after December 31, 1995. The 
     AMT credit provision is effective for taxable years beginning 
     after December 31, 1995.
     Conference agreement
       The conference agreement repeals the depreciation 
     adjustment for purposes of both the individual and corporate 
     AMT for property placed in service after December 31, 1995. 
     Thus, the conference agreement conforms the AMT depreciation 
     methods and lives to the depreciation methods and lives used 
     for regular tax purposes for property placed in service after 
     1995.
       In addition, the conference agreement follows the Senate 
     amendment with respect to the AMT credit, except that under 
     the agreement, the amount of the taxpayer's long-term minimum 
     tax credit will be those credits that arose at least seven 
     (rather than five) years ago.


                      e. cost recovery provisions

    1. treatment of leasehold improvements (sec. 6322 of h.r. 1215)

     Present law
       Depreciation of leasehold improvements
       Improvements made on leased property are depreciated under 
     the modified Accelerated Cost Recovery System (''MACRS''), 
     even if the MACRS recovery period assigned to the property is 
     longer than the term of the lease (sec. 168(i)(8)). This rule 
     applies regardless whether the lessor or lessee places the 
     leasehold improvements in service. If a leasehold improvement 
     constitutes an addition or improvement to nonresidential real 
     property already placed in service, the improvement is 
     depreciated using the straight-line method over a 39-year 
     recovery period, beginning in the month the addition or 
     improvement was placed in service (secs. 168(b)(3), (c)(1), 
     (d)(2), and (i)(6)).
       Treatment of dispositions of leasehold improvements
       A taxpayer generally recovers the adjusted basis of 
     property for purposes of determining gain or loss upon the 
     disposition of the property. Upon the termination of a lease, 
     the adjusted basis of leasehold improvements that were made, 
     but are not retained, by a lessee are taken into account to 
     compute gain or loss by the lessee. The proper treatment of 
     the adjusted basis of improvements made by a lessor upon 
     termination of a lease is less clear. Proposed Treasury 
     regulation section 1.168-2(e)(1) provides that the unadjusted 
     basis of a building's structural components must be recovered 
     as whole. In addition, proposed Treasury regulation sections 
     1.168-2(l)(1) and 1.168-6(b) provide that ``disposition'' 
     does not include the retirement of a structural component of 
     real property if there is no disposition of the underlying 
     building. Thus, it appears that it is the position of the 
     Internal Revenue Service that leasehold improvements made by 
     a lessor that constitute structural components of a building 
     must be continued to be depreciated in the same manner as the 
     underlying real property, even if such improvements are 
     retired at the end of the lease term. Some lessors, on the 
     other hand, may be taking the position that a leasehold 
     improvement is a property separate and distinct from the 
     underlying building and that an abandonment loss under 
     section 165 is allowable at the end of the lease term for the 
     adjusted basis of the property. In addition, lessors may 
     argue that even if a leasehold improvement constitutes a 
     structural component of a building, proposed Treasury 
     regulation section 1.168-2(l)(1) (that seemingly denies the 
     deduction at the end of the lease term) applies only to 
     retirements, but not abandonments or demolitions, of such 
     property. Thus, it appears that some lessors take the 
     position that, at least in certain circumstances, the 
     adjusted basis of leasehold improvements may be recovered at 
     the end of the term of the lease to which the improvements 
     relate 

[[Page H 12848]]
     even if there is no disposition of the underlying building.
     House bill
       Under the House bill, a lessor of leased property that 
     disposes of a leasehold improvement which was made by the 
     lessor for the lessee of the property may take the adjusted 
     basis of the improvement into account for purposes of 
     determining gain or loss if the improvement is irrevocably 
     disposed of or abandoned by the lessee at the termination of 
     the lease. The provision thus conforms the treatment of 
     lessors and lessees with respect to leasehold improvements 
     disposed of at the end of a term of lease.
       For purposes of applying the provision, it is expected that 
     a lessor must be able to separately account for the adjusted 
     basis of the leasehold improvement that is irrevocably 
     disposed of or abandoned.
       Effective date.--The provision is effective for leasehold 
     improvements disposed of after March 13, 1995. No inference 
     is intended as to the proper treatment of such dispositions 
     before March 14, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill provision.


 2. increase in expensing for small businesses (sec. 6352 of h.r. 1215)

     Present law
       In lieu of depreciation, a taxpayer with a sufficiently 
     small amount of annual investment may elect to deduct up to 
     $17,500 of the cost of qualifying property placed in service 
     for the taxable year (sec. 179).5 In general, qualifying 
     property is defined as depreciable tangible personal property 
     that is purchased for use in the active conduct of a trade or 
     business. The $17,500 amount is reduced (but not below zero) 
     by the amount by which the cost of qualifying property placed 
     in service during the taxable year exceeds $200,000. In 
     addition, the amount eligible to be expensed for a taxable 
     year may not exceed the taxable income of the taxpayer for 
     the year that is derived from the active conduct of a trade 
     or business (determined without regard to this provision). 
     Any amount that is not allowed as a deduction because of the 
     taxable income limitation may be carried forward to 
     succeeding taxable years (subject to similar limitations).
     \5\ The amount permitted to be expensed under Code section 
     179 is increased by up to an additional $20,000 for certain 
     property placed in service by a business located in an 
     empowerment zone (sec. 1397A).
---------------------------------------------------------------------------
     House bill
       The House bill increases the $17,500 amount allowed to be 
     expensed under Code section 179 to $35,000. The increase is 
     phased in as follows:

                                                      Maximum expensing
Taxable year beginning in--
  1996..........................................................$22,500
  1997...........................................................27,500
  1998...........................................................32,500
  1999 and thereafter............................................35,000

       Effective date.--The provision is effective for property 
     placed in service in taxable years beginning after December 
     31, 1995, subject to the phase-in schedule set forth above.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill, except 
     that the maximum expensing limits and phase-in schedule are 
     modified as follows:

                                                      Maximum expensing
Taxable year beginning in--
  1996..........................................................$19,000
  1997...........................................................20,000
  1998...........................................................21,000
  1999...........................................................22,000
  2000...........................................................23,000
  2001...........................................................24,000
  2002 and thereafter............................................25,000

       Effective date.--The provision is effective for property 
     placed in service in taxable years beginning after December 
     31, 1995, subject to the phase-in schedule set forth above.


f. home office deduction:clarification of definition of principal place 
 of business; treatment of storage of product samples (secs. 6353 and 
                           6354 of h.r. 1215)

     Present law
       A taxpayer's business use of his or her home may give rise 
     to a deduction for the business portion of expenses related 
     to operating the home (e.g., a portion of rent or 
     depreciation and repairs). Code section 280A(c)(1) provides, 
     however, that business deductions generally are allowed only 
     with respect to a portion of a home that is used exclusively 
     and regularly in one of the following ways: (1) as the 
     principal place of business for a trade or business; (2) as a 
     place of business used to meet with patients, clients, or 
     customers in the normal course of the taxpayer's trade or 
     business; or (3) in connection with the taxpayer's trade or 
     business, if the portion so used constitutes a separate 
     structure not attached to the dwelling unit. In the case of 
     an employee, the Code further requires that the business use 
     of the home must be for the convenience of the employer (sec. 
     280A(c)(1)).6 These rules apply to houses, apartments, 
     condominiums, mobile homes, boats, and other similar property 
     used as the taxpayer's home (sec. 280A(f)(1)). Under Internal 
     Revenue Service (IRS) rulings, the deductibility of expenses 
     incurred for local transportation between a taxpayer's home 
     and a work location sometimes depends on whether the 
     taxpayer's home office qualifies under section 280A(c)(1) as 
     a principal place of business (see Rev. Rul. 94-47, 1994-29 
     I.R.B. 6).
     \6\ If an employer provides access to suitable space on the 
     employer's premises for the conduct by an employee of 
     particular duties, then, if the employee opts to conduct such 
     duties at home as a matter of personal preference, the 
     employee's use of the home office is not ``for the 
     convenience of the employer.'' See, e.g., W. Michael Mathes, 
     (1990) T.C. Memo 1990-483.
---------------------------------------------------------------------------
       Prior to 1976, expenses attributable to the business use of 
     a residence were deductible whenever they were ``appropriate 
     and helpful'' to the taxpayer's business. In 1976, Congress 
     adopted section 280A, in order to provide a narrower scope 
     for the home office deduction, but did not define the term 
     ``principal place of business.'' In Commissioner v. Soliman, 
     113 S.Ct. 701 (1993), the Supreme Court reversed lower court 
     rulings and upheld an IRS interpretation of section 280A that 
     disallowed a home office deduction for a self-employed 
     anesthesiologist who practiced at several hospitals but was 
     not provided office space at the hospitals. Although the 
     anesthesiologist used a room in his home exclusively to 
     perform administrative and management activities for his 
     profession (i.e., he spent two or three hours a day in his 
     home office on bookkeeping, correspondence, reading medical 
     journals, and communicating with surgeons, patients, and 
     insurance companies), the Supreme Court upheld the IRS 
     position that the ``principal place of business'' for the 
     taxpayer was not the home office, because the taxpayer 
     performed the ``essence of the professional service'' at the 
     hospitals.7 Because the taxpayer did not meet with 
     patients at his home office and the room was not a separate 
     structure, a deduction was not available under the second or 
     third exception under section 280A(c)(1) (described above).
     \7\ In response to the Supreme Court's decision in Soliman, 
     the IRS revised its Publication 587, Business Use of Your 
     Home, to more closely follow the comparative analysis used in 
     Soliman by focusing on the following two primary factors in 
     determining whether a home office is a taxpayer's principal 
     place of business: (1) the relative importance of the 
     activities performed at each business location; and (2) the 
     amount of time spent at each location.
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       Section 280A(c)(2) contains a special rule that allows a 
     home office deduction for business expenses related to a 
     space within a home that is used on a regular (even if not 
     exclusive) basis as a storage unit for the inventory of the 
     taxpayer's trade or business of selling products at retail or 
     wholesale, but only if the home is the sole fixed location of 
     such trade or business.
       Home office deductions may not be claimed if they create 
     (or increase) a net loss from a business activity, although 
     such deductions may be carried over to subsequent taxable 
     years (sec. 280A(c)(5)).
     House bill
       Definition of principal place of business
       The House bill amends present-law section 280A to 
     specifically provide that a home office qualifies as the 
     ``principal place of business'' if (1) the office is used by 
     the taxpayer to conduct administrative or management 
     activities of a trade or business and (2) there is no other 
     fixed location of the trade or business where the taxpayer 
     conducts substantial administrative or management activities 
     of the trade or business. As under present law, deductions 
     will be allowed for a home office meeting the above two-part 
     test only if the office is exclusively used on a regular 
     basis as a place of business by the taxpayer, and in the case 
     of an employee, only if such exclusive use is for the 
     convenience of the employer.
       Thus, under the House bill, a home office deduction will be 
     allowed (subject to the present-law ``convenience of the 
     employer'' rule governing employees) if a portion of a 
     taxpayer's home is exclusively and regularly used to conduct 
     administrative or management activities for a trade or 
     business of the taxpayer, who does not conduct substantial 
     administrative or management activities at any other fixed 
     location of the trade or business, regardless of whether 
     administrative or management activities connected with his 
     trade or business (e.g., billing activities) are performed by 
     others at other locations. The fact that a taxpayer also 
     carries out administrative or management activities at sites 
     that are not fixed locations of the business, such as a car 
     or hotel room, will not affect the taxpayer's ability to 
     claim a home office deduction under the provision. Moreover, 
     if a taxpayer conducts some administrative or management 
     activities at a fixed location of the business outside the 
     home, the taxpayer still will be eligible to claim a 
     deduction so long as the administrative or management 
     activities conducted at any fixed location of the business 
     outside the home are not substantial (e.g., the taxpayer 
     occasionally does minimal paperwork at another fixed location 
     of the business). In addition, a taxpayer's eligibility to 
     claim a home office deduction under the provision will not be 
     affected by the fact that the taxpayer conducts substantial 
     non-administrative or non-management business activities at a 
     fixed location of the business outside the home (e.g., 
     meeting with, or providing services to, customers, clients, 
     or patients at a fixed location of the business away from 
     home).
       If a taxpayer in fact does not perform substantial 
     administrative or management activities at any fixed location 
     of the business 

[[Page H 12849]]
     away from home, then the second prong of the provision is satisfied, 
     regardless of whether or not the taxpayer opted not to use an 
     office away from home that was available for the conduct of 
     such activities. However, in the case of an employee, the 
     question whether an employee opted not to use suitable space 
     made available by the employer for administrative activities 
     is relevant to determining whether the present-law 
     ``convenience of the employer'' test is satisfied. In cases 
     where a taxpayer's use of a home office does not satisfy the 
     provision's two-part test, the taxpayer nonetheless may be 
     able to claim a home office deduction under the present-law 
     ``principal place of business'' exception or any other 
     provision of section 280A.
       Treatment of storage of product samples
       In addition, the House bill clarifies that the special rule 
     contained in present-law section 280A(c)(2) permits 
     deductions for expenses related to a storage unit in a 
     taxpayer's home regularly used for inventory or product 
     samples (or both) of the taxpayer's trade or business of 
     selling products at retail or wholesale, provided that the 
     home is the sole fixed location of such trade or business.
       Effective date
       The House bill provisions governing home office expense 
     deductions apply to taxable years beginning after December 
     31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       Definition of principal place of business
       The conference agreement does not include the House bill 
     provision that amends the definition of ``principal place of 
     business.''
       Treatment of storage of product samples
       The conference agreement includes the House bill provision 
     that clarifies that present- law section 280A(c)(2) applies 
     to storage of inventory or product samples (or both) in a 
     taxpayer's home.
       Effective date
       The provision applies to taxable years beginning after 
     December 31, 1995.

                  III. HEALTH CARE-RELATED PROVISIONS


A. Treatment of Long-Term Care Insurance (secs. 6211-6214 and 6231-6232 
   of H.R. 1215 and secs. 12201-12204 and 12211-12214 of the Senate 
                               amendment)

     Present law
       In general
       Present law generally does not provide explicit rules 
     relating to the tax treatment of long-term care insurance 
     contracts or long-term care services. Thus, the treatment of 
     long-term care contracts and services is unclear. Present law 
     does provide rules relating to medical expenses and accident 
     or health insurance.
       Itemized deduction for medical expenses
       In determining taxable income for Federal income tax 
     purposes, a taxpayer is allowed an itemized deduction for 
     unreimbursed expenses that are paid by the taxpayer during 
     the taxable year for medical care of the taxpayer, the 
     taxpayer's spouse, or a dependent of the taxpayer, to the 
     extent that such expenses exceed 7.5 percent of the adjusted 
     gross income of the taxpayer for such year (sec. 213). For 
     this purpose, expenses paid for medical care generally are 
     defined as amounts paid: (1) for the diagnosis, cure, 
     mitigation, treatment, or prevention of disease (including 
     prescription medicines or drugs and insulin), or for the 
     purpose of affecting any structure or function of the body 
     (other than cosmetic surgery not related to disease, 
     deformity, or accident); (2) for transportation primarily 
     for, and essential to, medical care referred to in (1); or 
     (3) for insurance (including Part B Medicare premiums) 
     covering medical care referred to in (1) and (2).
       Exclusion for amounts received under accident or health 
           insurance
       Amounts received by a taxpayer under accident or health 
     insurance for personal injuries or sickness generally are 
     excluded from gross income to the extent that the amounts 
     received are not attributable to medical expenses that were 
     allowed as a deduction for a prior taxable year (sec. 104).
       Treatment of accident or health plans maintained by 
           employers
       Contributions of an employer to an accident or health plan 
     that provides compensation (through insurance or otherwise) 
     to an employee for personal injuries or sickness of the 
     employee, the employee's spouse, or a dependent of the 
     employee, are excluded from the gross income of the employee 
     (sec. 106). In addition, amounts received by an employee 
     under such a plan generally are excluded from gross income to 
     the extent that the amounts received are paid, directly or 
     indirectly, to reimburse the employee for expenses for the 
     medical care of the employee, the employee's spouse, or a 
     dependent of the employee (sec. 105). For this purpose, 
     expenses incurred for medical care are defined in the same 
     manner as under the rules regarding the deduction for medical 
     expenses.
       A cafeteria plan is an employer-sponsored arrangement under 
     which employees can elect among cash and certain employer-
     provided qualified benefits. No amount is included in the 
     gross income of a participant in a cafeteria plan merely 
     because the participant has the opportunity to make such an 
     election (sec. 125). Employer-provided accident or health 
     coverage is one of the benefits that may be offered under a 
     cafeteria plan.
       A flexible spending arrangement (FSA) is an arrangement 
     under which an employee is reimbursed for medical expenses or 
     other nontaxable employer-provided benefits, such as 
     dependent care, and under which the maximum amount of 
     reimbursement that is reasonably available to a participant 
     for a period of coverage is not substantially in excess of 
     the total premium (including both employee-paid and employer-
     paid portions of the premium) for such participant's 
     coverage. Under proposed Treasury regulations, a maximum 
     amount of reimbursement is not substantially in excess of the 
     total premium if such maximum amount is less than 500 percent 
     of the premium. An FSA may be part of a cafeteria plan or 
     provided by an employer outside a cafeteria plan. FSAs are 
     commonly used to reimburse employees for medical expenses not 
     covered by insurance. If certain requirements are satisfied 
     8, amounts reimbursed for nontaxable benefits from an 
     FSA are excludable from income.
     \8\ These requirements include a requirement that a health 
     FSA can only provide reimbursement for medical expenses (as 
     defined in sec. 213) and cannot provide reimbursement for 
     premium payments for other health coverage and that the 
     maximum amount of reimbursement under a health FSA must be 
     available at all times during the period of coverage.
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       Health care continuation rules
       The health care continuation rules require that an employer 
     must provide qualified beneficiaries the opportunity to 
     continue to participate for a specified period in the 
     employer's health plan after the occurrence of certain events 
     (such as termination of employment) that would have 
     terminated such participation (sec. 4980B). Individuals 
     electing continuation coverage can be required to pay for 
     such coverage.
       Life insurance company reserve rules
       In general, life insurance companies are allowed a 
     deduction for a net increase in reserves and must take into 
     income any net decreases in reserves (sec. 807(a) and (b)). 
     Present law prescribes a tax reserve method based on the 
     nature of the contract. For noncancellable accident and 
     health insurance contracts, the prescribed method is a two-
     year full preliminary term method (sec. 807(d)(3)(A)(iii)). 
     Long-term care insurance reserves are treated like 
     noncancellable accident and health insurance for this purpose 
     and, therefore, are determined under the two-year full 
     preliminary term method. In no event is the tax reserve for 
     any contract as of any time permitted to exceed the amount 
     which would be taken into account in determining statutory 
     reserves as set forth on the annual statement (sec 
     807(d)(1)).
       The amount of any adjustment, whether an increase or a 
     reduction in income, that is attributable to a change in the 
     basis for determining reserves (or for determining any other 
     item referred to in sec. 807(c)) is generally spread over a 
     10-year period (sec. 807(f)).
     House bill
       Tax treatment and definition of long-term care insurance 
           contracts and qualified long-term care services
           In general
       Under the House bill, a long-term care insurance contract 
     is accorded the following tax treatment. A long-term care 
     insurance contract generally is treated as an accident and 
     health insurance contract. Amounts (other than policyholder 
     dividends or premium refunds) received under a long-term care 
     insurance contract generally are excludable as amounts 
     received for personal injuries and sickness (subject to a cap 
     of $200 per day, or $73,000 annually). This cap is indexed by 
     the medical care cost component of the consumer price index.
       A plan of an employer providing coverage under a long-term 
     care insurance contract generally is treated as an accident 
     and health plan; however, coverage under a long-term care 
     insurance contract is not excludable by an employee if 
     provided through a cafeteria plan; similarly, expenses for 
     long-term care services cannot be reimbursed under an 
     FSA.9
     \9\ The House bill does not otherwise modify the requirements 
     relating to FSAs. An FSA is defined (as under proposed 
     regulations) as a benefit program providing employees with 
     coverage under which specified incurred expenses may be 
     reimbursed (subject to maximums and other reasonable 
     conditions), and the maximum amount of reimbursement that is 
     reasonably available to a participant is less than 500 
     percent of the value of the coverage.
---------------------------------------------------------------------------
       The deduction for a percentage of health insurance expenses 
     of self-employed individuals was permanently extended (at 30 
     percent) by P.L. 104-7 (April 11, 1995). Because the bill 
     treats long-term care insurance as health insurance, the 
     deduction for 30 percent of health insurance expenses of 
     self-employed individuals applies to long-term care insurance 
     premiums under the bill.
       Within certain limits, premiums for long-term care 
     insurance are treated as medical expenses for purposes of the 
     itemized deduction for medical expenses.10 In addition, 
     expenses for qualified long-term care services are treated as 
     medical expenses for purposes of the itemized deduction.
     \10\ Similarly, within certain limits, in the case of a rider 
     to a life insurance contract, charges against the life 
     insurance contract's cash surrender value that are includible 
     in income are treated as medical expenses (provided the rider 
     constitutes a long-term care insurance contract).

[[Page H 12850]]

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           Definition of long-term care insurance contract
       A long-term care insurance contract is defined as any 
     insurance contract that provides only coverage of qualified 
     long-term care services and that meets other requirements. 
     The other requirements are that (1) the contract is 
     guaranteed renewable, (2) the contract does not provide for a 
     cash surrender value or other money that can be paid, 
     assigned, pledged or borrowed, (3) refunds (other than 
     refunds on the death of the insured or complete surrender or 
     cancellation of the contract) and dividends under the 
     contract may be used only to reduce future premiums or 
     increase future benefits, and (4) the contract generally does 
     not pay or reimburse expenses reimbursable under Medicare 
     (except where Medicare is a secondary payor, or the contract 
     makes per diem or other periodic payments without regard to 
     expenses).
       A contract does not fail to be treated as a long-term care 
     insurance contract solely because it provides for payments on 
     a per diem or other periodic basis without regard to expenses 
     during the period.
           Medicare duplication rules
       The House bill provides that no provision of law shall be 
     construed or applied so as to prohibit the offering of a 
     long-term care insurance contract on the basis that the 
     contract coordinates its benefits with those provided under 
     Medicare. Thus, long-term care insurance contracts are not 
     subject to the rules requiring duplication of Medicare 
     benefits.
           Definition of qualified long-term care services
       Qualified long-term care services means necessary 
     diagnostic, preventive, therapeutic, curing, treating, 
     mitigating and rehabilitative services, and maintenance or 
     personal care services that are required by a chronically ill 
     individual and that are provided pursuant to a plan of care 
     prescribed by a licensed health care practitioner.
       A chronically ill individual is one who has been certified 
     within the previous 12 months by a licensed health care 
     practitioner as being unable to perform (without substantial 
     assistance) at least 2 activities of daily living for at 
     least 90 days 11 due to a loss of functional capacity or 
     cognitive impairment, or having a similar level of disability 
     as determined by the Secretary of the Treasury in 
     consultation with the Secretary of Health and Human Services. 
     Activities of daily living are eating, toileting, 
     transferring, bathing, dressing and continence.12
     \11\ The 90-day period is not a waiting period. Thus, an 
     individual can be certified as chronically ill if the 
     licensed health care practitioner certifies that the 
     individual will be unable to perform at least 2 activities of 
     daily living for at least 90 days.
     \12\ Nothing in the House bill requires the contract to take 
     into account all of the activities of daily living. For 
     example, a contract could require that an individual be 
     unable to perform (without substantial assistance) 2 out of 
     any 5 such activities, or for another example, 3 out of the 6 
     activities.
---------------------------------------------------------------------------
       A licensed health care practitioner is a physician (as 
     defined in sec. 1861(r)(l) of the Social Security Act) and 
     any registered professional nurse, licensed social worker, or 
     other individual who meets such requirements as may be 
     prescribed by the Secretary of the Treasury.
           Itemized deduction for medical expenses
       Unreimbursed expenses for qualified long-term care services 
     provided to the taxpayer or the taxpayer's spouse or 
     dependent are treated as medical expenses for purposes of the 
     itemized deduction for medical expenses (subject to the 
     present-law floor of 7.5 percent of adjusted gross income). 
     For this purpose, amounts received under a long-term care 
     insurance contract (regardless of whether the contract 
     reimburses expenses or pays benefits on a per diem or other 
     basis) are treated as reimbursement for expenses actually 
     incurred for medical care.
       For purposes of the deduction for medical expenses, 
     qualified long-term care services do not include services 
     provided to an individual by a relative (directly, or through 
     a partnership, corporation, or other entity), unless the 
     relative is a licensed professional with respect to such 
     services, or by a related corporation (within the meaning of 
     Code section 267(b) or 707(b)).13
     \13\ The rule limiting such services provided by a relative 
     or a related corporation does not apply for purposes of the 
     exclusion for amounts received under a long-term care 
     insurance contract, whether the contract is employer-provided 
     or purchased by an individual. The limitation is unnecessary 
     in such cases because it is anticipated that the insurer will 
     monitor reimbursements to limit opportunities for fraud in 
     connection with the performance of services by the taxpayer's 
     relative or a related corporation.
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       Long-term care insurance premiums that do not exceed 
     specified dollar limits are treated as medical expenses for 
     purposes of the itemized deduction for medical expenses. The 
     limits are as follows:


        In the case of an individual with an attained age before 
        the cThe limitation on premiums paid for such taxable years is:
Not more than 40...................................................$200
More than 40 but not more than 50...................................375
More than 50 but not more than 60...................................750
More than 60 but not more than 70.................................2,000
More than 70......................................................2,500

       For taxable years beginning after 1996, these dollar limits 
     are indexed for increases in the medical care component of 
     the consumer price index. The Secretary of the Treasury, in 
     consultation with the Secretary of Health and Human Services, 
     is directed to develop a more appropriate index to be applied 
     in lieu of the foregoing. Such an alternative might 
     appropriately be based on increases in skilled nursing 
     facility and home health care costs. It is intended that the 
     Treasury Secretary annually publish the indexed amount of the 
     limits as early in the year as they can be calculated.
           Long-term care riders on life insurance contracts
       In the case of long-term care insurance coverage provided 
     by a rider on a life insurance contract, the requirements 
     applicable to long-term care insurance contracts apply as if 
     the portion of the contract providing such coverage were a 
     separate contract. The term ``portion'' means only the terms 
     and benefits that are in addition to the terms and benefits 
     under the life insurance contract without regard to long-term 
     care coverage. The guideline premium limitation applicable 
     under section 7702(c)(2) is increased by the sum of charges 
     (but not premium payments) against the life insurance 
     contract's cash surrender value, less any such charges, the 
     imposition of which reduces premiums paid for the contract 
     (within the meaning of sec. 7702(f)(1)). In addition, it is 
     anticipated that Treasury regulations will provide for 
     appropriate reduction in premiums paid (within the meaning of 
     sec. 7702(f)(1)) to reflect the payment of benefits under the 
     rider that reduce the cash surrender value of the life 
     insurance contract. A similar rule should apply in the case 
     of a contract governed by section 101(f) and in the case of 
     the payments under a rider that are excludable under section 
     101(g) of the Code (as added by the House bill).
           Life insurance company reserves
       In determining reserves for insurance company tax purposes, 
     the House bill provides that the Federal income tax reserve 
     method applicable for a long-term care insurance contract 
     issued after December 31, 1995, is the method prescribed by 
     the National Association of Insurance Commissioners (or, if 
     no reserve method has been so prescribed, a method consistent 
     with the tax reserve method for life insurance, annuity or 
     noncancellable accident and health insurance contracts, 
     whichever is most appropriate). The method currently 
     prescribed by the NAIC for long-term care insurance contracts 
     is the one-year full preliminary term method. As under 
     present law, however, in no event may the tax reserve for a 
     contract as of any time exceed the amount which would be 
     taken into account with respect to the contract as of such 
     time in determining statutory reserves.
           Health care continuation rules
       The health care continuation rules do not apply to coverage 
     under a long-term care insurance contract.
       Exchanges of life insurance and other contracts for long-
           term care insurance contracts
       The exchange of a life insurance contract or an endowment 
     or annuity contract for a qualified long-term care insurance 
     contract is not taxable under the House bill.
       Certain distributions from IRAs and retirement plans for 
           long-term care insurance excludable from income
       The House bill excludes from gross income distributions 
     from individual retirement arrangements (IRAs) and 
     distributions attributable to elective deferrals to qualified 
     cash or deferred arrangements (sec. 401(k) plans), tax-
     sheltered annuities (sec. 403(b) plans), nonqualified 
     deferred compensation plans of governmental or tax-exempt 
     employers (sec. 457 plans), and section 501(c)(18) plans used 
     to pay premiums for long-term care insurance for the 
     individual or the individual's spouse. Such distributions are 
     also not subject to the 10-percent tax on early withdrawals. 
     A plan will not fail to meet the Internal Revenue Code 
     requirements applicable to such plan merely because it 
     permits such distributions.
       Inclusion of excess long-term care benefits
       In general, the House bill provides that the maximum annual 
     amount of long-term care benefits excludable from income with 
     respect to an insured who is chronically ill (not including 
     amounts received by reason of the individual being terminally 
     ill) 14 cannot exceed the equivalent of $200 per day for 
     each day the individual is chronically ill. Thus, the maximum 
     annual exclusion for long-term care benefits with respect to 
     any chronically ill individual (not including amounts 
     received by reason of the individual being terminally ill) is 
     $73,000 (for 1996). Long-term care benefits for this purpose 
     include payments and other benefits received under a long-
     term care insurance contract (to the extent otherwise 
     excludable under section 7702B(b) as added by the House bill) 
     and payments that are otherwise excludable under the 
     provision of the bill related to accelerated death benefits 
     and viatical settlements with respect to persons who are 
     chronically ill (sec. 101(g) (as added by the House bill). If 
     the insured is not the same as the holder of the contract, 
     the insured may assign some or all of this limit to the 
     contract holder at the 

[[Page H 12851]]
     time and manner prescribed by the Secretary.
     \14\ Terminally ill is defined as under the provision of the 
     bill relating to accelerated death benefits. In general, 
     under that provision, an individual is considered to be 
     terminally ill if he or she is certified as having an illness 
     or physical condition that reasonably can be expected to 
     result in death within 24 months of the date of the 
     certification.
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       This $200 per day limit is indexed for inflation after 1996 
     for increases in the medical care component of the consumer 
     price index. The Treasury Secretary, in consultation with the 
     Secretary of Health and Human Services, is directed to 
     develop a more appropriate index, to be applied in lieu of 
     the foregoing. Such an alternative might appropriately be 
     based on increases in skilled nursing facility and home 
     health care costs. It is intended that the Treasury Secretary 
     annually publish the indexed amount of the limit as early in 
     the year as it can be calculated.
       A payor of long-term care benefits (as defined above) is 
     required to report to the IRS the aggregate amount of such 
     benefits paid to any individual during any calendar year, and 
     the name, address and taxpayer identification number of such 
     individual. A copy of the report must be provided to the 
     payee by January 31 following the year of payment, showing 
     the name of the payor and the aggregate amount of benefits 
     paid to the individual during the calendar year. Failure to 
     file the report or provide the copy to the payee is subject 
     to the generally applicable penalties for failure to file 
     similar information reports.
       Effective date
       The provisions defining long-term care insurance contracts 
     and qualified long-term care services apply to contracts 
     issued after December 31, 1995. Any contract issued before 
     January 1, 1996, that met the long-term care insurance 
     requirements in the State in which the policy was sitused at 
     the time it was issued is treated as a long-term care 
     insurance contract, and services provided under or reimbursed 
     by the contract are treated as qualified long-term care 
     services.
       A contract providing for long-term care insurance may be 
     exchanged for a long-term care insurance contract (or the 
     former cancelled and the proceeds reinvested in the latter 
     within 60 days) tax free between the date of enactment and 
     January 1, 1996. Taxable gain would be recognized to the 
     extent money or other property is received in the exchange.
       The issuance or conformance of a rider to a life insurance 
     contract providing long-term care insurance coverage is not 
     treated as a modification or a material change for purposes 
     of applying sections 101(f), 7702 and 7702A of the Code.
       The provisions relating to (1) treatment as a medical 
     expense of qualified long-term care insurance services and 
     eligible long-term care premiums and (2) tax-free exchanges 
     of life insurance, endowment and annuity contracts for long-
     term care insurance contracts, are effective for taxable 
     years beginning after December 31, 1995.
       The change in treatment of reserves for long-term care 
     insurance contracts is effective for contracts issued after 
     December 31, 1995. If, after that date, a company changes its 
     tax reserve method for long-term care insurance contracts 
     issued after that date, the amount of any adjustment arising 
     from the change with respect to those contracts is spread 
     over a 10-year period as provided in section 807(f).
       The provision relating to certain distributions from IRAs 
     and elective deferrals used to pay long-term care insurance 
     premiums is effective for payments and distributions after 
     December 31, 1995.
       The provisions relating to the maximum exclusion for long-
     term care benefits and reporting are effective for taxable 
     years beginning after December 31, 1995. Thus, the initial 
     year in which reports will be filed with the IRS and copies 
     provided to the payee will be 1997, with respect to long-term 
     care benefits paid in 1996.
     Senate amendment
       Tax treatment and definition of long-term care insurance 
           contracts and qualified long-term care services
           In general
       The Senate amendment is generally the same as the House 
     bill, except as follows. The cap on excludable amounts 
     applies only to per diem type contracts. If the aggregate 
     payments under all per diem contracts with respect to any one 
     insured exceed $150 per day, then the excess is not 
     excludable. The $150 limit is indexed by the lesser of (1) 5 
     percent, or (2) increases in the consumer price index. After 
     1998, a cost index based on cost increases in nursing homes 
     and similar facilities is to be substituted for the consumer 
     price index.
       As under the House bill, the deduction for a percentage of 
     health insurance expenses of self-employed individuals 
     applies to long-term care insurance premiums, except that the 
     Senate amendment increases the deduction for health insurance 
     expenses of self-employed individuals to 55 percent.
           Definition of long-term care insurance contract
       The Senate amendment is generally the same as the House 
     bill, except that the other requirements that a long-term 
     care insurance contract must meet are as follows: (1) 
     premiums are level annual payments over the life of the 
     contract (or 20 years, if shorter); (2) refunds (other than 
     refunds on death of the insured or complete surrender or 
     cancellation of the contract) and dividends under the 
     contract may be used only to reduce future premiums or 
     increase future benefits; (3) the contract prohibits 
     borrowing, assignment, or pledging; and (4) the contract 
     generally does not pay or reimburse expenses reimbursable 
     under Medicare (except where Medicare is a secondary payor). 
     In addition, the Senate amendment imposes consumer protection 
     requirements set forth in the January 1993 National 
     Association of Insurance Commissioners Long-Term Care 
     Insurance Model Act and Regulations, including a requirement 
     that the contract cannot be cancelled on the grounds of age 
     or deterioration of mental or physical health of the insured.
           Medicare duplication rules
       The Senate amendment is the same as the House bill.
           Definition of qualified long-term care services
       Qualified long-term care services mean necessary 
     diagnostic, preventive, therapeutic, curing, treating, 
     mitigating, rehabilitative and maintenance (including 
     personal care) services, that are required by a functionally 
     impaired individual. Such services are required to be 
     provided pursuant to a plan of care prescribed by a licensed 
     health care practitioner, and to have as their primary 
     purpose the provision of needed assistance with one or more 
     activities of daily living, or substantial supervision to 
     protect from threats to health and safety due to substantial 
     cognitive impairment.
       A functionally impaired individual means one who has been 
     certified within the previous 12 months by a licensed health 
     care practitioner as (1) being unable to perform (without 
     substantial assistance) at least two activities of daily 
     living, or (2) requiring substantial supervision to protect 
     such individual from threats to health and safety due to 
     substantial cognitive impairment. Activities of daily living 
     are eating, toileting, transferring, bathing, dressing and 
     continence.
       A licensed health care practitioner is defined as a 
     physician (as defined in sec. 1861(r)(1) of the Social 
     Security Act), registered professional nurse, qualified 
     community care case manager, or other qualified individual 
     who meets such requirements as may be prescribed by the 
     Secretary of the Treasury, provided such person is not a 
     relative of the individual receiving care. A qualified 
     community care case manager means an individual or entity 
     with experience in assessing individuals to determine 
     functional and cognitive impairment, and with experience in 
     providing case management services and preparing individual 
     care plans, and that meets requirements prescribed by the 
     Secretary of the Treasury in consultation with the Secretary 
     of Health and Human Services.
           Itemized deduction for medical expenses
       Without regard to dollar limits and without a limitation on 
     services provided by relatives or related corporations, the 
     Senate amendment provides that unreimbursed expenses for 
     qualified long-term care services provided to the taxpayer or 
     the taxpayer's spouse or dependent are treated as medical 
     expenses for purposes of the itemized deduction for medical 
     expenses (subject to the present-law floor of 7.5 percent of 
     adjusted gross income). Amounts received under a long-term 
     care insurance contract (regardless of whether the contract 
     reimburses expenses or pays benefits on a per diem or other 
     basis) are treated as reimbursement for expenses for this 
     purpose. A deduction is also provided for premiums for 
     insurance covering otherwise deductible expenses for medical 
     care that is provided under a long-term care insurance 
     contract.
           Long-term care riders on life insurance contracts
       The Senate amendment is generally the same as the House 
     bill, except that the Senate amendment adds to the definition 
     of the term ``portion'' a proviso that the payment of 
     benefits does not result in the benefits failing to be 
     treated as long-term care insurance by reason of a reduction 
     in the contract's death benefit or cash surrender value 
     resulting from any such payment.
           Life insurance company reserves
       The Senate amendment is the same as the House bill.
           Health care continuation rules
       The Senate amendment is the same as the House bill.
       Consumer protection provisions
       Under the Senate amendment, long-term care insurance 
     contracts, and issuers of contracts, are required to satisfy 
     certain provisions of the long-term care insurance model Act 
     and model regulations promulgated by the National Association 
     of Insurance Commissioners (as adopted as of January 1993). 
     The policy requirements relate to disclosure, 
     nonforfeitability, guaranteed renewal or noncancellability, 
     prohibitions on limitations and exclusions, extension of 
     benefits, continuation or conversion of coverage, 
     discontinuance and replacement of policies, unintentional 
     lapse, post-claims underwriting, minimum standards, inflation 
     protection, preexisting conditions, and prior 
     hospitalization. The Senate amendment also provides 
     disclosure and nonforfeiture requirements. The nonforfeiture 
     provision gives consumers the option of selecting reduced 
     paid-up insurance, extended term insurance, or a shortened 
     benefit period in the event a policyholder who elects a 
     nonforfeiture provision is unable to continue to pay 
     premiums. The requirements for issuers of long-term care 
     insurance contracts relate to application forms, reporting 
     requirements, marketing, appropriateness of purchase, format, 
     delivering a shopper's guide, right to return, 

[[Page H 12852]]
     outline of coverage, group plans, policy summary, monthly reports on 
     accelerated death benefits, and incontestability period. A 
     tax is imposed equal to $100 per policy per day for failure 
     to satisfy these requirements.
       Nothing in the proposal prevents a State from establishing, 
     implementing or continuing standards related to the 
     protection of policyholders of long-term care insurance 
     policies, if such standards are not inconsistent with 
     standards established under the proposal.
       Effective date
       The provisions relating to treatment of long-term care 
     insurance or plans apply to contracts issued after December 
     31, 1995. The provisions relating to treatment of qualified 
     long-term care services as medical care apply to taxable 
     years beginning after December 31, 1995. The Senate amendment 
     provides that no inference is intended as to the tax 
     treatment of long-term care insurance and services prior to 
     the effective date.
       A contract providing for payment or reimbursement of 
     services similar to qualified long-term care services, that 
     is issued on or before December 31, 1995, may be exchanged 
     for a long-term care insurance contract tax-free until June 
     30, 1997. Taxable gain is recognized to the extent money or 
     other property is received in the exchange.
       The issuance or conformance of a rider to a life insurance 
     contract providing long-term care insurance coverage is not 
     treated as a modification or a material change for purposes 
     of applying present-law rules relating to flexible premium 
     contracts and the definition of life insurance contracts and 
     modified endowment contracts.
       The change in treatment of reserves for long-term care 
     insurance contracts is effective for contracts issued after 
     December 31, 1995.
       The provision relating to the reporting of long-term care 
     benefits is effective for benefits paid after December 31, 
     1995. Thus, the initial year in which reports will be filed 
     with the IRS and copies provided to the payee will be 1997, 
     with respect to long-term care benefits paid in 1996.
       The provision relating to consumer protections applies to 
     contracts issued after December 31, 1995 with respect to 
     policy requirements, and to actions taken after December 31, 
     1995 with respect to actions by insurers.
     Conference agreement
       The conference agreement follows the House bill, with 
     modifications.
       Under the conference agreement, the dollar cap on 
     excludable amounts is $175 per day. In addition, the dollar 
     cap on excludable amounts applies only to per diem type 
     contracts. If the aggregate payments under all per diem 
     contracts with respect to any one insured exceed $175 per 
     day, then the excess is not excludable.
       The conference agreement includes the consumer protection 
     provisions of the Senate amendment. Thus, as under the Senate 
     amendment, long-term care insurance contracts, and issuers of 
     contracts, are required to satisfy certain provisions of the 
     long-term care insurance model Act and model regulations 
     promulgated by the National Association of Insurance 
     Commissioners (as adopted as of January 1993).
       Under the conference agreement, the 10-percent tax on early 
     withdrawals does not apply to distributions from individual 
     retirement arrangements (IRAs) and distributions attributable 
     to elective deferrals to qualified cash or deferred 
     arrangements (sec. 401(k) plans), tax-sheltered annuities 
     (sec. 403(b) plans), nonqualified deferred compensation plans 
     of governmental or tax-exempt employers (sec. 457 plans), and 
     section 501(c)(18) plans used to pay premiums for long-term 
     care insurance for the individual or the individual's spouse. 
     Unlike the House bill, however, the conference agreement 
     provides that such distributions are includable in income (as 
     under present law). A plan will not fail to meet the Internal 
     Revenue Code requirements applicable to such plan merely 
     because it permits such distributions.
       Under the conference agreement, a contract providing for 
     long-term care insurance may be exchanged for a long-term 
     care insurance contract (or the former may be cancelled and 
     the proceeds reinvested in the latter within 60 days) tax 
     free between the date of enactment and January 1, 1997.


    B. Treatment of Accelerated Death Benefits Under Life Insurance 
 Contracts (secs. 6221-6222 of H.R. 1215 and secs. 12221-12222 of the 
                           Senate amendment)

     Present law
       Treatment of amounts received under a life insurance 
           contract
       If a contract meets the definition of a life insurance 
     contract, gross income does not include insurance proceeds 
     that are paid pursuant to the contract by reason of the death 
     of the insured (sec. 101(a)). In addition, the undistributed 
     investment income (''inside buildup'') earned on premiums 
     credited under the contract is not subject to current 
     taxation to the owner of the contract. The exclusion under 
     section 101 applies regardless of whether the death benefits 
     are paid as a lump sum or otherwise.
       Amounts received under a life insurance contract (other 
     than a modified endowment contract) prior to the death of the 
     insured are includible in the gross income of the recipient 
     to the extent that the amount received constitutes cash value 
     in excess of the taxpayer's investment in the contract 
     (generally, the investment in the contract is the aggregate 
     amount of premiums paid less amounts previously received that 
     were excluded from gross income).
        If a contract fails to be treated as a life insurance 
     contract under section 7702(a), inside buildup on the 
     contract is generally subject to tax (sec. 7702(g)).
       Requirements for a life insurance contract
       To qualify as a life insurance contract for Federal income 
     tax purposes, a contract must be a life insurance contract 
     under the applicable State or foreign law and must satisfy 
     either of two alternative tests: (1) a cash value 
     accumulation test or (2) a test consisting of a guideline 
     premium requirement and a cash value corridor requirement 
     (sec. 7702(a)). A contract satisfies the cash value 
     accumulation test if the cash surrender value of the contract 
     may not at any time exceed the net single premium that would 
     have to be paid at such time to fund future benefits under 
     the contract. A contract satisfies the guideline premium and 
     cash value corridor tests if the premiums paid under the 
     contract do not at any time exceed the greater of the 
     guideline single premium or the sum of the guideline level 
     premiums, and if the death benefit under the contract is not 
     less than a varying statutory percentage of the cash 
     surrender value of the contract.
       Proposed regulations on accelerated death benefits
       The Treasury Department has issued proposed regulations 
     15 under which certain ``qualified accelerated death 
     benefits'' paid by reason of the terminal illness of an 
     insured would be treated as paid by reason of the death of 
     the insured, and therefore would qualify for exclusion under 
     section 101. For purposes of the proposed regulations, an 
     insured would be treated as terminally ill if he or she has 
     an illness that, despite appropriate medical care, the 
     insurer reasonably expects to result in death within 12 
     months from the payment of the accelerated death benefit. The 
     proposed regulations would not apply to viatical settlements.
     \15\ Prop. Treas. Reg. Secs. 1.101-8, 1.7702-0, 1.7702-2, and 
     1.7702A-1 (December 15, 1992).
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     House bill
       The House bill provides an exclusion from gross income as 
     an amount paid by reason of the death of an insured for (1) 
     amounts received under a life insurance contract and (2) 
     amounts received for the sale or assignment of a life 
     insurance contract to a qualified viatical settlement 
     provider, provided that the insured under the life insurance 
     contract is either terminally ill or chronically ill.16
     \16\ The exclusion for amounts received under a life 
     insurance contract on the life of an insured who is 
     chronically ill applies if the amount is received under a 
     rider or other provision of the contract that is treated as a 
     long-term care insurance contract under section 7702B (as 
     added by the House bill).
---------------------------------------------------------------------------
       The provision does not apply in the case of an amount paid 
     to any taxpayer other than the insured, if such taxpayer has 
     an insurable interest by reason of the insured being a 
     director, officer or employee of the taxpayer, or by reason 
     of the insured being financially interested in any trade or 
     business carried on by the taxpayer.
       A terminally ill individual is defined as one who has been 
     certified by a physician as having an illness or physical 
     condition that reasonably can be expected to result in death 
     within 24 months of the date of certification.
       A chronically ill individual is defined as under the long-
     term care provisions of the House bill.17 In the case of 
     amounts received with respect to a chronically ill individual 
     (but not amounts received by reason of the individual being 
     terminally ill), the $200 per day ($73,000 annual) limitation 
     on excludable benefits (also applicable to long-term care 
     insurance benefits) applies. A reporting requirement applies 
     to payments to a chronically ill individual.
     \17\  Thus, a chronically ill individual is one who has been 
     certified within the previous 12 months by a licensed health 
     care practitioner as being unable to perform (without 
     substantial assistance) at least 2 activities of daily living 
     for at least 90 days due to a loss of functional capacity or 
     cognitive impairment, or having a similar level of disability 
     as determined by the Secretary of the Treasury in 
     consultation with the Secretary of Health and Human Services. 
     Activities of daily living are eating, toileting, 
     transferring, bathing, dressing and continence. Nothing in 
     the bill requires the contract to take into account all of 
     the activities of daily living.
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       A qualified viatical settlement provider is any person that 
     regularly purchases or takes assignments of life insurance 
     contracts on the lives of terminally ill or chronically ill 
     individuals and either (1) is licensed for such purposes in 
     the State in which the insured resides, or (2) if the person 
     is not required to be licensed by that State, meets the 
     requirements of sections 8 and 9 of the Viatical Settlements 
     Model Act issued by the National Association of Insurance 
     Commissioners (relating to disclosure requirements and 
     general rules for a viatical settlement contract).
       For life insurance company tax purposes, the House bill 
     provides that a life insurance contract is treated as 
     including a reference to a qualified accelerated death 
     benefit rider to a life insurance contract (except in the 
     case of any rider that is treated as a long-term care 
     insurance contract under section 7702B, as added by the 
     bill). A qualified accelerated death benefit rider is any 
     rider on a life insurance contract that provides only for 
     payments of a type that are excludable under this provision.
       Effective date.--The provision applies to amounts received 
     after December 31, 1995. 

[[Page H 12853]]
     The provision treating a qualified accelerated death benefit rider as 
     life insurance for life insurance company tax purposes takes 
     effect on January 1, 1996. The issuance of a qualified 
     accelerated death benefit rider to a life insurance contract, 
     or the addition of any provision required to conform an 
     accelerated death benefit rider to these provisions, is not 
     treated as a modification or material change of the contract 
     (and is not intended to affect the issue date of any contract 
     under section 101(f)).
     Senate amendment
       In general
       The Senate amendment is the same as the House bill, except 
     as follows.
       A terminally ill individual is defined as one who has been 
     certified by a physician as having an illness or physical 
     condition that reasonably is expected to result in death 
     within 12 months of the date of certification. The Senate 
     amendment does not apply in the case of a chronically ill 
     individual.
       Amounts received under a life insurance contract
       The exclusion for amounts received under a life insurance 
     contract is available only if two requirements are met. 
     First, under a present value test, the amount received must 
     equal or exceed the present value of the reduction in the 
     death benefit otherwise payable under the life insurance 
     contract. Second, under a ratio test, the payment of the 
     amount must not reduce the cash surrender value of the 
     contract proportionately more than the death benefit payable 
     under the contract. In other words, the percentage derived by 
     dividing the cash surrender value of the contract immediately 
     after the distribution by the cash surrender value of the 
     contract immediately before the distribution must equal or 
     exceed the percentage derived by dividing the death benefit 
     payable immediately after the distribution by the death 
     benefit payable immediately before the distribution. The 
     amount received includes a series of payments.
       For purposes of the present value test, the present value 
     of the reduction in the death benefit is determined by 
     reference to a maximum permissible discount rate, and by 
     assuming that the death benefit would have been paid on the 
     date that is 12 months from the date of the physician's 
     certification. The maximum permissible discount rate is the 
     highest of the following three interest rates: (1) the 90-day 
     Treasury bill yield (as most recently published); (2) Moody's 
     Corporate Bond Yield Average-Monthly Average Corporates (or 
     any successor rate) for the month ending two months before 
     the date the rate is determined; or (3) the rate used to 
     determine cash surrender values under the contract during the 
     applicable period plus 1 percent per annum. It is intended 
     that the rate be determined as of the date (or dates) that 
     the payment is made.
       If the accelerated death benefit under the contract is paid 
     in connection with a lien against the death benefit rather 
     than an actual reduction in the death benefit on a discounted 
     basis, then the amount of the lien, and interest charges with 
     respect to any amount in connection with the lien, are taken 
     into account so as to achieve parity between use of the lien 
     method and use of a discounted payment.
       Viatical settlements
       The Senate amendment defines a viatical settlement provider 
     the same as under the House bill, except that if the viatical 
     settlement provider is not required to be licensed by the 
     State in which the insured resides, then the requirements of 
     the section of the Viatical Settlements Model Regulation 
     issued by the NAIC relating to standards for evaluation of 
     reasonable payments, including discount rates, must be met in 
     determining amounts paid by the viatical settlement provider.
       Effective date
       The Senate amendment applies to amounts received after 
     December 31, 1995. The discount rules applicable to payments 
     under life insurance contracts do not apply to any amount 
     received before July 1, 1996. The provision treating a 
     qualified accelerated death benefit rider as life insurance 
     for life insurance company tax purposes takes effect on 
     January 1, 1996. The issuance of a qualified accelerated 
     death benefit rider to a life insurance contract, or the 
     addition of any provision required to conform an accelerated 
     death benefit rider to these provisions, would not be treated 
     as a modification or material change of the contract for 
     purposes of the definition of a life insurance contract and a 
     modified endowment contract (and would not affect the issue 
     date of any contract under section 101(f)).
     Conference agreement
       The conference agreement follows the House bill, with 
     modifications.
       As under the House bill, in the case of amounts received 
     with respect to a chronically ill individual (but not amounts 
     received by reason of the individual being terminally ill), 
     the dollar cap of $175 per day 18 on excludable benefits 
     (applicable to long-term care insurance benefits) applies. 
     The reporting requirement under the House bill also applies.
     \18\ The conference agreement follows the House bill, with 
     modifications, with respect to long-term care insurance and 
     services. The conference agreement provides that the dollar 
     cap on excludable benefits under a long-term care insurance 
     contract is modified to $175 per day, and applies only to per 
     diem policies, not to indemnity policies. The dollar cap of 
     $175 per day also applies to amounts excludable under this 
     provision that are paid with respect to a chronically ill 
     individual.
---------------------------------------------------------------------------
       Under the conference agreement, the Treasury Department is 
     required to provide a definition of a chronically ill 
     individual for purposes of the accelerated death benefit 
     provision. It is intended that this definition include 
     individuals with Parkinson's disease, Alzheimer's disease or 
     symptomatic AIDS as chronically ill individuals.
       The conference agreement, like the Senate amendment, 
     defines a viatical settlement provider the same as under the 
     House bill, except that if the viatical settlement provider 
     is not required to be licensed by the State in which the 
     insured resides, then the requirements of the section of the 
     Viatical Settlements Model Regulation issued by the NAIC 
     relating to standards for evaluation of reasonable payments, 
     including discount rates, must be met in determining amounts 
     paid by the viatical settlement provider.


  C. Medical Savings Accounts (sec. 13201 of the House bill and secs. 
                  12231-12233 of the Senate amendment)

     Present law
       The tax treatment of health expenses depends on whether the 
     individual is an employee or self employed, and whether the 
     individual is covered under an employer-sponsored health 
     plan. Employer contributions to a health plan for coverage 
     for the employee and the employee's spouse and dependents is 
     excludable from the employee's income and wages for social 
     security tax purposes. Self-employed individuals are entitled 
     to deduct 30 percent of the amount paid for health insurance 
     for the self-employed individual and his or her spouse or 
     dependents. The 30-percent deduction is available with 
     respect to self insurance, as well as commercial insurance. 
     Of course, the self-insured plan must in fact be insurance 
     (e.g., there must be appropriate risk shifting) and not 
     merely a reimbursement arrangement. Individuals who itemize 
     their tax deductions may deduct unreimbursed medical expenses 
     (including expenses for medical insurance) paid during the 
     year to the extent that the total of such expenses exceeds 
     7.5 percent of the individual's adjusted gross income 
     (''AGI''). Present law does not contain any special rules for 
     medical savings accounts.
     House bill
       In general
       Within limits, contributions to a medical savings account 
     (''MSA'') are deductible if made by an eligible individual 
     and are excludable from income (and wages for social security 
     purposes) if made by the employer of an eligible individual. 
     Earnings on amounts in an MSA are currently taxable. 
     Distributions from an MSA for medical expenses are not 
     taxable.
       Eligible individuals
       An individual (including a self-employed individual) is 
     eligible to make a deductible contribution to an MSA (or to 
     have employer contributions made on his or her behalf) if the 
     individual is covered under a catastrophic health plan and is 
     not covered under another health plan (other than a plan that 
     provides certain permitted coverage). An individual with 
     other coverage in addition to a catastrophic plan is still 
     eligible for an MSA if such other coverage is certain 
     permitted insurance or is coverage (whether provided through 
     insurance or otherwise) for accidents, dental care, vision 
     care, or long-term care. Permitted insurance is (1) Medicare 
     supplemental insurance; (2) insurance if substantially all of 
     the coverage provided under such insurance relates to (a) 
     liabilities incurred under worker's compensation law, (b) 
     tort liabilities, (c) liabilities relating to ownership or 
     use of property (e.g., auto insurance), (d) credit insurance, 
     or (e) such other similar liabilities as the Secretary may 
     prescribe by regulations, and (3) insurance for a specified 
     disease or illness, and (4) insurance that provides a fixed 
     payment for hospitalization. An individual is not eligible to 
     make deductible contributions to an MSA for a year if any 
     employer contributions are made to an MSA on behalf of the 
     individual for the year.
       Tax treatment of and limits on contributions
       Individual contributions to an MSA are deductible (within 
     limits) in determining AGI. Subject to the same limits, 
     employer contributions to an MSA are excludable from gross 
     income and wages for employment tax purposes, except that 
     this exclusion does not apply to contributions made through a 
     cafeteria plan. The maximum amount of contributions that can 
     be deducted or excluded for a year is equal to the lesser of 
     (1) the deductible under the catastrophic health plan or (2) 
     $2,500 in the case of single coverage and $5,000 if the 
     catastrophic plan covers the individual and a spouse or 
     dependent. The annual limit is the sum of the limits 
     determined separately for each month, based on the 
     individual's status as of the first day of the month. The 
     maximum contribution limit to an MSA is determined separately 
     for each spouse in a married couple. In no event can the 
     maximum contribution limit exceed $5,000 for a family. The 
     dollar limits are indexed for medical inflation and rounded 
     to the nearest multiple of $50.
       Definition of catastrophic health plan
       A catastrophic health plan is a health plan with a 
     deductible of at least $1,500 in the case of single coverage 
     and $3,000 in the case of coverage of more than one 
     individual. These dollar limits are indexed for medical 

[[Page H 12854]]
     inflation, rounded to the nearest multiple of $50.
       Tax treatment of MSAs
       Earnings on amounts in an MSA are currently includible in 
     income under the rules relating to grantor trusts. Any net 
     capital losses cannot offset other income.
       Taxation of distributions
       Distributions from an MSA for the medical expenses of the 
     individual and his or her spouse or dependents are excludable 
     from income. For this purpose, medical expenses do not 
     include expenses for insurance other than long-term care 
     insurance. Distributions that are not for medical expenses 
     are includible in income (to the extent attributable to tax-
     favored contributions) and are subject to an additional 10-
     percent tax unless made after age 59\1/2\, death or 
     disability.
       Upon death, if the beneficiary is the individual's spouse, 
     the spouse may keep the MSA as his or her own. Otherwise, 
     amounts in the MSA must be distributed within 5 years, and 
     are includible in income (to the extent attributable to tax-
     favored contributions).
       Definition of MSAs
       In general, an MSA is a trust or custodial account created 
     exclusively for the benefit of the account holder and is 
     subject to rules similar to those applicable to individual 
     retirement arrangements. An MSA trustee (or custodian) can be 
     a bank, insurance company, or other person who demonstrates 
     to the satisfaction of the Secretary that the manner in which 
     such person will administer the trust will be consistent with 
     applicable requirements. The MSA trustee (or custodian) is 
     required to make such reports as may be required by the 
     Secretary.
       Effective date
       Taxable years beginning after December 31, 1995.
     Senate amendment
       In general
       Generally the same as the House bill, except that earnings 
     on amounts in an MSA are not currently taxable (i.e., 
     ``inside buildup'' is tax free) and the amount of 
     contributions that receive favorable tax treatment differs.
       Eligible individuals
       An individual is eligible to make deductible contributions 
     to an MSA if the individual is covered under a high 
     deductible health plan and is not eligible to participate in 
     an employer-subsidized health plan maintained by the employer 
     of the individual or his or her spouse or to receive any 
     employer contribution to an MSA. An employer contribution to 
     an MSA is excludable from gross income (and wages for 
     employment tax purposes) if made on behalf of an individual 
     in a high deductible health plan. An individual is eligible 
     to receive employer contributions to an MSA if the individual 
     is covered under a high deductible health plan.
       Tax treatment of and limits on contributions
       The tax treatment of MSA contributions follows the present-
     law tax treatment of health insurance expenses (as modified 
     by the Senate amendment). Thus, a self-employed individual 
     may deduct 55 percent of MSA contributions. Other individuals 
     may deduct MSA contributions to the extent the contributions 
     and other medical expenses exceed 7.5 percent of AGI. 
     Employer contributions to an MSA are excludable from income 
     and wages for employment tax purposes, except that this 
     exclusion does not apply to employer contributions made 
     through a cafeteria plan. Only one MSA per family is 
     permitted. The maximum amount of contributions that can be 
     made to an MSA is the lesser of (1) the deductible under the 
     high deductible plan or (2) $2,000 in the case of single 
     coverage and $4,000 if the high deductible plan covers the 
     individual and a spouse or dependent. The annual limit is the 
     sum of the limits determined separately for each month, based 
     on the individual's status as of the first day of the month. 
     The dollar limits are indexed for medical inflation and 
     rounded to the next lowest multiple of $50.
       Definition of high deductible health plan
       Same as the House bill definition of catastrophic health 
     plan, except that indexed amounts are rounded to the next 
     lowest multiple of $50.
       Tax treatment of MSAs
       MSAs are exempt from tax. An MSA ceases to be an MSA if, 
     within 2 years after the MSA is established the individual is 
     no longer covered under a high deductible health plan other 
     than by reason of separation from employment.
       Taxation of distributions
       Same as the House bill, except that medical expenses also 
     include premiums for health care continuation coverage and 
     premiums for health care coverage while an individual is 
     receiving unemployment compensation under Federal or State 
     law. Distributions that are not for medical expenses are 
     includible in income (to the extent not attributable to 
     nondeductible contributions) and are subject to an additional 
     10-percent tax unless made after age 59\1/2\, death, or 
     disability. Upon death, if the beneficiary is the 
     individual's surviving spouse, the spouse may continue the 
     MSA as his or her own. Otherwise, the beneficiary must 
     include the MSA balance (to the extent not attributable to 
     nondeductible contributions) in income in the year of death. 
     If there is no beneficiary, the MSA balance (to the extent 
     not attributable to nondeductible contributions) is 
     includible on the final return of the decedent. In any case, 
     no estate tax applies.
       Definition of MSAs
       Same as the House bill, except that the Senate amendment 
     provides that the acquisition expenses of an insurance 
     company relating to the establishment of an MSA are not 
     subject to the rules relating to the capitalization of policy 
     acquisition costs.
       Effective date
       Same as the House bill.
     Conference agreement
       In general
       The conference agreement generally follows the House bill, 
     except that the conference agreement follows the Senate 
     amendment with respect to the limits on maximum contributions 
     ($2,000 per year for an individual and $4,000 per year if the 
     high deductible plan also covers a spouse or dependent of the 
     individual), tax treatment of earnings, definition of medical 
     expenses that can be paid tax-free with MSA funds, post-death 
     distributions, and clarification relating to capitalization 
     of policy acquisition costs. In addition, the conference 
     agreement adopts the term ``high deductible plan'' rather 
     than ``catastrophic plan.''
       Thus, under the conference agreement, within limits, 
     contributions to an MSA are deductible if made by an eligible 
     individual (including a self-employed individual) and are 
     excludable from income (and wages for employment tax 
     purposes) if made by the employer of an eligible individual. 
     Earnings on amounts in an MSA are not currently taxable. 
     Distributions from an MSA for medical expenses (as defined 
     under the Senate amendment) are not taxable. Distributions 
     from an MSA that are not for medical expenses are includible 
     in income and subject to a 10-percent excise tax unless the 
     distribution is made after age 59\1/2\, death, or disability.
       Eligible individuals
       The conference agreement follows the House bill. As under 
     the House bill, an individual must be covered by a high 
     deductible plan and no other health plan in order to be 
     eligible for an MSA. However, an individual may have certain 
     types of permitted coverage and insurance in addition to the 
     high deductible plan (e.g., dental coverage) and still 
     qualify for an MSA. The conference agreement modifies the 
     House bill definition of permitted coverage to provide that 
     disability coverage (whether provided through insurance or 
     otherwise) is permitted coverage and that credit insurance is 
     not permitted coverage.
       Tax treatment of and limits on contributions
       The conference agreement follows the House bill, except 
     that the maximum contribution is determined as under the 
     Senate amendment. Under the conference agreement, individual 
     contributions to an MSA are deductible (within limits) in 
     determining AGI. Subject to the same limits, employer 
     contributions to an MSA are excludable from gross income, 
     except that this exclusion does not apply to contributions 
     made through a cafeteria plan. It is expected that the 
     present-law exclusion for social security purposes for 
     accident and sickness benefits applies to employer 
     contributions to an MSA that are excludable from income. If 
     the high deductible plan covers only the individual, the 
     maximum amount of contributions that can be deducted or 
     excluded for a year is equal to the lesser of (1) the 
     deductible under the high deductible plan or (2) $2,000. If 
     the high deductible plan covers the individual and a spouse 
     or a dependent, the maximum that can be excluded or deducted 
     for a year is the lesser of (1) the annual limit under the 
     plan on the aggregate amount of deductibles required to be 
     paid with respect to all individuals, and (2) $4,000. The 
     annual limit is the sum of the limits determined separately 
     for each month, based on the individual's status as of the 
     first day of the month. The maximum contribution limit to an 
     MSA is determined separately for each spouse in a married 
     couple. In no event can the maximum contribution limit exceed 
     $4,000 for a family. The dollar limits are indexed for 
     medical inflation and rounded to the nearest multiple of $50.
       Definition of high deductible plan
       The conference agreement follows the House bill and the 
     Senate amendments. The conference agreement also clarifies 
     that permitted coverage or insurance does not qualify as a 
     high deductible plan. The conferees intend that a plan will 
     not fail to be considered a high deductible plan merely 
     because, under State law, the plan is required to provide 
     that there is no deductible for preventive care.
       Tax treatment of MSAs
       The conference agreement follows the Senate amendment with 
     respect to taxation of MSA earnings. Thus, under the 
     conference agreement, MSAs are tax exempt. The conference 
     agreement does not contain the provision in the Senate 
     amendment providing that an MSA ceases to be an MSA if, 
     within 2 years after the MSA is established, the individual 
     is no longer covered under a high deductible plan.
       Taxation of distributions
       Under the conference agreement, distributions from an MSA 
     for the unreimbursed medical expenses of the individual 
     (including a self-employed individual) and his or her spouse 
     or dependents are excludable from income. The exclusion 
     applies regardless of 

[[Page H 12855]]
     whether the payment is made directly from the MSA to the service 
     provider, the MSA distribution reimburses the individual for 
     expenses already incurred, or the individual uses the MSA 
     distribution to pay the service provider. In addition, 
     trustee-to-trustee transfers from one MSA to another are 
     permitted.
       Medical expenses are defined as under the Senate amendment. 
     Thus, medical expenses are defined as under the rules 
     relating to the itemized deduction for medical expenses, 
     except that medical expenses do not include insurance 
     premiums other than (1) premiums for long-term care insurance 
     as defined under the conference agreement; (2) premiums for 
     health care continuation coverage under any Federal law; and 
     (3) premiums while the individual is receiving unemployment 
     compensation.
       Distributions that are not for medical expenses are 
     includible in income and are subject to an additional 10-
     percent tax unless made after age 591/2, death, or 
     disability.
       The conference agreement follows the Senate amendment with 
     respect to distributions after the death of the individual.
       Definition of MSAs
       The conference agreement follows the Senate amendment.
       Effective date
       The provision is effective for taxable years beginning 
     after December 31, 1995.


D. Deduction for Health Insurance Expenses of Self-Employed Individuals 
                  (sec. 12241 of the Senate amendment)

     Present law
       Under present law, self-employed individuals are entitled 
     to deduct 30 percent of the amount paid for health insurance 
     for a self-employed individual and the individual's spouse 
     and dependents. The deduction is not available for any month 
     if the taxpayer was eligible to participate in a subsidized 
     health plan maintained by the employer of the taxpayer or the 
     taxpayer's spouse. The 30-percent deduction is available in 
     the case of self insurance as well as commercial insurance. 
     Of course, the self-insured plan must in fact be insurance 
     (e.g., there must be appropriate risk shifting) and not 
     merely a reimbursement arrangement.
     House bill
       No provision.
     Senate amendment
       Under the Senate amendment, the deduction for health 
     insurance expenses of self-employed individuals and their 
     spouses and dependents is increased to 55 percent.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 1995.
     Conference agreement
       The conference agreement follows the Senate amendment, with 
     modifications. Under the conference agreement, the deduction 
     for health insurance for self-employed individuals is phased 
     up to 50 percent as follows: for taxable years beginning in 
     1998 and 1999, the amount of the deduction is 35 percent of 
     health insurance expenses; for taxable years beginning in 
     2000 and 2001, 40 percent; and for taxable years beginning in 
     2002 and thereafter, 50 percent.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 1997.


   E. Increase Dollar Limits for Burial Insurance (sec. 12242 of the 
                           Senate amendment)

     Present law
       To qualify as a life insurance contract for Federal income 
     tax purposes, a contract must be a life insurance contract 
     under the applicable State or foreign law and must satisfy 
     either of two alternative tests: (1) a cash value 
     accumulation test or (2) a test consisting of a guideline 
     premium requirement and a cash value corridor requirement 
     (sec. 7702). A contract satisfies the cash value accumulation 
     test if the cash surrender value of the contact may not at 
     any time exceed the net single premium that would have to be 
     paid at such time to fund future benefits under the contract. 
     A contract satisfies the guideline premium and cash value 
     corridor tests if the premiums paid under the contract do not 
     at any time exceed the greater of the guideline single 
     premium or the sum of the guideline level premiums, and if 
     the death benefit under the contract is not less than a 
     varying statutory percentage of the cash surrender value of 
     the contract. Under these rules, the death benefit is 
     generally deemed not to increase (sec. 7702(e)(1)(A)).
       Special rules apply with respect to a contract that is 
     purchased to cover payment of burial expenses or in 
     connection with prearranged funeral expenses. For such a 
     contract, death benefit increases may be taken into account 
     in applying the cash value accumulation test if the contract 
     (1) has an initial death benefit of $5,000 or less and a 
     maximum death benefit of $25,000 or less, and (2) provides 
     for a fixed predetermined annual increase not to exceed 10 
     percent of the initial death benefit or 8 percent of the 
     death benefit at the end of the preceding year (sec. 
     7702(e)(2)(C)).
     House bill
       No provision.
     Senate amendment
       The Senate amendment increases the dollar limits applicable 
     in the case of an insurance contract to cover payment of 
     burial expenses or in connection with prearranged funeral 
     expenses. For such a contract, death benefit increases may be 
     taken into account in applying the cash value accumulation 
     test if the contract has an initial death benefit of $7,000 
     or less and a maximum death benefit of $30,000 or less (and 
     other requirements of present law are met). In addition, 
     these dollar limits are to be adjusted annually, after 1995, 
     for inflation in accordance with the consumer price index.
       Effective date.--The provision is effective for contracts 
     entered into after December 31, 1995.
     Conference agreement
       The conference agreement follows the Senate amendment.


  F. Health Insurance Organizations Eligible for Benefits of Section 
                833(sec. 12243 of the Senate amendment)

     Present law
       An organization described in section 501(c)(3) or (4) of 
     the Code is exempt from tax only if no substantial part of 
     its activities consists of providing commercial-type 
     insurance (sec. 501(m)). Special rules apply to certain 
     eligible health insurance organizations. Eligible health 
     insurance organizations are (1) Blue Cross or Blue Shield 
     organizations existing on August 16, 1986, which have not 
     experienced a material change in structure or operations 
     since that date, and (2) other organizations that meet 
     certain community-service-related requirements and 
     substantially all of whose activities involve the providing 
     of health insurance (sec. 833). Section 833 provides that 
     eligible organizations are generally treated as stock 
     property and casualty insurance companies.
       Section 833 provides a special deduction for eligible 
     organizations, equal to 25 percent of the claims and expenses 
     incurred during the year, less the adjusted surplus at the 
     beginning of the year. This deduction is calculated by 
     computing surplus, taxable income, claims incurred, expenses 
     incurred, tax-exempt income, net operating loss carryovers, 
     and other items attributable to health business. The 
     deduction may not exceed taxable income attributable to 
     health business for the year (calculated without regard to 
     this deduction).
       In addition, section 833 eliminates, for eligible 
     organizations, the 20-percent reduction in unearned premium 
     reserves that applies generally to all property and casualty 
     insurance companies.
     House bill
       No provision.
     Senate amendment
       The Senate amendment applies the special rules under 
     section 833 to the same extent they are provided to certain 
     existing Blue Cross or Blue Shield organizations, in the case 
     of any organization that (1) is not a Blue Cross or Blue 
     Shield organization existing on August 16, 1986, and (2) 
     otherwise meets the requirements of section 833(c)(2) 
     (including the requirement of no material change in 
     operations or structure since August 16, 1986). Under the 
     Senate amendment, an organization qualifies for this 
     treatment only if (1) it is not a health maintenance 
     organization, and (2) it is organized under and governed by 
     State laws which are specifically and exclusively applicable 
     to not-for-profit health insurance or health service type 
     organizations.
       Effective date.--The provision is effective for taxable 
     years ending after October 13, 1995.
     Conference agreement
       The conference agreement follows the Senate amendment.

                   IV. ESTATE AND GIFT TAX PROVISIONS


A. increase in unified estate and gift tax credit; indexing of certain 
                               provisions

1. increase in unified credit (sec. 6351(a) of H.R. 1215 and sec. 12302 
                        of the senate amendment)

     Present law
       A unified credit of $192,800 is allowed in computing a 
     taxpayer's estate and gift tax, which effectively exempts a 
     total of $600,000 in cumulative taxable transfers from the 
     estate and gift tax (sec. 2010).
     House bill
       The House bill increases the unified credit over a three-
     year period beginning in 1996, from an effective exemption of 
     $600,000 to an effective exemption of $750,000. For decedents 
     dying and gifts made in 1996, an effective exemption of 
     $700,000 is provided; for decedents dying and gifts made in 
     1997, the effective exemption is $725,000; and for decedents 
     dying and gifts made in 1998, the effective exemption is 
     $750,000. After 1998, the effective exemption amount of 
     $750,000 is indexed annually for inflation occurring after 
     1997. The indexed exemption amount is rounded to the nearest 
     $10,000.
        To reflect the increase in the unified credit, the House 
     bill also makes conforming amendments to (1) the 5-percent 
     surtax in order to permit the proper phase out of the 
     increased unified credit, (2) the general filing requirements 
     for estate and gift tax returns under Code section 6018(a), 
     and (3) the amount of the unified credit allowed under Code 
     section 2102(c)(3) with respect to nonresident aliens with 
     U.S. situs property who are residents of certain treaty 
     countries.
       Effective date.--Effective for decedents dying and gifts 
     made after December 31, 1995.
     Senate amendment
       The Senate amendment increases the present-law unified 
     credit over a six-year period beginning in 1996, from an 
     effective exemption of $600,000 to an effective exemption 

[[Page H 12856]]
     of $750,000. The increase is phased in as follows:


         Decedents dying and gifts made in          Effective exemption
1996...........................................................$625,000
1997............................................................650,000
1998............................................................675,000
1999............................................................700,000
2000............................................................725,000
2001 and thereafter............................................$750,000

       The Senate amendment makes the same conforming amendments 
     as are made in the House bill.
       Effective date.--Same as the House bill.
     Conference agreement
       The conference agreement follows the Senate amendment, with 
     the modification that after 2001, the effective exemption 
     amount of $750,000 is increased by inflation occurring after 
     2000. The indexed exemption amount is rounded to the nearest 
     $10,000.


    2. indexing of other provisions (sec. 6351(b)-(e) of H.R. 1215)

     Present law
       Annual exclusion for gifts.--A taxpayer may exclude $10,000 
     of gifts of present interests in property made to each donee 
     during a calendar year (sec. 2503).
       Special use valuation.--An executor may elect for estate 
     tax purposes to value certain qualified real property used in 
     farming or a closely-held trade or business at its current 
     use value, rather than its highest and best use value (sec. 
     2032A). The maximum reduction in value under such an election 
     is $750,000.
       Generation-skipping transfer tax.--An individual is allowed 
     an exemption from the GST tax of up to $1,000,000 for 
     generation-skipping transfers made during life or at death 
     (sec. 2631).
       Installment payment of estate tax.--An executor may elect 
     to pay the Federal estate tax attributable to an interest in 
     a closely held business in installments over, at most, a 14-
     year period (sec. 6166). The first $1,000,000 in value of a 
     closely-held business is eligible for a special 4-percent 
     interest rate (sec. 6601(j)).
     House bill
       The House bill provides that, after 1998, the $10,000 
     annual exclusion for gifts, the $750,000 ceiling on special 
     use valuation, the $1,000,000 generation-skipping transfer 
     tax exemption, and the $1,000,000 ceiling on the value of a 
     closely-held business eligible for the special 4-percent 
     interest rate, are all indexed annually for inflation 
     occurring after 1987. Indexing of the annual exclusion is 
     rounded to the nearest $1,000 and indexing of the other 
     amounts is rounded to the nearest $10,000.
       Effective date.--Effective for decedents dying, and gifts 
     made, after December 31, 1998.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill, except 
     that indexing does not begin until after December 31, 2000 
     (for inflation occurring after 1999).
       Effective date.--Effective for decedents dying and gifts 
     made after December 31, 2000.


B. reduction in estate tax for qualified family-owned businesses (sec. 
                     12301 of the senate amendment)

     Present law
       There are no special estate tax rules for qualified family-
     owned businesses. However, under section 2032A, an executor 
     may elect for estate tax purposes to value certain qualified 
     real property used in farming or another qualifying closely-
     held trade or business at its current use value, rather than 
     its highest and best use value (up to a maximum reduction of 
     $750,000). In addition, an executor may elect to pay the 
     Federal estate tax attributable to a qualified closely--held 
     business in installments over, at most, a 14-year period 
     (sec. 6166). The first $1,000,000 in value of a closely-held 
     business is eligible for a special 4-percent interest rate 
     (sec. 6601(j)).
     House bill
       No provision.
     Senate amendment
       The Senate amendment provides special estate tax treatment 
     for qualified ``family-owned business interests'' if such 
     interests comprise more than 50 percent of a decedent's 
     estate. Subject to certain requirements, the bill excludes 
     the first $1.5 million of value in qualified family-owned 
     business interests from the decedent's estate, and also 
     excludes from the estate 50 percent of the value of qualified 
     family-owned business interests between $1.5 million and $5 
     million. Thus, the total amount of exclusion available per 
     decedent for qualified family-owned business interests is 
     equal to $3.25 million (i.e., $1.5 million plus 50 percent of 
     $3.5 million).
       A qualified family-owned business interest is defined as 
     any interest in a trade or business (regardless of the form 
     in which it is held) with a principal place of business in 
     the United States if ownership of the trade or business is 
     held at least 50 percent by one family, 70 percent by two 
     families, or 90 percent by three families, as long as the 
     decedent's family owns at least 30 percent of the trade or 
     business.
       An interest in a trade or business does not qualify if the 
     business's (or a related entity's) stock or securities were 
     publicly-traded at any time within three years of the 
     decedent's death. An interest in a trade or business also 
     does not qualify if more than 35 percent of the adjusted 
     ordinary gross income of the business for the year of the 
     decedent's death was personal holding company income (as 
     defined in section 543). In the case of a trade or business 
     that owns an interest in another trade or business (i.e., 
     ``tiered entities''), special look-through rules apply.
       The value of a trade or business qualifying as a family-
     owned business interest is reduced to the extent the business 
     holds passive assets or excess cash or marketable securities.
       To qualify for the beneficial treatment provided under the 
     bill, the decedent (or a member of the decedent's family) 
     must have owned and materially participated in the trade or 
     business for at least five of the eight years preceding the 
     decedent's date of death. In addition, each qualified heir 
     (or a member of the qualified heir's family) is required to 
     materially participate in the trade or business for at least 
     five years of each 8-year period ending within ten years 
     following the decedent's death.
       The benefit of the exclusions for qualified family-owned 
     business interests are subject to recapture if, within 10 
     years of the decedent's death and before the qualified heir's 
     death, one of the following ``recapture events'' occurs: (1) 
     the qualified heir ceases to meet the material participation 
     requirements; (2) the qualified heir disposes of any portion 
     of his or her interest in the family-owned business, other 
     than by a disposition to a member of the qualified heir's 
     family or through a qualified conservation contribution; (3) 
     the principal place of business of the trade or business 
     ceases to be located in the United States; or (4) the 
     qualified heir loses U.S. citizenship.
       The portion of the reduction in estate taxes that is 
     recaptured is dependent upon the number of years that the 
     qualified heir (or members of the qualified heir's family) 
     materially participated in the trade or business after the 
     decedent's death. If the qualified heir (or his or her family 
     members) materially participated in the trade or business 
     after the decedent's death for less than six years, 100 
     percent of the reduction in estate taxes attributable to that 
     heir's interest is recaptured; if the participation was for 
     at least six years but less than seven years, 80 percent of 
     the reduction in estate taxes is recaptured; if the 
     participation was for at least seven years but less than 
     eight years, 60 percent is recaptured; if the participation 
     was for at least eight years but less than nine years, 40 
     percent is recaptured; and if the participation was for at 
     least nine years but less than ten years, 20 percent of the 
     reduction in estates taxes is recaptured. In general, there 
     is no requirement that the qualified heir (or members of his 
     or her family) continue to hold or participate in the trade 
     or business more than 10 years after the decedent's death. As 
     under present-law section 2032A, however, the 10-year 
     recapture period may be extended for a period of up to two 
     years if the qualified heir does not begin to use the 
     property for a period of up to two years after the decedent's 
     death.
       Effective date.--Effective with respect to the estates of 
     decedents dying after December 31, 1995.
     Conference agreement
       The conference agreement follows the Senate amendment, with 
     the following modifications. The conference agreement 
     excludes the first $1.0 million of value in qualified family-
     owned business interests from the decedent's estate, and also 
     excludes from the estate 50 percent of the value of qualified 
     family-owned business interests between $1.0 million and $2.5 
     million. Thus, the total amount of exclusion available per 
     decedent for qualified family-owned business interests is 
     equal to $1.75 million (i.e., $1.0 million plus 50 percent of 
     $1.5 million).
       In addition, the conference agreement coordinates the 
     benefit for qualified family-owned business interests with 
     the present-law benefits relating to special-use valuation 
     (sec. 2032A) and the special 4-percent interest rate 
     available for closely-held businesses (sec. 6601(j)). The 
     conference agreement provides that any amount excluded from a 
     decedent's estate under the qualified family-owned business 
     provision reduces the ceilings with respect to both section 
     2032A and section 6601(j). Thus, for example, if a decedent 
     had $350,000 of qualified family--owned business interests, 
     the entire value of his qualified family-owned business 
     property would be excluded from the estate; if the decedent's 
     estate also qualifies for treatment under 2032A or 6601(j), 
     the executor could take a maximum reduction under section 
     2032A of $400,000 (i.e., $750,000 less $350,000), and/or 
     could use the special 4-percent rate provided in section 
     6601(j) with respect to the first $650,000 in value of a 
     qualifying business (i.e., $1,000,000 less $350,000).


   c. reduction in estate tax for certain land subject to permanent 
       conservation easement (sec. 12303 of the senate amendment)

     Present law
       A deduction is allowed for estate and gift tax purposes for 
     a contribution of a qualified real property interest to a 
     charity (or other qualified organization) exclusively for 
     conservation purposes (secs. 2055(f), 2522(d)). For this 
     purpose, a qualified real property interest means the entire 
     interest of the transferor in real property (other than 
     certain mineral interests), a remainder interest in real 
     property, or a perpetual restriction on the use of real 
     property (sec. 170(h)). A ``conservation purpose'' is (1) 
     preservation of land 

[[Page H 12857]]
     for outdoor recreation by, or the education of, the general public, (2) 
     preservation of natural habitat, (3) preservation of open 
     space for scenic enjoyment of the general public or pursuant 
     to a governmental conservation policy, and (4) preservation 
     of historically important land or certified historic 
     structures. A contribution is treated as ``exclusively for 
     conservation purposes'' only if the conservation purpose is 
     protected in perpetuity.
     House bill
       No provision.
     Senate amendment
       The Senate amendment provides that an executor may elect to 
     exclude from the taxable estate 50 percent of the value of 
     any land subject to a qualified conservation easement that 
     meets the following requirements: (1) the land must be 
     located within 25 miles of a metropolitan area or a national 
     park or wilderness area; (2) the land must have been owned by 
     the decedent or a member of the decedent's family at all 
     times during the three-year period ending on the date of the 
     decedent's death; and (3) a qualified conservation 
     contribution of a qualified real property interest had been 
     granted by the transferor or a member of his or her family. 
     For this purpose, preservation of a historically important 
     land area or a certified historic structure does not qualify 
     as a conservation purpose. To the extent that the value of 
     such land is excluded from the taxable estate, the basis of 
     such land acquired at death is a carryover basis (i.e., the 
     basis is not stepped--up to its fair market value at death). 
     Debt-financed property is not eligible for the exclusion.
       The exclusion amount is calculated based on the value of 
     the property after the conservation easement has been placed 
     on the property. The exclusion from the taxable estate does 
     not extend to the value of any development rights retained by 
     the decedent or donor, although payment for estate taxes on 
     retained development rights may be deferred for up to two 
     years, or until the disposition of the property, whichever is 
     earlier.
       The 50-percent exclusion from the taxable estate for land 
     subject to a qualified conservation easement may only be 
     taken to the extent that the value of such land, plus the 
     value of qualified family-owned business interests that 
     qualify for the reduction in estate taxes, does not exceed $5 
     million.
       If the value of the conservation easement is less than 30 
     percent of (1) the value of the land without the easement, 
     reduced by (2) the value of any retained development rights, 
     then the exclusion percentage is reduced. The reduction in 
     the exclusion percentage is equal to two percentage points 
     for each point that the above ratio falls below 30 percent.
       The Senate amendment also provides that the granting of a 
     qualified conservation easement (as defined above) is not 
     treated as a disposition triggering the recapture provisions 
     of section 2032A.
       Effective date.--Effective for decedents dying after 
     December 31, 1995.
     Conference agreement
       The conference agreement follows the Senate amendment, with 
     the following modifications.
       The conference agreement provides an exclusion from the 
     taxable estate of 40 percent of the value of any land subject 
     to a qualified conservation easement. As in the Senate 
     amendment, if the value of the conservation easement is less 
     than 30 percent of (1) the value of the land without the 
     easement, reduced by (2) the value of any retained 
     development rights, then the exclusion percentage is reduced. 
     The reduction in the exclusion percentage is equal to two 
     percentage points for each point that the above ratio falls 
     below 30 percent. In making this calculation, the value of 
     the land without the easement is to be determined by taking 
     into account any local, State, or Federal law that restricts 
     the development of the land, and the extent to which any 
     prior easements restrict the use of the land.
       The conference agreement expands the category of land 
     eligible for the exclusion to include land located within 10 
     miles of an Urban National Forest (as designated by the 
     Forest Service of the United States Department of 
     Agriculture) as well as land located within 25 miles of a 
     metropolitan area or a national park or wilderness area.


 d. modification of generation-skipping transfer tax for transfers to 
  individuals with deceased parents (sec. 14634 of the house bill and 
                  sec. 12304 of the senate amendment)

     Present law
       A generation-skipping transfer tax (``GST'' tax) generally 
     is imposed on transfers to an individual who is in more than 
     one generation below that of the transferor. Transfers 
     subject to the GST tax include direct skips, taxable 
     terminations and taxable distributions. For this purpose, a 
     direct skip is any transfer subject to estate or gift tax of 
     an interest in property to a skip person (sec. 2612(c)(1)). A 
     taxable termination is a termination (by death, lapse of 
     time, release of power, or otherwise) of an interest in 
     property held in trust unless, immediately after such 
     termination, a non-skip person has an interest in the 
     property, or unless at no time after the termination may a 
     distribution (including a distribution upon termination) be 
     made from the trust to a skip person (sec. 2612(a)). A 
     taxable distribution is a distribution from a trust to a skip 
     person (other than a taxable termination or a direct 
     skip)(sec. 2612(b)).
       Under the ``predeceased parent exception,'' a direct skip 
     transfer to a transferor's grandchild is not subject to the 
     generation skipping transfer (''GST'') tax if the child of 
     the transferor who was the grandchild's parent is deceased at 
     the time of the transfer (sec. 2612(c)(2)). This 
     ``predeceased parent exception'' to the GST tax is not 
     applicable to (1) transfers to collateral heirs, e.g., 
     grandnieces or grandnephews, or (2) taxable terminations or 
     taxable distributions.
     House bill
       The House bill extends the predeceased parent exception to 
     transfers to collateral heirs, provided that the decedent has 
     no living lineal descendants at the time of the transfer.
       In addition, the House bill extends the predeceased parent 
     exception to taxable terminations and taxable distributions, 
     provided that the parent of the relevant beneficiary was dead 
     at the earliest time that the transfer (from which the 
     beneficiary's interest in the property was established) was 
     subject to estate or gift tax.
       Effective date.--Effective for generation-skipping 
     transfers occurring after the date of enactment.
     Senate amendment
       The Senate amendment is the same as the House bill, except 
     for the effective date.
       Effective date.--Effective for generation-skipping 
     transfers occurring after December 31, 1994.
     Conference agreement
       The conference agreement follows the Senate amendment.


 e. estate tax recapture from cash leases of specially-valued property 
                  (sec. 12305 of the senate amendment)

     Present law
       An executor may elect to value certain ``qualified real 
     property'' used in farming or other qualifying trade or 
     business at its current use value rather than its highest and 
     best use. If, after the special-use valuation election is 
     made, the heir who acquired the real property ceases to use 
     it in its qualified use within 10 years (15 years for 
     individuals dying before 1982) of the decedent's death, an 
     additional estate tax is imposed in order to ``recapture'' 
     the benefit of the special-use valuation (sec. 2032A(c)).
       Some courts have held that the cash rental of specially-
     valued property after the death of the decedent is not a 
     qualified use and, therefore, results in the imposition of 
     the recapture tax. A decedent's surviving spouse, however, is 
     not treated as failing to use the property in a qualified use 
     solely because the spouse rents the property to a member of 
     the spouse's family on a net cash basis (sec. 2032A(b)(5)).
     House bill
       No provision.
     Senate amendment
       The Senate amendment provides that the cash lease of 
     specially-valued real property by a lineal descendant of the 
     decedent to a member of the lineal descendant's family, who 
     continues to operate the farm or closely held business, does 
     not cause the qualified use of such property to cease for 
     purposes of imposing the additional estate tax under section 
     2032A(c). No inference is intended as to whether the cash 
     lease of specially-valued real property is a qualified use of 
     such property under present law.
       Effective date.--Effective for cash rentals after December 
     31, 1995.
     Conference agreement
       The conference agreement follows the Senate amendment.

                       V. EXPIRING TAX PROVISIONS


              A. Temporary Extension of Certain Provisions

     1. Work opportunity tax credit (sec. 13101 of the House bill)

     Present law
       General rules.--Prior to January 1, 1995, the targeted jobs 
     tax credit was available on an elective basis for employers 
     hiring individuals from one or more of nine targeted groups. 
     The credit generally was equal to 40 percent of qualified 
     first-year wages.
       Certification of members of targeted groups.--In general, 
     an individual was not treated as a member of a targeted group 
     unless certification that the individual was a member of such 
     a group was received or requested in writing by the employer 
     from the designated local agency on or before the day on 
     which the individual began work for the employer.
       Targeted groups eligible for the credit.--The nine groups 
     eligible for the credit were either recipients of payments 
     under means-tested transfer programs, economically 
     disadvantaged (as measured by family income), or disabled 
     individuals:
       (1) Vocational rehabilitation referrals;
       (2) Economically disadvantaged youths;
       (3) Economically disadvantaged former convicts;
       (4) Economically disadvantaged summer youth employees;
       (5) AFDC recipients;
       (6) Economically disadvantaged Vietnam-era veterans;
       (7) Economically disadvantaged cooperative education 
     students;
       (8) SSI recipients; and

[[Page H 12858]]

       (9) General assistance recipients.
       Other rules.--No credit was available for wages paid to 
     replacement employees during strikes or lockouts.
       Minimum employment period.--No credit was allowed for wages 
     paid unless the eligible individual was either (1) employed 
     by the employer for at least 90 days (14 days in the case of 
     economically disadvantaged summer youth employees) or (2) had 
     completed at least 120 hours (20 hours for summer youth) of 
     services performed for the employer.
       Length of extension.--Expired January 1, 1995.
     House bill
       General rules.--The House bill replaces the targeted jobs 
     tax credit with the ``work opportunity tax credit.'' The work 
     opportunity tax credit is available on an elective basis for 
     employers hiring individuals from one or more of five 
     targeted groups. The credit generally is equal to 35 percent 
     of qualified wages.
       Certification of members of targeted groups.--In general, 
     an individual is not treated as a member of a targeted group 
     unless: (1) on or before the day the individual begins work 
     for the employer, the employer received in writing a 
     certification from the designated local agency that the 
     individual is a member of a specific targeted group, or (2) 
     on or before the day the individual is offered work with the 
     employer, a pre-screening notice is completed with respect to 
     that individual and within 14 days after the individual 
     begins work for the employer, the employer submits such 
     notice to the designated local agency as part of a written 
     request for certification. The pre-screening notice will 
     contain the information provided to the employer by the 
     individual that forms the basis of the employer's belief that 
     the individual is a member of a targeted group.
       Targeted groups eligible for the credit.--There are five 
     groups eligible for the credit:
       (1) Vocational rehabilitation referral;
       (2) High-risk youth;
       (3) Qualified ex-felon;
       (4) Qualified summer youth employee; and
       (5) Aid to Families with Dependent Children (''AFDC'') or 
     successor program (with special rules for qualified veterans)
       Other rules.--The House bill does not include the prior-law 
     rule denying the credit in the case of strikes or lockouts.
       Minimum employment period.--No credit is allowed for wages 
     paid unless the eligible individual is employed by the 
     employer for at least 180 days (20 days in the case of a 
     qualified summer youth employee) or 500 hours (120 hours in 
     the case of a qualified summer youth employee).
       Length of extension.--January 1, 1996 through December 31, 
     1997 (two years).
     Senate amendment \19\
       General rules.--Same as the House bill, with the addition 
     of a sixth targeted group: ``qualified veterans.'' Unlike the 
     House bill, the Senate amendment expands eligibility to 
     certain veterans certified as receiving assistance under a 
     food stamp program.
     \19\ The Senate amendment was inadvertently stricken in the 
     enrolling of the Senate amendment. This explanation is of the 
     Senate amendment as intended to be included.
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       Certification of members of targeted groups.--Same as the 
     House bill.
       Targeted groups eligible for the credit.--Same as the House 
     bill, with the addition of a sixth targeted group ``qualified 
     veterans.'' Unlike the House bill, the Senate amendment 
     extends eligibility to certain veterans certified as 
     receiving assistance under a food stamp program.
       Other rules.--Retains the prior-law rule denying the credit 
     in the case of strikes or lockouts.
       Minimum employment period.--Same as the House bill, except 
     500 hours reduced to 400 hours.
       Length of extension.--January 1, 1996, through February 28, 
     1997 (14 months).
     Conference agreement
       The conference agreement provides for the following:
       General rules.--The conference agreement follows the Senate 
     amendment.
       Certification of members of targeted groups.--The 
     conference agreement follows the House bill and the Senate 
     amendment.
       Targeted groups eligible for the credit.--The conference 
     agreement follows the Senate amendment.
       Other rules.--The conference agreement follows the Senate 
     amendment.
       Minimum employment period.--The conference agreement 
     follows the House bill.
       Length of extension.--The conference agreement provides for 
     a one-year extension, January 1, 1996 through December 31, 
     1996.
       Effective date.--The credit is effective for wages paid or 
     incurred to a qualified individual who begins work for an 
     employer on or after January 1, 1996, and before January 1, 
     1997.


 2. Employer-provided educational assistance (sec. 13102 of the House 
              bill and sec. 12402 of the Senate amendment)

     Present law
       For taxable years beginning before January 1, 1995, an 
     employees's gross income and wages did not include amounts 
     paid or incurred by the employer for educational assistance 
     provided to the employee if such amounts were paid or 
     incurred pursuant to an educational assistance program that 
     met certain requirements. This exclusion, which expired for 
     taxable years beginning after December 31, 1994, was limited 
     to $5,250 of educational assistance with respect to an 
     individual during a calendar year. The exclusion applied 
     whether or not the education was job related. In the absence 
     of the exclusion, educational assistance is excludable from 
     income only if it is related to the employee's current job.
     House bill
       The House bill extends the exclusion for employer-provided 
     educational assistance to taxable years beginning after 
     December 31, 1994, and before January 1, 1998. In years 
     beginning after December 31, 1995, the exclusion does not 
     apply with respect to graduate-level courses.
       Effective date.--The provision is effective with respect to 
     taxable years beginning after December 31, 1994, and before 
     January 1, 1998, and the restriction of the exclusion to 
     undergraduate education is effective for taxable years 
     beginning after December 31, 1995.
     Senate amendment
       The Senate amendment extends the exclusion for educational 
     assistance for taxable years beginning after December 31, 
     1994, and before March 1, 1997. In the case of a taxable year 
     beginning in 1997, the maximum amount that can be excluded is 
     one-sixth of $5,250, or $875, and only amounts pad by the 
     employer before March 1, 1997, are taken into account.
       Effective date.--The provision is effective with respect to 
     taxable years beginning after December 31, 1994, and before 
     March 1, 1997.
     Conference agreement
       The conference agreement follows the House bill, except 
     that the exclusion for educational assistance is extended for 
     taxable years beginning after December 31, 1994, and before 
     January 1, 1997. As under the House bill, the exclusion does 
     not apply to graduate-level education after December 31, 
     1995.
       Effective date.--The provision is effective with respect to 
     taxable years beginning after December 31, 1994, and before 
     January 1, 1997, and the restriction of the exclusion to 
     undergraduate education is effective for taxable years 
     beginning after December 31, 1995.


  3. Research and experimentation tax credit (sec. 13103 of the House 
              bill and sec. 12402 of the Senate amendment)

     Present and prior law
       General rule
       Prior to July 1, 1995, section 41 of the Internal Revenue 
     Code provided for a research tax credit equal to 20 percent 
     of the amount by which a taxpayer's qualified research 
     expenditures for a taxable year exceeded its base amount for 
     that year. The research tax credit expired and does not apply 
     to amounts paid or incurred after June 30, 1995.
       A 20-percent research tax credit also applied to the excess 
     of (1) 100 percent of corporate cash expenditures (including 
     grants or contributions) paid for basic research conducted by 
     universities (and certain nonprofit scientific research 
     organizations) over (2) the sum of (a) the greater of two 
     minimum basic research floors plus (b) an amount reflecting 
     any decrease in nonresearch giving to universities by the 
     corporation as compared to such giving during a fixed-base 
     period, as adjusted for inflation. This separate credit 
     computation is commonly referred to as the ``university basic 
     research credit'' (see sec. 41(e)).
       Computation of allowable credit
       Except for certain university basic research payments made 
     by corporations, the research tax credit applies only to the 
     extent that the taxpayer's qualified research expenditures 
     for the current taxable year exceed its base amount. The base 
     amount for the current year generally is computed by 
     multiplying the taxpayer's ``fixed-base percentage'' by the 
     average amount of the taxpayer's gross receipts for the four 
     preceding years. If a taxpayer both incurred qualified 
     research expenditures and had gross receipts during each of 
     at least three years from 1984 through 1988, then its 
     ``fixed-base percentage'' is the ratio that its total 
     qualified research expenditures for the 1984-1988 period 
     bears to its total gross receipts for that period (subject to 
     a maximum ratio of .16). All other taxpayers (so-called 
     ``start-up firms'') are assigned a fixed-base percentage of 3 
     percent.20
     \20\ The Omnibus Budget Reconciliation Act of 1993 included a 
     special rule designed to gradually recompute a start-up 
     firm's fixed-base percentage based on its actual research 
     experience. Under this special rule, a start-up firm (i.e., 
     any taxpayer that did not have gross receipts in at least 
     three years during the 1984-1988 period) will be assigned a 
     fixed-base percentage of 3 percent for each of its first five 
     taxable years after 1993 in which it incurs qualified 
     research expenditures. In the event that the research credit 
     is extended beyond the scheduled June 30, 1995 expiration 
     date, a start-up firm's fixed-base percentage for its sixth 
     through tenth taxable years after 1993 in which it incurs 
     qualified research expenditures will be a phased-in ratio 
     based on its actual research experience. For all subsequent 
     taxable years, the taxpayer's fixed-base percentage will be 
     its actual ratio of qualified research expenditures to gross 
     receipts for any five years selected by the taxpayer from its 
     fifth through tenth taxable years after 1993 (sec. 
     41(c)(3)(B)).
---------------------------------------------------------------------------
       In computing the credit, a taxpayer's base amount may not 
     be less than 50 percent of its current-year qualified 
     research expenditures.
       To prevent artificial increases in research expenditures by 
     shifting expenditures among commonly controlled or otherwise 
     related entities, research expenditures and gross receipts of 
     the taxpayer are aggregated with research expenditures and 
     gross receipts of certain related persons for purposes of 
     computing any allowable credit (sec. 41(f)(1)). 

[[Page H 12859]]
      Special rules apply for computing the credit when a major portion of a 
     business changes hands, under which qualified research 
     expenditures and gross receipts for periods prior to the 
     change or ownership of a trade or business are treated as 
     transferred with the trade or business that gave rise to 
     those expenditures and receipts for purposes of recomputing a 
     taxpayer's fixed-base percentage (sec. 41(f)(3)).
       Eligible expenditures
       Qualified research expenditures eligible for the research 
     tax credit consist of: (1) ``in-house'' expenses of the 
     taxpayer for wages and supplies attributable to qualified 
     research; (2) certain time-sharing costs for computer use in 
     qualified research; and (3) 65 percent of amounts paid by the 
     taxpayer for qualified research conducted on the taxpayer's 
     behalf (so-called ``contract research expenses'').
       To be eligible for the credit, the research must not only 
     satisfy the requirements of present-law section 174 but must 
     be undertaken for the purpose of discovering information that 
     is technological in nature, the application of which is 
     intended to be useful in the development of a new or improved 
     business component of the taxpayer, and must pertain to 
     functional aspects, performance, reliability, or quality of a 
     business component. Research does not qualify for the credit 
     if substantially all of the activities relate to style, 
     taste, cosmetic, or seasonal design factors (sec. 41(d)(3)). 
     In addition, research does not qualify for the credit if 
     conducted after the beginning of commercial production of the 
     business component, if related to the adaptation of an 
     existing business component to a particular customer's 
     requirements, if related to the duplication of an existing 
     business component from a physical examination of the 
     component itself or certain other information, or if related 
     to certain efficiency surveys, market research or 
     development, or routine quality control (sec. 41(d)(4)).
       Expenditures attributable to research that is conducted 
     outside the United States do not enter into the credit 
     computation. In addition, the credit is not available for 
     research in the social sciences, arts, or humanities, nor is 
     it available for research to the extent funded by any grant, 
     contract, or otherwise by another person (or governmental 
     entity).
     House bill
       The House bill extends the research tax credit (including 
     the university basic research credit) for the period July 1, 
     1995, through December 31, 1997.
       The House bill also expands the definition of ``start-up 
     firms'' under section 41(c)(3)(B)(I) to include any firm if 
     the first taxable year in which such firm had both gross 
     receipts and qualified research expenses began after 
     1983.21
     \21\ In applying the start-up firm rules, the test is whether 
     a taxpayer, in fact, both incurred research expenses (which 
     under the present-law rules would be qualified research 
     expenses) and had gross receipts in a particular year, not 
     whether the taxpayer claimed a research tax credit for that 
     year.
---------------------------------------------------------------------------
       In addition, the House bill allows taxpayers to elect an 
     alternative incremental research credit regime. If a taxpayer 
     elects to be subject to this alternative regime, the taxpayer 
     is assigned a three-tiered fixed-base percentage (that is 
     lower than the fixed-base percentage otherwise applicable 
     under present law) and the credit rate likewise is reduced. 
     Under the alternative credit regime, a credit rate of 1.65 
     percent applies to the extent that a taxpayer's current-year 
     research expenses exceed a base amount computed by using a 
     fixed-base percentage of 1 percent (i.e., the base amount 
     equals 1 percent of the taxpayer's average gross receipts for 
     the four preceding years) but do not exceed a base amount 
     computed by using a fixed-base percentage of 1.5 percent. A 
     credit rate of 2.2 percent applies to the extent that a 
     taxpayer's current-year research expenses exceed a base 
     amount computed by using a fixed-base percentage of 1.5 
     percent but do not exceed a base amount computed by using a 
     fixed-base percentage of 2 percent. A credit rate of 2.75 
     percent applies to the extent that a taxpayer's current-year 
     research expenses exceed a base amount computed by using a 
     fixed-base percentage of 2 percent. An election to be subject 
     to this alternative incremental credit regime may be made 
     only for a taxpayer's first taxable year beginning after June 
     30, 1995, and such an election applies to that taxable year 
     and all subsequent years unless revoked with the consent of 
     the Secretary of the Treasury.
       The House bill also provides for a special rule for 
     payments made to a qualified research consortium. Under this 
     special rule, 75 percent of amounts paid to a qualified 
     research consortium for qualified research are treated as 
     qualified research expenses eligible for the research credit 
     (rather than 65 percent under the present-law section 
     41(b)(3) rule governing contract research expenses). For this 
     purpose, a qualified research consortium is defined as a 
     nonprofit scientific research organization that is described 
     in section 501(c)(3) (but not a college or university) if (1) 
     at least 15 unrelated persons paid amounts to the 
     organization for qualified research during the calendar year 
     in which the taxable year of the taxpayer begins, (2) no 
     three persons paid more than 50 percent of such amounts, and 
     (3) no one person paid more than 20 percent of such amounts.
       Effective date.--Extension of the research tax credit is 
     effective for expenditures paid or incurred during the period 
     July 1, 1995, through December 31, 1997. The modification to 
     the definition of ``start-up firms'' is effective for taxable 
     years ending after June 30, 1995. Taxpayers may elect the 
     alternative research credit regime (with lower fixed-base 
     percentages and lower credit rates) for taxable years 
     beginning after June 30, 1995. The special rule that treats 
     75 percent of qualified research consortium payments as 
     qualified research expenses is effective for taxable years 
     beginning after June 30, 1995.
     Senate amendment
       The Senate amendment extends the research tax credit 
     (including the university basic research credit) for the 
     period July 1, 1995, through February 28, 1997.
       In addition, the Senate amendment includes the same 
     provision contained in the House bill expanding the 
     definition of ``start-up firms'' under section 41(c)(3)(B)(I) 
     to include any firm if the first taxable year in which such 
     firm had both gross receipts and qualified research expenses 
     began after 1983.
       Effective date.--Extension of the research tax credit is 
     effective for expenditures paid or incurred during the period 
     July 1, 1995, through February 28, 1997. The modification to 
     the definition of ``start-up firms'' is effective for taxable 
     years ending after June 30, 1995.
     Conference agreement
       The conference agreement extends the research tax credit 
     (including the university basic research credit) for the 
     period July 1, 1995, through December 31, 1996.
       In addition, the conference agreement includes (1) the 
     expanded definition of ``start-up firms'' from both the House 
     bill and Senate amendment, (2) the provision from the House 
     bill that allows taxpayers to elect an alternative 
     incremental credit regime, and (3) the provision from the 
     House bill that treats 75 percent of qualified research 
     consortium payments as qualified research expenses.
       Effective date.--Extension of the research tax credit is 
     effective for expenditures paid or incurred during the period 
     July 1, 1995, through December 31, 1996. The modification to 
     the definition of ``start-up firms'' is effective for taxable 
     years ending after June 30, 1995. Taxpayers may elect the 
     alternative research credit regime (with lower fixed-base 
     percentages and lower credit rates) for taxable years 
     beginning after June 30, 1995. The special rule that treats 
     75 percent of qualified research consortium payments as 
     qualified research expenses is effective for taxable years 
     beginning after June 30, 1995.


4. Exclusion for employer-provided group legal services; tax exemption 
  for qualified group legal services organizations (sec. 12404 of the 
                           Senate amendment)

     Present law
       Under present law, there is no exclusion for employer-
     provided group legal services, or tax exemption for qualified 
     group legal services organizations. Under prior law, 
     employees were not subject to income or employment tax on 
     amounts contributed by an employer to a qualified group legal 
     services plan (or benefits provided under such a plan). The 
     exclusion did not apply to the extent that the value of 
     insurance against legal costs incurred by the individual (or 
     spouse or dependents) provided under the plan for a year 
     exceeded $70. The exclusion for group legal services benefits 
     expired after June 30, 1992.
       In addition, prior law provided tax-exempt status for an 
     organization the exclusive function of which was to provide 
     legal services or indemnification against the cost of legal 
     services provided through a qualified group services plan. 
     The tax exemption for such an organization expired for 
     taxable years beginning after June 30, 1992.
     House bill
       No provision.
     Senate amendment
       The Senate amendment reinstates the exclusion from income 
     for contributions to (and benefits under) employer-provided 
     group legal services plans and the exemption from tax for 
     certain group legal services organizations from January 1, 
     1996, through February 28, 1997. The exclusion is available 
     with respect to contributions to employer-provided group 
     legal services plans through February 28, 1997, but the limit 
     on the value of insurance provided under the plan for taxable 
     years beginning in 1997 is one-sixth of $70 or $12.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 1995, and before February 
     28, 1997.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment.


5. Orphan drug tax credit (sec. 13105 of the House bill and sec. 12404 
                        of the Senate amendment)

     Present and prior law
       Prior to January 1, 1995, a 50-percent nonrefundable tax 
     credit was allowed for qualified clinical testing expenses 
     incurred in testing of certain drugs for rare diseases or 
     conditions, generally referred to as ``orphan drugs.'' 
     Qualified testing expenses are costs incurred to test an 
     orphan drug after the drug has been approved for human 
     testing by the Food and Drug Administration (FDA) but before 
     the drug has been approved for sale by the FDA. A rare 
     disease or condition is defined as one that (1) affects less 
     than 200,000 persons in the United States or (2) affects more 
     than 200,000 persons, but for which 

[[Page H 12860]]
     there is no reasonable expectation that businesses could recoup the 
     costs of developing a drug for it from U.S. sales of the 
     drug. These rare diseases and conditions include Huntington's 
     disease, myoclonus, ALS (Lou Gehrig's disease), Tourette's 
     syndrome, and Duchenne's dystrophy (a form of muscular 
     dystrophy).
       Under prior law, the orphan drug tax credit could be 
     claimed by a taxpayer only to the extent that its regular tax 
     liability for the year the credit was earned exceeded its 
     tentative minimum tax for that year, after regular tax was 
     reduced by nonrefundable personal credits and the foreign tax 
     credit.22 Unused credits could not be carried back or 
     carried forward to reduce taxes in other years.
     \22\ To the extent that the orphan drug tax credit could not 
     be used by reason of the minimum tax limitation, the 
     taxpayer's minimum tax credit was increased (sec. 
     53(d)(1)(B)(iii)).
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       The orphan drug tax credit expired after December 31, 1994.
     House bill
       The House bill extends the orphan drug tax credit for the 
     period January 1, 1995, through December 31, 1997.
       Effective date.--Qualified clinical testing expenses paid 
     or incurred during the period January 1, 1995, through 
     December 31, 1997.
     Senate amendment
       The Senate amendment extends the orphan drug tax credit for 
     the period January 1, 1995, through February 28, 1997.
       In addition, the Senate amendment allows taxpayers to carry 
     back unused credits to three years preceding the year the 
     credit is earned and to carry forward unused credits to 15 
     years following the year the credit is earned.
       Effective date.--Qualified clinical testing expenses 
     incurred during the period January 1, 1995, through February 
     28, 1997. The provision allowing for the carry back and carry 
     forward of unused credits is effective for taxable years 
     ending after December 31, 1994, except that credits may not 
     be carried back to a taxable year beginning before January 1, 
     1995.
     Conference agreement
       The conference agreement extends the orphan drug tax credit 
     for the period January 1, 1995, through December 31, 1996.
       The conference agreement includes the provision from the 
     Senate amendment that allows taxpayers to carry back unused 
     credits to three years preceding the year the credit is 
     earned and to carry forward unused credits to 15 years 
     following the year the credit is earned.
       Effective date.--Qualified clinical testing expenses 
     incurred during the period January 1, 1995, through December 
     31, 1996. The provision allowing for the carry back and carry 
     forward of unused credits is effective for taxable years 
     ending after December 31, 1994, except that credits may not 
     be carried back to a taxable year beginning before January 1, 
     1995.


  6. Contributions of appreciated stock to private foundations (sec. 
    13104 of the House bill and sec. 12405 of the Senate amendment)

     Present and prior law
       In computing taxable income, a taxpayer who itemizes 
     deductions generally is allowed to deduct the fair market 
     value of property contributed to a charitable 
     organization.23 However, in the case of a charitable 
     contribution of short-term gain, inventory, or other ordinary 
     income property, the amount of the deduction generally is 
     limited to the taxpayer's basis in the property. In the case 
     of a charitable contribution of tangible personal property, 
     the deduction is limited to the taxpayer's basis in such 
     property if the use by the recipient charitable organization 
     is unrelated to the organization's tax-exempt purpose.24
     \23\ The amount of the deduction allowable for a taxable year 
     with respect to a charitable contribution may be reduced 
     depending on the type of property contributed, the type of 
     charitable organization to which the property is contributed, 
     and the income of the taxpayer (secs. 170(b) and 170(e)).
     \24\ As part of the Omnibus Budget Reconciliation Act of 
     1993, Congress eliminated the treatment of contributions of 
     appreciated property (real, personal, and intangible) as a 
     tax preference for alternative minimum tax (AMT) purposes. 
     Thus, if a taxpayer makes a gift to charity of property 
     (other than short-term gain, inventory, or other ordinary 
     income property, or gifts to private foundations) that is 
     real property, intangible property, or tangible personal 
     property the use of which is related to the donee's tax-
     exempt purpose, the taxpayer is allowed to claim the same 
     fair-market-value deduction for both regular tax and AMT 
     purposes (subject to present-law percentage limitations).
---------------------------------------------------------------------------
       In cases involving contributions to a private foundation 
     (other than certain private operating foundations), the 
     amount of the deduction is limited to the taxpayer's basis in 
     the property. However, under a special rule contained in 
     section 170(e)(5), taxpayers were allowed a deduction equal 
     to the fair market value of ``qualified appreciated stock'' 
     contributed to a private foundation prior to January 1, 1995. 
     Qualified appreciated stock was defined as publicly traded 
     stock which is capital gain property. The fair-market-value 
     deduction for qualified appreciated stock donations applied 
     only to the extent that total donations made by the donor to 
     private foundations of stock in a particular corporation did 
     not exceed 10 percent of the outstanding stock of that 
     corporation. For this purpose, an individual was treated as 
     making all contributions that were made by any member of the 
     individual's family. This special rule contained in section 
     170(e)(5) expired after December 31, 1994.
     House bill
       The House bill extends for the period January 1, 1995, 
     through December 31, 1997, the special rule contained in 
     section 170(e)(5) for contributions of qualified appreciated 
     stock made to private foundations.25
     \25\ If, during this period, a taxpayer contributes qualified 
     appreciate stock as defined in section 170(e)(5) and the 
     amount of such contribution exceeds the percentage limitation 
     under section 170(b)(1)(D), the excess may be carried over to 
     succeeding taxable years. See, e.g., LTR 9444029, LTR 
     9424020.
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       Effective date.--The provision is effective for 
     contributions of qualified appreciated stock to private 
     foundations made during the period January 1, 1995, through 
     December 31, 1997.
     Senate amendment
       The Senate amendment extends for the period January 1, 
     1995, through February 28, 1997, the special rule contained 
     in section 170(e)(5) for contributions of qualified 
     appreciated stock made to private foundations.
       Effective date.--The provision is effective for 
     contributions of qualified appreciated stock to private 
     foundations made during the period January 1, 1995, through 
     February 28, 1997.
     Conference agreement
       The conference agreement extends for the period January 1, 
     1995, through December 31, 1996, the special rule contained 
     in section 170(e)(5) for contributions of qualified 
     appreciated stock made to private foundations.
       Effective date.--The provision is effective for 
     contributions of qualified appreciated stock to private 
     foundations made during the period January 1, 1995, through 
     December 31, 1996.


   7. Transportation fuels tax exemption for fuel used in commercial 
  aviation (sec. 13111 of the House bill and sec. 12407 of the Senate 
                               amendment)

     Present law
       A 4.3-cents-per-gallon excise tax is imposed on fuel used 
     in most transportation modes. This tax was enacted by the 
     Omnibus Budget Reconciliation Act of 1993. Fuel used in 
     commercial aviation was exempt before October 1, 1995.
     House bill
       The House bill extends the commercial aviation fuel tax 
     exemption for two years, through September 30, 1997, and 
     provides for refunds of excise taxes paid between October 1, 
     1995 and the date of the bill's enactment.
       The Treasury Department is required to study and report on 
     relative excise tax burdens, and Federal benefits financed 
     with those taxes, for different transportation sectors.
       Effective date.--October 1, 1995.
     Senate amendment
       The Senate amendment is the same as the House bill, except 
     the commercial aviation fuels tax exemption is extended 
     through February 28, 1997, and the Treasury Department study 
     is only requested in legislative history.
       Effective date.--Same as the House bill.
     Conference agreement
       The conference agreement follows the House bill with regard 
     to the period when the exemption is extended (i.e., through 
     September 30, 1997), and the Senate amendment with regard to 
     the Treasury Department study. Extension of this exemption is 
     contingent upon extension through September 30, 1996, of the 
     present-law Airport and Airway Trust Fund excise taxes as 
     part of the conference agreement.


8. Airport and Airway Trust Fund excise taxes (sec. 13116 of the House 
                                 bill)

     Present law
       Excise taxes are imposed on the following to fund the 
     Airport and Airway Trust Fund program:
       (1) domestic passenger tickets;
       (2) domestic freight waybills;
       (3) international departures; and
       (4) noncommercial aviation fuel.
       These taxes are scheduled to expire after December 31, 
     1995.
     House bill
       The House bill extends the Airport and Airway Trust Fund 
     excise taxes through September 30, 1996.
       Effective date.--January 1, 1996.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill. The 
     extension of the exemption from the 4.3-cents-per-gallon 
     transportation fuels excise tax included in the conference 
     agreement is contingent upon extension of the Airport and 
     Airway Trust Fund excise taxes through September 30, 1996, as 
     part of this legislation.


 9. Extension of Internal Revenue Service user fees (sec. 12943 of the 
                           Senate amendment)

     Present law
       The Internal Revenue Service (``IRS'') provides written 
     responses to questions of individuals, corporations, and 
     organizations relating to their tax status or the effects of 
     particular transactions for tax purposes. The IRS generally 
     charges a fee for requests for a letter ruling, determination 
     letter, opinion letter, or other similar ruling or 
     determination. The Uruguay Round Agreements Act 

[[Page H 12861]]
     extended the IRS user fee program for five years (until October 1, 
     2000).
     House bill
       No provision.
     Senate amendment
       The IRS user fees are extended for two additional years 
     (until October 1, 2002).
       Effective date.--The provision is effective on the date of 
     enactment.
     Conference agreement
       The conference agreement follows the Senate amendment.


                 B. Termination of Certain Tax Credits

 1. Tax credit for electricity produced from certain renewable sources 
                     (sec. 13621 of the House bill)

     Present law
       A tax credit is allowed for electricity produced from wind 
     and closed-loop biomass facilities. The credit applies to 
     production from property placed in service before July 1, 
     1999.
     House bill
       The House bill limits the credit to production from 
     property placed in service (1) before September 14, 1995, or 
     (2) before September 14, 1996, pursuant to a binding contract 
     in existence on September 13, 1995.
       Effective date.--Date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


    2. Low-income housing tax credit (sec. 13636 of the House bill)

     Present law
       A tax credit, claimed over a 10-year period is allowed for 
     rental housing occupied by tenants having incomes below 
     specified levels. The credit generally has a present value of 
     70 percent (new construction) or 30 percent (existing housing 
     and most housing also receiving other Federal subsidies).
       The tax credit is subject to annual per-State limitations 
     of $1.25 per resident. Credits that remain unallocated by 
     States after prescribed periods are reallocated to other 
     States through a ``national pool.''
     House bill
       The House bill sunsets the credit generally for housing 
     placed in service after December 31, 1997. The House bill 
     also repeals the ``national pool'' after December 31, 1995.
       Effective date.--Date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


               C. Superfund and Oil Spill Liability Taxes

1. Extend Superfund excise taxes and corporate environmental income tax 
                  (sec. 12411 of the Senate amendment)

     Present law
       Four taxes are imposed to fund the Hazardous Substance 
     Superfund Trust Fund program:
       (1) an excise tax on petroleum and imported refined 
     products;
       (2) an excise tax on certain hazardous chemicals;
       (3) an excise tax on imported substances made with the 
     chemicals subject to the tax in (2), above; and
       (4) an income tax on corporations calculated using the 
     alternative minimum tax rules.
       These taxes are scheduled to expire after December 31, 
     1995. Revenues from these taxes are deposited in the 
     Hazardous Substance Superfund Trust Fund.
     House bill
       No provision.
     Senate amendment
       The Senate amendment extends the three Superfund excise 
     taxes through September 30, 2002, and the corporate 
     environmental income tax through taxable years beginning 
     before January 1, 1998. Revenues from these taxes would 
     continue to be deposited in the Hazardous Substance Superfund 
     Trust Fund throughout the extension period.
       Effective date.--Date of enactment.
     Conference Agreement
       The conference agreement follows the Senate amendment with 
     modifications. The three superfund excise taxes (taxes on 
     petroleum and refined products, on certain hazardous 
     chemicals, and on certain imported substances) are extended 
     through September 30, 1996. Revenues from these taxes will 
     continue to be deposited in the Hazardous Substance Superfund 
     Trust Fund during the period January 1, 1996 through July 31, 
     1996; revenues attributable to taxes imposed during the 
     period August 1, 1996 through September 30, 1996, will be 
     retained in the General Fund.
       The corporate environmental income tax is extended for one 
     year, through taxable years beginning before January 1, 1997. 
     Revenues attributable to this tax will continue to be 
     deposited in the Hazardous Substance Superfund Trust Fund 
     throughout the extension period.


 2. Reinstate Oil Spill Liability Trust Fund excise tax (sec. 12412 of 
                         the Senate amendment)

     Present law
       A five-cents-per-barrel excise tax was imposed before 
     January 1, 1995, to fund the Oil Spill Liability Trust Fund 
     program.
     House bill
       No provision.
     Senate amendment
       The Senate amendment reinstates the Oil Spill Liability 
     Trust Fund tax through September 30, 2002.
       Effective date.--January 1, 1996.
     Conference agreement
       The conference agreement follows the Senate amendment.


                     D. Other Fuels Tax Provisions

 1. Extend expired ethanol blender refund provision (sec. 12421 of the 
                           Senate amendment)

     Present law
       Before October 1, 1995, persons who blended tax-paid 
     gasoline and ethanol for use as a highway fuel could claim an 
     expedited refund equal to the 54-cents-per-gallon subsidy for 
     ethanol.
     House bill
       No provision.
     Senate amendment
       The Senate amendment reinstates the expedited refund 
     provision during the period through September 30, 1999, and 
     provides a special interest accrual rule for the period 
     October 1, 1995, to the date of enactment.
       Effective date.--Date of enactment.
     Conference agreement
       The conference agreement follows the Senate amendment.


 2. Extend tax credit for producing fuel from a nonconventional source 
                  (sec. 12422 of the Senate amendment)

     Present law
       A tax credit is allowed for fuel produced from certain 
     ``nonconventional sources'' (the ``section 29 credit''). In 
     the case of synthetic fuel produced from coal and gas 
     produced from biomass, the credit is available only for fuel 
     from facilities placed in service before January 1, 1997, 
     pursuant to a binding contract entered into before January 1, 
     1996.
     House bill
       No provision.
     Senate amendment
       The Senate amendment extends the binding contract and 
     placed in service dates for coal and biomass facilities for 
     one year.
       Effective date.--Date of enactment.
     Conference agreement
       The conference agreement follows the Senate amendment with 
     a modification limiting the extension of the binding contract 
     date to six months.


 3. Exempt States exempt from Clean Air Act diesel dyeing requirement 
  from similar excise tax dyeing requirement (sec. 14733 of the House 
                                 bill)

     Present law
       An excise tax totaling 24.4 cents per gallon is imposed on 
     diesel fuel. The diesel fuel tax is imposed on removal of the 
     fuel from a terminal facility. Present law provides that tax 
     is imposed on all diesel fuel removed from terminal 
     facilities unless the fuel is destined for a nontaxable use 
     and is indelibly dyed pursuant to Treasury Department 
     regulations.
       A similar dyeing regime exists for diesel fuel under the 
     Clean Air Act. Urban areas in the State of Alaska were 
     exempted from the Clean Air Act, but not the excise tax, 
     dyeing regime for three years (until October 1, 1996); the 
     exemption for more remote areas is permanent.
     House bill
       The House bill exempts diesel fuel sold in the State of 
     Alaska from the excise tax diesel dyeing requirement during 
     the period when that State is exempt from the Clean Air Act 
     dyeing requirement.
       Effective date.--First calendar quarter beginning after 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill, except the 
     exemption is expanded to include diesel fuel removed from 
     terminal facilities in any other State that is exempt from 
     the Clean Air Act dyeing regime (as that Act is in effect on 
     the date the conference agreement is enacted).


  4. Suspend imposition of diesel fuel tax on recreational motorboats 
                  (sec. 12431 of the Senate amendment)

     Present law
       Diesel fuel used in recreational motorboats is taxed at 
     24.4 cents per gallon. Diesel fuel used in commercial vessels 
     is not taxed.
       All diesel fuel is either taxed or dyed when it is removed 
     from pipeline terminals. Dyed diesel fuel may not be used in 
     a taxable use (i.e., recreational boats). Nontaxable users of 
     undyed diesel fuel may claim refunds of tax paid on the fuel 
     they use.
     House bill
       No provision.
     Senate amendment
       The Senate amendment suspends imposition of tax on diesel 
     fuel used in recreational boats for the period January 1, 
     1996, through February 28, 1997.
       The Senate amendment further requests (in the accompanying 
     legislative history) the Treasury Department to study 
     alternative tax regimes that would achieve comparable tax 
     compliance to present law for the marine sector.

[[Page H 12862]]

       Effective date.--January 1, 1996.
     Conference agreement
       The conference agreement follows the Senate amendment, 
     except the expiration date of the provision is June 30, 1997.


                   E. Extensions of Other Provisions

1. Permanent extension of FUTA exemption for alien agricultural workers 
                     (sec. 13106 of the House bill)

     Present law
       Generally, the Federal Unemployment Tax (``FUTA'') is 
     imposed on farm operators who (1) employ 10 or more 
     agricultural workers for some portion of each of 20 different 
     days, each day being in a different calendar week or (2) have 
     a quarterly payroll for agricultural services of at least 
     $20,000. An exclusion from FUTA was provided, however, for 
     labor performed by an alien admitted to the United States to 
     perform agricultural labor under section 214(c) and 
     101(a)(15)(H) of the Immigration and Nationality Act. This 
     exclusion was effective for labor performed before January 1, 
     1995.
     House bill
       The House bill permanently extends the exemption.
       Effective date.--Effective for labor performed on or after 
     January 1, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.
       Effective date.--Effective for labor performed on or after 
     January 1, 1995.


 2. Tax information sharing: Extend access to tax information for the 
     Department of Veterans Affairs (sec. 13501 of the House bill)

     Present law
       The Internal Revenue Code prohibits disclosure of tax 
     returns and return information, except to the extent 
     specifically authorized by the Internal Revenue Code (sec. 
     6103). Unauthorized disclosure is a felony punishable by a 
     fine not exceeding $5,000 or imprisonment of not more than 
     five years, or both (sec. 7213). An action for civil damages 
     also may be brought for unauthorized disclosure (sec. 7431). 
     No tax information may be furnished by the Internal Revenue 
     Service (IRS) to another agency unless the other agency 
     establishes procedures satisfactory to the IRS for 
     safeguarding the tax information it receives (sec. 6103(p)).
       Among the disclosures permitted under the Code is 
     disclosure to the Department of Veterans Affairs (DVA) of 
     self-employment tax information and certain tax information 
     supplied to the Internal Revenue Service and Social Security 
     Administration by third parties. Disclosure is permitted to 
     assist DVA in determining eligibility for, and establishing 
     correct benefit amounts under, certain of its needs-based 
     pension, health care, and other programs (sec. 
     6103(l)(7)(D)(viii)). The income tax returns filed by the 
     veterans themselves are not disclosed to DVA.
       The DVA is required to comply with the safeguards currently 
     contained in the Code and in section 1137(c) of the Social 
     Security Act (governing the use of disclosed tax 
     information). These safeguards include independent 
     verification of tax data, notification to the individual 
     concerned, and the opportunity to contest agency findings 
     based on such information.
       The DVA disclosure provision is scheduled to expire after 
     September 30, 1998.
     House bill
       The House bill permanently extends the authority to 
     disclose tax information to the DVA.
       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill, except 
     that the provision is extended through September 30, 2002.

                VI. TAXPAYER BILL OF RIGHTS 2 PROVISIONS


                          1. Taxpayer advocate

   a. Establishment of position of Taxpayer Advocate within Internal 
             Revenue Service (sec. 13301 of the House bill)

     Present law
       The Office of the Taxpayer Ombudsman was created by the 
     Internal Revenue Service (IRS) in 1979. The Taxpayer 
     Ombudsman's duties are to serve as the primary advocate, 
     within the IRS, for taxpayers. As the taxpayers' advocate, 
     the Taxpayer Ombudsman participates in an ongoing review of 
     IRS policies and procedures to determine their impact on 
     taxpayers, receives ideas from the public concerning tax 
     administration, identifies areas of the tax law that confuse 
     or create an inequity for taxpayers, and supervises cases 
     handled under the Problem Resolution Program. Under current 
     procedures, the Taxpayer Ombudsman is selected by the 
     Commissioner of the IRS and serves at the Commissioner's 
     discretion.
     House bill
       The House bill establishes a new position, Taxpayer 
     Advocate, within the IRS. This replaces the position of 
     Taxpayer Ombudsman. The Taxpayer Advocate is appointed by and 
     reports directly to the Commissioner. Compensation of the 
     Taxpayer Advocate is at a level equal to that of the highest 
     level official reporting directly to the Deputy Commissioner 
     of the IRS.
       The House bill also establishes the Office of Taxpayer 
     Advocate within the IRS. The functions of the office are (1) 
     to assist taxpayers in resolving problems with the IRS, (2) 
     to identify areas in which taxpayers have problems in 
     dealings with the IRS, (3) to propose changes (to the extent 
     possible) in the administrative practices of the IRS that 
     will mitigate those problems, and (4) to identify potential 
     legislative changes that may mitigate those problems.
       The Taxpayer Advocate is required to make two annual 
     reports to the tax-writing Committees.
       Effective date.--The provision is effective on the date of 
     enactment. The first annual reports of the Taxpayer Advocate 
     are due in June and December, 1996.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


  b. Expansion of authority to issue Taxpayer Assistance Orders (sec. 
                        13302 of the House bill)

     Present law
       Section 7811(a) authorizes the Taxpayer Ombudsman to issue 
     a Taxpayer Assistance Order (TAO). TAOs may order the release 
     of taxpayer property levied upon by the IRS and may require 
     the IRS to cease any action, or refrain from taking any 
     action if, in the determination of the Taxpayer Ombudsman, 
     the taxpayer is suffering or about to suffer a significant 
     hardship as a result of the manner in which the internal 
     revenue laws are being administered.
     House bill
       The House bill provides the Taxpayer Advocate with broader 
     authority to affirmatively take any action as permitted by 
     law with respect to taxpayers who would otherwise suffer a 
     significant hardship as a result of the manner in which the 
     IRS is administering the tax laws. In addition, the House 
     bill provides that a TAO may specify a time period within 
     which the TAO must be followed. Further, the House bill 
     provides that only the Taxpayer Advocate, the Commissioner of 
     the IRS, the Deputy Commissioner, or a regional problem 
     resolution officer, may modify or rescind a TAO. Any official 
     who modifies or rescinds a TAO must provide the Taxpayer 
     Advocate a written explanation of the reasons for the 
     modification or rescission.
       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


          2. Modifications to installment agreement provisions

 a. Notification of reasons for termination of installment agreements 
                     (sec. 13306 of the House bill)

     Present law
       Section 6159 authorizes the IRS to enter into written 
     installment agreements with taxpayers to facilitate the 
     collection of tax liabilities. In general, the IRS has the 
     right to terminate (or in some instances, alter or modify) 
     such agreements if the taxpayer provided inaccurate or 
     incomplete information before the agreement was entered into, 
     if the taxpayer fails to make a timely payment of an 
     installment or another tax liability, if the taxpayer fails 
     to provide the IRS with a requested update of financial 
     condition, if the IRS determines that the financial condition 
     of the taxpayer has changed significantly, or if the IRS 
     believes collection of the tax liability is in jeopardy. If 
     the IRS determines that the financial condition of a taxpayer 
     that has entered into an installment agreement has changed 
     significantly, the IRS must provide the taxpayer with a 
     written notice that explains the IRS determination at least 
     30 days before altering, modifying, or terminating the 
     installment agreement. No notice is statutorily required if 
     the installment agreement is altered, modified, or terminated 
     for other reasons.
     House bill
       The House bill requires the IRS to notify taxpayers 30 days 
     before altering, modifying, or terminating any installment 
     agreement for any reason other than that the collection of 
     tax is determined to be in jeopardy. The IRS must include in 
     the notification an explanation of why the IRS intends to 
     take this action.
       Effective date.--The provision is effective six months 
     after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


b. Administrative review of termination of installment agreements (sec. 
                        13307 of the House bill)

     Present law
       The IRS is currently testing an appeal process for various 
     collection actions, including installment agreements, that 
     will permit taxpayers to appeal these collection actions to 
     Appeals Division personnel.
     House bill
       The House bill requires the IRS to establish additional 
     procedures for an independent 

[[Page H 12863]]
     administrative review of terminations of installment agreements for 
     taxpayers who request a review.
       Effective date.--The provision is effective on January 1, 
     1996.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


                 3. Abatement of interest and penalties

 a. Expansion of authority to abate interest (sec. 13311 of the House 
              bill and sec. 12501 of the Senate amendment)

     Present law
       Any assessment of interest on any deficiency attributable 
     in whole or in part to any error or delay by an officer or 
     employee of the IRS (acting in his official capacity) in 
     performing a ministerial act may be abated.
     House bill
       The House bill permits the IRS to abate interest with 
     respect to any unreasonable error or delay resulting from 
     managerial acts as well as ministerial acts. This would 
     include extensive delays resulting from managerial acts such 
     as: the loss of records by the IRS, IRS personnel transfers, 
     extended illnesses, extended personnel training, or extended 
     leave. On the other hand, interest would not be abated for 
     delays resulting from general administrative decisions. For 
     example, the taxpayer could not claim that the IRS's decision 
     on how to organize the processing of tax returns or its delay 
     in implementing an improved computer system resulted in an 
     unreasonable delay in the Service's action on the taxpayer's 
     tax return, and so the interest on any subsequent deficiency 
     should be waived.
       Effective date.--The provision applies to interest accruing 
     with respect to deficiencies or payments for taxable years 
     beginning after the date of enactment.
     Senate amendment
       Same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


  b. Review of IRS failure to abate interest (sec. 13312 of the House 
              bill and sec. 12502 of the Senate amendment)

     Present law
       Federal courts generally do not have the jurisdiction to 
     review the IRS's failure to abate interest.
     House bill
       The House bill grants the Tax Court jurisdiction to 
     determine whether the IRS's failure to abate interest for an 
     eligible taxpayer was an abuse of discretion. The action must 
     be brought within six months after the date of the 
     Secretary's final determination not to abate interest. An 
     eligible taxpayer must meet the net worth and size 
     requirements imposed with respect to awards of attorney's 
     fees. No inference is intended as to whether under present 
     law any court has jurisdiction to review IRS's failure to 
     abate interest.
       Effective date.--The provision applies to requests for 
     abatement after the date of enactment.
     Senate amendment
       Same as the House bill.
     Conference agreement
       The conference agreement does not include the House bill 
     provision and the Senate amendment.


 c. Extension of interest-free period for payment of tax after notice 
               and demand (sec. 13313 of the House bill)

     Present law
       In general, a taxpayer must pay interest on late payments 
     of tax. An interest-free period of 10 calendar days is 
     provided to taxpayers who pay the tax due within 10 calendar 
     days of notice and demand.
     House bill
       The House bill extends the interest-free period provided to 
     taxpayers for the payment of the tax liability reflected in 
     the notice from 10 calendar days to 10 business days (21 
     calendar days, provided that the total tax liability shown on 
     the notice of deficiency is less than $100,000).
       Effective date.--The provision applies in the case of any 
     notice and demand given after June 30, 1996.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


                            4. Joint returns

 a. Studies of joint and several liability for married persons filing 
joint tax returns and other joint return-related issues (sec. 13316 of 
                            the House bill)

     Present law
       Spouses who file a joint tax return are each fully 
     responsible for the accuracy of the return and for the full 
     tax liability. This is true even though only one spouse may 
     have earned the wages or income which is shown on the return. 
     This is ``joint and several'' liability. Spouses who wish to 
     avoid joint liability may file as a ``married person filing 
     separately.''
       Spouses often file a joint tax return but then later are 
     separated or divorced. If the IRS later disputes the accuracy 
     of the joint tax returns, one spouse may be held liable for 
     the entire tax deficiency stemming from erroneous deductions 
     or omitted income attributable to the other spouse. 
     Therefore, the ``innocent'' spouse may be held liable for the 
     full deficiency in a subsequent audit occurring after the 
     separation or divorce. This has resulted in a serious 
     hardship being imposed on an ``innocent spouse'' in a number 
     of cases.
       In some cases, a couple addresses the responsibility for 
     tax liability as part of their divorce decree. However, these 
     agreements are not binding on the IRS because the IRS was not 
     a party to the divorce proceeding. Thus, if a former spouse 
     violates the tax responsibilities assigned to him or her in a 
     divorce decree, the other spouse may not rely on the decree 
     in dealing with the IRS.
     House bill
       The House bill directs the Treasury Department and the 
     General Accounting Office (GAO) to conduct separate studies 
     analyzing several joint return-related issues.
       Effective date.--The studies are due six months after the 
     date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


b. Joint return may be made after separate returns without full payment 
   of tax (sec. 13317 of the House bill and sec. 12503 of the Senate 
                               amendment)

     Present law
       Taxpayers who file separate returns and subsequently 
     determine that their tax liability would have been less if 
     they had filed a joint return are precluded by statute from 
     reducing their tax liability by filing jointly if they are 
     unable to pay the entire amount of the joint return liability 
     before the expiration of the three-year period for making the 
     election to file jointly.
     House bill
       The House bill repeals the requirement of full payment of 
     tax liability as a precondition to switching from married 
     filing separately status to married filing jointly status.
       Effective date.--The provision applies to taxable years 
     beginning after the date of the enactment.
     Senate amendment
       Same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


 c. Disclosure of collection activities with respect to joint returns 
                     (sec. 13318 of the House bill)

     Present law
       The IRS does not routinely disclose collection information 
     to a former spouse that relates to tax liabilities 
     attributable to a joint return that was filed when married.
     House bill
       If a tax deficiency with respect to a joint return is 
     assessed, and the individuals filing the return are no longer 
     married or no longer reside in the same household, the House 
     bill requires the IRS to disclose in writing (in response to 
     a written request by one of the individuals) to that 
     individual whether the IRS has attempted to collect the 
     deficiency from the other individual, the general nature of 
     the collection activities, and the amount (if any) collected.
       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


                        5. Collection activities

              a. Modifications to lien and levy provisions

  I. Withdrawal of public notice of lien (sec. 13321(a) of the House 
                                 bill)

     Present law
       The IRS must file a notice of lien in the public record, in 
     order to protect the priority of a tax lien. A notice of tax 
     lien provides public notice that a taxpayer owes the 
     Government money. The IRS has discretion in filing such a 
     notice, but may withdraw a filed notice only if the notice 
     (and the underlying lien) was erroneously filed or if the 
     underlying lien has been paid, bonded, or become 
     unenforceable.
     House bill
       The House bill allows the IRS to withdraw a public notice 
     of tax lien prior to payment in full by the indebted taxpayer 
     without prejudice, if the Secretary determines that (1) the 
     filing of the notice was premature or otherwise not in 
     accordance with the administrative procedures of the IRS, (2) 
     the taxpayer has entered into an installment agreement to 
     satisfy the tax liability with respect to which the lien was 
     filed, (3) the withdrawal of the lien will facilitate 
     collection of the tax liability, or (4) the withdrawal of the 
     lien would be in the best interests of the taxpayer (as 
     determined by the Taxpayer Advocate) and of the Government. 
     The IRS must also provide a copy of the notice of withdrawal 
     to the taxpayer. The House bill also requires that, at the 
     written request of the taxpayer, the IRS make reasonable 
     efforts to give notice of the withdrawal of a lien to 
     creditors, credit reporting agencies, and financial 
     institutions specified by the taxpayer.
       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       No provision.

[[Page H 12864]]

     Conference agreement
       The conference agreement does not include the House bill 
     provision.


    ii. Return of levied property (sec. 13321(b) of the House bill)

     Present law
       The IRS is authorized to levy on the property of a taxpayer 
     as a means of collecting unpaid taxes. The IRS is able to 
     return levied property to a taxpayer only when the taxpayer 
     has overpaid its liability with respect to tax, interest, and 
     penalty for which the property was levied.
     House bill
       The House bill allows the IRS to return property (including 
     money deposited in the Treasury) that has been levied upon if 
     the Secretary determines that (1) the levy was premature or 
     otherwise not in accordance with the administrative 
     procedures of the IRS, (2) the taxpayer has entered into an 
     installment agreement to satisfy the tax liability, (3) the 
     return of the property will facilitate collection of the tax 
     liability, or (4) the return of the property would be in the 
     best interests of the taxpayer (as determined by the Taxpayer 
     Advocate) and the Government.
       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


iii. Modifications in certain levy exemption amounts (sec. 13321(c) of 
         the House bill and sec. 12504 of the Senate amendment)

     Present law
       Property exempt from levy includes personal property with a 
     value of up to $1,650 and books and tools of a trade with a 
     value of up to $1,100.
     House bill
       The House bill increases the exemption amount to $2,500 for 
     personal property. This amount is indexed for inflation 
     commencing January 1, 1996.
       Effective date.--The provision is effective with respect to 
     levies issued after December 31, 1995.
     Senate amendment
       Same as the House bill, except that the Senate amendment 
     also increases the exemption amount to $1,250 for books and 
     tools of a trade.
     Conference agreement
       The conference agreement follows the Senate amendment.


b. Offers-in-compromise (sec. 13322 of the House bill and sec. 12505 of 
                         the Senate amendment)

     Present law
       The IRS has the authority to settle a tax debt pursuant to 
     an offer-in-compromise. IRS regulations provide that such 
     offers can be accepted if: the taxpayer is unable to pay the 
     full amount of the tax liability and it is doubtful that the 
     tax, interest, and penalties can be collected or there is 
     doubt as to the validity of the actual tax liability. Amounts 
     over $500 can only be accepted if the reasons for the 
     acceptance are documented in detail and supported by an 
     opinion of the IRS Chief Counsel.
     House bill
       The House bill increases from $500 to $100,000 the amount 
     requiring a written opinion from the Office of Chief Counsel. 
     Compromises below the $100,000 threshold must be subject to 
     continuing quality review by the IRS.
       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       Same as the House bill, except the threshold is $50,000.
     Conference agreement
       The conference agreement follows the Senate amendment.


                         6. Information returns

  a. Civil damages for fraudulent filing of information returns (sec. 
                        13326 of the House bill)

     Present law
       Federal law provides no private cause of action to a 
     taxpayer who is injured because a fraudulent information 
     return has been filed with the IRS asserting that payments 
     have been made to the taxpayer.
     House bill
       The House bill provides that, if any person willfully files 
     a fraudulent information return with respect to payments 
     purported to have been made to another person, the other 
     person may bring a civil action for damages against the 
     person filing that return. A copy of the complaint initiating 
     the action must be provided to the IRS. Recoverable damages 
     are the greater of (1) $5,000 or (2) the amount of actual 
     damages (including the costs of the action) and, in the 
     court's discretion, reasonable attorney's fees. The court 
     must specify in any decision awarding damages the correct 
     amount (if any) that should have been reported on the 
     information return. An action seeking damages under this 
     provision must be brought within six years after the filing 
     of the fraudulent information return, or one year after the 
     fraudulent information return would have been discovered 
     through the exercise of reasonable care, whichever is later.
       Effective date.--The provision applies to fraudulent 
     information returns filed after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


  b. Requirement to conduct reasonable investigations of information 
                 returns (sec. 13327 of the House bill)

     Present law
       Deficiencies determined by the IRS are generally afforded a 
     presumption of correctness.
     House bill
       The House bill provides that, in any court proceeding, if a 
     taxpayer asserts a reasonable dispute with respect to any 
     item of income reported on an information return (Form 1099 
     or Form W-2) filed by a third party and the taxpayer has 
     fully cooperated with the IRS, the Government has the burden 
     of producing reasonable and probative information concerning 
     the deficiency (in addition to the information return 
     itself). Fully cooperating with the IRS includes (but is not 
     limited to) the following: bringing the reasonable dispute 
     over the item of income to the attention of the IRS within a 
     reasonable period of time, and providing (within a reasonable 
     period of time) access to and inspection of all witnesses, 
     information, and documents within the control of the taxpayer 
     (as reasonably requested by the Secretary).
       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


                 7. Awarding of costs and certain fees

 a. United States must establish that its position in a proceeding was 
         substantially justified (sec. 13331 of the House bill)

     Present law
       Under section 7430, a taxpayer who successfully challenges 
     a determination of deficiency by the IRS may recover 
     attorney's fees and other administrative and litigation costs 
     if the taxpayer qualifies as a ``prevailing party.'' A 
     taxpayer qualifies as a prevailing party if it: (1) 
     establishes that the position of the United States was not 
     substantially justified; (2) substantially prevails with 
     respect to the amount in controversy or with respect to the 
     most significant issue or set of issues presented; and (3) 
     meets certain net worth and (if the taxpayer is a business) 
     size requirements. A taxpayer must exhaust administrative 
     remedies to be eligible to receive an award of attorney's 
     fees.
     House bill
       The House bill provides that, once a taxpayer substantially 
     prevails over the IRS in a tax dispute, the IRS has the 
     burden of proof to establish that it was substantially 
     justified in maintaining its position against the taxpayer. 
     This will switch the current procedure which places the 
     burden of proof on the taxpayer to establish that the IRS was 
     not substantially justified in maintaining its position. 
     Therefore, the successful taxpayer will receive an award of 
     attorney's fees unless the IRS satisfies its burden of proof. 
     The House bill also establishes a rebuttable presumption that 
     the position of the United States was not substantially 
     justified if the IRS did not follow in the administrative 
     proceeding (1) its published regulations, revenue rulings, 
     revenue procedures, information releases, notices, or 
     announcements, or (2) a private letter ruling, determination 
     letter, or technical advice memorandum issued to the 
     taxpayer. This provision only applies to the version of IRS 
     guidance that is most current on the date the IRS's position 
     was taken.
       Effective date.--The provision is effective for proceedings 
     commenced after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


  b. Increased limit on attorney's fees (sec. 13332 of the House bill)

     Present law
       Attorney's fees recoverable by prevailing parties as 
     litigation or administrative costs was originally set at $75 
     per hour.
     House bill
       The House bill raises the statutory rate to $110 per hour, 
     indexed for inflation beginning after 1996.
       Effective date.--The provision applies to proceedings 
     commenced after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


c. Failure to agree to extension not taken into account (sec. 13333 of 
                            the House bill)

     Present law
       To qualify for an award of attorney's fees, the taxpayer 
     must have exhausted the administrative remedies available 
     within the IRS. 

[[Page H 12865]]

     House bill
       The House bill provides that any failure to agree to an 
     extension of the statute of limitations cannot be taken into 
     account for purposes of determining whether a taxpayer has 
     exhausted the administrative remedies for purposes of 
     determining eligibility for an award of attorney's fees.
       Effective date.--The provision applies to proceedings 
     commenced after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


    d. Award of litigation costs permitted in declaratory judgment 
proceedings (sec. 13334 of the House bill and sec. 12506 of the Senate 
                               amendment)

     Present law
       Section 7430(b)(3) denies any reimbursement for attorney's 
     fees in all declaratory judgment actions, except those 
     actions related to the revocation of an organization's 
     qualification under section 501(c)(3) (relating to tax-exempt 
     status).
     House bill
       The House bill eliminates the present-law restrictions on 
     awarding attorney's fees in all declaratory judgment 
     proceedings.
       Effective date.--The provision applies to proceedings 
     commenced after the date of enactment.
     Senate amendment
       Same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


     8. Modification to recovery of civil damages for unauthorized 
                           collection actions

  a. Increase in limit on recovery of civil damages for unauthorized 
           collection actions (sec. 13336 of the House bill)

     Present law
       A taxpayer may sue the United States for up to $100,000 of 
     damages caused by an officer or employee of the IRS who 
     recklessly or intentionally disregards provisions of the 
     Internal Revenue Code or the Treasury regulations promulgated 
     thereunder in connection with the collection of Federal tax 
     with respect to the taxpayer.
     House bill
       The House bill increases the cap from $100,000 to $1 
     million.
       Effective date.--The provision applies to unauthorized 
     collection actions by IRS employees that occur after the date 
     of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


b. Court discretion to reduce award for litigation costs for failure to 
exhaust administrative remedies (sec. 13337 of the House bill and sec. 
                     12507 of the Senate amendment)

     Present law
       A taxpayer suing the United States for civil damages for 
     unauthorized collection activities must exhaust 
     administrative remedies to be eligible for an award.
     House bill
       The House bill permits (but does not require) a court to 
     reduce an award if the taxpayer has not exhausted 
     administrative remedies.
       Effective date.--The provision is effective for proceedings 
     commenced after the date of enactment.
     Senate amendment
       Same as the House bill.
     Conference agreement
       The conference agreement does not include the House bill 
     provision and the Senate amendment.
     9. Modification to penalty for failure to collect and pay 
     over tax
     a. Preliminary notice requirement (sec. 13341 of the House 
     bill)
     Present law
       Under section 6672, a ``responsible person'' is subject to 
     a penalty equal to the amount of trust fund taxes that are 
     not collected or paid to the government on a timely basis. An 
     individual the IRS has identified as a responsible person is 
     permitted an administrative appeal on the question of 
     responsibility.
     House bill
       The House bill requires the IRS to issue a notice to an 
     individual the IRS had determined to be a responsible person 
     with respect to unpaid trust fund taxes at least 60 days 
     prior to issuing a notice and demand for the penalty. The 
     statute of limitations shall not expire before the date 90 
     days after the date on which the notice was mailed. The 
     provision does not apply if the Secretary finds that the 
     collection of the penalty is in jeopardy.
       Effective date.--The provision applies to assessments made 
     after June 30, 1996.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.
     b. Disclosure of certain information where more than one 
     person subject to penalty (sec. 13342 of the House bill)
     Present law
       The IRS may not disclose to a responsible person the IRS's 
     efforts to collect unpaid trust fund taxes from other 
     responsible persons, who may also be liable for the same tax 
     liability.
     House bill
       The House bill requires the IRS, if requested in writing by 
     a person considered by the IRS to be a responsible person, to 
     disclose in writing to that person the name of any other 
     person the IRS has determined to be a responsible person with 
     respect to the tax liability. The IRS is required to disclose 
     in writing whether it has attempted to collect this penalty 
     from other responsible persons, the general nature of those 
     collection activities, and the amount (if any) collected. 
     Failure by the IRS to follow this provision does not absolve 
     any individual for any liability for this penalty.
       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.
     c. Right of contribution from multiple responsible parties 
     (sec. 13343 of the House bill)
     Present law
       A responsible person may seek to recover part of the amount 
     which he has paid to the IRS from other individuals who also 
     may have the obligations of a responsible person but who have 
     not yet contributed their proportionate share of their 
     liability under section 6672. Taxpayers must pursue such 
     claims for contribution under state law (to the extent state 
     law permits such claims). The variations in state law 
     sometimes make it difficult or impossible to press successful 
     suits in state courts to force a contribution from other 
     responsible persons.
     House bill
       If more than one person is liable for this penalty, each 
     person who paid the penalty is entitled to recover from other 
     persons who are liable for the penalty an amount equal to the 
     excess of the amount paid by such person over such person's 
     proportionate share of the penalty. This proceeding is a 
     Federal cause of action and must be entirely separate from 
     any proceeding involving IRS's collection of the penalty from 
     any responsible party (including a proceeding in which the 
     United States files a counterclaim or third-party complaint 
     for collection of the penalty).
       Effective date.--The provision applies to penalties 
     assessed after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.
     d. Board members of tax-exempt organizations (sec. 13344 of 
     the House bill)
     Present law
       Under section 6672, ``responsible persons'' of tax-exempt 
     organizations are subject to a penalty equal to the amount of 
     trust fund taxes that are not collected and paid to the 
     Government on a timely basis.
     House bill
       The House bill clarifies that the section 6672 responsible 
     person penalty is not to be imposed on volunteer, unpaid 
     members of any board of trustees or directors of a tax-exempt 
     organization to the extent such members are solely serving in 
     an honorary capacity, do not participate in the day-to-day or 
     financial activities of the organization, and do not have 
     actual knowledge of the failure. The provision cannot operate 
     in such a way as to eliminate all responsible persons from 
     responsibility.
       The House bill requires the IRS to develop materials to 
     better inform board members of tax-exempt organizations 
     (including voluntary or honorary members) that they may be 
     treated as responsible persons. The IRS is required to make 
     such materials routinely available to tax-exempt 
     organizations. The House bill also requires the IRS to 
     clarify its instructions to IRS employees on application of 
     the responsible person penalty with regard to honorary or 
     volunteer members of boards of trustees or directors of tax-
     exempt organizations.
       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.
     10. Modifications of rules relating to summonses
     a. Enrolled agents included as third-party recordkeepers 
     (sec. 13346 of the House bill and sec. 12508 of the Senate 
     amendment)
     Present law
       Section 7609 contains special procedures that the IRS must 
     follow before it issues a third- party summons. A third-party 
     summons is a summons issued to a third-party recordkeeper 
     compelling him to provide information with respect to the 
     taxpayer. An 

[[Page H 12866]]
     example of this would be a summons served on a stock brokerage house to 
     provide data on the securities trading of the taxpayer-
     client.
       If a third-party summons is served on a third-party 
     recordkeeper listed in section 7609(a)(3), then the taxpayer 
     must receive notice of the summons and have an opportunity to 
     challenge the summons in court. Otherwise the taxpayer has no 
     statutory right to receive notice of the summons and 
     accordingly he will not have the opportunity to challenge it 
     in court.
       Section 7609(a)(3) lists attorneys and accountants as 
     third-party recordkeepers, but it does not list ``enrolled 
     agents'', who are authorized to practice before the IRS.
     House bill
       The House bill includes enrolled agents as third-party 
     recordkeepers.
       Effective date.--The provision applies to summonses issued 
     after the date of enactment.
     Senate amendment
       Same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.
     b. Safeguards relating to designated summonses; annual report 
     to Congress on designated summonses (secs. 13347--13348 of 
     the House bill and sec. 12509 of the Senate amendment)
     Present law
       The period for assessment of additional tax with respect to 
     most tax returns, corporate or otherwise, is three years. The 
     IRS and the taxpayer can together agree to extend the period, 
     either for a specified period of time or indefinitely. The 
     taxpayer may terminate an indefinite agreement to extend the 
     period by providing notice to the IRS.
       During an audit, the IRS may informally request that the 
     taxpayer provide additional information necessary to arrive 
     at a fair and accurate audit adjustment, if any adjustment is 
     warranted. Not all taxpayers cooperate by providing the 
     requested information on a timely basis. In some cases the 
     IRS seeks information by issuing an administrative summons. 
     Such a summons will not be judicially enforced unless the 
     Government (as a practical matter, the Department of Justice) 
     seeks and obtains an order for enforcement in Federal court. 
     In addition, a taxpayer may petition the court to quash an 
     administrative summons where this is permitted by 
     statute.26
     \26\ Petitions to quash are permitted, for example, in 
     connection with the examination of certain related party 
     transactions under section 6038A(e)(4), and in the case of 
     certain third-party summonses under section 7609(b)(2).
---------------------------------------------------------------------------
       In certain cases, the running of the assessment period is 
     suspended during the period when the parties are in court to 
     obtain or avoid judicial enforcement of an administrative 
     summons. Such a suspension is provided in the case of 
     litigation over a third-party summons (sec. 7609(e)) or 
     litigation over a summons regarding the examination of a 
     related party transaction. Such a suspension can also occur 
     with respect to a corporate tax return if a summons is issued 
     at least 60 days before the day on which the assessment 
     period (as extended) is scheduled to expire. In this case, 
     suspension is only permitted if the summons clearly states 
     that it is a ``designated summons'' for this purpose. Only 
     one summons may be treated as a designated summons for 
     purposes of any one tax return. The limitations period is 
     suspended during the judicial enforcement period of the 
     designated summons and of any other summons relating to the 
     same tax return that is issued within 30 days after the 
     designated summons is issued.
       Under current internal procedures of the IRS, no designated 
     summons is issued unless first reviewed by the Office of 
     Chief Counsel to the IRS, including review by an IRS Deputy 
     Regional Counsel for the Region in which the examination of 
     the corporation's return is being conducted.
     House bill
       The House bill requires that issuance of any designated 
     summons with respect to a corporation's tax return must be 
     preceded by review of such issuance by the Regional Counsel, 
     Office of Chief Counsel to the IRS, for the Region in which 
     the examination of the corporation's return is being 
     conducted.
       The House bill also limits the use of a designated summons 
     to corporations (or to any other person to whom the 
     corporation has transferred records) that are being examined 
     as part of the Coordinated Examination Program (CEP) or its 
     successor. CEP audits cover about 1,600 of the largest 
     corporate taxpayers. If a corporation moves between CEP and 
     non-CEP audit categories, only the tax years covered by the 
     CEP may be the subject of a designated summons. The House 
     bill does not affect Code section 6038A(e)(1), which relates 
     to a U.S. reporting corporation that acts merely as the agent 
     of the foreign related party by receiving summonses on behalf 
     of the foreign party.
       The House bill also requires that the Treasury report 
     annually to the Congress on the number of designated 
     summonses issued in the preceding 12 months.
       Effective date.--The provision applies to summonses issued 
     after date of enactment.
     Senate amendment
       The Senate amendment is the same as the House bill with 
     respect to limiting the use of a designated summons to 
     certain corporations. The Senate amendment does not contain 
     the provisions requiring the review of the Regional Counsel 
     or the report.
     Conference agreement
       The conference agreement does not include the House bill 
     provision and the Senate amendment.
     11. Relief from retroactive application of Treasury 
     Department regulations (sec. 13351 of the House bill)
     Present law
       Under section 7805(b), Treasury may prescribe the extent 
     (if any) to which regulations shall be applied without 
     retroactive effect.
     House bill
       The House bill provides that temporary and proposed 
     regulations must have an effective date no earlier than the 
     date of publication in the Federal Register or the date on 
     which any notice substantially describing the expected 
     contents of such regulation is issued to the public. Any 
     regulations filed or issued within 12 months of the enactment 
     of the statutory provision to which the regulation relates 
     may be issued with retroactive effect. This general 
     prohibition on retroactive regulations may be superseded by a 
     legislative grant authorizing the Treasury to prescribe the 
     effective date with respect to a statutory provision. The 
     Treasury may issue retroactive temporary or proposed 
     regulations to prevent abuse. The Treasury also may issue 
     retroactive temporary, proposed, or final regulations to 
     correct a procedural defect in the issuance of a regulation. 
     Taxpayers may elect to apply a temporary or proposed 
     regulation retroactively from the date of publication of the 
     regulation. Final regulations may take effect from the date 
     of publication of the temporary or proposed regulation to 
     which they relate. The provision does not apply to any 
     regulation relating to internal Treasury Department policies, 
     practices, or procedures. Present law with respect to rulings 
     is unchanged.
       Effective date.--The provision applies with respect to 
     regulations that relate to statutory provisions enacted on or 
     after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.
     12. Miscellaneous provisions
     a. Report on pilot program for appeal of enforcement actions 
     (sec. 13356 of the House bill)
     Present law
       A taxpayer who disagrees with an IRS collection action 
     generally can only appeal to successively higher levels of 
     management in the Collection Division. However, certain cases 
     involving the 6672 penalty, offers-in-compromise, and 
     employment tax issues may be appealed to the Appeals 
     Division.
     House bill
       The House bill requires the Secretary to report to the tax-
     writing committees on the effectiveness of the pilot program, 
     together with any recommendations he may deem advisable.
       Effective date.--The report is due by March 1, 1996.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.
     b. Phone numbers of person providing payee statement required 
     to be shown on such statement (sec. 13357 of the House bill)
     Present law
       Information returns must contain the name and address of 
     the payor.
     House bill
       The House bill requires that information returns contain 
     the name, address, and phone number of the information 
     contact of the person required to make the information 
     return. A payor may, for example, provide the phone number of 
     the department with the relevant information. It is intended 
     that the telephone number provide direct access to 
     individuals with immediate resources to resolve a taxpayer's 
     questions in an expeditious manner.
       Effective date.--The provision applies to statements 
     required to be furnished after December 31, 1996 (determined 
     without regard to any extension).
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.
     c. Required notice to taxpayers of certain payments (sec. 
     13358 of the House bill)
     Present law
       If the IRS receives a payment without sufficient 
     information to properly credit it to a taxpayer's account, 
     the IRS may attempt to contact the taxpayer. If contact 
     cannot be made, the IRS places the payment in an unidentified 
     remittance file.
     House bill
       The House bill requires the IRS to make reasonable efforts 
     to notify, within 60 days, those taxpayers who have made 
     payments which the IRS cannot associate with the taxpayer.

[[Page H 12867]]

       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.
     d. Unauthorized enticement of information disclosure (sec. 
     13359 of the House bill)
     Present law
       No statutory disincentive applies to IRS employees who 
     entice a tax professional to disclose information about 
     clients in exchange for the favorable treatment of the taxes 
     of the professional.
     House bill
       If any officer or employee of the United States 
     intentionally compromises the determination or collection of 
     any tax due from an attorney, certified public accountant, or 
     enrolled agent representing a taxpayer in exchange for 
     information conveyed by the taxpayer to the attorney, 
     certified public accountant, or enrolled agent for purposes 
     of obtaining advice concerning the taxpayer's tax liability, 
     the taxpayer may bring a civil action for damages against the 
     United States in a district court of the United States. Upon 
     a finding of liability, damages shall equal the lesser of 
     $500,000 or the sum of (1) actual economic damages sustained 
     by the taxpayer as a proximate result of the information 
     disclosure and (2) the costs of the action. These remedies 
     shall not apply to information conveyed to an attorney, 
     certified public accountant, or enrolled agent for the 
     purpose of perpetrating a fraud or crime.
       Effective date.--The provision applies to actions taken 
     after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.
     e. Annual reminders to taxpayers with outstanding delinquent 
     accounts (sec. 13360 of the House bill and sec. 12510 of the 
     Senate amendment)
     Present law
       There is no statutory requirement in the Code that the IRS 
     send annual reminders to persons who have outstanding tax 
     liabilities.
     House bill
       The House bill requires the IRS to send taxpayers an annual 
     reminder of their outstanding tax liabilities. The fact that 
     a taxpayer did not receive a timely, annual reminder notice 
     does not affect the tax liability.
       Effective date.--The provision requires the IRS to send 
     annual reminder notices beginning in 1996.
     Senate amendment
       Same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.
     f. Five-year extension of authority for undercover operations 
     (sec. 13361 of the House bill)
     Present law
       The Anti-Drug Abuse Act of 1988 exempted IRS undercover 
     operations from the otherwise applicable statutory 
     restrictions controlling the use of Government funds (which 
     generally provide that all receipts be deposited in the 
     general fund of the Treasury and all expenses be paid out of 
     appropriated funds). In general, the exemption permits the 
     IRS to ``churn'' the income earned by an undercover operation 
     to pay additional expenses incurred in the undercover 
     operation. The IRS is required to conduct a detailed 
     financial audit of large undercover operations in which the 
     IRS is churning funds and to provide an annual audit report 
     to the Congress on all such large undercover operations. The 
     exemption originally expired on December 31, 1989, and was 
     extended by the Comprehensive Crime Control Act of 1990 to 
     December 31, 1991. The IRS has not had the authority to churn 
     funds from its undercover operations since 1991.
     House bill
       The House bill reinstates the IRS's offset authority under 
     section 7608(c) from the date of enactment until January 1, 
     2001. The House bill amends the IRS annual reporting 
     requirement under section 7608(c)(4)(B) to require the 
     provision of the following data: (1) the date the operation 
     was initiated; (2) the date offsetting was approved; (3) the 
     total current expenditures and the amount and use of proceeds 
     of the operation; (4) a detailed description of the 
     undercover operation projected to generate proceeds, 
     including the potential violation being investigated, and 
     whether the operation is being conducted under grand jury 
     auspices; and (5) the results of the operation to date, 
     including the results of criminal proceedings.
       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.
     g. Disclosure of returns on cash transactions (sec. 13362 of 
     the House bill)
       Present law
       The Internal Revenue Code prohibits disclosure of tax 
     returns and return information, except to the extent 
     specifically authorized by the Internal Revenue Code (sec. 
     6103). Unauthorized disclosure is a felony punishable by a 
     fine not exceeding $5,000 or imprisonment of not more than 
     five years, or both (sec. 7213). An action for civil damages 
     also may be brought for unauthorized disclosure (sec. 7431). 
     No tax information may be furnished by the IRS to another 
     agency unless the other agency establishes procedures 
     satisfactory to the IRS for safeguarding the tax information 
     it receives (sec. 6103(p)).
       Under section 6050I, any person who receives more than 
     $10,000 in cash in one transaction (or two or more related 
     transactions) in the course of a trade or business generally 
     must file an information return (Form 8300) with the IRS 
     specifying the name, address, and taxpayer identification 
     number of the person from whom the cash was received and the 
     amount of cash received.
       The Anti-Drug Abuse Act of 1988 provided a special rule 
     permitting the IRS to disclose these information returns to 
     other Federal agencies for the purpose of administering 
     Federal criminal statutes. The special rule originally was to 
     expire after November 18, 1990, and was extended by the 
     Comprehensive Crime Control Act of 1990 to November 18, 1992.
     House bill
       The House bill permanently extends the special rule for 
     disclosing Form 8300 information. Moreover, the House bill 
     permits disclosures not only to Federal agencies but also to 
     State, local and foreign agencies and for civil, criminal and 
     regulatory purposes (i.e., generally in the same manner as 
     Currency Transaction Reports filed by financial institutions 
     under the Bank Secrecy Act.) Disclosure, however, is not 
     permitted to any such agency for purposes of tax 
     administration. The House bill also (1) extends the 
     dissemination policies and guidelines under section 6103 to 
     people having access to Form 8300 information, and (2) 
     applies section 6103 sanctions to persons having access to 
     Form 8300 information that disclose this information without 
     proper authorization.Effective date.--The provision is 
     effective on the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.
     h. Disclosure of returns and return information to designee 
     of taxpayer (sec. 13363 of the House bill)
     Present law
       Under present law, the IRS is authorized to disclose the 
     return of any taxpayer, or return information pertaining to a 
     taxpayer, to such person(s) as the taxpayer has designated in 
     a written request.
     House bill
       The House bill deletes the word ``written'' from the 
     requirement that ``written consent'' from the taxpayer is 
     necessary for the disclosure of taxpayer information to a 
     designated third party. Allowing the IRS to adopt 
     alternatives to the written request requirement will expedite 
     such changes and facilitate the development and 
     implementation of Tax System Modernization projects. It is 
     anticipated that the IRS will continue to utilize its 
     regulatory authority to impose reasonable restrictions on the 
     form in which a request is made, and that the IRS will in no 
     event accept an unconfirmed verbal request.
       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.
     I. Report on netting of interest on overpayments and 
     liabilities (sec. 13364 of the House bill)
     Present law
       If any portion of a tax is satisfied through the crediting 
     of an overpayment of tax, no interest is imposed on that 
     portion of the tax for any period during which, if the credit 
     had not been made, interest would have been allowable.
     House bill
       The House bill requires the Secretary of the Treasury to 
     conduct a study of the manner in which the IRS has 
     implemented the netting of interest on overpayments and 
     underpayments and the policy and administrative implications 
     of global netting. The Treasury is required to hold a public 
     hearing to receive comments from any interested party prior 
     to submitting the report of its study to the tax writing 
     committees.
       Effective date.--The report is due six months after the 
     date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.
     j. Tax credit for certain expenses incurred in connection 
     with TCMP audits (sec. 13365 of the House bill)
     Present law
       The IRS recently announced that it will not conduct 
     taxpayer compliance measurement program (TCMP) audits of 
     returns filed 

[[Page H 12868]]
     for taxable year 1994. (The IRS had previously announced it would soon 
     begin these audits.) The IRS planned to audit a stratified 
     random sample consisting of approximately 150,000 returns. 
     The data collected in TCMP audits would have been used by the 
     IRS for several purposes: measuring the level of compliance 
     with federal tax laws; estimating the tax gap; developing 
     criteria for objectively selecting returns for audit; 
     allocating the IRS's audit resources; analyzing specific 
     compliance issues; and developing legislative proposals 
     designed to improve taxpayer compliance.
       Under present law, any expenses a taxpayer incurs in 
     connection with the determination, collection or refund of 
     any tax are deductible under either section 162 or sections 
     212(3). However, there is no tax credit for expenses incurred 
     in connection with TCMP audits.
     House bill
       The House bill provides a refundable tax credit to 
     individuals (not including estates, trusts, partnerships, or 
     S corporations) for up to $3,000 of expenses otherwise 
     deductible under either section 162 or section 212(3) 
     incurred in connection with a TCMP audit of the taxpayer for 
     taxable year 1994. In some circumstances, such as where a 
     taxpayer has a net operating loss carryback, adjustments may 
     also be made to an earlier tax return of the taxpayer as a 
     consequence of the TCMP audit of the taxpayer for taxable 
     year 1994. Expenses incurred with respect to this type of 
     adjustment on an earlier return would also be eligible for 
     the credit, because they are incurred in connection with the 
     TCMP audit of the taxpayer for taxable year 1994. The $3,000 
     credit is the total available with respect to an audit, 
     regardless of whether the expenses are incurred in two (or 
     more) years. The credit is in lieu of a deduction with 
     respect to these expenses.
       Effective date.--The provision is effective with respect to 
     amounts paid or incurred after December 31, 1994, in taxable 
     years ending after that date. The credit is allowable with 
     respect to the taxable year in which the expenses are 
     incurred.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.
     k. Expenses of detection of underpayments and fraud (sec. 
     13366 of the House bill)
     Present law
       The Secretary may, pursuant to regulations, pay rewards for 
     information leading to the detection and punishment of 
     violations of the Internal Revenue laws.
     House bill
       The House bill clarifies that rewards may be paid for 
     information relating to civil violations, as well as criminal 
     violations. The House bill also provides that the rewards are 
     to be paid out of the proceeds of amounts (other than 
     interest) collected by reason of the information provided. 
     The House bill also requires an annual report on the rewards 
     program.
       Effective date.--The provision is effective six months 
     after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.

  VII. Casualty, Nonrecognition, and Involuntary Conversion Provisions


a. modify basis adjustment rules under section 1033 (sec. 13626 of the 
           house bill and sec. 12601 of the senate amendment)

     Present law
       Under section 1033, gain realized by a taxpayer from 
     certain involuntary conversions of property is deferred to 
     the extent the taxpayer purchases property similar or related 
     in service or use to the converted property within a 
     specified replacement period of time. The replacement 
     property may be acquired directly or by acquiring control of 
     a corporation (generally, 80 percent of the stock of the 
     corporation) that owns replacement property. The taxpayer's 
     basis in the replacement property generally is the same as 
     the taxpayer's basis in the converted property, decreased by 
     the amount of any money or loss recognized on the conversion, 
     and increased by the amount of any gain recognized on the 
     conversion. In cases in which a taxpayer purchases stock as 
     replacement property, the taxpayer generally reduces the 
     basis of the stock, but does not reduce the basis of the 
     underlying assets. Thus, the reduction in the basis of the 
     stock generally does not result in reduced depreciation 
     deductions where the corporation holds depreciable property, 
     and may result in the taxpayer having more aggregate 
     depreciable basis after the acquisition of replacement 
     property than before the involuntary conversion.
     House bill
       The House bill provides that where the taxpayer satisfies 
     the replacement property requirement of section 1033 by 
     acquiring stock in a corporation, the corporation generally 
     will reduce its adjusted bases in its assets by the amount by 
     which the taxpayer reduces its basis in the stock. The 
     corporation's adjusted bases in its assets will not be 
     reduced, in the aggregate, below the taxpayer's basis in its 
     stock (determined after the appropriate basis adjustment for 
     the stock). In addition, the basis of any individual asset 
     will not be reduced below zero. The basis reduction first is 
     applied to: (1) property that is similar or related in 
     service or use to the converted property, then (2) to other 
     depreciable property, then (3) to other property.
       Effective date.--The provision applies to involuntary 
     conversions occurring after September 13, 1995.
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


 b. modify the exception to the related party rule of section 1033 for 
 individuals to only provide an exception for de minimis amounts (sec. 
    13627 of the house bill and sec. 12602 of the senate amendment)

     Present law
       Under section 1033, gain realized by a taxpayer from 
     certain involuntary conversions of property is deferred to 
     the extent the taxpayer purchases property similar or related 
     in service or use to the converted property within a 
     specified replacement period of time. Pursuant to a provision 
     of H.R. 831, as passed by the Congress and signed by the 
     President on April 11, 1995 (P.L.104-7), subchapter C 
     corporations (and certain partnerships with corporate 
     partners) are not entitled to defer gain under section 1033 
     if the replacement property or stock is purchased from a 
     related person.
     House bill
       The House bill expands the present-law denial of the 
     application of section 1033 to any other taxpayer (including 
     an individual) that acquires replacement property from a 
     related party (as defined by secs. 267(b) and 707(b)(1)) 
     unless the taxpayer has aggregate realized gain of $100,000 
     or less for the taxable year with respect to converted 
     property with aggregate realized gains. In the case of a 
     partnership (or S corporation), the annual $100,000 
     limitation applies to both the partnership (or S corporation) 
     and each partner (or shareholder).
       Effective date.--The provision applies to involuntary 
     conversions occurring after September 13, 1995.
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


c. treatment of certain crop insurance proceeds and disaster assistance 
  payments (sec. 14555 of the house bill and sec. 12603 of the senate 
                               amendment)

     Present law
       A taxpayer engaged in a farming business generally may use 
     the cash receipts and disbursements method of accounting 
     (``cash method'') to report taxable income. A cash method 
     taxpayer generally recognizes income in the taxable year in 
     which cash is received, regardless of when the economic 
     events that give rise to such income occur. Under a special 
     rule (sec. 451(d)), in the case of insurance proceeds 
     received as a result of destruction or damage to crops, a 
     cash method taxpayer may elect to defer the income 
     recognition of the proceeds until the taxable year following 
     the year of the destruction or damage, if the taxpayer 
     establishes that under his practice, income from such crops 
     would have been reported in a following taxable year.
     House bill
       The House bill amends the special rule of section 451(d) to 
     allow a cash method taxpayer to elect to accelerate (or 
     defer) the recognition of certain disaster-related payments 
     if the taxpayer establishes that, under the taxpayer's 
     practice, income from the crops lost in the disaster would 
     have been reported in a prior (or the subsequent) taxable 
     year. These elections are available with respect to payments 
     of: (1) insurance proceeds received on account of destruction 
     or damage to crops, or (2) disaster assistance received under 
     any Federal law as a result of destruction or damage to crops 
     caused by drought, flood, or other natural disaster, or the 
     inability to plant crops because of such a disaster. A 
     taxpayer is not allowed to accelerate the recognition of a 
     disaster-related payment if the taxable year to which the 
     taxpayer could properly accelerate such income under the bill 
     is closed by the statute of limitations.
       Effective date.--The provision is effective for payments 
     received after December 31, 1995, as a result of destruction 
     or damage occurring after such date.
     Senate amendment
       The Senate amendment is the same as the House bill, but 
     with a different effective date.
       Effective date.--The provision is effective for payments 
     received after December 31, 1992, as a result of destruction 
     or damage occurring after such date.
     Conference agreement
       The conference agreement follows the Senate amendment.

[[Page H 12869]]



d. application of involuntary conversion rules to property damaged as a 
 result of presidentially declared disasters (sec. 12604 of the senate 
                               amendment)

     Present law
       A taxpayer may elect not to recognize gain with respect to 
     property that is involuntarily converted if the taxpayer 
     acquires within an applicable period property similar or 
     related in service or use. If the taxpayer does not replace 
     the converted property with property similar or related in 
     service or use, then gain generally is recognized.
     House bill
       No provision.
     Senate amendment
       The Senate amendment provides that any tangible property 
     acquired and held for productive use in a business is treated 
     as similar or related in service or use to property that (1) 
     was held for investment or for productive use in a business 
     and (2) was involuntarily converted as a result of a 
     Presidentially declared disaster.
       Effective date.--The provision is effective for disasters 
     for which a Presidential declaration is made after December 
     31, 1994, in taxable years ending after that date.
     Conference agreement
       The conference agreement follows the Senate amendment.


e. disallow rollover under section 1034 to extent of previously claimed 
  depreciation for home office or other depreciable use of residence 
 (sec. 13628 of the house bill and sec. 12821 of the senate amendment)

     Present law
       Rollover
       Generally, no gain is recognized on the sale or exchange of 
     a principal residence to the extent that the amount of the 
     sales price of the old residence is reinvested in a new 
     residence within a specified period. The specified period 
     generally is a period beginning two years before the sale of 
     the old residence and ending two years after the sale of the 
     old residence.
       One-time exclusion
       In general, a taxpayer may exclude from gross income up to 
     $125,000 of gain from the sale or exchange of a principal 
     residence if the taxpayer (1) has attained age 55 before the 
     sale, and (2) has used the residence as a principal residence 
     for three or more years of the five years preceding the sale. 
     This election is allowed only once in a lifetime unless all 
     previous elections are revoked. For these purposes, sales on 
     or before July 26, 1978, are not counted against the once-in-
     a-lifetime limit.
       In the case of a mixed use of a residence, the exclusion is 
     limited to that portion of the residence that is owned and 
     used by the individual as his principal residence for at 
     least three of the previous five years before the date of 
     sale. Gain on the portion not qualifying as a principal 
     residence is not eligible for this exclusion.
     House bill
       Rollover
       The House bill provides that gain is recognized on the sale 
     of a principal residence to the extent of any depreciation 
     allowable with respect to such principal residence for 
     periods after December 31, 1995.
       One-time exclusion
       The House bill imposes an additional restriction on the 
     availability of the one-time exclusion. Specifically, the 
     bill provides that the amount of the otherwise allowable one-
     time exclusion is reduced to the extent of depreciation 
     allowable with respect to such principal residence for 
     periods after December 31, 1995. To illustrate the bill, 
     assume the following facts: a 60-year old never-married 
     taxpayer purchased a building on January 1, 1995, for 
     $100,000 which will be used as the taxpayer's principal 
     residence until its sale on January 1, 2002. Further, assume 
     that the taxpayer will use one-tenth of the building as a 
     qualified home office for three years between January 1, 
     1996, and December 31, 1998, with allowable annual 
     depreciation of $256. Finally, assume that the taxpayer sells 
     the building for $150,000 on January 1, 2002, and does not 
     acquire a replacement residence. The taxpayer's realized gain 
     is $50,768 ($150,000-($100,000-$768)). Under the bill $50,000 
     ($50,768-$768) is eligible for the one-time exclusion. The 
     taxpayer is subject to tax on $768.
       Effective date.--Taxable years ending after December 31, 
     1995.
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


   f. provide that rollover of gain on sale of a principal residence 
 cannot be elected by a resident alien unless the replacement property 
purchased is located within the united states (sec. 13629 of the house 
              bill and sec. 12822 of the senate amendment)

     Present law
       Generally, no gain is recognized on the sale or exchange of 
     a principal residence to the extent that the amount of the 
     sales price of the old residence is reinvested in a new 
     residence within a specified period. The specified period 
     generally is a period beginning two years before the sale of 
     the old residence and ending two years after the sale of the 
     old residence. There is no requirement that either the old 
     residence or new residence be located within the United 
     States or its possessions.
     House bill
       Generally, the House bill requires recognition of gain on 
     the sale or exchange of a principal residence by a resident 
     alien unless the resident alien (1) retains resident alien 
     status for at least two years after the date of sale, (2) 
     becomes a U.S. citizen within two years of the date of sale, 
     or (3) acquires a replacement residence located in the U.S. 
     or its possessions within the specified time period.
       The House bill does not apply where (1) the old residence 
     is held jointly by the resident alien and the resident 
     alien's spouse, (2) they file a joint tax return, and (3) the 
     spouse is a U.S. citizen on the date of sale of the old 
     residence.
       Effective date.--Applies to the sale of old residences 
     after December 31, 1995, unless a replacement residence was 
     purchased before September 13, 1995, or purchased on or after 
     such date pursuant to a binding contract in effect on such 
     date (and at all times thereafter before such purchase).
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.

          VIII. Exempt Organizations and Charitable Provisions


 a. intermediate sanctions for certain tax-exempt organizations (secs. 
                     13646-13651 of the house bill)

     Present law
       Private inurement
       Charities.--Section 501(c)(3) specifically conditions tax-
     exempt status for all organizations described in that section 
     on the requirement that no part of the net earnings of the 
     organization inures to the benefit of any private shareholder 
     or individual (the so-called ``private inurement test'').
       Social welfare organizations.--A tax-exempt social welfare 
     organization described in section 501(c)(4) must be organized 
     on a non-profit basis and must be operated exclusively for 
     the promotion of social welfare. In contrast to section 
     501(c)(3), however, there is no specific statutory rule in 
     section 501(c)(4) prohibiting the net earnings of a social 
     welfare organization described in section 501(c)(4) from 
     inuring to the benefit of a private shareholder or 
     individual.27
     \27\ Even where no prohibited private inurement exists, 
     however, more than incidental private benefits conferred on 
     individuals may result in the organization not being operated 
     ``exclusively'' for an exempt purpose. See, e.g., American 
     Campaign Academy v. Commissioner, 92 T.C. 1053 (1989).
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       Other organizations.--Other tax-exempt organizations, such 
     as labor and agricultural organizations described in section 
     501(c)(5) and business leagues described in section 501(c)(6) 
     are subject to the private inurement test, as a result of 
     explicit statutory language or Treasury Department 
     regulations.
       Sanctions for private inurement and other violations of 
           exemption standards
       Organizations described in section 501(c)(3) are classified 
     as either public charities or private foundations. Penalty 
     excise taxes may be imposed under the Code when a public 
     charity makes political expenditures (sec. 4955) or excessive 
     lobbying expenditures (secs. 4911 and 4912). However, the 
     Code generally does not provide for the imposition of penalty 
     excise taxes in cases where a 501(c)(3) public charity or a 
     section 501(c)(4) social welfare organization engages in a 
     transaction that results in private inurement. In such cases, 
     the only sanction that specifically is authorized under the 
     Code is revocation of the organization's tax-exempt status. A 
     transaction engaged in by a private foundation (but not a 
     public charity) is subject to special penalty excise taxes 
     under the Code if the transaction is a prohibited ``self-
     dealing'' transaction (sec. 4941) or does not accomplish a 
     charitable purpose (sec. 4945).
       Filing and public disclosure rules
       Tax-exempt organizations (other than churches and certain 
     small organizations) are required to file an annual 
     information return (Form 990) with the IRS, setting forth the 
     organization's items of gross income and expenses 
     attributable to such income, disbursements for tax-exempt 
     purposes, plus certain other information for the taxable 
     year. Private foundations are required to allow public 
     inspection at the foundation's principal office of their 
     current annual information return. Other tax-exempt 
     organizations, including public charities, are required to 
     allow public inspection at the organization's principal 
     office (and certain regional or district offices) of their 
     annual information returns for the three most recent taxable 
     years (sec. 6104(e)). The Code also requires that tax-exempt 
     organizations allow public inspection of the organization's 
     application to the IRS for recognition of tax-exempt status, 
     the IRS determination letter, and certain related documents. 
     In addition, upon written request to the IRS, members of the 
     general public are permitted to inspect annual information 
     returns of tax-exempt organizations and applications for 
     recognition of tax-exempt status (and related documents) at 
     the National Office of the IRS in Washington, D.C. A person 
     making such a written request is notified by the IRS when the 
     material is available for inspection at 

[[Page H 12870]]
     the National Office, where notes may be taken of the material open for 
     inspection, photographs taken with the person's own 
     equipment, or copies of such material obtained from the IRS 
     for a fee (Treas. Reg. secs. 301.6104(a)-6 and 301.6104(b)-
     1).
       Section 6652(c)(1)(A) provides that a tax-exempt 
     organization that fails to file a complete and accurate Form 
     990 is subject to a penalty of $10 for each day during which 
     such failure continues (with a maximum penalty with respect 
     to any one return of the lesser of $5,000 or five percent of 
     the organization's gross receipts for the year). Section 
     6652(c)(1)(C) provides that tax-exempt organizations that 
     fail to make certain annual returns and applications for 
     exemption available for public inspection are subject to a 
     penalty of $10 for each day the failure continues (with a 
     maximum penalty with respect to any one return not to exceed 
     $5,000, and without limitation with respect to applications). 
     In addition, section 6685 provides a penalty for willfully 
     failing to make an annual return or application available for 
     public inspection of $1,000 per return or application.
       Organizations that have tax-exempt status but that are not 
     eligible to receive tax-deductible charitable contributions 
     are required expressly to state in certain fundraising 
     solicitations that contributions or gifts to the organization 
     are not deductible as charitable contributions for Federal 
     income tax purposes (sec. 6113). Penalties may be imposed on 
     such organizations for failure to comply with this 
     requirement (sec. 6710).
     House bill
       Extend private inurement prohibition to social welfare 
           organizations
       The House bill amends section 501(c)(4) explicitly to 
     provide that a social welfare organization or other 
     organization described in that section would be eligible for 
     tax-exempt status only if no part of its net earnings inures 
     to the benefit of any private shareholder or individual.
       Effective date.--This provision generally would be 
     effective on September 14, 1995. However, under a special 
     transition rule, the provision does not apply to inurement 
     occurring prior to January 1, 1997, if such inurement results 
     from a written contract that was binding on September 13, 
     1995, and at all times thereafter before such inurement 
     occurred, and the terms of which have not materially changed.
       Intermediate sanctions for excess benefit transactions
       The House bill imposes penalty excise taxes as an 
     intermediate sanction in cases where organizations exempt 
     from tax under section 501(c)(3) or 501(c)(4) (other than 
     private foundations, which are subject to a separate penalty 
     regime under current law) engage in an ``excess benefit 
     transaction.'' In such cases, intermediate sanctions can be 
     imposed on certain disqualified persons (i.e., insiders) who 
     improperly benefit from an excess benefit transaction and on 
     organization managers who participate in such a transaction 
     knowing that it is improper.
       An ``excess benefit transaction'' is defined as: (1) any 
     transaction in which an economic benefit is provided to, or 
     for the use of, any disqualified person if the value of the 
     economic benefit provided directly by the organization (or 
     indirectly through a controlled entity 28) to such 
     person exceeds the value of consideration (including 
     performance of services) received by the organization for 
     providing such benefit; and (2) to the extent provided in 
     Treasury Department regulations, any transaction in which the 
     amount of any economic benefit provided to, or for the use 
     of, any disqualified person is determined in whole or in part 
     by the revenues of the organization, provided that the 
     transaction constitutes prohibited inurement under present-
     law section 501(c)(3) or under section 501(c)(4), as amended. 
     Thus, ``excess benefit transactions'' subject to excise taxes 
     include transactions in which a disqualified person engages 
     in a non-fair-market-value transaction with an organization 
     or receives unreasonable compensation, as well as financial 
     arrangements (to the extent provided in Treasury regulations) 
     under which a disqualified person receives payment based on 
     the organization's income in a transaction that violates the 
     present-law private inurement prohibition. The Committee 
     intends that the Treasury Department will issue prompt 
     guidance providing examples of revenue-sharing arrangements 
     that violate the private inurement prohibition.
     \28\ A tax-exempt organization cannot avoid the private 
     inurement proscription by causing a controlled entity to 
     engage in an excess benefit transaction. Thus, for example, 
     if a tax-exempt organization causes its taxable subsidiary to 
     pay excessive compensation to an individual who is a 
     disqualified person with respect to the parent organization, 
     such transaction would be an excess benefit transaction.
---------------------------------------------------------------------------
       Existing tax-law standards apply in determining 
     reasonableness of compensation and fair market value. 
     Consistent with such standards, the parties to a transaction 
     would be entitled to rely on a rebuttable presumption of 
     reasonableness with respect to a compensation arrangement 
     with a disqualified person if such arrangement was approved 
     by an independent board (or an independent committee 
     authorized by the board) that: (1) was composed entirely of 
     individuals unrelated to and not subject to the control of 
     the disqualified person(s) involved in the arrangement; (2) 
     obtained and relied upon appropriate data as to comparability 
     (e.g., compensation levels paid by similarly situated 
     organizations, both taxable and tax-exempt, for functionally 
     comparable positions; the location of the organization, 
     including the availability of similar specialties in the 
     geographic area; independent compensation surveys by 
     nationally recognized independent firms; or actual written 
     offers from similar institutions competing for the services 
     of the disqualified person); and (3) adequately documented 
     the basis for its determination (e.g., the record includes an 
     evaluation of the individual whose compensation was being 
     established and the basis for determining that the 
     individual's compensation was reasonable in light of that 
     evaluation and data).29 If these three criteria are 
     satisfied, penalty excise taxes could be imposed under the 
     bill only if the IRS develops sufficient contrary evidence to 
     rebut the probative value of the evidence put forth by the 
     parties to the transaction (e.g., the IRS could establish 
     that the compensation data relied upon by the parties was not 
     for functionally comparable positions or that the 
     disqualified person, in fact, did not substantially perform 
     the responsibilities of such position). A similar rebuttable 
     presumption would arise with respect to the reasonableness of 
     the valuation of property sold or otherwise transferred (or 
     purchased) by an organization to (or from) a disqualified 
     person if the sale or transfer (or purchase) is approved by 
     an independent board that uses appropriate comparability data 
     and adequately documents its determination.
     \29\ The fact that a State or local legislative or agency 
     body may have authorized or approved of a particular 
     compensation package paid to a disqualified person is not 
     determinative of the reasonableness of compensation paid for 
     purposes of the excise tax penalties provided for by the 
     proposal. Similarly, such authorization or approval is not 
     determinative of whether a revenue sharing arrangement 
     violates the private inurement proscription.
---------------------------------------------------------------------------
       The House bill specifically provides that the payment of 
     personal expenses and benefits to or for the benefit of 
     disqualified persons, and non-fair-market-value transactions 
     benefiting such persons, would be treated as compensation 
     only if it is clear that the organization intended and made 
     the payments as compensation for services. In determining 
     whether such payments or transactions are, in fact, 
     compensation, the relevant factors would include whether the 
     appropriate decision-making body approved the transfer as 
     compensation in accordance with established procedures and 
     whether the organization and the recipient reported the 
     transfer (except in the case of non-taxable fringe benefits) 
     as compensation on the relevant forms (i.e., the 
     organization's Form 990, the Form W-2 provided by the 
     organization to the recipient, the recipient's Form 1040, and 
     other required returns).30
     \30\ With the exception of nontaxable fringe benefits 
     described in present-law section 132 and other types of 
     nontaxable transfers such as employer-provided health 
     benefits and contributions to qualified pension plans, an 
     organization cannot demonstrate at the time of an IRS audit 
     that it clearly indicated its intent to treat economic 
     benefits provided to a disqualified person as compensation 
     for services merely by claiming that such benefits may be 
     viewed as part of the disqualified person's total 
     compensation package. Rather, the organization must provide 
     substantiation that is contemporaneous with the transfer of 
     economic benefits at issue.
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       ``Disqualified person'' means any person who is (1) an 
     ``organization manager'' (meaning any officer, director, or 
     trustee of an organization or any individual having powers or 
     responsibilities similar to those of officers, directors, or 
     trustees) or (2) any individual (other than an organization 
     manager) who is in a position to exercise substantial 
     influence over the affairs of the organization.31 In 
     addition, ``disqualified persons'' include certain family 
     members and 35-percent owned entities 32 of any person 
     described in (1) or (2) above, as well as any person who was 
     a disqualified person at any time during the five-year period 
     prior to the transaction at issue.
     \31\ The Committee intends that a person could be in a 
     position to exercise substantial influence over a tax-exempt 
     organization despite the fact that such person is not an 
     employee of (and receives no compensation directly from) a 
     tax-exempt organization but is formally an employee of (and 
     is directly compensated by) a subsidiary--even a taxable 
     subsidiary--controlled by the parent tax-exempt organization.
     \32\ Family members are determined under present-law section 
     4946(d), except that such members also would include siblings 
     (whether by whole or half blood) of the individual, and 
     spouses of such siblings. ``35-percent owned entities'' mean 
     corporations, partnerships, and trusts or estates in which a 
     disqualified person owns more than 35 percent of the combined 
     voting power, profits interest, or beneficial interest.
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       A disqualified person who benefits from an excess benefit 
     transaction would be subject to a first-tier penalty tax 
     equal to 25 percent of the amount of the excess benefit 
     (i.e., the amount by which a transaction differs from fair 
     market value, the amount of compensation exceeding reasonable 
     compensation, or the amount of a prohibited transaction based 
     on the organization's gross or net income). Organization 
     managers who participate in an excess benefit transaction 
     knowing that it is an improper transaction would be subject 
     to a first-tier penalty tax of ten percent of the amount of 
     the excess benefit (subject to a maximum penalty of $10,000).
       Additional, second-tier taxes could be imposed on a 
     disqualified person if there is no correction of the excess 
     benefit transaction within a specified time period.33 In 
     such 

[[Page H 12871]]
     cases, the disqualified person would be subject to a penalty tax equal 
     to 200 percent of the amount of excess benefit. For this 
     purpose, the term ``correction'' means undoing the excess 
     benefit to the extent possible and, where fully undoing the 
     excess benefit is not possible, taking such additional 
     corrective action as is prescribed by Treasury regulations.
     \33\ Correction must be made on or prior to the earlier of 
     (1) the date of mailing of a notice of deficiency under 
     section 6212 with respect to the first-tier penalty excise 
     tax imposed on the disqualified person, or (2) the date on 
     which such tax is assessed.
---------------------------------------------------------------------------
       The intermediate sanctions for ``excess benefit 
     transactions'' could be imposed by the IRS in lieu of (or in 
     addition to) revocation of an organization's tax-exempt 
     status. If more than one disqualified person or manager is 
     liable for a penalty excise tax, then all such persons would 
     be jointly and severally liable for such tax. As under 
     current law, a three-year statute of limitations applies, 
     except in the case of fraud (sec. 6501). Under the House 
     bill, the IRS has authority to abate the excise tax penalty 
     (under present-law section 4962) if it is established that 
     the violation was due to reasonable cause and not due to 
     willful neglect and the transaction at issue was corrected 
     within the specified period.
       To prevent an organization from avoiding the penalty excise 
     taxes through termination of its tax-exempt status, the House 
     bill also imposes a tax on tax-exempt organizations that 
     terminate their tax-exempt status. The amount of the tax 
     equals the lesser of (1) the aggregate tax benefits that an 
     organization can substantiate that it has received from its 
     exemption from tax under Code section 501(a), or (2) the 
     value of the net assets of such organization. 34 The 
     Secretary of the Treasury is permitted to abate all or a 
     portion of the tax if a tax-exempt organization distributes 
     all of its net assets to one or more charitable organizations 
     described in Code section 501(c)(3) that have been in 
     existence for a continuous five-year period. Tax-exempt 
     organizations that are described in Code section 501(c)(4) 
     are permitted to distribute their net assets to one or more 
     organizations described in Code section 501(c)(3) or 
     501(c)(4) that have been in existence for a continuous five-
     year period. An organization is permitted to terminate its 
     exempt status only if it has paid the tax (or any portion 
     thereof that is not abated) and the organization has notified 
     the Secretary of its intent to terminate its exempt status 
     (or the Secretary has made a final determination that such 
     status has terminated).
     \34\ In calculating these amounts, rules similar to the rules 
     applicable to private foundations set forth in Code section 
     507(d),(e), and (f) apply.
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       Effective date.--The provision generally applies to excess 
     benefit transactions occurring on or after September 14, 
     1995. The provision does not apply, however, to any 
     transaction pursuant to a written contract for the 
     performance of personal services which was binding on 
     September 13, 1995, and at all times thereafter before such 
     transaction occurred, and the terms of which have not 
     materially changed.
       Additional filing and public disclosure rules
       Reporting of identity of certain disqualified persons, 
     excise tax penalties and excess benefit transactions.--Tax-
     exempt organizations are required to disclose on their Form 
     990 the names of each disqualified person who received an 
     economic benefit during the taxable year and such other 
     information as may be required by the Secretary of the 
     Treasury. In addition, exempt organizations are required to 
     disclose on their Form 990 such information as the Secretary 
     of the Treasury may require with respect to ``excess benefit 
     transactions'' (described above) and any other excise tax 
     penalties paid during the year under present-law sections 
     4911 (excess lobbying expenditures), 4912 (disqualifying 
     lobbying expenditures), or 4955 (political expenditures), 
     including the amount of the excise tax penalties paid with 
     respect to such transactions, the nature of the activity, and 
     the parties involved. 35
     \35\ The penalties applicable to failure to file a timely, 
     complete, and accurate return apply for failure to comply 
     with these requirements. In addition, it is intended that the 
     IRS implement its plan to require additional Form 990 
     reporting regarding (1) changes to the governing board or the 
     certified accounting firm, (2) such information as the 
     Secretary may require relating to professional fundraising 
     fees paid by the organization, and (3) aggregate payments (by 
     related entities) in excess of $100,000 to the highest-paid 
     employees.
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       Furnishing copies of documents.--The House bill also 
     provides that a tax-exempt organization that is subject to 
     the public inspection rules of present-law section 6104(e)(1) 
     (i.e., any tax-exempt organization, other than a private 
     foundation, that files a Form 990) is required to comply with 
     requests from individuals who seek a copy of the 
     organization's Form 990 or the organization's application for 
     recognition of tax-exempt status and certain related 
     documents. Upon such a request, the organization is required 
     to supply copies without charge other than a reasonable fee 
     for reproduction and mailing costs. If so requested, copies 
     must be supplied of the Forms 990 for any of the 
     organization's three most recent taxable years. If the 
     request for copies is made in person, then the organization 
     must immediately provide such copies. If the request for 
     copies is made other than in person (e.g., by mail or 
     telephone), then copies must be provided within 30 days. 
     However, an organization could be relieved, for a limited 
     period of time, of its obligation to provide copies if the 
     Secretary of the Treasury determined, upon application by the 
     organization, that the organization was subject to a 
     harassment campaign such that waiver of the obligation to 
     provide copies would be in the public interest.
       Advertisements and solicitations.--The House bill further 
     requires that written advertisements or solicitations made by 
     (or on behalf of) a tax-exempt organization that is subject 
     to the public inspection rules of present-law section 
     6104(e)(1) must contain an express statement, in a 
     conspicuous and easily recognizable format, that the 
     organization's Forms 990 are available to individuals upon 
     request. 36 Failure to make the required disclosure in 
     an advertisement or solicitation would subject the 
     organization to a penalty of $100 for each day on which the 
     failure occurred. However, no penalty may be imposed with 
     respect to a failure if it is shown that such failure was due 
     to reasonable cause. The House bill generally limits the 
     maximum penalty to $10,000 for all such failures by an 
     organization during any calendar year. 37
     \36\ It is intended that the Department of Treasury will 
     provide prompt guidance on this requirement.
     \37\ However, if a failure to comply with the disclosure 
     requirement for solicitations is due to intentional 
     disregard, then the $10,000 limitation does not apply, and 
     the penalty for each day on which such an intentional failure 
     occurred is the greater of (1) $1,000 or (2) 50 percent of 
     the aggregate cost of the solicitations which occurred on 
     such day and with respect to which there was intentional 
     disregard of the disclosure requirement.
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       In addition, the House bill requires entities that do not 
     have Federal tax-exempt status but that describe themselves 
     in advertisements or solicitations as ``nonprofit'' to 
     disclose in an express statement that contributions to the 
     entity are not deductible as charitable contributions for 
     Federal income tax purposes. Failure to make the disclosure 
     would subject the entity to penalties under section 6716.
       Electronic dissemination of information.--The House bill 
     requires the Treasury Department to provide copies of annual 
     returns and applications for recognition of tax-exempt status 
     filed by exempt organizations to any organization that agrees 
     to accept broad categories of such returns and applications 
     and to provide electronic access to all such documents on an 
     electronic network to the general public. Such returns and 
     applications must be provided free of charge to organizations 
     that do not charge a fee for public access; if an 
     organization charges a fee for public electronic access, the 
     Treasury Department is allowed to charge a reasonable fee for 
     reproduction and mailing costs.
       Penalties for failure to file timely or complete return.--
     The section 6652(c)(1)(A) penalty imposed on a tax-exempt 
     organization that either fails to file a Form 990 in a timely 
     manner or fails to include all required information on a Form 
     990 is increased from the present-law level of $10 for each 
     day the failure continues (with a maximum penalty with 
     respect to any one return of the lesser of $5,000 or five 
     percent of the organization's gross receipts) to $20 for each 
     day the failure continues (with a maximum penalty with 
     respect to any one return of the lesser of $10,000 or five 
     percent of the organization's gross receipts). Under the 
     House bill, organizations with annual gross receipts 
     exceeding $1 million are subject to a penalty under section 
     6652(c)(1)(A) of $100 for each day the failure continues 
     (with a maximum penalty with respect to any one return of 
     $50,000). As under present law, no penalty may be imposed 
     under section 6652(c)(1)(A) if it were shown that the failure 
     to file a complete return was due to reasonable cause (sec. 
     6652(c)(3)).
       Penalties for failure to allow public inspection.--The 
     section 6652(c)(1)(C) penalty imposed on tax-exempt 
     organizations that fail to allow public inspection of certain 
     annual returns or applications for exemption is increased 
     from the present-law level of $10 per day (with a maximum of 
     $5,000) to $20 per day (with a maximum of $10,000). In 
     addition, the section 6685 penalty for willful failure to 
     allow public inspections is increased from the present- law 
     level of $1,000 to $5,000.
       Treasury Department studies.--The House bill directs the 
     Treasury Department to: (1) study and make recommendations 
     regarding application of an explicit statutory private 
     inurement prohibition, and intermediate sanctions, to other 
     tax-exempt organizations; (2) study and make recommendations 
     to the Congress on whether certain State officers, such as 
     the attorney general and other officials charged with 
     overseeing public charities, should be provided with 
     additional access to Federal tax information beyond that 
     authorized under section 6103; and (3) review the Form 990 
     reporting requirements to ensure the Form's utility to IRS 
     and the public and to reduce unnecessary reporting burdens.
       Effective dates.--The filing and disclosure provisions 
     governing tax-exempt organizations generally take effect on 
     January 1, 1996 (or, if later, 90 days after enactment). 
     However, the provisions regarding the reporting on annual 
     returns of excise tax penalties and excess benefit 
     transactions is effective for returns with respect to taxable 
     years beginning on or after January 1, 1995. The requirement 
     that the Treasury Department provide copies of annual returns 
     and applications for recognition of tax-exempt status for 
     electronic dissemination applies to returns and applications 
     filed on or after January 1, 1996; it applies to returns and 
     applications filed prior to January 1, 1996, only to the 
     extent provided by the Secretary of the Treasury. 

[[Page H 12872]]
      The Treasury Department studies are required to be transmitted to 
     Congress by January 1, 1997.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill, modified 
     as set forth below.
       Extend private inurement prohibition to social welfare 
           organizations
       The conference agreement codifies the provision in the 
     committee report to the House bill providing that the private 
     inurement rule will not be violated solely because of an 
     allocation or return of net margins or capital to the members 
     of a nonprofit association or organization that operates on a 
     cooperative basis in accordance with its incorporating 
     statute and bylaws (substantially as in existence on the date 
     of enactment) and was determined to be exempt from Federal 
     income tax under section 501(c)(4) prior to the date of 
     enactment. The conferees intend that such cooperative 
     organizations will be subject to the general private 
     inurement proscription with respect to any other type of 
     transaction.
       Intermediate sanctions for excess benefit transactions
       As under the House bill, an ``excess benefit transaction'' 
     includes, to the extent provided in Treasury Department 
     regulations, any transaction in which the amount of any 
     economic benefit provided to, or for the use of, any 
     disqualified person is determined in whole or in part by the 
     revenues of the organization, provided that the transaction 
     constitutes prohibited inurement under present-law section 
     501(c)(3) or under section 501(c)(4), as amended. The 
     conferees are aware that, under present law, certain revenue 
     sharing arrangements have been determined not to constitute 
     private inurement 38 and the conferees expect that it 
     would continue to be the case that not all revenue sharing 
     arrangements would be improper private inurement. However, 
     the conferees intend no inference that Treasury or the 
     Internal Revenue Service are bound by any particular prior 
     rulings in this area. The conferees intend that the Treasury 
     Department will issue prompt guidance providing examples of 
     revenue-sharing arrangements that violate the private 
     inurement prohibition and that such guidance will be 
     applicable on a prospective basis.
     \38\  See e.g., GCM 38283; GCM 38905; and GCM 39674.
---------------------------------------------------------------------------
       The conference agreement clarifies that in applying 
     existing tax-law standards (see sec. 162) in determining 
     reasonableness of compensation and fair market value, the 
     conferees intend that the parties to a transaction are 
     entitled to rely on a rebuttable presumption of 
     reasonableness that is described in the committee report 
     accompanying the House bill. Because the intermediate 
     sanctions generally will be effective for transactions 
     entered into after September 13, 1995 (other than 
     transactions pursuant to written contracts binding on that 
     date), the conferees intend that parties to transactions 
     entered into after September 13, 1995, and before January 1, 
     1997, will be entitled to rely on the rebuttable presumption 
     of reasonableness if, within a reasonable period (e.g., 90 
     days) after entering into the compensation package, the 
     parties satisfy the three criteria that give rise to the 
     presumption. After December 31, 1996, the rebuttable 
     presumption should arise only if the three criteria are 
     satisfied prior to payment of the compensation (or, to the 
     extent provided by the Secretary, within a reasonable period 
     thereafter).
       The conferees further clarify the treatment of 
     reimbursements of excise tax liability and purchase of 
     insurance covering such liabilities. Consistent with the rule 
     that payment of personal expenses and benefits to or for the 
     benefit of disqualified persons and nonfair-market value 
     transactions benefiting such persons are treated as 
     compensation only if it is clear that the organization 
     intended and made the payments as compensation for services, 
     any reimbursements by the organization of excise tax 
     liability are treated as an excess benefit unless they are 
     included in the disqualified person's compensation during the 
     year the reimbursement is made. The total compensation 
     package, including the amount of any reimbursement would be 
     subject to the reasonableness requirement. Similarly, the 
     payment by an applicable tax-exempt organization of premiums 
     for an insurance policy providing liability insurance to a 
     disqualified person for excess benefit taxes is an excess 
     benefit transaction unless such premiums are treated as part 
     of the compensation paid to such disqualified person. 39
     \39\ In addition, because individuals may be both members of 
     and disqualified persons with respect to a non-exclusive 
     applicable tax-exempt organization (e.g., a museum or 
     neighborhood civic organization) and receive certain benefits 
     (e.g., free admission, discounted gift shop purchases) in 
     their capacity as members (rather than in their capacity as 
     disqualified persons), the conferees intend that the Treasury 
     Department provide guidance clarifying that such membership 
     benefits may be excluded from consideration under the private 
     inurement proscription and intermediate sanction rules.
---------------------------------------------------------------------------
       The conference agreement amends the definition of 
     ``disqualified person'' to mean any individual who is in a 
     position to exercise substantial authority over the affairs 
     of the organization, whether by virtue of being an 
     organization manager or otherwise, as well as certain family 
     members and 35-percent owned entities of any such individual 
     at any time during the 5- year period prior to the 
     transaction at issue. A person having the title of ``officer, 
     director, or trustee'' does not automatically have the status 
     of a disqualified person. 40 In addition, the conferees 
     grant the Secretary of Treasury authority to promulgate rules 
     exempting broad categories of individuals from the category 
     of ``disqualified persons'' (e.g., full-time bona fide 
     employees who receive economic benefits of less than a 
     threshold amount or persons who have taken a vow of poverty).
     \40\ The conferees are aware that the IRS has issued guidance 
     indicating that all physicians are considered ``insiders'' 
     for purposes of applying the private inurement proscription. 
     The conferees intend that physicians will be disqualified 
     persons only if they are in a position to exercise 
     substantial authority over the affairs of an organization.
---------------------------------------------------------------------------
       The conferees generally expect that the intermediate 
     sanctions will be the sole sanction imposed in those cases in 
     which the excess benefit does not rise to a level where it 
     calls into question whether, on the whole, the organization 
     functions as a charitable or other tax-exempt organization. 
     In practice, revocation of tax-exempt status, with or without 
     the imposition of excise taxes, will occur only when the 
     organization no longer operates as a charitable organization.
       The conference agreement eliminates the provision of the 
     House bill that imposes a tax on tax-exempt organizations 
     that terminate their tax-exempt status. To prevent avoidance 
     of the penalty excise taxes in cases of private inurement of 
     assets of a previously tax-exempt organization, the 
     conference agreement provides that an organization will be 
     treated as an applicable tax-exempt organization subject to 
     the excise taxes on excess benefit transactions if, at any 
     time during the two-year period preceding the transaction, it 
     was a tax-exempt organization described in section 501(c)(3) 
     or 501(c)(4) or a successor to such an organization.
       Effective date.--As under the House bill, the provision 
     generally applies to excess benefit transactions occurring on 
     or after September 14, 1995. However, under the conference 
     agreement, the provision does not apply to any benefits 
     arising out of a transaction pursuant to a written contract 
     which was binding on September 13, 1995, and at all times 
     thereafter before such benefits arose, and the terms of which 
     have not materially changed.
       Additional filing and public disclosure rules
       Reporting of identity of certain disqualified persons, 
     excise tax penalties and excess benefit transactions.--The 
     conference agreement modifies the reporting requirements with 
     respect to identifying certain disqualified persons. Under 
     the conference agreement, tax-exempt organizations are 
     required to disclose on their form 990 the name of each 
     individual who was in a position to exercise substantial 
     influence over the affairs of the organization (but not their 
     family members and 35-percent owned entities) and such other 
     information as the Secretary of Treasury may prescribe.
       Furnishing copies of documents.--The conference agreement 
     does not include the House bill provision.
       Advertisement and solicitations.--The conference agreement 
     does not include the House bill provision.
       Electronic dissemination of information.-- The conference 
     agreement does not include the House bill provision.
       Penalties for failure to allow public inspection.--The 
     conference agreement does not include the House bill 
     provision.
       Treasury Department studies.--The conference agreement does 
     not include the House bill provision.


  b. common investment fund for private foundations(sec. 12701 of the 
                           senate amendment)

     Present law
       Code section 501(c)(3) requires that an organization be 
     organized and operated exclusively for a charitable or other 
     exempt purpose in order to qualify for tax-exempt status 
     under that section.
       Section 501(f) provides that an organization is treated as 
     organized and operated exclusively for charitable purposes if 
     it is comprised solely of members that are educational 
     institutions and is organized and operated solely to hold, 
     commingle, and collectively invest (including arranging for 
     investment services by independent contractors) funds 
     contributed by the members in stocks and securities, and to 
     collect income from such investments and turn over such 
     income, less expenses, to the members.
     House bill
       No provision.
     Senate amendment
       Under the Senate amendment, a cooperative service 
     organization comprised solely of members that are tax-exempt 
     private foundations and community foundations 41 is 
     treated as organized and operated exclusively for charitable 
     purposes if: (1) it has at least 20 members; (2) no one 
     member holds (after the organization's second taxable year) 
     more than 10 percent (by value) of the interests in the 
     organization; (3) it is organized and controlled by its 
     members, but no one member by itself controls the 
     organization or any other member; (4) the members 

[[Page H 12873]]
     are permitted to dismiss any of the organization's investment advisors, 
     if (following reasonable notice) members holding a majority 
     of interest in the account managed by such advisor vote to 
     remove such advisor; and (5) the organization is organized 
     and operated solely to hold, commingle, and collectively 
     invest and reinvest (including arranging for investment 
     services by independent contractors) funds contributed by the 
     members in stocks and securities, and to collect income from 
     such investments and turn over such income, less expenses, to 
     the members. To qualify for tax-exempt status under present-
     law section 501(c)(3), a cooperative service organization 
     described in the provision also must satisfy the other 
     applicable requirements of that section (e.g., prohibition of 
     private inurement, political activities, and substantial 
     lobbying).
     \41\ For purposes of the provision, ``community foundations'' 
     are a form of charitable trust or fund (which generally are 
     established to attract large contributions of a capital or 
     endowment nature for the benefit of a particular community or 
     area) as to which section 170(b)(1)(A)(vi). See Teas. Reg. 
     sec. 1.170A-9(e)(10).
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       A cooperative service organization meeting the criteria of 
     the proposal will be subject to the present-law excise tax 
     provisions applicable to private foundations (e.g., sec. 4941 
     rules governing self-dealing arrangements), other than 
     sections 4940 and 4942. In addition, each member's allocable 
     share (whether or not distributed) of the capital gain net 
     income and gross investment income of the organization for 
     any taxable year of the organization will be treated, for 
     purposes of the excise tax imposed under present-law section 
     4940, as capital gain net income and gross investment income 
     of the member for the taxable year of such member in which 
     the taxable year of the organization ends.
       Effective date.--Taxable years ending after December 31, 
     1995.
     Conference agreement
       The conference agreement follows the Senate amendment.


c. exclusion from ubit for certain corporate sponsorship payments (sec. 
                     12702 of the senate amendment)

     Present law
       Although generally exempt from Federal income tax, tax-
     exempt organizations are subject to the unrelated business 
     income tax (''UBIT'') on income derived from a trade or 
     business regularly carried on that is not substantially 
     related to the performance of the organization's tax-exempt 
     functions (secs. 511-514). Contributions or gifts received by 
     tax-exempt organizations generally are not subject to the 
     UBIT. However, present-law section 513(c) provides that an 
     activity (such as advertising) does not lose its identity as 
     a separate trade or business merely because it is carried on 
     within a larger complex of other endeavors. 42 If a tax-
     exempt organization receives sponsorship payments in 
     connection with an event or other activity, the solicitation 
     and receipt of such sponsorship payments may be treated as a 
     separate activity. The Internal Revenue Service (IRS) has 
     taken the position that, under some circumstances, such 
     sponsorship payments are subject to the UBIT. 43
     \42\ See United States v. American of Physicians, 475 U.S. 
     834 (1986) (holding that activity of selling advertising in 
     medical journal was not substantially related to the 
     organization's exempt purposes and, as a separate business 
     under section 513(c), was subject to tax).
     \43\ See Prop. Treas. Reg. sec. 1.513-4 (issued January 19, 
     1993, EE-74-92, IRB 1993-7, 71). These proposed regulations 
     generally exclude from the UBIT financial arrangements under 
     which the tax-exempt organization provides so-called 
     ``institutional'' or ``good will'' advertising to a sponsor 
     (i.e., arrangements under which a sponsor's name, logo, or 
     product line is acknowledged by the tax-exempt organization). 
     However, specific product advertising (e.g., ``comparative or 
     qualitative descriptions of the sponsor's products'') 
     provided by a tax-exempt organization on behalf of a sponsor 
     is not shielded from the UBIT under the proposed regulations. 
     House Bill No provision.
---------------------------------------------------------------------------
     Senate amendment
       The Senate amendment provides that qualified sponsorship 
     payments received by a tax-exempt organization (or State 
     college or university described in section 511(a)(2)(B)) are 
     exempt from the UBIT.
       The Senate amendment defines ``qualified sponsorship 
     payments'' as any payment made by a person engaged in a trade 
     or business with respect to which the person will receive no 
     substantial return benefit other than the use or 
     acknowledgment of the name or logo (or product lines) of the 
     person's trade or business in connection with the 
     organization's activities. 44 Such a use or 
     acknowledgment does not include advertising of such person's 
     products or services -- meaning qualitative or comparative 
     language, price information or other indications of savings 
     or value, or an endorsement or other inducement to purchase, 
     sell, or use such products or services. Thus, for example, 
     if, in return for receiving a sponsorship payment, an 
     organization promises to use the sponsor's name or logo in 
     acknowledging the sponsor's support for an educational or 
     fundraising event conducted by the organization, such payment 
     would not be subject to the UBIT. In contrast, if the 
     organization provides advertising of a sponsor's products, 
     the payment made to the organization by the sponsor in order 
     to receive such advertising would be subject to the UBIT 
     (provided that the other, present-law requirements for UBIT 
     liability are satisfied).
     \44\ In determining whether a payment is a qualified 
     sponsorship payment, it is irrelevant whether the sponsored 
     activity is related or unrelated to the organization's exempt 
     purpose.
---------------------------------------------------------------------------
       The Senate amendment specifically provides that a qualified 
     sponsorship payment does not include any payment where the 
     amount of such payment is contingent, by contract or 
     otherwise, upon the level of attendance at an event, 
     broadcast ratings, or other factors indicating the degree of 
     public exposure to an activity. However, the fact that a 
     sponsorship payment is contingent upon an event actually 
     taking place or being broadcast, in and of itself, does not 
     cause the payment to fail to be a qualified sponsorship 
     payment. Moreover, mere distribution or display of a 
     sponsor's products by the sponsor or the tax-exempt 
     organization to the general public at a sponsored event, 
     whether for free or for remuneration, is considered to be 
     ``use or acknowledgment'' of the sponsor's product lines (as 
     opposed to advertising), and thus will not affect the 
     determination of whether a payment made by the sponsor is a 
     qualified sponsorship payment.
       The Senate amendment does not apply to the sale of 
     advertising or acknowledgments in tax-exempt organization 
     periodicals. For this purpose, the term ``periodical'' means 
     regularly scheduled and printed material that is not related 
     to and primarily distributed in connection with a specific 
     sponsored event. For example, the provision does not apply to 
     payments that lead to acknowledgments in a monthly journal, 
     but does apply if a sponsor receives an acknowledgment in a 
     program or brochure distributed at a sponsored event.
       The Senate amendment specifically provides that, to the 
     extent that a portion of a payment would (if made as a 
     separate payment) be a qualified sponsorship payment, such 
     portion of the payment will be treated as a separate payment. 
     Thus, if a sponsorship payment made to a tax-exempt 
     organization entitles the sponsor to both product advertising 
     and use or acknowledgment of the sponsor's name or logo by 
     the organization, then the UBIT would not apply to the amount 
     of such payment that exceeds the fair market value of the 
     product advertising provided to the sponsor. Moreover, the 
     provision of facilities, services or other privileges by an 
     exempt organization to a sponsor or the sponsor's designees 
     (e.g., complimentary tickets, pro-am playing spots in golf 
     tournaments, or receptions for major donors) in connection 
     with a sponsorship payment will not affect the determination 
     of whether the payment is a qualified sponsorship payment. 
     Rather, the provision of such goods or services will be 
     evaluated as a separate transaction in determining whether 
     the organization has unrelated business taxable income from 
     the event. In general, if such services or facilities do not 
     constitute a substantial return benefit or if the provision 
     of such services or facilities is a related business 
     activity, then the payments attributable to such services or 
     facilities will not be subject to the UBIT.
       The exemption provided by the Senate amendment is in 
     addition to other present-law exceptions from the UBIT (e.g., 
     the exceptions for activities substantially all the work for 
     which is performed by volunteers and for activities not 
     regularly carried on). No inference is intended as to whether 
     any sponsorship payment received prior to 1996 was subject to 
     the UBIT.
       Effective date.--The provision applies to qualified 
     sponsorship payments solicited or received after December 31, 
     1995.
     Conference agreement
       The conference agreement follows the Senate amendment, 
     except that the conference agreement clarifies that (1) the 
     UBIT exception provided by the provision does not apply to 
     any payment which entitles the payor to an acknowledgment or 
     advertising in regularly scheduled and printed material, but 
     only if such printed material is published by (or on behalf 
     of) the payee organization and is not related to and 
     primarily distributed in connection with a specific event 
     conducted by the payee organization, and (2) just as the 
     provision of facilities, services or other privileges by a 
     tax-exempt organization to a sponsor or the sponsor's 
     designees (complimentary tickets, pro-am playing spots in 
     golf tournaments, or receptions for major donors) will be 
     treated as a separate transaction that does not affect the 
     determination of whether a sponsorship payment is a qualified 
     sponsorship payment, a sponsor's receipt of a license to use 
     an intangible asset (e.g., trademark, logo, or designation) 
     of the tax-exempt organization likewise will be treated as 
     separate from the qualified sponsorship transaction in 
     determining whether the organization has unrelated business 
     taxable income. 45
     \45\ The conferees expect that, under present-law UBIT rules 
     (see Rev. Rul. 81-178, 1981-2 C.B. 135), royalty income 
     derived from licensing trademarks, emblems, and designations 
     of a qualified amateur sports organization described in 
     section 501(j)(2) (e.g., the U.S. Olympic Committee), as well 
     as income received by such organizations from broadcasting, 
     filming, and videotaping sports competitions and related 
     events, will be treated as exempt from the UBIT. This 
     exemption from the UBIT should not be affected by the fact 
     that an amateur sports organization undertakes legal or other 
     actions to protect the exclusivity of a licensing 
     arrangement, or to prevent third parties from improperly 
     using the organization's trademarks or representing or 
     implying that such parties are an official sponsor of (or 
     otherwise affiliated with) the organization or its 
     competitive events.
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      d. treatment of dues paid to agricultural or horticultural 
organizations(sec. 14584 of the house bill and sec. 12703 of the senate 
                               amendment)

     Present law
       Tax-exempt organizations generally are subject to the 
     unrelated business income tax (''UBIT'') on income derived 
     from a trade or 

[[Page H 12874]]
     business regularly carried on that is not substantially related to the 
     performance of the organization's tax-exempt functions (secs. 
     511-514). Dues payments made to a membership organization 
     generally are not subject to the UBIT. However, several 
     courts have held that, with respect to postal labor 
     organizations, dues payments were subject to the UBIT when 
     received from individuals who were not postal workers but who 
     became ``associate'' members for the purpose of obtaining 
     health insurance available to members of the organization. 
     See National League of Postmasters of the United States v. 
     Commissioner, No. 8032-93, T.C. Memo (May 11, 1995); American 
     Postal Workers Union, AFL-CIO v. United States, 925 F.2d 480 
     (D.C. Cir. 1991); National Association of Postal Supervisors 
     v. United States, 944 F.2d 859 (Fed. Cir. 1991).
       In Rev. Proc. 95-21 (issued March 23, 1995), the IRS set 
     forth its position regarding when associate member dues 
     payments received by an organization described in section 
     501(c)(5) will be treated as subject to the UBIT. The IRS 
     stated that dues payments from associate members will not be 
     treated as subject to UBIT unless, for the relevant period, 
     ``the associate member category has been formed or availed of 
     for the principal purpose of producing unrelated business 
     income.'' Thus, under Rev. Proc. 95-21, the focus of the 
     inquiry is upon the organization's purposes in forming the 
     associate member category (and whether the purposes of that 
     category of membership are substantially related to the 
     organization's exempt purposes other than through the 
     production of income), rather than upon the motive of the 
     individuals who join as associate members.
     House bill
       Under the House bill, if an agricultural or horticultural 
     organization described in section 501(c)(5) requires annual 
     dues not exceeding $100 to be paid in order to be a member of 
     such organization, then in no event will any portion of such 
     dues be subject to the UBIT by reason of any benefits or 
     privileges to which members of such organization are 
     entitled. For taxable years beginning after 1995, the $100 
     amount will be indexed for inflation. The term ``dues'' is 
     defined as ``any payment required to be made in order to be 
     recognized by the organization as a member of the 
     organization.'' Thus, if a person is recognized as a member 
     of an organization by virtue of having paid annual dues for 
     his or her membership, then any subsequent payments made by 
     that person during the year to purchase another membership in 
     the same organization would not be within the scope of the 
     provision.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 1994.
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment. 46
     \46\ The conferees intend that, with respect to dues payments 
     received prior to the effective date of theprovision, general 
     UBIT rules under prior law whould be applied in a manner 
     consistent with the provision.
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e. repeal tax credit for contributions to special community development 
corporations (sec. 13637 of the house bill and sec. 12704 of the senate 
                               amendment)

     Present law
       Taxpayers are entitled to claim a tax credit for qualified 
     contributions made to one of 20 non-profit community 
     development corporations (CDCs) selected by the Secretary of 
     Housing and Urban Development (HUD) to provide assistance in 
     economically distressed areas. A qualified contribution means 
     a transfer of cash to a selected CDC (made in the form of an 
     equity investment or loan) which is made available for use by 
     the CDC for at least 10 years to provide employment and 
     business opportunities to low-income residents who live in an 
     area where (1) the unemployment rate is not less than the 
     national unemployment rate and (2) the median family income 
     does not exceed 80 percent of the median gross income of 
     residents of the jurisdiction of the local government which 
     includes such area. 47
     \47\ The contribution to the CDC must be available for use by 
     the CDC for at least ten years, but need not meet the 
     requirements of a ``contribution or gift'' for purposes of 
     section 170. In other words, a contribution eligible for the 
     credit may be made in the form of a 10-year loan (or other 
     long-term investment), the principal of which is to be 
     returned to the taxpayer after the 10-year period. However, 
     in the case of a donation of cash made by a taxpayer to an 
     eligible CDC, the taxpayer is allowed to claim a charitable 
     contribution deduction (subject to present-law rules under 
     section 170), in addition to the special credit for qualified 
     contributions to a selected CDC.
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       If a taxpayer makes a qualified contribution, the credit 
     may be claimed by the taxpayer for each taxable year during 
     the 10-year period beginning with the taxable year during 
     which the contribution was made. The credit that may be 
     claimed for each year is equal to 5 percent of the amount of 
     the contribution to the CDC. Thus, during the 10-year credit 
     period, the taxpayer may claim aggregate credit amounts 
     totaling 50 percent of his or her contribution. The aggregate 
     amount of contributions that may be designated by any one CDC 
     as eligible for the credit may not exceed $2 million. 
     (Consequently, a total amount of $40 million in contributions 
     will be eligible for the credit with respect to all 20 
     selected CDCs--and the maximum credit amounts will total $20 
     million over the 10-year credit period.)
       On June 30, 1994, the Secretary of HUD announced the 20 
     CDCs selected to receive contributions that qualify the for 
     the credit. The eligible CDCs are located in the following 
     areas: (1) Atlanta, (2) Baltimore, (3) Boston, (4) Chicago, 
     (5) Cleveland, (6) Dallas, (7) Washington D.C., (8) Los 
     Angeles, (9) Memphis, (10) Miami, (11) Brooklyn, (12) Newark, 
     (13) Watsonville, Ca., (14) London, Ky., (15) Wiscasset, 
     Maine, (16) Greenville, Miss., (17) Mayville, N.Y., (18) 
     Barnesboro, Pa., (19) San Antonio, Texas, and (20) 
     Christiansburg, Va.
     House bill
       The House bill repeals the special tax credit for qualified 
     contributions to selected community development corporations.
       Effective date.--The provision is effective for 
     contributions made after the date of enactment (other than a 
     contribution made pursuant to a legally enforceable agreement 
     to make such contribution, if such agreement is in effect on 
     the date of enactment).
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


f. tax gambling income of indian tribes; repeal targeted exemption from 
  ubit for gambling in certain states (secs. 13631-13632 of the house 
                                 bill)

     Present law
       Tax treatment of Indian tribes
       There is no specific statutory provision governing the 
     Federal income tax liability of Indian tribes. 48 
     However, the IRS has long taken the position that Indian 
     tribes, as well as wholly owned tribal corporations chartered 
     under Federal law, are not taxable entities and, thus, are 
     immune from Federal income taxes. (See Rev. Rul. 67-284, 
     1967-2 C.B. 55; Rev. Rul. 81-295, 1981-2 C.B. 15.) More 
     recently, the IRS has ruled that any income earned by an 
     unincorporated Indian tribe or Federally chartered tribal 
     corporation is not subject to Federal income tax, regardless 
     of whether the activities that produced the income are 
     conducted on or off the tribe's reservation. (See Rev. Rul. 
     94-16, 1994-12 I.R.B. 1; Rev. Rul. 94-65, 1994-42 I.R.B. 10. 
     49) In ordinary matters not governed by specific 
     treaties or remedial legislation, individual members of 
     Indian tribes are subject to the payment of Federal income 
     tax (even if the income is distributed to individual tribal 
     members out of income otherwise immune from tax when first 
     received by the tribe). 50
     \48\ Section 7871 provides that Indian tribes are treated as 
     States for certain limited tax purposes, such as for purposes 
     of the issuance of certain tax=exempt bonds, certain excise 
     tax exemptions, and for eligibility to receive deductible 
     charitable contributions.
     \49\ These rulings further hold, however, that a corporation 
     organized by an Indian tribe under State law is subject to 
     Federal income tax on the income earned from commercial 
     activities conducted on or off the tribe's reservation.
     Legal commentators generally have concluded that ``[u]nder 
     this so-called Indian Commerce Clause [article I, section 8 
     of the Constitution] and Supreme Court cases, there is little 
     constitutional limitation on the ability of the Federal 
     government to tax Indian tribes or tribal members.'' Aprill, 
     Ellen P., ``Tribal Bonds: Indian Sovereignty and the Tax 
     Legislative Process,'' 46 Admin. L. Rev. 333, 334 (1994).
     \50\ See Squire v. Capoeman, 351 U.S. 1, 6 (1956). One 
     exception to this general rule is the exclusion from income 
     provided for income received by Indians from the exercise of 
     certain fishing rights guaranteed by treaties, Federal 
     Statute or Executive order (sec. 7873). See also 25 U.S.C. 
     sections 1401-1407 (funds appropriated in satisfaction of a 
     judgment of the United States Court of Federal Claims in 
     favor of an Indian tribe which are then distributed per 
     capita to tribal members pursuant to a plan approved by the 
     Secretary of Interior are exempt from Federal income taxes); 
     25 U.S.C. section 117b(a) (per capital distributions made to 
     tribal members from Indian trust fund revenues are exempt 
     from tax if the Secretary of the interior approves of such 
     distributions).
---------------------------------------------------------------------------
       Tribal governments and corporations, as well as individual 
     Indians and their property, generally are exempt from State 
     taxation within their reservations, unless Congress clearly 
     manifests its consent to such taxation. 51 In contrast, 
     property and income earned by Indians outside the reservation 
     generally have been held to be subject to State taxation. 
     52 In addition, the Supreme Court has upheld a State's 
     right to impose taxes on commercial activities conducted on 
     reservation lands, provided that the legal incidence of the 
     tax falls on non-Indians and the balance of Federal, State, 
     and tribal interests favors the State. 53
     \51\ See, e.g., Oklahoma Tax Comm'n v. Chickasaw Nation, 115 
     S. Ct. 2214 (1995); Montana v. Blackfeet Tribe of Indians, 
     471, U.S. 759 (1985); McClanahan v. Arizona State Tax Comm'n, 
     411 U.S. 164 (1973).
     \52\ See, e.g., Mescalero Apache Tribe v. Jones, 411 U.S. 145 
     (1973) (tribe held to be subject to State gross receipts tax 
     on income earned from a ski resort operated by the tribe off-
     reservation). The Supreme Court also has ruled that a State 
     may impose income tax on members of an Indian tribe who are 
     employed by the tribe on tribal lands but who reside in the 
     State outside of Indian country. Oklahoma Tax Comm'n v. 
     Chickasaw Nation, supra.
     \53\ See Oklahoma Tax Comm'n v. Chikasaw Nation, Supra; 
     CottonPetroleum v. New Mexico, 490 U.S. 163 (1989) (upholding 
     imposition of State severance tax on private producers of oil 
     and gas on reservation lands).
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       In 1993, Congress enacted two Federal tax incentives for 
     commercial activities conducted (by Indians or non-Indians) 
     on any Indian reservation. These tax incentives are: 

[[Page H 12875]]
     (1) enhanced accelerated depreciation (generally, 60 percent of the 
     normal recovery period) for certain property used in the 
     conduct of a trade or business on a reservation (and certain 
     connecting infrastructure property); and (2) a 20-percent 
     incremental wage credit for certain wages and health 
     insurance costs (up to $20,000 per employee) paid to tribal 
     members and spouses who work on, and live on or near, a 
     reservation. Neither of these tax incentives is available 
     with respect to gambling activities (secs. 45A and 168(j)).
       Taxation of gambling activities of nonprofit organizations
       Although generally exempt from Federal income tax, tax-
     exempt organizations are subject to the unrelated business 
     income tax (UBIT) on income derived from a trade or business 
     regularly carried on that is not substantially related to the 
     performance of the organization's tax- exempt functions 
     (secs. 511-514). 54 Certain income, however, is exempted 
     from the UBIT (such as interest, dividends, royalties, and 
     certain rents), unless derived from debt-financed property 
     (sec. 512(b)). Other exemptions from the UBIT are provided 
     for activities in which substantially all the work is 
     performed by volunteers and for income from the sale of 
     donated goods (sec. 513(a)). In addition, a specific 
     exemption from the UBIT is provided for bingo games conducted 
     by tax-exempt organizations, provided that the conducting of 
     the bingo games is not an activity ordinarily carried out on 
     a commercial basis and the conducting of which does not 
     violate any State or local law (sec. 513(f)). A specific 
     exemption from the UBIT also is provided for qualified public 
     entertainment activities (meaning entertainment or recreation 
     activities of a kind traditionally conducted at fairs or 
     expositions promoting agricultural and educational purposes) 
     conducted by an organization described in section 501(c)(3), 
     (c)(4), or (c)(5) which regularly conducts an agricultural 
     and educational fair or exposition as one of its substantial 
     exempt purposes (sec. 513(d)). 55
     \54\ The UBIT applies not only to private, tax-exempt 
     entities but also to colleges and universities that are 
     agencies or instrumentalities of (or are owned or operated 
     by) a State or local government or Indian tribal government 
     (secs. 511(a)(2)(B) and 7871(a)(5)).
     \55\ In addition, section 311 of the Deficit Reduction Act of 
     1984 (as modified by the Tax Reform Act of 1986) provides a 
     special, off-Code exemption from the UBIT for games of chance 
     conducted by nonprofit organizations in the State of North 
     Dakota.
---------------------------------------------------------------------------
       In South End Italian Independent Club, Inc. v. 
     Commissioner, 87 T.C. 168 (1986), acq. 1987-2 C.B. 1, the 
     court held that gambling profits of a social club described 
     in section 501(c)(7) that were required by State law to be 
     used for charitable purposes were fully deductible under 
     section 162 in computing the UBIT liability of the social 
     club. The effect of this decision was to exempt gambling 
     income of that social club from UBIT. The IRS has indicated 
     that, until further guidance is available with respect to 
     this issue, the issue of the deductibility of amounts 
     required under State law to be used for charitable or other 
     so-called ``lawful'' purposes should be resolved consistent 
     with the South End case, regardless of whether the gaming 
     proceeds are donated to other charitable organizations or 
     spent internally on the organization's own charitable 
     activities. 56
     \56\ See IRS, Exempt Organizations: Technical Instruction 
     Program for FY 1996 (Training 4277-048 (7-95)) at page 96.
---------------------------------------------------------------------------
     House bill
       Tax treatment of Indian tribal gaming income
       The House bill subjects to Federal income tax as unrelated 
     business income (''UBI'') income earned by an Indian tribe, 
     or any corporate entity that is a tax-immune or tax-exempt 
     entity by reason of being owned or controlled by an Indian 
     tribe, from the conduct of class II or class III gaming 
     activities (as defined under the Indian Gaming Regulatory 
     Act, 25 U.S.C. secs. 2701-2721). Thus, Indian tribes will be 
     subject to Federal income tax on income derived from class II 
     gaming operations (e.g., bingo, pull-tabs, lotto) or class 
     III gaming operations (e.g., a casino operated pursuant to a 
     compact between the State government and Indian tribe). As 
     under present-law UBIT rules, a gaming activity will be 
     subject to tax under the provision only if the activity is 
     regularly carried on.
       Under the House bill, if an Indian tribe is required (by 
     Federal, State, or local law) to use any portion of the net 
     proceeds of gaming activities for charitable or other 
     specified purposes, any portion so used may be deductible 
     only as a charitable contribution, and (under present-law 
     sec. 512(b)(10)) such deduction may not exceed 10 percent of 
     the taxable income from the gaming activities. This 10-
     percent limitation, however, does not apply to any proceeds 
     from gaming activities that are required to be paid as 
     general revenues to the United States or any State or 
     subdivision of a State (which generally will be fully 
     deductible in computing the tribe's taxable income from 
     gaming).
       Repeal of UBIT exemption for gambling in certain States
       In addition, the House bill repeals the special, off-Code 
     provision that exempts from the UBIT gaming income earned by 
     nonprofit organizations in North Dakota. With respect to 
     other gaming activities conducted by tax-exempt 
     organizations, the Treasury Department is directed to conduct 
     a study on the nature and extent of gaming activities 
     conducted by organizations exempt from tax under section 
     501(a), including an examination of: (1) the types of gaming 
     activities (e.g., bingo, pull tabs, casino nights) engaged in 
     by charities and other nonprofit organizations and the 
     frequency of such activities; (2) the dollar volume of such 
     gaming activities; (3) the nature and extent of the 
     involvement of for-profit entities and private parties in the 
     management or operation of gaming activities of nonprofits; 
     (4) competition between taxable gaming activities and gaming 
     activities that are exempt from Federal income tax; and (5) 
     an analysis of the present-law tax treatment of gaming 
     activities of tax-exempt organizations and any 
     recommendations for change, including examination of the 
     South End decision and special UBIT exception for bingo 
     games. The Treasury Department is required to report the 
     results of this study to Congress no later than July 1, 1996.
       Effective date
       The provision is effective on and after January 1, 1996.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.

      IX. Corporate and Other Refurms and Miscellaneous Provisions


1. reform the tax treatment of certain corporate stock redemptions and 
 other extraordinary dividends (sec. 13601 of the house bill and sec. 
                     12801 of the senate amendment)

     Present law
       A corporate shareholder generally can deduct at least 70 
     percent of a dividend received from another corporation. This 
     dividends received deduction is 80 percent if the corporate 
     shareholder owns at least 20 percent of the distributing 
     corporation and generally 100 percent if the shareholder owns 
     at least 80 percent of the distributing corporation.
       Section 1059 of the Code requires a corporate shareholder 
     that receives an ``extraordinary dividend'' to reduce the 
     basis of the stock with respect to which the dividend was 
     received by the nontaxed portion of the dividend. Whether a 
     dividend is ``extraordinary'' is determined, among other 
     things, by reference to the size of the dividend in relation 
     to the adjusted basis of the shareholder's stock. Also, a 
     dividend resulting from a non pro rata redemption or a 
     partial liquidation is an extraordinary dividend. If the 
     reduction in basis of stock exceeds the basis in the stock 
     with respect to which an extraordinary dividend is received, 
     the excess is taxed as gain on the sale or disposition of 
     such stock, but not until that time (sec. 1059(a)(2)). The 
     Treasury Department has general regulatory authority to carry 
     out the purposes of the section.
       Except as provided in regulations, the extraordinary 
     dividend provisions do not apply to result in a double 
     reduction in basis in the case of distributions between 
     members of an affiliated group filing consolidated returns, 
     where the dividend is eliminated or excluded under the 
     consolidated return regulations. Double inclusion of earnings 
     and profits (i.e., from both the dividend and from gain on 
     the disposition of stock with a reduced basis) also should 
     generally be prevented. 57 Treasury regulations provide 
     for application of the provision when a corporation is a 
     partner in a partnership that receives a distribution. 
     58
     \57\ See, H.R. Rep. 99-841, II-166, 99th Cong. 2d Sess. 
     (Sept. 18, 1986).
     \58\ See, Treas. Reg. sec. 1.701-2(f), Example (2).
---------------------------------------------------------------------------
       In general, a distribution in redemption of stock is 
     treated as a dividend, rather than as a sale of the stock, if 
     it is essentially equivalent to a dividend (sec. 302). A 
     redemption of the stock of a shareholder generally is 
     essentially equivalent to a dividend if it does not result in 
     a meaningful reduction in the shareholder's proportionate 
     interest in the distributing corporation. Section 302(b) also 
     contains several specific tests (e.g., a substantial 
     reduction computation and a termination test) to identify 
     redemptions that are not essentially equivalent to dividends. 
     The determination whether a redemption is essentially 
     equivalent to a dividend includes reference to the 
     constructive ownership rules of section 318, including the 
     option attribution rules of section 318(a)(4). The rules 
     relating to treatment of cash or other property received in a 
     reorganization contain a similar reference (sec. 356(a)(2)).
     House bill
       The House bill provides that, except as provided in 
     regulations, a corporate shareholder will recognize gain 
     immediately with respect to any redemption treated as a 
     dividend (in whole or in part) when the nontaxed portion of 
     the dividend exceeds the basis of the shares surrendered, if 
     the redemption is treated as a dividend due to options being 
     counted as stock ownership. 59
     \59\ Thus, for example, where a portion of such a 
     distribution would not have been treated as a dividend due to 
     insufficient earnings and profits, the rule applies to the 
     portion treated as a dividend.
---------------------------------------------------------------------------
       In addition, the House bill requires immediate gain 
     recognition whenever the basis of stock with respect to which 
     any extraordinary dividend was received is reduced below 
     zero.
       Reorganizations or other exchanges involving amounts that 
     are treated as dividends under section 356(a)(2) of the Code 
     are treated as redemptions for purposes of applying 

[[Page H 12876]]
     the rules relating to redemptions under section 1059(e). For example, 
     if a recapitalization or other transaction that involves a 
     dividend under section 356 has the effect of a non pro rata 
     redemption or is treated as a dividend due to options being 
     counted as stock, the rules of section 1059 apply. 
     Redemptions of shares, (or other extraordinary dividends on 
     shares) held by a partnership will be subject to section 1059 
     to the extent there are corporate partners (e.g., appropriate 
     adjustments to the basis of the shares held by the 
     partnership and to the basis of the corporate partner's 
     partnership interest will be required).
       Under continuing section 1059(g) of present law, the 
     Treasury Department is authorized to issue regulations where 
     necessary to carry out the purposes and prevent the avoidance 
     of the bill.
       Effective date--The provision is generally effective for 
     distributions after May 3, 1995, unless made pursuant to the 
     terms of a written binding contract in effect on that date, 
     or a tender offer outstanding on that date. However, in 
     applying the new gain recognition rules to any distribution 
     that is not a partial liquidation, a non pro rata redemption, 
     or a redemption that is treated as a dividend by reason of 
     options, September 13, 1995 is substituted for May 3, 1995 in 
     applying the transition rules.
       No inference is intended regarding the tax treatment under 
     present law of any transaction within the scope of the 
     provision, including transactions utilizing options.
     Senate amendment
       The Senate amendment is the same as the House bill, except 
     for the effective date.
       Effective date--The effective date is generally the same as 
     the House bill, except that there is no transition for 
     distributions pursuant to tender offers outstanding on the 
     relevant date.
     Conference agreement
       The conference agreement follows the House bill.
       In addition, the conferees wish to clarify that no 
     inference is intended regarding the rules under present law 
     (or in any case where the treatment is not specified in the 
     provision) for determining the shares of stock with respect 
     to which a dividend is received or that experience a basis 
     reduction.


  2. require corporate tax shelter reporting (sec. 13602 of the house 
              bill and sec. 12802 of the senate amendment)

     Present law
       An organizer of a tax shelter is required to register the 
     shelter with the IRS (sec. 6111). If the principal organizer 
     does not do so, the duty may fall upon any other participant 
     in the organization of the shelter or any person 
     participating in its sale or management. The shelter's 
     identification number must be furnished to each investor who 
     purchases or acquires an interest in the shelter. Failure to 
     furnish this number to the tax shelter investors will subject 
     the organizer to a $100 penalty for each such failure (sec. 
     6707(b)).
       A penalty may be imposed against an organizer who fails 
     without reasonable cause to timely register the shelter or 
     who provides false or incomplete information with respect to 
     it. The penalty is the greater of one percent of the 
     aggregate amount invested in the shelter or $500. Any person 
     claiming any tax benefit with respect to a shelter must 
     report its registration number on her return. Failure to do 
     so without reasonable cause will subject that person to a 
     $250 penalty (sec. 6707(b)(2)).
       A person who organizes or sells an interest in a tax 
     shelter subject to the registration rule or in any other 
     potentially abusive plan or arrangement must maintain a list 
     of the investors (sec. 6112). A $50 penalty may be assessed 
     for each name omitted from the list. The maximum penalty per 
     year is $100,000 (sec. 6708).
       For this purpose, a tax shelter is defined as any 
     investment that meets two requirements. First, the investment 
     must be (1) required to be registered under a Federal or 
     state law regulating securities, (2) sold pursuant to an 
     exemption from registration requiring the filing of a notice 
     with a Federal or state agency regulating the offering or 
     sale of securities, or (3) a substantial investment. Second, 
     it must be reasonable to infer that the ratio of deductions 
     and 350 percent of credits to investment for any investor 
     (i.e., the tax shelter ratio) may be greater than two to one 
     as of the close of any of the first five years ending after 
     the date on which the investment is offered for sale. An 
     investment that meets these requirements will be considered a 
     tax shelter regardless of whether it is marketed or 
     customarily designated as a tax shelter (sec. 6111(c)(1)).
     House bill
       The House bill requires an organizer of a corporate tax 
     shelter to register the shelter with the Secretary. 
     Registration is required not later than the next business day 
     after the day when the tax shelter is first offered to 
     potential users. If an organizer is not a U.S. person, or if 
     a required registration is not otherwise made, then any U.S. 
     participant is required to register the shelter.
       A corporate tax shelter is any investment, plan, 
     arrangement or transaction: first, that has a significant 
     purpose of tax avoidance or evasion by a corporate 
     participant; second, that is offered to any potential 
     participant under conditions of confidentiality; and third, 
     for which the tax shelter organizers may receive total fees 
     in excess of $100,000.
        A transaction is offered under conditions of 
     confidentiality if: (1) an offeree (or any person acting on 
     its behalf) has an understanding or agreement with or for the 
     benefit of any promoter to restrict or limit its disclosure 
     of the transaction or any significant tax features of the 
     transaction; or (2) the promoter claims, knows or has reason 
     to know (or the promoter causes another person to claim or 
     otherwise knows or has reason to know that a party other than 
     the potential offeree claims) that the transaction (or one or 
     more aspects of its structure) is proprietary to the promoter 
     or any party other than the offeree, or is otherwise 
     protected from disclosure or use. The promoter includes 
     specified related parties.
       Registration will require the submission of information 
     identifying and describing the tax shelter and the tax 
     benefits of the tax shelter, as well as such other 
     information as the Treasury Department may require.
       Tax shelter promoters are required to maintain lists of 
     those who have signed confidentiality agreements, or 
     otherwise have been subjected to nondisclosure requirements, 
     with respect to particular tax shelters. In addition, 
     promoters must retain lists of those paying fees with respect 
     to plans or arrangements that have previously been registered 
     (even though the particular party may not have been subject 
     to confidentiality restrictions).
       All registrations will be treated as taxpayer information 
     under the provisions of section 6103 and will therefore not 
     be subject to any public disclosure.
       The penalty for failing to timely register a corporate tax 
     shelter is the greater of $10,000 or 50 percent of the fees 
     payable to any promoter with respect to offerings prior to 
     the date of late registration (i.e., this part of the penalty 
     does not apply to fee payments with respect to offerings 
     after late registration). A similar penalty is applicable to 
     actual participants in any corporate tax shelter who were 
     required to register the tax shelter but did not. With 
     respect to participants, however, the 50-percent penalty is 
     based only on fees paid by that participant. Intentional 
     disregard of the requirement to register by either a promoter 
     or a participant increases the 50-percent penalty to 75 
     percent of the applicable fees.
       Effective date.--The provision applies to any tax shelter 
     offered to potential participants after the date of 
     enactment. No filings are due, however, until the Treasury 
     Department issues guidance with respect to the filing 
     requirements.
     Senate amendment
       The Senate amendment is the same as the House bill, except 
     that the Senate amendment provides that registration is not 
     required if the U.S. participant notifies the promoter in 
     writing not later than the seventh day after discussions 
     began that the U.S. participant will not (and in fact does 
     not) participate in the shelter. The Senate amendment also 
     clarifies that a significant purpose of the structure of the 
     transaction must be tax avoidance or evasion. The Senate 
     amendment also adds a definition of related parties.
       Effective date.--Same as the House bill.
     Conference agreement
       The conference agreement follows the Senate amendment, 
     except that the seven-day period is modified to be a 90-day 
     period.
       A transaction is subject to this provision only if ``a 
     significant purpose'' of the structure of the transaction is 
     the avoidance or evasion of tax for a corporation (including 
     a corporation that participates indirectly, for example, 
     through a partnership, trust, or other non-corporate entity). 
     It is not intended that registration will apply merely 
     because tax consequences have been considered in structuring 
     a transaction. The provision would not apply to a transaction 
     where tax considerations are merely incidental and 
     unimportant to the structure of the transaction. A 
     ``significant'' purpose, however, need not be the only, or a 
     ``principal,'' purpose of the structure of a transaction in 
     order for the provision to apply.
       The existence of conditions of confidentiality, including 
     proprietary claims or an agreement or understanding that 
     limits disclosure by the participant or other person (such as 
     the participant's advisors), shall be determined in light of 
     all the facts and circumstances. Such a claim, understanding, 
     or agreement need not be in writing, nor must it be legally 
     enforceable under applicable state or federal law. Moreover, 
     a claim, understanding, or agreement need not be explicit if, 
     for example, a past pattern of dealings suggests that the 
     participant or its advisors will be limited from, or be 
     penalized by the promoter for, disclosure. The term 
     ``promoter'' includes agents and professional advisors 
     whether or not a formal principal-agent relationship exists.
       Conditions of confidentiality include arrangements that 
     limit the participant, or its agents, advisors, or other 
     persons acting on its behalf, from disclosing the transaction 
     or any significant tax features of the transaction. If a 
     taxpayer contemplating a transaction consults a tax attorney 
     for advice on structuring the anticipated transaction, the 
     fact that such advice may be protected from disclosure by the 
     attorney under the attorney-client privilege generally would 
     not by itself bring the transaction within the ambit of this 
     provision, because the privilege does not restrict the 
     client's disclosure of the details of the structure of a 
     transaction.
       By contrast, this provision would apply where a tax 
     avoidance transaction is promoted by an attorney to potential 
     participants under conditions that limit potential 

[[Page H 12877]]
     participants from disclosing the structure of the transaction or any 
     significant tax features of the transaction. Similarly, 
     registration could be required, for example, in cases where a 
     tax shelter is promoted through attorneys in an effort to 
     avoid disclosure by the participant or its agents or 
     advisors. A transaction will not be treated as proprietary 
     merely because a financial advisor hopes to be rewarded for 
     the time spent structuring the transaction.
       The conferees encourage Treasury to consider exercising its 
     existing authority under section 6111(e)(3) to consider the 
     effects of the securities laws and to exempt specific kinds 
     of transactions from the application of the new registration 
     requirement in appropriate cases, provided that there is not 
     potential for abuse. In addition, Treasury should consider 
     issuing guidance that would allow the Internal Revenue 
     Service to exercise discretion in (1) excluding from the 
     penalty calculation fees received by the promoter which are 
     not, directly or indirectly, attributable to the tax shelter, 
     and (2) abating penalties in appropriate cases for reasonable 
     cause. Treasury may issue such guidance in a form other than 
     regulations (such as by rulings or revenue procedures).
       Effective date.--The provision applies to any tax shelter 
     offered to potential participants after the date the Treasury 
     prescribes guidance with respect to the filing requirements. 
     After the issuance of such guidance, the conferees anticipate 
     that the Treasury will issue proposed regulations on this 
     provision, which will give interested parties an opportunity 
     to comment formally on Treasury's guidance.


   3. disallow interest deduction for corporate-owned life insurance 
policy loans (sec. 13603 of the house bill and sec. 12803 of the senate 
                               amendment)

     Present law
       No Federal income tax generally is imposed on a 
     policyholder with respect to the earnings under a life 
     insurance contract (''inside buildup''). 60 Further, an 
     exclusion from Federal income tax is provided for amounts 
     received under a life insurance contract paid by reason of 
     the death of the insured (sec. 101(a)). The policyholder may 
     borrow with respect to the life insurance contract without 
     affecting these exclusions, subject to certain limitations.
     \60\ This favorable tax treatment is available only if a life 
     insurance contract meets certain requirements designed to 
     limit the investment character of the contract (sec. 7702). 
     Distributions from a life insurance contract (other than a 
     modified endowment contract) that are made prior to the death 
     of the insured generally are includable in income, to the 
     extent that the amounts distributed exceed the taxpayer's 
     basis in the contract; such distributions generally are 
     treated first as a tax-free recovery of basis, and then as 
     income (sec. 72(e)). In the case of a modified endowment 
     contract, however, in general, distributions are treated as 
     income first, loans are treated as distributions (i.e., 
     income rather than basis recovery first), and an additional 
     ten percent tax is imposed on the income portion of 
     distributions made before age 59-\1/2\ and in certain other 
     circumstances (secs. 72(e) and (v)). A modified endowment 
     contract is a life insurance contract that does not meet a 
     statutory ``7-pay'' test, i.e., generally is funded more 
     rapidly than seven annual level premiums (sec. 7702A).
---------------------------------------------------------------------------
       The limitations on borrowing with respect to a life 
     insurance contract under present law provide that no 
     deduction is allowed for any interest paid or accrued on any 
     indebtedness with respect to one or more life insurance 
     policies owned by the taxpayer covering the life of any 
     individual who (1) is an officer or employee of, or (2) is 
     financially interested in, any trade or business carried on 
     by the taxpayer to the extent that the aggregate amount of 
     such debt with respect to policies covering the individual 
     exceeds $50,000 (sec. 264(a)(4)).
       Further, no deduction is allowed for any amount paid or 
     accrued on debt incurred or continued to purchase or carry a 
     life insurance, endowment or annuity contract pursuant to a 
     plan of purchase that contemplates the systematic direct or 
     indirect borrowing of part or all of the increases in the 
     cash value of the contract. 61 An exception to the 
     latter rule is provided, permitting deductibility of interest 
     on bona fide debt that is part of such a plan, if no part of 
     4 of the annual premiums due during the first 7 years is paid 
     by means of debt (the ``4-out-of-7 rule'') (sec. 264(c)(1)). 
     Provided the transaction gives rise to debt for Federal 
     income tax purposes, and provided the 4-out-of-7 rule is met, 
     62 a company may under present law borrow up to $50,000 
     per employee, officer, or financially interested person to 
     purchase or carry a life insurance contract covering such a 
     person, and is not precluded under section 264 from deducting 
     the interest on the debt, even though the earnings inside the 
     life insurance contract (inside buildup) are tax-free, and in 
     fact the taxpayer has full use of the borrowed funds.
     \61\ The statute provides that the $50,000 limitation applies 
     only with respect to contracts purchased after June 20, 1986. 
     However, additional limitations are imposed on the 
     deductibility of interest with respect to single premium 
     contracts (sec. 264(a)(2)), and on the deductibility of 
     premiums paid on a life insurance contract covering the life 
     of any officer or employee or person financially interested 
     in a trade or business of the taxpayer when the taxpayer is 
     directly or indirectly a beneficiary under the contract (sec. 
     264(a)(1)).
     \62\ Interest deductions are disallowed if any of the 
     disallowance rules of section 264(a)(2)-(4) apply. The 
     disallowance rule of section 264(a)(3) is not applicable if 
     one of the exceptions of section 264(c), such as the 4-out-
     of-7 rule (sec. 264(c)(1)) is satisfied. In addition to the 
     specific disallowance rules of section 264, generally 
     applicable principles of tax law apply.
---------------------------------------------------------------------------
       Under the House bill, no deduction is allowed for interest 
     paid or accrued on any indebtedness with respect to one or 
     more life insurance policies or annuity or endowment 
     contracts owned by the taxpayer covering any individual who 
     is (1) an officer or employee of, or (2) financially 
     interested in any trade or business carried on by the 
     taxpayer, regardless of the aggregate amount of debt with 
     respect to policies or contracts covering the individual. 
     63
     \63\ The provisions disallows the deduction for interest even 
     if the deduction would not be disallowed under any other 
     rule. Thus, for example, if a deduction would not be 
     disallowed under section 264(a)(3) because the 4-out-of-7 
     rule is met, this provision neverthesless disallows the 
     deduction.
---------------------------------------------------------------------------
       Effective date.--The provision is effective with respect to 
     interest paid or accrued after December 31, 1995 (subject to 
     the phase-in).
       The provision is phased in over a 4-year period. Under the 
     phase-in, a percentage of the interest deduction that would 
     otherwise be disallowed is nevertheless allowed. The interest 
     deduction allowed under the phase-in is for interest on debt 
     incurred before September 18, 1995, with respect to a life 
     insurance policy that was in effect on that date and that 
     covers only the individual who was insured under that policy 
     on that date. Only interest that would have been allowed as a 
     deduction but for the amendment made by the bill is allowed 
     under the phase-in.
       During the 4-year phase-in period, the percentage of the 
     deduction for interest that is disallowed for periods in 1996 
     is 20 percent; in 1997, 40 percent; in 1998, 60 percent; and 
     in 1999, 80 percent. No deduction for interest is allowed 
     under the phase-in after 1999. For taxpayers whose taxable 
     year is not the calendar year, interest accrued in the 
     portion of the taxable year that falls during any calendar 
     year in the 4-calendar-year phase-in period is allowed in 
     accordance with the percentage for that calendar year.
       The House bill provides a special 4-year income-spreading 
     rule for certain amounts received under a contract, interest 
     on debt under which was allowed as a deduction prior to 
     December 31, 1995, but is disallowed under the provision. The 
     4-year income-spreading rule applies for any amount that is 
     received under such a contract on the complete surrender, 
     redemption or maturity of the contract in 1996, or in full 
     discharge of the obligation under the contract that is in the 
     nature of a refund of the consideration paid for the contract 
     in 1996, to the extent the amount received is included in the 
     taxpayer's income for the taxable year in which such event 
     occurs. Under the special 4-year income-spreading rule, the 
     amount included in income upon any such event in 1996 is 
     includable ratably over the first four taxable years 
     beginning with the taxable year the amount would otherwise 
     have been includable. Utilization of this 4-year income-
     spreading rule does not cause interest paid or accrued prior 
     to January 1, 1996, to be nondeductible solely by reason of 
     failure to meet the 4-out-of-7 rule.
       The provision does not apply to interest on debt with 
     respect to contracts purchased on or before June 20, 1986 
     (thus continuing the effective date provision of the $50,000 
     limitation enacted in the 1986 Act). 64
     \64\ This rule has the same meaning under the House bill as 
     its meaning under the 1986 Act.
---------------------------------------------------------------------------
       No inference is intended as to the treatment of interest 
     paid or accrued under present law.
     Senate Amendment
       The Senate amendment is the same as the House bill, except 
     that the Senate amendment provides (1) an exception for key 
     person insurance, (2) different effective date rules, and (3) 
     a different phase-in rule.
       An exception is provided retaining present law for interest 
     on indebtedness with respect to life insurance policies 
     covering up to 25 key persons. A key person is an individual 
     who is either an officer or a 20-percent owner of the 
     taxpayer. The number of individuals that can be treated as 
     key persons may not exceed the greater of (1) five 
     individuals, or (2) the lesser of 5 percent of the total 
     number of officers and employees of the taxpayer, or 25 
     individuals. Interest paid or accrued on debt with respect to 
     a life insurance contract covering a key person is deductible 
     only to the extent the rate of interest does not exceed 
     Moody's Corporate Bond Yield Average--Monthly Average 
     Corporates for each month interest is paid or accrued.
       Effective date.--With respect to debt incurred after 
     December 31, 1995, no deduction is allowed for interest paid 
     or accrued after December 31, 1995, except with respect to 
     policies that satisfy the key person exception.
       A phase-in rule is provided under the Senate amendment. 
     With respect to debt incurred on or before December 31, 1995, 
     any otherwise deductible interest paid or accrued after 
     October 13, 1995, and before January 1, 2001, is allowed to 
     the extent the rate of interest does not exceed the lesser of 
     (1) the borrowing rate specified in the contract as of 
     October 13, 1995, or (2) a percentage of Moody's Corporate 
     Bond Yield Average--Monthly Average Corporates for each month 
     the interest is paid or accrued. For interest paid or accrued 
     after October 13, 1995, and before January 1, 1997, the 
     percentage of the Moody's rate is 100 percent; for interest 
     paid or accrued in 1997, the percentage is 95 percent; for 
     1998, the percentage is 90 percent; for 1999, the percentage 
     is 85 percent; for 2000, the percentage is 80 percent; and 
     for 2001 and 

[[Page H 12878]]
     thereafter, the percentage is 0 percent. Only interest that would have 
     been allowed as a deduction but for the amendment made by the 
     bill is allowed under the phase-in.
       Any amount included in income during 1996, 1997, 1998, 
     1999, 2000 or 2001, that is received under a contract 
     described in the proposal on the complete surrender, 
     redemption or maturity of the contract or in full discharge 
     of the obligation under the contract that is in the nature of 
     a refund of the consideration paid for the contract, is 
     includable ratably over the first four taxable years 
     beginning with the taxable year the amount would otherwise 
     have been includable. Utilization of this 4-year income-
     spreading rule does not cause interest paid or accrued prior 
     to January 1, 2001, to be nondeductible solely by reason of 
     failure to meet the 4- out-of-7 rule. Similarly, utilization 
     of this 4-year income-spreading rule does not cause interest 
     paid or accrued prior to January 1, 2001, to be nondeductible 
     solely by reason of causing the contract to be treated as a 
     single premium contract within the meaning of section 
     264(b)(1) (i.e., a contract in which substantially all of the 
     premiums are paid within 4 years after the date of purchase). 
     In addition, the lapse of a contract after October 13, 1995, 
     due to nonpayment of premiums, does not cause interest paid 
     or accrued prior to January 1, 2001, to be nondeductible 
     solely by reason of causing the contract to be treated as a 
     single premium contract within the meaning of section 
     264(b)(1) or by reason of failure to meet the 4-out-of-7 
     rule.
       In the case of an insurance company, the unamortized 
     balance of policy expenses attributable to a contract with 
     respect to which the 4-year income-spreading treatment is 
     allowed to the policyholder is deductible in the year in 
     which the transaction giving rise to income- spreading 
     occurs.
       The provision generally does not apply to interest on debt 
     with respect to contracts purchased on or before June 20, 
     1986 (thus continuing the effective date provision of the 
     $50,000 limitation enacted in the 1986 Act), except that 
     interest on such contracts paid or accrued after October 13, 
     1995, is allowable only to the extent the rate of interest 
     does not exceed Moody's Corporate Bond Yield Average--Monthly 
     Average Corporates for the month the interest is paid or 
     accrued.
       Under the Senate amendment, there is no inference as to the 
     tax treatment of interest paid or accrued under present law.
     Conference Agreement
       The conference agreement follows the Senate amendment, with 
     modifications.
       The conference agreement provides that, under the key 
     person exception, the number of individuals that can be 
     treated as key persons may not exceed the greater of (1) five 
     individuals, or (2) the lesser of 5 percent of the total 
     number of officers and employees of the taxpayer, or 10 
     individuals.
       The phase-in rule is modified under the conference 
     agreement. The conference agreement provides that with 
     respect to debt incurred on or before December 31, 1995, 
     65 any otherwise deductible interest paid or accrued 
     after October 13, 1995, and before January 1, 1999, is 
     allowed to the extent the rate of interest does not exceed 
     the lesser of (1) the borrowing rate specified in the 
     contract as of October 13, 1995, or (2) a percentage of 
     Moody's Corporate Bond Yield Average--Monthly Average 
     Corporates for each month the interest is paid or accrued. 
     Under the conference agreement, for interest paid or accrued 
     after October 13, 1995, and before January 1, 1996, the 
     percentage of the Moody's rate is 100 percent; for interest 
     paid or accrued in 1996, the percentage is 90 percent; for 
     interest paid or accrued in 1997, the percentage is 80 
     percent; for 1998, the percentage is 70 percent; for 1999 and 
     thereafter, the percentage is 0 percent. As under the Senate 
     amendment, only interest that would have been allowed as a 
     deduction but for the provision is allowed under the phase-
     in.
     \65\ The conference agreement provides an exception under the 
     effective date with respect to any life insurance contract 
     entered into in 1994 or 1995, as described below.
---------------------------------------------------------------------------
       The conference agreement further provides that during the 
     phase-in period, interest that is deductible does not include 
     interest on borrowings by the taxpayer with respect to 
     contracts on the lives of more than 20,000 insured 
     individuals, effective for interest paid or accrued after 
     December 31, 1995. For this purpose, all persons treated as a 
     single employer are treated as one taxpayer.
       The conference agreement provides an exception under the 
     effective date with respect to any life insurance contract 
     entered into during 1994 or 1995. In the case of such 
     contracts, with respect to debt incurred before January 1, 
     1997, no deduction is allowed for interest paid or accrued 
     after December 31, 1996, except with respect to policies that 
     satisfy the key person exception, and except as provided 
     under the phase-in rule. Thus, with respect to interest on 
     amounts borrowed during 1996 with respect to such a contract, 
     the phase-in rule applies, capping the rate for determining 
     the amount of deductible interest at the lesser of (1) the 
     borrowing rate specified in the contract as of October 13, 
     1995, or (2) the applicable percentage of Moody's Corporate 
     Bond Yield Average--Monthly Average Corporates for each month 
     the interest is paid or accrued. For example, for interest 
     paid or accrued in 1996 on amounts borrowed in 1996 with 
     respect to such a contract, the applicable percentage is 90 
     percent.
       Under the conference agreement, the provision generally 
     does not apply to interest on debt with respect to contracts 
     purchased on or before June 20, 1986 (thus continuing the 
     effective date provision of the $50,000 limitation enacted in 
     the 1986 Act). If such a contract provides for a fixed rate 
     of interest, then interest on such a contract paid or accrued 
     after October 13, 1995, is allowable only to the extent the 
     fixed rate of interest does not exceed Moody's Corporate Bond 
     Yield Average--Monthly Average Corporates for the month in 
     which the contract was purchased. If such a contract does not 
     provide for a fixed rate of interest, then interest on such a 
     contract paid or accrued after October 13, 1995, is allowable 
     only to the extent the rate of interest for each fixed period 
     selected by the taxpayer does not exceed Moody's Corporate 
     Bond Yield Average--Monthly Average Corporates, for the month 
     immediately preceding the beginning of the fixed period. 
     66 The fixed period must be 12 months or less.
     \66\ It is intended that conforming a contract to satisfy 
     this interest rate limitation not be treated as a material 
     modification for purposes of this grandfather rule or 
     sections 101(f), 7702 or 7702A. No inference is intended as 
     to whether such a change is a material modification.
---------------------------------------------------------------------------


     4. Phase-out preferential tax deferral for certain large farm 
  corporations required to use accrual accounting (sec. 13604 of the 
           House bill and sec. 12804 of the Senate amendment)

     Present Law
       A corporation (or a partnership with a corporate partner) 
     engaged in the trade or business of farming must use an 
     accrual method of accounting for such activities unless such 
     corporation (or partnership), for each prior taxable year 
     beginning after December 31, 1975, did not have gross 
     receipts exceeding $1 million. If a farm corporation is 
     required to change its method of accounting, the section 481 
     adjustment resulting from such change is included in gross 
     income ratably over a 10-year period, beginning with the year 
     of change. This rule does not apply to a family farm 
     corporation.
       A family corporation (or a partnership with a family 
     corporation as a partner) is required to use an accrual 
     method of accounting for its farming business unless, for 
     each prior taxable year beginning after December 31, 1985, 
     such corporation (and any predecessor corporation) did not 
     have gross receipts exceeding $25 million. A family 
     corporation is one where 50 percent or more of the stock of 
     the corporation is held by one (or in some limited cases, two 
     or three) families.
       A family farm corporation that must change to an accrual 
     method of accounting as a result of the 1987 Act provision is 
     to establish a suspense account in lieu of including the 
     entire amount of the section 481 adjustment in gross income. 
     The amount of the suspense account is required to be included 
     in gross income if the corporation ceases to be a family 
     corporation or to the extent the gross receipts of the 
     corporation declines.
     House Bill
       The House bill repeals the ability of a family farm 
     corporation to establish a suspense account when it is 
     required to change to an accrual method of accounting. Thus, 
     under the House bill, any family farm corporation required to 
     change to an accrual method of accounting would include in 
     gross income the section 481 adjustment applicable to the 
     change ratably over a 10-year period beginning with the year 
     of change. In addition, any taxpayer with an existing 
     suspense account is required to include the account in gross 
     income ratably over a 20-year period beginning in the first 
     taxable year beginning after September 13, 1995, subject to 
     the present-law requirements to include all or a portion of 
     the account in income more rapidly in certain circumstances.
       Effective date.--The provision is effective for taxable 
     years ending after September 13, 1995.
     Senate Amendment
       The Senate amendment is the same as the House bill.
     Conference Agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


5. phased-in repeal of section 936 credit (sec. 13605 of the house bill 
                and sec. 12805 of the senate amendment)

     Present Law
       Certain domestic corporations with business operations in 
     the U.S. possessions (including, for this purpose, Puerto 
     Rico and the U.S. Virgin Islands) may elect the section 936 
     credit which generally eliminates the U.S. tax on certain 
     income related to their operations in the possessions. In 
     contrast to the foreign tax credit, the possessions tax 
     credit is a ``tax sparing'' credit. That is, the credit is 
     granted whether or not the electing corporation pays income 
     tax to the possession. Income exempt from U.S. tax under this 
     provision falls into two broad categories: (1) possession 
     business income, which is derived from the active conduct of 
     a trade or business within a U.S. possession or from the sale 
     or exchange of substantially all of the assets that were used 
     in such a trade or business; and (2) qualified possession 
     source investment income (``QPSII''), which is attributable 
     to the investment in the possession or in certain Caribbean 
     Basin countries of funds derived from the active conduct of a 
     possession business.
       In order to qualify for the section 936 credit for a 
     taxable year, a domestic corporation 

[[Page H 12879]]
     must satisfy two conditions. First, the corporation must derive at 
     least 80 percent of its gross income for the three-year 
     period immediately preceding the close of the taxable year 
     from sources within a possession. Second, the corporation 
     must derive at least 75 percent of its gross income for that 
     same period from the active conduct of a possession business.
       A domestic corporation that has elected the section 936 
     credit and that satisfies these two conditions for a taxable 
     year generally is entitled to a credit equal to the U.S. tax 
     attributable to the sum of the taxpayer's possession business 
     income and its QPSII. However, the amount of the credit 
     attributable to possession business income is subject to the 
     limitations enacted by the Omnibus Budget Reconciliation Act 
     of 1993 (``1993 Act''). Under the economic activity limit, 
     the amount of the credit with respect to such income cannot 
     exceed the sum of a portion of the taxpayer's wage and fringe 
     benefit expenses and depreciation allowances (plus, in 
     certain cases, possession income taxes). In the alternative, 
     the taxpayer may elect to apply a limit equal to the 
     applicable percentage of the credit that would otherwise be 
     allowable with respect to possession business income; the 
     applicable percentage is phased down, beginning at 60 percent 
     for 1994 and reaching 40 percent for 1998 and thereafter. The 
     amount of the section 936 credit attributable to QPSII is not 
     subject to these limitations.
     House Bill
       The House bill generally repeals the section 936 credit for 
     taxable years beginning after December 31, 1995. However, a 
     corporation that is an existing credit claimant is eligible 
     to claim section 936 credits for an additional 10 years under 
     a grandfather rule.
       A corporation is an existing credit claimant if it claimed 
     the section 936 credit for any of its base period years (as 
     defined below). A corporation that adds a substantial new 
     line of business after September 13, 1995, ceases to be an 
     existing credit claimant as of the beginning of the taxable 
     year in which it adds such new line of business. A 
     corporation that is an existing credit claimant is eligible 
     to claim credits during the grandfather period with respect 
     to operations in any possession.
       The corporation's possession income eligible for the 
     section 936 credit for each year in the grandfather period is 
     subject to a cap computed based on the corporation's 
     possession income for the base period years (``average 
     adjusted base period possession income''). A corporation's 
     possession income equals the sum of its possession business 
     income and QPSII. Average adjusted base period possession 
     income is the average of the adjusted possession income for 
     each of the corporation's base period years. For purposes of 
     this computation, the possession income for each of the base 
     period years is adjusted by an inflation factor reflecting 
     inflation from such year to the year to which the cap is 
     being applied. In addition, as a proxy for real growth in 
     income throughout the base period, the inflation factor is 
     increased by 5 percentage points compounded for each year 
     from such year to the corporation's first taxable year 
     beginning on or after September 13, 1995.
       The corporation's base period years generally are 3 of the 
     corporation's 5 most recent taxable years ending before 
     September 13, 1995, determined by disregarding the years in 
     which such adjusted possession incomes were highest and 
     lowest. For this purpose, only years in which the corporation 
     had significant possession income are taken into account. A 
     corporation is considered to have significant possession 
     income for a taxable year if such income exceeds 2% of the 
     corporation's possession income for each of the 6 taxable 
     years ending with the first taxable year ending on or after 
     September 13, 1995. If the corporation has significant 
     possession income for only 4 of the 5 most recent taxable 
     years ending before September 13, 1995, then the base period 
     years are determined by disregarding the year in which the 
     corporation's possession income was lowest. If the 
     corporation has significant possession income for only 3 
     years or fewer of such 5 years, then the base period years 
     are all such years. If there is no year of such 5 years in 
     which the corporation has significant possession income, then 
     the corporation may use as its base period its first taxable 
     year ending on or after September 13, 1995; for this purpose, 
     the amount of possession income taken into account is the 
     annualized amount of such income for the portion of the year 
     ended August 31, 1995, adjusted for inflation. As an 
     alternative, a corporation may elect to use as its base 
     period its taxable year ending in 1992.
       If a corporation's possession income for a year during the 
     grandfather period exceeds its income cap, then the 
     corporation's possession income for purposes of computing its 
     section 936 credit is an amount equal to the cap. The 
     reduction in the corporation's income to the amount of the 
     cap is allocated between its possession business income and 
     its QPSII for the year to which the cap is being applied 
     based on the relative amounts of the corporation's possession 
     business income and QPSII for such year. In determining the 
     corporation's section 936 credit, the economic activity limit 
     or applicable percentage limit is applied to the 
     corporation's possession business income as reduced to 
     reflect the application of the cap.
       Effective date.--The provision in the House bill is 
     effective for taxable years beginning after December 31, 
     1995.
     Senate Amendment
       The Senate amendment also generally repeals the section 936 
     credit for taxable years beginning after December 31, 1995. 
     However, a corporation that is an existing credit claimant 
     with respect to a possession is eligible to claim section 936 
     credits for a transition period under a grandfather rule.
       A corporation is an existing credit claimant with respect 
     to a particular possession if it is engaged in the active 
     conduct of business in such possession on October 13, 1995, 
     and it has elected the benefits of section 936 for its 
     taxable year that includes such date. A corporation is 
     treated as engaged in the active conduct of a business on 
     such date if it is engaged in such active conduct before 
     January 1, 1996, and it has a binding contract with respect 
     to such business on October 13, 1995. A corporation that adds 
     a substantial new line of business after October 13, 1995, 
     ceases to be an existing credit claimant with respect to such 
     possession as of the beginning of the taxable year in which 
     it adds such new line of business. A corporation that is an 
     existing credit claimant with respect to a possession (or 
     possessions) is eligible to claim credits during the 
     grandfather period only with respect to operations in such 
     possession (or possessions).
       The length of the grandfather period depends upon the type 
     of income with respect to which the section 936 credit is 
     being claimed. The grandfather period for the section 936 
     credit attributable to business income is six years, with the 
     section 936 credit attributable to business income eliminated 
     for taxable years beginning after December 31, 2001. The 
     computation of the section 936 credit attributable to 
     possession business income during the grandfather period 
     depends upon whether the corporation has in effect an 
     election to use the applicable percentage limit. For 
     corporations using the economic activity limit, present law 
     continues to apply in computing the section 936 credit 
     attributable to possession business income throughout the 
     grandfather period. For corporations using the applicable 
     percentage limit, present law continues to apply in computing 
     the section 936 credit attributable to possession business 
     income through the taxable year beginning in 1998. For 
     taxable years beginning in 1999 through 2001, the section 936 
     credit attributable to possession business income (determined 
     under the applicable percentage limit) is limited to the 
     following percentage of the amount otherwise determined: for 
     1999, 75 percent; for 2000, 50 percent; and for 2001, 25 
     percent. A corporation that elected to use the applicable 
     percentage limit is permitted to revoke such election, 
     provided that the revocation is made not later than with 
     respect to the corporation's first taxable year beginning 
     after December 31, 1996.
       The grandfather period for the section 936 credit 
     attributable to QPSII is five years, with the section 936 
     credit attributable to QPSII eliminated for taxable years 
     beginning after December 31, 2000. For taxable years during 
     the grandfather period, the section 936 credit attributable 
     to QPSII is available only for income derived from a 
     qualifying asset (provided that such income would otherwise 
     qualify as QPSII under present law). A qualifying asset is an 
     asset held by the corporation on October 13, 1995, or an 
     asset that was purchased through the rollover of the proceeds 
     of such an asset or its successor assets. For taxable years 
     beginning in 1996 through 2000, income that would otherwise 
     qualify as QPSII and that is derived from a qualifying asset 
     is eligible for the section 936 credit attributable to QPSII 
     only through the date that the asset, if distributed, would 
     be eligible for the maximum reduction in local taxes (as 
     determined under local law in effect on October 13, 1995).
       Under the Senate amendment, a special grandfather rule 
     applies to corporations that are existing credit claimants 
     with respect to Guam, American Samoa or the Commonwealth of 
     the Northern Mariana Islands. A corporation that is an 
     existing credit claimant with respect to such a possession 
     continues to determine its section 936 credit with respect to 
     operations in such possession under present law for its 
     taxable years beginning before January 1, 2006.
       Effective date.--The provision in the Senate amendment is 
     effective on date of enactment.
     Conference Agreement
       The conference agreement follows the House bill and the 
     Senate amendment with modifications and clarifications. The 
     conference agreement generally repeals the section 936 credit 
     for taxable years beginning after December 31, 1995. However, 
     the conference agreement provides grandfather rules under 
     which a corporation that is an existing credit claimant is 
     eligible to claim section 936 credits for a transition 
     period. As under the Senate amendment, a special transition 
     rule applies to the section 936 credit attributable to 
     operations in Guam, American Samoa, and the Commonwealth of 
     the Northern Mariana Islands.
       For taxable years beginning after December 31, 1995, the 
     section 936 credit applies only to a corporation that 
     qualifies as an existing credit claimant (as defined below). 
     A corporation that is an existing credit claimant is subject 
     to the limitations described below in determining the section 
     936 credit for taxable years beginning after December 31, 
     1995.

[[Page H 12880]]

       The section 936 credit attributable to QPSII is eliminated 
     for taxable years beginning after December 31, 1995. For 
     taxable years beginning after December 31, 1995, the section 
     936 credit is available only with respect to possession 
     business income. The computation of the section 936 credit 
     attributable to possession business income during the 
     grandfather period depends upon whether the corporation is 
     using the economic activity limit or the applicable 
     percentage limit.
       For corporations that are existing credit claimants and 
     that use the economic activity limit, the section 936 credit 
     attributable to possession business income (determined under 
     the economic activity limit) continues to be determined as 
     under present law for taxable years beginning after December 
     31, 1995 and before January 1, 2002. For taxable years 
     beginning after December 31, 2001 and before January 1, 2006, 
     the corporation's possession business income that is eligible 
     for the section 936 credit is subject to a cap computed as 
     described below. For taxable years beginning in 2006 and 
     thereafter, the section 936 credit attributable to possession 
     business income (determined under the economic activity 
     limit) is eliminated.
       For corporations that are existing credit claimants and 
     that elected to use the applicable percentage limit and not 
     to use the economic activity limit, the section 936 credit 
     attributable to possession business income continues to be 
     determined as under present law for taxable years beginning 
     after December 31, 1995 and before January 1, 1998. For 
     taxable years beginning after December 31, 1997 and before 
     January 1, 2006, the corporation's possession business income 
     that is eligible for the section 936 credit is subject to a 
     cap computed as described below. For taxable years beginning 
     in 2006 and thereafter, the section 936 credit attributable 
     to possession business income (determined under the 
     applicable percentage limit) is eliminated.
       A corporation that had elected to use the applicable 
     percentage limit is permitted to revoke that election under 
     present law. Under the conference agreement, as under the 
     Senate amendment, such a revocation must be made not later 
     than with respect to the first taxable year beginning after 
     December 31, 1996; such revocation, if made, applies to such 
     taxable year and to all subsequent taxable years. 
     Accordingly, a corporation that had an election in effect to 
     use the applicable percentage limit could revoke such 
     election effective for its taxable year beginning in 1997 and 
     thereafter; such corporation would continue to use the 
     applicable percentage limit for its taxable year beginning in 
     1996 and would use the economic activity limit for its 
     taxable year beginning in 1997 and thereafter.
       The cap on a corporation's possession business income that 
     is eligible for the section 936 credit is computed based on 
     the corporation's possession business income for the base 
     period years (``average adjusted base period possession 
     business income''). Average adjusted base period possession 
     business income is the average of the adjusted possession 
     business income for each of the corporation's base period 
     years. For the purpose of this computation, the corporation's 
     possession business income for a base period year is adjusted 
     by an inflation factor that reflects inflation from such year 
     to 1995. In addition, as a proxy for real growth in income 
     throughout the base period, the inflation factor is increased 
     by 5 percentage points compounded for each year from such 
     year to the corporation's first taxable year beginning on or 
     after October 14, 1995.
       The corporation's base period years generally are three of 
     the corporation's five most recent years ending before 
     October 14, 1995, determined by disregarding the taxable 
     years in which the adjusted possession business incomes were 
     highest and lowest. For purposes of this computation, only 
     years in which the corporation had significant possession 
     business income are taken into account. A corporation is 
     considered to have significant possession business income for 
     a taxable year if such income exceeds 2 percent of the 
     corporation's possession business income for the each of the 
     six taxable years ending with the first taxable year ending 
     on or after October 14, 1995. If the corporation has 
     significant possession business income for only four of the 
     five most recent taxable years ending before October 14, 
     1995, the base period years are determined by disregarding 
     the year in which the corporation's possession business 
     income was lowest. If the corporation has significant 
     possession business income for three years or fewer of such 
     five years, then the base period years are all such years. If 
     there is no year of such five taxable years in which the 
     corporation has significant possession business income, then 
     the corporation may use as its base period its first taxable 
     year ending on or after October 14, 1995; for this purpose, 
     the amount of possession business income taken into account 
     would be the annualized amount of such income for the portion 
     of the year ended September 30, 1995.
       As one alternative, the corporation may elect to use its 
     taxable year ending in 1992 as its base period (with the 
     adjusted possession business income for such year 
     constituting its cap). As another alternative, the 
     corporation may elect to use as its cap the annualized amount 
     of its possession business income for the first ten months of 
     calendar year 1995, calculated by excluding any extraordinary 
     items (as determined under generally accepted accounting 
     principles) for such period. For this purpose, the conferees 
     intend that transactions with a related party that are not in 
     the ordinary course of business will be considered to be 
     extraordinary items.
       If a corporation's possession business income in a year for 
     which the cap is applicable exceeds the cap, then the 
     corporation's possession business income for purposes of 
     computing its section 936 credit for the year is an amount 
     equal to the cap. The corporation's section 936 credit 
     continues to be subject to either the economic activity limit 
     or the applicable percentage limit, with such limit applied 
     to the corporation's possession business income as reduced to 
     reflect the application of the cap.
       A corporation is an existing credit claimant if (1) the 
     corporation is engaged in the active conduct of a trade or 
     business within a possession on October 13, 1995, and (2) the 
     corporation has elected the benefits of section 936 pursuant 
     to an election which is in effect for its taxable year that 
     includes October 13, 1995. A corporation that adds a 
     substantial new line of business after October 13, 1995, 
     ceases to be an existing credit claimant as of the beginning 
     of the taxable year during which such new line of business is 
     added.
       For purposes of these rules, a corporation is treated as 
     engaged in the active conduct of a trade or business within a 
     possession on October 13, 1995, if such corporation is 
     engaged in the active conduct of such trade or business 
     before January 1, 1996, and such corporation has in effect on 
     October 13, 1995, a binding contract for the acquisition of 
     assets to be used in, or the sale of property to be produced 
     in, such trade or business. For example, if a corporation has 
     in effect on October 13, 1995, binding contracts for the 
     lease of a facility and the purchase of machinery to be used 
     in a manufacturing business in a possession and if the 
     corporation begins actively conducting that manufacturing 
     business in the possession before January 1, 1996, that 
     corporation is an existing credit claimant. A change in the 
     ownership of a corporation will not affect its status as an 
     existing credit claimant.
       In determining whether a corporation has added a 
     substantial new line of business, the conferees intend that 
     principles similar to those reflected in Treas. Reg. section 
     1.7704-2(d) (relating to the transition rules for existing 
     publicly traded partnerships) will apply. For example, a 
     corporation that modifies its current production methods, 
     expands existing facilities, or adds new facilities to 
     support the production of its current product lines and 
     products within the same four-digit Industry Number Standard 
     Industrial Classification Code (Industry SIC Code) will not 
     be considered to have added a substantial new line of 
     business. In this regard, the conferees intend that the fact 
     that a business which is added is assigned a different four-
     digit Industry SIC Code than is assigned to an existing 
     business of the corporation will not automatically cause the 
     corporation to be considered to have added a new line of 
     business. For example, a pharmaceutical corporation that 
     begins manufacturing a new drug will not be considered to 
     have added a new line of business. Moreover, a pharmaceutical 
     corporation that begins to manufacture a complete product 
     from the bulk active chemical through the finished dosage 
     form, a process that may be assigned two separate four-digit 
     Industry SIC Codes, will not be considered to have added a 
     new line of business even though it was previously engaged in 
     activities that involved only a portion of the entire 
     manufacturing process from bulk chemicals to finished 
     dosages.
       A special transition rule applies to the section 936 credit 
     with respect to operations in Guam, American Samoa, and the 
     Commonwealth of the Northern Mariana Islands. Income 
     attributable to operations in these possessions is not taken 
     into account in computing the income cap described above. A 
     corporation is considered to be an existing credit claimant 
     with respect to one of these possessions if the corporation 
     is an existing credit claimant and is engaged in the active 
     conduct of a trade or business within such possession on 
     October 13, 1995 (or is treated as so engaged under the 
     binding contract rule described above). For any taxable year 
     beginning after December 31, 1995, a corporation that is not 
     an existing credit claimant with respect to one of these 
     possessions for such year is not entitled to the section 936 
     credit with respect to operations in such possession. For any 
     taxable year beginning after December 31, 1995, and before 
     January 1, 2006, a corporation that is an existing credit 
     claimant with respect to one of these possessions for such 
     year continues to determine its section 936 credit with 
     respect to operations in such possession as under present 
     law. For taxable years beginning in 2006 and thereafter, the 
     section 936 credit with respect to operations in Guam, 
     American Samoa, and the Commonwealth of the Northern Mariana 
     Islands is eliminated.


 6. corporate accounting--reform of income forecast method (sec. 13604 
       of the house bill and sec. 12806 of the senate amendment)

     Present Law
       A taxpayer generally must capitalize the cost of property 
     used in a trade or business and recover such cost over time 
     through allowances for depreciation or amortization. The cost 
     of a film, video tape, or similar property that is produced 
     by the taxpayer or is acquired on a ``stand-alone'' basis by 
     the taxpayer may not be recovered pursuant to either the 
     general depreciation provisions of section 168 or the 
     intangible amortization 

[[Page H 12881]]
     provisions of section 197. The cost of such property may be depreciated 
     under the ``income forecast'' method. The income forecast 
     method also has been held to be applicable for computing 
     depreciation deductions for television shows, books, patents, 
     master sound recordings and video games.
       Under the income forecast method, the depreciation 
     deduction for a taxable year for a property is determined by 
     multiplying the cost of the property (less estimated salvage 
     value) by a fraction, the numerator of which is the income 
     generated by the property during the year and the denominator 
     of which is the total forecasted or estimated income to be 
     derived from the property during its useful life. The total 
     forecasted or estimated income to be derived from a property 
     is to be based on the conditions known to exist at the end of 
     the period for which depreciation is claimed. This estimate 
     can be revised upward or downward at the end of a subsequent 
     taxable period based on additional information that becomes 
     available after the last prior estimate. These revisions, 
     however, do not affect the amount of depreciation claimed in 
     a prior taxable year.
       In the case of a film, income to be taken into account 
     under the income forecast method means income from the film 
     less the expense of distributing the film, including 
     estimated income from foreign distribution or other 
     exploitation of the film. In the case of a motion picture 
     released for theatrical exhibition, income does not include 
     estimated income from future television exhibition of the 
     film (unless an arrangement for domestic television 
     exhibition has been entered into before the film has been 
     depreciated to its reasonable salvage value). In the case of 
     a series or a motion picture produced for television 
     exhibition, income does not include estimated income from 
     domestic syndication of the series or the film (unless an 
     arrangement for syndication has been entered into before the 
     series or film has been depreciated to its reasonable salvage 
     value). The Internal Revenue Service also has ruled that 
     income does not include net merchandising revenue received 
     from the exploitation of film characters.
     House Bill
       The House bill makes several amendments to the income 
     forecast method of determining depreciation deductions.
       First, the House bill provides that income to be taken into 
     account under the income forecast method includes all 
     estimated income derived from use of the property. In the 
     case of a film, television show, or similar property, such 
     income includes, but would not necessarily be limited to, 
     income from foreign and domestic theatrical, television, and 
     other releases and syndications; video tape releases, sales, 
     rentals, and syndications; and the exploitation of film or 
     program characters, prints, scripts, and scores. Pursuant to 
     a special rule, if a taxpayer produces a television series 
     and initially does not anticipate syndicating the episodes 
     from the series, the forecasted income for the episodes of 
     the first three years of the series need not take into 
     account any future syndication fees (unless the taxpayer 
     reasonably anticipates syndicating such episodes during such 
     period).
       In addition, the cost of property subject to depreciation 
     only includes amounts that satisfy the economic performance 
     standard of section 461(h). Any costs that are taken into 
     account after the property is placed in service are treated 
     as a separate piece of property to the extent (1) such 
     amounts are significant and are expected to give rise to a 
     significant increase in the income from the property that was 
     not included in the estimated income from the property, or 
     (2) such costs are incurred more than 10 years after the 
     property was placed in service. Except as provided in 
     regulations, any costs that are not recovered by the end of 
     the tenth taxable year after the property was placed in 
     service may be taken into account as depreciation in such 
     year.
       Further, taxpayers that claim depreciation deductions under 
     the income forecast method are required to pay (or would 
     receive) interest based on the recalculation of deprecation 
     under a ``look-back'' method. The ``look-back'' method is 
     applied in any ``recomputation year'' by: (1) comparing 
     depreciation deductions that had been claimed in prior 
     periods to depreciation deductions that would have been 
     claimed had the taxpayer used actual, rather than estimated, 
     total income from the property; (2) determining the 
     hypothetical overpayment or underpayment of tax based on this 
     recalculated depreciation; and (3) applying the overpayment 
     rate of section 6621. Except as provided in regulations, a 
     ``recomputation year'' would be the third and tenth taxable 
     year after the taxable year the property was placed in 
     service unless the actual income from the property for each 
     taxable year ending with or before the close of such years 
     was within 10 percent of the estimated income from the 
     property for such years. The Secretary of the Treasury has 
     the authority to allow a taxpayer to delay the initial 
     application of the look-back method where the taxpayer may be 
     expected to have significant income from the property after 
     the third taxable year after the taxable year the property 
     was placed in service (e.g., the Treasury Secretary may 
     exercise such authority where the depreciable life of the 
     property is expected to be longer than three years). In 
     applying the look-back method, any cost that is taken into 
     account after the property was placed in service may be taken 
     into account by discounting (using the Federal mid-term rate 
     determined under sec. 1274(d) as of the time the costs were 
     taken into account) such cost to its value as of the date the 
     property was placed in service. Property with an adjusted 
     basis of $100,000 or less when the property was placed in 
     service is not subject to the look-back method.
       Effective date.--The provision is effective for property 
     placed in service after September 13, 1995, unless placed in 
     service pursuant to a binding written contract in effect 
     before such date and all times thereafter.
     Senate amendment
       The Senate amendment follows the House bill, with certain 
     modifications.
       First, the Senate amendment provides that estimated income 
     to be taken into account under the income forecast method 
     includes all income earned in connection with the property 
     before the close of the tenth taxable year following the 
     taxable year in which the property was placed in service. 
     This 11-year rule also will apply for purposes of the look-
     back method.
       Second, income from the exploitation of characters is 
     expected to be limited to income from licensing and similar 
     agreements with third parties and sales of tangible property 
     incorporating such characters.
       Third, the special rule that applies to the syndication of 
     a television series will apply such that the forecasted 
     income for the episodes of the first three years of the 
     series need not take into account any future syndication fees 
     (unless the taxpayer has an arrangement to syndicate such 
     episodes during such period).
       Fourth, the Senate amendment clarifies the application of 
     the economic performance standard of section 461(h).
       Effective date.--Same as the House bill.
     Conference agreement
       The conference agreement follows the Senate amendment, with 
     the following modifications.
       The conference agreement provides that estimated income to 
     be taken into account under the income forecast method 
     includes all income earned before the close of the tenth 
     taxable year following the taxable year in which the property 
     was placed in service in connection with the ultimate use of 
     the property by, or the ultimate sale of merchandise to, 
     unrelated parties (as defined in sec. 267(b)). This rule also 
     will apply for purposes of the look-back method. The 
     conferees wish to clarify that the Secretary of the 
     Treasuryhas the authority to issue regulations that provide 
     anti-abuse rules to address the improper timing of earnings.
       The conferees also wish to clarify that income earned by a 
     taxpayer in connection with a property subject to the income 
     forecast method does not include income earned from a related 
     party. However, certain income earned by the related party 
     from unrelated persons in connection with the property must 
     be taken into account by the taxpayer. For example, if a 
     taxpayer licenses the use of property subject to the income 
     forecast method to a member of the taxpayer's affiliated 
     group and such member sublicenses similar rights to an 
     unrelated third party, the licensing agreement between the 
     affiliated members would be ignored, and the sublicensing 
     agreement with the unrelated third party would be taken into 
     account, for purposes of the applying the income forecast 
     method to the taxpayer's property. In addition, the conferees 
     wish to clarify that, for purposes of the income forecast 
     method, the Secretary of the Treasury has the authority to 
     allocate properly income under section 482 or any other 
     applicable present-law provision with respect to agreements, 
     arrangements, or transactions between the taxpayer and any 
     other related parties.
       Further, the conferees wish to clarify that in applying the 
     economic performance rules of section 461(h) in determining 
     the cost of property subject to the income forecast method, 
     the recurring item exception of section 461(h)(3) shall apply 
     in a manner similar to the way such exception applies under 
     present law. Thus, expenditures that relate to an item of 
     property that are incurred in the taxable year following the 
     taxable year in which the property is placed in service may 
     be taken into account in the year the property is placed in 
     service to the extent such expenditures meet the recurring 
     item exception for such year.


     7. Repeal 50-percent interest income exclusion for financial 
    institution loans to ESOPs (sec. 12807 of the Senate amendment)

     Present law
       A bank, insurance company, regulated investment company, or 
     a corporation actively engaged in the business of lending 
     money may generally exclude from gross income 50 percent of 
     interest received on an ESOP loan (sec. 133). The 50-percent 
     interest exclusion only applies if: (1) immediately after the 
     acquisition of securities with the loan proceeds, the ESOP 
     owns more than 50 percent of the outstanding stock or more 
     than 50 percent of the total value of all outstanding stock 
     of the corporation; (2) the ESOP loan term will not exceed 15 
     years; and (3) the ESOP provides for full pass-through voting 
     to participants on all allocated shares acquired or 
     transferred in connection with the loan.
     House bill
       No provision.

[[Page H 12882]]

     Senate amendment
       The Senate amendment repeals the 50-percent interest 
     exclusion with respect to ESOP loans.
       Effective date.--The provision generally is effective with 
     respect to loans made after October 13, 1995. The repeal of 
     the 50-percent interest exclusion does not apply to the 
     refinancing of an ESOP loan originally made on or before 
     October 13, 1995, provided: (1) such refinancing loan 
     otherwise meets the requirements of section 133 in effect on 
     or before October 13, 1995; (2) the outstanding principal 
     amount of the loan is not increased; and (3) the term of the 
     refinancing loan does not extend beyond the term of the 
     original ESOP loan.
     Conference agreement
       The conference agreement follows the Senate amendment.


     8. Corporate pension transfers (sec. 13607 of the House bill)

     Present law
       In general
       Under present law, defined benefit pension plan assets 
     generally may not revert to an employer prior to the 
     termination of the plan and the satisfaction of all plan 
     liabilities. Any assets that revert to the employer upon such 
     termination are includible in the gross income of the 
     employer and subject to an excise tax. The rate of the excise 
     tax generally is 20 percent and is increased to 50 percent 
     unless the employer maintains a replacement plan or makes 
     certain benefit increases in connection with the plan 
     termination.
       Transfers from ongoing plans
       Under section 420 of the Code and under the Employee 
     Retirement Income Security Act of 1974, as amended 
     (``ERISA'') , employers may transfer excess assets in an 
     overfunded defined benefit pension plan (other than a 
     multiemployer plan) to pay certain retiree health 
     liabilities. The assets transferred are not includible in the 
     gross income of the employer and are not subject to the 
     excise tax on reversions. The employer is not entitled to 
     deduct retiree health benefits paid with transferred assets. 
     Any transferred amounts not used for retiree health benefits 
     for the year of transfer are required to be returned to the 
     pension plan (with earnings). Returned amounts are not 
     includible in income and are subject to the 20-percent excise 
     tax.
       Transfer requirements
       A section 420 transfer is subject to a vesting requirement, 
     an asset cushion requirement, and a notice requirement.
           Vesting requirement
       Under the vesting requirement, the accrued retirement 
     benefits of plan participants (including participants who 
     separated from service during the 1-year period ending on the 
     date of transfer) must be nonforfeitable as if the plan 
     terminated immediately before the transfer.
           Asset cushion requirement
       Under the asset cushion requirement, excess assets are 
     defined to be the excess of the value of plan assets over the 
     greater of (1) the plan's full funding limit, or (2) 125 
     percent of current liability. Excess assets are determined as 
     of the most recent plan valuation date preceding the 
     transfer. Thus, a transfer can only be made from a plan that 
     is at least at the full funding limit and to which deductible 
     employer contributions can no longer be made.
           Notice requirement
       An employer is required to notify plan participants 60 days 
     before a transfer occurs.
       Expiration of provision
       Section 420 was originally adopted for a 5-year period, 
     through 1995. It was extended in the implementing legislation 
     for the General Agreement on Tariffs and Trade (``GATT'') for 
     an additional 5 years, through 2000.
     House bill
       Transfers from ongoing plans
       Under the House bill, section 420 is expanded to permit a 
     qualified transfer of excess assets from a defined benefit 
     pension plan (other than a multiemployer plan) to the 
     employer, without limitation on the use of the excess assets. 
     Amounts transferred are includible in the gross income of the 
     employer and generally subject to a 6.5 percent excise tax. 
     No excise tax applies in the case of transfers occurring 
     before July 1, 1996.
       Transfer requirements
           Vesting requirement
       Same as present law.
           Asset cushion requirement
       Same as present law, except that excess assets are 
     determined as of whichever of the following dates results in 
     a lower value of excess assets: (1) January 1, 1995, or the 
     last plan valuation date preceding January 1, 1995, or (2) 
     the most recent plan valuation date preceding the transfer.
           Notice requirement
       Same as present law.
       Expiration of provision
       Same as present law.
       Effective date
       January 1, 1995.
     Senate amendment
       No provision. (However, the Senate Finance Committee 
     adopted a proposal similar to, but more limited than, the 
     House bill. Under that proposal, transfers of excess pension 
     assets could have been made to pay for qualified retirement 
     benefits, accident and health benefits, disability benefits, 
     educational assistance, and dependent care assistance (i.e., 
     broad-based ERISA-covered plans). The amount transferred 
     would have been includible in the gross income of the 
     employer. No excise tax would have applied. The present-law 
     asset cushion would have applied. The proposal would have 
     been effective with respect to amounts transferred on or 
     after the date of enactment in taxable years beginning before 
     January 1, 2002. The proposal was deleted by a Senate floor 
     amendment.)
     Conference agreement
       In general
       The conference agreement follows the House bill, with 
     several modifications. Under the conference agreement, 
     section 420 is expanded to permit a transfer of excess assets 
     from a defined benefit pension plan (other than a 
     multiemployer plan) to pay for certain employee benefits that 
     are provided to a broad group of employees and regulated 
     under ERISA and the Internal Revenue Code. The amount 
     transferred is includible in the gross income of the 
     employer, but is not subject to the excise tax on reversions. 
     The conference agreement modifies the definition of excess 
     assets, both for purposes of transfers under present-law 
     section 420, as well as for purposes of the transfers allowed 
     under the provision. The conference agreement also provides 
     that an employer cannot make a transfer under the provision 
     or present law if the employer has filed or has had filed 
     against it (as of the date of transfer) a petition seeking 
     liquidation in bankruptcy under title 11 of the U.S. Code, or 
     under similar State or Federal law. The modifications to 
     section 420 are not intended to affect the ability under 
     present law to transfer assets within a defined benefit 
     pension plan under section 414(k).
       Transfer requirements
           Vesting requirement
       Same as the House bill.
           Asset cushion requirement
        The conference agreement modifies the asset cushion 
     requirement both with respect to transfers under present-law 
     section 420, as well as with respect to the expanded 
     transfers under the provision. Under the provision, excess 
     assets are defined as the excess of the value of plan assets 
     over the greater of (1) 125 percent of termination liability, 
     or (2) the plan's accrued liability. Accrued liability is 
     determined as under the full-funding limitation (without 
     regard to the 150 percent of current liability cap). 
     Termination liability is generally defined as under section 
     414(l) of the Code. However, for this purpose, the actuarial 
     assumptions used are those used by the Pension Benefit 
     Guaranty Corporation (``PBGC'') for single-employer plan 
     termination purposes under title IV of ERISA. It is expected 
     that the PBGC will continue to calculate its termination 
     liability assumptions under its current methodology. Excess 
     assets are determined as of the date of transfer.
           Notice requirement
       Same as present law.
           Use of excess assets
       The total amount of excess pension assets which can be 
     transferred during any year cannot exceed the amount the 
     employer would be able to deduct for the year of transfer 
     (determined on a controlled group basis) for qualified 
     employee benefits. Qualified employee benefits are defined as 
     qualified retirement plan benefits, accident and health 
     benefits, disability benefits, educational assistance, and 
     dependent care assistance. For example, under the conference 
     agreement, excess pension assets can be transferred from an 
     overfunded pension plan maintained by an employer to an 
     underfunded pension plan maintained by the same employer.
       Transferred amounts (and income thereon) that are not used 
     to pay for qualified employee benefits for the year of 
     transfer must be returned to the pension plan. Income on 
     returned amounts is calculated using the short-term 
     applicable Federal rate. Amounts returned are not includible 
     in the gross income of the employer, but are subject to the 
     20-percent excise tax on reversions. No deduction is allowed 
     with respect to returned amounts (and income thereon).
       Expiration of provision
       Transfers for qualified employee benefits cannot be made in 
     taxable years beginning after December 31, 2001.
       Effective date
       The provision is effective with respect to transfers on and 
     after the date of enactment, except that the changes with 
     respect to transfers under present-law section 420 are 
     effective with respect to transfers occurring after December 
     31, 1995.


 9. Modify exclusion of damages received on account of personal injury 
or sickness (sec. 13611 of the House bill and sec. 12811 of the Senate 
                               amendment)

     Present law
       Under present law, gross income does not include any 
     damages received (whether by suit or agreement and whether as 
     lump sums or as periodic payments) on account of personal 
     injury or sickness (sec. 104(a)(2)).
       The exclusion from gross income of damages received on 
     account of personal injury or sickness specifically does not 
     apply to punitive damages received in connection with a case 
     not involving physical injury or sickness. Courts presently 
     differ as to whether 

[[Page H 12883]]
     the exclusion applies to punitive damages received in connection with a 
     case involving a physical injury or physical sickness. 
     Certain States provide that, in the case of claims under a 
     wrongful death statute, only punitive damages may be awarded.
       Courts have interpreted the exclusion from gross income of 
     damages received on account of personal injury or sickness 
     broadly in some cases to cover awards for personal injury 
     that do not relate to a physical injury or sickness. For 
     example, some courts have held that the exclusion applies to 
     damages in cases involving certain forms of employment 
     discrimination and injury to reputation where there is no 
     physical injury or sickness. The damages received in these 
     cases generally consist of back pay and other awards intended 
     to compensate the claimant for lost wages or lost profits. 
     The Supreme Court recently held that damages received based 
     on a claim under the Age Discrimination in Employment Act 
     could not be excluded from income.67 In light of the 
     Supreme Court decision, the Internal Revenue Service has 
     suspended existing guidance on the tax treatment of damages 
     received on account of other forms of employment 
     discrimination.
     \67\ Schleier v. Commissioner, 115 S. Ct. 2159 (1995).
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     House bill
       Include in income all punitive damages
       The House bill provides that the exclusion from gross 
     income does not apply to any punitive damages received on 
     account of personal injury or sickness whether or not related 
     to a physical injury or physical sickness. The House bill 
     intends no inference as to the application of the exclusion 
     to punitive damages received prior to the effective date of 
     the bill in connection with a case involving a physical 
     injury or physical sickness.
       Include in income damage recoveries for nonphysical 
           injuries
       The House bill provides that the exclusion from gross 
     income only applies to damages received on account of a 
     personal physical injury or physical sickness. If an action 
     has its origin in a physical injury or physical sickness, 
     then all damages (other than punitive damages) that flow 
     therefrom are treated as payments received on account of 
     physical injury or physical sickness whether or not the 
     recipient of the damages is the injured party. For example, 
     damages (other than punitive damages) received by an 
     individual on account of a claim for loss of consortium due 
     to the physical injury or physical sickness of such 
     individual's spouse are excludable from gross income. In 
     addition, damages (other than punitive damages) received on 
     account of a claim of wrongful death continue to be 
     excludable from taxable income as under present law.
       The House bill also specifically provides that emotional 
     distress is not considered a physical injury or physical 
     sickness. Thus, the exclusion from gross income does not 
     apply to any damages received (other than for medical 
     expenses as discussed below) based on a claim of employment 
     discrimination or injury to reputation accompanied by a claim 
     of emotional distress. Because all damages received on 
     account of physical injury or physical sickness are 
     excludable from gross income, the exclusion from gross income 
     does apply to any damages received based on a claim of 
     emotional distress that is attributable to a physical injury 
     or physical sickness. In addition, the exclusion from gross 
     income specifically does apply to the amount of damages 
     received that is not in excess of the amount paid for medical 
     care attributable to emotional distress.
       Effective date.--The provisions generally are effective 
     with respect to amounts received after December 31, 1995. The 
     provisions do not apply to amounts received under a written 
     binding agreement, court decree, or mediation award in effect 
     on (or issued on or before) September 13, 1995.
     Senate amendment
       Same as the House bill, except that the exclusion from 
     gross income applies to punitive damages received in a 
     wrongful death action, provided that the applicable State law 
     (as in effect on September 13, 1995 without regard to 
     subsequent modification) provides, or has been construed to 
     provide by a court decision issued on or before such date, 
     that only punitive damages may be awarded in a wrongful death 
     action.
     Conference agreement
       The conference agreement follows the Senate amendment, 
     except the conference agreement clarifies that the special 
     rule contained in the Senate amendment pertaining to punitive 
     damages received in a wrongful death action only applies if 
     the punitive damages received would have been excludable from 
     gross income under the law in effect before February 1, 1996.


10. Reporting of certain payments made to attorneys (sec. 13612 of the 
           House bill and sec. 12812 of the Senate amendment)

     Present law
       Information reporting is required by persons engaged in a 
     trade or business and making payments in the course of that 
     trade or business of ``rent, salaries, wages, . . . or other 
     fixed or determinable gains, profits, and income'' (Code sec. 
     6041(a)). Treas. Reg. sec. 1.6041-1(d)(2) provides that 
     attorney's fees are required to be reported if they are paid 
     by a person in a trade or business in the course of a trade 
     or business. Reporting is required to be done on Form 1099-
     Misc. If, on the other hand, the payment is a gross amount 
     and it is not known what portion is the attorney's fee, no 
     reporting is required on any portion of the payment.
     House bill
       The House bill requires gross proceeds reporting on all 
     payments to attorneys made by a trade or business in the 
     course of that trade or business. It is anticipated that 
     gross proceeds reporting would be required on Form 1099-B 
     (currently used by brokers to report gross proceeds). The 
     only exception to this new reporting requirement is for any 
     payments reported on either Form 1099-Misc under section 6041 
     (reports of payment of income) or on Form W-2 under section 
     6051 (payments of wages).
       In addition, the present exception in the regulations 
     exempting from reporting any payments made to corporations 
     will not apply to payments made to attorneys. Treas. Reg. 
     sec. 1.6041-3(c) exempts payments to corporations generally 
     (although payments to most corporations providing medical 
     services must be reported). Reporting is required under both 
     Code sections 6041 and 6045 (as proposed) for payments to 
     corporations that provide legal services. The exception of 
     Treas. Reg. sec. 1.6041-3(g) exempting from reporting 
     payments of salaries or profits paid or distributed by a 
     partnership to the individual partners will continue to apply 
     to both sections (since these amounts are required to 
     reported on Form K-1).
       Effective date.--The provision is effective for payments 
     made after December 31, 1995. Consequently, the first 
     information reports will be filed with the IRS (and copies 
     will be provided to recipients of the payments) in 1997, with 
     respect to payments made in 1996.
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment, with several clarifications. First, the 
     conferees clarify that the provision applies to payments made 
     to attorneys regardless of whether the attorney is the 
     exclusive payee. Second, the conferees clarify that payments 
     to law firms are payments to attorneys, and therefore are 
     subject to this reporting provision. Third, the conferees 
     clarify that attorneys must promptly supply their TINs to 
     persons required to file these information reports, pursuant 
     to section 6109. Failure to do so could result in the 
     attorney being subject to penalty under section 6723 and the 
     payments being subject to backup withholding under section 
     3406. Fourth, the conferees clarify their intent that the IRS 
     administer this provision so that there is no overlap between 
     reporting under section 6041 and reporting under section 
     6045. For example, if two payments are simultaneously made to 
     an attorney, one of which represents the attorney's fee and 
     the second of which represents the settlement with the 
     attorney's client, the first payment will be reported under 
     section 6041 and the second payment will not be reported 
     under either section 6041 or section 6045, since it is known 
     that the entire payment represents the settlement with the 
     client (and therefore no portion of it represents income to 
     the attorney).
       Effective date.--The provision is effective for payments 
     made after December 31, 1996. Consequently, the first 
     information reports will be filed with the IRS (and copies 
     will be provided to recipients of the payments) in 1998, with 
     respect to payments made in 1997.


 11. Expatriation tax provisions (secs. 13616-13618 of the House bill 
             and secs. 12441-12442 of the Senate amendment)

     Present law
       Individuals who relinquish U.S. citizenship with a 
     principal purpose of avoiding U.S. taxes are subject to 
     special tax provisions for 10 years after expatriation. The 
     determination of who is a U.S. citizen for tax purposes, and 
     when such citizenship is lost, is governed by the provisions 
     of the Immigration and Nationality Act, 8 U.S.C. section 
     1401, et. seq.
       An individual who relinquishes his U.S. citizenship with a 
     principal purpose of avoiding U.S. taxes is subject to tax on 
     his or her U.S. source income at the rates applicable to U.S. 
     citizens, rather than the rates applicable to other non-
     resident aliens, for 10 years after expatriation. In 
     addition, the scope of items treated as U.S. source income 
     for this purpose is broader than those items generally 
     considered to be U.S. source income. For example, gains on 
     the sale of personal property located in the United States 
     and gains on the sale or exchange of stock or securities 
     issued by U.S. persons are treated as U.S. source income. 
     This alternative method of income taxation applies only if it 
     results in a higher U.S. tax liability.
       Rules applicable in the estate and gift tax contexts expand 
     the categories of items that are subject to the gift and 
     estate taxes in the case of a U.S. citizen who relinquished 
     citizenship with a principal purpose of avoiding U.S. taxes 
     within the 10-year period ending on the date of the transfer. 
     For example, U.S. property held through a foreign corporation 
     controlled by such individual and related persons is included 
     in his or her estate and gifts of U.S.-situs intangible 
     property by such individual are subject to the gift tax.
     House bill
       Overview
       The House bill expands and substantially strengthens in 
     several ways the present-law provisions that subject U.S. 
     citizens who lose 

[[Page H 12884]]
     their citizenship for tax avoidance purposes to special tax rules for 
     10 years after such loss of citizenship (secs. 877, 2107, and 
     2501(a)(3)). First, the House bill extends the expatriation 
     tax provisions to apply not only to U.S. citizens who lose 
     their citizenship but also to certain long-term residents of 
     the United States whose U.S. residency is terminated. Second, 
     the House bill subjects certain individuals to the 
     expatriation tax provisions without inquiry as to their 
     motive for losing their U.S. citizenship or residency, but 
     allows certain categories of citizens to show an absence of 
     tax-avoidance motives if they request a ruling from the 
     Secretary of the Treasury as to whether the loss of 
     citizenship had a principal purpose of tax avoidance. Third, 
     the House bill expands the categories of income and gains 
     that are treated as U.S. source (and therefore subject to 
     U.S. income tax under section 877) if earned by an individual 
     who is subject to the expatriation tax provisions and 
     includes provisions designed to eliminate the ability to 
     engage in certain transactions that under current law 
     partially or completely circumvent the 10-year reach of 
     section 877. Further, the House bill provides relief from 
     double taxation in circumstances where another country 
     imposes tax on items that would be subject to U.S. tax under 
     the expatriation tax provisions.
       The House bill also contains provisions to enhance 
     compliance with the expatriation tax provisions. The House 
     bill imposes information reporting obligations on U.S. 
     citizens who lose their citizenship and long-term residents 
     whose U.S. residency is terminated at the time of 
     expatriation. In addition, the House bill directs the 
     Treasury Department to undertake a study regarding compliance 
     by individuals living abroad with their U.S. tax reporting 
     obligations and to make recommendations with respect to 
     improving such compliance.
       Individuals covered
       The present-law expatriation tax provisions apply only to 
     certain U.S. citizens who lose their citizenship. The House 
     bill extends these expatriation tax provisions to apply also 
     to long-term residents of the United States whose U.S. 
     residency is terminated. For this purpose, a long-term 
     resident is any individual who was a lawful permanent 
     resident of the United States for at least 8 out of the 15 
     taxable years ending with the year in which such termination 
     occurs. In applying this 8-year test, an individual is not 
     considered to be a lawful permanent resident for any year in 
     which the individual is taxed as a resident of another 
     country under a treaty tie-breaker rule. An individual's U.S. 
     residency is considered to be terminated when either the 
     individual ceases to be a lawful permanent resident pursuant 
     to section 7701(b)(6) (i.e., the individual loses his or her 
     green-card status) or the individual is treated as a resident 
     of another country under a tie-breaker provision of a tax 
     treaty (and the individual does not elect to waive the 
     benefits of such treaty). Furthermore, a long-term resident 
     may elect to use the fair market value basis of property on 
     the date the individual became a U.S. resident (rather than 
     the property's historical basis) to determine the amount of 
     gain subject to the expatriation tax provisions if the asset 
     is sold within the 10-year period.
       Under present law, the expatriation tax provisions are 
     applicable to a U.S. citizen who loses his or her citizenship 
     unless such loss did not have as a principal purpose the 
     avoidance of taxes. Under the House bill, U.S. citizens who 
     lose their citizenship and long-term residents whose U.S. 
     residency is terminated are generally treated as having lost 
     such citizenship or terminated such residency with a 
     principal purpose of the avoidance of taxes if either: (1) 
     the individual's average annual U.S. Federal income tax 
     liability for the 5 taxable years ending before the date of 
     such loss or termination is greater than $100,000 (the ``tax 
     liability test''), or (2) the individual's net worth as of 
     the date of such loss or termination is $500,000 or more (the 
     ``net worth test''). The dollar amount thresholds contained 
     in the tax liability test and the net worth test are indexed 
     for inflation in the case of a loss of citizenship or 
     termination of residency occurring in any calendar year after 
     1996. An individual who falls below the thresholds specified 
     in both the tax liability test and the net worth test is 
     subject to the expatriation tax provisions unless the 
     individual's loss of citizenship or termination of residency 
     did not have as a principal purpose the avoidance of tax (as 
     under present law in the case of U.S. citizens).
       A U.S. citizen, who loses his or her citizenship and who 
     satisfies either the tax liability test or the net worth 
     test, is not subject to the expatriation tax provisions if 
     such individual can demonstrate that he or she did not have a 
     principal purpose of tax avoidance and the individual is 
     within one of the following categories: (1) the individual 
     was born with dual citizenship and retains only the non-U.S. 
     citizenship; (2) the individual becomes a citizen of the 
     country in which the individual, the individual's spouse, or 
     one of the individual's parents, was born; (3) the individual 
     was present in the United States for no more than 30 days 
     during any year in the 10-year period immediately preceding 
     the date of his or her loss of citizenship; (4) the 
     individual relinquishes his or her citizenship before 
     reaching age 18\1/2\; or (5) any other category of 
     individuals prescribed by Treasury regulations. In all of 
     these situations, the individual would have been subject to 
     tax on his or her worldwide income (as are all U.S. citizens) 
     until the time of expatriation. In order to qualify for one 
     of these exceptions, the former U.S. citizen must, within one 
     year from the date of loss of citizenship, submit a ruling 
     request for a determination by the Secretary of the Treasury 
     as to whether such loss had as one of its principal purposes 
     the avoidance of taxes. A former U.S. citizen who submits 
     such a ruling request is entitled to challenge an adverse 
     determination by the Secretary of the Treasury. However, a 
     former U.S. citizen who fails to submit a timely ruling 
     request is not eligible for these exceptions. It is expected 
     that in making a determination as to the presence of a 
     principal purpose of tax avoidance, the Secretary of the 
     Treasury will take into account factors such as the 
     substantiality of the former citizen's ties to the United 
     States (including ownership of U.S. assets) prior to 
     expatriation, the retention of U.S. citizenship by the former 
     citizen's spouse, and the extent to which the former citizen 
     resides in a country that imposes little or no tax.
       The foregoing exceptions are not available to long-term 
     residents whose U.S. residency is terminated. However, the 
     House bill authorizes the Secretary of the Treasury to 
     prescribe regulations to exempt certain categories of long-
     term residents from the House bill's provisions.
       Items subject to section 877
       Under section 877, an individual covered by the 
     expatriation tax provisions is subject to tax on U.S. source 
     income and gains for a 10-year period after expatriation at 
     the graduated rates applicable to U.S. citizens.68 The 
     tax under section 877 applies to U.S. source income and gains 
     of the individual for the 10-year period, without regard to 
     whether the property giving rise to such income or gains was 
     acquired before or after the date the individual became 
     subject to the expatriation tax provisions. For example, a 
     U.S. citizen who inherits an appreciated asset immediately 
     before losing citizenship and disposes of the asset 
     immediately after such loss would not recognize any taxable 
     gain on such disposition (because of the date of death fair 
     market value basis accorded to inherited assets), but the 
     individual would continue to be subject to tax under section 
     877 on the income or gain derived from any U.S. property 
     acquired with the proceeds from such disposition.
     \68\ Under present law, all nonresident aliens (including 
     expatriates) are subject to U.S. income tax at graduated 
     rates on certain types of income. Such income includes income 
     effectively connected with a U.S. trade or business and gains 
     from the disposition of interests in U.S. real property. For 
     example, compensation (including deferred compensation) paid 
     with respect to services performed in the United States is 
     subject to such tax. Thus, under current law, a U.S. citizen 
     who earns a stock option while employed in the United States 
     and delays the exercise of such option until after such 
     individual loses his or her citizenship is subject to U.S. 
     tax on the compensation income recognized upon exercise of 
     the stock option (even if the stock received upon the 
     exercise is stock in foreign corporation).
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       In addition, section 877 currently recharacterizes as U.S. 
     source income certain gains of individuals who are subject to 
     the expatriation tax provisions, thereby subjecting such 
     individuals to U.S. income tax on such gains. Under this 
     rule, gain on the sale or exchange of stock of a U.S. 
     corporation or debt of a U.S. person is treated as U.S. 
     source income. In this regard, under current law, the 
     substitution of a foreign obligor for a U.S. obligor is 
     generally treated as a taxable exchange of the debt 
     instrument, and therefore any gain on such exchange is 
     subject to tax under section 877. The House bill extends this 
     recharacterization to income and gains derived from property 
     obtained in certain transactions on which gain or loss is not 
     recognized under present law. An individual covered by 
     section 877 who exchanges property that would produce U.S. 
     source income for property that would produce foreign source 
     income is required to recognize immediately as U.S. source 
     income any gain on such exchange (determined as if the 
     property had been sold for its fair market value on such 
     date). To the extent gain is recognized under this provision, 
     the property would be accorded the step-up in basis provided 
     under current law. This rule requiring immediate gain 
     recognition does not apply if the individual enters into an 
     agreement with the Secretary of the Treasury specifying that 
     any income or gains derived from the property received in the 
     exchange during the 10-year period after the loss of 
     citizenship (or termination of U.S. residency, as applicable) 
     would be treated as U.S. source income. Such a gain 
     recognition agreement terminates if the property transferred 
     in the exchange is disposed of by the acquiror, and any gain 
     that had not been recognized by reason of such agreement is 
     recognized as U.S. source as of such date. It is expected 
     that a gain recognition agreement would be entered into not 
     later than the due date for the tax return for the year of 
     the exchange. In this regard, the Secretary of the Treasury 
     is authorized to issue regulations providing similar 
     treatment for nonrecognition transactions that occur within 5 
     years immediately prior to the date of loss of citizenship 
     (or termination of U.S. residency, as applicable).
       The Secretary of Treasury is authorized to issue 
     regulations to treat removal of tangible personal property 
     from the United States, and other circumstances that result 

[[Page H 12885]]
     in a conversion of U.S. source income to foreign source income without 
     recognition of any unrealized gain, as exchanges for purposes 
     of computing gain subject to section 877. The taxpayer may 
     defer the recognition of the gain if he or she enters into a 
     gain recognition agreement as described above. For example, a 
     former citizen who removes appreciated artwork that he or she 
     owns from the United States could be subject to immediate tax 
     on the appreciation under this provision unless the 
     individual enters into a gain recognition agreement.
       The foregoing rules regarding the treatment under section 
     877 of nonrecognition transactions are illustrated by the 
     following examples: Ms. A loses her U.S. citizenship on 
     January 1, 1996, and is subject to section 877. On June 30, 
     1997, Ms. A transfers the stock she owns in a U.S. 
     corporation, USCo, to a wholly-owned foreign corporation, 
     FCo, in a transaction that qualifies for tax-free treatment 
     under section 351. At the time of such transfer, A's basis in 
     the stock of USCo is $100,000 and the fair market value of 
     the stock is $150,000. Under present law, Ms. A. would not be 
     subject to U.S. tax on the $50,000 of gain realized on the 
     exchange. Moreover, Ms. A would not be subject to U.S. tax on 
     any distribution of the proceeds from a subsequent 
     disposition of the USCo stock by FCo. Under the House bill, 
     if Ms. A does not enter into a gain recognition agreement 
     with the Secretary of the Treasury, Ms. A would be deemed to 
     have sold the USCo stock for $150,000 on the date of the 
     transfer, and would be subject to U.S. tax in 1997 on the 
     $50,000 of gain realized. Alternatively, if Ms. A enters into 
     a gain recognition agreement, she would not be required to 
     recognize for U.S. tax purposes in 1997 the $50,000 of gain 
     realized upon the transfer of the USCo stock to FCo. However, 
     under the gain recognition agreement, for the 10-year period 
     ending on December 31, 2005, any income (e.g., dividends) or 
     gain with respect to the FCo stock would be treated as U.S. 
     source, and therefore Ms. A would be subject to tax on such 
     income or gain under section 877. If FCo disposes of the USCo 
     stock on January 1, 2002, Ms. A's gain recognition agreement 
     would terminate on such date, and Ms. A would be required to 
     recognize as U.S. source income at that time the $50,000 of 
     gain that she previously deferred under the gain recognition 
     agreement. (The amount of gain required to be recognized by 
     Ms. A in this situation would not be affected by any changes 
     in the value of the USCo stock since her June 30, 1997 
     transfer of such stock to FCo.)
       The House bill also extends the recharacterization rules of 
     section 877 to treat as U.S. source any income and gains 
     derived from stock in a foreign corporation if the individual 
     losing citizenship or terminating residency owns, directly or 
     indirectly, more than 50 percent of the vote or value of the 
     stock of the corporation on the date of such loss or 
     termination or at any time during the 2 years preceding such 
     date. Such income and gains are recharacterized as U.S. 
     source only to the extent of the amount of earnings and 
     profits attributable to such stock earned or accumulated 
     prior to the date of loss of citizenship (or termination of 
     residency, as applicable) and while such ownership 
     requirement is satisfied.
       The following example illustrates this rule: Mr. B loses 
     his U.S. citizenship on July 1, 1996 and is subject to 
     section 877. Mr. B has owned all of the stock of a foreign 
     corporation, FCo, since its incorporation in 1991. As of 
     FCo's December 31, 1995 year-end, FCo has accumulated 
     earnings and profits of $500,000. FCo has earnings and 
     profits of $100,000 for 1996 and does not have any subpart F 
     income (as defined in sec. 952). FCo makes a $100,000 
     distribution to Mr. B in each of 1997 and 1998. On January 1, 
     1999, Mr. B disposes of all his stock of FCo and realizes 
     $400,000 of gain. Under present law, neither the 
     distributions from FCo nor the gain on the disposition of the 
     FCo stock would be subject to U.S. tax. Under the House bill, 
     the distributions from FCo and the gain on the sale of the 
     stock of FCo would be treated as U.S. source income and would 
     be taxed to Mr. B under section 877, subject to the earnings 
     and profits limitation. For this purpose, the amount of FCo's 
     earnings and profits for 1996 is prorated based on the number 
     of days during 1996 that Mr. B is a U.S. citizen. Thus, the 
     amount of FCo's earnings and profits earned or accumulated 
     before Mr. B's loss of citizenship is $550,000. Accordingly, 
     the $100,000 distributions from FCo in 1997 and 1998 would be 
     treated as U.S. source income taxable to Mr. B under section 
     877 in such years. In addition, $350,000 of the gain realized 
     from the sale of the stock of FCo in 1999 would be treated as 
     U.S. source income taxable to Mr. B under section 877 in that 
     year.
       Special rule for shift in risks of ownership
       Section 877 applies to income and gains for the 10-year 
     period following the loss of citizenship (or termination of 
     residency, as applicable). For purposes of applying section 
     877, the House bill suspends this 10-year period for gains 
     derived from a particular property during any period in which 
     the individual's risk of loss with respect to such property 
     is substantially diminished. For example, Ms. C loses her 
     citizenship on January 1, 1996 and is subject to section 877. 
     On that date Ms. C owns 10,000 shares of stock of a U.S. 
     corporation, USCo, with a value of $1 million. On the same 
     date Ms. C enters into an equity swap with respect to such 
     USCo stock with a 5-year term. Under the transaction, Ms. C 
     will transfer to the counter-party an amount equal to the 
     dividends on the USCo stock and any increase in the value of 
     the USCo stock for the 5-year period. The counter-party will 
     transfer to Ms. C an amount equal to a market rate of 
     interest on $1 million and any decrease in the value of the 
     USCo stock for the same period. Ms. C's risk of loss with 
     respect to the USCo stock is substantially diminished during 
     the 5-year period in which the equity swap is in effect, and 
     therefore, under the House bill, the 10-year period under 
     section 877 is suspended during such period. Accordingly, 
     under the House bill, if Ms. C sells her USCo stock for a 
     gain on January 1, 2010, such gain would be treated as U.S. 
     source income taxable to Ms. C under section 877. Such gain 
     would not be subject to U.S. tax under present law.
       Double tax relief
       In order to avoid the double taxation of individuals 
     subject to the expatriation tax provisions, the House bill 
     provides a credit against the U.S. tax imposed under such 
     provisions for any foreign income, gift, estate or similar 
     taxes paid with respect to the items subject to such 
     taxation. This credit is available only against the tax 
     imposed solely as a result of the expatriation tax 
     provisions, and is not available to be used to offset any 
     other U.S. tax liability. For example, Mr. D loses his 
     citizenship on January 1, 1996 and is subject to section 877. 
     Mr. D becomes a resident of Country X. During 1996, Mr. D 
     recognizes a $100,000 gain upon the sale of stock a U.S. 
     corporation, USCo. Country X imposes $20,000 tax on this 
     capital gain. But for the double tax relief provision, Mr. D 
     would be subject to tax of $28,000 on this gain under section 
     877. However, Mr. D 's U.S. tax under section 877 would be 
     reduced by the $20,000 of foreign tax paid, and Mr. D 's 
     resulting U.S. tax on this gain would be $8,000.
       Effect on tax treaties
       While it is believed that the expatriation tax provisions, 
     as amended by the House bill, are generally consistent with 
     the underlying principles of income tax treaties to the 
     extent the House bill provides a foreign tax credit for items 
     taxed by another country, it is intended that the purpose of 
     the expatriation tax provisions, as amended, not be defeated 
     by any treaty provision. The Treasury Department is expected 
     to review all outstanding treaties to determine whether the 
     expatriation tax provisions, as revised, potentially conflict 
     with treaty provisions and to eliminate any such potential 
     conflicts through renegotiation of the affected treaties as 
     necessary. Beginning on the tenth anniversary of the 
     enactment of the House bill, any conflicting treaty 
     provisions that remain in force would take precedence over 
     the expatriation tax provisions as revised.
       Required information reporting and sharing
       Under the House bill, a U.S. citizen who loses his or her 
     citizenship is required to provide a statement to the State 
     Department (or other designated government entity) which 
     includes the individual's social security number, forwarding 
     foreign address, new country of residence and citizenship 
     and, in the case of individuals with a net worth of at least 
     $500,000, a balance sheet. The entity to which such statement 
     is to be provided is required to provide to the Secretary of 
     the Treasury copies of all statements received and the names 
     of individuals who refuse to provide such statements. A long-
     term resident whose U.S. residency is terminated is required 
     to attach a similar statement to his or her U.S. income tax 
     return for the year of such termination. An individual's 
     failure to provide the required statement results in the 
     imposition of a penalty for each year the failure continues 
     equal to the greater of (1) 5 percent of the individual's 
     expatriation tax liability for such year, or (2) $1,000.
       The House bill requires the State Department to provide the 
     Secretary of the Treasury with a copy of each certificate of 
     loss of nationality (CLN) approved by the State Department. 
     Similarly, the House bill requires the agency administering 
     the immigration laws to provide the Secretary of the Treasury 
     with the name of each individual whose status as a lawful 
     permanent resident has been revoked or has been determined to 
     have been abandoned.
       Further, the House bill requires the Secretary of the 
     Treasury to publish in the Federal Register the names of all 
     former U.S. citizens from whom it receives the required 
     statements or whose names it receives under the foregoing 
     information-sharing provisions.
       Treasury report on tax compliance by U.S. citizens and 
           residents living abroad
       The Treasury Department is directed to undertake a study on 
     the tax compliance of U.S. citizens and green-card holders 
     residing outside the United States and to make 
     recommendations regarding the improvement of such compliance. 
     The findings of such study and such recommendations are 
     required to be reported to the House Committee on Ways and 
     Means and the Senate Committee on Finance within 90 days of 
     the date of enactment.
       During the course of the Joint Committee on Taxation staff 
     study on expatriation, a specific issue was identified 
     regarding the difficulty in determining when a U.S. citizen 
     has committed an expatriating act with the requisite intent, 
     and thus no longer has the obligation to continue to pay U.S. 
     taxes on his or her worldwide income due to the fact that the 
     individual is no longer a U.S. citizen. Neither the 
     Immigration and Nationality Act nor any other Federal law 
     requires 

[[Page H 12886]]
     an individual to request a CLN within a specified amount of time after 
     an expatriating act has been committed, even though the 
     expatriating act terminates the status of the individual as a 
     U.S. citizen for all purposes, including the status of being 
     subject to U.S. tax on worldwide income. Accordingly, it is 
     anticipated that the Treasury report, in evaluating whether 
     improved coordination between executive branch agencies could 
     improve compliance with the requirements of the Internal 
     Revenue Code, will review the process through which the State 
     Department determines when citizenship has been lost, and 
     make recommendations regarding changes to such process to 
     recognize the importance of such date for tax purposes. In 
     particular, it is anticipated that the Treasury Department 
     will explore ways of working with the State Department to 
     insure that the State Department will not issue a CLN 
     confirming the commission of an expatriating act with the 
     requisite intent necessary to terminate citizenship in the 
     absence of adequate evidence of both the occurrence of the 
     expatriating act (e.g., the joining of a foreign army) and 
     the existence of the requisite intent.
       Effective date
       The expatriation tax provisions as modified by the House 
     bill generally apply to any individual who loses U.S. 
     citizenship on or after February 6, 1995, and any long-term 
     residents whose U.S. residency is terminated on or after June 
     13, 1995. For citizens, the determination of the date of loss 
     of citizenship remains the same as under present law (i.e., 
     the date of loss of citizenship is the date of the 
     expatriating act). However, a special transition rule applies 
     to individuals who committed an expatriating act within one 
     year prior to February 6, 1995, but had not applied for a CLN 
     as of such date. Such an individual is subject to the 
     expatriation tax provisions as amended by the House bill as 
     of the date of application for the CLN, but is not 
     retroactively liable for U.S. income taxes on his or her 
     worldwide income. In order to qualify for the exceptions 
     provided for individuals who fall within one of the specified 
     categories, such individual is required to submit a ruling 
     request within 1 year after the date of enactment of the 
     House bill.
       The special transition rule is illustrated by the following 
     example. Mr. E joined a foreign army on October 1, 1994 with 
     the intent to relinquish his U.S. citizenship, but Mr. E does 
     not apply for a CLN until October 1, 1995. Mr. E would be 
     subject to the expatriation tax provisions (as amended) for 
     the 10-year period beginning on October 1, 1995. Moreover, if 
     Mr. E falls within one of the specified categories ( i.e., 
     Mr. E is age 18 when he joins the foreign army), in order to 
     qualify for the exception provided for such individuals, Mr. 
     E would be required to submit his ruling request within 1 
     year after the date of enactment of the House bill. Mr. E 
     would not, however, be liable for U.S. income taxes on his 
     worldwide income for any period after October 1, 1994.
     Senate amendment
       In general
       The Senate amendment replaces the present-law expatriation 
     income tax rules with rules that generally subject certain 
     U.S. citizens who relinquish their U.S. citizenship and 
     certain long-term U.S. residents who relinquish their U.S. 
     residency to tax on the net unrealized gain in their property 
     as if such property were sold for fair market value on the 
     expatriation date. The Senate amendment also imposes 
     information reporting obligations on U.S. citizens who 
     relinquish their citizenship and long-term residents whose 
     U.S. residency is terminated.
       Individuals covered
       The Senate amendment applies the expatriation tax to 
     certain U.S. citizens and long-term residents who terminate 
     their U.S. citizenship or residency. For this purpose, a 
     long-term resident is any individual who was a lawful 
     permanent resident of the United States for at least 8 out of 
     the 15 taxable years ending with the year in which the 
     termination of residency occurs. In applying this 8-year 
     test, an individual is not considered to be a lawful 
     permanent resident of the United States for any year in which 
     the individual is taxed as a resident of another country 
     under a treaty tie-breaker rule. An individual's U.S. 
     residency is considered to be terminated when either the 
     individual ceases to be a lawful permanent resident pursuant 
     to section 7701(b)(6) (i.e., the individual loses his or her 
     green-card status) or the individual is treated as a resident 
     of another country under a tie-breaker provision of a tax 
     treaty (and the individual does not elect to waive the 
     benefits of such treaty).
       The expatriation tax under the Senate amendment applies 
     only to individuals whose average income tax liability or net 
     worth exceeds specified levels. U.S. citizens who lose their 
     citizenship and long-term residents who terminate U.S. 
     residency are subject to the expatriation tax if they meet 
     either of the following tests: (1) the individual's average 
     annual U.S. Federal income tax liability for the 5 taxable 
     years ending before the date of such loss or termination is 
     greater than $100,000, or (2) the individual's net worth as 
     of the date of such loss or termination is $500,000 or more. 
     The dollar amount thresholds contained in these tests are 
     indexed for inflation in the case of a loss of citizenship or 
     termination of residency occurring in any calendar year after 
     1996.
       Exceptions from the expatriation tax under the Senate 
     amendment are provided for individuals in two situations. The 
     first exception applies to an individual who was born with 
     citizenship both in the United States and in another country, 
     provided that (1) as of the date of relinquishment of U.S. 
     citizenship the individual continues to be a citizen of, and 
     is taxed as a resident of, such other country, and (2) the 
     individual was a resident of the United States for no more 
     than 8 out of the 15 taxable years ending with the year in 
     which the relinquishment of U.S. citizenship occurred. The 
     second exception applies to a U.S. citizen who relinquishes 
     citizenship before reaching age 18-\1/2\, provided that the 
     individual was a resident of the United States for no more 
     than 5 taxable years before such relinquishment.
       Deemed sale of property upon expatriation
       Under the Senate amendment, individuals who are subject to 
     the expatriation tax generally are treated as having sold all 
     of their property at fair market value immediately prior to 
     the relinquishment of citizenship or termination of 
     residency. Gain or loss from the deemed sale of property is 
     recognized at that time, generally without regard to 
     provisions of the Code that would otherwise provide 
     nonrecognition treatment. The net gain, if any, on the deemed 
     sale of all such property is subject to U.S. tax at such time 
     to the extent it exceeds $600,000 ($1.2 million in the case 
     of married individuals filing a joint return, both of whom 
     expatriate).
       The deemed sale rule of the Senate amendment generally 
     applies to all property interests held by the individual on 
     the date of relinquishment of citizenship or termination of 
     residency, provided that the gain on such property interest 
     would be includible in the individual's gross income if such 
     property interest were sold for its fair market value on such 
     date. Special rules apply in the case of trust interests (see 
     ``Interests in trusts,'' below). U.S. real property 
     interests, which remain subject to U.S. taxing jurisdiction 
     in the hands of nonresident aliens, generally are excepted 
     from the Senate amendment. An exception also applies to 
     interests in qualified retirement plans and, subject to a 
     limit of $500,000, interests in certain foreign pension plans 
     as prescribed by regulations. The Secretary of the Treasury 
     is authorized to issue regulations exempting other property 
     interests as appropriate. For example, an exclusion may be 
     provided for an interest in a nonqualified compensation plan 
     of a U.S. employer, where payments from such plan to the 
     individual following expatriation would continue to be 
     subject to U.S. withholding tax.
       Under the Senate amendment, an individual who is subject to 
     the expatriation tax is required to pay a tentative tax equal 
     to the amount of tax that would be due for a hypothetical 
     short tax year ending on the date the individual relinquished 
     citizenship or terminated residency. Thus, the tentative tax 
     is based on all the income, gain, deductions, loss and 
     credits of the individual for the year through such date, 
     including amounts realized from the deemed sale of property. 
     The tentative tax is due on the 90th day after the date of 
     relinquishment of citizenship or termination of residency.
       Deferral of payment of tax
       Under the Senate amendment, an individual is permitted to 
     elect to defer payment of the expatriation tax with respect 
     to the deemed sale of any property. Under this election, the 
     expatriation tax with respect to a particular property, plus 
     interest thereon, is due when the property is subsequently 
     disposed of. For this purpose, except as provided in 
     regulations, the disposition of property in a nonrecognition 
     transaction constitutes a disposition. In addition, if an 
     individual holds property until his or her death, the 
     individual is treated as having disposed of the property 
     immediately before death. In order to elect deferral of the 
     expatriation tax, the individual is required to provide 
     adequate security to ensure that the deferred expatriation 
     tax and interest ultimately will be paid. A bond in the 
     amount of the deferred tax and interest constitutes adequate 
     security. Other security mechanisms are also permitted 
     provided that the individual establishes to the satisfaction 
     of the Secretary of the Treasury that the security is 
     adequate. In the event that the security provided with 
     respect to a particular property subsequently becomes 
     inadequate and the individual fails to correct such 
     situation, the deferred expatriation tax and interest with 
     respect to such property will become due. As a further 
     condition to making this election, the individual is required 
     to consent to the waiver of any treaty rights that would 
     preclude the collection of the expatriation tax.
       Interests in trusts
           In general
       Under the Senate amendment, special rules apply to trust 
     interests held by the individual at the time of 
     relinquishment of citizenship or termination of residency. 
     The treatment of trust interests depends upon whether the 
     trust is a qualified trust. For this purpose, a ``qualified 
     trust'' is a trust that is organized under and governed by 
     U.S. law and that is required by its instruments to have at 
     least one U.S. trustee.
       Constructive ownership rules apply to a trust beneficiary 
     that is a corporation, partnership, trust or estate. In such 
     cases, the shareholders, partners or beneficiaries of the 
     entity are deemed to be the direct beneficiaries of the trust 
     for purposes of applying these provisions. In addition, an 
     individual who holds (or who is treated as holding) a 

[[Page H 12887]]
     trust interest at the time of relinquishment of citizenship or 
     termination of residency is required to disclose on his or 
     her tax return the methodology used to determine his or her 
     interest in the trust, and whether such individual knows (or 
     has reason to know) that any other beneficiary of the trust 
     uses a different method.
           Nonqualified trusts
       If an individual holds an interest in a trust that is not a 
     qualified trust, a special rule applies for purposes of 
     determining the amount of the expatriation tax due with 
     respect to such trust interest. The individual's interest in 
     the trust is treated as a separate trust consisting of the 
     trust assets allocable to such interest. Such separate trust 
     is treated as having sold its assets as of the date of 
     relinquishment of citizenship or termination of residency and 
     having distributed all proceeds to the individual, and the 
     individual is treated as having recontributed such proceeds 
     to the trust. The individual is subject to the expatriation 
     tax with respect to any net income or gain arising from the 
     deemed distribution from the trust. The election to defer 
     payment is available for the expatriation tax attributable to 
     a nonqualified trust interest.
       A beneficiary's interest in a nonqualified trust is 
     determined on the basis of all facts and circumstances. These 
     include the terms of the trust instrument itself, any letter 
     of wishes or similar document, historical patterns of trust 
     distributions, and the role of any trust protector or similar 
     advisor.
           Qualified trusts
       If the individual has an interest in a qualified trust, a 
     different set of rules applies. Under these rules, the amount 
     of unrealized gain allocable to the individual's trust 
     interest is calculated at the time of expatriation. In 
     determining this amount, all contingencies and discretionary 
     interests are assumed to be resolved in the individual's 
     favor (i.e., the individual is allocated the maximum amount 
     that he or she potentially could receive under the terms of 
     the trust instrument). The expatriation tax imposed on such 
     gains generally is collected when the individual receives 
     distributions from the trust, or, if earlier, upon the 
     individual's death. Interest is charged for the period 
     between the date of expatriation and the date on which the 
     tax is paid.
       If an individual has an interest in a qualified trust, the 
     individual is subject to expatriation tax upon the receipt of 
     any distribution from the trust. Such distributions may also 
     be subject to U.S. income tax. For any distribution from a 
     qualified trust made to an individual after he or she has 
     expatriated, expatriation tax is imposed in an amount equal 
     to the amount of the distribution multiplied by the highest 
     tax rate generally applicable to trusts and estates, but in 
     no event will the tax imposed exceed the deferred tax amount 
     with respect to such trust interest. The ``deferred tax 
     amount'' would be equal to (1) the tax calculated with 
     respect to the unrealized gain allocable to the trust 
     interest at the time of expatriation, (2) increased by 
     interest thereon, and (3) reduced by the tax imposed under 
     this provision with respect to prior trust distributions to 
     the individual.
       If an individual's interest in a trust is vested as of the 
     expatriation date (e.g., if the individual's interest in the 
     trust is non-contingent and non-discretionary), the gain 
     allocable to the individual's trust interest is determined 
     based on the trust assets allocable to his or her trust 
     interest. If the individual's interest in the trust is not 
     vested as of the expatriation date (e.g., if the individual's 
     trust interest is a contingent or discretionary interest), 
     the gain allocable to his or her trust interest is determined 
     based on all of the trust assets that could be allocable to 
     his or her trust interest, determined by resolving all 
     contingencies and discretionary powers in the individual's 
     favor. In the case where more than one trust beneficiary is 
     subject to the expatriation tax with respect to trust 
     interests that are not vested, the rules are intended to 
     apply so that the same unrealized gain with respect to assets 
     in the trust is not taxed to both individuals.
       If the individual disposes of his or her trust interest, 
     the trust ceases to be a qualified trust, or the individual 
     dies, expatriation tax is imposed as of such date. The amount 
     of such tax equal to the lesser of (1) the tax calculated 
     under the rules for nonqualified trust interests applied as 
     of such date or (2) the deferred tax amount with respect to 
     the trust interest as of such date.
       If the individual agrees to waive any treaty rights that 
     would preclude collection of the tax, the tax is imposed 
     under this provision with respect to distributions from a 
     qualified trust to the individual deducted and withheld from 
     distributions. If the individual does not agree to such a 
     waiver of treaty rights, the tax with respect to 
     distributions to the individual is imposed on the trust, the 
     trustee is personally liable therefor, and any other 
     beneficiary of the trust has a right of contribution against 
     such individual with respect to such tax. Similarly, in the 
     case of the tax imposed in connection with an individual's 
     disposition of a trust interest, the individual's death while 
     holding a trust interest or the individual's holding of an 
     interest in a trust that ceases to be qualified, the tax is 
     imposed on the trust, the trustee is personally liable 
     therefor, and any other beneficiary of the trust has a right 
     of contribution against such individual with respect to such 
     tax.
       Election to be treated as a U.S. citizen
       Under the Senate amendment, an individual is permitted to 
     make an irrevocable election to continue to be taxed as a 
     U.S. citizen with respect to all property that otherwise is 
     covered by the expatriation tax. This election is an ``all-
     or-nothing'' election; an individual is not permitted to 
     elect this treatment for some property but not other 
     property. The election, if made, applies to all property that 
     would be subject to the expatriation tax and to any property 
     the basis of which is determined by reference to such 
     property. Under this election, the individual continues to 
     pay U.S. income taxes at the rates applicable to U.S. 
     citizens following expatriation on any income generated by 
     the property and on any gain realized on the disposition of 
     the property, as well as any excise tax imposed with respect 
     to the property (see, e.g., sec. 1491). In addition, the 
     property continues to be subject to U.S. gift, estate, and 
     generation-skipping transfer taxes. However, the amount of 
     any transfer tax so imposed is limited to the amount of 
     income tax that would have been due if the property had been 
     sold for its fair market value immediately before the 
     transfer or death. The $600,000 exclusion provided with 
     respect to the expatriation tax under the Senate amendment is 
     available to reduce the tax imposed by reason of this 
     election. In order to make this election, the taxpayer is 
     required to waive any treaty rights that would preclude the 
     collection of the tax. The individual is also required to 
     provide security to ensure payment of the tax under this 
     election in such form, manner, and amount as the Secretary of 
     the Treasury requires.
       Date of relinquishment of citizenship
       Under the Senate amendment, an individual is treated as 
     having relinquished U.S. citizenship on the date that the 
     individual first makes known to a U.S. government or consular 
     officer his or her intention to relinquish U.S. citizenship. 
     Thus, a U.S. citizen who relinquishes citizenship by formally 
     renouncing his or her U.S. nationality before a diplomatic or 
     consular officer of the United States is treated as having 
     relinquished citizenship on that date, provided that the 
     renunciation is later confirmed by the issuance of a CLN. A 
     U.S. citizen who furnishes to the State Department a signed 
     statement of voluntary relinquishment of U.S. nationality 
     confirming the performance of an expatriating act with the 
     requisite interest to relinquish his or her citizenship is 
     treated as having relinquished his or her citizenship on the 
     date the statement is so furnished (regardless of when the 
     expatriating act was performed), provided that the voluntary 
     relinquishment is later confirmed by the issuance of a CLN. 
     If neither of these circumstances exist, the individual is 
     treated as having relinquished citizenship on the date a CLN 
     is issued or a certificate of naturalization is cancelled. 
     The date of relinquishment of citizenship determined under 
     the Senate amendment applies for all tax purposes.
       Effect on present-law expatriation provisions
       Under the Senate amendment, the present-law income tax 
     provisions with respect to U.S. citizens who expatriate with 
     a principal purpose of avoiding tax (sec. 877) and certain 
     aliens who have a break in residency status (sec. 
     7701(b)(10)) do apply to U.S. citizens who are treated as 
     relinquishing their citizenship on or after February 6, 1995 
     or to long-term U.S. residents who terminate their residency 
     on or after such date. The special estate and gift tax 
     provisions with respect to individuals who expatriate with a 
     principal purpose of avoiding tax (secs. 2107 and 
     2501(a)(3)), however, continue to apply; a credit against the 
     tax imposed solely by reason of such special provisions is 
     allowed for the expatriation tax imposed with respect to the 
     same property.
       Treatment of gifts and inheritances from an expatriate
       Under the Senate amendment, the exclusion from income 
     provided in section 102 does not apply to the value of any 
     property received by gift or inheritance from an individual 
     who was subject to the expatriation tax (i.e., an individual 
     who relinquished citizenship or terminated residency and to 
     whom the expatriation tax was applicable). Accordingly, a 
     U.S. taxpayer who receives a gift or inheritance from such an 
     individual is required to include the value of such gift or 
     inheritance in gross income and is subject to U.S. income tax 
     on such amount.
       Required information reporting and sharing
       Under the Senate amendment, an individual who relinquishes 
     citizenship or terminates residency is required to provide a 
     statement which includes the individual's social security 
     number, forwarding foreign address, new country of residence 
     and citizenship and, in the case of individuals with a net 
     worth of at least $500,000, a balance sheet. In the case of a 
     former citizen, such statement is due not later than the date 
     the individual's citizenship is treated as relinquished and 
     is to be provided to the State Department (or other 
     government entity involved in the administration of such 
     relinquishment). The entity to which the statement is to be 
     provided by former citizens is required to provide to the 
     Secretary of the Treasury copies of all statements received 
     and the names of individuals who refuse to provide such 
     statements. In the case of a former long-term resident, the 
     statement is provided to the Secretary of the Treasury with 
     the individual's tax return for the year in which the 
     individual's U.S. residency is 

[[Page H 12888]]
     terminated. An individual's failure to provide the statement required 
     under this provision results in the imposition of a penalty 
     for each year the failure continues equal to the greater of 
     (1) 5 percent of the individual's expatriation tax liability 
     for such year or (2) $1,000.
       The Senate amendment requires the State Department to 
     provide the Secretary of the Treasury with a copy of each CLN 
     approved by the State Department. Similarly, the Senate 
     amendment requires the agency administering the immigration 
     laws to provide the Secretary of the Treasury with the name 
     of each individual whose status as a lawful permanent 
     resident has been revoked or has been determined to have been 
     abandoned.
       Further, the Senate amendment requires the Secretary of the 
     Treasury to publish in the Federal Register the names of all 
     former U.S. citizens with respect to whom it receives the 
     required statements or whose names it receives under the 
     foregoing information-sharing provisions.
       Effective date
       The provision is effective for U.S. citizens whose date of 
     relinquishment of citizenship (as determined under the Senate 
     amendment, see ``Date of relinquishment of citizenship'' 
     above) occurs on or after February 6, 1995. Similarly, the 
     provision is effective for long-term residents who terminate 
     their U.S. residency on or after February 6, 1995.
       U.S. citizens who committed an expatriating act with the 
     requisite intent to relinquish their U.S. citizenship prior 
     to February 6, 1995, but whose date of relinquishment of 
     citizenship (as determined under the Senate amendment) does 
     not occur until after such date, are subject to the 
     expatriation tax under the Senate amendment as of date of 
     relinquishment of citizenship. However, the individual is not 
     subject retroactively to worldwide tax as a U.S. citizen for 
     the period after he or she committed the expatriating act 
     (and therefore ceased being a U.S. citizen for tax purposes 
     under present law). Such an individual continues to be 
     subject to the expatriation tax imposed by present-law 
     section 877 until the individual's date of relinquishment of 
     citizenship (at which time the individual would be subject to 
     the expatriation tax of the Senate amendment). The rules 
     described in this paragraph do not apply to an individual who 
     committed an expatriating act prior to February 6, 1995, but 
     did not do so with the requisite intent to relinquish his or 
     her U.S. citizenship.
       The tentative tax is not required to be paid, and the 
     reporting requirements would not be required to be met, until 
     90 days after the date of enactment. Such provisions apply to 
     all individuals whose date of relinquishment of U.S. 
     citizenship or termination of U.S. residency occurs on or 
     after February 6, 1995.
     Conference agreement
       The conference agreement follows the House bill with 
     modifications. Under the conference agreement, the 
     expatriation tax provisions apply both to U.S. citizens who 
     lose citizenship on or after February 6, 1995, and to long-
     term residents whose U.S. residency is terminated on or after 
     February 6, 1995. The information reporting provisions apply 
     to U.S. citizens who lose citizenship and long-term residents 
     whose U.S. residency is terminated on or after February 6, 
     1995. The conference agreement does not include the 
     provisions of the House bill with respect to the publication 
     of the names of expatriates in the Federal Register and the 
     direction to the Treasury Department to study tax compliance 
     by individuals living abroad.


 12. Repeal advance refunds of diesel fuel tax for diesel automobiles, 
vans, and light trucks (sec. 13638 of the House bill and sec. 12831 of 
                         the Senate amendment)

     Present law
       Excise taxes are imposed on gasoline (11.5 cents per 
     gallon) and diesel fuel (17.5 cents per gallon) to fund the 
     Federal Highway Trust Fund. Before 1985, the gasoline and 
     diesel fuel tax rates were the same. The predominate highway 
     use of diesel fuel is by trucks. In 1984, the diesel excise 
     tax rate was increased above the gasoline tax rate as the 
     revenue offset for a reduction in the annual heavy truck 
     excise tax. Because automobiles, vans, and light trucks did 
     not benefit from the use tax reduction, a provision was 
     enacted allowing first purchasers of model year 1979 and 
     later diesel-powered automobiles, vans, and light trucks a 
     tax credit to offset this increased diesel fuel tax. The 
     credit is $102 for automobiles, and $198 for vans and light 
     trucks.
     House bill
       The House bill repeals the advance refunds of diesel tax 
     for purchasers of diesel- powered automobiles, vans, and 
     light trucks.
       Effective date.--Vehicles purchased after December 31, 
     1995.
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


   13. Repeal wine and flavors tax credit (sec. 12832 of the Senate 
                               amendment)

     Present law
       Producers of distilled spirits are allowed a tax credit for 
     the alcohol contained in products that are (1) derived from 
     fruit (i.e., ``wine'') or (2) attributable to certain 
     flavorings.
     House bill
       No provision.
     Senate amendment
       The Senate amendment repeals the wine and flavors tax 
     credit (i.e., taxes all alcohol in distilled spirits products 
     at the statutory $13.50-per-proof-gallon rate).
       Effective date.--January 1, 1996.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment.


14. Modifications to the excise tax on ozone-depleting chemicals (sec. 
                     12833 of the Senate amendment)

     Present law
       An excise tax is imposed on the sale or use by the 
     manufacturer or importer of certain ozone-depleting chemicals 
     (Code sec. 4681). Taxable chemicals that are recovered and 
     recycled within the United States are exempt from tax.
     House bill
       No provision.
     Senate amendment
       The Senate amendment extends the exemption from tax for 
     domestically recovered and recycled ozone-depleting chemicals 
     to imported recycled halons. The exemption for imported 
     recycled halons applies only to such chemicals imported from 
     countries that are signatories to the Montreal Protocol.
       Effective date.--Date of enactment.
     Conference agreement
       The conference agreement follows the Senate amendment.


 15. Allow certain persons to elect not to be eligible for future tax-
       exempt bond financing (sec. 12834 of the Senate amendment)

     Present law
       Tax-exempt bonds may be issued to benefit private 
     businesses engaged in the furnishing of electric energy or 
     gas if the business' service area does not exceed (1) two 
     contiguous counties or (2) a city and one contiguous county. 
     These businesses are described as engaged in the local 
     furnishing of electricity or gas.
       If certain disqualifying events occur after these and other 
     private activity tax- exempt bonds are issued, (1) interest 
     on the bonds may become taxable, and (2) interest paid by the 
     private parties on bond-financed loans becomes nondeductible. 
     Expansion of the service area of a person engaged in these 
     local furnishing activities beyond the permitted geographic 
     areas, described above, is a disqualifying event.
     House bill
       No provision.
     Senate amendment
       The Senate amendment allows private businesses engaged in 
     the local furnishing of electricity or gas to expand their 
     service areas beyond the geographic bounds allowed under 
     present law without penalty if:
       (1) No additional tax-exempt bonds are issued after the 
     date of the amendment's enactment for any facilities to be 
     used by them;
       (2) Outstanding tax-exempt bonds benefiting the electing 
     persons are redeemed on the earliest date allowed under the 
     bond documents; and
       (3) No tax-exempt bonds are used to finance the service 
     area expansion.
       In addition, availability of tax-exempt private activity 
     bond financing under the exception for facilities of private 
     persons engaged in the local furnishing of electricity or gas 
     is limited to financing for facilities used in qualified 
     businesses being conducted by such persons on the date of the 
     amendment's enactment.
       Effective date.--Date of enactment.
     Conference agreement
       The conference agreement follows the Senate amendment. The 
     conferees wish to clarify two points regarding this 
     provision. First, an election to terminate a person's status 
     as engaged in the local furnishing of electricity or gas is 
     independent of, and has no relation to, the determination of 
     whether transmission of electricity pursuant to certain 
     Federal Energy Regulatory Commission orders (sec. 142(f)(2)) 
     violates the local furnishing exception. Second, the 
     provision precluding new entities from qualifying as engaged 
     in the local furnishing of electricity or gas is not intended 
     to preclude qualification of successor entities resulting 
     from corporate reorganizations where the area served remains 
     unchanged and there is common ownership of both the 
     predecessor and successor entities.


   16. Tax-exempt bonds for the sale of Alaska Power Administration 
             facility (sec. 12835 of the Senate amendment)

     Present law
       Tax-exempt bonds may be issued for the benefit of certain 
     private electric utilities. If the bonds are used to finance 
     acquisition of existing property by these utilities, a 
     minimum amount of rehabilitation must be performed on the 
     property as a condition of receiving the tax-exempt bond 
     financing.
     House bill
       No provision.
     Senate amendment
       The Senate amendment waives the rehabilitation requirement 
     in the case of bonds 

[[Page H 12889]]
     to be issued as part of sale of the Snettisham facility by the Alaska 
     Power Administration.
       Effective date.--Bonds issued after date of enactment.
     Conference agreement
       The conference agreement follows the Senate amendment.


17. Modify treatment of foreign trusts (secs. 12841-12846 of the Senate 
                               amendment)

     Present law
       Inbound foreign grantor trust rules
       Under the grantor trust rules (secs. 671-679), a grantor 
     that retains certain rights or powers generally is treated as 
     the owner of the trust's assets without regard to whether the 
     grantor is a domestic or foreign person. Under these rules, 
     U.S. trust beneficiaries can avoid U.S. tax on distributions 
     from a trust where a foreign grantor is treated as owner of 
     the trust, even though no tax may be imposed on the trust 
     income by any jurisdiction. In addition, a special rule 
     treats a U.S. beneficiary of an inbound grantor trust who 
     transferred property to the foreign grantor by gift of a 
     portion of the trust as a grantor of the trust to the extent 
     of the transfer.
       Foreign nongrantor trust rules
       Under the accumulation distribution rules (which generally 
     apply to distributions from a trust in excess of the trust's 
     distributable net income for the taxable year), a 
     distribution by a foreign nongrantor trust of previously 
     accumulated income generally is taxed at the U.S. 
     beneficiary's average marginal rate for the prior 5 years, 
     plus interest (secs. 666, 667). Interest is computed at a 
     fixed annual rate of 6 percent, with no compounding (sec. 
     668). If adequate records of the trust are not available to 
     determine the proper application of the rules relating to 
     accumulation distributions to any distribution from a trust, 
     the distribution is treated as an accumulation distribution 
     out of income earned during the first year of the trust (sec. 
     666(d)).
       If a foreign nongrantor trust makes a loan to one of its 
     beneficiaries, the principal of such a loan generally is not 
     taxable as income to the beneficiary.
       Outbound foreign grantor trust rules
       Under the grantor trust rules, a U.S. person who transfers 
     property to a foreign trust generally is treated as the owner 
     of the portion of the trust comprising that property for any 
     taxable year in which there is a U.S. beneficiary of any 
     portion of the trust (sec. 679(a)). This treatment generally 
     does not apply, however, to transfers by reason of death, to 
     transfers made before the transferor became a U.S. person, or 
     to sales or exchanges of property at fair market value where 
     gain is recognized to the transferor.
       Residence of estates and trusts
       An estate or trust is treated as foreign if it is not 
     subject to U.S. income taxation on its income that is neither 
     derived from U.S. sources nor effectively connected with the 
     conduct of a U.S. trade or business. Thus, if a trust is 
     taxed in a manner similar to a nonresident alien individual, 
     it is considered to be a foreign trust. Any other estate or 
     trust is treated as domestic.
       Section 1491 generally imposes a 35-percent excise tax on a 
     U.S. person that transfers appreciated property to certain 
     foreign entities, including a foreign trust. In the case of a 
     domestic trust that changes its situs and becomes a foreign 
     trust, it is unclear whether property has been transferred 
     from a U.S. person to a foreign entity, and, thus, whether 
     the transfer is subject to the excise tax.
       Information reporting requirements and associated penalties
       Any U.S. person who creates a foreign trust or transfers 
     money or property to a foreign trust is required to report 
     that event to the IRS without regard to whether the trust is 
     a grantor or a nongrantor trust. Similarly, any U.S. person 
     who transfers property to a foreign trust that has one or 
     more U.S. beneficiaries is required to report annually to the 
     IRS. In addition, if the transfer of any appreciated property 
     by a U.S. person is subject to section 1491, the transferor 
     is required to report the transfer to the IRS.
       Any person who fails to file a required report with respect 
     to the creation of, or a transfer to, a foreign trust may be 
     subjected to a penalty of 5 percent of the amount transferred 
     to the foreign trust. Similarly, any person who fails to file 
     a required annual report with respect to a foreign trust with 
     U.S. beneficiaries may be subjected to a penalty of 5 percent 
     of the value of the corpus of the trust at the close of the 
     taxable year. The maximum amount of the penalty imposed under 
     either case may not exceed $1,000. A reasonable cause 
     exception is available.
       Reporting of certain foreign gifts
       There is no requirement to report gifts or bequests from 
     foreign sources.
     House bill
       No provision.
     Senate amendment
       Inbound foreign grantor trust rules
       The Senate amendment generally applies the grantor trust 
     rules only to the extent that they result, directly or 
     indirectly, in amounts being currently taken into account in 
     computing the income of a U.S. citizen or resident or a 
     domestic corporation. Certain exceptions apply to this 
     general rule. Under the exceptions, the general rule does not 
     apply in the case of revocable trusts and trusts where the 
     only amounts distributable during the lifetime of the grantor 
     are to the grantor or the grantor's spouse. These exceptions 
     do not apply to the extent of gifts made by a U.S. 
     beneficiary of the trust to the foreign grantor. The 
     provision also does not apply to trusts established to pay 
     compensation, and certain trusts in existence as of September 
     19, 1995 provided such trust is treated as owned by the 
     grantor or another person under section 676 or 677 (other 
     than sec. 677(a)(3)). The exception does not apply to the 
     portion of any such trust attributable to any transfers made 
     after September 19, 1995.
       Effective date.--The provision is effective on the date of 
     enactment.
       Foreign nongrantor trust rules
       Under the Senate amendment, the interest rate applicable to 
     accumulation distributions from foreign nongrantor trusts is 
     the interest rate applicable to underpayments of tax under 
     section 6621(a)(2), with compounding. Simple interest 
     continues to accrue at the rate of 6 percent through 1995. 
     Beginning on January 1, 1996, compound interest based on the 
     underpayment rate will be imposed on tax amounts determined 
     under the accumulation distribution rules and the total 
     simple interest for pre-1996 periods, if any. For purposes of 
     computing the interest charge, the accumulation distribution 
     is allocated proportionately to prior trust years in which 
     the trust has undistributed net income (and the beneficiary 
     receiving the distribution was a U.S. citizen or resident), 
     rather than to the earliest of such years.
       Effective date.--The provision applies to distributions 
     after the date of enactment.
       Under the Senate amendment, the full amount of a loan of 
     cash or marketable securities by the foreign nongrantor trust 
     to a U.S. grantor or a U.S. beneficiary (or a U.S. person 
     related to such a grantor or beneficiary) is treated as 
     distributed to the grantor or beneficiary, even if the loan 
     bears interest at an adequate rate and is subsequently 
     repaid.
       Effective date.--The provision applies to loans made after 
     September 19, 1995.
       Outbound foreign grantor trust rules
       The Senate amendment treats a nonresident alien individual 
     who transfers property to a foreign trust and then becomes a 
     U.S. resident within 5 years after the transfer as making a 
     transfer to the foreign trust on his residency starting date. 
     Under the Senate amendment, in determining whether a foreign 
     trust paid fair market value to the transferor for property 
     transferred to the trust, obligations issued by the trust, by 
     any grantor or beneficiary of the trust, or by any person 
     related to any grantor or beneficiary generally are not taken 
     into account except as provided in regulations. The Senate 
     amendment grants broad authority to the Secretary of the 
     Treasury to treat anyone who was a U.S. person at any time 
     during the existence of the trust as a U.S. person in 
     determining whether there are U.S. beneficiaries of the 
     trust.
       Effective date.--The provision applies to transfers of 
     property after February 6, 1995.
       Residence of estates and trusts
       The Senate amendment establishes a two-part objective test 
     for determining whether a trust is foreign or domestic for 
     tax purposes. If both parts of the test are satisfied, the 
     trust is treated as domestic. Only the first part of the test 
     applies to estates. First, if a U.S. court exercises primary 
     supervision over the administration of the estate or trust, 
     the estate or trust is treated as domestic. Second, if one or 
     more U.S. fiduciaries have the authority to control all 
     substantial decisions of the trust, the trust is treated as 
     domestic.
       Under the Senate amendment, if a domestic trust changes its 
     situs and becomes a foreign trust, the trust is treated as 
     having made a transfer of its assets to the foreign trust and 
     is subject to the 35-percent excise tax imposed by present-
     law section 1491 unless one of the exceptions to this excise 
     tax is applicable.
       Effective date.--The provision modifying the rules to 
     determine the residence of a trust or estate is effective for 
     taxable years beginning after December 31, 1996. A trustee 
     may elect to apply the provision to taxable years ending 
     after the date of enactment. The amendment to section 1491 is 
     effective on the date of enactment.
       Information reporting requirements and associated penalties
       Under the Senate amendment, the grantor, transferor or 
     executor (the ``responsible party'') is required to notify 
     the Treasury department upon the occurrence of certain 
     reportable events: the creation of a foreign trust by a U.S. 
     person, the transfer of money or property to a foreign trust 
     by a U.S. person and the death of a U.S. citizen or U.S. 
     resident if any portion of a foreign trust was included in 
     the gross estate of the decedent. In addition, a U.S. owner 
     of any portion of a foreign trust is required to ensure that 
     the trust files an annual report with the Treasury department 
     to provide full accounting of all the trust activities for 
     the taxable year. Finally, any U.S. person who receives any 
     distribution from a foreign trust is required to file a 
     notice with the Treasury department to report the aggregate 
     amount of the distributions received during the taxable year.
       The Senate amendment provides that if a U.S. owner of any 
     portion of a foreign trust 

[[Page H 12890]]
     fails to appoint a limited U.S. agent to accept service of process with 
     respect to requests and summons by the Secretary of the 
     Treasury in connection with tax treatment of items related to 
     the trust, the Secretary of the Treasury may determine, in 
     its sole discretion, the amount to be taken into account by a 
     U.S. person under the grantor trust rules. In cases where 
     adequate records are not provided to the Treasury department 
     to determine the proper treatment of any distributions from a 
     foreign trust, the distribution includible in the gross 
     income of the distributee will be treated as an accumulation 
     distribution from a foreign trust, unless the foreign trust 
     elects to have a U.S. agent for the limited purpose of 
     accepting service of process (as described above).
       Under the Senate amendment, a person who fails to provide 
     the required notice in cases involving the transfer of 
     property to any foreign trust, or a distribution by a foreign 
     trust to a U.S. person, is subject to an initial penalty 
     equal to 35 percent of the ``gross reportable amount'' 
     (generally the value of the property involved in the 
     transaction). A failure to provide an annual reporting of 
     trust activities will result in an initial penalty equal to 5 
     percent of the gross reportable amount. An additional $10,000 
     penalty is imposed for continued failure for each 30-day 
     period beginning 90 days after the Secretary of the Treasury 
     notifies the responsible party of such failure. Such 
     penalties are subject to a reasonable cause exception. In no 
     event will the total amount of penalties exceed the gross 
     reportable amount.
       Effective date.--The reporting requirements and applicable 
     penalties generally apply to reportable events occurring or 
     distributions received after the date of enactment. The 
     annual reporting requirement and penalties applicable to U.S. 
     grantors apply to taxable years of such persons beginning 
     after the date of enactment.
       Reporting of certain foreign gifts
       The Senate amendment generally requires any U.S. person 
     (other than certain tax-exempt organizations) that receives 
     purported gifts or bequests from foreign sources totaling 
     more than $10,000 during the taxable year to report them to 
     the Treasury department. If the U.S. person fails, without 
     reasonable cause, to report foreign gifts as required, the 
     U.S. person will be subject to a penalty equal to 5 percent 
     of the amount of the gift for each month that the failure 
     continues, with the total penalty not to exceed 25 percent of 
     such amount. In addition, certain sanctions may apply.
       Effective date.--This provision applies to amounts received 
     after the date of enactment.
     Conference agreement
       The conference agreement follows the Senate amendment, with 
     modifications and clarifications.
       Inbound foreign grantor trust rules
       The conference agreement clarifies that a foreign 
     corporation that is otherwise a passive foreign investment 
     company (``PFIC'') as defined in section 1296 may not avoid 
     PFIC characterization under the grantor trust rules (e.g., by 
     transferring its assets to a grantor trust).
       The conference agreement modifies the Senate amendment by 
     providing that the rule which treats a U.S. beneficiary of an 
     inbound grantor trust who transferred property to the foreign 
     grantor by gift as a grantor of the trust to the extent of 
     the transfer applies without regard to whether the foreign 
     grantor would otherwise be treated as the owner of any 
     portion of such trust. This provision is designed to prevent 
     the use of pre-immigration gifts to avoid the application of 
     the grantor trust rules.
       Foreign nongrantor trust rules
       Under the Senate amendment, the full amount of a loan of 
     cash or marketable securities by a foreign nongrantor trust 
     to a U.S. grantor or a U.S. beneficiary (or a U.S. person 
     related to such a grantor or beneficiary) is treated as 
     distributed to the grantor or beneficiary, even if the loan 
     bears interest at an adequate rate and is subsequently 
     repaid. The conference agreement provides that the Secretary 
     of the Treasury may prescribe regulations providing 
     exceptions to this rule. The conferees intend that a loan 
     that bears arm's-length terms would qualify for such an 
     exception.
       Outbound foreign grantor trust rules
       Under the Senate amendment, in determining whether a 
     foreign trust paid fair market value to the transferor for 
     property transferred to the trust, obligations issued by the 
     trust, by any grantor or beneficiary of the trust, or by any 
     person related to any grantor or beneficiary generally are 
     not taken into account except as provided in regulations. The 
     conferees intend to clarify that an obligation that bears 
     arm's-length terms would qualify for such an exception.
       The conference agreement deletes the provision of the 
     Senate amendment that grants broad authority to the Secretary 
     of the Treasury to treat anyone who was a U.S. person at any 
     time during the existence of the trust as a U.S. person in 
     determining whether there are U.S. beneficiaries of the 
     trust.
       Information reporting requirements and associated reporting 
           penalties
           Transfers to certain nonexempt trusts
       The Senate amendment requires the grantor, transferor, or 
     executor to notify the Treasury department upon the 
     occurrence of certain reportable events: the creation of a 
     foreign trust by a U.S. person, the transfer of money or 
     property to a foreign trust by a U.S. person, and the death 
     of a U.S. citizen or U.S. resident if any portion of a 
     foreign trust was included in the gross estate of the 
     decedent. The conference agreement modifies the Senate 
     amendment and excludes from the definition of reportable 
     events any such occurrence with respect to a nonexempt 
     employees' trust that is described in section 402(b).
           Sanction for failure to appoint limited U.S. agent
       The Senate amendment provides that if a U.S. owner of any 
     portion of a foreign trust fails to appoint a limited U.S. 
     agent to accept service of process with respect to requests 
     and summons by the Secretary of the Treasury in connection 
     with the tax treatment of items related to the trust, the 
     Secretary of the Treasury may determine, in its sole 
     discretion, the amount to be taken into account by a U.S. 
     person under the grantor trust rules. Under the conference 
     agreement, in cases where a U.S. grantor of a foreign trust 
     does not appoint such a limited agent, the Secretary of the 
     Treasury may determine the amount to be taken into account by 
     a U.S. person under the grantor trust rules. In this regard, 
     the conferees intend that the Treasury Secretary's exercise 
     of its authority to make such a determination will be subject 
     to judicial review under an arbitrary or capricious standard, 
     which accordingly provides a high degree of deference to such 
     determination.
           Sanction for failure to maintain adequate records
       The conference agreement clarifies the provision of the 
     Senate amendment which provides that in cases where adequate 
     records are not provided to the Treasury department to 
     determine the proper treatment of any distributions from a 
     foreign trust, the distribution includible in the gross 
     income of the distributee generally will be treated as an 
     accumulation distribution includible in the gross income of 
     the distributee from a foreign trust. Under the conference 
     agreement, when a U.S. distributee does not provide 
     sufficient records, the accumulation distribution is deemed 
     to come from the trust's average year (i.e., the number of 
     years that the trust has been in existence divided by two) 
     for purposes of computing the interest charge applicable to 
     such distribution.
       Reporting of certain foreign gifts
       The Senate amendment generally requires any U.S. person 
     (other than certain tax-exempt organizations) that receives 
     purported gifts or bequests from foreign sources totaling 
     more than $10,000 during the taxable year to report them to 
     the Treasury department. Under the conference agreement, the 
     threshold for this reporting requirement is indexed for 
     inflation.


   18. Treatment of financial asset securitization investment trusts 
           (``FASITs'') (sec. 12851 of the Senate amendment)

     Present law
       An individual can own income-producing assets directly, or 
     indirectly through an entity (i.e., a corporation, 
     partnership, or trust). Where an individual owns assets 
     through an entity (e.g., a corporation), the nature of the 
     interest in the entity (e.g., stock of a corporation) is 
     different than the nature of the assets held by the entity 
     (e.g., assets of the corporation).
       Securitization is the process of converting one type of 
     asset into another and generally involves the use of an 
     entity separate from the underlying assets. In the case of 
     securitization of debt instruments, the instruments created 
     in the securitization typically have different maturities and 
     characteristics than the debt instruments that are 
     securitized.
       Entities used in securitization include entities that are 
     subject to tax (e.g., a corporation), conduit entities that 
     generally are not subject to tax (e.g., a partnership, 
     grantor trust, or real estate mortgage investment conduit 
     (``REMIC'')), or partial-conduit entities that generally are 
     subject to tax only to the extent income is not distributed 
     to owners (e.g., a trust, real estate investment trust 
     (``REIT''), or regulated investment company (``RIC'')).
       There is no statutory entity that facilitates the 
     securitization of revolving, non-mortgage debt obligations.
     House bill
       No provision.
     Senate amendment
       The Senate amendment creates a new type of statutory entity 
     called a ``financial asset securitization investment trust'' 
     (``FASIT'') that facilitates the securitization of debt 
     obligations such as credit card receivables, home equity 
     loans, and auto loans. A FASIT generally will not be taxable; 
     the FASIT's taxable income or net loss will flow through to 
     the owner of the FASIT.
       The ownership interest of a FASIT generally will be 
     required to be entirely held by a single domestic C 
     corporation. In addition, a FASIT generally may hold only 
     qualified debt obligations, and certain other specified 
     assets, and will be subject to certain restrictions on its 
     activities. An entity that qualifies as a FASIT can issue 
     instruments that meet certain specified requirements and 
     treat those instruments as debt for Federal income tax 
     purposes. Instruments issued by a FASIT bearing yields to 
     maturity over 5 

[[Page H 12891]]
     percentage points above the yield to maturity on specified United 
     States government obligations (i.e., ``high-yield 
     interests'') may be held only by domestic C corporations that 
     are not exempt from income tax.
       Effective date.--The provisions take effect on the date of 
     enactment.
     Conference agreement
       In general
       The conference agreement adopts the provisions of the 
     Senate amendment with modifications. Thus, the conference 
     agreement creates a new type of statutory entity called a 
     ``financial asset securitization investment trust'' 
     (``FASIT'') that facilitates the securitization of debt 
     obligations such as credit card receivables, home equity 
     loans, and auto loans. A FASIT generally will not be taxable; 
     the FASIT's taxable income or net loss will flow through to 
     the owner of the FASIT.
       The ownership interest of a FASIT generally will be 
     required to be entirely held by a single domestic C 
     corporation. The conferees expect that the Treasury 
     Department will issue guidance on how this rule would apply 
     to cases in which the entity that owns the FASIT join in the 
     filing of a consolidated return with other members of the 
     group that wish to hold an ownership interest in the FASIT. 
     In addition, a FASIT generally may hold only qualified debt 
     obligations, and certain other specified assets, and will be 
     subject to certain restrictions on its activities. An entity 
     that qualifies as a FASIT can issue instruments that meet 
     certain specified requirements and treat those instruments as 
     debt for Federal income tax purposes. Instruments issued by a 
     FASIT bearing yields to maturity over 5 percentage points 
     above the yield to maturity on specified United States 
     government obligations (i.e., ``high-yield interests'') may 
     be held only by domestic C corporations that are not exempt 
     from income tax.
       Qualification as a FASIT
           In general
       To qualify as a FASIT an entity must: (1) make an election 
     to be treated as a FASIT for the year of the election and all 
     subsequent years; (2) have assets substantially all of which 
     (including assets that the FASIT is treated as owning because 
     they support regular interests) are specified types called 
     ``permitted assets;'' (3) have non-ownership interests be 
     certain specified types of debt instruments called ``regular 
     interests''; (4) have a single ownership interest which is 
     held by an ``eligible holder''; and (5) not qualify as a 
     RIC.69
     \69\ The Senate amendment also required that an entity cannot 
     be a FASIT if any person other than the FASIT's owner holds 
     the right to receive excess servicing fees with respect to 
     permitted debt instruments. The conference agreement deleted 
     this requirement in favor of a requirement that gain on 
     retained servicing fees and other stripped interests be 
     recognized.
---------------------------------------------------------------------------
           Election to be a FASIT
       Once an election to be a FASIT is made, the election 
     applies for that year and all subsequent years until the 
     entity ceases to be a FASIT.70 Once an entity ceases to 
     be a FASIT, it is not a FASIT for that year or any subsequent 
     year. Nonetheless, an entity can continue to be a FASIT where 
     the Treasury Department determines that the entity 
     inadvertently ceases to be a FASIT, steps are taken 
     reasonably soon after it is discovered that the entity ceased 
     being a FASIT so that it again qualifies as a FASIT, and the 
     FASIT and its owner take those steps that the Treasury 
     Department deems necessary. If an election to be a FASIT is 
     made after the initial year of an entity, all of the assets 
     in the entity at the time of the FASIT election are deemed 
     contributed to the FASIT at that time and, accordingly, any 
     gain (but not loss) on such assets will be recognized at that 
     time.
     \70\ The Senate amendment required that the election to be a 
     FASIT must be made on its return for its first year. The 
     conference agreement deleted this rule.
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           Permitted assets
       In general.--For an entity or arrangement to qualify as a 
     FASIT, substantially all of its assets must consist of the 
     following ``permitted assets'': 71 (1) cash and cash 
     equivalents; 72 (2) certain permitted debt instruments; 
     (3) certain foreclosure property; (4) certain instruments or 
     contracts that represent a hedge or guarantee of debt held or 
     issued by the FASIT; and (5) contract rights to acquire 
     permitted debt instruments or hedges. A FASIT must meet the 
     asset test at the 90th day after its formation and at all 
     times thereafter. Permitted assets may be acquired at any 
     time by a FASIT, including any time after its formation.
     \71\ The conference agreement deleted the provision in the 
     Senate amendment that included a partnership interest as a 
     permitted asset if all of the assets of the partnership are 
     permitted debt instruments and the partnership interest 
     provides the partner with an undivided interest in those 
     permitted debt instruments.
     \72\ The Senate amendment provided that permitted assets 
     included investments of amounts received from permitted debt 
     obligations for a temporary period before distributions to 
     regular and ownership interests in the FASIT. The conference 
     agreement expanded the definition of permitted assets to 
     include cash and cash equivalents and deleted the category 
     for temporary period investments.
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       Permitted debt instruments.--A debt instrument will be a 
     permitted asset only if the instrument is indebtedness for 
     Federal income tax purposes and it bears (1) fixed interest 
     or (2) variable interest of a type that relates to qualified 
     variable rate debt (as defined in Treasury regulations 
     prescribed under sec. 860G(a)(1)(B)). Except for cash 
     equivalents, permitted debt obligations cannot be obligations 
     issued, directly or indirectly, by the owner of the FASIT or 
     a related person.
       Foreclosure property.--Permitted assets include property 
     acquired on default (or imminent default) of debt instruments 
     held by the FASIT that would be foreclosure property to a 
     REIT (under sec. 856(e)) or would be foreclosure property to 
     a REIT but for certain leases entered into or construction 
     performed (as described in sec. 856(e)(4)) while held by the 
     FASIT.
       Hedges.--Permitted assets include interest rate or foreign 
     currency notional principal contracts, letters of credit, 
     insurance, guarantees against payment defaults, or other 
     similar instruments as permitted under Treasury regulations, 
     which are reasonably required to guarantee or hedge against 
     the FASIT's risks associated with being the obligor of 
     regular interests.
           ``Regular interests'' of a FASIT
       Under the conference agreement, ``regular interests,'' 
     including ``high-yield interests,'' of a FASIT are treated as 
     debt for Federal income tax purposes regardless of whether 
     instruments with similar terms issued by non-FASITs might be 
     characterized as equity under general tax principles. To be 
     treated as a ``regular interest,'' an instrument must have 
     fixed terms and must: (1) unconditionally entitle the holder 
     to receive a specified principal amount; (2) pay interest 
     that is based on (a) one or more rates that are fixed, (b) 
     rates that measure contemporaneous variations in the cost of 
     newly borrowed funds, or (c) to the extent permitted by 
     Treasury regulations, variable rates allowed to regular 
     interests of a REMIC if the FASIT would otherwise qualify as 
     a REMIC; (3) have a term to maturity of no more than 30 
     years, except as permitted by Treasury regulations; (4) be 
     issued to the public with a premium of not more than 25 
     percent of its stated principal amount; and (5) have a yield 
     to maturity at issue of no more than 5 percentage points 
     above the applicable Federal rate (AFR) for the calendar 
     month in which the instrument is issued.
       A FASIT also may issue high-yield debt instruments, which 
     includes any debt instrument issued by a FASIT that meets the 
     second and third conditions described above, so long as such 
     interests are not held by a disqualified holder. A 
     ``disqualified holder'' generally is any holder other than 
     (1) a domestic C corporation that does not qualify as a RIC, 
     REIT, REMIC, or cooperative 73 or (2) a dealer who 
     acquires FASIT debt for resale to customers in the ordinary 
     course of business.74 An excise tax is imposed at the 
     highest corporate rate on a dealer if there is a change in 
     dealer status or if the holding of the instrument is for 
     investment purposes. A 31-day grace period is granted before 
     ownership of an interest held by a dealer generally could be 
     treated as held by the FASIT owner for investment purposes.
     \73\ The Senate amendment did not include cooperatives as a 
     disqualified holder. The conferees believe that cooperatives 
     also should be treated as disqualified holders since 
     cooperatives, like RICs and REITs, are treated as pass-
     through entities and, also like the owners of RIC's and 
     REITs, the cooperative's members and patrons need not be C 
     corporations.
     \74\ The Senate amendment also excluded from a disqualified 
     holder a dealer in goods and services provided that the 
     permitted debt instruments in the FASIT exclusively were 
     loans made by a dealer in the ordinary course of his business 
     to finance the dealer's goods or services. The conference 
     agreement deleted this rule. In addition, in the case of a 
     securities dealer which may be an eligible holder, the 
     conferees understand that the mark-to-market rule of section 
     475 will not apply to an ownership interest in a FASIT or 
     assets held in the FASIT.
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           Permitted ownership holder
       A permitted holder of the ownership interest in a FASIT 
     generally is a non-exempt domestic C corporation, other than 
     a corporation that qualifies as a RIC, REIT, REMIC, or 
     cooperative.
       Transfers to non-permitted holders of high-yield interest
       A transfer of a high-yield interest to a disqualified 
     holder is to be ignored for Federal income tax purposes. 
     Thus, such a transferor will continue to be liable for any 
     taxes due with respect to the transferred interest.
       Taxation of a FASIT
           In general
       A FASIT generally is not subject to tax. Instead, all of 
     the FASIT's assets and liabilities are treated as assets and 
     liabilities of the FASIT's owner and any income, gain, 
     deduction or loss of the FASIT is allocable directly to its 
     owner.75 Any securities held by the FASIT that are 
     treated as held its owner are treated as held for investment. 
     The taxable income of a FASIT is calculated using an accrual 
     method of accounting. The constant yield method and 
     principles that apply 

[[Page H 12892]]
     for purposes of determining OID accrual on debt obligations whose 
     principal is subject to acceleration apply to all debt 
     obligations held by a FASIT to calculate the FASIT's interest 
     and discount income and premium deductions or adjustments. 
     For this purpose, a FASIT's income does not include any 
     income subject to the 100-percent penalty excise tax on 
     prohibited transactions and a deduction is allowed for the 
     corporate tax paid on income from foreclosure property.
     \75\ The Senate amendment required that the taxable income of 
     a FASIT generally is calculated as if it were a partnership. 
     The conference agreement deleted this rule in favor of a rule 
     stating that the FASIT's owner include all of the FASIT's 
     assets, liabilities, income, gain, deductions, losses and 
     credits in computing its Federal income tax since the Senate 
     amendment's partnership rule might result in unexpected 
     erroneous consequences where the FASIT can have only one 
     owner. The conference agreement retained the rule of the 
     Senate amendment that treats tax-exempt interest to the FASIT 
     as taxable ordinary income to the FASIT owner. The Senate 
     amendment required that the FASIT have the same taxable year 
     as its owner. The conference agreement deleted this 
     requirement as unnecessary in light of the conference 
     agreement's adoption of a flow-through rule in lieu of the 
     partnership rule.
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           Income from foreclosure property
       A FASIT is subject to tax at the highest corporate rate on 
     net income from any foreclosure property that was acquired in 
     connection with the default or imminent default of a 
     permitted debt obligation. For this purpose, property is 
     foreclosure property if it would be foreclosure property to a 
     REIT, determined without the special rules for leased 
     property or property under construction (sec. 856(e)(4)). 
     Foreclosure property does not include property acquired 
     pursuant to a security interest that was created for the 
     principal purpose of having the FASIT acquire such property.
           Income from prohibited transactions
       In addition to any tax on foreclosure property, a FASIT is 
     required to pay a penalty excise tax equal to 100 percent of 
     net income derived from (1) an asset that is not a permitted 
     asset, (2) any disposition of an asset other than a permitted 
     disposition, (3) any income attributable to loans originated 
     by the FASIT,76 and (4) compensation for services (other 
     than fees for a waiver, amendment, or consent under permitted 
     assets not acquired through foreclosure). A permitted 
     disposition is any disposition (1) arising from complete 
     liquidation of a class of regular interests (i.e., a 
     qualified liquidation), (2) incident to the foreclosure, 
     default, or imminent default of the asset, (3) incident to 
     the bankruptcy or insolvency of the FASIT, (4) necessary to 
     avoid a default on any indebtedness of the FASIT attributable 
     to a default (or imminent default) on an asset of the FASIT, 
     (4) to facilitate a clean-up call, or (5) to substitute a 
     permitted debt instrument for another such instrument in 
     order to reduce over-collateralization where a principal 
     purpose of the disposition was not to avoid recognition of 
     gain arising from an increase in its market value after its 
     acquisition by the FASIT.
     \76\ The conference agreement added this rule.
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       Taxation of interests in the FASIT
           Taxation of holders of regular interests
       In general.--A holder of a regular interest, including a 
     high-yield interest, is taxed in the same manner as a holder 
     of any other debt instrument, except that the regular 
     interest holder is required to account for income relating to 
     the interest on an accrual method of accounting, regardless 
     of the method of accounting otherwise used by the holder.
       High-yield interests.--Holders of high-yield interests are 
     not allowed to use net operating losses to offset any income 
     derived from the high-yield debt. Any net operating loss 
     carryover shall be computed by disregarding any income 
     arising by reason of the disallowed loss.
       In addition, a transfer of a high-yield interest to a 
     disqualified holder is not recognized for Federal income tax 
     purposes such that the transferor will continue to be taxed 
     on the income from the high-yield interest unless the 
     transferee provides the transferor with an affidavit that the 
     transferee is not a disqualified person or the Treasury 
     Secretary determines that the high-yield interest is no 
     longer held by a disqualified person and a corporate tax has 
     been paid on the income from the high-yield interest while it 
     was held by a disqualified person. High-yield interests may 
     be held without a corporate tax being imposed on the income 
     from the high-yield interest where the interest is held by a 
     dealer in securities who acquired such high-yield interest 
     for sale in the ordinary course of his business as a 
     securities dealer. In such a case, a corporate tax is imposed 
     on such a dealer if his reason for holding the high-yield 
     interest changes to investment. There is a presumption that 
     the dealer has not changed his intent for holding high-yield 
     instruments to investment for the first 31 days he holds such 
     interests unless such holding is part of a plan to avoid the 
     restriction on holding of high-yield interests by 
     disqualified persons.
       Where a pass-through entity (other than a FASIT) issues 
     either debt or equity instruments that are supported by 
     regular interests in a FASIT and such instruments bear a 
     yield to maturity greater than the yield on the regular 
     interests or the applicable Federal rate plus 5 percentage 
     points, then an excise tax is imposed on the pass-through 
     entity at a rate equal to the highest corporate rate on the 
     income of any holder of such instrument attributable to the 
     regular interests.77
     \77\ The conference agreement added this provision.
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           Taxation of holder of ownership interest
       All of the FASIT's assets and liabilities are treated as 
     assets and liabilities of the holder of a FASIT ownership 
     interest and that owner takes into account all of the FASIT's 
     income, gain, deduction, or loss in computing its taxable 
     income or net loss for the taxable year. The character of the 
     income to the holder of an ownership interest is the same as 
     its character to the FASIT, except tax-exempt interest is 
     taken into income of the holder as ordinary income.
       Losses on assets contributed to the FASIT are not allowed 
     upon their contribution, but may be allowed to the FASIT 
     owner upon their disposition by the FASIT. A special rule 
     provides that the holder of a FASIT ownership interest cannot 
     offset income from the FASIT ownership interest with any 
     other losses. Any net operating loss carryover of the FASIT 
     owner shall be computed by disregarding any income arising by 
     reason of a disallowed loss.
       For purposes of the alternative minimum tax, the owner's 
     taxable income is determined without regard to the minimum 
     FASIT income. The alternative minimum taxable income of the 
     FASIT owner cannot be less than the FASIT income for that 
     year, and the alternative minimum tax net operating loss 
     deduction is computed without regard to the minimum FASIT 
     income.
       Transfers to and distributions from FASITs
       Gain generally is recognized immediately by the owner of 
     the FASIT upon the transfer of assets to a FASIT. Assets that 
     are acquired by the FASIT from someone other than its owner 
     are treated as if they were acquired by the owner and then 
     contributed to the FASIT. In addition, any assets of the 
     FASIT owner or a related person that are used to support 
     FASIT regular interests are treated as contributed to the 
     FASIT and thus also are treated as sold at the earliest date 
     that such assets support any FASIT's regular 
     interests.78 To the extent provided by Treasury 
     regulations, gain recognition on the contributed assets may 
     be deferred until such assets support regular interests 
     issued by the FASIT or any indebtedness of the owner or 
     related person. These regulations may adjust other statutory 
     FASIT provisions to the extent such provisions are 
     inconsistent with such regulations. For example, such 
     regulations may disqualify certain assets as permitted 
     assets.
     \78\ The Senate amendment directly reached that result since 
     it provided that any assets of the FASIT's owner or its 
     related person are treated as sold at the earliest date that 
     such assets support of the FASIT's regular interests.
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       A distribution of assets by a FASIT with respect to a 
     regular or ownership interest generally is treated as a sale 
     of the assets and distribution of the sale proceeds. The 
     conferees understand that gain may be recognized if the FASIT 
     distributes assets to retire a regular interest because such 
     a transaction is treated as a sale or exchange.
       The basis of any FASIT asset is increased by the amount of 
     the taxable gain recognized on the contribution of the assets 
     to, or distribution of the assets from, the FASIT.
       Valuation rules
       In general, except in the case of debt instruments, the 
     value of FASIT assets is their fair market value. The 
     conference agreement contain special rules for valuing debt 
     instruments for purposes of computing gain on the transfer to 
     or from a FASIT.79 Under these rules, the value of debt 
     instruments generally is the sum of the present values of the 
     reasonably expected cash flows from such obligations 
     discounted over the weighted average life of such assets. The 
     discount rate is 120 percent of the applicable Federal rate, 
     compounded semiannually, or such other rate that the Treasury 
     Secretary shall prescribe by regulations.80 For purposes 
     of determining the value of a pool of revolving loan accounts 
     having substantially the same terms, each extension of credit 
     (other than the accrual of interest) is treated as a separate 
     debt instrument and the maturity of the instruments is 
     determined using the reasonably anticipated periodic payment 
     rate at which principal payments will be made as a proportion 
     of their aggregate outstanding principal balances assuming 
     that payments are applied to the earliest credit extensions. 
     The conferees understand that reasonably expected cash flows 
     from loans will reflect nonpayments (i.e., losses) and early 
     payments (i.e., prepayments), but not costs of servicing the 
     loans.
     \79\ The Senate amendment provided that the valuation rules 
     only applied in determining the value of assets contributed 
     to the FASIT. The conference agreement extended the valuation 
     rules to distributions from a FASIT.
     \80\ The Senate amendment provided that the discount rate be 
     130 percent of the applicable Federal rate (AFR). Since the 
     conference agreement allows the reasonably expected cash 
     flows to reflect losses, the conferees believe that the 
     proper rate to discount those net cash flows should be 120 
     percent of the AFR.
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       Related person
       For purposes of the FASIT rules, a person is related to 
     another person if that person bears a relationship to the 
     other person specified in sections 267(b) or 707(b)(1), using 
     a 20-percent ownership test instead of the 50-percent test, 
     or such persons are engaged in trades or businesses under 
     common control as determined under sections 52(a) or (b).
       Effective date
       The provisions of the conference agreement take effect on 
     the date of enactment.


    19. Treatment of contributions in aid of construction for water 
           utilities (sec. 12861(a) of the Senate amendment)

     Present and prior law
       The gross income of a corporation does not include 
     contributions to its capital. A contribution to the capital 
     of a corporation does not include any contribution in aid of 
     construction or any other contribution as a customer or 
     potential customer.
       Prior to the enactment of the Tax Reform Act of 1986 
     (``1986 Act''), a regulated public 

[[Page H 12893]]
     utility that provided electric energy, gas, water, or sewage disposal 
     services was allowed to treat any amount of money or property 
     received from any person as a tax-free contribution to its 
     capital so long as such amount: (1) was a contribution in aid 
     of construction; and (2) was not included in the taxpayer's 
     rate base for rate-making purposes. A contribution in aid of 
     construction did not include a connection fee. The basis of 
     any property acquired with a contribution in aid of 
     construction was zero.
       If the contribution was in property other than electric 
     energy, gas, steam, water, or sewerage disposal facilities, 
     such contribution was not includible in the utility's gross 
     income so long as: (1) an amount at least equal to the amount 
     of the contribution was expended for the acquisition or 
     construction of tangible property that was used predominantly 
     in the trade or business of furnishing utility services; (2) 
     the expenditure occurred before the end of the second taxable 
     year after the year that the contribution was received; and 
     (3) certain records were kept with respect to the 
     contribution and the expenditure. In addition, the statute of 
     limitations for the assessment of deficiencies was extended 
     in the case of these contributions.
       These rules were repealed by the 1986 Act. Thus, after the 
     1986 Act, the receipt by a utility of a contribution in aid 
     of construction is includible in the gross income of the 
     utility, and the basis of property received or constructed 
     pursuant to the contribution is not reduced.
     House bill
       No provision.
     Senate amendment
       The Senate amendment restores the contributions in aid of 
     construction provisions that were repealed by the 1986 Act 
     for regulated public utilities that provide water or sewerage 
     disposal services.
       Effective date.--The provision is effective for amounts 
     received after the date of enactment.
     Conference agreement
       The conference agreement follows the Senate amendment.


  20. Require water utility property to be depreciated over 25 years 
                (sec. 12861(b) of the Senate amendment)

     Present law
       Property used by a water utility in the gathering, 
     treatment, and commercial distribution of water and municipal 
     sewers are depreciated over a 20-year period for regular tax 
     purposes. The depreciation method generally applicable to 
     property with a recovery period of 20 years is the 150-
     percent declining balance method (switching to the straight-
     line method in the year that maximizes the depreciation 
     deduction). The straight-line method applies to property with 
     a recovery period over 20 years.
     House bill
       No provision.
     Senate amendment
       The Senate amendment provides that water utility property 
     will be depreciated using a 25-year recovery period and the 
     straight-line method for regular tax purposes. For this 
     purpose, ``water utility property'' means (1) property that 
     is an integral part of the gathering, treatment, or 
     commercial distribution of water, and that, without regard to 
     the proposal, would have had a recovery period of 20 years 
     and (2) any municipal sewer. Such property generally is 
     described in Asset Classes 49.3 and 51 of Revenue Procedure 
     87-56, 1987-2 C.B. 674. The Senate amendment does not change 
     the class lives of water utility property for purposes of the 
     alternative depreciation system of section 168(g).
       Effective date.--The provision is effective for property 
     placed in service after the date of enactment, other than 
     property placed in service pursuant to a binding contract in 
     effect on such date and at all times thereafter before the 
     property is placed in service.
     Conference agreement
       The conference agreement follows the Senate amendment.


    21. Allow amortization for intrastate operating rights of motor 
             carriers (sec. 12862 of the Senate amendment)

     Present law and background
       A taxpayer is allowed to write-off and deduct the adjusted 
     basis of property used in trade or business when such 
     property becomes worthless (sec. 165). A deduction is not 
     allowed if the property merely loses value but does not 
     become worthless. For example, in CRST, Inc., 909 F2d. 1146 
     (8th Cir. 1990), a motor carrier was denied a worthlessness 
     deduction for the basis of operating authorities that had 
     become less valuable, but not worthless, due to deregulation.
       Effective January 1, 1995, section 601 of the Federal 
     Aviation Administration Authorization Act of 1994 preempts 
     and prohibits State regulation of the price, route, or 
     service of intrastate operations of motor carriers. In 1980, 
     Congress similarly deregulated the operation of interstate 
     motor carriers. Pursuant to section 266 of the Economic 
     Recovery Tax Act of 1981, Congress allowed taxpayers who held 
     operating authorities as of the effective date of such 
     deregulation to amortize the adjusted basis of the 
     authorities over a 60-month period.
     House bill
       No provision.
     Senate amendment
       The Senate amendment allows a taxpayer who held, on January 
     1, 1995, one or more operating authorities that were 
     preempted by section 601 of the Federal Aviation 
     Administration Authorization Act of 1994, to amortize the 
     aggregate adjusted bases of such authorities ratably (i.e., 
     on straight-line basis) over the 36-month period beginning 
     January 1, 1995. The amortization deductions provided under 
     the amendment are treated as depreciation deductions for 
     purposes of the Internal Revenue Code.
       Effective date.--The provision is effective for taxable 
     years ending on or after January 1, 1995.
     Conference agreement
       The conference agreement follows the Senate amendment.


  22. establish 15-year recovery period for retail motor fuels outlet 
              stores (sec. 12863 of the senate amendment)

     Present law
       Under present law, property used in the retail gasoline 
     trade is depreciated under section 168 using a 15-year 
     recovery period and the 150-percent declining balance method. 
     Nonresidential real property (such as a convenience store) is 
     depreciated using a 39-year recovery period and the straight-
     line method. It is understood that taxpayers generally have 
     taken the position that convenience stores and other 
     buildings installed at retail motor fuels outlets have a 15-
     year recovery period. The IRS, in a position described in a 
     recent Coordinated Issues Paper, generally limits the 
     application of the 15-year recovery period to instances where 
     the structure: (1) is 1,400 square feet or less or (2) meets 
     a 50-percent test. The 50-percent test is met if: (1) 50 
     percent or more of the gross revenues that are generated from 
     the building are derived from petroleum sales and (2) 50 
     percent or more of the floor space in the building is devoted 
     to petroleum marketing sales.
     House bill
       No provision.
     Senate amendment
       The Senate amendment provides that 15-year property 
     includes any section 1250 property (generally, depreciable 
     real property) that is a retail motor fuels outlet (whether 
     or not food or other convenience items are sold at the 
     outlet). A retail motor fuels outlet does not include any 
     facility related to petroleum or natural gas trunk pipelines 
     or to any section 1250 property used only to an insubstantial 
     extent in the retail marketing of petroleum or petroleum 
     products.
       Effective date.--The provision is effective for property 
     placed in service before, on, or after the date of enactment 
     and to which the amendments made by section 201 of the Tax 
     Reform Act of 1986 apply (i.e., property subject to the 
     modified Accelerated Cost Recovery System of sec. 168). The 
     taxpayer may elect to forego the application of the provision 
     for any property placed in service prior to the date of 
     enactment.
     Conference agreement
       The conference agreement follows the Senate amendment, with 
     modifications.
       The conference agreement provides a 20-year class life for 
     retail motor fuels outlets for purposes of the alternative 
     depreciation system of section 168(g).
       In addition, the conferees wish to clarify what types of 
     property qualify as a retail motor fuels outlet. Section 1250 
     property will so qualify if it meets a 50-percent test. The 
     50-percent test is met if : (1) 50 percent or more of the 
     gross revenues that are generated from the property are 
     derived from petroleum sales or (2) 50 percent or more of the 
     floor space in the property is devoted to petroleum marketing 
     sales. The conferees intend that the determination of whether 
     either prong of this test is met will be made pursuant to the 
     recent Coordinated Issue Paper. Property not meeting the test 
     will not qualify as a retail motor fuels outlet. For property 
     placed in service in taxable years that end after the date of 
     enactment, the determination of whether the property meets 
     the 50-percent test generally will be made in the year the 
     property is placed in service. However, the test may be 
     applied in the subsequent taxable year if the property is 
     placed in service near the end of the taxable year and the 
     use of the property during such short period is not 
     representative of the subsequent use of the property. The 
     conferees intend that with respect to property placed in 
     service in taxable years that ended before the date of 
     enactment of the provision, the determination of whether the 
     property meets the 50-percent test generally will be made in 
     a manner consistent with the manner in which the 50-percent 
     test of the current Coordinated Issues Paper is applied (but 
     by substituting the disjunctive test of the conference 
     agreement for the present conjunctive test of the Paper). The 
     conferees also intend that if property meets (or fails to 
     meet) the 50-percent test but subsequently fails to meet (or 
     meets) such test for more than a temporary period, such 
     failure (or qualification) may be treated as a change in the 
     use of property to which section 168(I)(5) applies.
       In addition, property the size of which is 1,400 square 
     feet or less also will qualify if such property would have 
     qualified under the current Coordinated Issues Paper.

[[Page H 12894]]



 23. application of failure-to-pay penalty to substitute returns (sec. 
    13639 of the house bill and sec. 12871 of the senate amendment)

     Present law
       Section 6651(a)(2) provides that the IRS may assess a 
     penalty for failure to pay tax from the due date of the 
     return until the tax is paid. If no return is filed by the 
     taxpayer and the IRS files a substitute return under section 
     6020, the tax on which the penalty is measured is considered 
     a deficiency assessable under section 6212 or 6213, and the 
     failure to pay penalty begins to accumulate 10 days after the 
     IRS sends the taxpayer a notice and demand for payment of the 
     tax.
     House bill
       The House bill applies the failure to file penalty to 
     substitute returns in the same manner as the penalty applies 
     to delinquent filers.
       Effective date.--The provision applies in the case of any 
     return the due date for which (determined without regard to 
     extensions) is after the date of enactment.
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


 24. repeal exemption for withholding on gambling winnings from bingo 
and keno where proceeds exceed $5,000 (sec. 13633 of the house bill and 
                  sec. 12872 of the senate amendment)

     Present law
       In general, proceeds from a wagering transaction are 
     subject to withholding at a rate of 28 percent if the 
     proceeds exceed $5,000 and are at least 300 times as large as 
     the amount wagered. No withholding tax is imposed on winnings 
     from bingo or keno.
     House bill
       The House bill imposes withholding on proceeds from bingo 
     or keno wagering transactions at a rate of 28 percent if such 
     proceeds exceed $5,000, regardless of the odds of the wager.
       Effective date.--The provision is effective on January 1, 
     1996.
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


 25. treatment of certain gains and losses of life insurance companies 
       under section 818(b) (sec. 12873 of the senate amendment)

     Present law
       In the case of a taxpayer that is a corporation, losses 
     from the sale or exchange of a capital asset generally are 
     allowed only to the extent of gains from such sales or 
     exchanges (sec. 1211(a)). A loss on the sale or exchange of 
     property used in the trade or business of the taxpayer, 
     however, is treated as an ordinary loss, rather than as a 
     loss from the sale or exchange of a capital asset (secs. 
     1221(2)). In addition, if losses from property used in the 
     trade or business equal or exceed a taxpayer's gains from 
     such property, then the gains and losses are treated as 
     ordinary (sec. 1231).
       A special limitation on ordinary loss treatment applies in 
     the case of a life insurance company, under section 818(b). 
     Section 818(b) provides that property used in the trade or 
     business includes only property used in carrying on an 
     insurance business. Thus, for example, a loss on the sale or 
     exchange of real estate that is held by a life insurance 
     company and that is not used in the insurance business is 
     treated as a capital loss, and is allowed only to the extent 
     of the taxpayer's capital gain.
       Capital losses of a corporation generally may be carried 
     back to each of the three taxable years preceding the loss 
     year, and forward to each of the five taxable years 
     succeeding the loss year (sec. 1212).
     House bill
       No provision.
     Senate amendment
       Under the Senate amendment, capital loss treatment under 
     present-law section 818(b) does not apply to 85 percent of a 
     life insurance company's losses from the sale or exchange of 
     foreclosed real estate. Losses from such property are treated 
     as ordinary losses allowable in equal amounts over each of 
     the first 10 taxable years following the year of disposition. 
     Present-law capital loss treatment under section 818(b) is 
     retained for the remaining 15 percent of such losses. 
     Foreclosure property means real property used in the trade or 
     business that is acquired by a life insurance company as the 
     result of (1) such company having bid on such property at 
     foreclosure, or (2) such company having otherwise reduced 
     such property to ownership or possession by agreement or 
     process of law, after there was a default (or default was 
     imminent) on indebtedness which such property secured.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 1994.
     Conference agreement
       The conference agreement follows the Senate amendment, with 
     modifications.
       Under the conference agreement, a life insurance company 
     may elect ordinary loss treatment for up to 20 percent of the 
     losses for a taxable year from the sale or exchange of 
     foreclosure property. The amount of the loss from foreclosure 
     property for which the taxpayer elects ordinary loss 
     treatment is amortized and recognized ratably over the 10- 
     taxable-year period beginning with the taxable year following 
     the taxable year in which the sale or exchange of the 
     foreclosure property occurred.
       Two further elections are provided under the conference 
     agreement, in addition to the first election under the 
     provision described in the previous paragraph. Under the 
     second election, the taxpayer may elect for any of the 
     taxable years in a ``change period'' to change the percentage 
     of the loss from sale or exchange of foreclosure property 
     that was treated as ordinary loss and amortized over a 10-
     taxable-year period. In no event may the percentage exceed 20 
     percent of the loss from sale or exchange of foreclosure 
     property for the taxable year of such sale or exchange. If 
     the taxpayer elects to change the percentage, the changed 
     percentage is treated as if it were the percentage the 
     taxpayer elected in the year of the sale or exchange of the 
     foreclosure property. Proper adjustments must be made for all 
     taxable years to reflect the change. The ``change period'' is 
     the 3-taxable-year period following the taxable year in which 
     the sale or exchange of the foreclosure property occurred.
       For purposes of the statute of limitations only, any such 
     change in the percentage made during the ``change period'' is 
     treated as a capital loss carryback from the year of the 
     change.
       The conference agreement provides a third election. The 
     taxpayer may elect to treat as a capital loss arising in the 
     taxable year of this third election any unused amount of an 
     ordinary loss from sale or exchange of foreclosure property 
     that was amortized over a 10-taxable-year period under the 
     provision. The unused amount of such a loss is the amount of 
     the amortizable portion of the loss that has not been 
     recognized as of the close of the preceding taxable year. 
     This third election may be made only for any taxable year in 
     the 5-taxable-year period following the taxable year in which 
     the sale or exchange of the foreclosure property occurred. 
     81
     \81\ This period parallels the 5-year period during which the 
     taxpayer could have carried forward the loss, had it been a 
     capital loss.
---------------------------------------------------------------------------
       An ordering rule is provided under the third election. The 
     unused amount of the loss is treated as coming first from the 
     last taxable year in the 10-taxable year period of 
     amortization, and then from each preceding taxable year in 
     reverse chronological order.
       Any of the elections under the provision must be made on or 
     before the due date (including extensions) for the tax return 
     of the taxable year of the election.
       The definition of foreclosure property and the effective 
     date are the same as provided in the Senate amendment.


26. clarify treatment of newspaper distributors and carriers as direct 
              sellers (sec. 12874 of the senate amendment)

     Present law
       For Federal tax purposes, there are two classifications of 
     workers: a worker is either an employee of the service 
     recipient or an independent contractor. Significant tax 
     consequences result from the classification of a worker as an 
     employee or independent contractor. These differences relate 
     to withholding and employment tax requirements, as well as 
     the ability to exclude certain types of compensation from 
     income or take tax deductions for certain expenses. Some of 
     these consequences favor employee status, while others favor 
     independent contractor status. For example, an employee may 
     exclude from gross income employer-provided benefits such as 
     pension, health, and group-term life insurance benefits. On 
     the other hand, an independent contractor can establish his 
     or her own pension plan and deduct contributions to the plan. 
     An independent contractor also has greater ability to deduct 
     work-related expenses.
       Under present law, the determination of whether a worker is 
     an employee or an independent contractor is generally made 
     under a 20-factor common-law facts and circumstances test 
     that seeks to determine whether the service provider is 
     subject to the control of the service recipient, not only as 
     to the nature of the work performed, but the circumstances 
     under which it is performed. Under a special safe harbor rule 
     (sec. 530 of the Revenue Act of 1978), a service recipient 
     may treat a worker as an independent contractor for 
     employment tax purposes even though the worker is an employee 
     under the common-law test if the service recipient has a 
     reasonable basis for treating the worker as an independent 
     contractor and certain other requirements are met.
       In addition to the 20-factor common-law test, there are 
     also some persons who are treated by statute as either 
     employees or independent contractors. For example, ``direct 
     sellers'' are deemed to be independent contractors. A direct 
     seller is a person engaged in the trade or business of 
     selling consumer products in the home or otherwise than in a 
     permanent retail establishment, if substantially all the 
     remuneration for the performance of the services is directly 
     related to sales or other output rather than to the number of 
     hours worked, and the services performed by the person are 
     performed pursuant to a written contract between such person 
     and the service recipient and such 

[[Page H 12895]]
     contract provides that the person will not be treated as an employee 
     for Federal tax purposes.
       The newspaper industry has generally taken the position 
     that newspaper distributors and carriers should be treated as 
     direct sellers for income and employment tax purposes. The 
     Internal Revenue Service has generally taken the position 
     that the direct seller rules do not apply to newspaper 
     distributors and carriers operating under an agency 
     distribution system (i.e., where the publisher retains title 
     to the newspapers).
     House bill
       No provision.
     Senate amendment
       The Senate amendment clarifies the treatment of qualifying 
     newspaper distributors and carriers as direct sellers. Under 
     the Senate amendment, a person engaged in the trade or 
     business of the delivery or distribution of newspapers or 
     shopping news (including any services that are directly 
     related to such trade or business such as solicitation of 
     customers or collection of receipts) qualifies as a direct 
     seller, provided substantially all the remuneration for the 
     performance of the services is directly related to sales or 
     other output rather than to the number of hours worked, and 
     the services performed by the person are performed pursuant 
     to a written contract between such person and the service 
     recipient and such contract provides that the person will not 
     be treated as an employee for Federal tax purposes. The 
     provision is intended to apply to newspaper distributors and 
     carriers whether or not they hire others to assist in the 
     delivery of newspapers. The provision also applies to 
     newspaper distributors and carriers operating under either a 
     buy-sell distribution system (i.e., where the newspaper 
     distributors or carriers purchase the newspapers from the 
     publisher) or an agency distribution system. For example, 
     newspaper distributors and carriers operating under an agency 
     distribution system who are paid based on the number of 
     papers delivered and have an appropriate written agreement 
     qualify as direct sellers. The status of newspaper 
     distributors and carriers who do not qualify as direct 
     sellers under the proposal continue to be determined under 
     present-law rules. No inference is intended with respect to 
     the employment status of newspaper distributors and carriers 
     prior to the effective date of the provision.
       Effective date.--The provision is effective with respect to 
     services performed after December 31, 1995.
     Conference agreement
       The conference agreement follows the Senate amendment. This 
     provision is intended to clarify the worker classification 
     issue for income and employment taxes only. The conferees do 
     not intend this provision to have any impact whatsoever on 
     the interpretation or applicability of Federal, State, or 
     local labor laws.


   27. allow bank common trust funds to transfer assets to regulated 
    investment companies without taxation (sec. 12875 of the senate 
                               amendment)

     Present law
       The common trust fund of a bank is not subject to tax and 
     is not treated as a corporation. Each participant in a common 
     trust fund includes his proportional share of common trust 
     fund income, whether or not the income is distributed or 
     distributable. Participants generally treat their admission 
     to the fund as the purchase of an interest. Withdrawals from 
     the fund generally are treated as the sale of an interest by 
     the participant.
       A RIC also is treated as a conduit for Federal income tax 
     purposes. Present law is unclear as to the tax consequences 
     when a common trust fund transfers its assets to one or more 
     RICs.
     House bill
       No provision.
     Senate amendment
       The Senate amendment permits a common trust fund to 
     transfer substantially all of its assets to one or more RICs 
     without gain or loss being recognized by the fund or its 
     participants. The fund must transfer its assets to the RICs 
     solely in exchange for shares of the RICs, and the fund must 
     then distribute the RIC shares to the fund's participants in 
     exchange for the participant's interests in the fund.
       The basis of any asset that is received by a RIC will be 
     the basis of the asset in the hands of the fund prior to 
     transfer. In addition, the basis of any RIC shares that are 
     received by a fund participant will be an allocable portion 
     of the participant's basis in the interests exchanged.
       Effective date.--Transfers after December 31, 1995.
     Conference agreement
       The conference agreement follows the Senate amendment.


 28. remove business exclusion for energy subsidies provided by public 
                utilities (sec. 13622 of the house bill)

     Present law
       Internal Revenue Code section 136, as added by the Energy 
     Policy Act of 1992, provides an exclusion from the gross 
     income of a customer of a public utility for the value of any 
     subsidy provided by the utility for the purchase or 
     installation of an energy conservation measure with respect 
     to a dwelling unit (as defined by sec. 280A(f)(1)). In 
     addition, for subsidies received after 1994, section 136 
     provides a partial exclusion from gross income for the value 
     of any subsidy provided by a utility for the purchase or 
     installation of an energy conservation measure with respect 
     to property that is not a dwelling unit. The amount of the 
     exclusion is 40 percent of the value for subsidies received 
     in 1995, 50 percent of the value for subsidies received in 
     1996, and 65 percent of the value for subsidies received 
     after 1996.
       For this purpose, an energy conservation measure is any 
     installation or modification primarily designed to reduce 
     consumption of electricity or natural gas or to improve the 
     management of energy demand with respect to property. With 
     respect to property other than a dwelling unit, an energy 
     conservation measure includes ``specially defined energy 
     property'' (generally, property described in sec. 48(l)(5) of 
     the Code as in effect on the day before the date of enactment 
     of the Revenue Reconciliation Act of 1990).
       The exclusion does not apply to payments made to or from a 
     qualified cogeneration facility or a qualifying small power 
     production facility pursuant to section 210 of the Public 
     Utility Regulatory Policy Act of 1978.
       Section 136 denies a deduction or credit to a taxpayer (or 
     in appropriate cases requires a reduction in the adjusted 
     basis of property of a taxpayer) for any expenditure to the 
     extent that a subsidy related to the expenditure was excluded 
     from the gross income of the taxpayer.
     House bill
       The House bill repeals the partial exclusion for any 
     subsidy provided by a utility for the purchase or 
     installation of an energy conservation measure with respect 
     to property that is not a dwelling unit.
       Effective date.--The provision is effective for subsidies 
     received after September 13, 1995, unless received pursuant 
     to a binding written contract in effect on that date and all 
     times thereafter.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill, except 
     that the provision is effective for subsidies received after 
     December 31, 1995, unless received pursuant to a binding 
     written contract in effect on September 13, 1995, and all 
     times thereafter.


 29. require taxpayers to include rental value of residence in income 
   without regard to period of rental (sec. 13640 of the house bill)

     Present law
       Gross income for purposes of the Internal Revenue Code 
     generally includes all income from whatever source derived, 
     including rents. The Code (sec. 280A(g)) provides a de 
     minimis exception to this rule where a dwelling unit is used 
     during the taxable year by the taxpayer as a residence and 
     such dwelling unit is actually rented for less than 15 days 
     during the taxable year. In this case, the income from such 
     rental is not included in gross income and no deductions 
     arising from such rental use are allowed as a deduction.
     House bill
       The House bill repeals the 15-day rule of section 280A(g). 
     It also provides that no reduction in basis is required if 
     the taxpayer: (1) rented the dwelling unit for less than 15 
     days during the taxable year and (2) did not claim 
     depreciation on the dwelling unit for the period of rental.
       Effective date.--Taxable years beginning after December 31, 
     1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


  30. allow conversion of scholarship funding corporation to taxable 
               corporation (sec. 13641 of the house bill)

     Present law
       Qualified scholarship funding corporations are nonprofit 
     corporations established and operated exclusively for the 
     purpose of acquiring student loan notes incurred under the 
     Higher Education Act of 1965 (sec. 150(d)). In addition, a 
     qualified scholarship funding corporation must be required by 
     its corporate charter and bylaws, or under State law, to 
     devote any income (after payment of expenses, debt service 
     and the creation of reserves for the same) to the purchase of 
     additional student loan notes or to pay over any income to 
     the United States.
       In general, State and local government bonds issued to 
     finance private loans (e.g., student loans) are taxable 
     private activity bonds. However, interest on qualified 
     student loan bonds is tax-exempt. Qualified scholarship 
     funding corporations are eligible issuers of qualified 
     student loan bonds.
       The Internal Revenue Code restricts the direct and indirect 
     investment of bond proceeds in higher yielding investments 
     and requires that profits on investments that are unrelated 
     to the government purpose for which the bonds are issued be 
     rebated to the United States. Special allowance payments 
     (SAP) made by the Department of Education are treated as 
     interest on notes and, therefore, are permitted arbitrage 
     that need not be rebated to the United States.
       Generally, a private foundation and disqualified persons 
     may, in the aggregate, own 20 percent of the voting stock of 
     a functionally unrelated corporation.
     House bill
       In general.--The House bill provides that a nonprofit 
     student loan funding corporation 

[[Page H 12896]]
     may elect to cease its status as a qualified scholarship funding 
     corporation. If the corporation meets the requirements 
     outlined below, such an election will not cause any bond 
     outstanding as of the date of the issuer's election and any 
     bond issued to refund such a bond to fail to be a qualified 
     student loan bond. Once made, an election may be revoked only 
     with the consent of the Secretary of Treasury. After making 
     the election, the issuer is not authorized to issue any new 
     bonds.
       Requirements.--First, upon making the election, the issuer 
     is required to transfer all of the student loan notes to 
     another, taxable, corporation in exchange for senior stock of 
     such corporation within a reasonable period of time after the 
     election is made. Immediately after the transfer, the issuer, 
     and any other issuer who made the election, is required to 
     hold all of the senior stock of the corporation. Senior stock 
     is stock whose rights to dividends, liquidation or redemption 
     rights are not inferior to those of any other class of stock 
     and that (1) participates pro rata and fully in the equity 
     value of any other common stock of the corporation, (2) has 
     the right to payments receivable in liquidation prior to any 
     other stock in the corporation, (3) upon liquidation or 
     redemption, has a fixed right to receive the greater of (a) 
     the fair market value of the stock at the date of liquidation 
     or redemption or (b) the net fair market value of all assets 
     transferred to the corporation by the issuer, and (4) has a 
     right to require its redemption by a date which is not later 
     than 10 years after the date that the election is made.
       Second, the transferee corporation is required to assume or 
     otherwise provide for the payment of all the qualified 
     scholarship funding bond indebtedness of the issuer within a 
     reasonable period after the election.
       Third, immediately after the transfer, the issuer (i.e., 
     the nonprofit student loan funding corporation) is required 
     to become a charitable organization (described in section 
     501(c)(3) that is exempt from tax under section 501(a)), at 
     least 80 percent of the members of its board of directors 
     must be independent members, and it must hold all of the 
     senior stock of the corporation.
       Excess business holdings.--For purposes of the excess 
     business holding restrictions imposed on a private 
     foundation, the charity would not be required to divest its 
     ownership in a corporation most of whose assets are student 
     loan notes incurred under the Higher Education Act of 1965.
       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


  31. apply look-through rule for purposes of characterizing certain 
 subpart f insurance income as unrelated business taxable income (sec. 
                        13642 of the house bill)

     Present law
       An organization that is exempt from tax by reason of Code 
     section 501(a) (e.g., a charity, business league, or 
     qualified pension trust) is nonetheless subject to tax on its 
     unrelated business taxable income (UBTI) (sec. 511). 
     Unrelated business taxable income generally excludes dividend 
     income (sec. 512(b)(1)).
       Special rules apply to a tax-exempt organization described 
     in section 501(c)(3) or (c)(4) (i.e., a charity or social 
     welfare organization) that is engaged in commercial-type 
     insurance activities. Such activities are treated as an 
     unrelated trade or business and the tax-exempt organization 
     is subject to tax on the income from such insurance 
     activities (including investment income that might otherwise 
     be excluded from the definition of unrelated business taxable 
     income) under subchapter L (sec. 501(m)(2)). 82 
     Accordingly, a tax-exempt organization described in section 
     501(c)(3) or (c)(4) is generally subject to tax on its income 
     from commercial-type insurance activities in the same manner 
     as a taxable insurance company.
     \82\ If the commercial-type insurance activities constitute a 
     substantial part of the organization's activities, the 
     organization will not be tax-exempt under section 501 (c)(3) 
     or (c)(4) (sec. 501(m)(1)).
---------------------------------------------------------------------------
       A tax-exempt organization that conducts insurance 
     activities through a foreign corporation is not subject to 
     U.S. tax with respect to such activities. Under the subpart F 
     rules, the United States shareholders (as defined in sec. 
     951(b)) of a controlled foreign corporation (CFC) are 
     required to include in income currently their shares of 
     certain income of the CFC, whether or not such income is 
     actually distributed to the shareholders. This current 
     inclusion rule applies to certain insurance income of the CFC 
     (sec. 953). However, income inclusions under subpart F have 
     been characterized as dividends for unrelated business income 
     tax purposes.83 Accordingly, insurance income earned by 
     the CFC that is includible in income currently under subpart 
     F by the taxable United States shareholders of the CFC is 
     excluded from unrelated business taxable income in the case 
     of a shareholder that is a tax-exempt organization.
     \83\ The Internal Revenue Service has concluded in private 
     letter rulings, which are not to be used or cited as 
     precedent, that subpart F inclusions are treated as dividends 
     received by the United States shareholder (a tax-exempt 
     entity) for purposes of computing the shareholder's UBTI (see 
     LTRs 9407007 (November 12, 1993), 9027051 (April 13, 1990), 
     9024086 (March 22, 1990), 9024026 (March 15, 1990), 8922047 
     (March 6, 1989), 8836037 (June 14, 1988), 8819034 (February 
     10, 1988)). However, the IRS issued one private ruling in 
     which it concluded that subpart F inclusions are treated as 
     if the underlying income were realized directly by the United 
     States shareholder (a tax-exempt entity) for purposes of 
     computing the shareholder's UBTI (see LTR 9043039 (July 30, 
     1990)). This ruling gave no explanation for the IRS's 
     departure from the position in its prior rulings, and the IRS 
     reiterated in a subsequent ruling the position that subpart F 
     inclusions are characterized as dividends for purposes of 
     computing UBTI. Moreover, the application of the look-through 
     rule in the ruling in question did not affect the ultimate 
     result in the ruling because the income to which the subpart 
     F inclusion was attributable was of a type that was 
     excludible from UBTI. The conferees believe that LTR 9043039 
     (July 30, 1990) is incorrect in its application of a look-
     through rule in characterizing income inclusions under 
     subpart F for unrelated business income tax purposes.
---------------------------------------------------------------------------
     House Bill
       The House bill applies a look-through rule in 
     characterizing certain subpart F insurance income for 
     unrelated business income tax purposes. The look-through rule 
     applies to amounts that constitute insurance income currently 
     includible in gross income under the subpart F rules and that 
     are not attributable to the insurance of risks of (1) the 
     tax-exempt organization itself, (2) tax-exempt affiliates of 
     such organization, and (3) directors, officers, or employees 
     of such organization or such affiliates if the insurance 
     covers solely risks associated with the performance of 
     services for the benefit of such organization or affiliates. 
     Such amounts are treated as income from an unrelated trade or 
     business to the extent such amounts would constitute income 
     from an unrelated trade or business if received directly by 
     the tax-exempt organization. Deductions connected with 
     amounts treated as unrelated business taxable income are 
     allowed to the same extent as such deductions are allowed to 
     a taxable entity.
       Effective date.--The provision applies to amounts 
     includible in gross income in taxable years beginning after 
     December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill with 
     modifications. Under the conference agreement, the look-
     through rule applies to amounts that constitute insurance 
     income currently includible in gross income under the subpart 
     F rules and that are not attributable to the insurance of 
     risks of (1) the tax-exempt organization itself, (2) certain 
     tax-exempt affiliates of such organization, and (3) any 
     individual who performs services for the benefit of the tax-
     exempt organization (or certain tax-exempt affiliates) 
     provided that the insurance covers primarily risks associated 
     with the individual's performance of services for the benefit 
     of the tax-exempt organization (or tax-exempt affiliates). 
     The conferees intend that the determination of whether 
     insurance covers primarily risks associated with the 
     performance of services for the benefit of the tax-exempt 
     organization or its tax-exempt affiliates is to be based on 
     all the facts and circumstances. The conferees further intend 
     that a safe harbor be provided under which this ``primarily'' 
     requirement will be considered to be satisfied where at least 
     80 percent of the services covered by the insurance are 
     performed by the insured individual for the benefit of the 
     tax-exempt organization or its tax-exempt affiliates.
       The conference agreement clarifies that, for purposes of 
     this provision, a tax- exempt organization is an affiliate of 
     another tax-exempt organization if (1) the two organizations 
     have significant common purposes and substantial common 
     membership or (2) the two organizations have directly or 
     indirectly substantial common direction or control.
       Finally, the conferees clarify the operation of the look-
     through rule in the case of a CFC that insures the risks of 
     multiple shareholders of the CFC, one or more of which are 
     tax-exempt organizations. The specified exceptions from the 
     look-through rule apply on a shareholder by shareholder 
     basis. Accordingly, if the subpart F insurance income 
     allocable to a tax-exempt organization includes both income 
     attributable to the insurance of risks of the organization 
     itself and income attributable to the insurance of risks of 
     another shareholder that is not a tax-exempt affiliate of 
     such organization, the look-through rule applies only to that 
     portion of the income that represents income attributable to 
     the insurance of risks of such other shareholder (and does 
     not apply to the portion of the income that represents income 
     attributable to the insurance of risks of the organization 
     itself). In this regard, the conferees intend that if the CFC 
     serves as a vehicle for the separate funding by each 
     shareholder of its risks or liabilities for claims, without 
     any pooling of a shareholder's risks or liabilities for 
     claims with those of another shareholder either directly or 
     through reinsurance, allocations that fairly reflect such 
     arrangement will be respected for purposes of applying the 
     look-through rule.


 32. $1 million compensation deduction limit extended to all employees 
                  (sec. 12878 of the Senate amendment)

     Present law
       Under present law, the otherwise allowable deduction for 
     compensation paid or accrued with respect to a covered 
     employee of a publicly held corporation is limit to no more 
     than $1 million per year. A person is a covered employee if 
     (1) they are the chief executive officer of the corporation, 
     or (2) their 

[[Page H 12897]]
     total compensation is required to be reported for the taxable year 
     under the Securities Exchange Act of 1934 because the 
     employee is one of the 4 highest compensated officers for the 
     year (other than the chief executive officer). The deduction 
     limitation applies to (1) all remuneration for services, 
     including cash and the cash value of all remuneration paid in 
     a form other than cash, other than remuneration payable on a 
     commission basis, (2) certain performance-based compensation, 
     (3) payments to a tax-qualified retirement plan, and (4) 
     amounts excludable from the executive's gross income (e.g., 
     heath benefits).
     House bill
       No provision.
     Senate amendment
       Under the Senate amendment, the denial of the deduction for 
     compensation is extended to compensation of all employees, 
     other than employees of personal service corporations. The 
     definition of compensation subject to the deduction denial is 
     not modified.
       The Commissioner of Social Security is to increase the 
     amount of earnings that an individual may receive and still 
     qualify for full social security benefits by an amount which 
     takes into account the revenues resulting from the expansion 
     of the compensation deduction denial.
       Effective date.--The expansion of the deduction denial 
     applies to taxable years beginning after December 31, 1995, 
     except that it does not apply to remuneration payable under a 
     written binding contract in effect on October 25, 1995, and 
     which was not modified thereafter in any material respect 
     before the remuneration was paid.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment provision.


 33. Sense of the Senate regarding an increase in the social security 
          earnings limit (sec. 12879 of the Senate amendment)

     Present law
       In 1995, social security beneficiaries aged 62 to 64 lose 
     $1 in benefits for each $2 of earnings from work in excess of 
     $8,160. Social security beneficiaries aged 65 to 69 lose $1 
     in benefits for each $3 of earnings from work in excess of 
     $11,280. These earnings limits are indexed for inflation.
     House bill
       No provision.
     Senate amendment
       The Senate amendment expresses the sense of the Senate that 
     Congress intends to pass legislation before the end of 1995 
     to raise the social security earnings limit for social 
     security beneficiaries aged 65 to 69 in a manner that will 
     insure the financial integrity of the social security trust 
     funds and that will be consistent with the goal of achieving 
     a balanced Federal budget in seven years.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment.


 34. Increase deductibility of business meal expenses for individuals 
 subject to Federal hours of service limitations (sec. 12880(a) of the 
                           Senate amendment)

     Present law
       In general, 50 percent of meal and entertainment expenses 
     incurred in connection with a trade or business that are 
     ordinary and necessary (and not lavish or extravagant) are 
     deductible (sec. 274). Food or beverage expenses are fully 
     deductible provided that they are (1) required by Federal law 
     to be provided to crew members of a commercial vessel, (2) 
     provided to crew members of similar commercial vessels not 
     operated on the oceans, or (3) provided on certain oil or gas 
     platforms or drilling rigs.
     House bill
       No provision.
     Senate amendment
       The Senate amendment provides that 80 percent of meal 
     expenses are deductible with respect to food or beverages 
     consumed by an individual during, or incident to, any period 
     of duty subject to the hours of service limitations of the 
     Department of Transportation. There are four general 
     groupings of individuals subject to these limitations. The 
     first is certain air transportation employees, such as 
     pilots, crew, dispatchers, mechanics, and control tower 
     operators, pursuant to Federal Aviation Administration 
     regulations. The second is interstate truck and bus drivers, 
     pursuant to Department of Transportation regulations. The 
     third is certain railroad employees, such as engineers, 
     conductors, train crews, dispatchers, and control operations 
     personnel, pursuant to Federal Railroad Administration 
     regulations. The fourth is certain merchant mariners, 
     pursuant to Coast Guard regulations.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 1995.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment.


    35. Allocation and apportionment of interest expense of certain 
   nonfinancial institutions (sec. 12880(b) of the Senate amendment)

     Present law
       For foreign tax credit purposes, taxpayers generally are 
     required to allocate and apportion interest expense between 
     U.S. and foreign source income based on the proportion of the 
     taxpayer's total assets in each location. Such allocation and 
     apportionment is required to be made for affiliated groups 
     (as defined in sec. 864(e)(5)) as a whole rather than on a 
     subsidiary-by-subsidiary basis. However, certain types of 
     financial institutions that are members of an affiliated 
     group are treated as members of a separate affiliated group 
     for purposes of the allocation and apportionment of interest 
     expense (sec. 864(e)(5)(B)). Section 1215(c)(5) of the Tax 
     Reform Act of 1986 (P.L. 99- 514, 100 Stat. 2548) includes a 
     targeted rule which treats a certain corporation as a 
     financial institution for this purpose.
     House bill
       No provision.
     Senate amendment
       The Senate amendment repeals the targeted rule of section 
     1215(c)(5) of the Tax Reform Act of 1986.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 1995.
     Conference agreement
       The conference agreement follows the Senate amendment.


36. Rollover of gain from sale of farm assets to individual retirement 
               plans (sec. 12881 of the Senate amendment)

     Present law
       Under present law, gain recognized upon the sale of farm 
     assets is generally includible in the gross income of the 
     taxpayer. There is no provision under present law for 
     deferring the recognition of such gain by making 
     contributions to an asset rollover account.
     House bill
       No provision.
     Senate amendment
       In general
       Under the Senate amendment, a taxpayer who has a qualified 
     net farm gain from the sale of a qualified farm asset may, at 
     the taxpayer's election, recognize the gain from such sale 
     only to the extent the gain exceeds the contributions to one 
     or more asset rollover accounts of the taxpayer for the 
     taxable year in which such sale occurs.
       Contributions to an asset rollover account
       No deductions are permitted with respect to contributions 
     to an asset rollover account. Contributions to an asset 
     rollover account are subject to an annual limit and a 
     lifetime limit. Under the annual limit, the total 
     contributions that can be made to an asset rollover account 
     in a taxable year cannot exceed 100 percent of the lesser of 
     (1) the qualified net farm gain for the taxable year, or (2) 
     an amount equal to the number of years the taxpayer is a 
     qualified farmer times $10,000 ($20,000 for years the 
     taxpayer files a joint return). The Secretary may reduce the 
     100 percent in the preceding sentence to a lower percentage 
     to the extent necessary if the reduction in Federal receipts 
     as a result of this provision exceeds the increases in 
     Federal receipts resulting from the amendments made by 
     section 12882 (disposition of stock in domestic corporations 
     by 10-percent foreign shareholders) and section 12883 
     (limitation on treaty benefits) of the Balanced Budget 
     Reconciliation Act of 1995 (as passed by the Senate). 
     Qualified net farm gain is, for the taxable year, the lesser 
     of (1) the net capital gain of the taxpayer, or (2) the net 
     capital gain only taking into account gain in connection with 
     a disposition of a qualified farm asset. Qualified farm asset 
     means an asset used by a qualified farmer in the active 
     conduct of the trade or business of farming. A qualified 
     farmer is a taxpayer who (1) during the 5-year period ending 
     on the date of the disposition of the qualified farm asset 
     materially participated in the trade or business of farming, 
     and (2) owned (or the taxpayer's spouse owned) 50 percent or 
     more of such trade or business during such 5-year period. 
     Under the lifetime limit on contributions to an asset 
     rollover account, the aggregate amount for all taxable years 
     that can be contributed to all asset rollover accounts by an 
     individual cannot exceed $500,000 ($250,000 in the case of a 
     separate return filed by a married individual), reduced by 
     the amount by which the aggregate value of assets held in all 
     individual retirement arrangements (``IRAs'') by the 
     individual exceeds $100,000. The lifetime limit is applied as 
     of the close of the taxable year in which a contribution to 
     an asset rollover account is made. To the extent 
     contributions to an asset rollover account exceed the annual 
     or lifetime limits, such excess contributions are subject to 
     a 6-percent excise tax.
       Definition and tax treatment of an asset rollover account
       In general, an asset rollover account is treated in the 
     same manner as an IRA. Consequently, earnings are not 
     currently includible in income. Amounts in an asset rollover 
     account are includible in income when withdrawn. In addition, 
     the 10-percent additional tax on early distributions applies, 
     unless the distribution is made after the individual attains 
     age 59-\1/2\, dies, or becomes disabled, or the distribution 
     is paid in the form of a life annuity. Amounts in an asset 
     rollover account may be rolled over to another asset rollover 
     account without income inclusion.
       Reporting
       Any individual who makes a contribution to an asset 
     rollover account or receives a distribution from such account 
     is required to include such information on the individual's 
     Federal income tax return as the Secretary may prescribe. 
     Such information is the same information required by the 
     Secretary to be reported by individuals making nondeductible 
     contributions to an IRA.

[[Page H 12898]]

       Effective date
       The provision applies to sales and exchanges after the date 
     of enactment.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment.


37. Taxation of certain stock gains of foreign persons (secs. 12882 and 
                     12883 of the Senate amendment)

     Present law
       Disposition of stock in domestic corporations
       Foreign persons generally are subject to a 30-percent U.S. 
     tax on dividends received from a U.S. corporation. Foreign 
     persons generally are not subject to U.S. tax on gain 
     realized on the disposition of stock in a U.S. corporation 
     (other than a U.S. real property holding corporation), unless 
     the gain is effectively connected with the conduct of a trade 
     or business in the United States. Many U.S. income tax 
     treaties contain provisions that preclude the imposition of 
     U.S. tax on such gains realized by treaty-country residents.
       Limitation on treaty benefits
       The United States has entered into bilateral income tax 
     treaties with many foreign countries. A function served by 
     these treaties is to reduce the U.S. tax on U.S. source 
     income earned by a resident of a treaty country. Tax treaty 
     abuse (or ``treaty shopping'') occurs when a person who is 
     not a resident of either country seeks certain benefits under 
     the income tax treaty between the two countries. Newer 
     treaties negotiated by the United States usually contain a 
     ``Limitation on Benefit'' article that may deny treaty 
     benefits to foreign persons that wish to ``treaty-shop'' the 
     U.S. treaty network. However, not all of the U.S. income tax 
     treaties now in force contain such an article.
     House bill
       No provision.
     Senate amendment
       Disposition of stock in domestic corporations
       Under the Senate amendment, where a foreign person owns, or 
     has owned at any time during the previous 5 years, 10 percent 
     or more of the stock in a U.S. corporation, gain or loss from 
     the disposition of the stock is subject to U.S. income tax at 
     graduated rates. Constructive ownership rules apply in 
     determining whether a foreign person is a 10-percent 
     shareholder. In addition, certain ownership interests are 
     treated as stock for purposes of this provision.
       Certain nonrecognition provisions that would otherwise 
     apply to dispositions of U.S. stock are suspended, and the 
     Secretary of the Treasury is authorized to prescribe 
     regulations providing the extent to which nonrecognition 
     provisions will apply for purposes of this provision. Special 
     alternative minimum tax rules apply in the case of 
     nonresident aliens who recognize net gains on dispositions of 
     stock that are subject to this provision.
       This tax generally is collected through withholding at the 
     rate of 10 percent of the proceeds of the disposition giving 
     rise to the liability. Exceptions apply in cases of 
     dispositions of stock that is regularly traded on an 
     established securities market. Amounts withheld in excess of 
     the tax liability are refundable.
       This provision does not override any current U.S. income 
     tax treaty obligations. However, in certain cases where a 
     treaty prevents the imposition of U.S. tax on stock gains of 
     a qualified resident of a treaty country (as defined below), 
     the provision treats as dividends gain resulting from any 
     distribution in liquidation or redemption that would (but for 
     the treaty) be subject to U.S. tax. Dividend treatment only 
     applies to such gain to the extent of the earnings and 
     profits of the distributing corporation which are 
     attributable to the stock with respect to which the 
     distribution is made.
       Effective date.--The provision generally is effective for 
     dispositions after December 31, 1995. The withholding 
     requirements are applicable only to dispositions occurring 6 
     months or more after the date of enactment.
       Limitation on treaty benefits
       The Senate amendment imposes a qualified resident 
     requirement as a prerequisite for the reduction of U.S. tax 
     on a foreign entity under any treaty. For this purpose, a 
     foreign entity that is a resident of a foreign country is a 
     qualified resident of such country unless (1) 50 percent or 
     more (by value) of the interests in such entity are owned 
     (directly or indirectly) by individuals who are not residents 
     of such country or citizens or residents of the United 
     States, or (2) 50 percent or more of the entity's income is 
     used (directly or indirectly) to meet liabilities to persons 
     who are not residents of the foreign country or citizens or 
     residents of the United States. Special rules apply in the 
     case of entities that are publicly traded or that are wholly-
     owned by publicly-traded corporations. The Secretary of the 
     Treasury may, in certain cases, treat a foreign entity as a 
     qualified resident.
       In addition, the Senate amendment provides that no person 
     is entitled to benefits granted by the United States under a 
     treaty with respect to any income that bears a significantly 
     lower tax under the laws of the other treaty country than 
     similar income arising from sources within such foreign 
     country derived by residents of such foreign country.
       Effective date.--The provision takes effect on January 1, 
     1996, and applies to any treaty whether entered into before, 
     on, or after such date.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment.


38. Treatment of bad debt deductions of thrift institutions (H.R. 2494 
                and sec. 12884 of the Senate amendment)

     Present Law and Background
       Reserve method of accounting for bad debts of thrift 
           institutions
       Generally, a taxpayer engaged in a trade or business may 
     deduct the amount of any debt that becomes wholly or 
     partially worthless during the year (the ``specific charge-
     off'' method of sec. 166). Certain thrift institutions 
     (building and loan associations, mutual savings banks, or 
     cooperative banks) are allowed deductions for bad debts under 
     rules more favorable than those granted to other taxpayers 
     (and more favorable than the rules applicable to other 
     financial institutions). Qualified thrift institutions may 
     compute deductions for bad debts using either the specific 
     charge-off method or the reserve method of section 593. To 
     qualify for this reserve method, a thrift institution must 
     meet an asset test, requiring that 60 percent of its assets 
     consist of ``qualifying assets'' (generally cash, government 
     obligations, and loans secured by residential real property). 
     This percentage must be computed at the close of the taxable 
     year, or at the option of the taxpayer, as the annual average 
     of monthly, quarterly, or semiannual computations of similar 
     percentages.
       If a thrift institution uses the reserve method of 
     accounting, it must establish and maintain a reserve for bad 
     debts and charge actual losses against the reserve, and is 
     allowed a deduction for annual additions to restore the 
     reserve to its permitted balance. Under section 593, a thrift 
     institution annually may elect to calculate its addition to 
     its bad debt reserve under either (1) the ``percentage of 
     taxable income'' method applicable only to thrift 
     institutions, or (2) the ``experience'' method that also is 
     available to small banks.
       Under the ``percentage of taxable income'' method, a thrift 
     institution generally is allowed a deduction for an addition 
     to its bad debt reserve equal to 8 percent of its taxable 
     income (determined without regard to this deduction and with 
     additional adjustments). Under the experience method, a 
     thrift institution generally is allowed a deduction for an 
     addition to its bad debt reserve equal to the greater of: (1) 
     an amount based on its actual average experience for losses 
     in the current and five preceding taxable years, or (2) an 
     amount necessary to restore the reserve to its balance as of 
     the close of the base year. For taxable years beginning 
     before 1988, the ``base year'' was the last taxable year 
     before the most recent adoption of the experience method 
     (i.e., generally, the last year the taxpayer was on the 
     percentage of taxable income method). For taxable years 
     beginning after 1987, the base year is the last taxable year 
     beginning before 1988. Prior to 1988, computing bad debts 
     under a ``base year'' rule allowed a thrift institution to 
     claim a deduction for bad debts for an amount at least equal 
     to the institution's actual losses that were incurred during 
     the taxable year.
       Bad debt methods of commercial banks
       A small commercial bank (i.e., one with adjusted bases of 
     assets of $500 million or less) may use the experience method 
     or the specific charge-off method for purposes of computing 
     its deduction for bad debts. A large commercial bank only may 
     use the specific charge-off method of section 166. If a small 
     bank becomes a large bank, it must recapture its existing bad 
     debt reserve (i.e., include the amount of the reserve in 
     income) through one of two elective methods. Under the 4-year 
     recapture method, the bank generally includes 10 percent of 
     the reserve in income in the first taxable year, 20 percent 
     in the second year, 30 percent in the third year, and 40 
     percent in the fourth year. Under the cut-off method, the 
     bank generally neither restores its bad debt reserve to 
     income nor may it deduct losses relating to loans held by the 
     bank as of the date of the required change in the method of 
     accounting. Rather, the amount of such losses are charged 
     against and reduce the existing bad debt reserve; any losses 
     in excess of the reserve are deductible. Any reserve balance 
     in excess of the balance of related loans is includible in 
     income.
       Recapture of bad debt reserves by thrift institutions
       If a thrift institution becomes a commercial bank, or if 
     the institution fails to satisfy the 60-percent qualified 
     asset test, it is required to change its method of accounting 
     for bad debts and, under proposed Treasury 
     regulations,84 is required to recapture its bad debt 
     reserve. The percentage-of-taxable-income portion of the 
     reserve generally is included in income ratably over a 6-
     taxable year period. The experience method portion of the 
     reserve is not restored to income if the former thrift 
     institution qualifies as a small bank. If the former thrift 
     institution is treated as a large bank, the experience method 
     portion of the reserve is restored to income ratably over a 
     6-taxable year period, or under the 4-year recapture method 
     or the cut-off method described above.
     \84\Prop. Treas. reg. sec. 1.593-13.
---------------------------------------------------------------------------
       In addition, a thrift institution may be subject to a form 
     of reserve recapture even if 

[[Page H 12899]]
     the institution continues to qualify for the percentage of taxable 
     income method. Specifically, if a thrift institution 
     distributes to its shareholders an amount in excess of its 
     post-1951 earnings and profits, such excess is deemed to be 
     distributed from the institution's bad debt reserve and is 
     restored to income. In the case of any distribution in 
     redemption of stock or in partial or complete liquidation of 
     an institution, the distribution is treated as first coming 
     out of the bad debt reserves of the institution (sec. 
     593(e)).
       Proposed banking legislation (H.R. 2491)
           Treatment of thrift institutions under H.R. 2491
       Title II (Chapter 2, subtitle B) of H.R. 2491, which passed 
     the House of Representatives on October 26, 1995, would 
     require savings and loan institutions to forego their Federal 
     thrift charters and become either State-chartered depository 
     institutions or Federally-chartered banks. Under proposed 
     Treasury regulations, if a thrift institution becomes a bank, 
     the institution would be required to recapture all or a 
     portion of its bad debt reserve. As described in detail 
     below, the conferees understand that such recapture would 
     require the institution immediately to record, for financial 
     accounting purposes, a current or deferred tax liability for 
     the amount of bad debt recapture for which liabilities 
     previously had not been recorded (generally, with respect to 
     the pre-1988 reserves), regardless of when such recapture is 
     taken into account for Federal income tax purposes. The 
     conferees further understand that the recording of this 
     liability generally would decrease the regulatory capital of 
     the new bank.
       Financial accounting treatment of tax reserves of bad debts 
           of thrift institutions
       In general, for financial accounting purposes, a 
     corporation must record a deferred tax liability with respect 
     to items that are deductible for tax purposes in a period 
     earlier than they are expensed for book purposes. The 
     deferred tax liability signifies that, although a corporation 
     may be reducing its current tax expense because of the 
     accelerated tax deduction, the corporation will become liable 
     for tax in a future period when the timing item ``reverses'' 
     (i.e., when the item is expensed for book purposes but for 
     which the tax deduction had already been allowed). Under the 
     applicable accounting standard (Accounting Principles Board 
     Opinion 23), deferred tax liabilities generally were not 
     required for pre-1988 tax deductions attributable to the bad 
     debt reserve method of thrift institutions because the 
     potential reversal of the bad debt reserve was indefinite 
     (i.e., generally, a reversal only would occur by operation of 
     sec. 593(e), a condition within the control of a thrift 
     institution). However, the establishment of 1987 as a base 
     year increased the likelihood of bad debt reserve reversals 
     with respect to post-1987 additions to the reserve and the 
     conferees understand that thrift institutions generally have 
     recorded deferred tax liabilities for these additions under 
     the current generally accepted accounting principles.85
     \85\ For taxable years beginning before 1988, the base year 
     balance of a thrift institution was the reserve balance 
     whenever the institution changed from one bad debt method to 
     another (e.g., from the percentage of taxable income method 
     to the experience method). How the establishment of 1987 as a 
     permanent base year changed the nature of the bad debt 
     reserves of thrift institutions between pre-1988 years and 
     post-1987 years (which, in turn, contributed to the change in 
     the financial accounting treatment of such reserves) can be 
     illustrated by the following example:
     Assume that a thrift institution (``T'') always had used the 
     percentage of taxable income (``PHI'') method to deduct bad 
     debts through 1986 when its reserve balance was $10,000. 
     Further assume that in 1987, T: (1) has insufficient taxable 
     income to use the PHI method, (2) has actual bad debt losses 
     of $1,000, and (3) under the six-year average formula of the 
     experience method, would be allowed a deduction of $900. 
     Under these facts, T would be allowed a bad debt deduction of 
     $1,000 (rather than $900) in 1987 because $1,000 is the 
     amount necessary to restore the reserve to its base year 
     (PHI) level. Specifically, in 1987, T would charge the year-
     end 1986 reserve of $10,000 for the $1,000 actual loss and 
     then add (and deduct) $1,000 to the reserve so that the 
     balance of the reserve at year end 1987 is once again 
     $10,000. Thus, T's former PHI deductions, which gave rise to 
     the $10,000 reserve balance, generally would not be restored 
     to income (unless subject to sec. 593(e)).
     Further assume that in 1988, T has sufficient taxable income 
     to be allowed a PHI deduction of $1,500, increasing the 
     balance of the reserve to $11,500 at year-end 1988. Further 
     assume that in 1989, T: (1) again has insufficient taxable 
     income to use the PHI method, (2) has actual bad debts of 
     $2,500, and (3) under the six-year average formula of the 
     experience method would be allowed a deduction of $900. Under 
     these facts, T would be allowed a deduction of $1,000 (i.e., 
     the amount necessary to in the restore the reserve to its 
     base year (year-end 1987) level). Specifically, T would 
     charge the year-end 1988 reserve balance of $11,500 for the 
     $2,500 actual loss and then add (and deduct) $1,000 to the 
     reserve to restore the balance to the $10,000 base year 
     amount. Thus, T's post-1987 PHI deduction of $1,500 is 
     restored to income (i.e., T actually had losses of $2,500 in 
     1989, but only was allowed to deduct $1,000).
---------------------------------------------------------------------------
     House bill
       No provision in H.R. 2491. However, on November 7, 1995, 
     the Committee on Ways and Means reported, with an amendment, 
     H.R. 2494 (the ``Thrift Charter Conversion Act of 1995''). 
     86 The provisions of H.R. 2494 are described below.
     \86\ H. Rept. 104-324.
---------------------------------------------------------------------------
       Repeal of section 593
       The House bill repeals the section 593 reserve method of 
     accounting for bad debts by thrift institutions, effective 
     for taxable years beginning after 1995. Under the House bill, 
     thrift institutions that qualify as small banks are allowed 
     to utilize the experience method applicable to such 
     institutions, while thrift institutions that are treated as 
     large banks are required to use only the specific charge-off 
     method.
       Treatment of recapture of bad debt reserves
           In general
       A thrift institution required to change its method of 
     computing reserves for bad debts will treat such change as a 
     change in a method of accounting, initiated by the taxpayer, 
     and having been made with the consent of the Secretary of the 
     Treasury. Any section 481(a) adjustment required to be taken 
     into account with respect to such change generally will be 
     determined solely with respect to the ``applicable excess 
     reserves'' of the taxpayer. The amount of applicable excess 
     reserves shall be taken into account ratably over a 6-taxable 
     year period, beginning with the first taxable year beginning 
     after 1995, subject to the residential loan requirement 
     described below. In the case of a thrift institution that 
     becomes a ``large bank'' (as determined under sec. 
     585(c)(2)), the amount of the institution's applicable excess 
     reserves will be the excess of (1) the balance of its 
     reserves described in section 593(c)(1) (i.e., its 
     supplemental reserve for losses on loans, its reserve for 
     losses on qualifying real property loans, and its reserve for 
     losses on nonqualifying loans) as of the close of its last 
     taxable year beginning before January 1, 1996, over (2) the 
     balance of such reserves as of the close of its last taxable 
     year beginning before January 1, 1988 (i.e., the ``pre-1988 
     reserves''). Similar rules are provided for ``small banks'' 
     and for small banks that subsequently become large banks.
       The balance of the pre-1988 reserves will continue to be 
     subject to the provisions of present-law section 593(e) 
     (requiring recapture in the case of certain excess 
     distributions to, and redemptions of, shareholders).
           Residential loan requirement
       Under a special rule, if the taxpayer meets the 
     ``residential loan requirement'' for any taxable year 
     beginning after December 31, 1995, the recapture of the 
     applicable excess reserves otherwise to be taken into account 
     as a section 481(a) adjustment for such year will be 
     suspended. A taxpayer generally meets the residential loan 
     requirement if, for any taxable year, the principal amount of 
     residential loans made by the taxpayer during the year is not 
     less than its base amount. A taxpayer will be deemed to meet 
     the residential loan requirement for any taxable year 
     beginning after December 31, 1997, if the taxpayer met the 
     requirement for the two preceding years (determined without 
     the application of this special, two-out-of-three rule). For 
     the first taxable year beginning after December 31, 1995, the 
     ``base amount'' for a taxpayer generally means the average of 
     the principal amounts of the residential loans made by the 
     taxpayer during the six most recent taxable years beginning 
     before January 1, 1996. For taxable years beginning after 
     December 31, 1996, the base amount is indexed for inflation.
       Treatment of special assessments
       The House bill also provides for the deductibility of 
     certain special assessments to be paid by thrift institutions 
     to the Savings Association Insurance Fund (''SAIF'') pursuant 
     to a provision of Title II of H.R. 2491.
       Effective date
       The provision of H.R. 2494 relating to the deduction for 
     bad debts by thrift institutions generally is effective for 
     taxable years beginning after December 31, 1995. The 
     provision of H.R. 2494 relating to the treatment of the 
     special assessments to be paid to the SAIF is effective upon 
     enactment.
     Senate amendment
       The Senate amendment contains a Sense of the Senate that, 
     in order to further national banking policy and assist in the 
     conversion of thrift charters to bank charters, Code section 
     593 (relating to reserves for losses on loans) should be 
     repealed and appropriate relief should be granted for the 
     pre-1988 portion of any bad debt reserves of a thrift 
     institution.
     Conference agreement
       The conference agreement includes the following.
       Repeal of section 593
       The conference agreement repeals the section 593 reserve 
     method of accounting for bad debts by thrift institutions, 
     effective for taxable years beginning after 1995. Thrift 
     institutions that qualify as small banks are allowed to 
     utilize the experience method applicable to such 
     institutions, while thrift institutions that are treated as 
     large banks are required to use only the specific charge-off 
     method. Thus, the percentage of taxable income method of 
     accounting for bad debts is no longer available for any 
     financial institution. The conference agreement also repeals 
     the following present-law provisions that only apply to 
     thrift institutions to which section 593 applies: (1) the 
     denial of a portion of certain tax credits to a thrift 
     institution (sec. 50(d)(1)); (2) the special rules with 
     respect to the foreclosure of property securing loans of a 
     thrift institution (sec. 595); (3) the reduction in the 
     dividends received reduction of a thrift institution (sec. 
     596); and (4) the ability of a thrift institution to use a 
     net operating loss to offset its income from a residual 
     interest in a REMIC. 

[[Page H 12900]]

       Treatment of recapture of bad debt reserves
           In general
       A thrift institution required to change its method of 
     computing reserves for bad debts will treat such change as a 
     change in a method of accounting, initiated by the taxpayer, 
     and having been made with the consent of the Secretary of the 
     Treasury. 87 Any section 481(a) adjustment required to 
     be taken into account with respect to such change generally 
     will be determined solely with respect to the ``applicable 
     excess reserves'' of the taxpayer. The amount of applicable 
     excess reserves shall be taken into account ratably over a 6-
     taxable year period, beginning with the first taxable year 
     beginning after 1995, subject to the residential loan 
     requirement described below. In the case of a thrift 
     institution that becomes a ``large bank'' (as determined 
     under sec. 585(c)(2)), the amount of the institution's 
     applicable excess reserves generally is the excess of (1) the 
     balance of its reserves described in section 593(c)(1) (i.e., 
     its supplemental reserve for losses on loans, its reserve for 
     losses on qualifying real property loans, and its reserve for 
     losses on nonqualifying loans) as of the close of its last 
     taxable year beginning before January 1, 1996, over (2) the 
     balance of such reserves as of the close of its last taxable 
     year beginning before January 1, 1988 (i.e., the ``pre-1988 
     reserves''). 88 Thus, a thrift institution that is 
     treated as a large bank generally is required to recapture 
     its post-1987 additions to its bad debt reserves, whether 
     such additions are made pursuant to the percentage of taxable 
     income method or the experience method. The timing of this 
     recapture may be delayed for a two-year period to the extent 
     the residential loan requirement described below applies.
     \87\ A thrift institution that uses a reserve method 
     described in sec. 593 will be deemed to have changed its 
     method of computing reserves for bad debts even though such 
     institution will be allowed to use the reserve method of 
     section 585. Similarly, a large thrift institution will be 
     deemed to have changed its method of computing reserves for 
     bad debts even though such institution used the experience-
     method portion of sec. 593 in lieu of the percentage-of-
     taxable-income method of sec. 593.
     \88\ The balance of a taxpayer's pre-1988 reserves is reduced 
     if the taxpayer's loan portfolio had decreased since 1988. 
     The balance of a taxpayer's pre-1988 reserves is reduced by 
     multiplying such balance by the ratio of the balance of the 
     taxpayer's loans outstanding at the close of the last taxable 
     beginning before 1996, to the balance of the taxpayer's loans 
     outstanding at the close of the last taxable beginning before 
     1988. This reduction is required for both large and small 
     banks.
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       In the case of a thrift institution that becomes a ``small 
     bank'' (as determined under sec. 585(c)(2)), the amount of 
     the institution's applicable excess reserves will be the 
     excess of (1) the balance of its reserves described in 
     section 593(c)(1) as of the close of its last taxable year 
     beginning before January 1, 1996, over (2) the greater of the 
     balance of: (a) its pre-1988 reserves or (b) what the 
     institution's reserves would have been at the close of its 
     last taxable year beginning before January 1, 1996, had the 
     institution always used the experience method described in 
     section 585(b)(2)(A) (i.e., the six-year average method). For 
     purposes of the future application of section 585, the 
     beginning balance of the small bank's reserve for its first 
     taxable year beginning after December 31, 1995, will be the 
     greater of the two amounts described in (2) in the preceding 
     sentence, and the balance of the reserve at the close of the 
     base year (for purposes of sec. 585(b)(2)(B)) will be the 
     amount of its pre-1988 reserves. The residential loan 
     requirement described below also applies to small banks. If 
     such small bank later becomes a large bank, any section 
     481(a) adjustment amount required to be taken into account 
     under section 585(c)(3) will not include any portion of the 
     bank's pre-1988 reserve. Similarly, if the bank elects the 
     cut-off method to implement its conversion to large bank 
     status, the amount of the reserve against which the bank 
     charges its actual losses will not include any portion of the 
     bank's pre-1988 reserve and the amount by which the pre-1988 
     reserve exceeds actual losses will not be included in gross 
     income.
       The balance of the pre-1988 reserves is subject to the 
     provisions of present-law section 593(e) (requiring recapture 
     in the case of certain excess distributions to, and 
     redemptions of, shareholders). Thus, section 593(e) will 
     continue to apply to an institution regardless of whether the 
     institution becomes a bank or remains a thrift institution. 
     In addition, the balance of the pre-1988 reserve will be 
     treated as a tax attribute to which section 381 applies. 
     Treasury regulations are expected to provide rules for the 
     continued application of section 593(e) in the case of 
     mergers, acquisitions, spin-offs, and other reorganizations 
     of thrift and other institutions. The conferees believe that 
     any such regulations should provide that if the stock of an 
     institution with a pre-1988 reserve is acquired by another 
     depository institution, the pre-1988 reserve will not be 
     restored to income by reason of the acquisition. Similarly, 
     if an institution with a pre-1988 reserve is merged or 
     liquidated tax-free into a bank, the pre-1988 reserve should 
     not be restored to income by reason of the merger or 
     liquidation. 89 Rather, the bank will inherit the pre-
     1988 reserve and the post-1951 earnings and profits of the 
     former thrift institution and section 593(e) will apply to 
     the bank as if it were a thrift institution. That is, the 
     pre-1988 reserve will be restored into income in the case of 
     any distribution in redemption of the stock of the bank or in 
     partial or complete liquidation of the bank following the 
     merger or liquidation. In the case of any other distribution, 
     the pre-1988 reserve will not be restored to income unless 
     the distribution is in excess of the sum of the post-1951 
     earnings and profits inherited from the thrift institution 
     and the post-1913 earnings and profits of the acquiring bank. 
     90 Treasury regulations should address the case where 
     the shareholders of an institution with a pre-1988 reserve 
     are ``cashed out'' in a taxable merger of the institution and 
     a bank. Such regulations may provide that the pre-1988 
     reserve may be restored to income if such redemption 
     represents a concealed distribution from the former thrift 
     institution. For example, cash received by former thrift 
     shareholders pursuant to a taxable reverse merger may 
     represent a concealed distribution if, immediately preceding 
     the merger, the acquiring bank had no available resources to 
     distribute and its existing debt structure, indenture 
     restrictions, financial condition, or regulatory capital 
     requirements precluded it from borrowing money for purposes 
     of making the cash payment to the former thrift shareholders. 
     Treasury regulations also should address the treatment of 
     boot received in a tax-free reorganization. No inference is 
     intended as to the application of section 593(e) to these and 
     similar transactions under present law.
     \89\ The issue of whether section 593(e) applies in cases 
     where a thrift institution is merged into a bank generally 
     does not arise under present law because such merger results 
     in a charter change and, under proposed Treasury regulations, 
     requires full bad debt reserve recapture.
     \90\ If the acquiring bank is a former thrift itself and the 
     pre-1988 reserves of neither institution are restored to 
     income pursuant to the merger, the conferees expect that the 
     pre-1988 reserves and the post-1951 earnings and profits of 
     the two institutions will be combined for purposes of the 
     continued application of sec. 593(e) with respect to the 
     combined institution.
---------------------------------------------------------------------------
       Further, if a taxpayer no longer qualifies as a bank (as 
     defined by sec. 581), the balance of the taxpayer's pre-1988 
     reserve is restored to income ratably over a 6-year period, 
     beginning in the taxable year the taxpayer no longer 
     qualifies as a bank.
           Residential loan requirement
       Under a special rule, if the taxpayer meets the 
     ``residential loan requirement'' for a taxable year, the 
     recapture of the applicable excess reserves otherwise 
     required to be taken into account as a section 481(a) 
     adjustment for such year will be suspended. A taxpayer meets 
     the residential loan requirement if, for the taxable year, 
     the principal amount of residential loans made by the 
     taxpayer during the year is not less than its base amount. 
     The residential loan requirement is applicable only for 
     taxable years that begin after December 31, 1995, and before 
     January 1, 1998, and must be applied separately with respect 
     to each such year. Thus, all taxpayers are required to 
     recapture their applicable excess reserves within six, seven, 
     or eight years after the effective date of the provision.
       The ``base amount'' of a taxpayer means the average of the 
     principal amounts of the residential loans made by the 
     taxpayer during the six most recent taxable years beginning 
     before January 1, 1996. At the election of the taxpayer, the 
     base amount may be computed by disregarding the taxable years 
     within that 6-year period in which the principal amounts of 
     loans made during such years were highest and lowest. This 
     election must be made for the first taxable year beginning 
     after December 31, 1995, and applies to the succeeding 
     taxable year unless revoked with the consent of the Secretary 
     of the Treasury or his delegate.
       For purposes of the residential loan requirement, a loan 
     will be deemed to be ``made'' by a financial institution to 
     the extent the institution is, in fact, the principal source 
     of the loan financing. Thus, any loan only can be ``made'' 
     once. The conferees expect that loans ``made'' by a financial 
     institution may include, but are not limited to, loans (1) 
     originated directly by the institution through its place of 
     business or its employees, (2) closed in the name of the 
     institution, (3) originated by a broker that acts as an agent 
     for the institution, and (4) originated by another person 
     (other than a financial institution) and that are acquired by 
     the institution pursuant to a preexisting, enforceable 
     agreement to acquire such loans. In addition, Treasury 
     regulations also may provide that loans ``made'' by a 
     financial institution may include loans originated by another 
     person (other than a financial institution) acquired by the 
     institution soon after origination if such acquisition is 
     pursuant to a customary practice of acquiring such loans from 
     such person. A loan acquired by a financial institution from 
     another financial institution generally will be considered to 
     be made by the transferor rather than the transferee of the 
     loan; however, such loan may be completely disregarded if a 
     principal purpose of the transfer was to allow the transferor 
     to meet the residential loan requirement. A loan may be 
     considered to be made by a financial institution even if such 
     institution has an arrangement to transfer such loan to the 
     Federal National Mortgage Association or the Federal Home 
     Loan Mortgage Corporation.
       For purposes of the residential loan requirement, a 
     ``residential loan'' is a loan described in section 
     7701(a)(19)(C)(v) (generally, loans secured by residential 
     real and church property and certain mobile homes), 91 
     but 

[[Page H 12901]]
     only to the extent the loan is made to the owner of the property to 
     acquire, construct, or improve the property. Thus, mortgage 
     refinancings and home equity loans are not considered to be 
     residential loans, except to the extent the proceeds of the 
     loan are used to acquire, construct, or improve qualified 
     residential real property. The conferees understand that 
     pursuant to the Home Mortgage Disclosure Act, financial 
     institutions are required to disclose the purpose for which 
     loans are made. The conferees further understand that for 
     purposes of this disclosure, institutions are required to 
     classify loans as home purchase loans, home improvement 
     loans, refinancings, and multifamily dwelling loans (whether 
     for purchase, improvement or refinancing of such property). 
     The conferees expect that taxpayers (and the Secretary of the 
     Treasury in promulgating guidance) may take such reporting 
     into account, and make such adjustments as are appropriate, 
     92 in determining: (1) whether or not a loan qualifies 
     as a ``residential loan'' and (2) whether the institution 
     ``made'' the loan. A taxpayer must use consistent standards 
     for determining whether loans qualify as residential loans 
     made by the institution both for purposes of determining its 
     base amount and for purposes of determining whether it met 
     the residential loan requirement for a taxable year.
     \91\ For this purpose, as under present law, if a multifamily 
     structure securing a loan is used in part for nonresidential 
     purposes, the entire loan will be deemed a residential real 
     property loan if the planned residential use exceeds 80 
     percent of the property's planned use (determined as of the 
     time the loan is made). In additions, loans made to finance 
     the acquisition or development of land will be deemed to be 
     loans secured by an interest in residential real property if, 
     under regulations prescribed by the Secretary of the 
     Treasury, there is a reasonable assurance that the property 
     will become residential real property within a period of 
     three years from the date of acquisition of the land.
     \92\ For example, adjustments will be required with respect 
     to the reporting of multifamily dwellings in order to 
     distinguish home purchase, home improvement, and refinancing 
     loans.
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       The residential loan requirement is determined on a 
     controlled group basis. Thus, for example, if a controlled 
     group consists of two thrift institutions with applicable 
     excess reserves that are wholly-owned by a bank, the 
     residential loan requirement will be met (or not met) with 
     respect to both thrift institutions by comparing the 
     principal amount of the residential loans made by all three 
     members of the group during the taxable year to the group's 
     base amount. The group's base amount will be the average 
     principal amount of residential loans made by all three 
     members of the group during the base period. The election to 
     disregard the high and low taxable years during the 6-year 
     base period also would be applied on a controlled group basis 
     (i.e., generally by treating the members of the group as one 
     taxpayer so that all members of the group must join in the 
     election, and the same corresponding years of each member 
     would be so disregarded).
       The balance of a taxpayer's applicable excess reserve is 
     treated as a tax attribute to which section 381 applies. 
     Thus, if an institution with an applicable excess reserve is 
     acquired in a tax-free reorganization, the balance of such 
     reserve will not be immediately restored to income but will 
     continue to be subject to the residential loan requirement in 
     the hands of the acquirer. Treasury regulations may provide 
     rules for the application of the residential loan requirement 
     in the case of mergers, acquisitions, and other 
     reorganizations of thrift and other institutions. The 
     conferees expect that if a financial institution joins or 
     merges into (or leaves) a group of financial institutions, 
     the base amount of the acquiring (or remaining) group will be 
     appropriately adjusted to reflect the base amount of the 
     acquired (or departing) institution for purposes of 
     determining whether the group meets the residential loan 
     requirement for the year of the acquisition (or departure) 
     and subsequent years. Similarly, if a controlled group of 
     institutions had made an election to disregard its high and 
     low years in computing its base amount, it is anticipated 
     that such election shall be binding on any institution that 
     subsequently joins the group and the election shall be 
     applied to the new member by disregarding the high and low 
     years of the new member even if such years do not correspond 
     to the years applicable to the other members of the group.
       Treatment of conversions to credit unions
       The conference agreement provides that if a thrift 
     institution to which the repeal of section 593 applies 
     becomes a credit union (as described in sec. 501(c)(14)(A)), 
     the credit union will be treated as a institution that is not 
     a bank and any section 481(a) adjustment required to be 
     included in gross income will be treated as derived from an 
     unrelated trade or business. Thus, if a thrift institution 
     becomes a credit union in its first taxable year beginning 
     after December 31, 1995, the entire balance of the 
     institution's bad debt reserve will be included in income, 
     and subject to tax, over a 6-year period beginning with such 
     taxable year. No inference is intended as to the Federal 
     income tax treatment of any other aspect of the conversion of 
     a financial institution to a credit union.
       Treatment of special assessments
       The conferees did not adopt the provision of H.R. 2494 that 
     provided for the deductibility of certain special assessments 
     to be paid to the SAIF. The conferees understand that it is 
     the view of the Department of the Treasury that such payments 
     would be deductible under present law. 93 The conferees 
     understand that the Treasury analysis is based, in part, upon 
     the fact that the proposed special assessments are designed 
     to provide SAIF coverage for 1996. As such, the conferees 
     believe that a special statutory provision providing 
     deductibility is unnecessary and the special assessments 
     should give rise to deductions to which section 172(f) does 
     not apply. 94
     \93\ See, e.g., the testimony of Cynthia G. Beerbower, Deputy 
     Assistant Secretary (Tax Policy) Department of the Treasury, 
     on H.R. 2494 before the House Committee on Ways and Means, 
     October 26, 1995.
     \94\ Under present law, net operating losses can be carried 
     back three years. Section 172(f) allows ``specified liability 
     losses' to be carried back ten years. Specified liability 
     losses include amounts allowable as deductions with respect 
     to product liabilities or with respect to certain acts (or 
     failures to act) that occurred more than three years ago.
---------------------------------------------------------------------------
       Effective date
       The repeal of section 593 is effective for taxable years 
     beginning after December 31, 1995. The repeal of section 595 
     is effective for property acquired in taxable years beginning 
     after December 31, 1995.


39. Limitation on State income taxation of certain pension income (H.R. 
              394 and sec. 12944 of the Senate amendment)

     Present Law
       Certain State laws provide that some or all retirement 
     income is included in income for State income tax purposes if 
     the income was earned within the State, even though the 
     individual resides outside the State when the retirement 
     income is actually received. Some States achieve this result 
     through general rules that tax income earned within the 
     State, whereas others have explicit provisions regarding 
     retirement income.
     House bill
       No provision in H.R.2491. However, on October 31, 1995, the 
     House Committee on the Judiciary ordered favorably H.R. 394, 
     which would amend title 4 of the United States Code (entitled 
     ``Flag and Seal, Seat of Government, and the States''), to 
     prohibit any State, including any political subdivision of a 
     State, the District of Columbia, and the possessions of the 
     United States, from imposing income tax on any retirement 
     income of any individual who is not a resident or domiciliary 
     of the State. For this purpose, retirement income would 
     include any income from a qualified retirement or annuity 
     plan, a simplified employee pension, a tax-sheltered annuity 
     plan, an eligible deferred compensation plan of a tax-exempt 
     or State and local government, an individual retirement 
     arrangement, a governmental plan, a trust created before June 
     25, 1959, and that is part of a plan funded only by employee 
     contributions, and certain retired or retainer pay of a 
     member or former member of the uniformed services. The term 
     retirement income also would include income from a 
     nonqualified deferred compensation plan, provided such income 
     is part of a series of substantially equal periodic payments 
     made over (1) the life or life expectancy of the recipient 
     (or the joint lives or life expectancies of the recipient and 
     the recipient's beneficiary), or (2) a period not less than 
     10 years. The preceding sentence would not apply to a plan, 
     program, or arrangement which provides benefits in excess of 
     certain limitations contained in the Code on benefits 
     provided under qualified retirement plans. The provision 
     would not apply to any retirement income received by an 
     individual who renounces his or her United States citizenship 
     for reasons of avoiding Federal and State income taxation (as 
     determined by the Attorney General). The Attorney General 
     would publish quarterly a list of such individuals in the 
     Federal Register. The provision would have no effect on the 
     application of the provision in the Employee Retirement 
     Income Security Act of 1974 (''ERISA'') that generally 
     preempts State laws.
       Effective date.--H.R. 394 would be effective with respect 
     to amounts received after December 31, 1994.
     Senate amendment
       The Senate amendment amends title 4 of the United States 
     Code (entitled ``Flag and Seal, Seat of Government, and the 
     States''), to prohibit any State, including any political 
     subdivision of a State, the District of Columbia, and the 
     possessions of the United States, from imposing income tax on 
     any retirement income of any individual who is not a resident 
     or domiciliary of the State. For this purpose, retirement 
     income includes any income from a qualified retirement or 
     annuity plan, a simplified employee pension, a tax- sheltered 
     annuity plan, an eligible deferred compensation plan of a 
     tax-exempt or State and local government, an individual 
     retirement arrangement, a governmental plan, a trust created 
     before June 25, 1959, and that is part of a plan funded only 
     by employee contributions, and certain retired or retainer 
     pay of a member or former member of the uniformed services. 
     The term retirement income also includes income from a 
     nonqualified deferred compensation plan, provided such income 
     is part of a series of substantially equal periodic payments 
     made over (1) the life or life expectancy of the recipient 
     (or the joint lives or life expectancies of the recipient and 
     the recipient's beneficiary), or (2) a period not less than 
     10 years. The provision has no effect on the application of 
     the provision in the Employee Retirement Income Security Act 
     of 1974 (''ERISA'') that generally preempts State laws.

[[Page H 12902]]

       Effective date.--The provision applies to amounts received 
     after December 31, 1994.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment.


  40. Coal industry retiree health security (sec. 13901 of the House 
                                 bill)

     Present law
       The financing of retiree health benefits previously 
     provided by the United Mine Workers of America (''UMWA'') 
     1950 and 1974 Benefit Funds was substantially revised by the 
     Energy Policy Act of 1992 (H.R. 776, P.L. 102-486), enacted 
     October 24, 1992. The relevant provisions, contained in the 
     Coal Industry Retiree Health Benefit Act of 1992 (the ``Coal 
     Act''), created two new UMWA retiree health benefit funds and 
     completely changed the financing mechanism. The two funds, 
     known as the UMWA Combined Benefit Fund (the ``Combined 
     Fund'') and the UMWA 1992 Benefit Plan, service beneficiaries 
     who retired on or before September 30, 1994. The Combined 
     Fund provides benefits to coal miners (and their 
     beneficiaries) who retired on or before July 20, 1992, and 
     the 1992 UMWA Benefit Plan provides benefits to coal miners 
     (and their beneficiaries) who retired between July 21, 1992, 
     and September 30, 1994, and (1) would have been eligible for 
     benefits under the Combined Fund had they retired earlier, or 
     (2) whose last employer does not provide the benefits 
     promised under a 1978 or later collective bargaining 
     agreement. No provision was made for employees who retired or 
     will retire after September 30, 1994. Future retirees will 
     remain dependent on the provisions of future collective 
     bargaining agreements.
       Under the Coal Act, which supersedes the retiree health 
     benefits financing provisions of the 1988 National Bituminous 
     Coal Wage Agreement (''NBCWA''), a company is charged an 
     insurance premium based on the number of beneficiaries 
     assigned to the company in its role as the retiree's ``last 
     signatory employer.'' Under what are referred to as the 
     ``reachback'' provisions of the Coal Act, companies 
     responsible for paying premiums include any company that had 
     signed any NBCWA since 1946 or any related company as defined 
     under the Act. To cover the costs associated with 
     beneficiaries who cannot be assigned, up to $70 million per 
     year is transferred into the Combined Fund. The first three 
     transfers came from the surplus in the UMWA 1950 Pension 
     Plan. Subsequent transfers will be made from the interest 
     earnings of the Federal Abandoned Mine Reclamation Fund. If 
     costs for unassigned beneficiaries exceed the annual 
     transfer, they can be allocated to the companies in 
     proportion to their share of assigned beneficiaries. If, for 
     any plan year, there is a shortfall in the Combined Fund, the 
     insurance premiums payable by companies for the following 
     plan year are proportionally increased.
       The per beneficiary insurance premium is calculated each 
     year by the Commissioner of the Social Security 
     Administration, and is based on a base insurance premium 
     increased each year for medical inflation. The base insurance 
     premium is equal to the payments from the 1950 UMWA and 1974 
     UMWA Benefit Plans for health benefits (including 
     administrative costs) for the plan year beginning July 1, 
     1991, divided by the number of individuals covered by such 
     plans. The base insurance premium was determined initially by 
     the Secretary of Health and Human Services to be equal to 
     $2,116.67 per beneficiary. There has been some dispute 
     regarding the initial determination of the base insurance 
     premium, and on June 2, 1995, a United States District Court 
     in Alabama granted summary judgment on behalf of eight 
     companies holding that the Secretary of Health and Human 
     Services misapplied the provisions of the Coal Act in 
     initially determining the base insurance premium. 95 
     This decision is currently on appeal.
     \95\ National Coal Association v. Shalala (No. CV94-H-780-S, 
     Slip opinion (N.D. Ala. June 2, 1995). As a result of this 
     decision, the Social Security Administration, which is 
     responsible for calculating the annual insurance premium, set 
     the annual insurance premium for the 1996 Combined Fund year 
     (beginning October 1, 1995) at $2,200.53 per beneficiary. 
     According to the Social Security Administration, if the 
     decision is overturned, the per beneficiary insurance premium 
     would rise to $2,454.05.
---------------------------------------------------------------------------
       Under present law, the Coal Act does not require the 
     trustees of the Combined Fund to disclose any information 
     pertaining to the financial solvency and operational status 
     of the Combined Fund to companies required to pay insurance 
     premiums to the Combined Fund.
     House bill
       The House bill exempts from the Coal Act's provisions 
     companies that did not sign the 1988 NBCWA (or an agreement 
     (other than the National Coal Mine Construction Agreement and 
     the Coal Haulers' Agreement) containing pension and health 
     care contribution and benefit provisions identical to the 
     1988 NBCWA) and companies who made withdrawal liability 
     payments under the terms of the 1988 NBCWA. Such companies 
     are no longer obligated to pay insurance premiums to the 
     Combined Fund or the 1992 UMWA Benefit Plan. Beneficiaries 
     allocated to these companies are reallocated to the 
     unassigned pool. To the extent the insurance premiums 
     associated with these unassigned beneficiaries are not paid 
     from amounts transferred from the Federal Abandoned Mine 
     Reclamation Fund, the insurance premiums will be allocated to 
     the companies that signed the 1988 NBCWA (or an agreement 
     (other than the National Coal Mine Construction Agreement and 
     the Coal Haulers' Agreement) containing pension and health 
     care contribution and benefit provisions identical to the 
     1988 NBCWA) in proportion to their share of assigned 
     beneficiaries. As under present law, if, for any plan year, 
     there is a shortfall in the Combined Fund, the insurance 
     premiums payable by companies for the following plan year are 
     proportionally increased.
       The House bill also provides that the trustees of the 
     Combined Fund must provide to any company required to pay 
     insurance premiums to the Combined Fund, within 30 days of a 
     written request, information regarding the financial and 
     operational status of the Combined Fund.
       Effective date.--The provision is effective with respect to 
     plan years beginning after September 30, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


          41. Modification of luxury excise tax on automobiles

     Present law
       Present law imposes a 10-percent excise tax on that amount 
     of an automobile's sales price in excess of $32,000. The 
     $32,000 threshold is indexed for inflation. The tax is 
     scheduled to expire after December 31, 1999.
     House bill
       No provision.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement extends the luxury excise tax on 
     automobiles through December 31, 2002, and reduces the rate 
     of tax by one percentage point per year beginning in 1996. 
     Thus, the rate of tax for 1996 is nine percent; for 1997, 
     eight percent; for 1998, seven percent; for 1999, six 
     percent; for 2000, five percent; for 2001, four percent; and 
     for 2002, three percent. The conference agreement provides 
     that the luxury tax on automobiles expires after December 31, 
     2002.
       Effective date.--The provision is effective on January 1, 
     1996.

                  X. Technical Corrections Provisions


  A. Technical Corrections to the Revenue Reconciliation Act of 1990 
                        (sec. 6602 of H.R. 1215)

     House bill
       1. Application of the 2.5-cents-per-gallon tax on fuel used 
           in rail transportation to States and local governments 
           (sec. 6602(b)(2))
       The House bill clarifies that the 2.5-cents-per-gallon tax 
     on fuel used in rail transportation does not apply to such 
     uses by States and local governments.
       2. Small winery production credit and bonding requirements 
           (secs. 6602(b)(5), (6), and (7))
       The House bill clarifies that wine produced by eligible 
     small wineries may be transferred without payment of tax to 
     bonded warehouses that become liable for payment of the wine 
     excise tax without losing credit eligibility.
       3. Deposits of Railroad Retirement Tax Act taxes (sec. 
           6602(c)(3))
       The House bill conforms the Internal Revenue Code to the 
     provision in the Railroad Retirement Solvency Act of 1993 
     that applies the deposit rules for income taxes withheld from 
     employees' wages and FICA taxes to Railroad Retirement Tax 
     Act taxes.
       4. Treatment of salvage and subrogation of property and 
           casualty insurance companies (sec. 6602(c)(4))
       The House bill makes adjustments to the calculation of a 
     property and casualty insurance company's earnings and 
     profits, so as to equalize the treatment of companies that 
     did, and those that did not, take into account estimated 
     salvage and subrogation recoverable in determining losses 
     incurred prior to 1990.
       5. Information with respect to certain foreign-owned or 
           foreign corporations: Suspension of statute of 
           limitations during certain judicial proceedings (sec. 
           6602(c)(5))
       The House bill modifies the provisions in sections 6038A 
     and 6038C that suspend the statute of limitations to clarify 
     that the suspension applies to any taxable year the 
     determination of the amount of tax imposed for which is 
     affected by the transaction or item to which the summons 
     relates.
       6. Rate of interest for large corporate underpayments 
           (secs. 6602(c)(6) and (7))
       The House bill provides that an IRS notice that is later 
     withdrawn because it was issued in error does not trigger the 
     higher rate of interest applicable to certain corporate 
     underpayments.
       7. Research credit provision: Effective date for repeal of 
           special proration rule (sec. 6602(d)(1))
       The bill repeals for all taxable years ending after 
     December 31, 1989, the special proration rule for certain 
     qualified research provided for by the 1989 Act.
       8. Energy tax provision: Alternative minimum tax adjustment 
           based on energy preferences (secs. 6602(e)(1) and (4))
       The House bill clarifies that the amount of alternative tax 
     net operating loss that is utilized in any taxable year is to 
     be appropriately adjusted to take into account the 

[[Page H 12903]]
     amount of special energy deduction claimed for that year.
       The House bill also provides that the ACE adjustment for 
     taxable years beginning in 1991 and 1992 is to be computed 
     without regard to the special energy deduction.
       9. Estate tax freezes (sec. 6602(f))
       Chapter 14 of the Code contains rules that supersede the 
     willing buyer, willing seller standard for valuation of 
     preferred interest in corporations and partnerships, property 
     held in trust, and term interests in property.
       The House bill provides that an applicable retained 
     interest conferring a distribution right to qualified 
     payments with respect to which there is no liquidation, put, 
     call, or conversion right is valued without regard to section 
     2701. The House bill also provides that the retention of such 
     right gives rise to potential inclusion in the transfer tax 
     base.
       The House bill modifies the definition of junior equity 
     interest by granting regulatory authority to treat a 
     partnership interest with rights that are junior with respect 
     to either income or capital as a junior equity interest. The 
     House bill also modifies the definition of distribution right 
     by replacing the junior equity interest exception with an 
     exception for a right under an interest that is junior to the 
     rights of the transferred interest.
       The House bill modifies the rules for electing into or out 
     of qualified payment treatment. A dividend payable on a 
     periodic basis and at a fixed rate under a cumulative 
     preferred stock held by the transferor is treated as a 
     qualified payment unless the transferor elects otherwise. If 
     held by an applicable family member, such stock is not 
     treated as a qualified payment unless the holder so elects. 
     In addition, a transferor or applicable family member holding 
     any other distribution right may treat such right as a 
     qualified payment to be paid in the amounts and at the times 
     specified in the election.
       The House bill grants the Treasury Department regulatory 
     authority to make subsequent transfer tax adjustments to 
     reflect the inclusion of unpaid amounts with respect to a 
     qualified payment. The House bill treats a transfer to a 
     spouse falling under the annual exclusion the same as a 
     transfer qualifying for the marital deduction. The bill also 
     clarifies that the inclusion continues to apply if an 
     applicable family member transfers a right to qualified 
     payments to the transferor. Under the House bill, the 
     election to treat a distribution as giving rise to an 
     inclusion results in an inclusion only with respect to the 
     payment for which the election is made.
       The House bill conforms section 2702 to existing regulatory 
     terminology by substituting the term ``incomplete gift'' for 
     ``incomplete transfer.'' In addition, the House bill limits 
     the exception for incomplete gifts to instances in which the 
     entire gift is incomplete. The Treasury Department is granted 
     regulatory authority, however, to create additional 
     exceptions not inconsistent with the purposes of the section.
       10. Conforming amendments to the repeal of the General 
           Utilities doctrine (secs. 6602(g)(1) and (2))
       The House bill makes three conforming changes to the Code 
     with respect to the repeal of the General Utilities doctrine. 
     Two of the changes affect section 1248: the first includes a 
     reference to section 355(c)(1) and the second clarifies that, 
     with respect to any transaction in which a U.S. person is 
     treated as realizing gain from the sale or exchange of stock 
     of a controlled foreign corporation, the U.S. person shall be 
     treated as having sold or exchanged the stock for purposes of 
     applying section 1248. The third change repeals section 
     897(f) as deadwood.
       11. Prohibited transaction rules (sec. 6602(g)(3))
       The House bill conforms the statutory language to 
     legislative intent by providing that transactions that are 
     exempt from the prohibited transaction rules of the Employee 
     Retirement Income Security Act of 1974 (''ERISA'') by reason 
     of ERISA section 408(b)(12) are also exempt from the 
     prohibited transaction rules of the Code.
       12. Effective date of LIFO adjustment for purposes of 
           computing adjusted current earnings (sec. 6602(g)(4))
       The House bill clarifies that the calculation of the LIFO 
     adjustment of the adjusted current earnings component of the 
     corporate alternative minimum tax would be effective with 
     respect to adjustments occurring in taxable years beginning 
     after December 31, 1989.
       13. Low-income housing tax credit (sec. 6602(g)(5))
       The House bill repeals a 1990 technical correction 
     regarding treatment of low- income housing buildings financed 
     with tax-exempt bonds. The House bill provides, however, that 
     pre-1989 Act law will apply to a bond-financed building if 
     the owner of the building establishes to the satisfaction of 
     the Secretary of the Treasury reasonable reliance upon the 
     1990 technical correction.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provisions.


  B. Technical Corrections to the Revenue Reconciliation Act of 1993 
                        (sec. 6603 of H.R. 1215)

     House bill
       1. Treatment of full-time students under the low-income 
           housing credit (sec. 6603(b))
       The House bill provides that the full-time student 
     provision is effective on the date of enactment of the 
     Revenue Reconciliation Act of 1993 (``1993 Act'').
       2. Indexation of threshold applicable to excise tax on 
           luxury automobiles (sec. 6603(c))
       The House bill corrects the application of the indexing 
     adjustment applicable to the threshold above which the excise 
     tax on luxury automobiles is to apply so that the adjustment 
     calculated for a given calendar year applies for that 
     calendar year rather than in the subsequent calendar year. 
     The House bill is effective on the date of enactment of this 
     act.
       3. Indexation of the limitation based on modified adjusted 
           gross income for income from United States savings 
           bonds used to pay higher education tuition and fees 
           (sec. 6603(d))
       The House bill corrects the indexing of the $60,000 
     ($40,000 for taxpayers filing as single) threshold to provide 
     that the thresholds be indexed for inflation after 1989.
       4. Reporting and notification requirements for lobbying and 
           political expenditures of tax-exempt organizations 
           (sec. 6603(g))
       Tax-exempt organizations that incur political expenditures 
     are subject to tax under section 527(f). Section 6033(e) 
     requires tax-exempt organizations (other than charities) to 
     (1) report on their annual information returns both the total 
     amount of their lobbying and political expenditures, and the 
     total amount of dues payments allocable to such expenditures, 
     and (2) provide notice to their members of the portion of 
     dues allocable to lobbying and political expenditures (so 
     that such amounts are not deductible to members), or the 
     organization may elect to pay a proxy tax on its lobbying and 
     political expenditures, up to the amount of its dues 
     receipts. The House bill amends section 6033(e) to clarify 
     that any political expenditures on which tax is paid pursuant 
     to section 527(f) are not subject to the reporting and 
     notification requirements of section 6033(e). In addition, 
     the House bill clarifies that the reporting and notification 
     requirements of section 6033(e) apply to organizations exempt 
     from tax under section 501(a), other than charities described 
     in section 501(c)(3).
       5. Estimated tax rules for certain tax-exempt organizations 
           (sec. 6603(h))
       The House bill clarifies that the Revenue Reconciliation 
     Act of 1993 did not change the method by which a tax-exempt 
     organization annualizes its current year tax liability for 
     purposes of avoiding an underpayment of estimated tax.
       6. Current taxation of certain earnings of controlled 
           foreign corporations--application of foreign tax credit 
           limitation (sec. 6603(I)(l))
       The House bill clarifies that a U.S. shareholder's 
     inclusion of a controlled foreign corporation's earnings 
     invested in excess passive assets is treated like a dividend 
     for purposes of the foreign tax credit limitation.
       7. Current taxation of certain earnings of controlled 
           foreign corporations--measurement of accumulated 
           earnings (sec. 6603(I)(2))
       The House bill clarifies that the accumulated earnings and 
     profits of a controlled foreign corporation taken into 
     account for purposes of determining the foreign corporation's 
     earnings invested in excess passive assets do not include any 
     deficit in accumulated earnings and profits, and do not 
     include current earnings (which are taken into account 
     separately).
       8. Current taxation of certain earnings of controlled 
           foreign corporations--aggregation and look-through 
           rules (sec. 6603(I)(3))
       The House bill clarifies that, within the regulatory 
     authority provided to the Secretary of the Treasury under the 
     1993 Act, regulations are specifically authorized to 
     coordinate the CFC group treatment and look-through treatment 
     applicable for purposes of determining a foreign 
     corporation's earnings invested in excess passive assets. 
     Pending the promulgation of guidance by the Secretary, it is 
     intended that taxpayers be permitted to coordinate such 
     treatment using any reasonable method for taking assets into 
     account only once, so long as the method is consistently 
     applied to all controlled foreign corporations (whether or 
     not members of any CFC group) in all taxable years.
       9. Treatment of certain leased assets for PFIC purposes 
           (sec. 6603(I)(5))
       The House bill clarifies that, in the case of any item of 
     property leased by a foreign corporation and treated as an 
     asset actually owned by the foreign corporation in measuring 
     the assets of the foreign corporation for purposes of the 
     PFIC asset test, the amount taken into account with respect 
     to the leased property is the amount determined under the 
     1993 Act's special measurement rule, which is based on the 
     unamortized portion of the present value of the payments 
     under the lease for the use of the property.
       10. Amortization of goodwill and certain other intangibles 
           (sec. 6603(k))
       The House bill clarifies the antichurning rules of the 1993 
     Act amortization of intangibles provision. It is clarified 
     that when a taxpayer and its related parties have made an 
     election to apply the 1993 Act to all acquisitions after July 
     25, 1991, the antichurning rules will not apply when property 
     acquired from an unrelated party after July 25, 1991 (and not 
     subject to the antichurning rules in the hands of the 
     acquirer) is transferred to a 

[[Page H 12904]]
     taxpayer related to the acquirer after the date of enactment of the 
     1993 Act.
       11. Empowerment zones and eligibility of small farms for 
           tax incentives (sec. 6603(l))
       The bill provides that the $500,000 asset test for 
     determining whether a farm is eligible for section 179 
     expensing in an empowerment zone and expanded tax-exempt 
     financing benefits in an empowerment zone or enterprise 
     community is applied based on assets of the farm at the end 
     of the current taxable year.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the Senate amendment, 
     except with respect to the indexation of the threshold 
     applicable to the excise tax on luxury automobiles (item 
     B.2., above). With respect to the indexation of the threshold 
     applicable to the excise tax on luxury automobiles, the 
     conference agreement follows the House bill.


      C. Other tax technical corrections (sec. 6604 of h.r. 1215)

     House bill
       1. Hedge bonds (sec. 6604(b))
       The House bill clarifies that the 30-day exception for 
     temporary investments of investment earnings applies to 
     amounts (i.e., principal and earnings thereon) temporarily 
     invested during the 30-day period immediately preceding 
     redemption of the bonds as well as such periods preceding 
     reinvestment of the proceeds.
       2. Withholding on distributions from U.S. real property 
           holding companies (sec. 6604(c))
       The House bill clarifies that withholding requirements 
     under section 1445 apply to any section 301 distribution to a 
     foreign person by a domestic corporation that is or was a 
     U.S. real property holding corporation which distribution is 
     not made out of the corporation's earnings and profits and is 
     therefore treated as an amount received in a sale or exchange 
     of a U.S. real property interest. The provision is effective 
     for distributions made after the date of enactment of the 
     bill.
       3. Treatment of credits attributable to working interests 
           in oil and gas properties (sec. 6604(d))
       A working interest in an oil and gas property which does 
     not limit the liability of the taxpayer is not a ``passive 
     activity'' for purposes of the passive loss rules (sec. 469). 
     However, if any loss from an activity is treated as not being 
     a passive loss by reason of being from a working interest, 
     any net income from the activity in subsequent years is not 
     treated as income from a passive activity, notwithstanding 
     that the activity may otherwise have become passive with 
     respect to the taxpayer.
       The House bill clarifies that any credit attributable to a 
     working interest in an oil and gas property, in a taxable 
     year in which the activity is no longer treated as not being 
     passive activity, will not be treated as attributable to a 
     passive activity to the extent of any tax allocable to the 
     net income from the activity for the taxable year.
       4. Clarification of passive loss disposition rule (sec. 
           6604(e))
       The House bill clarifies the rule relating to the 
     computation of the overall loss allowed upon the disposition 
     of a passive activity under the passive loss rules.
       5. Estate tax unified credit allowed nonresident aliens 
           under treaty (sec. 6604(f)(1))
       The House bill clarifies that in determining the pro rata 
     unified credit required by treaty, property exempted by the 
     treaty from U.S. estate tax is not treated as situated in the 
     United States. The provision is effective on the date of 
     enactment.
       6. Limitation on deduction for certain interest paid by 
           corporation to related person (sec. 6604(f)(2))
       The House bill clarifies that, under the earnings stripping 
     provision, excess interest carried forward from a year in 
     which the debt-equity ratio threshold is exceeded may be 
     deducted in a subsequent year in which that threshold is not 
     exceeded, but only to the extent that such interest would not 
     otherwise be treated as excess interest expense in the 
     carryforward year. The provision is effective as if included 
     in the amendments made by section 7210(a) of the 1989 Act.
       7. Branch-level interest tax (sec. 6604(f)(3))
       The House bill clarifies that where an interest expense of 
     a foreign corporation is allocable to U.S. effectively 
     connected income, but that interest expense would not have 
     been fully deductible for tax purposes under another Code 
     provision had it been paid by a U.S. corporation, such 
     interest is nonetheless treated for branch level interest tax 
     purposes like a payment by a U.S. corporation to a foreign 
     corporate parent. Similarly, with regard to the Treasury's 
     regulatory authority to treat an interest payment by a 
     foreign corporation's U.S. branch as though not paid by a 
     U.S. person for source and withholding purposes, the bill 
     clarifies that the authority extends to interest payments in 
     excess of those reasonably expected to be allocable to U.S. 
     effectively connected income of the foreign corporation. 
     These provisions are effective as if they were made by the 
     Tax Reform Act of 1986 (''1986 Act'').
       8. Determination of source in case of sales of inventory 
           property (sec. 6604(f)(4))
       The House bill clarifies that, to the extent that the 
     Secretary of the Treasury had general regulatory authority to 
     provide rules for the sourcing of income from the sales of 
     personal property prior to the 1986 Act, the Secretary of the 
     Treasury retains that authority under present law with 
     respect to inventory property. The provision is effective as 
     if it were included in the 1986 Act.
       9. Repeal of obsolete provisions (sec. 6604(f)(5))
       The House bill repeals as obsolete the information 
     reporting requirements of sections 6038 and 6038A relating to 
     section 453C.
       10. Clarification of certain stadium bond transition rule 
           in Tax Reform Act of 1986 (sec. 6604(g))
       The House bill permits the residual interest in the stadium 
     currently held by the City of Cleveland to be assigned to 
     Cuyahoga County, Ohio (the county in which both Cleveland and 
     the stadium are located) because of a change in Ohio State 
     law prior to issuance of the bonds. The House bill does not 
     extend the time for issuing the bonds or otherwise affect the 
     amount of bonds or the location or design of the stadium.
       11. Health care continuation rules (sec. 6604(h))
       The 1989 Act amended the health care continuation rules to 
     provide that if a covered employee is entitled to Medicare 
     and within 18 months of such entitlement separates from 
     service or has a reduction in hours, the duration of 
     continuation coverage for the spouse and dependents is 36 
     months from the date the covered employee became entitled to 
     Medicare. One possible unintended interpretation of the 
     statutory language, however, would permit continuation 
     coverage for up to 54 months. The House bill amends the Code 
     (sec. 4980B), title I of the Employee Retirement Income 
     Security Act of 1974 (sec. 602), and the Public Health 
     Service Act (sec. 2202(2)(A)), to limit the continuation 
     coverage in such cases to no more than 36 months. The 
     provision is effective for plan years beginning after 
     December 31, 1989.
       12. Taxation of excess inclusions of a residual interest in 
           a REMIC for taxpayers subject to alternative minimum 
           tax with net operating losses (sec. 6604(I))
       The House bill provides the following three rules for 
     determining the alternative minimum taxable income of a 
     taxpayer that is not a thrift institution that holds residual 
     interests in a REMIC: (1) the alternative minimum taxable 
     income of such a taxpayer is computed without regard to the 
     REMIC rule that taxable income cannot be less than the amount 
     of excess inclusions; (2) the alternative minimum taxable 
     income of such a taxpayer for a taxable year cannot be less 
     than the excess inclusions of the residual interests for that 
     year; and (3) the amount of any alternative minimum tax net 
     operating loss deduction of such a taxpayer is computed 
     without regard to any excess inclusions. The provision is 
     effective for all taxable years beginning after December 31, 
     1986, unless the taxpayer elects to apply the rules of the 
     bill only to taxable years beginning after the date of 
     enactment.
       13. Application of harbor maintenance tax to Alaska and 
           Hawaii ship passengers (sec. 6604(j))
       The House bill clarifies that the harbor maintenance tax 
     does not apply to passenger fares where the passengers are 
     transported on U.S. flag vessels operating solely within the 
     State waters of Alaska or Hawaii and adjacent international 
     waters (i.e., leaving and returning to a port in the same 
     State without stopping elsewhere). The provision is effective 
     as of April 1, 1987 (the effective date of the tax).
       14. Modify effective date provision relating to the Energy 
           Policy Act of 1992 (sec. 6604(k))
       The House bill corrects several cross-references in the 
     Energy Policy Act of 1992, and also clarifies the 
     relationship between the basis adjustment rules for the 
     electric vehicle credit (sec. 30(d)(1) and the alternative 
     minimum tax.
       15. Determination of unrecovered investment in annuity 
           contract (sec. 6604(m))
       In the case of an annuity contract with a refund feature, 
     the House bill modifies the definition of the unrecovered 
     investment in the contract, so that the entire investment in 
     the contract can be recovered tax-free.
       16. Election by parent to claim unearned income of certain 
           children on parent's return (sec. 6604(n))
       The House bill provides for adjustments for inflation, 
     effective for taxable years beginning after December 31, 
     1994.
       17. Exclusion from income for combat zone compensation 
           (sec. 6604(o)(4))
       The House bill changes obsolete references to ``combat 
     pay'' to references to ``combat zone compensation.''
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provisions.


D. Additional tax technical corrections (secs. 13401-13405 of the house 
                                 bill)

     House bill
       1. Reporting of real estate transactions (sec. 13401)
       The House bill clarifies that real estate reporting persons 
     may take into account the cost of complying with the 
     reporting requirements of Code section 6045 in establishing 

[[Page H 12905]]
     charges for their services, so long as a separately listed charge for 
     such costs is not made.
       2. Clarification of denial of deduction for stock 
           redemption expenses (sec. 13402)
       The House bill clarifies that amounts properly allocable to 
     indebtedness on which interest is deductible and properly 
     amortized over the term of that indebtedness are not subject 
     to the provision of section 162(k) denying a deduction for 
     any amount paid or incurred by a corporation in connection 
     with the redemption of its stock. This clarification is 
     effective as if included in the 1986 Act.
       In addition, the House bill clarifies that the rules of 
     section 162(k) apply to any acquisition of its stock by a 
     corporation or by a party that has a relationship to the 
     corporation described in section 465(b)(3)(C)(which applies a 
     more than 10-percent relationship test in certain cases). 
     These clarifications apply to amounts paid or incurred after 
     September 13, 1995.
       3. Clarification of depreciation class for certain energy 
           property (sec. 13403)
       The House bill clarifies that solar or wind property owned 
     by a public utility may qualify as 5-year MACRS property.
       4. Treatment of certain veterans' reemployment rights (sec. 
           13405)
       The House bill conforms the Internal Revenue Code 
     provisions relating to tax- qualified retirement plans to the 
     Uniformed Services Employment and Reemployment Rights Act of 
     1994 (''USERRA''), which provides for the rights of 
     reemployed veterans. Thus, under the House bill, the tax-
     qualified status of a plan will not be affected merely 
     because the plan provides benefits to a reemployed veteran as 
     required or authorized by USERRA. The provision is effective 
     as of December 12, 1994, the effective date of the benefits-
     related provisions of USERRA.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provisions.


E. Treat Qualified Football Coaches Plan as Multiemployer Pension Plan 
               for Purposes of the Internal Revenue Code

(sec. 6604(l) of the House bill and sec. 12705 of the Senate amendment)

     Present law
       Under present law, a tax-qualified pension plan (including 
     a qualified cash or deferred arrangement) must be maintained 
     for the exclusive benefit of the employees and their 
     beneficiaries covered under the plan.
       The American Football Coaches Association (``AFCA'') is a 
     tax-exempt organization described in section 501(c)(6) of the 
     Code. The members of the AFCA include college coaches, 
     athletic directors, and high school coaches. The 
     participating members of the AFCA are not employees of the 
     organization. The AFCA maintains a cash or deferred 
     arrangement (i.e., a ``401(k) plan'') on behalf of 
     participating members.
       The Employee Retirement Income Security Act of 1974 
     (``ERISA''), as amended by the Continuing Appropriations for 
     Fiscal Year 1988, provides that, for purposes of the labor 
     law provisions of ERISA, a qualified football coaches plan 
     generally is treated as a multiemployer plan and may include 
     a qualified cash or deferred arrangement. Under ERISA, a 
     qualified football coaches plan is defined as any defined 
     contribution plan established and maintained by an 
     organization described in Code section 501(c)(6), the 
     membership of which consists entirely of individuals who 
     primarily coach football as full-time employees of 4-year 
     colleges or universities, if the organization was in 
     existence on September 18, 1986. This definition is generally 
     intended to apply to the AFCA.
       However, the Omnibus Budget Reconciliation Act of 1987 
     provided that certain provisions of ERISA are not applicable 
     in interpreting the Internal Revenue Code, except to the 
     extent specifically provided in the Code or as determined by 
     the Secretary of the Treasury.
       The Internal Revenue Service determined that the cash or 
     deferred arrangement maintained by the AFCA is not a 
     qualified cash or deferred arrangement under the Internal 
     Revenue Code. In making this determination, the IRS also 
     observed that the AFCA plan may also violate a number of 
     provisions of the Code. For example, the Code requires that a 
     qualified plan be maintained for the benefit of employees, 
     but the coaches are not employees of the AFCA.
     House bill
       Under the House bill, a correction to the Continuing 
     Appropriations for Fiscal Year 1988 provides that a qualified 
     football coaches plan (as defined in ERISA) is eligible to 
     maintain a qualified cash or deferred arrangement under the 
     Internal Revenue Code on behalf of the football coaches 
     belonging to the AFCA.
       Effective date.--The provision generally is effective as if 
     included in the Continuing Appropriations for Fiscal Year 
     1988 (i.e., years beginning after December 22, 1987).
     Senate amendment
       Same as the House bill, except that in order for the plan 
     to be reinstated as a qualified football coaches plan, a 
     $25,000 excise tax is imposed on the plan.
       Effective date.--Same as the House bill, except that the 
     excise tax is required to be paid in the first plan year 
     beginning after the date of enactment.
     Conference agreement
       The conference agreement does not include the House bill or 
     Senate amendment provision.

         XI. Simplification Provisions Relating to Individuals


    1. Provisions relating to rollover of gain on sale of principal 
            residence (secs. 14101- 14102 of the House bill)

     Present law
       In general.--No gain is recognized on the sale of a 
     principal residence if a new residence at least equal in cost 
     to the sales price of the old residence is purchased and used 
     by the taxpayer as his or her principal residence within a 
     specified period of time (sec. 1034). This replacement period 
     generally begins two years before and ends two years after 
     the date of sale of the old residence. The basis of the 
     replacement residence is reduced by the amount of any gain 
     not recognized on the sale of the old residence by reason of 
     section 1034.
       Multiple rollovers.--In general, nonrecognition treatment 
     is available only once during any two-year period. In 
     addition, if the taxpayer purchases more than one residence 
     during the replacement period and such residences are each 
     used as the taxpayer's principal residence within two years 
     after the date of sale of the old residence, only the last 
     residence so used is treated as the replacement residence.
       Special rules apply, however, if residences are sold in 
     order to relocate for employment reasons. First, the number 
     of times nonrecognition treatment is available during a two-
     year period is not limited. Second, if a residence is sold 
     within two years after the sale of the old residence, the 
     residence sold is treated as the last residence used by the 
     taxpayer and thus as the only replacement residence.
       Rollovers in the case of divorce or separation.--The 
     determination whether property is used by a taxpayer as a 
     principal residence depends upon all the facts and 
     circumstances in each case, including the good faith of the 
     taxpayer. No safe harbor is provided for sales of principal 
     residences incident to divorce or marital separation.
     House bill
       Multiple rollovers.--Gain is rolled over from one residence 
     to another residence in the order the residences are 
     purchased and used, regardless of the taxpayer's reasons for 
     the sale of the old residence. In addition, gain may be 
     rolled over more than once within a two-year period. Thus, 
     the rules that formerly applied only if a taxpayer sold his 
     residence in order to relocate for employment purposes will 
     apply in all cases. As under present law, the basis of each 
     succeeding residence is reduced by the amount of gain not 
     recognized on the sale of the prior residence.
       Rollovers in the case of divorce or separation.--The House 
     bill provides a safe harbor in the determination of principal 
     residence in certain cases incident to divorce or marital 
     separation. Specifically, the House bill provides that a 
     residence is treated as the taxpayer's principal residence at 
     the time of sale if (1) the residence is sold pursuant to a 
     divorce or marital separation and (2) the taxpayer used such 
     residence as his or her principal residence at any time 
     during the two-year period ending on the date of sale.
       Effective date.--Sales of old residences (within the 
     meaning of sec. 1034) after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


  2. One-time exclusion of gain from sale of principal residence for 
             certain spouses (sec. 14103 of the House bill)

     Present law
       In general, a taxpayer may exclude from gross income up to 
     $125,000 of gain from the sale or exchange of a principal 
     residence if the taxpayer (1) has attained age 55 before the 
     sale, and (2) has used the residence as a principal residence 
     for three or more years of the five years preceding the sale. 
     This election is allowed only once in a lifetime unless all 
     previous elections are revoked. For these purposes, sales on 
     or before July 26, 1978 are not counted against the once in a 
     lifetime limit.
     House bill
       The House bill allows an exclusion to an individual who 
     otherwise qualifies for an exclusion under section 121 of the 
     Code but for a marriage to a spouse with an existing election 
     in effect. The exclusion will only be available if the 
     individual held the property which is the subject of the 
     exclusion for at least three years prior to marrying the 
     spouse with the existing election.
       Effective date.--Sales or exchanges after September 13, 
     1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


3. Payment of taxes by commercially acceptable means (sec. 14111 of the 
                              House bill)

     Present law
       Payment of taxes may be made by checks or money orders, to 
     the extent and under the conditions provided by regulations.
     House bill
       The House bill allows the IRS to accept payment by any 
     commercially acceptable 

[[Page H 12906]]
     means that the Secretary deems appropriate, to the extent and under the 
     conditions provided in Treasury regulations.
       Effective date.--Nine months after the date of enactment. 
     The IRS may, in this interim period, conduct internal tests 
     and negotiate with card issuers, but may not accept credit or 
     debit cards for payment of tax liability.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


4. Simplified foreign tax credit limitation for individuals (sec. 14112 
                           of the House bill)

     Present law
       In order to compute the foreign tax credit, a taxpayer 
     computes foreign source taxable income and foreign taxes paid 
     in each of the applicable separate foreign tax credit 
     limitation categories. In the case of an individual, this 
     requires the filing of IRS Form 1116, designed to elicit 
     sufficient information to perform the necessary calculations.
     House bill
       The House bill allows individuals with no more than $200 
     ($400 in the case of married persons filing jointly) of 
     creditable foreign taxes, and no foreign source income other 
     than passive income, to elect a simplified foreign tax credit 
     limitation equal to the lesser of 25 percent of the 
     individual's foreign source gross income or the amount of the 
     creditable foreign taxes paid or accrued by the individual 
     during the taxable year. For this purpose, passive income is 
     defined to include all types of income that is foreign 
     personal holding company income under the subpart F rules, 
     provided that the income is shown on a payee statement 
     furnished to the individual. Under the election, a credit is 
     allowed only for taxes shown on a payee statement.
       Effective date.--Taxable years beginning after December 31, 
     1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


  5. Treatment of personal transactions by individuals under foreign 
             currency rules (sec. 14113 of the House bill)

     Present law
       When a U.S. taxpayer with a U.S. dollar functional currency 
     makes a payment in a foreign currency, gain or loss (referred 
     to as ``exchange gain or loss'') arises from any change in 
     the value of the foreign currency relative to the U.S. dollar 
     between the time the currency was acquired (or the obligation 
     to pay was incurred) and the time that the payment is made. 
     The 1986 Act provisions designed to clarify the treatment of 
     currency transactions, primarily found in section 988, apply 
     to transactions entered into by an individual only to the 
     extent that expenses attributable to such transactions will 
     be deductible under section 162 (as a trade or business 
     expense) or section 212 (as an expense of producing income, 
     other than expenses incurred in connection with the 
     determination, collection, or refund of taxes). Therefore, 
     the principles of pre-1986 law continue to apply to personal 
     currency transactions.
     House bill
       In a case where an individual acquires nonfunctional 
     currency and then disposes of it in a personal transaction, 
     and where exchange rates have changed in the intervening 
     period, the House bill provides for nonrecognition of an 
     individual's resulting exchange gain provided that such gain 
     does not exceed $200. The House bill does not change the 
     treatment of resulting exchange losses.
       Effective date.--Taxable years beginning after December 31, 
     1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


  6. Treatment of certain reimbursed expenses of rural mail carriers 
                     (sec. 14114 of the House bill)

     Present law
       A taxpayer who uses his or her automobile for business 
     purposes may deduct the business portion of the actual 
     operation and maintenance expenses of the vehicle, plus 
     depreciation (subject to the limitations of sec. 280F). 
     Alternatively, the taxpayer may elect to utilize a standard 
     mileage rate in computing the deduction allowable for 
     business use of an automobile that has not been fully 
     depreciated. Under this election, the taxpayer's deduction 
     equals the applicable rate multiplied by the number of miles 
     driven for business purposes and is taken in lieu of 
     deductions for depreciation and actual operation and 
     maintenance expenses.
       An employee of the U.S. Postal Service may compute his 
     deduction for business use of an automobile in performing 
     services involving the collection and delivery of mail on a 
     rural route by using, for all business use mileage, 150 
     percent of the standard mileage rate.
     House bill
       The House bill repeals the special rate for Postal Service 
     employees of 150 percent of the standard mileage rate. In its 
     place, the House bill provides that the rate of reimbursement 
     provided by the Postal Service to rural letter carriers is 
     considered to be equivalent to their expenses. The rate of 
     reimbursement that is considered to be equivalent to their 
     expenses is the rate of reimbursement contained in the 1991 
     collective bargaining agreement, which may in the future be 
     increased by no more than the rate of inflation.
       Effective date.--Taxable years beginning after December 31, 
     1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


7. Exclusion of combat pay from withholding limited to amount excluded 
            from gross income (sec. 14115 of the House bill)

     Present law
       Gross income does not include certain combat pay of members 
     of the Armed Forces (Code sec. 112). If enlisted personnel 
     serve in a combat zone during any part of any month, military 
     pay for that month is excluded from gross income. In the case 
     of commissioned officers, these exclusions from income are 
     limited to $500 per month of military pay.
       There is no income tax withholding with respect to military 
     pay for a month in which a member of the Armed Forces of the 
     United States is entitled to the benefits of section 112 
     (sec. 3401(a)(2)). With respect to enlisted personnel, this 
     income tax withholding rule parallels the exclusion from 
     income under section 112: there is total exemption from 
     income tax withholding and total exclusion from income. With 
     respect to officers, however, the withholding rule is not 
     parallel: there is total exemption from income tax 
     withholding, although the exclusion from income is limited to 
     $500 per month.
     House bill
       The House bill makes the income tax withholding exemption 
     rules parallel to the rules providing an exclusion from 
     income for combat pay.
       Effective date.--Remuneration paid after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


8. Treatment of traveling expenses of certain Federal employees engaged 
       in criminal investigations (sec. 14116 of the House bill)

     Present law
       Unreimbursed ordinary and necessary travel expenses paid or 
     incurred by an individual in connection with temporary 
     employment away from home are generally deductible, subject 
     to the two-percent floor on miscellaneous itemized 
     deductions. Travel expenses paid or incurred in connection 
     with indefinite employment away from home, however, are not 
     deductible. A taxpayer's employment away from home in a 
     single location is indefinite rather than temporary if it 
     lasts for one year or more; thus, no deduction is permitted 
     for travel expenses paid or incurred in connection with such 
     employment (sec. 162(a)). If a taxpayer's employment away 
     from home in a single location lasts for less than one year, 
     whether such employment is temporary or indefinite is 
     determined on the basis of the facts and circumstances.
     House bill
       The one-year limitation with respect to deductibility of 
     expenses while temporarily away from home does not include 
     any period during which a Federal employee is certified by 
     the Attorney General (or the Attorney General's designee) as 
     traveling on behalf of the Federal Government in a temporary 
     duty status to investigate or provide support services for 
     the investigation of a Federal crime. Thus, expenses for 
     these individuals during these periods are fully deductible, 
     regardless of the length of the period for which 
     certification is given (provided that the other requirements 
     for deductibility are satisfied).
       Effective date.--Taxable years ending after the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.

                 XII. Pension Simplification Provisions


   A. Simplified Distribution Rules (secs. 14201-14204 of the House 
           billand secs. 12911-12914 of the Senate amendment)

     Present law
       In general, a distribution of benefits from a tax-favored 
     retirement arrangement (i.e., a qualified plan) generally is 
     includible in gross income in the year it is paid or 
     distributed under the rules relating to the taxation of 
     annuities. A qualified plan includes a qualified pension 
     plan, a qualified annuity plan, and a tax-sheltered annuity 
     contract (sec. 403(b) annuity).
       Lump-sum distributions
       Lump-sum distributions from qualified plans and annuities 
     are eligible for special 5-year forward averaging. In 
     general, a lump-sum distribution is a distribution within one 
     taxable year of the balance to the credit of an employee that 
     becomes payable to the recipient first, on account of the 
     death of the employee, second, after the employee attains age 
     59-1/2, third, on account of the employee's separation from 
     service, or fourth, in the case of self-employed individuals, 
     on account of disability. Lump-sum treatment is not 

[[Page H 12907]]
     available for distributions from a tax-sheltered annuity.
       A taxpayer is permitted to make an election with respect to 
     a lump-sum distribution received on or after the employee 
     attains age 59-1/2 to use 5-year forward income averaging 
     under the tax rates in effect for the taxable year in which 
     the distribution is made. In general, this election allows 
     the taxpayer to pay a separate tax on the lump-sum 
     distribution that approximates the tax that would be due if 
     the lump-sum distribution were received in 5 equal 
     installments. If the election is made, the taxpayer is 
     entitled to deduct the amount of the lump-sum distribution 
     from gross income. Only one such election on or after age 59-
     1/2 may be made with respect to any employee.
       $5,000 exclusion for employer-provided death benefits
       Under present law, the beneficiary or estate of a deceased 
     employee generally can exclude up to $5,000 in benefits paid 
     by or on behalf of an employer by reason of the employee's 
     death (sec. 101(b)).
       Recovery of basis
       Amounts received as an annuity under a qualified plan 
     generally are includible in income in the year received, 
     except to the extent they represent the return of the 
     recipient's investment in the contract (i.e., basis). Under 
     present law, a pro-rata basis recovery rule generally 
     applies, so that the portion of any annuity payment that 
     represents nontaxable return of basis is determined by 
     applying an exclusion ratio equal to the employee's total 
     investment in the contract divided by the total expected 
     payments over the term of the annuity.
       Under a simplified alternative method provided by the IRS, 
     the taxable portion of qualifying annuity payments is 
     determined under a simplified exclusion ratio method.
       In no event can the total amount excluded from income as 
     nontaxable return of basis be greater than the recipient's 
     total investment in the contract.
       Required distributions
       Present law provides uniform minimum distribution rules 
     generally applicable to all types of tax-favored retirement 
     vehicles, including qualified plans and annuities, IRAs, and 
     tax-sheltered annuities.
       Under present law, a qualified plan is required to provide 
     that the entire interest of each participant will be 
     distributed beginning no later than the participant's 
     required beginning date (sec. 401(a)(9)). The required 
     beginning date is generally April 1 of the calendar year 
     following the calendar year in which the plan participant or 
     IRA owner attains age 70-1/2. In the case of a governmental 
     plan or a church plan, the required beginning date is the 
     later of first, such April 1, or second, the April 1 of the 
     year following the year in which the participant retires.
     House bill
       Lump-sum distributions
       The House bill repeals 5-year averaging for lump-sum 
     distributions from qualified plans. Thus, the bill repeals 
     the separate tax paid on a lump-sum distribution and also 
     repeals the deduction from gross income for taxpayers who 
     elect to pay the separate tax on a lump-sum distribution. The 
     bill preserves the transition rules adopted in the Tax Reform 
     Act of 1986.
       Effective date.--Taxable years beginning after December 31, 
     1995.
       $5,000 exclusion for employer-provided death benefits
       The House bill repeals the $5,000 exclusion for employer-
     provided death benefits.
       Effective date.--Taxable years beginning after December 31, 
     1995.
       Recovery of basis
       The House bill provides that basis recovery on payments 
     from qualified plans generally is determined under a method 
     similar to the present-law simplified alternative method 
     provided by the IRS. The portion of each annuity payment that 
     represents a return of basis is equal to the employee's total 
     basis as of the annuity starting date, divided by the number 
     of anticipated payments under the following table:
Age:                                                Number of payments:
    Not more than 55................................................300
    56-60...........................................................260
    61-65...........................................................240
    66-70...........................................................170
    More than 70....................................................120
       Effective date.--Annuity starting dates after December 31, 
     1995.
       Required distributions
       The House bill modifies the rule that requires all 
     participants in qualified plans to commence distributions by 
     age 70-1/2 without regard to whether the participant is still 
     employed by the employer and generally replaces it with the 
     rule in effect prior to the Tax Reform Act of 1986. Under the 
     House bill, distributions generally are required to begin by 
     April 1 of the calendar year following the later of first, 
     the calendar year in which the employee attains age 70-1/2 or 
     second, the calendar year in which the employee retires. 
     However, in the case of a 5-percent owner of the employer, 
     distributions are required to begin no later than the April 1 
     of the calendar year following the year in which the 5- 
     percent owner attains age 70-1/2.
       In addition, in the case of an employee (other than a 5-
     percent owner) who retires in a calendar year after attaining 
     age 70-1/2, the bill generally requires the employee's 
     accrued benefit to be actuarially increased to take into 
     account the period after age 70-1/2 in which the employee was 
     not receiving benefits under the plan. Thus, under the House 
     bill, the employee's accrued benefit is required to reflect 
     the value of benefits that the employee would have received 
     if the employee had retired at age 70-1/2 and had begun 
     receiving benefits at that time.
       The actuarial adjustment rule and the rule requiring 5-
     percent owners to begin distributions after attainment of age 
     70-1/2 do not apply, under the House bill, in the case of a 
     governmental plan or church plan.
       Effective date.--Years beginning after December 31, 1995.
     Senate amendment
       Lump-sum distributions
       The Senate amendment is the same as the House bill.
       Effective date.--Taxable years beginning after December 31, 
     1998.
       $5,000 exclusion for employer-provided death benefits
       The Senate amendment is the same as the House bill.
       Recovery of basis
       The Senate amendment is the same as the House bill, except 
     that the number of anticipated payments is determined under 
     the following table:


        Age:                                        Number of payments:
    Not more than 55................................................360
    56-60...........................................................310
    61-65...........................................................260
    66-70...........................................................210
    More than 70....................................................160
       Effective date.--Same as House bill.
       Required distributions
       The Senate amendment is the same as the House bill.
     Conference agreement
       Lump-sum distributions
       The conference agreement follows the Senate amendment.
       $5,000 exclusion for employer-provided death benefits
       The conference agreement follows the House bill and the 
     Senate amendment.
       Recovery of basis
       The conference agreement follows the Senate amendment.
       Required distributions
       The conference agreement follows the House bill and the 
     Senate amendment.

                  B. Increased Access to Pension Plans


  1. modifications of simplified employee pensions (sec. 14211 of the 
                              House bill)

     Present Law
       Certain employers (other than tax-exempt and governmental 
     employers) can establish a simplified employee pension 
     (``SEP'') for the benefit of their employees under which the 
     employees can elect to have contributions made to the SEP or 
     to receive the contributions in cash. The amounts the 
     employee elects to have contributed to the SEP are not 
     currently includible in income.
       The election to have amounts contributed to a SEP or 
     received in cash is available only if at least 50 percent of 
     the eligible employees of the employer elect to have amounts 
     contributed to the SEP. In addition, such election is 
     available for a taxable year only if the employer maintaining 
     the SEP had 25 or fewer eligible employees at all times 
     during the prior taxable year.
       Elective deferrals under SEPs are subject to a special 
     nondiscrimination test.
     House Bill
       The House bill modifies the rules relating to salary 
     reduction SEPs by providing that such SEPs may be established 
     by employers with 100 or fewer employees. The House bill 
     repeals the requirement that at least 50 percent of eligible 
     employees actually participate in a salary reduction SEP. The 
     House bill modifies the special nondiscrimination test 
     applicable to elective deferred under SEPs and permits a 
     salary reduction SEP to satisfy the design-based safe harbor 
     available to qualified cash or deferred arrangements (see 
     C.3., below).
       Effective date.--Years beginning after December 31, 1995.
     Senate Amendment
       No provision. However, the Senate amendment adopts a new 
     type of retirement plan (called a ``SIMPLE'' retirement plan) 
     (see the description in II.B., above).
     Conference Agreement
       The conference agreement does not include the House bill 
     provision.


 2. state and local governments and tax-exempt organizations eligible 
 under section 401(k) (sec. 14212 of the house Bill and sec. 12917 of 
                         the senate amendment)

     Present Law
       Under present law, tax-exempt and State and local 
     government organizations are generally prohibited from 
     establishing qualified cash or deferred arrangements (sec. 
     401(k) plans). Qualified cash or deferred arrangements (1) of 
     rural cooperatives, (2) adopted by State and local 
     governments before May 6, 1986, or (3) adopted by tax-exempt 
     organizations before July 2, 1986, are not subject to this 
     prohibition.
     House Bill
       The House bill allows tax-exempt organizations and State 
     and local governments and their agencies and 
     instrumentalities to maintain qualified cash or deferred 
     arrangements, unless the entity maintains a section 457 plan.
       Tax-exempt and governmental plans eligible to maintain 
     qualified cash or deferred arrangements under present law are 
     not be 

[[Page H 12908]]
     subject to the prohibition on maintaining such a plan if the entity 
     maintains a section 457 plan.
       Effective date.--Years beginning after December 31, 1996.
     Senate amendment
       The Senate amendment permits organizations exempt from tax 
     (other than an organization described in sec. 501(c)(3)) to 
     maintain qualified cash or deferred arrangements.
       Effective date.--Years beginning after December 31, 1997.
     Conference agreement
       The conference agreement follows the Senate amendment, 
     except that the provision applies to all tax-exempt 
     organizations (including, for this purpose, Indian tribes). 
     The conference report retains the present-law prohibition in 
     the maintenance of cash or deferred arrangements by State and 
     local governments, (except to the extent it may apply to 
     Indian tribes).
       Effective date.--Years beginning after December 31, 1996.


3. tax credit for pension plan start-up costs of small employers (sec. 
                     12916 of the senate amendment)

     Present law
       An employer is generally entitled to deduct ordinary and 
     necessary business expenses, including expenses associated 
     with establishing pension plans.
     House Bill
       No provision.
     Senate amendment
       In lieu of the present-law deduction, small employers would 
     be entitled to a credit with respect to the expenses of 
     establishing a SIMPLE retirement plan (see the description in 
     II.B., above). The credit equals 50 percent of the start-up 
     costs of establishing the plan up to a maximum credit of 
     $500.
       The credit is not available to an employer that made 
     contributions to a qualified plan (or a SIMPLE plan) during 
     the 2 years preceding the year in question. In addition, the 
     credit is not available to employers substantially all of the 
     activities of which involve the performance of services in 
     the fields of health, law, engineering, architecture, 
     accounting, actuarial science, performing arts, or 
     consulting.
       Effective date.--Costs incurred after the date of enactment 
     in taxable years ending after that date.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment.

                     C. Nondiscrimination Provisions


 1. definition of highly compensated employees and family aggregation 
rules (secs. 14221-14222 of the house bill and sec. 12901 of the senate 
                               amendment)

     Present law
       Definition of highly compensated employee
       An employee, including a self-employed individual, is 
     treated as highly compensated if, at any time during the year 
     or the preceding year, the employee (1) was a 5-percent owner 
     of the employer, (2) received more than $100,000 (for 1995) 
     in annual compensation from the employer, (3) received more 
     than $66,000 (for 1995) in annual compensation from the 
     employer and was one of the top-paid 20 percent of employees 
     during the same year, or (4) was an officer of the employer 
     who received compensation in excess of $60,000 (for 1995). 
     If, for any year, no officer has compensation in excess of 
     the threshold, then the highest paid officer of the employer 
     is treated as a highly compensated employee.
       Family aggregation rules
       A special rule applies with respect to the treatment of 
     family members of certain highly compensated employees for 
     purposes of the nondiscrimination rules applicable to 
     qualified plans. Under the special rule, if an employee is a 
     family member of either a 5-percent owner or 1 of the top-10 
     highly compensated employees by compensation, then any 
     compensation paid to such family member and any contribution 
     or benefit under the plan on behalf of such family member is 
     aggregated with the compensation paid and contributions or 
     benefits on behalf of the 5-percent owner or the highly 
     compensated employee in the top-10 employees by the 
     compensation. Therefore, such family member and employee are 
     treated as a single highly compensated employee. An 
     individual is considered a family member if, with respect to 
     an employee, the individual is a spouse, lineal ascendant or 
     descendant, or spouses of a lineal ascendant or descendant of 
     the employee.
       Similar family aggregation rules apply with respect to the 
     $150,000 (for 1995) limit on compensation that may be taken 
     into account under a qualified plan (sec. 401(a)(17)) and for 
     deduction purposes (sec. 404(1)). However, under such 
     provisions, only the spouse of the employee and lineal 
     descendants of the employee who have not attained the age 19 
     are taken into account.
     House bill
       Definition of highly compensated employee
       Under the House bill, an employee is highly compensated if 
     the employee (1) was a 5- percent owner of the employer at 
     any time during the year or the preceding year or (2) had 
     compensation for the preceding year in excess of $80,000 
     (indexed for inflation). The House bill repeals the rule 
     requiring the highest paid officer to be treated as a highly 
     compensated employee.
       Effective date.--Years beginning after December 31, 1995.
       Family aggregation rules
       The House bill repeals the family aggregation rules.
       Effective date.--The provision is effective for years 
     beginning after December 31, 1995.
     Senate amendment
       Definition of highly compensated employee
       Under the Senate amendment, an employee is highly 
     compensated if the employee (1) was a 5-percent owner of the 
     employer at any time during the year or the preceding year, 
     (2) had compensation for the preceding year in excess of 
     $80,000 (indexed for inflation), or (3) was the most highly 
     compensated officer of the employer for the preceding year. 
     The rule providing that the most highly compensated officer 
     is a highly compensated employees does not apply to plans 
     maintained by tax-exempt or State and local governmental 
     organizations for purposes of applying the nondiscrimination 
     tests applicable to cash or deferred arrangements.
       Effective date.--Years beginning after December 31, 1996.
       Family aggregation rules
       The Senate amendment is the same as the House bill.
     Conference agreement
       Definition of highly compensated employee
       The conference agreement follows the House bill, except 
     that an employee with compensation for the preceding year in 
     excess of $80,000 (indexed for inflation) is not considered 
     highly compensated unless the employee was in the top 20 
     percent of employees by compensation for such year.
       Family aggregation rules
       The conference agreement follows the House bill and the 
     Senate amendment.


2. modification of additional participation requirements (sec. 14223 of 
            the bill and sec. 12903 of the senate amendment)

     Present law
       Under present law, a plan is not a qualified plan unless it 
     benefits no fewer than the lesser of (a) 50 employees of the 
     employer or (b) 40 percent of all employees of the employer 
     (sec. 401(a)(26)). This requirement may not be satisfied by 
     aggregating comparable plans, but may be applied separately 
     to different lines of business of the employer. A line of 
     business of the employer does not qualify as a separate line 
     of business unless it has at least 50 employees.
     House bill
       The bill provides that the minimum participation rule 
     applies only to defined benefit pension plans. In addition, 
     the bill provides that a defined benefit pension plan does 
     not satisfy the rule unless it benefits no fewer than the 
     lesser of first, 50 employees or second, the greater of (a) 
     40 percent of all employees of the employer or (b) 2 
     employees (1 employee if there is only 1 employee).
       The bill provides that the requirement that a line of 
     business has at least 50 employees does not apply in 
     determining whether a plan satisfies the minimum 
     participation rule on a separate line of business basis.
       Effective date.--The provision is effective for years 
     beginning after December 31, 1995.
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


3. nondiscrimination rules for qualified cash or deferred arrangements 
and matching contributions (sec. 14224 of the house bill and sec. 12904 
                        of the senate amendment)

     Present law
       Under present law, a special nondiscrimination test applies 
     to qualified cash or deferred arrangements. The special 
     nondiscrimination test is satisfied if the actual deferral 
     percentage (ADP) for eligible highly compensated employees 
     for a plan year is equal to or less than either (1) 125 
     percent of the ADP of all nonhighly compensated employees 
     eligible to defer under the arrangement or (2) the lesser of 
     200 percent of the ADP of all eligible nonhighly compensated 
     employees or such ADP plus 2 percentage points.
       Employer matching contributions and after-tax employee 
     contributions under qualified defined contribution plans are 
     subject to a special nondiscrimination test similar to the 
     special nondiscrimination test applicable to qualified cash 
     or deferred arrangements.
       A plan that would otherwise fail to meet the special 
     nondiscrimination test for qualified cash or deferred 
     arrangements is not treated as failing such test if excess 
     contributions (with allocable income) are distributed to the 
     employee or, in accordance with Treasury regulations, 
     recharacterized as after-tax employee contributions. For 
     purposes of this rule, in determining the amount of excess 
     contributions and the employees to whom they are allocated, 
     the elective deferrals of highly compensated employees are 
     reduced in the order of their actual deferral percentage 
     beginning with those highly compensated employees with the 
     highest actual deferral percentages. A similar rule applies 
     to matching contributions.
     House bill
       Prior-year data.--The House bill modifies the special 
     nondiscrimination tests applicable to elective deferrals and 
     employer 

[[Page H 12909]]
     matching and after-tax employee contributions to provide that the 
     maximum permitted actual deferral percentage for highly 
     compensated employees for the year is determined by reference 
     to the actual deferral percentage for nonhighly compensated 
     employees for the preceding, rather than the current, year. A 
     special rule applies for the first plan year.
       Safe harbor for cash or deferred arrangements.--The bill 
     provides that a cash or deferred arrangement satisfies the 
     special nondiscrimination tests if the plan satisfies one of 
     two contribution requirements and satisfies a notice 
     requirement.
       A plan satisfies the contribution requirements under the 
     safe harbor rule for qualified cash or deferred arrangements 
     if the plan either first, satisfies a matching contribution 
     requirement or second, the employer makes a nonelective 
     contribution to a defined contribution plan of at least 3 
     percent of an employee's compensation on behalf of each 
     nonhighly compensated employee who is eligible to participate 
     in the arrangement without regard to whether the employee 
     makes elective contributions under the arrangement.
       A plan satisfies the matching contribution requirement if, 
     under the arrangement: First, the employer makes a matching 
     contribution on behalf of each nonhighly compensated employee 
     that is equal to (a) 100 percent of the employee's elective 
     contributions up to 3 percent of compensation and (b) 50 
     percent of the employee's elective contributions from 3 to 5 
     percent of compensation; and second, the level of match for 
     highly compensated employees is not greater than the match 
     rate for nonhighly compensated employees at any level of 
     compensation.
       Alternatively, if the matching contribution requirement is 
     not satisfied at some level of employee compensation, the 
     requirement is deemed to be satisfied if first, the level of 
     employer matching contributions does not increase as employee 
     elective contributions increase and second, the aggregate 
     amount of matching contributions with respect to elective 
     contributions up to that level of compensation at least 
     equals the amount of matching contributions that would be 
     made if matching contributions satisfied the percentage 
     requirements. For example, the alternative test would be 
     satisfied if an employer matches 125 percent of an employee's 
     elective contributions up to the first 3 percent of 
     compensation, 25 percent of elective deferrals from 3 to 4 
     percent of compensation, and provides no match thereafter. 
     This is because the employer match does not increase and the 
     aggregate amount of matching contributions is at least equal 
     to the matching contributions required under the general safe 
     harbor rule.
       Employer matching and nonelective contributions used to 
     satisfy the contribution requirements of the safe harbor 
     rules are required to be nonforfeitable and subject to the 
     restrictions on withdrawals that apply to an employee's 
     elective deferrals under a qualified cash or deferred 
     arrangement (sec. 401(k)(2)(B) and (C)).
       The notice requirement is satisfied if each employee 
     eligible to participate in the arrangement is given written 
     notice, within a reasonable period before any year, of the 
     employee's rights and obligations under the arrangement.
       Alternative method of satisfying special nondiscrimination 
     test for matching contributions.--The bill provides a safe 
     harbor method of satisfying the special nondiscrimination 
     test applicable to employer matching contributions. Under 
     this safe harbor, a plan is treated as meeting the special 
     nondiscrimination test if first, the plan meets the 
     contribution and notice requirements applicable under the 
     safe harbor method of satisfying the special 
     nondiscrimination requirement for qualified cash or deferred 
     arrangements, and second, the plan satisfies a special 
     limitation on matching contributions. After-tax employee 
     contributions are tested separately under the ACP test.
       The limitation on matching contributions is satisfied if 
     first, the matching contributions on behalf of any employee 
     may not be made with respect to employee contributions or 
     elective deferrals in excess of 6 percent of compensation and 
     second, the level of an employer's matching contribution does 
     not increase as an employee's contributions or elective 
     deferrals increase.
       Simplified employee pensions.--The bill modifies the 
     present-law nondiscrimination test applicable to salary 
     reduction SEPs to provide that the average of deferral 
     percentages for all nonhighly compensated employees for the 
     preceding, rather than the current, year is to be used. In 
     addition, the bill permits a salary reduction SEP to satisfy 
     the qualified cash or deferred arrangement safe harbor 
     nondiscrimination test.
       Distribution of excess contributions.--The House bill 
     provides that the total amount of excess contributions is 
     determined as under present law, but the distribution of 
     excess contributions is required to be made on the basis of 
     the amount of contribution by, or on behalf of, each highly 
     compensated employee. Thus, excess contributions are deemed 
     attributable first to those highly compensated employees who 
     have the greatest dollar amount of elective deferrals.
       Effective date.--Years beginning after December 31, 1995.
     Senate Amendment
       Prior-year data.--Same as the House bill, except that an 
     employer is allowed to elect to use current year actual 
     deferral percentages. Such an election can be revoked only as 
     provided by the Secretary.
       Safe harbor for cash or deferred arrangements.--Same as 
     House bill.
       Alternative method of satisfying special nondiscrimination 
     test for matching contributions.--Same as House bill, except 
     that an employer is allowed to elect to use current year 
     actual deferral percentages. Such an election can be revoked 
     only as provided by the Secretary.
       Simplified employee pensions.--No provision. However, the 
     Senate amendment adopts a new type of retirement plan (called 
     a ``SIMPLE'' retirement plan) (see the description in II.B., 
     above).
       Distribution of excess contributions.--No provision.
       Effective date.--Years beginning after December 31, 1998.
     Conference Agreement
       The conference agreement follows the Senate amendment, 
     except that it includes the House bill provision providing 
     that allocations of excess contributions are to be made on 
     the basis of the amount of contribution by, or on behalf of, 
     each highly compensated employee.
       Effective date.--The safe harbor for cash or deferred 
     arrangements and the alternative method of satisfying the 
     special nondiscrimination test for matching contributions are 
     effective for plan years beginning after December 31, 1998. 
     The provision relating to the distribution of excess 
     contributions is effective for plan years beginning after 
     December 31, 1995.


      4. definition of compensation for purposes of the limits on 
    contributions and benefits (sec. 12902 of the senate amendment)

     Present Law
        Present law imposes limits on contributions and benefits 
     under qualified plans based on the type of plan. For purposes 
     of these limits, present law provides that the definition of 
     compensation generally does not include elective employee 
     contributions to certain employee benefit plans.
     House Bill
       No provision.
     Senate Amendment
       The Senate amendment provides that elective deferrals to 
     section 401(k) plans and similar arrangements, elective 
     contributions to nonqualified deferred compensation plans of 
     tax-exempt employers and State and local governments (sec. 
     457 plans), and salary reduction contributions to a cafeteria 
     plan are considered compensation for purposes of the limits 
     on contributions and benefits.
       Effective date.--Years beginning after December 31, 1997.
     Conference Agreement
       The conference agreement follows the Senate amendment.

                D. Miscellaneous Pension Simplification


1. treatment of leased employees (sec. 14231 of the house bill and sec. 
                     12931 of the senate amendment)

     Present Law
       An individual (a leased employee) who performs services for 
     another person (the recipient) may be required to be treated 
     as the recipient's employee for various employee benefit 
     provisions, if the services are performed pursuant to an 
     agreement between the recipient and any other person (the 
     leasing organization) who is otherwise treated as the 
     individual's employer (sec. 414(n)). The individual is to be 
     treated as the recipient's employee only if the individual 
     has performed services for the recipient on a substantially 
     full-time basis for a year, and the services are of a type 
     historically performed by employees in the recipient's 
     business field.
       An individual who otherwise would be treated as a 
     recipient's leased employee will not be treated as such an 
     employee if the individual participates in a safe harbor plan 
     maintained by the leasing organization meeting certain 
     requirements. Each leased employee is to be treated as an 
     employee of the recipient, regardless of the existence of a 
     safe harbor plan, if more than 20 percent of an employer's 
     nonhighly compensated workforce are leased.
     House Bill
       Under the House bill, the present-law ``historically 
     performed'' test is replaced with a new rule under which an 
     individual is not considered a leased employee unless the 
     services are performed under significant direction or control 
     by the recipient.
       Effective date.--The provision is effective for years 
     beginning after December 31, 1995, except that the changes do 
     not apply to relationships that have been previously 
     determined by an IRS ruling not to involve leased employees. 
     In applying the leased employee rules to years beginning 
     before the effective date, it is intended that the Secretary 
     use a reasonable interpretation of the statute to apply the 
     leasing rules to prevent abuse.
     Senate Amendment
       Under the Senate amendment, the present-law ``historically 
     performed'' test is replaced with a new rule under which an 
     individual is not considered a leased employee unless the 
     individual's services are performed under the primary 
     direction or control of the service recipient.
       Effective date.--Same as House bill.
     Conference agreement
       The conference agreement follows the Senate amendment. 
     Consequently, an individual is not considered a leased 
     employee unless the individual's services are performed under 


[[Page H 12910]]
     primary direction or control by the service recipient. As under present 
     law, the determination of whether someone is a leased 
     employee is made after determining whether the individual is 
     a common-law employee of the recipient. Thus, an individual 
     who is not a common-law employee of the service recipient 
     could nevertheless be a leased employee of the service 
     recipient. Similarly, the fact that a person is or is not 
     found to perform services under primary direction or control 
     of the recipient for purposes of the employee leasing rules 
     is not determinative of whether the person is or is not a 
     common- law employee of the recipient.
       Whether services are performed by an individual under 
     primary direction or control by the service recipient depends 
     on the facts and circumstances. In general, primary direction 
     and control means that the service recipient exercises the 
     majority of direction and control over the individual. 
     Factors that are relevant in determining whether primary 
     direction or control exists include whether the individual is 
     required to comply with instructions of the service recipient 
     about when, where, and how he or she is to perform the 
     services, whether the services must be performed by a 
     particular person, whether the individual is subject to the 
     supervision of the service recipient, and whether the 
     individual must perform services in the order or sequence set 
     by the service recipient. Factors that generally are not 
     relevant in determining whether such direction or control 
     exists include whether the service recipient has the right to 
     hire or fire the individual and whether the individual works 
     for others.
       For example, an individual who works under the direct 
     supervision of the service recipient would be considered to 
     be subject to primary direction or control of the service 
     recipient even if another company hired and trained the 
     individual, had the ultimate (but unexercised) legal right to 
     control the individual, paid his wages, withheld his 
     employment and income taxes, and had the exclusive right to 
     fire him. Thus, for example, temporary secretaries, 
     receptionists, word processing personnel and similar office 
     personnel who are subject to the day-to-day control of the 
     employer in essentially the same manner as a common law 
     employee are treated as leased employees if the period of 
     service threshold is reached.
       On the other hand, an individual who is a common-law 
     employee of Company A who performs services for Company B on 
     the business premises of Company B under the supervision of 
     Company A would generally not be considered to be under 
     primary direction or control of Company B. The supervision by 
     Company A must be more than nominal, however, and not merely 
     a mechanism to avoid the literal language of the direction or 
     control test.
       An example of the situation in the preceding paragraph 
     might be a work crew that comes into a factory to install, 
     repair, maintain, or modify equipment or machinery at the 
     factory. The work crew includes a supervisor who is an 
     employee of the equipment (or equipment repair) company and 
     who has the authority to direct and control the crew, and who 
     actually does exercise such direction and control. In this 
     situation, the supervisor and his or her crew are required to 
     comply with the safety and environmental precautions of the 
     manufacturer. As another example, certain professionals 
     (e.g., attorneys, accountants, actuaries, doctors, computer 
     programmers, systems analysts, and engineers) who regularly 
     make use of their own judgement and discretion on matters of 
     importance in the performance of their services and are 
     guided by professional or industry standards, are not leased 
     employees merely because the service recipient requires the 
     services to be performed on site and according to certain 
     stages and timetables.
       Under the direction or control test, clerical and similar 
     support staff (e.g., secretaries and nurses in a doctor's 
     office) generally would be considered to be subject to 
     primary direction or control of the service recipient and 
     would be leased employees provided the other requirements of 
     section 414(n) are met. On the other hand, outside 
     professionals who maintain their own businesses (e.g., 
     lawyers and accountants) generally would not be considered to 
     be subject to such primary direction or control.
       In many cases, the ``historically performed'' test is 
     overly broad, and results in the unintended treatment of 
     individuals as leased employees. One of the principal 
     purposes for changing the leased employee rules is to relieve 
     the unnecessary hardship and uncertainty created for 
     employers in these circumstances. However, it is not intended 
     that the direction or control test enable employers to engage 
     in abusive practices. Thus, it is intended that the Secretary 
     interpret and apply the leased employee rules in a manner so 
     as to prevent abuses. This ability to prevent abuses under 
     the leasing rules is in addition to the present-law authority 
     of the Secretary under section 414(o). For example, one 
     potentially abusive situation exists where the benefit 
     arrangements of the service recipient overwhelmingly favor 
     its highly compensated employees, the employer has no or very 
     few nonhighly compensated common-law employees, yet the 
     employer makes substantial use of the services of nonhighly 
     compensated individuals who are not its common-law employees.
        The conferees do not intend this provision to have any 
     impact whatsoever on the interpretation or applicability of 
     Federal, State, or local labor laws.


 2. Plans covering self-employed individuals (sec. 14232 of the House 
              bill and sec. 12932 of the Senate amendment)

     Present law
       Prior to the Tax Equity and Fiscal Responsibility Act of 
     1982 (''TEFRA''), different rules applied to retirement plans 
     maintained by incorporated employers and unincorporated 
     employers (such as partnerships and sole proprietors). In 
     general, plans maintained by unincorporated employers were 
     subject to special rules in addition to the other 
     qualification requirements of the Code. Most, but not all, of 
     this disparity was eliminated by TEFRA. Under present law, 
     certain special aggregation rules apply to plans maintained 
     by owner employees of unincorporated businesses that do not 
     apply to other qualified plans (sec. 401(d)(1) and (2)).
     House bill
       The bill eliminates the special aggregation rules that 
     apply to plans maintained by self- employed individuals that 
     do not apply to other qualified plans.
       Effective date.--The provision is effective for years 
     beginning after December 31, 1995.
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


 3. Elimination of special vesting rule for multiemployer plans (sec. 
    14233 of the House bill and sec. 12933 of the Senate amendment)

     Present law
       Under present law, except in the case of multiemployer 
     plans, a plan is not a qualified plan unless a participant's 
     employer-provided benefit vests at least as rapidly as under 
     one of two alternative minimum vesting schedules. A plan 
     satisfies the first schedule if a participant acquires a 
     nonforfeitable right to 100 percent of the participant's 
     accrued benefit derived from employer contributions upon the 
     participant's completion of 5 years of service. A plan 
     satisfies the second schedule if a participant has a 
     nonforfeitable right to at least 20 percent of the 
     participant's accrued benefit derived from employer 
     contributions after 3 years of service, 40 percent at the end 
     of 4 years of service, 60 percent at the end of 5 years of 
     service, 80 percent at the end of 6 years of service, and 100 
     percent at the end of 7 years of service.
       In the case of a multiemployer plan, a participant's 
     accrued benefit derived from employer contributions is 
     required to be 100-percent vested no later than upon the 
     participant's completion of 10 years of service. This special 
     rule applies only to employees covered by the plan pursuant 
     to a collective bargaining agreement.
     House bill
       The bill conforms the vesting rules for multiemployer plans 
     to the rules applicable to other qualified plans.
       Effective date.--The provision is effective for plan years 
     beginning on or after the earlier of (1) the later of January 
     1, 1996, or the date on which the last of the collective 
     bargaining agreements pursuant to which the plan is 
     maintained terminates, or (2) January 1, 1998, with respect 
     to participants with an hour of service after the effective 
     date.
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


4. Distributions under rural cooperative plans (sec. 14232 of the House 
              bill and sec. 12938 of the Senate amendment)

     Present law
       A qualified cash or deferred arrangement can permit 
     withdrawals of employee elective deferrals only after the 
     earlier of (1) the participant's separation from service, 
     death, or disability, (2) termination of the arrangement, or 
     (3) in the case of a profit-sharing or stock bonus plan, the 
     attainment of age 59-1/2 or the occurrence of a hardship of 
     the participant. In the case of a money purchase pension 
     plan, including a rural cooperative plan, withdrawals by 
     participants cannot occur upon attainment of age 59-1/2 or 
     upon hardship.
     House bill
       The House bill provides that a rural cooperative plan that 
     includes a cash or deferred arrangement may permit 
     distributions to plan participants after the attainment of 
     age 59-\1/2\.
       Effective date.--Distributions after December 31, 1995.
     Senate amendment
       Same as House bill, except that withdrawals are also 
     permitted on account of hardship. In addition, the definition 
     of a rural cooperative is expanded to include certain public 
     utility districts, a national association of rural 
     cooperatives, and any other organization providing services 
     related to the activities of rural cooperatives, but only in 
     the case of a plan with respect to which substantially all of 
     the organizations maintaining are rural cooperatives.
       Effective date.--Distributions after the date of enactment. 
     The modifications to the definition of a rural cooperative 
     applies to plan years beginning after December 31, 1994.
     Conference agreement
       The conference agreement follows the Senate amendment, 
     except that the definition of 

[[Page H 12911]]
     rural cooperative does not include any other organization providing 
     services related to the activities of rural cooperatives. 
     96
     \96\ Of course, such organizations may be eligible to 
     maintain a qualified cash or deferred arrangement under the 
     provision of the conference agreement allowing tax-exempt 
     employers to maintain cash or deferred arrangements.
---------------------------------------------------------------------------


5. Treatment of governmental plans under section 415 (sec. 14235 of the 
           House bill and sec. 12935 of the Senate amendment)

     Present law
       Present law imposes limits on contributions and benefits 
     under qualified plans based on the type of plan (sec. 415). 
     Certain special rules apply to State and local governmental 
     plans under which such plans may provide benefits greater 
     than those permitted by the limits on benefits applicable to 
     plans maintained by private employers.
       In the case of defined benefit pension plans, the limit on 
     the annual retirement benefit is the lesser of (1) 100 
     percent of compensation or (2) $120,000 (indexed for 
     inflation). The dollar limit is reduced in the case of early 
     retirement or if the employee has less than 10 years of plan 
     participation.
     House bill
       The House bill makes the following modifications to the 
     limits on contributions and benefits as applied to 
     governmental plans:
       (1) compensation includes employer contributions to certain 
     plans under a salary reduction arrangement;
       (2) the 100 percent of compensation limitation on defined 
     benefit pension plan benefits does not apply; and
       (3) the early retirement reduction and the 10-year phase in 
     of the defined benefit plan dollar limit do not apply to 
     certain disability and survivor benefits.
       The House bill also permits State and local government 
     employers to maintain excess benefit plans without regard to 
     the limits on unfunded deferred compensation arrangements of 
     State and local government employers (sec. 457).
       Effective date.--Years beginning on or after January 1, 
     1996. Governmental plans are treated as if in compliance with 
     the requirements of section 415 for years beginning before 
     January 1, 1996.
     Senate amendment
       The Senate amendment is the same as the House bill, except 
     that the exemption from the 100 percent of compensation limit 
     does not apply to State legislators. The modification of the 
     definition of compensation to include contributions under a 
     salary reduction agreement is contained in another provision 
     (see C.4., above) and applies to all employers.
       Effective date.--Years beginning on or after January 1, 
     1995. With respect to governmental plans, no inference is 
     intended with respect to prior years.
     Conference agreement
       The conference agreement follows the House bill, except the 
     provision is effective for years beginning after December 31, 
     1994. The provision should not be construed to infer that a 
     governmental plan fails to satisfy the requirements of 
     section 415 with respect to years beginning before January 1, 
     1995. With respect to years before the effective date of this 
     provision, the Secretary is directed to enforce the 
     requirements of section 415 consistent with the amendments in 
     this provision.


6. Uniform retirement age (sec. 14236 of the bill and sec. 12940 of the 
                           Senate amendment)

     Present law
       A qualified plan generally must provide that payment of 
     benefits under the plan must begin no later than 60 days 
     after the end of the plan year in which the participant 
     reaches age 65. Also, for purpose of the vesting and benefit 
     accrual rules, normal retirement age generally can be no 
     later than age 65. For purposes of applying the limits on 
     contributions and benefits (sec. 415), Social Security 
     retirement age is generally used as retirement age. The 
     Social Security retirement age as used for such purposes is 
     presently age 65, but is scheduled to gradually increase.
     House bill
       The bill provides that for purposes of the general 
     nondiscrimination rule (sec. 401(a)(4)) the Social Security 
     retirement age (as defined in sec. 415) is a uniform 
     retirement age and that subsidized early retirement benefits 
     and joint and survivor annuities are not treated as not being 
     available to employees on the same terms merely because they 
     are based on an employee's Social Security retirement age (as 
     defined in sec. 415).
       Effective date.--The provision is effective for years 
     beginning after December 31, 1995.
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


  7. Uniform penalty provisions to apply to certain pension reporting 
              requirements (sec. 14237 of the House bill)

     Present law
       Any person who fails to file an information report with the 
     IRS on or before the prescribed filing date is subject to 
     penalties for each failure. A different, flat-amount penalty 
     applies for each failure to provide information reports to 
     the IRS or statements to payees relating to pension payments.
     House bill
       The House bill incorporates into the general penalty 
     structure the penalties for failure to provide information 
     reports relating to pension payments to the IRS and to 
     recipients.
       Effective date.--Returns and statements the due date for 
     which is after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


  8. Contributions on behalf of disabled employees (sec. 14238 of the 
           House bill and sec. 12937 of the Senate amendment)

     Present law
       Under present law, an employer may elect to continue 
     deductible contributions to a defined contribution plan on 
     behalf of an employee who is permanently and totally 
     disabled. For purposes of the limit on annual additions (sec. 
     415(c)), the compensation of a disabled employee is deemed to 
     be equal to the annualized compensation of the employee prior 
     to the employee's becoming disabled. Contributions are not 
     permitted on behalf of disabled employees who were officers, 
     owners, or highly compensated before they became disabled.
     House bill
       The bill provides that the special rule for contributions 
     on behalf of disabled employees is applicable without an 
     employer election and to highly compensated employees if the 
     defined contribution plan provides for the continuation of 
     contributions on behalf of all participants who are 
     permanently and totally disabled.
       Effective date.--The provision applies to years beginning 
     after December 31, 1995.
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


    9. Treatment of deferred compensation plans of State and local 
governments and tax-exempt organizations (sec. 14239 of the House bill 
                and sec. 12936 of the Senate amendment)

     Present law
       Under a section 457 plan, an employee who elects to defer 
     the receipt of current compensation is taxed on the amounts 
     deferred when such amounts are paid or made available. The 
     maximum annual deferral under such a plan is the lesser of 
     (1) $7,500 or (2) 33-1/3 percent of compensation (net of the 
     deferral).
       Amounts deferred under a section 457 plan may not be made 
     available to an employee before the earlier of (1) the 
     calendar year in which the participant attains age 70-1/2, 
     (2) when the participant is separated from the service with 
     the employer, or (3) when the participant is faced with an 
     unforeseeable emergency.
       Benefits under a section 457 plan are not treated as made 
     available if the participant may elect to receive a lump sum 
     payable after separation from service and within 60 days of 
     the election. This exception is available only if the total 
     amount payable to the participant under the plan does not 
     exceed $3,500 and no additional amounts may be deferred under 
     the plan with respect to the participant.
     House bill
       The House bill makes three changes to the rules governing 
     section 457 plans.
        (1) The bill permits in-service distributions of accounts 
     that do not exceed $3,500 under certain circumstances.
        (2) The bill increases the number of elections that can be 
     made with respect to the time distributions must begin under 
     the plan.
        (3) The bill provides for indexing of the dollar limit on 
     deferrals. No rounding rules apply to such indexing.
       Effective date.--Taxable years beginning after December 31, 
     1995.
     Senate amendment
        Same as the House bill, except that a rounding rule 
     applies to the indexing of the dollar limits on deferrals.
       Effective date.--Same as House bill.
     Conference agreement
       Same as the Senate amendment, except when indexing the 
     dollar limit on deferrals, the limit is rounded to the next 
     lowest multiple of $500.


  10. Trust requirement for deferred compensation plans of State and 
            local governments (sec. 14240 of the House bill)

     Present law
       Until deferrals under a section 457 plan are made available 
     to a plan participant, such amounts deferred, all property 
     and rights purchased with such amounts, and all income 
     attributable to such amounts, property, or rights must remain 
     solely the property and rights of the employer, subject only 
     to the claims of the employer's general creditors.
     House bill
       Under the House bill, all amounts deferred under a section 
     457 plan maintained by a State and local governmental 
     employer are to be held in trust (or custodial account or 
     annuity contract) for the exclusive benefit of employees. The 
     trust (or custodial account 

[[Page H 12912]]
     or annuity contract) is provided tax-exempt status. Amounts are not 
     considered made available merely because they are held in a 
     trust, custodial account, or annuity contract.
       Effective date.--Generally effective with respect to plan 
     assets held on or after the date of enactment. In the case of 
     assets held within the 90-day period after the date of 
     enactment, the provision does not apply until such 90th day.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.
       Effective date.--Generally effective with respect to 
     amounts held on or after the date of enactment. In the case 
     of amounts deferred before the first day of the first 
     calendar quarter beginning after the close of the first 
     regular session of the State legislature beginning after the 
     date of enactment, a trust need not be established by reason 
     of this provision before such first day. In the case of a 
     State that has a 2-year legislative session, each year of 
     such session is deemed to be a separate regular session of 
     the State legislature.


 11. Correction of GATT interest and mortality rate provisions in the 
        Retirement Protection Act (sec. 14241 of the House bill)

     Present law
       The Retirement Protection Act of 1994, enacted as part of 
     the implementing legislation for the General Agreement on 
     Tariffs and Trade (GATT), modified the actuarial assumptions 
     that must be used in adjusting benefits and limitations. In 
     general, in adjusting a benefit that is payable in a form 
     other than a straight life annuity and in adjusting the 
     dollar limitation if benefits begin before Social Security 
     retirement age, the interest rate to be used cannot be less 
     than the greater of 5 percent or the rate specified in the 
     plan. Under the Retirement Protection Act, if the benefit is 
     payable in a form subject to the requirements of section 
     417(e)(3), then the interest rate on 30-year Treasury 
     securities is substituted for 5 percent. Also under the 
     Retirement Protection Act, for purposes of adjusting any 
     limit or benefit, the mortality table prescribed by the 
     Secretary must be used.
       This provision of the Retirement Protection Act is 
     generally effective as of the first day of the first 
     limitation year beginning in 1995.
       The Retirement Protection Act made similar changes to the 
     interest rate and mortality assumptions used to calculate the 
     value of lump-sum distributions for purposes of the rule 
     permitting involuntary dispositions of certain accrued 
     benefits. In the case of a plan adopted and in effect before 
     December 8, 1995, those provisions do not apply before the 
     earlier of (1) the date a plan amendment applying the new 
     assumption is adopted or made effective (whichever is later), 
     or (2) the first day of the first plan years beginning after 
     December 31, 1999.
     House bill
       The House bill conforms the effective date of the new 
     interest rate and mortality assumptions that must be used 
     under section 415 to calculate the limits on benefits and 
     contributions to the effective date of the provision relating 
     to the calculation of lump-sum distributions. This rule 
     applies only in the case of plans that were adopted and in 
     effect before the date of enactment of the Retirement 
     Protection Act (December 8, 1994).
       To the extent plans have already been amended to reflect 
     the new assumptions, plan sponsors are permitted within 1 
     year of the date of enactment to amend the plan to reverse 
     retroactively such amendment.
       Effective date.--Effective as if included in the Retirement 
     Protection Act.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill, except the 
     provision repeals the Retirement Protection Act provision 
     which requires that if the benefit is payable in a form 
     subject to the requirements of section 417(e)(3) (e.g., lump 
     sum), then the interest rate to be used to reduce the dollar 
     limit on benefits under section 415 cannot be less than the 
     greater of the rate on 30-year Treasury securities or the 
     rate specified in the plan. Consequently, regardless of the 
     form of benefit, the interest rate to be used cannot be less 
     than the greater of 5 percent or the rate specified in the 
     plan.
       Effective date.--Same as the House bill.


   12. Multiple salary reduction agreements permitted under section 
 403(b)(sec. 14242 of the bill and sec. 12941 of the Senate amendment)

     Present law
       Under Treasury regulations, a participant in a tax-
     sheltered annuity plan (sec. 403(b)) is not permitted to 
     enter into more than one salary reduction agreement in any 
     taxable year. These regulations further provide that a salary 
     reduction agreement is effective only with respect to amounts 
     ``earned'' after the agreement becomes effective, and that a 
     salary reduction agreement must be irrevocable with respect 
     to amounts earned while the agreement is in effect.
       These restrictions do not apply to other elective deferral 
     arrangements such as a qualified cash or deferred arrangement 
     (sec. 401(k)). Under Treasury regulations, participants in a 
     qualified cash or deferred arrangement may enter into more 
     than one salary reduction agreement in a taxable year, such 
     an agreement is effective with respect to compensation 
     currently available to the participant after the agreement 
     becomes effective even though previously ``earned,'' and the 
     agreement may be revoked by the participant.
     House bill
       The bill provides that for participants in a tax-sheltered 
     annuity plan, the frequency that a salary reduction agreement 
     may be entered into, the compensation to which such agreement 
     applies, and the ability to revoke such agreement shall be 
     determined under the rules applicable to qualified cash or 
     deferred arrangements.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 1995.
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


 13. Waiver of minimum waiting period for qualified plan distributions 
                     (sec. 14243 of the House bill)

     Present law
       Under present law, in the case of a qualified joint and 
     survivor annuity, a written explanation of the form of 
     benefit must generally be provided to participants no less 
     than 30 days and no more than 90 days before the annuity 
     starting day. Even if a participant has elected to waive the 
     qualified joint and survivor annuity and the spouse has 
     consented to the distribution, the distribution from the plan 
     cannot be made until 30 days after the written explanation 
     was provided to the participant. 97
     \97\ On September 15, 1995, Treasury issued temporary 
     regulations (T.D. 8620) which provide that a plan may permit 
     a participant to elect (with any applicable spousal consent) 
     a distribution with an annuity starting date before 30 days 
     have elapsed since the explanation was provided, as long as 
     the distribution commences more than seven days after the 
     explanation was provided. Consequently, even if the 
     participant (and spouse, if applicable) has elected to waive 
     the minimum waiting period for receiving a qualified plan 
     distribution, the distribution from the plan cannot be made 
     until seven days have elapsed since the explanation was 
     provided to the participant.
---------------------------------------------------------------------------
     House bill
       The House bill provides that the minimum period between the 
     date the explanation of the qualified joint and survivor 
     annuity is provided and the annuity starting date does not 
     apply if it is waived by the participant and, if applicable, 
     the participant's spouse. For example, if the participant has 
     not elected to waive the qualified joint and survivor 
     annuity, only the participant need waive the minimum waiting 
     period.
       Effective date.--The provision is effective with respect to 
     plan years beginning after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


  14. Repeal of combined plan limit (sec. 14244 of the House bill and 
                  sec. 12921 of the Senate amendment)

     Present law
       Present law provides limits on contributions and benefits 
     under qualified plans based on the type of plan, i.e., based 
     on whether the plan is a defined contribution plan or a 
     defined benefit pension plan.
       Combined plan limit.--An overall limit applies if an 
     individual is a participant in both a defined benefit pension 
     plan and a defined contribution plan (the combined plan 
     limit).
       Excess distribution tax.--Present law imposes a 15-percent 
     excise tax on excess distributions from qualified retirement 
     plans, tax-sheltered annuities, and IRAs. Excess 
     distributions are generally the aggregate amount of 
     retirement distributions from such plans during any calendar 
     year in excess of $150,000 (or $750,000 in the case of a 
     lump- sum distribution). An additional 15-percent estate tax 
     is also imposed on an individual's excess retirement 
     accumulation.
     House bill
       Combined plan limit.--The House bill repeals the combined 
     plan limit.
       Effective date.--Limitation years beginning after December 
     31, 1996.
       Excess distribution tax.--No provision.
     Senate amendment
       Combined plan limit.--Same as House bill, except that the 
     repeal of the combined plan limit would not apply with 
     respect to plans maintained by professional service employers 
     (an employer substantially all of the activities of which are 
     in the fields of architecture, science, health, law, 
     performing arts, financial services, actuarial services, 
     engineering, accounting, and consulting).
       Effective date.--Limitation years beginning after December 
     31, 1998.
       Excess distribution tax.--Until the repeal of the combined 
     plan limit is effective, the Senate amendment suspends the 
     excise tax on excess distributions. The additional estate tax 
     on excess accumulations continues to apply.
       Effective date.--Distributions in 1996, 1997, and 1998.

[[Page H 12913]]

     Conference agreement
       Combined plan limit.--The conference agreement follows the 
     House bill, effective with respect to limitation years 
     beginning after December 31, 1998.
       Excess distribution tax.--The conference agreement follows 
     the Senate amendment.


15. Date for adoption of plan amendments (sec. 14245 of the House bill 
                and sec. 12914 of the Senate amendment)

     Present law
       Plan amendments to reflect amendments to the law generally 
     must be made by the time prescribed by law for filing the 
     income tax return of the employer for the employer's taxable 
     year in which the change in law occurs.
     House bill
       The House bill generally provides that any plan amendments 
     required by the bill are not required to be made before the 
     first plan year beginning on or after January 1, 1997.
       Effective date.--Date of enactment.
     Senate amendment
       Same as the House bill, except that the date for plan 
     amendments is extended to the first plan year beginning on or 
     after January 1, 1999, in the case of a governmental plan.
       Effective date.--Same as House bill.
     Conference agreement
       The conference agreement does not include the House bill or 
     the Senate amendment.


 16. Full funding limitation of multiemployer plans (sec. 12934 of the 
                           Senate amendment)

     Present law
       An employer may make deductible contributions to a defined 
     benefit pension plan up to the full funding limitation. The 
     full funding limitation is generally defined as the lesser of 
     (1) the accrued liability under the plan or (2) 150 percent 
     of the plan's current liability. Valuation of defined benefit 
     pension plans are required annually.
     House bill
       No provision.
     Senate amendment
       The Senate amendment provides that the 150 percent of 
     current liability limitation does not apply to multiemployer 
     plans. In addition, the amendment repeals the annual 
     valuation requirement for multiemployer plans and applies the 
     prior-law rule that valuations generally be performed at 
     least every 3 years.
       Effective date.--Years beginning after December 31, 1997.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment.


  17. Limits on contributions and benefits under multiemployer plans 
                  (sec. 12935 of the Senate amendment)

     Present law
       Present law imposes limits on contributions and benefits 
     under qualified plans based on the type of plan (sec. 415). 
     In the case of a defined benefit pension plan, the limit on 
     the annual retirement benefit is the lesser of (1) 100 
     percent of compensation or (2) $120,000 (indexed for 
     inflation). The dollar limit is reduced in the case of early 
     retirement or if the employee has less than 10 years of plan 
     participation.
     House bill
       No provision.
     Senate amendment
       Under the Senate amendment, in the case of a multiemployer 
     plan, the 100 percent of compensation limit, the early 
     retirement reduction, and the 10-year phase in of the defined 
     benefit plan dollar limit do not apply.
       Effective date.--Years beginning after December 31, 1995.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment.


        18. Tenured faculty (sec. 12939 of the Senate amendment)

     Present law
       Under a section 457 plan, an employee who elects to defer 
     the receipt of current compensation is taxed on the amounts 
     deferred when such amounts are paid or made available. The 
     maximum annual deferral under such a plan is the lesser of 
     (1) $7,500 or (2) 33\1/2\ percent of compensation (net of the 
     deferral).
     House bill
       No provision.
     Senate amendment
       The Senate amendment provides that the limits of section 
     457 do not apply to eligible faculty voluntary retirement 
     incentive pay. In order to qualify for the exception, the 
     payments must be made to employees who elect, during a 
     specified period of time of limited duration (as established 
     by the employer) to retire early, the total amount of he 
     payments cannot exceed twice the individual's annual 
     compensation and all such payments to the employee must be 
     completed within 5 years after the employee's termination of 
     employment.
       Effective date.--Years beginning after December 31, 1995.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment.


  19. Application of elective deferral limit to section 403(b) plans 
                  (sec. 12941 of the Senate amendment)

     Present law
       A tax-sheltered annuity plan must provide that elective 
     deferrals made under the plan on behalf of an employee may 
     not exceed the annual limit on elective deferrals ($9,500 for 
     1995). Plans that do not comply with this requirement may 
     lose their tax-favored status.
     House bill
       No provision.
     Senate amendment
       The Senate amendment eliminates the requirement that a tax-
     sheltered annuity plan must provide that elective deferrals 
     under the plan may not exceed the annual limit on elective 
     deferrals. As under present law, employees who make elective 
     deferrals in excess of the annual limit must include such 
     amounts in their taxable income.
       Effective date.--The provision is effective with respect to 
     plan years beginning after December 31, 1995.
     Conference agreement
       Under the conference agreement, each tax-sheltered annuity 
     contract, not the tax- sheltered annuity plan, must provide 
     that elective deferrals made under the contract may not 
     exceed the annual limit on elective deferrals. It is intended 
     that the contract terms be given effect in order for this 
     requirement to be satisfied. Thus, for example, if the 
     annuity contract issuer takes no steps to ensure that 
     deferrals under the contract do not exceed the applicable 
     limit, then the contract will not be treated as satisfying 
     section 403(b). The provision is intended to make clear that 
     the exclusion of elective deferrals from gross income by 
     employees who have not exceeded the annual limit on elective 
     deferrals will not be affected to the extent other employees 
     exceed the annual limit. However, if the occurrence of an 
     uncorrected elective deferral made by an employee is 
     attributable to reasonable error, the contract does not fail 
     to satisfy section 403(b), and only the portion of the 
     elective deferral in excess of the annual limit is includible 
     in gross income.
       Effective date.--Years beginning after December 31, 1995.


 20. Treatment of Indian tribal governments under section 403(b) (sec. 
                     12941 of the Senate amendment)

     Present law
       Under present law, certain tax-exempt employers and certain 
     State and local government educational organizations are 
     permitted to maintain tax-sheltered annuity plans (sec. 
     403(b). Indian tribal governments are treated as States for 
     this purpose, so certain educational organizations associated 
     with a tribal government are eligible to maintain tax-
     sheltered annuity plans.
     House bill
       No provision.
     Senate Amendment
       The Senate amendment provides that any 403(b) annuity 
     contract purchased in a plan year beginning before January 1, 
     1995.
       Effective date.--Date of enactment.
     Conference agreement
       The conference agreement follows the Senate amendment and 
     also provides that such contracts may be rolled over into a 
     section 401(k) plan maintained by the Indian tribal 
     government pursuant to the conference agreement.


21. Tax on prohibited transactions (sec. 12942 of the Senate amendment)

     Present law
       Present law prohibits certain transactions (prohibited 
     transactions) between a qualified pension plan and a 
     disqualified person in order to prevent persons with a close 
     relationship to the qualified plan from using that 
     relationship to the detriment of plan participants and 
     beneficiaries. A two-tier excise tax is imposed on prohibited 
     transactions. The initial level tax is equal to 5 percent of 
     the amount involved with respect to the transaction. If the 
     transaction is not corrected within a certain period, a tax 
     equal to 100 percent of the amount involved may be imposed.
     House bill
       No provision.
     Senate amendment
       The Senate amendment increases the initial-level prohibited 
     transaction tax from 5 percent to 10 percent.
       Effective date.--Transactions occurring after December 31, 
     1995.
     Conference Agreement
       The conference agreement follows the Senate amendment.


  E. Special Rules for Church Pension Plans (secs. 12951-12968 of the 
                           Senate amendment)

     Present law
       In general, a church plan is a pension plan established and 
     maintained for employees (or their beneficiaries) by a church 
     or a church convention or association of churches that is 
     exempt from tax (sec. 414(e)). Church plans include plans 
     maintained by an organization, whether a corporation or 
     otherwise, that has as its principal purpose or function the 
     administration or funding of a plan or program for providing 
     retirement or welfare benefits for the employees of the 
     church or convention or association of churches. For most 
     purposes, employees of a church include any minister, 
     regardless of the source of his or her compensation, and an 
     employee of an organization which is exempt from tax and 
     which is controlled by or associated with a church or a 
     convention or association of churches.

[[Page H 12914]]

       Plans maintained by churches and certain church-controlled 
     organizations are exempt from certain of the requirements 
     applicable to pension plans under the code pursuant to the 
     Employee Retirement Income Security Act of 1974 (as amended) 
     (''ERISA''). For example, such plans are not subject to 
     ERISA's vesting, coverage, and funding requirements. In some 
     cases, such plans are subject to provisions in effect before 
     the enactment of ERISA. Church plans may elect to waive the 
     exemption from the qualification rules (sec. 410(d)). 
     Electing plans become subject to all the tax Code (sec. 
     401(a)) qualification requirements. Title I of ERISA, the 
     excise tax on prohibited transactions, and participation in 
     the pension plan termination insurance program administered 
     by the Pension Benefit Guaranty Corporation.
       Certain eligible employers may maintain tax-sheltered 
     annuity plans (sec. 403(b)). These plans provide tax-deferred 
     retirement savings for employees of public education 
     institutions and employees of certain tax-exempt 
     organizations (including churches and certain organizations 
     associated with churches). In addition to tax-sheltered 
     annuities, alternative funding mechanisms that provide 
     similar tax benefits include church- maintained retirement 
     income accounts (sec. 403(b)(9)).
     House bill
       No provision.
     Senate amendment
       In general, the Senate amendment revises the rules relating 
     to church-maintained qualified retirement plans. In addition, 
     the Senate amendment modifies the rules relating to employee 
     annuity contracts and retirement income accounts maintained 
     for the benefit of church employees. The Senate amendment 
     also provides that all retirement benefits of ministers are 
     not subject to self-employment taxes.
       No inference is intended with respect to the application of 
     the present-law rules to church-maintained qualified 
     retirement plans.
       Effective date.--The provisions of the Senate amendment 
     providing special rules for church plans are generally 
     effective for years beginning after December 31, 1994.
     Conference agreement
       The conference agreement does not include the Senate 
     amendment.

              XIII. Partnership Simplification Provisions


                         A. General Provisions

 1. Simplified flow-through for large partnerships (sec. 14301 of the 
                              House bill)

     Present law
       A partnership generally is treated as a conduit for Federal 
     income tax purposes. Each partner takes into account 
     separately his distributive share of the partnership's items 
     of income, gain, loss, deduction or credit. The character of 
     an item is the same as if it had been directly realized or 
     incurred by the partner. Limitations affecting the 
     computation of taxable income generally apply at the partner 
     level.
       The taxable income of a partnership is computed in the same 
     manner as that of an individual, except that no deduction is 
     permitted for personal exemptions, foreign taxes, charitable 
     contributions, net operating losses, certain itemized 
     deductions, or depletion. Elections affecting the computation 
     of taxable income derived from a partnership are made by the 
     partnership, except for certain elections such as those 
     relating to discharge of indebtedness income and the foreign 
     tax credit.
       Taxpayers involved in the search for and extraction of 
     crude oil and natural gas are subject to certain special tax 
     rules. As a result, in the case of partnerships engaged in 
     such activities, certain specific information is separately 
     reported to partners.
     House bill
       The House bill modifies the tax treatment of a large 
     partnership (generally, a partnership with at least 250 
     partners, or an electing partnership with at least 100 
     partners) and its partners. The provision provides that each 
     partner takes into account separately the partner's 
     distributive share of the following items, which are 
     determined at the partnership level: (1) taxable income or 
     loss from passive loss limitation activities; (2) taxable 
     income or loss from other activities (e.g., portfolio income 
     or loss); (3) net capital gain or loss to the extent 
     allocable to passive loss limitation activities and other 
     activities; (4) tax-exempt interest; (5) net alternative 
     minimum tax adjustment separately computed for passive loss 
     limitation activities and other activities; (6) general 
     credits; (7) low-income housing credit; (8) rehabilitation 
     credit; (9) credit for producing fuel from a nonconventional 
     source; (10) creditable foreign taxes and foreign source 
     items; and (11) any other items to the extent that the 
     Secretary determines that separate treatment of such items is 
     appropriate.98 Separate treatment may be appropriate, 
     for example, should changes in the law necessitate such 
     treatment for any items.
     \98\ In determining the amounts required to be separately 
     taken into account by a partner, those provisions of the 
     large partnership rules governing computations of taxable 
     income would be applied separately with respect to that 
     partner by taking into account that partner's distributive 
     share of the partnership's items of income, gain, loss, 
     deduction or credit. This rule permits partnerships to make 
     otherwise valid special allocations of partnership items to 
     partners.
---------------------------------------------------------------------------
       Under the House bill, the taxable income of a large 
     partnership is computed in the same manner as that of an 
     individual, except that the items described above are 
     separately stated and certain modifications are made. These 
     modifications include disallowing the deduction for personal 
     exemptions, the net operating loss deduction and certain 
     itemized deductions.99 All limitations and other 
     provisions affecting the computation of taxable income or any 
     credit (except for the at risk, passive loss and itemized 
     deduction limitations, and any other provision specified in 
     regulations) are applied at the partnership (and not the 
     partner) level.
     \99\ A large partnership would be allowed a deduction under 
     section 212 for expenses incurred for the production of 
     income, subject ot 70-percent disallowance. No income from a 
     large partnership would be treated as fishing or farming 
     income.
---------------------------------------------------------------------------
       All elections affecting the computation of taxable income 
     or any credit generally are made by the partnership.
       A ``large partnership'' is any partnership with at least 
     250 partners in any preceding taxable year beginning after 
     December 31, 1995.100 Any partnership treated as a large 
     partnership for a taxable year is so treated for all 
     succeeding years, even if the number of partners falls below 
     250. Regulations may provide, however, that if the number of 
     partners in any taxable year falls below 100, the partnership 
     is not treated as a large partnership. Partnerships with at 
     least 100 partners can elect to be treated as large 
     partnerships. The election applies to the year for which made 
     and all subsequent years and cannot be revoked without the 
     Secretary's consent.
     \100\ The number of partners is determined by counting only 
     persons directly holding partnership interests in the taxable 
     year, including persons holding through nominees; persons 
     holding indirectly (e.g., through another partnership) are 
     not counted. It is not necessary for a partnership to have 
     250 or more partners at any one time in a taxable year for 
     the partnership to constitute a large partnership.
---------------------------------------------------------------------------
       Service partnerships.--A large partnership does not include 
     any partnership if substantially all the partners are: (1) 
     individuals performing substantial services in connection 
     with the partnership's activities, or personal service 
     corporations the owner-employees of which perform such 
     services; (2) retired partners who had performed such 
     services; or (3) spouses of partners who had performed such 
     services. In addition, the term ``partner'' does not include 
     any individual performing substantial services in connection 
     with the partnership's activities and holding a partnership 
     interest, or an individual who formerly performed such 
     services and who held a partnership interest at the time the 
     individual performed such services.
       Commodity partnerships.--The large partnership rules do not 
     apply to any partnership the principal activity of which is 
     the buying and selling of commodities (not described in sec. 
     1221(1)), or options, futures or forwards with respect to 
     commodities.
       Partnerships holding oil and gas properties.--In general, a 
     large partnership that otherwise meets the qualifications for 
     simplified reporting is not required to report information to 
     its partners under the rules of that regime if it is 
     substantially engaged in oil and gas related activities. 
     Rather, such a partnership continues to report information to 
     its partners as under present law. The bill permits such a 
     partnership, however, to elect to utilize the simplified 
     reporting regime, as modified for oil and gas purposes. If an 
     election is made for any taxable year, it will also apply for 
     all subsequent taxable years unless revoked with the consent 
     of the Secretary.
       A partnership is considered to be substantially engaged in 
     oil and gas activities if at least 25 percent of the average 
     value of its assets during the taxable year consists of oil 
     or gas properties.101 In making this determination, a 
     partnership is treated as owning its proportionate share of 
     assets of any partnership in which it holds an interest.
     \101\ For this purpose, ``oil or gas properties'' means the 
     mineral interests in oil gas which are of a character with 
     respect to which a deduction for depletion is allowable under 
     section 611.
---------------------------------------------------------------------------
       The bill provides special rules for large partnerships with 
     oil and gas activities that operate under the simplified 
     reporting regime (i.e., either (1) large partnerships that 
     are substantially engaged in oil and gas activities and which 
     elect to use the regime, or (2) large partnerships that are 
     not substantially engaged in oil and gas operations, but do 
     have some oil and gas activities).
       Effective date.--Partnership taxable years beginning after 
     December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill, with a 
     modification of the definition of a partnership to which the 
     simplified flow-through rules apply. Under the conference 
     agreement, a partnership to which these rules apply is an 
     electing large partnership, which is defined as any 
     partnership that elects under the provision, if the number of 
     partners in the preceding partnership taxable year is 100 or 
     more. To the extent so provided in regulations, if the number 
     of partners in any taxable year falls below 100, the 
     partnership is not treated as a large partnership. The 
     conference agreement retains the House bill rules relating to 
     service partnerships, commodity partnerships, and 
     partnerships holding oil and gas properties.

[[Page H 12915]]



 2. Simplified audit procedures for large partnerships (sec. 14302 of 
                            the House bill)

     Present law
       The Tax Equity and Fiscal Responsibility Act of 1982 
     (``TEFRA'') established unified audit rules applicable to all 
     but certain small (10 or fewer partners) partnerships. These 
     rules require the tax treatment of all ``partnership items'' 
     to be determined at the partnership, rather than the partner, 
     level. Partnership items are those items that are more 
     appropriately determined at the partnership level than at the 
     partner level, as provided by regulations.
       Under the TEFRA rules, a partner must report all 
     partnership items consistently with the partnership return or 
     must notify the IRS of any inconsistency. If a partner fails 
     to report any partnership item consistently with the 
     partnership return, the IRS may make a computational 
     adjustment and immediately assess any additional tax that 
     results.
       Under the TEFRA rules, a partner must report all 
     partnership items consistently with the partnership return or 
     must notify the IRS of any inconsistency. If a partner fails 
     to report any partnership item consistently with the 
     partnership return, the IRS may make a computational 
     adjustment and immediately assess any additional tax that 
     results.
       The IRS may challenge the reporting position of a 
     partnership by conducting a single administrative proceeding 
     to resolve the issue with respect to all partners. But the 
     IRS must still assess any resulting deficiency against each 
     of the taxpayers who were partners in the year in which the 
     understatement of tax liability arose.
       The IRS generally is required to give notice of the 
     beginning of partnership-level administrative proceedings and 
     any resulting administrative adjustment to all partners whose 
     names and addresses are furnished to the IRS. For 
     partnerships with more than 100 partners, however, the IRS 
     generally is not required to give notice to any partner whose 
     profits interest is less than one percent.
     House bill
       The House bill creates a new audit system for large 
     partnerships. The provision defines ``large partnership'' the 
     same way for audit and reporting purposes (generally 
     partnerships with at least 250 partners) except that certain 
     oil and gas partnerships exempted from the large partnership 
     reporting requirements are large partnerships for the audit 
     rules.
       As under present law, large partnerships and their partners 
     are subject to unified audit rules. Thus, the tax treatment 
     of ``partnership items'' are determined at the partnership, 
     rather than the partner, level. The term ``partnership 
     items'' is defined as under present law.
       Unlike present law, however, partnership adjustments 
     generally will flow through to the partners for the year in 
     which the adjustment takes effect. Thus, the current-year 
     partners' share of current-year partnership items of income, 
     gains, losses, deductions, or credits will be adjusted to 
     reflect partnership adjustments that take effect in that 
     year. The adjustments generally will not affect prior-year 
     returns of any partners (except in the case of changes to any 
     partner's distributive shares).
       In lieu of flowing an adjustment through to its partners, 
     the partnership may elect to pay an imputed underpayment. The 
     imputed underpayment generally is calculated by netting the 
     adjustments to the income and loss items of the partnership 
     and multiplying that amount by the highest tax rate (whether 
     individual or corporate). A partner may not file a claim for 
     credit or refund of his allocable share of the payment. A 
     partnership may make this election only if it meets 
     requirements set forth in Treasury regulations designed to 
     ensure payment (for example, in the case of a foreign 
     partnership).
       Effective date.--Partnership taxable years beginning after 
     December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


      3. Due date for furnishing information to partners of large 
              partnerships (sec. 14303 of the House bill)

     Present law
       A partnership required to file an income tax return with 
     the Internal Revenue Service must also furnish an information 
     return to each of its partners on or before the day on which 
     the income tax return for the year is required to be filed, 
     including extensions. Under regulations, a partnership must 
     file its income tax return on or before the fifteenth day of 
     the fourth month following the end of the partnership's 
     taxable year (on or before April 15, for calendar year 
     partnerships). This is the same deadline by which most 
     individual partners must file their tax returns.
     House bill
       The House bill provides that a large partnership must 
     furnish information returns to partners by the first March 15 
     following the close of the partnership's taxable year. Large 
     partnerships are only those partnerships subject to the 
     simplified reporting rules for large partnerships (generally, 
     those with at least 250 partners, or electing partnerships 
     with at least 100 partners).
       The provision also provides that, if the partnership is 
     required to provide copies of the information returns to the 
     Internal Revenue Service on magnetic media, each schedule 
     (such as each Schedule K-1) with respect to each partner is 
     treated as a separate information return with respect to the 
     corrective periods and penalties that are generally 
     applicable to all information returns.
       Effective date.--Partnership taxable years beginning after 
     December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


 4. Partnership returns required on magnetic media (sec. 14304 of the 
                              House bill)

     Present law
       Partnerships are permitted, but not required, to provide 
     the tax return of the partnership (Form 1065), as well as 
     copies of the schedules sent to each partner (Form K-1), to 
     the Internal Revenue Service on magnetic media.
     House bill
       The bill provides generally that any partnership is 
     required to provide the tax return of the partnership (Form 
     1065), as well as copies of the schedule sent to each partner 
     (Form K-1), to the Internal Revenue Service on magnetic 
     media. An exception is provided for partnerships with 100 or 
     fewer partners.
       Effective date.--Partnership taxable years beginning after 
     December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


  5. Treatment of partnership items of individual retirement accounts 
                     (sec. 14305 of the House bill)

     Present law
       Return filing requirements
       An individual retirement account (''IRA'') is a trust which 
     generally is exempt from taxation except for the taxes 
     imposed on income from an unrelated trade or business. A 
     fiduciary of a trust that is exempt from taxation (but 
     subject to the taxes imposed on income from an unrelated 
     trade or business) generally is required to file a return on 
     behalf of the trust for a taxable year if the trust has gross 
     income of $1,000 or more included in computing unrelated 
     business taxable income for that year (Treas. Reg. sec. 
     1.6012-3(a)(5)).
       Unrelated business taxable income is the gross income 
     (including gross income from a partnership) derived by an 
     exempt organization from an unrelated trade or business, less 
     certain deductions which are directly connected with the 
     carrying on of such trade or business (sec. 512(a)(1). In 
     calculating unrelated business taxable income, exempt 
     organizations (including IRAs) generally also are permitted a 
     specific deduction of $1,000 (sec. 512(b)(12)).
       Unified audits of partnerships
       All but certain small partnerships are subject to unified 
     audit rules established by the Tax Equity and Fiscal 
     Responsibility Act of 1982. These rules require the tax 
     treatment of all ``partnership items'' to be determined at 
     the partnership, rather than the partner, level. Partnership 
     items are those items that are more appropriately determined 
     at the partnership level than at the partner level, including 
     such items as gross income and deductions of the partnership.
     House bill
       The House bill modifies the filing threshold for an IRA 
     with an interest in a partnership that is subject to the 
     partnership-level audit rules. A fiduciary of such an IRA 
     could treat the trust's share of partnership taxable income 
     as gross income, for purposes of determining whether the 
     trust meets the $1,000 gross income filing threshold. A 
     fiduciary of an IRA that receives taxable income from a 
     partnership that is subject to partnership-level audit rules 
     of less than $1,000 (before the $1,000 specific deduction) is 
     not required to file an income tax return if the IRA does not 
     have any other income from an unrelated trade or business.
       Effective date.--Taxable years beginning after December 31, 
     1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.

                    B. Other Partnership Audit Rules


1. treatment of partnership items in deficiency proceedings (sec. 14311 
                           of the house bill)

     Present law
       Partnership proceedings under rules enacted in TEFRA 
     102 must be kept separate from deficiency proceedings 
     involving the partners in their individual capacities. Prior 
     to the Tax Court's opinion in Munro v. Commissioner, 92 T.C. 
     71 (1989), the IRS computed deficiencies by assuming that all 
     items that were subject to the TEFRA partnership procedures 
     were correctly reported on the taxpayer's return. However, 
     where the losses claimed from TEFRA partnerships were so 

[[Page H 12916]]
     large that they offset any proposed adjustments to nonpartnership 
     items, no deficiency could arise from a non-TEFRA proceeding, 
     and if the partnership losses were subsequently disallowed in 
     a partnership proceeding, the non-TEFRA adjustments might be 
     uncollectible because of the expiration of the statute of 
     limitations with respect to nonpartnership items.
     \102\ Tax Equity and Fiscal Responsibility Act of 1982.
---------------------------------------------------------------------------
       Faced with this situation in Munro, the IRS issued a notice 
     of deficiency to the taxpayer that presumptively disallowed 
     the taxpayer's TEFRA partnership losses for computational 
     purposes only. Although the Tax Court ruled that a deficiency 
     existed and that the court had jurisdiction to hear the case, 
     the court disapproved of the methodology used by the IRS to 
     compute the deficiency. Specifically, the court held that 
     partnership items (whether income, loss, deduction, or 
     credit) included on a taxpayer's return must be completely 
     ignored in determining whether a deficiency exists that is 
     attributable to nonpartnership items.
     House bill
       The House bill overrules Munro and allow the IRS to return 
     to its prior practice of computing deficiencies by assuming 
     that all TEFRA items whose treatment has not been finally 
     determined had been correctly reported on the taxpayer's 
     return. This eliminates the need to do special computations 
     that involve the removal of TEFRA items from a taxpayer's 
     return, and will restore to taxpayers a prepayment forum with 
     respect to the TEFRA items. In addition, the provision 
     provides a special rule to address the factual situation 
     presented in Munro.
       Specifically, the House bill provides a declaratory 
     judgment procedure in the Tax Court for adjustments to an 
     oversheltered return. An oversheltered return is a return 
     that shows no taxable income and a net loss from TEFRA 
     partnerships. In such a case, the IRS is authorized to issue 
     a notice of adjustment with respect to non-TEFRA items, 
     notwithstanding that no deficiency would result from the 
     adjustment. However, the IRS could only issue such a notice 
     if a deficiency would have arisen in the absence of the net 
     loss from TEFRA partnerships.
       The Tax Court is granted jurisdiction to determine the 
     correctness of such an adjustment as well as to make a 
     declaration with respect to any other item for the taxable 
     year to which the notice of adjustment relates, except for 
     partnership items and affected items which require partner-
     level determinations. No tax is due upon such a 
     determination, but a decision of the Tax Court is treated as 
     a final decision, permitting an appeal of the decision by 
     either the taxpayer or the IRS. An adjustment determined to 
     be correct would thus have the effect of increasing the 
     taxable income that is deemed to have been reported on the 
     taxpayer's return. If the taxpayer's partnership items were 
     then adjusted in a subsequent proceeding, the IRS has 
     preserved its ability to collect tax on any increased 
     deficiency attributable to the nonpartnership items.
       Alternatively, if the taxpayer chooses not to contest the 
     notice of adjustment within the 90-day period, the bill 
     provides that when the taxpayer's partnership items are 
     finally determined, the taxpayer has the right to file a 
     refund claim for tax attributable to the items adjusted by 
     the earlier notice of adjustment for the taxable year. 
     Although a refund claim is not generally permitted with 
     respect to a deficiency arising from a TEFRA proceeding, such 
     a rule is appropriate with respect to a defaulted notice of 
     adjustment because taxpayers may not challenge such a notice 
     when issued since it does not require the payment of 
     additional tax.
       In addition, the House bill incorporates a number of 
     provisions intended to clarify the coordination between TEFRA 
     audit proceedings and individual deficiency proceedings. 
     Under these provisions, any adjustment with respect to a non-
     partnership item that caused an increase in tax liability 
     with respect to a partnership item would be treated as a 
     computational adjustment and assessed after the conclusion of 
     the TEFRA proceeding. Accordingly, deficiency procedures do 
     not apply with respect to this increase in tax liability, and 
     the statute of limitations applicable to TEFRA proceedings 
     are controlling.
       Effective date.--Partnership taxable years ending after the 
     date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


  2. partnership return to be determinative of audit procedures to be 
                followed (sec. 14312 of the house bill)

     Present law
       TEFRA established unified audit rules applicable to all 
     partnerships, except for partnerships with 10 or fewer 
     partners, each of whom is a natural person (other than a 
     nonresident alien) or an estate, and for which each partner's 
     share of each partnership item is the same as that partner's 
     share of every other partnership item. Partners in the 
     exempted partnerships are subject to regular deficiency 
     procedures.
     House bill
       The House bill permits the IRS to apply the TEFRA audit 
     procedures if, based on the partnership's return for the 
     year, the IRS reasonably determines that those procedures 
     should apply. Similarly, the provision permits the IRS to 
     apply the normal deficiency procedures if, based on the 
     partnership's return for the year, the IRS reasonably 
     determines that those procedures should apply.
       Effective date.--Partnership taxable years ending after the 
     date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


            3. provisions relating to statute of limitations

a. suspend statute when an untimely petition is filed (sec. 14313(a) of 
                            the house bill)

     Present law
       In a deficiency case, section 6503(a) provides that if a 
     proceeding in respect of the deficiency is placed on the 
     docket of the Tax Court, the period of limitations on 
     assessment and collection is suspended until the decision of 
     the Tax Court becomes final, and for 60 days thereafter. The 
     counterpart to this provision with respect to TEFRA cases is 
     contained in section 6229(d). That section provides that the 
     period of limitations is suspended for the period during 
     which an action may be brought under section 6226 and, if an 
     action is brought during such period, until the decision of 
     the court becomes final, and for 1 year thereafter. As a 
     result of this difference in language, the running of the 
     statute of limitations in a TEFRA case will only be tolled by 
     the filing of a timely petition whereas in a deficiency case, 
     the statute of limitations is tolled by the filing of any 
     petition, regardless of whether the petition is timely.
     House bill
       The House bill conforms the suspension rule for the filing 
     of petitions in TEFRA cases with the rule under section 
     6503(a) pertaining to deficiency cases. Under the provision, 
     the statute of limitations in TEFRA cases is suspended by the 
     filing of any petition under section 6226, regardless of 
     whether the petition is timely or valid, and the suspension 
     will remain in effect until the decision of the court becomes 
     final, and for one year thereafter. Hence, if the statute of 
     limitations is open at the time that an untimely petition is 
     filed, the limitations period would no longer continue to run 
     and possibly expire while the action is pending before the 
     court.
       Effective date.--All cases in which the period of 
     limitations has not expired under present law as of the date 
     of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


 b. suspend statute of limitations during bankruptcy proceedings (sec. 
                      14313(b) of the house bill)

     Present law
       The period for assessing tax with respect to partnership 
     items generally is the longer of the periods provided by 
     section 6229 or section 6501. For partnership items that 
     convert to nonpartnership items, section 6229(f) provides 
     that the period for assessing tax shall not expire before the 
     date which is 1 year after the date that the items become 
     nonpartnership items. Section 6503(h) provides for the 
     suspension of the limitations period during the pendency of a 
     bankruptcy proceeding. However, this provision only applies 
     to the limitations periods provided in sections 6501 and 
     6502.
       Under present law, because the suspension provision in 
     section 6503(h) applies only to the limitations periods 
     provided in section 6501 and 6502, some uncertainty exists as 
     to whether section 6503(h) applies to suspend the limitations 
     period pertaining to converted items provided in section 
     6229(f) when a petition naming a partner as a debtor in a 
     bankruptcy proceeding is filed. As a result, the limitations 
     period provided in section 6229(f) may continue to run during 
     the pendency of the bankruptcy proceeding, notwithstanding 
     that the IRS is prohibited from making an assessment against 
     the debtor because of the automatic stay provisions of the 
     Bankruptcy Code.
     House bill
       The House bill clarifies that the statute of limitations is 
     suspended for a partner who is named in a bankruptcy 
     petition. The suspension period is for the entire period 
     during which the IRS is prohibited by reason of the 
     bankruptcy proceeding from making an assessment, and for 60 
     days thereafter. The provision does not purport to create any 
     inference as to the proper interpretation of present law.
       Effective date.--All cases in which the period of 
     limitations has not expired under present law as of the date 
     of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


 c. extend statute of limitations for bankrupt tmps (sec. 14313(c) of 
                            the house bill)

     Present law
       Section 6229(b)(1)(B) provides that the statute of 
     limitations is extended with respect to all partners in the 
     partnership by an agreement entered into between the tax 
     matters partner (TMP) and the IRS. However, Temp. Treas. Reg. 
     secs. 301.6231(a)(7)-1T(1)(4) and 301.6231(c)-7T(a) provide 
     that upon the filing of a petition naming a partner as a 
     debtor in 

[[Page H 12917]]
     a bankruptcy proceeding, that partner's partnership items convert to 
     nonpartnership items, and if the debtor was the tax matters 
     partner, such status terminates. These rules are necessary 
     because of the automatic stay provision contained in 11 
     U.S.C. sec. 362(a)(8). As a result, if a consent to extend 
     the statute of limitations is signed by a person who would be 
     the TMP but for the fact that at the time that the agreement 
     is executed the person was a debtor in a bankruptcy 
     proceeding, the consent would not be binding on the other 
     partners because the person signing the agreement was no 
     longer the TMP at the time that the agreement was executed.
     House bill
       The House bill provides that unless the IRS is notified of 
     a bankruptcy proceeding in accordance with regulations, the 
     IRS can rely on a statute extension signed by a person who is 
     the tax matters partner but for the fact that said person was 
     in bankruptcy at the time that the person signed the 
     agreement. Statute extensions granted by a bankrupt TMP in 
     these cases are binding on all of the partners in the 
     partnership. The provision is not intended to create any 
     inference as to the proper interpretation of present law.
       Effective date.--Effective for extension agreements entered 
     into after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


 4. expansion of small partnership exception (sec. 14314 of the house 
                                 bill)

     Present law
       TEFRA established unified audit rules applicable to all 
     partnerships, except for partnerships with 10 or fewer 
     partners, each of whom is a natural person (other than a 
     nonresident alien) or an estate, and for which each partner's 
     share of each partnership item is the same as that partner's 
     share of every other partnership item. Partners in the 
     exempted partnerships are subject to regular deficiency 
     procedures.
     House bill
       The House bill permits a small partnership to have a C 
     corporation as a partner or to specially allocate items 
     without jeopardizing its exception from the TEFRA rules. 
     However, the provision retains the prohibition of present law 
     against having a flow-through entity (other than an estate of 
     a deceased partner) as a partner for purposes of qualifying 
     for the small partnership exception.
       Effective date.--Partnership taxable years ending after the 
     date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


     5. exclusion of partial settlements from 1-year limitation on 
               assessment (sec. 14315 of the house bill)

     Present law
       The period for assessing tax with respect to partnership 
     items generally is the longer of the periods provided by 
     section 6229 or section 6501. For partnership items that 
     convert to nonpartnership items, section 6229(f) provides 
     that the period for assessing tax shall not expire before the 
     date which is 1 year after the date that the items become 
     nonpartnership items. Section 6231(b)(1)(C) provides that the 
     partnership items of a partner for a partnership taxable year 
     become nonpartnership items as of the date the partner enters 
     into a settlement agreement with the IRS with respect to such 
     items.
     House bill
       The House bill provides that if a partner and the IRS enter 
     into a settlement agreement with respect to some but not all 
     of the partnership items in dispute for a partnership taxable 
     year and other partnership items remain in dispute, the 
     period for assessing any tax attributable to the settled 
     items is determined as if such agreement had not been entered 
     into. Consequently, the limitations period that is applicable 
     to the last item to be resolved for the partnership taxable 
     year is controlling with respect to all disputed partnership 
     items for the partnership taxable year. The provision does 
     not purport to create any inference as to the proper 
     interpretation of present law.
       Effective date.--Settlements entered into after the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


6. extension of time for filing a request for administrative adjustment 
                     (sec. 14316 of the house bill)

     Present law
       If an agreement extending the statute is entered into with 
     respect to a non-TEFRA statute of limitations, that agreement 
     also extends the statute of limitations for filing refund 
     claims (sec. 6511(c)). There is no comparable provision for 
     extending the time for filing refund claims with respect to 
     partnership items subject to the TEFRA partnership rules.
     House bill
       The House bill provides that if a TEFRA statute extension 
     agreement is entered into, that agreement also extends the 
     statute of limitations for filing refund claims attributable 
     to partnership items or affected items until 6 months after 
     the expiration of the limitations period for assessments.
       Effective date.--Effective as if included in the amendments 
     made by section 402 of the Tax Equity and Fiscal 
     Responsibility Act of 1982.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


  7. availability of innocent spouse relief in context of partnership 
               proceedings (sec. 14317 of the house bill)

     Present law
       In general, an innocent spouse may be relieved of liability 
     for tax, penalties and interest if certain conditions are met 
     (sec. 6013(e)). However, existing law does not provide the 
     spouse of a partner in a TEFRA partnership with a judicial 
     forum to raise the innocent spouse defense with respect to 
     any tax or interest that relates to an investment in a TEFRA 
     partnership.
     House bill
       The House bill provides both a prepayment forum and a 
     refund forum for raising the innocent spouse defense in TEFRA 
     cases.
       With respect to a prepayment forum, the provision provides 
     that within 60 days of the date that a notice of 
     computational adjustment relating to partnership items is 
     mailed to the spouse of a partner, the spouse could request 
     that the assessment be abated. Upon receipt of such a 
     request, the assessment is abated and any reassessment will 
     be subject to the deficiency procedures. If an abatement is 
     requested, the statute of limitations does not expire before 
     the date which is 60 days after the date of the abatement. If 
     the spouse files a petition with the Tax Court, the Tax Court 
     only has jurisdiction to determine whether the requirements 
     of section 6013(e) have been satisfied. In making this 
     determination, the treatment of the partnership items that 
     gave rise to the liability in question is conclusive.
       Alternatively, the House bill provides that the spouse of a 
     partner could file a claim for refund to raise the innocent 
     spouse defense. The claim has to be filed within 6 months 
     from the date that the notice of computational adjustment is 
     mailed to the spouse. If the claim is not allowed, the spouse 
     could file a refund action. For purposes of any claim or suit 
     under this provision, the treatment of the partnership items 
     that gave rise to the liability in question is conclusive.
       Effective date.--Effective as if included in the amendments 
     made by section 402 of the Tax Equity and Fiscal 
     Responsibility Act of 1982.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


 8. determination of penalties at partnership level (sec. 14318 of the 
                              house bill)

     Present law
       Partnership items include only items that are required to 
     be taken into account under the income tax subtitle. 
     Penalties are not partnership items since they are contained 
     in the procedure and administration subtitle. As a result, 
     penalties may only be asserted against a partner through the 
     application of the deficiency procedures following the 
     completion of the partnership-level proceeding.
     House bill
       The House bill provides that the partnership-level 
     proceeding is to include a determination of the applicability 
     of penalties at the partnership level. However, the provision 
     allows partners to raise any partner-level defenses in a 
     refund forum.
       Effective date.--Effective for partnership taxable years 
     ending after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


  9. provisions relating to tax court jurisdiction (sec. 14319 of the 
                              house bill)

     Present law
       Improper assessment and collection activities by the IRS 
     during the 150-day period for filing a petition or during the 
     pendency of any Tax Court proceeding, ``may be enjoined in 
     the proper court.'' Present law may be unclear as to whether 
     this includes the Tax Court.
       For a partner other than the Tax Matters Partner to be 
     eligible to file a petition for redetermination of 
     partnership items in any court or to participate in an 
     existing case, the period for assessing any tax attributable 
     to the partnership items of that partner must not have 
     expired. Since such a partner would only be treated as a 
     party to the action if the statute of limitations with 
     respect to them was still open, the law is unclear whether 
     the partner would have standing to assert that the statute of 
     limitations had expired with respect to them.
     House bill
       The House bill clarifies that an action to enjoin premature 
     assessments of deficiencies attributable to partnership items 
     may be 

[[Page H 12918]]
     brought in the Tax Court. The provision also permits a partner to 
     participate in an action or file a petition for the sole 
     purpose of asserting that the period of limitations for 
     assessing any tax attributable to partnership items has 
     expired for that person. Additionally, the provision 
     clarifies that the Tax Court has overpayment jurisdiction 
     with respect to affected items.
       Effective date.--Effective for partnership taxable years 
     ending after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


  10. treatment of premature petitions filed by notice partners or 5-
             percent groups (sec. 14320 of the house bill)

     Present law
       The Tax Matters Partner is given the exclusive right to 
     file a petition for a readjustment of partnership items 
     within the 90-day period after the issuance of the notice of 
     a final partnership administrative adjustment (FPAA). If the 
     Tax Matters Partner does not file a petition within the 90-
     day period, certain other partners are permitted to file a 
     petition within the 60-day period after the close of the 90-
     day period. There are ordering rules for determining which 
     action goes forward and for dismissing other actions.
     House bill
       The House bill treats premature petitions filed by certain 
     partners within the 90-day period as being filed on the last 
     day of the following 60-day period under specified 
     circumstances, thus affording the partnership with an 
     opportunity for judicial review that is not available under 
     present law.
       Effective date.--Effective with respect to petitions filed 
     after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


 11. bonds in case of appeals from certain proceedings (sec. 14321 of 
                            the house bill)

     Present law
       A bond must be filed to stay the collection of deficiencies 
     pending the appeal of the Tax Court's decision in a TEFRA 
     proceeding. The amount of the bond must be based on the 
     court's estimate of the aggregate deficiencies of the 
     partners.
     House bill
       The House bill clarifies that the amount of the bond should 
     be based on the Tax Court's estimate of the aggregate 
     liability of the parties to the action (and not all of the 
     partners in the partnership). For purposes of this provision, 
     the amount of the bond could be estimated by applying the 
     highest individual rate to the total adjustments determined 
     by the Tax Court and doubling that amount to take into 
     account interest and penalties.
       Effective date.--Effective as if included in the amendments 
     made by section 402 of the Tax Equity and Fiscal 
     Responsibility Act of 1982.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


  12. suspension of interest where delay in computational adjustment 
   resulting from certain settlements (sec. 14322 of the house bill)

     Present law
       Interest on a deficiency generally is suspended when a 
     taxpayer executes a settlement agreement with the IRS and 
     waives the restrictions on assessments and collections, and 
     the IRS does not issue a notice and demand for payment of 
     such deficiency within 30 days. Interest on a deficiency that 
     results from an adjustment of partnership items in TEFRA 
     proceedings, however, is not suspended.
     House bill
       The House bill suspends interest where there is a delay in 
     making a computational adjustment relating to a TEFRA 
     settlement.
       Effective date.--Effective with respect to adjustments 
     relating to taxable years beginning after the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


 13. special rules for administrative adjustment requests with respect 
  to bad debts or worthless securities (sec. 14323 of the house bill)

     Present law
       The non-TEFRA statute of limitations for filing a claim for 
     credit or refund generally is the later of (1) three years 
     from the date the return in question was filed or (2) two 
     years from the date the claimed tax was paid, whichever is 
     later (sec. 6511(b)). However, an extended period of time, 
     seven years from the date the return was due, is provided for 
     filing a claim for refund of an overpayment resulting from a 
     deduction for a worthless security or bad debt (sec. 
     6511(d)).
       Under the TEFRA partnership rules, a request for 
     administrative adjustment (``RAA'') must be filed within 
     three years after the later of (1) the date the partnership 
     return was filed or (2) the due date of the partnership 
     return (determined without regard to extensions) (sec. 
     6227(a)(1)). In addition, the request must be filed before a 
     final partnership administrative adjustment (``FPAA'') is 
     mailed for the taxable year (sec. 6227(a)(2)). There is no 
     special provision for extending the time for filing an RAA 
     that relates to a deduction for a worthless security or an 
     entirely worthless bad debt.
     House bill
       The House bill extends the time for the filing of an RAA 
     relating to the deduction by a partnership for a worthless 
     security or bad debt. In these circumstances, in lieu of the 
     three-year period provided in sec. 6227(a)(1), the period for 
     filing an RAA is seven years from the date the partnership 
     return was due with respect to which the request is made 
     (determined without regard to extensions). The RAA is still 
     required to be filed before the FPAA is mailed for the 
     taxable year.
       Effective date.--Effective as if included in the amendments 
     made by section 402 of the Tax Equity and Fiscal 
     Responsibility Act of 1982.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.

                 XIV. Foreign Simplification Provisions


  A. modification of passive foreign investment company provisions to 
 eliminate overlap with subpart f and to allow mark-to-market election 
                 (secs. 14401-14404 of the house bill)

     Present law
       Under the rules of subpart F (secs. 951-964), certain 10-
     percent U.S. shareholders of a controlled foreign corporation 
     (CFC) are required to include in income currently their 
     shares of certain earnings of the CFC.
       U.S. shareholders of a passive foreign investment company 
     (PFIC) are subject to tax and an interest charge reflecting 
     the value of deferral when earnings of the PFIC are included 
     in the shareholders' income upon a distribution from the PFIC 
     or a disposition of the PFIC stock. Alternatively, the U.S. 
     shareholders may elect to include in income currently their 
     shares of the PFIC's earnings.
       A foreign corporation is a PFIC if it satisfies a passive 
     income test or a passive asset test. A foreign corporation 
     that is a CFC may also be a PFIC.
     House bill
       Elimination of overlap between subpart F and the PFIC 
           provisions
       In the case of a PFIC that is also a CFC, the House bill 
     generally treats the corporation as not a PFIC with respect 
     to certain 10-percent shareholders. This rule applies if the 
     corporation is a CFC (within the meaning of section 957(a)) 
     and the shareholder is a U.S. shareholder (within the meaning 
     of section 951(b)) of such corporation (i.e., if the 
     shareholder is subject to the current inclusion rules of 
     subpart F with respect to such corporation). Moreover, the 
     rule applies for that portion of the shareholder's holding 
     period with respect to the corporation's stock which is after 
     December 31, 1995 and during which the corporation is a CFC 
     and the shareholder is a U.S. shareholder. Accordingly, a 
     shareholder that is subject to current inclusion under the 
     subpart F rules with respect to stock of a PFIC that is also 
     a CFC generally is not also subject to the PFIC provisions 
     with respect to the same stock. As under present law, the 
     PFIC provisions continue to apply in the case of a PFIC that 
     is also a CFC to shareholders that are not subject to subpart 
     F (i.e., to shareholders that are U.S. persons and that own 
     (directly, indirectly, or constructively) less than 10 
     percent of the corporation's stock by vote).
       If a shareholder of a PFIC is subject to the rules 
     applicable to nonqualified funds before becoming eligible for 
     the special rules provided under the House bill for 
     shareholders that are subject to subpart F, the stock held by 
     such shareholder continues to be treated as PFIC stock unless 
     the shareholder makes an election to pay tax and an interest 
     charge with respect to the unrealized appreciation in the 
     stock or the accumulated earnings of the corporation. This 
     rule, which applies under current law to PFICs that had been 
     nonqualified funds and that cease to satisfy the tests for 
     PFIC status, prevents the shareholder from avoiding the 
     interest charge imposed by the PFIC rules with respect to 
     amounts accumulated by the PFIC while the shareholder held 
     stock of the corporation but before the shareholder was 
     subject to subpart F.
       If a shareholder is not subject to the PFIC provisions 
     because the shareholder is subject to subpart F and the 
     shareholder subsequently ceases to be subject to subpart F 
     with respect to the corporation, for purposes of the PFIC 
     provisions, the shareholder's holding period for such stock 
     is treated as beginning immediately after such cessation. 
     Accordingly, in applying the rules applicable to PFICs that 
     are not qualified electing funds, the earnings of the 
     corporation are not attributed to the period during which the 
     shareholder was subject to subpart F with respect to the 
     corporation and was not subject to the PFIC provisions.
       Mark-to-market election
       The House bill allows a shareholder of a PFIC to make a 
     mark-to-market election with respect to the stock of the 
     PFIC, provided that such stock is marketable (as defined 
     below). Under such an election, the 

[[Page H 12919]]
     shareholder includes in income each year an amount equal to the excess, 
     if any, of the fair market value of the PFIC stock as of the 
     close of the taxable year over the shareholder's adjusted 
     basis in such stock. The shareholder is allowed a deduction 
     for the excess, if any, of the adjusted basis of the PFIC 
     stock over its fair market value as of the close of the 
     taxable year. However, deductions are allowable under this 
     rule only to the extent of the excess, if any, of the total 
     amount of mark-to-market gains with respect to the stock 
     included by the shareholder for prior taxable years over the 
     amount of mark-to-market losses with respect to such stock 
     that were allowed as deductions for prior taxable years.
       The election provided in the House bill is available only 
     for PFIC stock that is ``marketable.'' For this purpose, PFIC 
     stock is considered marketable if it is regularly traded on a 
     national securities exchange that is registered with the 
     Securities and Exchange Commission or on the national market 
     system established pursuant to section 11A of the Securities 
     and Exchange Act of 1934. In addition, PFIC stock is 
     considered marketable if it is regularly traded on any 
     exchange or market that the Secretary of the Treasury 
     determines has rules sufficient to ensure that the market 
     price represents a legitimate and sound fair market value. In 
     identifying foreign exchanges that qualify for these 
     purposes, it is intended that the Secretary not be required 
     to include exchanges that satisfy standards established under 
     Federal securities law and regulations. Any option on stock 
     that is considered marketable under the foregoing rules is 
     treated as marketable, to the extent provided in regulations. 
     It is intended that the Secretary may adopt a definition of 
     the term ``regularly traded'' that differs from definitions 
     provided for other purposes under the Code. Further, it is 
     intended that the Secretary not be bound by definitions 
     applied for purposes of enforcing other laws, including 
     securities laws. PFIC stock also is treated as marketable, to 
     the extent provided in regulations, if the PFIC offers for 
     sale (or has outstanding) stock of which it is the issuer and 
     which is redeemable at its net asset value in a manner 
     comparable to a U.S. regulated investment company (RIC).
       In addition, the House bill treats as marketable any PFIC 
     stock owned by a RIC that offers for sale (or has 
     outstanding) any stock of which it is the issuer and which is 
     redeemable at its net asset value. It is believed that the 
     RIC's determination of PFIC stock value for this non-tax 
     purpose would ensure a sufficiently accurate determination of 
     the fair market value of the PFIC stock owned by the RIC. The 
     House bill also treats as marketable any PFIC stock held by 
     any other RIC that otherwise publishes net asset valuations 
     at least annually, except to the extent provided in 
     regulations. It is believed that even for RICs that do not 
     make a market in their own stock, but that do regularly 
     report their net asset values in compliance with the 
     securities laws, inaccurate valuation may bring exposure to 
     legal liabilities, and this exposure may ensure the 
     reliability of the values such RICs assign to the PFIC stock 
     they hold. However, it is intended that Treasury regulations 
     will disallow marketable treatment for nonmarketable PFIC 
     stock held by a RIC that is not required to perform such net 
     asset valuation at the close of each taxable year, that does 
     not publish such valuation, or that otherwise does not 
     provide what the Secretary regards as sufficient indicia of 
     the reliability of its valuations.
       The shareholder's adjusted basis in the PFIC stock is 
     adjusted to reflect the amounts included or deducted under 
     this election. In the case of stock owned indirectly by a 
     U.S. person through a foreign entity (as discussed below), 
     the basis adjustments for mark-to-market gains and losses 
     apply to the basis of the PFIC in the hands of the 
     intermediary owner, but only for purposes of the subsequent 
     application of the PFIC rules to the tax treatment of the 
     indirect U.S. owner. In addition, similar basis adjustments 
     are made to the adjusted basis of the property actually held 
     by the U.S. person by reason of which the U.S. person is 
     treated as owning PFIC stock.
       Amounts included in income pursuant to a mark-to-market 
     election, as well as gain on the actual sale or other 
     disposition of the PFIC stock, are treated as ordinary income 
     \103\ Ordinary loss treatment also applies to the deductible 
     portion of any mark-to-market loss on PFIC stock, as well as 
     to any loss realized on the actual sale or other disposition 
     of PFIC stock to the extent that the amount of such loss does 
     not exceed the net mark-to-market gains previously included 
     with respect to such stock. The source of amounts with 
     respect to a mark-to-market election generally is determined 
     in the same manner as if such amounts were gain or loss from 
     the sale of stock in the PFIC.
     \103\ For purposes of the rules under section 851(b) 
     regarding eligibility as a RIC, income includible pursuant to 
     the election is treated as a dividend.
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       An election to mark to market applies to the taxable year 
     for which made and all subsequent taxable years, unless the 
     PFIC stock ceases to be marketable or the Secretary of the 
     Treasury consents to the revocation of such election.
       Under constructive ownership rules, U.S. persons that own 
     PFIC stock through certain foreign entities may make this 
     election with respect to the PFIC. These constructive 
     ownership rules apply to treat PFIC stock owned directly or 
     indirectly by or for a foreign partnership, trust, or estate 
     as owned proportionately by the partners or beneficiaries, 
     except as provided in regulations.\104\ Stock in a PFIC that 
     is thus treated as owned by a person is treated as actually 
     owned by that person for purposes of again applying the 
     constructive ownership rules. In the case of a U.S. person 
     that is treated as owning PFIC stock by application of this 
     constructive ownership rule, any disposition by the U.S. 
     person or by any other person that results in the U.S. person 
     being treated as no longer owning the PFIC stock, as well as 
     any disposition by the person actually owning the PFIC stock, 
     is treated as a disposition by the U.S. person of the PFIC 
     stock.
     \104\ For this purpose, it is intended that proportionate 
     ownership will be determined by taking into account any 
     special or discretionary allocations of the distributions or 
     gains with respect to the PFIC stock.
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       In addition, a CFC that owns stock in a PFIC is treated as 
     a U.S. person that may make the election with respect to such 
     PFIC stock. Any amount includible (or deductible) in the 
     CFC's gross income pursuant to this mark-to-market election 
     is treated as foreign personal holding company income (or a 
     deduction allocable to foreign personal holding company 
     income). The source of such amounts, however, is determined 
     by reference to the actual residence of the CFC.
       In the case of a taxpayer that makes the mark-to-market 
     election with respect to stock in a PFIC that is a 
     nonqualified fund after the beginning of the taxpayer's 
     holding period with respect to such stock, a coordination 
     rule applies to ensure that the taxpayer does not avoid the 
     interest charge with respect to amounts attributable to 
     periods before such election. A similar rule applies to RICs 
     that make the mark-to-market election under the House bill 
     after the beginning of their holding period with respect to 
     PFIC stock (to the extent that the regulated investment 
     company had not previously marked to market the stock of the 
     PFIC).
       Except as provided in the coordination rules described 
     above, the rules of section 1291 (with respect to 
     nonqualified funds) do not apply to a shareholder of a PFIC 
     if a mark-to-market election is in effect for the 
     shareholder's taxable year. Moreover, in applying section 
     1291 in a case where a mark-to-market election was in effect 
     for any prior taxable year, the shareholder's holding period 
     for the PFIC stock is treated as beginning immediately after 
     the last taxable year for which such election applied.
       A special rule applicable in the case of a PFIC shareholder 
     that becomes a U.S. person treats the adjusted basis of any 
     PFIC stock held by such person on the first day of the year 
     in which such shareholder becomes a U.S. person as equal to 
     the greater of its fair market value on such date or its 
     adjusted basis on such date. Such rule applies only for 
     purposes of the mark-to-market election. This rule ensures 
     that the appreciation in the stock's value prior to the time 
     that the shareholder becomes subject to the U.S. tax 
     jurisdiction is not subject to U.S. tax under the mark-to-
     market election.
       Clarifications of definition of passive income
       The House bill clarifies the definition of passive income 
     for purposes of the PFIC provisions in two respects. First, 
     the House bill clarifies that the same-country exceptions 
     from the definition of foreign personal holding company 
     income in section 954(c) do not apply in determining passive 
     income for purposes of the PFIC definition.\105\ Second, the 
     House bill clarifies that foreign trade income of a foreign 
     sales corporation does not constitute passive income for 
     purposes of the PFIC definition.
     \105\ H. Rept. No. 100-795, 100th Cong., 2d Sess. 272 (1988); 
     S. Rept. No. 100-445, 100th Cong., 2d Sess. 285 (1988).
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       Effective date
       The provision is effective for taxable years of U.S. 
     persons beginning after December 31, 1995, and taxable years 
     of foreign corporations ending with or within such taxable 
     years of U.S. persons.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


             b. treatment of controlled foreign corporations

    1. general provisions affecting treatment of controlled foreign 
           corporations (secs. 14411-14413 of the house bill)

     Present law
       If an upper-tier controlled foreign corporation (``CFC'') 
     sells stock of a lower-tier CFC, the gain generally is 
     included in the income of certain U.S. shareholders as 
     subpart F income and the U.S. shareholder's basis in the 
     stock of the first-tier CFC is increased to account for the 
     inclusion. The inclusion is not characterized for foreign tax 
     credit limitation purposes by reference to the nature of the 
     income of the lower-tier CFC; instead it generally is 
     characterized as passive income.
       For foreign tax credit limitation purposes, a CFC is not 
     treated as a noncontrolled section 902 corporation with 
     respect to any distribution out of its earnings and profits 
     for periods during which it was a CFC and, except as provided 
     in regulations, the recipient of the distribution was a U.S. 
     shareholder in such corporation. 

[[Page H 12920]]

       If subpart F income of a lower-tier CFC is included in the 
     gross income of a U.S. shareholder, no provision of present 
     law allows adjustment of the basis of the upper-tier CFC's 
     stock in the lower-tier CFC.
       The subpart F income earned by a foreign corporation during 
     its taxable year is taxed to the persons who are U.S. 
     shareholders of the corporation on the last day, in that 
     year, on which the corporation is a CFC. In the case of a 
     U.S. shareholder who acquired stock in a CFC during the year, 
     such inclusions are reduced by all or a portion of the amount 
     of dividends paid in that year by the foreign corporation to 
     any person other than the acquirer with respect to that 
     stock.
       If in a year after the year of income inclusion under the 
     subpart F provisions of the Code, a U.S. shareholder in the 
     CFC receives a distribution from the corporation, the 
     distribution may be deemed to come first out of the 
     corporation's previously taxed income and, therefore, may be 
     excluded from the U.S. shareholder's income. However, a 
     distribution by a foreign corporation to a domestic 
     corporation of earnings and profits previously taxed under 
     subpart F is treated as an actual dividend, solely for 
     purposes of determining the indirect foreign tax credit 
     available to the domestic corporation.
       As a general rule, subpart F income does not include income 
     earned from sources within the United States if the income is 
     effectively connected with the conduct of a U.S. trade or 
     business by the CFC. This general rule does not apply, 
     however, if the income is exempt from, or subject to a 
     reduced rate of, U.S. tax pursuant to a provision of a U.S. 
     treaty.
       A U.S. corporation that owns at least 10 percent of the 
     voting stock of a foreign corporation is treated as if it had 
     paid a share of the foreign income taxes paid by the foreign 
     corporation in the year in which the foreign corporation's 
     earnings and profits become subject to U.S. tax as dividend 
     income of the U.S. shareholder. A U.S. corporation also may 
     be deemed to have paid taxes paid by a second- or third-tier 
     foreign corporation if certain conditions are satisfied.
     House bill
       Lower-tier controlled foreign corporations
           Characterization of gain on stock disposition
       The House bill provides that if a CFC is treated as having 
     gain from the sale or exchange of stock in a foreign 
     corporation, the gain is treated as a dividend to the same 
     extent that it would have been so treated under section 1248 
     if the CFC were a U.S. person. This provision, however, does 
     not affect the determination of whether the corporation whose 
     stock is sold or exchanged is a CFC.
       Thus, for example, if a U.S. corporation owns 100 percent 
     of the stock a foreign corporation, which owns 100 percent of 
     the stock of a second foreign corporation, then under the 
     House bill, any gain of the first corporation upon a sale or 
     exchange of stock of the second corporation is treated as a 
     dividend for purposes of subpart F income inclusions to the 
     U.S. shareholder, to the extent of earnings and profits of 
     the second corporation attributable to periods in which the 
     first foreign corporation owned the stock of the second 
     foreign corporation while the latter was a CFC with respect 
     to the U.S. shareholder.
       As another example, assume that the U.S. corporation has 
     always owned 40 percent of the voting stock and 60 percent of 
     the value of all of the stock of a foreign corporation, which 
     has always owned 40 percent of the voting stock and 60 
     percent of the value of all of the stock of a second foreign 
     corporation. All the other stock of the foreign corporations 
     has always been owned by foreign individuals unrelated to the 
     U.S. corporation. In this case, the second foreign 
     corporation has never been a CFC. Therefore, none of the gain 
     of the first corporation upon a sale of stock of the second 
     corporation is treated as a dividend.
       Gain on disposition of stock in a related corporation 
     created or organized under the laws of, and having a 
     substantial part of its assets in a trade or business in, the 
     same foreign country as the gain recipient, even if 
     recharacterized as a dividend under the House bill, is not 
     excluded from foreign personal holding company income under 
     the same-country exception that applies to actual dividends.
       The House bill provides that for purposes of this 
     provision, a CFC is treated as having sold or exchanged stock 
     if, under any provision of subtitle A of the Code, the CFC is 
     treated as having gain from the sale or exchange of such 
     stock. Thus, for example, if a CFC distributes to its 
     shareholder stock in a foreign corporation, and the 
     distribution results in gain being recognized by the CFC 
     under section 311(b) as if the stock were sold to the 
     shareholder for fair market value, the House bill makes clear 
     that for purposes of this provision, the CFC is treated as 
     having sold or exchanged the stock.
       The House bill also repeals a provision added to the Code 
     by the Technical and Miscellaneous Revenue Act of 1988 \106\ 
     (the ``1988 Act'') that, except as provided by regulations, 
     requires a recipient of a distribution from a CFC to have 
     been a United States shareholder of that CFC for the period 
     during which the earnings and profits which gave rise to the 
     distribution were generated in order to avoid treating the 
     distribution as one coming from a noncontrolled section 902 
     corporation. Thus, under the House bill, a CFC is not treated 
     as a noncontrolled section 902 corporation with respect to 
     any distribution out of its earnings and profits for periods 
     during which it was a CFC, whether or not the recipient of 
     the distribution was a U.S. shareholder of the corporation 
     when the earnings and profits giving rise to the distribution 
     were generated.
     \106\ P.L. 100-647, section 1012(a)(10).
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           Adjustments to basis of stock
       The House bill also provides that when a lower-tier CFC 
     earns subpart F income, and stock in that corporation is 
     later disposed of by an upper-tier CFC, the resulting income 
     inclusion of the U.S. shareholders are, under regulations, 
     adjusted to account for previous inclusions, in a manner 
     similar to the adjustments currently provided to the basis of 
     stock in a first-tier CFC. Thus, just as the basis of a U.S. 
     shareholder in a first-tier CFC rises when subpart F income 
     is earned and falls when previously taxed income is 
     distributed, so as to avoid double taxation of the income on 
     a later disposition of the stock of that company, the it is 
     intended that by regulation the subpart F income from gain on 
     the disposition of a lower-tier CFC generally would be 
     reduced by income inclusions of earnings that were not 
     subsequently distributed by the lower-tier CFC. It is 
     intended that the Secretary will have sufficient flexibility 
     in promulgating regulations under this provision to permit 
     adjustments only in those cases where, by virtue of the 
     historical ownership structure of the corporations involved, 
     the Secretary is satisfied that the inclusions for which 
     adjustments are to be made can be clearly identified.
       For example, assume that a U.S. person is the owner of all 
     of the stock of a first-tier CFC which, in turn, is the sole 
     shareholder of a second-tier CFC. In year 1, the second-tier 
     CFC earns $100 of subpart F income which is included in the 
     U.S. person's gross income for that year. In year 2, the 
     first-tier CFC disposes of the second-tier CFC's stock and 
     recognizes $300 of income with respect to the disposition. 
     All of that income would constitute subpart F foreign 
     personal holding company income. Under the House bill, the 
     Secretary is granted regulatory authority to reduce the U.S. 
     person's year 2 subpart F inclusion by $100--the amount of 
     year 1 subpart F income of the second-tier CFC that was 
     included, in that year, in the U.S. person's gross income. 
     Such an adjustment would, in effect, allow for a step-up in 
     the basis of the stock of the second-tier CFC to the extent 
     of its subpart F income previously included in the U.S. 
     person's gross income.
       As another example, assume the same facts as in the 
     preceding paragraph except that in year 2, the first-tier CFC 
     distributes the stock of the second-tier CFC to the U.S. 
     person. Assume that as a result of the distribution, the 
     first-tier CFC recognizes taxable income of $300 under 
     section 311(b). This income represents subpart F income, $100 
     of which is due to no adjustment having been made to the 
     basis of the second-tier CFC's stock for its year 1 subpart F 
     income. The House bill contemplates that in such a situation, 
     the $300 of subpart F income would be reduced under 
     regulations to $200 to account for the year 1 subpart F 
     income inclusion.
       Subpart F inclusions in year of acquisition
       If a U.S. shareholder acquires the stock of a CFC from 
     another U.S. shareholder during a taxable year of the CFC in 
     which it earns subpart F income, the House bill reduces the 
     acquirer's subpart F income inclusion for that year by a 
     portion of the amount of the dividend deemed (under sec. 
     1248) to be received by the transferor. The portion by which 
     the inclusion is reduced (as is currently the case if a 
     dividend was paid to the previous owner of the stock) would 
     not exceed the lesser of the amount of dividends with respect 
     to such stock deemed received (under sec. 1248) by other 
     persons during the year or the amount determined by 
     multiplying the subpart F income for the year by the 
     proportion of the year during which the acquiring shareholder 
     did not own the stock.
       Distributions of previously taxed income
       The House bill clarifies the appropriate scope of 
     regulatory authority with respect to the treatment of cross-
     chain section 304 dividends out of the earnings of CFCs that 
     were previously included in the income of a U.S. shareholder 
     under subpart F. The House bill contemplates that in such a 
     case, the Secretary in his discretion may by regulation treat 
     such dividends as distributions of previously taxed income, 
     with appropriate basis adjustments. It is also anticipated 
     that other occasions may arise where the exercise of similar 
     regulatory authority may be appropriate to avoid double 
     income inclusions, or an inclusion or exclusion of income 
     without a corresponding basis adjustment. Therefore, the 
     House bill provides that, in addition to cases involving 
     section 304, the Secretary may by regulation modify the 
     application of subpart F in any other case where there would 
     otherwise be a multiple inclusion of any item of income (or 
     an inclusion or exclusion without an appropriate basis 
     adjustment) by reason of the structure of a U.S. 
     shareholder's holdings in CFCs or by reason of other 
     circumstances. The House bill is not intended to create any 
     inference as to the application of present law in these 
     cases.
       Treatment of United States income earned by a controlled 
           foreign corporation
       The House bill provides that an exemption or reduction by 
     treaty of the branch profits tax that would be imposed under 
     section 884 on a CFC does not affect the general statutory 
     exemption from subpart F income that 

[[Page H 12921]]
     is granted for U.S. source effectively connected income. For example, 
     assume a CFC earns income of a type that generally would be 
     subpart F income, and that income is earned from sources 
     within the United States in connection with business 
     operations therein. Further assume that repatriation of that 
     income is exempted from the U.S. branch profits tax under a 
     provision of an applicable U.S. income tax treaty. The House 
     bill provides that, notwithstanding the treaty's effect on 
     the branch tax, the income is not treated as subpart F income 
     as long as it is not exempt from U.S. taxation (or subject to 
     a reduced rate of tax) under any other treaty provision.
       Extension of indirect foreign tax credit
       The House bill extends the application of the indirect 
     foreign tax credit (secs. 902 and 960) to certain taxes paid 
     or accrued by certain fourth-, fifth-, and sixth-tier foreign 
     corporations. In general, three requirements must be 
     satisfied by a foreign company at any of these tiers to 
     qualify for the credit. First, the company must be a CFC. 
     Second, the domestic corporation referred to in section 
     902(a) must be a U.S. shareholder (as defined in sec. 951(b)) 
     with respect to the foreign company. Third, the product of 
     the percentage ownership of voting stock at each level from 
     the U.S. corporation down must equal at least 5 percent. The 
     House bill limits the application of the indirect foreign tax 
     credit below the third tier to taxes paid or incurred in 
     taxable years during which the payor is a CFC. No inference 
     is intended as to the availability of indirect foreign tax 
     credits, under present law, for taxes paid by foreign 
     corporations in the first three tiers, for periods prior to 
     the time when the present-law ownership requirements were met 
     as to those corporations. All foreign taxes paid below the 
     sixth tier of foreign corporations remain ineligible for the 
     indirect foreign tax credit.
       Effective dates
       Lower-tier controlled foreign corporations.--The provision 
     of the House bill that treats gains on dispositions of stock 
     in lower-tier CFCs as dividends under section 1248 principles 
     applies to gains recognized on transactions occurring after 
     the date of enactment of the House bill.
       The provision that expands look-through treatment, for 
     foreign tax credit limitation purposes, of dividends from 
     CFCs, is effective for distributions after the date of 
     enactment.
       The provision that provides for regulatory adjustments to 
     U.S. shareholder inclusions, with respect to gains of CFCs 
     from dispositions of stock in lower-tier CFCs the earnings of 
     which have been previously taxed under the subpart F 
     provisions of the Code, is effective for determining 
     inclusions for taxable years of U.S. shareholders beginning 
     after December 31, 1995. Thus, the House bill permits 
     regulatory adjustments to an inclusion occurring after the 
     effective date to account for income previously taxed under 
     the subpart F provisions occurring both prior to and 
     subsequent to the effective date of the provision.
       Subpart F inclusions in year of acquisition.--The provision 
     that permits dispositions of stock to be taken into 
     consideration in determining a U.S. shareholder's subpart F 
     inclusion for a taxable year is effective with respect to 
     dispositions occurring after the date of enactment.
       Distributions of previously taxed income.--The provision 
     that allows the Secretary to make regulatory adjustments to 
     avoid double inclusions in cases such as those to which 
     section 304 applies takes effect on the date of enactment.
       Treatment of United States source income earned by a 
     controlled foreign corporation.--The provision concerning the 
     effect of treaty exemptions from, or reductions of, the 
     branch profits tax on the determination of subpart F income 
     is effective for taxable years beginning after December 31, 
     1986.
       Extension of indirect foreign tax credit.--The provision 
     that extends application of the indirect foreign tax credit 
     to certain CFCs below the third tier is effective for foreign 
     taxes paid or incurred by CFCs for taxable years of such 
     corporations beginning after the date of enactment.
       In the case of any chain of foreign corporations the taxes 
     of which would be eligible for the indirect foreign tax 
     credit, under present law or under the House bill, but for 
     the denial of indirect credits below the third or sixth tier, 
     as the case may be, no liquidation, reorganization, or 
     similar transaction in a taxable year beginning after the 
     date of enactment shall have the effect of permitting taxes 
     to be taken into account under the indirect foreign tax 
     credit provisions of the Code which could not have been taken 
     into account under those provisions but for such transaction. 
     As one example, no such transaction shall have the effect of 
     permitting credits for taxes which, but for such transaction, 
     would have been noncreditable (given the effective date 
     provisions of the House bill) because they are taxes of a 
     fourth-, fifth-, or sixth-tier corporation for a year 
     beginning before the date that the House bill is enacted. No 
     inference is intended regarding the creditability or 
     noncreditability of such taxes under present law.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


 2. repeal of excess passive assets provision (sec. 14414 of the house 
                                 bill)

     Present law
       Under the rules of subpart F (secs. 951-964), certain 10-
     percent U.S. shareholders of a controlled foreign corporation 
     (CFC) are required to include in income currently for U.S. 
     tax purposes certain earnings of the CFC, whether or not such 
     earnings are actually distributed currently to the 
     shareholders. The 10-percent U.S. shareholders of a CFC are 
     subject to current U.S. tax on their shares of certain income 
     earned by the CFC (referred to as ``subpart F income''). The 
     10-percent U.S. shareholders are also subject to current U.S. 
     tax on their shares of the CFC's earnings to the extent such 
     earnings are invested by the CFC in certain U.S. property.
       In addition to these current inclusion rules, the Omnibus 
     Budget Reconciliation Act of 1993 enacted section 956A, which 
     applies another current inclusion rule to U.S. shareholders 
     of a CFC. Section 956A requires the 10-percent U.S. 
     shareholders of a CFC to include in income currently their 
     shares of the CFC's earnings to the extent such earnings are 
     invested by the CFC in excess passive assets. A CFC generally 
     is treated as having excess passive assets if the average of 
     the amounts of its passive assets exceeds 25 percent of the 
     average of the amounts of its total assets; this calculation 
     requires a quarterly determination of the CFC's passive 
     assets and total assets.
     House bill
       The House bill repeals section 956A.
        Effective date.--The provision applies to taxable years of 
     U.S. shareholders beginning after September 30, 1995, and 
     taxable years of foreign corporations ending with or within 
     such taxable years of U.S. shareholders.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.

                      C. Other Foreign Provisions


 1. exchange rate used in translating foreign taxes (sec. 14421 of the 
                              house bill)

     Present law
       Translation of certain accrued foreign taxes
       Foreign income taxes paid in foreign currencies are 
     required to be translated into U.S. dollar amounts using the 
     exchange rate as of the time such taxes are paid to the 
     foreign country or U.S. possession (sec. 986(a)(1)). This 
     rule applies to foreign taxes paid directly by U.S. 
     taxpayers, which taxes are creditable only in the year paid 
     or accrued (or during a carryover period), and to foreign 
     taxes paid by foreign corporations that are deemed paid by a 
     U.S. corporation, and hence creditable, in the year that the 
     U.S. corporation receives a dividend or has an income 
     inclusion.
       Redetermination of foreign taxes
       For taxpayers who utilize the accrual basis of accounting 
     for determining creditable foreign taxes, accrued and unpaid 
     foreign tax liabilities denominated in foreign currencies are 
     translated into U.S. dollar amounts at the exchange rate as 
     of the last day of the taxable year of accrual.107 In 
     certain cases where a difference exists between the dollar 
     value of accrued foreign taxes and the dollar value of those 
     taxes when paid, a redetermination (or adjustment) of foreign 
     taxes is required.108 Generally, such an adjustment may 
     be attributable to one of three causes: (1) a refund of 
     foreign taxes, (2) a difference between the amount of foreign 
     currency units actually paid and the amount of foreign 
     currency units accrued, and (3) fluctuations in the value of 
     the foreign currency relative to the dollar between the date 
     of accrual and the date of payment.
     \107\ Temp. Treas. Reg. sec. 1.905-3T(b)(1).
     \108\ Temp. Treas. Reg. sec. 1.905-3T(c).
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       A redetermination of foreign tax paid or accrued directly 
     by a U.S. person requires notification of the Internal 
     Revenue Service and a redetermination of U.S. tax liability 
     for the taxable year for which the foreign tax was claimed as 
     a credit. Exceptions to this rule apply for de minimis 
     amounts of foreign tax redetermination.109 In the case 
     of a redetermination of foreign taxes that qualify for the 
     indirect foreign tax credit under sections 902 and 960, 
     taxpayers generally are required to make appropriate 
     adjustments to the relevant pools of earnings and profits and 
     foreign taxes.110
     \109\ Temp. Treas. Reg. sec. 1.905-3T(d)(1).
     \110\ Temp. Treas. Reg. sec. 1.905-3T(d)(2); Notice 90-26, 
     1990-1 C.B. 336.
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     House bill
       In general
       The House bill sets forth two sets of operating rules for 
     the translation of foreign taxes. The first set establishes 
     new rules for the translation of certain accrued foreign 
     taxes. The other set modifies the rules of present law for 
     translating all other foreign taxes.
       Translation of foreign taxes
           Translation of certain accrued foreign taxes
       The House bill permits taxpayers who utilize the accrual 
     basis of accounting for determining creditable foreign taxes 
     to translate their foreign taxes at the average exchange rate 
     for the taxable year to which such taxes relate, provided 
     such taxes are actually paid no later than the date that is 2 
     years after the close of the year to which such taxes relate. 
     This rule does not apply (1) with respect 

[[Page H 12922]]
     to taxes of an accrual-basis taxpayer that are actually paid in a 
     taxable year prior to the year to which they relate, or (2) 
     to tax payments that are denominated in a hyperinflationary 
     currency (as defined in Treas. Reg. Sec. 1.985-
     1(b)(2)(D)(ii)). In addition, as discussed in detail below, 
     this set of rules does not apply to, and thus a 
     redetermination of foreign tax is required for, any foreign 
     income tax paid after the date two years after the close of 
     the taxable year to which such taxes relate.
       For example, assume that in year 1 a taxpayer accrues 1,000 
     units of foreign tax that relate to year 1. Further assume 
     that as of the end of year 1 the tax is unpaid and the 
     currency involved is not hyperinflationary. In this case, the 
     House bill provides that the taxpayer would translate 1,000 
     units of accrued foreign tax into U.S. dollars at the average 
     exchange rate for year 1.111 If the 1,000 units of tax 
     were paid by the taxpayer in either year 2 or year 3, no 
     redetermination of foreign tax would be required. If, any 
     portion of the tax so accrued remained unpaid as of the end 
     of year 3, however, the taxpayer would be required to 
     redetermine its foreign tax accrued in year 1 to account for 
     the accrued but unpaid tax.
     \111\ The same result would occur if the 1,000 units of tax 
     were both accrued and paid in year 1.
---------------------------------------------------------------------------
       As another example, assume a taxpayer accrues 1,000 units 
     of foreign tax in year 2, but pays the tax in year 1. Also 
     assume that the tax relates to year 2. In this case, the 
     taxpayer would translate the tax using the exchange rate as 
     of the time the tax is paid (i.e., using the applicable year 
     1 exchange rate) since the tax is paid in a year prior to the 
     year to which it relates.
       As an illustration of what is meant by the taxable year to 
     which taxes relate, assume that a foreign corporation is 
     charged by a foreign government with an income tax of 100 
     units for 1996. Assume that the currency involved is not 
     hyperinflationary. Due to a contest between the foreign 
     government and the corporation that ends in 1996, the 100 
     units of tax are not paid until 1997. Assume that under the 
     U.S. rules governing accrual, the foreign tax accrues for 
     1996 but does not do so until 1997.112 Under the House 
     bill, the taxes would be translated at the rate in effect for 
     1996, because the taxes relate to 1996, even though they did 
     not accrue until 1997. If instead the contest was over in 
     1999 and the taxes were accrued and paid at that time, the 
     translation rate used would be that of 1999, rather than 
     1996, because 1999 is more than 2 years after the end of 
     1996. Now assume that the contest was over in 2001, but the 
     taxes were deposited in 1997 and not accrued until 2001. 
     These taxes are paid before the beginning of the year in 
     which the taxes were accrued (2001), but after the year to 
     which the taxes relate (1996). In this case, under the House 
     bill, the taxes would be translated at the rate for the year 
     (1996) to which the taxes relate. If the taxes are instead 
     paid in 1999, they would be translated at the relevant rate 
     for 1999 because 1999 is more than 2 years after the end of 
     1996.
     \112\ See, e.g., Rev. Rul. 84-125, 1984-2 C.B. 125.
---------------------------------------------------------------------------
       As an additional illustration of what is meant under the 
     House bill as the taxable year to which taxes relate, assume 
     that a foreign corporation accrues a foreign income tax of 
     100 units of non-hyperinflationary currency for 1996. Further 
     assume that the actual amount of foreign tax liability of the 
     foreign corporation for 1996 is 110 units, all of which is 
     paid in 1997. Under the House bill, the 110 units of foreign 
     tax are translated at the rate in effect for 1996 because the 
     taxes relate to 1996, even though the total tax liability for 
     that year was not actually accrued by the taxpayer in 1996.
       Finally, assume that under foreign law, a foreign income 
     tax liability accrues in 2001 under a long-term contract 
     method of accounting, but advance deposits of that liability 
     accruing in 2001 are made in each of the years 1997 through 
     2000. Under the House bill, it is intended that if the 
     payments in 1997 through 2000 are treated as relating to 
     2001, these payments are nevertheless to be translated at the 
     relevant rates for 1997 through 2000. Although the House bill 
     provides a rule for translation of the taxes in this case, no 
     change is intended as to the application of present law 
     accounting rules for determining the year for which the taxes 
     are eligible for credit or deduction for U.S. income tax 
     purposes.
           Translation of all other foreign taxes
       Foreign taxes not eligible for application of the preceding 
     rules generally are translated into U.S. dollars using the 
     exchange rates as of the time such taxes are paid. The House 
     bill grants the Secretary of the Treasury authority to issue 
     regulations that would allow foreign tax payments made by a 
     foreign corporation or by a foreign branch of a U.S. person 
     to be translated into U.S. dollar amounts using an average 
     U.S. dollar exchange rate for a specified period. It is 
     anticipated that the applicable average exchange rate would 
     be the rate as published by a qualified source of exchange 
     rate information for the period during which the tax payments 
     were made.
       Redetermination of foreign taxes
       As revised by the House bill, section 905(c) of the Code 
     defines a foreign tax redetermination to include: (1) a 
     refund of foreign taxes, (2) a difference between accrued 
     taxes when paid and the amounts claimed as credits by the 
     taxpayer, and (3) accrued taxes not paid before the date two 
     years after the close of the taxable year to which such taxes 
     relate. Thus, for example, the House bill provides that if at 
     the close of the second taxable year after the close of the 
     taxable year to which an accrued tax relates, any portion of 
     the tax so accrued has not yet been paid, a foreign tax 
     redetermination under section 905(c) is required for the 
     amount representing the unpaid portion of that accrued tax. 
     That is, the accrual of any tax that is unpaid as of that 
     date would be retroactively denied. In cases where a 
     redetermination is required, as under present law, the House 
     bill specifies that the taxpayer must notify the Secretary, 
     who shall redetermine the amount of the tax for the year or 
     years affected.
       The House bill provides that in the case of accrued taxes 
     not paid within the date two years after the close of the 
     taxable year to which such taxes relate, whether or not such 
     taxes were previously accrued, any such taxes if subsequently 
     paid are taken into account for the taxable year in which 
     paid, and no redetermination with respect to the original 
     year of accrual is required on account of such payment. In 
     such a case, those taxes would be translated into U.S. dollar 
     amounts using the exchange rates in effect for the period 
     during which such taxes are paid. Nothing in the House bill 
     is intended to change present law as to the length of time 
     after the year to which the redetermination relates within 
     which redetermination may be made or required.113
     \113\ See section 6501(c)(5). See also, e.g., Pacific Metals 
     Corp. v. Commissioner, 1 T.C. 1028 (1943); Texas Co. 
     (Caribbean Ltd. v. Commissioner, 12 T.C. 925 (1949).
---------------------------------------------------------------------------
       Effective date
       The provision is effective for taxes paid (in the case of 
     taxpayers using the cash basis for determining the foreign 
     tax credit) or accrued (in the case of taxpayers using the 
     accrual basis for determining the foreign tax credit) in 
     taxable years beginning after December 31, 1995.
       With respect to taxes of an accrual-basis taxpayer that 
     relate to a taxable year beginning before January 1, 1996, 
     the return for which (if one were due) would not yet be due 
     on date of enactment of the House bill (taking into account 
     extensions of time to file), it is contemplated that the 
     Secretary would, in appropriate circumstances, provide 
     taxpayers with a reasonable average-rate method for 
     translating such taxes that are not paid until after the 
     effective date of the House bill.
       The House bill's changes to the foreign tax redetermination 
     rules apply to taxes which relate to taxable years beginning 
     after December 31, 1995. Thus, for example, the 
     redetermination rules under the House bill do not apply to a 
     foreign tax that relates to a taxable year beginning in or 
     before 1995, even though the tax does not properly accrue 
     until a taxable year beginning after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


 2. election to use simplified foreign tax credit limitation under the 
         alternative minimum tax (sec. 14422 of the house bill)

     Present law
       Foreign tax credit limitations must be computed both for 
     regular tax purposes and alternative minimum tax (AMT) 
     purposes. Each foreign tax credit limitation computation 
     requires the allocation and apportionment of deductions 
     between foreign source income and U.S. source income.
     House bill
       The House bill permits taxpayers to elect to use as their 
     AMT foreign tax credit limitation fraction the ratio of 
     foreign source regular taxable income to entire alternative 
     minimum taxable income, rather than the ratio of foreign 
     source alternative minimum taxable income to entire 
     alternative minimum taxable income. Foreign source regular 
     taxable income is used only to the extent it does not exceed 
     entire alternative minimum taxable income.
       The election must be made for the first taxable year 
     beginning after December 31, 1995, for which the taxpayer 
     claims an AMT foreign tax credit. It is intended that a 
     taxpayer be treated, for this purpose, as claiming an AMT 
     foreign tax credit for any taxable year for which the 
     taxpayer chooses to have the benefits of the foreign tax 
     credit and in which the taxpayer is subject to the 
     alternative minimum tax or would be subject to the 
     alternative minimum tax but for the availability of the AMT 
     foreign tax credit. Once made, the election applies to all 
     subsequent taxable years, and may be revoked only with 
     consent.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


 3. treatment of inbound and outbound transfers (secs. 14423-14424 of 
                            the house bill)

     Present law
       Outbound transfers
       If a U.S. person transfers property to a foreign 
     corporation in connection with certain 

[[Page H 12923]]
     corporate organizations, reorganizations, or liquidations, the foreign 
     corporation will not, for purposes of determining the extent 
     to which gain is recognized on such transfer, be considered 
     to be a corporation (sec. 367(a)(1)). Various exceptions to 
     the operation of this rule are provided, including a broad 
     grant of authority to provide exceptions by regulation. 
     Because corporate status is essential to qualify for the tax-
     free organization, reorganization, and liquidation 
     provisions, failure to satisfy the requirements of section 
     367 could result in the recognition of gain to the 
     participant corporations and shareholders.
       An excise tax is imposed on outbound transfers that might 
     not constitute income tax recognition events even after 
     imposition of the anti-avoidance income tax rule adopted for 
     corporate transactions. The excise tax generally applies on 
     transfers of property by a U.S. person to a foreign 
     corporation--as paid-in surplus or as a contribution to 
     capital--or to a foreign estate, trust, or 
     partnership.114 The tax is 35 percent of the amount of 
     gain inherent in the property transferred, but not recognized 
     for income tax purposes at the time of the transfer (sec. 
     1491). For income tax purposes, the basis of the appreciated 
     property whose transfer triggers the tax is not increased to 
     account for imposition of the tax.
     \114\ The Internal Revenue Service has in the past wavered on 
     the question whether this tax applies to a transfer to a 
     foreign trust with respect to which the transferor is treated 
     as the owner under the grantor trust rules. Compare Rev. Rul. 
     69-450, 1969-2 C.B. 168 (holding that such a transfer is 
     subject to tax under section 1491); with Rev. Rul. 87-61, 
     1987-2 C.B. 219 (revoking Rev. Rul. 69-450, and holding that 
     such a transfer is not subject to tax under section 1491).
---------------------------------------------------------------------------
       The excise tax does not apply in certain cases where the 
     transferee is exempt from U.S. tax under Code sections 501-
     505 (sec. 1492(1)). In addition, the excise tax does not 
     apply in some cases where income tax rules governing outbound 
     transfers apply, either by their terms or by the election of 
     the taxpayer. Thus, the excise tax does not apply to a 
     transfer described in section 367, or to a transfer not 
     described in section 367 but with respect to which the 
     taxpayer elects (before the transfer) the application of 
     principles similar to the principles of section 367 (sec. 
     1492(2)).
       In addition, a taxpayer may elect (under regulations 
     prescribed by the Secretary) to treat a transfer described in 
     section 1491 as a sale or exchange of the property 
     transferred and to recognize as gain (but not loss) in the 
     year of the transfer the excess of the fair market value of 
     the property transferred over the adjusted basis (for 
     determining gain) of the property in the hands of the 
     transferor (sec. 1057). To the extent that gain is recognized 
     pursuant to the election in the year of the transfer, the 
     transfer is not subject to the excise tax, and the basis of 
     the property in the hands of the transferee will be increased 
     by the amount of gain recognized (sec. 1492(3)). The 
     legislative history of the elective income recognition 
     provision indicates that the making of an election which has 
     as one of its principle purposes the avoidance of Federal 
     income taxes is not permitted.115
     \115\ Staff on the Joint Committee on Taxation, 94th Cong., 
     2d Sess., General Explanation of the Tax Reform Act of 1976, 
     at 226 (1976).
---------------------------------------------------------------------------
       The excise tax is due at the time of the transfer (sec. 
     1494(a)). Under regulations, the excise tax may be abated, 
     remitted, or refunded if the taxpayer, after the transfer, 
     elects the application of principles similar to the 
     principles of section 367 (sec. 1494(b)).
       Inbound transfers
       Section 367(b) provides, in part, that in the case of 
     certain exchanges in connection with which there is no 
     transfer of property described in section 367(a)(1), a 
     foreign corporation will be considered to be a corporation 
     except to the extent provided in regulations which are 
     necessary or appropriate to prevent the avoidance of Federal 
     income taxes.
       Although it is clear that absence of a toll charge on 
     accumulated earnings of a foreign corporation upon 
     liquidation or reorganization into a U.S. corporation leads 
     to avoidance of tax, and Congress in 1976 noted without 
     disapproval the adoption of IRS positions that would prevent 
     the avoidance of tax in these cases,116 neither section 
     367(b) as revised in 1976, nor its predecessors, were drafted 
     in such a way that directly causes tax to be imposed on 
     foreign earnings.
     \116\ E.g., id. at 264.
---------------------------------------------------------------------------
       For example, assume that a U.S. corporation owns 100 
     percent of the stock of a liquidating foreign corporation, 
     and, pursuant to regulations under section 367(b), the 
     foreign corporation is not treated as a corporation for 
     purposes of section 332. In that case, the U.S. corporation 
     would be required under the Code to recognize the difference 
     between the basis and the value of its stock in the foreign 
     corporation. That gain, however, may be more or less than the 
     accumulated earnings of the foreign corporation attributable 
     to the period when the U.S. corporation owned the stock of 
     the foreign corporation.
       Perhaps as a result, neither the present temporary 
     regulations nor the proposed regulations under section 367(b) 
     mandate a tax based on the accumulated earnings of a foreign 
     corporation that liquidates or reorganizes into a U.S. 
     corporation. The temporary regulations allow the taxpayer to 
     elect treatment of the foreign corporation as a corporation 
     if the tax on earnings is paid. If the taxpayer chooses not 
     to make the election, the foreign corporation is not treated 
     as a corporation under the relevant nonrecognition provision 
     (e.g., sec. 332, 354), but is treated as a corporation 
     for other purposes, such as for purposes of the basis rules 
     (secs. 334, 358, 362), and carryover provisions (sec. 381) 
     (Temp. Treas. Reg. secs. 7.367(b)-5(b) and 7.367(b)-7(c)(2)). 
     The proposed regulations generally require that the foreign 
     corporation be treated as a corporation, and permit the 
     taxpayer to elect either to pay the tax on earnings, or to 
     pay tax on the gain; but if the latter option is chosen, 
     adjustments must be made to either net operating loss 
     carryovers, capital loss carryovers, or asset bases (Proposed 
     Treas. Reg. sec. 1.367(b)-3(b)(2)).
     House bill
       Outbound transfers
       The House bill repeals the excise tax on outbound 
     transfers. In its place, the House bill requires the full 
     recognition of gain on a transfer of property by a U.S. 
     person to a foreign corporation as either paid-in surplus or 
     a contribution to capital, or to a foreign estate, trust, or 
     partnership. Under the House bill, the Secretary of the 
     Treasury may, however, provide regulations under which 
     principles similar to the principles of section 367 would 
     apply to any such transfer in lieu of the application of the 
     full recognition rule. Moreover, the Secretary may provide 
     rules under which recognition of gain would not be triggered 
     by section 1491 in cases where the Secretary is satisfied 
     that application of other Code rules (such as those relating 
     to partnerships or trusts) would prevent the avoidance of tax 
     consistent with the purposes of the bill. Full recognition of 
     gain is also avoided in the case of a transfer described in 
     section 367. It is anticipated that, prior to the 
     promulgation of regulations, the Secretary generally will 
     continue to permit taxpayers to elect the application of 
     principles similar to the principles of section 367, provided 
     the election is made by the time for filing the income tax 
     return for the taxable year of the transfer.
       Inbound transfers
       The House bill provides that in the case of certain 
     corporate organizations, reorganizations, and liquidations 
     described in section 332, 351, 354, 355, 356, or 361 in which 
     the status of a foreign corporation as a corporation is a 
     condition for nonrecognition by a party to the transaction, 
     income is recognized to the extent provided in regulations 
     prescribed by the Secretary which are necessary or 
     appropriate to prevent the avoidance of Federal income taxes. 
     This provision is limited in its application, under the House 
     bill, so as not to apply to a transaction in which the 
     foreign corporation is not treated as a corporation under 
     section 367(a)(1). Thus, the House bill permits the Secretary 
     to provide by regulations for recognition of income, without 
     regard to the amount of gain that would be recognized in the 
     absence of the relevant nonrecognition provision listed 
     above. As under current law, such regulations will be subject 
     to normal court review as to whether they are necessary or 
     appropriate for the prevention of avoidance of Federal income 
     taxes.
       In addition, the House bill clarifies that rules for income 
     recognition under section 367(b) may also be applied in a 
     case involving a transfer literally described in section 
     367(a)(1), where necessary or appropriate to prevent the 
     avoidance of Federal income taxes.
       Effective date
       The provision applies to taxable years beginning after 
     December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not contain the House bill 
     provision.


4. modification of reporting threshold for stock ownership of a foreign 
               corporation (sec. 14425 of the house bill)

     Present law
       Section 6046 mandates the filing of information returns on 
     behalf of a foreign corporation by certain U.S. persons upon 
     the occurrence of certain events. U.S. persons required to 
     file these information returns include those who own or 
     acquire 5 percent or more of the value of the stock of a 
     foreign corporation.
     House bill
       The House bill increases the reporting threshold for stock 
     ownership of a foreign corporation under section 6046 from 5 
     percent (based on value) to 10 percent (based on vote or 
     value).
       Effective date.--The provision is effective for reportable 
     transactions occurring after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.

[[Page H 12924]]



5. application of uniform capitalization rules to foreign persons (sec. 
                        14426 of the house bill)

     Present law
       The uniform capitalization rules, which require certain 
     direct and indirect costs allocable to property to be 
     capitalized or included in inventory, generally apply in 
     computing taxable income and earnings and profits of domestic 
     and foreign taxpayers.
     House bill
       The House bill reduces the number of foreign corporations 
     that are required to apply the uniform capitalization rules 
     under section 263A. Under the House bill, a foreign 
     corporation is subject to the uniform capitalization rules 
     only with respect to the determination of (1) its tax 
     liability with respect to its U.S. trade or business and (2) 
     the tax liability of its U.S. shareholders under the subpart 
     F provisions of the Code. However, it is intended that a 
     foreign corporation that is not required to apply the uniform 
     capitalization rules, under the House bill may nevertheless 
     continue to apply such rules.
       Exemption from uniform capitalization rules under the House 
     bill constitutes a change of the accounting method of the 
     foreign corporation adopted with the consent of the Secretary 
     of the Treasury. No section 481(a) adjustment will arise in 
     connection with such change; instead, the ``cut-off method'' 
     is applicable. Under the cut-off method, the value of the 
     beginning inventory of an affected taxpayer includes amounts 
     properly capitalized in a previous year under the uniform 
     capitalization rules, and the taxpayer would not apply the 
     uniform capitalization rules with respect to inventory 
     acquired or produced during the year for which the election 
     is in effect.
       Effective date.--The provision is effective for taxable 
     years of the foreign corporation beginning after December 31, 
     1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


   6. prizes and awards received by a nonresident alien relating to 
 amateur sports competitions held in the united states (sec. 14427 of 
                              house bill)

     Present law
       Amounts received by a nonresident alien as prizes or awards 
     associated with athletic competitions held in the United 
     States are generally treated as services income subject to 
     U.S. income tax. A limited exception is available for U.S. 
     source compensation income not exceeding $3,000 if certain 
     criteria are satisfied.
     House bill
       The House bill treats prizes and awards received by a 
     nonresident alien with respect to his or her participation in 
     an amateur sports competition held within the United States 
     as foreign source income if the recipient does not perform 
     any services for the prize or award. Thus, the value of the 
     prize or award would be exempt from U.S. income tax. For this 
     purpose, ``amateur sports competition'' means any competition 
     in which the only prizes awarded by the sponsors are of 
     nominal value. It is intended that medals that are awarded in 
     athletic competitions and that contain small amounts of 
     precious or semi-precious metals, such as Olympic medals, be 
     considered to be of nominal value for purposes of this 
     provision.
       Effective date.--The provision is effective for prizes and 
     awards received on or after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


7. treatment for estate tax purposes of short-term obligations held by 
             nonresident aliens (sec. 14428 of house bill)

     Present law
       The United States imposes estate tax on assets of 
     noncitizen nonresidents that are situated in the United 
     States at the time of the individual's death. Special rules 
     apply to treat certain bank deposits and debt instruments the 
     income from which qualifies for the bank deposit interest 
     exemption or the portfolio interest exemption as property 
     from without the United States so that these items are 
     excluded from the U.S. gross estate of a nonresident not a 
     citizen of the United States. However, no equivalent 
     exemption is available from the U.S. estate tax for 
     obligations held by a noncitizen nonresident that generate 
     short-term original issue discount (``OID'') despite the fact 
     that such income also is exempt from U.S. income tax in the 
     hands of the nonresident recipient.
     House bill
       The House bill treats any debt obligation the income from 
     which would be eligible for the exemption for short-term OID 
     obligations under section 871(g)(1)(B)(I) held by a decedent 
     on the date of his or her death as property situated outside 
     of the United States in determining the U.S. estate tax 
     liability of a nonresident not a U.S. citizen. However, a 
     short-term OID obligation the income from which is 
     effectively connected with a U.S. trade or business conducted 
     by the decedent is not subject to this rule.
       Effective date.--The provision is effective for estates of 
     decedents dying after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.

             XV. Other Income Tax Simplification Provisions


                A. provisions relating to s corporations

1. s corporations permitted to have 75 shareholders (sec. 14501 of the 
                              house bill)

     Present law
       The taxable income or loss of an S corporation is taken 
     into account by the corporation's shareholders, rather than 
     by the entity, whether or not such income is distributed. A 
     small business corporation may elect to be treated as an S 
     corporation. A ``small business corporation'' is defined as a 
     domestic corporation which is not an ineligible corporation 
     and which does not have (1) more than 35 shareholders, (2) as 
     a shareholder, a person (other than certain trusts or 
     estates) who is not an individual, (3) a nonresident alien as 
     a shareholder, and (4) more than one class of stock. For 
     purposes of the 35-shareholder limitation, a husband and wife 
     are treated as one shareholder.
     House bill
       The House bill increases maximum number of eligible 
     shareholders from 35 to 75.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


    2. electing small business trusts (sec. 14502 of the house bill)

     Present law
       Under present law, trusts other than grantor trusts, voting 
     trusts, certain testamentary trusts and ``qualified 
     subchapter S trusts'' may not be shareholders in a S 
     corporation. A ``qualified subchapter S trust'' is a trust 
     which, under its terms, (1) is required to have only one 
     current income beneficiary (for life), (2) any corpus 
     distributed during the life of the beneficiary must be 
     distributed to the beneficiary, (3) the beneficiary's income 
     interest must terminate at the earlier of the beneficiary's 
     death or the termination of the trust, and (4) if the trust 
     terminates during the beneficiary's life, the trust assets 
     must be distributed to the beneficiary. All the income (as 
     defined for local law purposes) must be currently distributed 
     to that beneficiary. The beneficiary is treated as the owner 
     of the portion of the trust consisting of the stock in the S 
     corporation.
     House bill
       In general
       The House bill allows stock in an S corporation to be held 
     by certain trusts (''electing small business trusts''). In 
     order to qualify for this treatment, all beneficiaries of the 
     trust must be individuals or estates eligible to be S 
     corporation shareholders, except that charitable 
     organizations may hold contingent remainder interests. No 
     interest in the trust may be acquired by purchase. For this 
     purpose, ``purchase'' means any acquisition of property with 
     a cost basis (determined under sec. 1012). Thus, interests in 
     the trust must be acquired by reason of gift, bequest, etc. A 
     trust must elect to be treated as an electing small business 
     trust.
       Each potential current beneficiary of the trust is counted 
     as a shareholder for purposes of the proposed 75 shareholder 
     limitation (or if there were no potential current 
     beneficiaries, the trust would be treated as the 
     shareholder). A potential current income beneficiary means 
     any person, with respect to the applicable period, who is 
     entitled to, or at the discretion of any person may receive, 
     a distribution from the principal or income of the trust.
       Treatment of items relating to S corporation stock
       The portion of the trust which consists of stock in one or 
     more S corporations is treated as a separate trust for 
     purposes of computing the income tax attributable to the S 
     corporation stock held by the trust. The trust is taxed at 
     the highest individual rate (currently, 39.6 percent on 
     ordinary income and 28 percent on net capital gain) on this 
     portion of the trust's income. The taxable income 
     attributable to this portion includes (1) the items of 
     income, loss, or deduction allocated to it as an S 
     corporation shareholder under the rules of subchapter S, (2) 
     gain or loss from the sale of the S corporation stock, and 
     (3) to the extent provided in regulations, any state or local 
     income taxes and administrative expenses of the trust 
     properly allocable to the S corporation stock. Otherwise 
     allowable capital losses are allowed only to the extent of 
     capital gains.
       In computing the trust's income tax on this portion of the 
     trust, no deduction is allowed for amounts distributed to 
     beneficiaries, and no deduction or credit is allowed for any 
     item other than the items described above. This income is not 
     included in the distributable net income of the trust, and 
     thus is not included in the beneficiaries' income. No item 
     relating to the S corporation stock could be apportioned to 
     any beneficiary.
       On the termination of all or any portion of an electing 
     small business trust the loss 

[[Page H 12925]]
     carryovers or excess deductions referred to in section 642(h) is taken 
     into account by the entire trust, subject to the usual rules 
     on termination of the entire trust.
       Treatment of remainder of items held by trust
       In determining the tax liability with regard to the 
     remaining portion of the trust, the items taken into account 
     by the subchapter S portion of the trust are disregarded. 
     Although distributions from the trust are deductible in 
     computing the taxable income on this portion of the trust, 
     under the usual rules of subchapter J, the trust's 
     distributable net income does not include any income 
     attributable to the S corporation stock.
       Termination of trust and conforming amendment applicable to 
           all trusts
       Where the trust terminates before the end of the S 
     corporation's taxable year, the trust takes into account its 
     pro rata share of S corporation items for its final year. The 
     bill makes a conforming amendment applicable to all trusts 
     and estates clarifying that this is the present-law treatment 
     of trusts and estates that terminate before the end of the S 
     corporation's taxable year.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


3. expansion of post-death qualification for certain trusts (sec. 14503 
                             of the house)

     Present law
       Under present law, trusts other than grantor trusts, voting 
     trusts, certain testamentary trusts and ``qualified 
     subchapter S trusts'' may not be shareholders in a S 
     corporation. A grantor trust may remain an S corporation 
     shareholder for 60 days after the death of the grantor. The 
     60-day period is extended to two years if the entire corpus 
     of the trust is includible in the gross estate of the deemed 
     owner. In addition, a trust may be an S corporation 
     shareholder for 60 days after the transfer of S corporation 
     pursuant to a will.
     House bill
       The House bill expands the post-death holding period to two 
     years for all testamentary trusts.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


  4. financial institutions permitted to hold safe harbor debt (sec. 
                        14504 of the house bill)

     Present law
       A small business corporation eligible to be an S 
     corporation may not have more than one class of stock. 
     Certain debt (''straight debt'') is not treated as a second 
     class of stock so long as such debt is an unconditional 
     promise to pay on demand or on a specified date a sum certain 
     in money if: (1) the interest rate (and interest payment 
     dates) are not contingent on profits, the borrower's 
     discretion, or similar factors; (2) there is no 
     convertibility (directly or indirectly) into stock, and (3) 
     the creditor is an individual (other than a nonresident 
     alien), an estate, or certain qualified trusts.
     House bill
       The definition of ``straight debt'' is expanded to include 
     debt held by creditors, other than individuals, that are 
     actively and regularly engaged in the business of lending 
     money.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


  5. rules relating to inadvertent terminations and invalid elections 
                     (sec. 14505 of the house bill)

     Present law
       Under present law, if the Internal Revenue Service 
     (''IRS'') determines that a corporation's Subchapter S 
     election is inadvertently terminated, the IRS can waive the 
     effect of the terminating event for any period if the 
     corporation timely corrects the event and if the corporation 
     and shareholders agree to be treated as if the election had 
     been in effect for that period. Such waivers generally are 
     obtained through the issuance of a private letter ruling. 
     Present law does not grant the IRS the ability to waive the 
     effect of an inadvertent invalid Subchapter S election.
       In addition, under present law, a small business 
     corporation must elect to be an S corporation no later than 
     the 15th day of the third month of the taxable year for which 
     the election is effective. The IRS may not validate a late 
     election.
     House bill
       Under the House bill, the authority of the IRS to waive the 
     effect of an inadvertent termination is extended to allow the 
     Service to waive the effect of an invalid election caused by 
     an inadvertent failure to qualify as a small business 
     corporation or to obtain the required shareholder consents 
     (including elections regarding qualified subchapter S 
     trusts), or both. The House bill also allows the IRS to treat 
     a late Subchapter S election as timely where the Service 
     determines that there was reasonable cause for the failure to 
     make the election timely. It is intended that the IRS be 
     reasonable in exercising this authority and apply standards 
     that are similar to those applied under present law to 
     inadvertent subchapter S terminations and other late or 
     invalid elections.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 1982.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill. The 
     conferees wish to clarify that the IRS may exercise its 
     authority to treat a late election as timely in cases where 
     the taxpayer never filed an election and the Service 
     determines that there was reasonable cause for the failure to 
     make the election.


     6. agreement to terminate year (sec. 14506 of the house bill)

     Present law
       In general, each item of S corporation income, deduction 
     and loss is allocated to shareholders on a per-share, per-day 
     basis. However, if any shareholder terminates his or her 
     interest in an S corporation during a taxable year, the S 
     corporation, with the consent of all its shareholders, may 
     elect to allocate S corporation items by closing its books as 
     of the date of such termination rather than apply the per-
     share, per-day rule.
     House bill
       The House bill provides that, under regulations to be 
     prescribed by the Secretary of the Treasury, the election to 
     close the books of the S corporation upon the termination of 
     a shareholder's interest is made by all affected shareholders 
     and the corporation, rather than by all shareholders. The 
     closing of the books applies only to the affected 
     shareholders. For this purpose, ``affected shareholders'' 
     means any shareholder whose interest is terminated and all 
     shareholders to whom such shareholder has transferred shares 
     during the year. If a shareholder transferred shares to the 
     corporation, ``affected shareholders'' includes all persons 
     who were shareholders during the year.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


 7. expansion of post-termination transition period (sec. 14507 of the 
                              house bill)

     Present law
       Distributions made by a former S corporation during its 
     post-termination period are treated in the same manner as if 
     the distributions were made by an S corporation (e.g., 
     treated by shareholders as nontaxable distributions to the 
     extent of the accumulated adjustment account). Distributions 
     made after the post-termination period are generally treated 
     as made by a C corporation (i.e., treated by shareholders as 
     taxable dividends to the extent of earnings and profits).
       The ``post-termination period'' is the period beginning on 
     the day after the last day of the last taxable year of the S 
     corporation and ending on the later of: (1) a date that is 
     one year later, or (2) the due date for filing the return for 
     the last taxable year and the 120-day period beginning on the 
     date of a determination that the corporation's S corporation 
     election had terminated for a previous taxable year.
       In addition, the audit procedures adopted by the Tax Equity 
     and Fiscal Responsibility Act of 1982 (''TEFRA'') with 
     respect to partnerships also apply to S corporations. Thus, 
     the tax treatment of items is determined at the corporate, 
     rather than individual level.
     House bill
       The present-law definition of post-termination period is 
     expanded to include the 120-day period beginning on the date 
     of any determination pursuant to an audit of the taxpayer 
     that follows the termination of the S corporation's election 
     and that adjusts a subchapter S item of income, loss or 
     deduction of the S corporation during the S period. In 
     addition, the definition of ``determination'' is expanded to 
     include a final disposition of the Secretary of the Treasury 
     of a claim for refund and, under regulations, certain 
     agreements between the Secretary and any person, relating to 
     the tax liability of the person.
       In addition, the House bill repeals the TEFRA audit 
     provisions applicable to S corporations and would provide 
     other rules to require consistency between the returns of the 
     S corporation and its shareholders.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.

[[Page H 12926]]



  8. s corporations permitted to hold subsidiaries (sec. 14508 of the 
                              house bill)

     Present law
       A small business corporation may not be a member of an 
     affiliated group of corporations (other than by reason of 
     ownership in certain inactive corporations). Thus, an S 
     corporation may not own 80 percent or more of the stock of 
     another corporation (whether an S corporation or a C 
     corporation).
       In addition, a small business corporation may not have as a 
     shareholder another corporation (whether an S corporation or 
     a C corporation).
     House bill
       An S corporation is allowed to own 80 percent or more of 
     the stock of a C corporation. The C corporation subsidiary 
     could elect to join in the filing of a consolidated return 
     with its affiliated C corporations. An S corporation is not 
     allowed to join in such election. Dividends received by an S 
     corporation from a C corporation in which the S corporation 
     has an 80 percent or greater ownership stake is not treated 
     as passive investment income for purposes of sections 1362 
     and 1375 to the extent the dividends are attributable to the 
     earnings and profits of the C corporation derived from the 
     active conduct of a trade or business.
       In addition, an S corporation is allowed to own a qualified 
     subchapter S subsidiary. The term ``qualified subchapter S 
     subsidiary'' means a domestic corporation that is not an 
     ineligible corporation (i.e., a corporation that would be 
     eligible to be an S corporation if the stock of the 
     corporation were held directly by the shareholders of its 
     parent S corporation) if (1) 100 percent of the stock of the 
     subsidiary were held by its S corporation parent and (2) for 
     which the parent elects to treat as a qualified subchapter S 
     subsidiary. Under the election, the qualified subchapter S 
     subsidiary is not treated as a separate corporation and all 
     the assets, liabilities, and items of income, deduction, and 
     credit of the subsidiary are treated as the assets, 
     liabilities, and items of income, deduction, and credit of 
     the parent S corporation.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


  9. treatment of distributions during loss years (sec. 14509 of the 
                              house bill)

     Present law
       Under present law, the amount of loss an S corporation 
     shareholder may take into account for a taxable year cannot 
     exceed the sum of the shareholder's adjusted basis in his or 
     her stock of the corporation and the adjusted basis in any 
     indebtedness of the corporation to the shareholder. Any 
     excess loss is carried forward.
       Any distribution to a shareholder by an S corporation 
     generally is tax-free to the shareholder to the extent of the 
     shareholder's adjusted basis of his or her stock. The 
     shareholder's adjusted basis is reduced by the tax-free 
     amount of the distribution. Any distribution in excess of the 
     shareholder's adjusted basis is treated as gain from the sale 
     or exchange of property.
       Under present law, income (whether or not taxable) and 
     expenses (whether or not deductible) serve, respectively, to 
     increase and decrease an S corporation shareholder's basis in 
     the stock of the corporation. These rules require that the 
     adjustments to basis for items of both income and loss for 
     any taxable year apply before the adjustment for 
     distributions applies.
       These rules limiting losses and allowing tax-free 
     distributions up to the amount of the shareholder's adjusted 
     basis are similar in certain respects to the rules governing 
     the treatment of losses and cash distributions by 
     partnerships. Under the partnership rules (unlike the S 
     corporation rules), for any taxable year, a partner's basis 
     is first increased by items of income, then decreased by 
     distributions, and finally is decreased by losses for that 
     year.
       In addition, if the S corporation has accumulated earnings 
     and profits, any distribution in excess of the amount in an 
     ``accumulated adjustments account'' will be treated as a 
     dividend (to the extent of the accumulated earnings and 
     profits). A dividend distribution does not reduce the 
     adjusted basis of the shareholder's stock. The ``accumulated 
     adjustments account'' generally is the amount of the 
     accumulated undistributed post-1982 gross income less 
     deductions.
     House bill
       The House bill provides that the adjustments for 
     distributions made by an S corporation during a taxable year 
     are taken into account before applying the loss limitation 
     for the year. Thus, distributions during a year reduce the 
     adjusted basis for purposes of determining the allowable loss 
     for the year, but the loss for a year does not reduce the 
     adjusted basis for purposes of determining the tax status of 
     the distributions made during that year.
       The House bill also provides that in determining the amount 
     in the accumulated adjustment account for purposes of 
     determining the tax treatment of distributions made during a 
     taxable year by an S corporation having accumulated earnings 
     and profits, net negative adjustments (i.e., the excess of 
     losses and deductions over income) for that taxable year are 
     disregarded.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


 10. treatment of s corporations under subchapter c (sec. 14510 of the 
                              house bill)

     Present law
       Present law contains several provisions relating to the 
     treatment of S corporations as corporations generally for 
     purposes of the Internal Revenue Code.
       First, under present law, the taxable income of an S 
     corporation is computed in the same manner as in the case of 
     an individual (sec. 1363(b)). Under this rule, the provisions 
     of the Code governing the computation of taxable income which 
     are applicable only to corporations, such as the dividends 
     received deduction, do not apply to S corporations.
       Second, except as otherwise provided by the Internal 
     Revenue Code and except to the extent inconsistent with 
     subchapter S, subchapter C (i.e., the rules relating to 
     corporate distributions and adjustments) applies to an S 
     corporation and its shareholders (sec. 1371(a)(1)). Under 
     this second rule, provisions such as the corporate 
     reorganization provisions apply to S corporations. Thus, a C 
     corporation may merge into an S corporation tax-free.
       Finally, an S corporation in its capacity as a shareholder 
     of another corporation is treated as an individual for 
     purposes of subchapter C (sec. 1371(a)(2)). In 1988, the 
     Internal Revenue Service took the position that this rule 
     prevents the tax-free liquidation of a C corporation into an 
     S corporation because a C corporation cannot liquidate tax-
     free when owned by an individual shareholder.117 In 
     1992, the Internal Revenue Service reversed its position, 
     stating that the prior ruling was incorrect.118
     \117\ PLR 8818049, (Feb. 10, 1988).
     \118\ PLR 9245004, (July 28, 1992).
---------------------------------------------------------------------------
     House bill
       The House bill repeals the rule that treats an S 
     corporation in its capacity as a shareholder of another 
     corporation as an individual. Thus, the provision clarifies 
     that the liquidation of a C corporation into an S corporation 
     will be governed by the generally applicable subchapter C 
     rules, including the provisions of sections 332 and 337 
     allowing the tax-free liquidation of a corporation into its 
     parent corporation. Following a tax-free liquidation, the 
     built-in gains of the liquidating corporation may later be 
     subject to tax under section 1374 upon a subsequent 
     disposition. An S corporation also will be eligible to make a 
     section 338 election (assuming all the requirements are 
     otherwise met), resulting in immediate recognition of all the 
     acquired C corporation's gains and losses (and the resulting 
     imposition of a tax).
       The repeal of this rule does not change the general rule 
     governing the computation of income of an S corporation. For 
     example, it does not allow an S corporation, or its 
     shareholders, to claim a dividends received deduction with 
     respect to dividends received by the S corporation, or to 
     treat any item of income or deduction in a manner 
     inconsistent with the treatment accorded to individual 
     taxpayers.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


  11. elimination of certain earnings and profits (sec. 14511 of the 
                              house bill)

     Present law
       Under present law, the accumulated earnings and profits of 
     a corporation are not increased for any year in which an 
     election to be treated as an S corporation is in effect. 
     However, under the subchapter S rules in effect before 
     revision in 1982, a corporation electing subchapter S for a 
     taxable year increased its accumulated earnings and profits 
     if its earnings and profits for the year exceeded both its 
     taxable income for the year and its distributions out of that 
     year's earnings and profits. As a result of this rule, a 
     shareholder may later be required to include in his or her 
     income the accumulated earnings and profits when it is 
     distributed by the corporation. The 1982 revision to 
     subchapter S repealed this rule for earnings attributable to 
     taxable years beginning after 1982 but did not do so for 
     previously accumulated S corporation earnings and profits.
     House bill
       The House bill provides that if a corporation is an S 
     corporation for its first taxable year beginning after 
     December 31, 1995, the accumulated earnings and profits of 
     the corporation as of the beginning of that year is reduced 
     by the accumulated earnings and profits (if any) accumulated 
     in any taxable year beginning before January 1, 1983, for 
     which the corporation was an electing small business 
     corporation under subchapter S. Thus, such a corporation's 
     accumulated earnings and profits are solely attributable to 
     taxable years for which an S election was not in effect. This 
     rule is generally consistent with the change adopted in 1982 
     limiting the S shareholder's taxable income attributable to S 
     corporation earnings to his or 

[[Page H 12927]]
     her share of the taxable income of the S corporation.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


  12. carryover of disallowed losses and deductions under the at-risk 
                  rules (sec. 14512 of the house bill)

     Present law
       Under section 1366, the amount of loss an S corporation 
     shareholder may take into account cannot exceed the sum of 
     the shareholder's adjusted basis in his or her stock of the 
     corporation and the unadjusted basis in any indebtedness of 
     the corporation to the shareholder. Any disallowed loss is 
     carried forward to the next taxable year. Any loss that is 
     disallowed for the last taxable year of the S corporation may 
     be carried forward to the post-termination period. The 
     ``post-termination period'' is the period beginning on the 
     day after the last day of the last taxable year of the S 
     corporation and ending on the later of: (1) a date that is 
     one year later, or (2) the due date for filing the return for 
     the last taxable year and the 120-day period beginning on the 
     date of a determination that the corporation's S corporation 
     election had terminated for a previous taxable year.
       In addition, under section 465, a shareholder of an S 
     corporation may not deduct losses that are flowed through 
     from the corporation to the extent the shareholder is not 
     ``at-risk'' with respect to the loss. Any loss not deductible 
     in one taxable year because of the at-risk rules is carried 
     forward to the next taxable year.
     House bill
       Losses of an S corporation that are suspended under the at-
     risk rules of section 465 are carried forward to the S 
     corporation's post-termination period.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


13. adjustments to basis of inherited S stock to reflect certain items 
                of income (sec. 14513 of the house bill)

     Present law
       Income in respect to a decedent (''IRD'') generally 
     consists of items of gross income that accrued during the 
     decedent's lifetime but were not includible in the decedent's 
     income before his or her death under his or her method of 
     accounting. IRD is includible in the income of the person 
     acquiring the right to receive such item. A deduction for the 
     estate tax attributable to an item of IRD is allowed to such 
     person (sec. 691(c)). The cost or basis of property acquired 
     from a decedent is its fair market value at the date of death 
     (or alternate valuation date if that date is elected for 
     estate tax purposes). This basis is often referred to as a 
     ``stepped-up basis.'' Property that constitutes a right to 
     receive IRD does not receive a stepped-up basis.
       The basis of a partnership interest or corporate stock 
     acquired from a decedent generally is stepped-up at death. 
     Under Treasury regulations, the basis of a partnership 
     interest acquired from a decedent is reduced to the extent 
     that its value is attributable to items constituting IRD 
     (Treas. reg. sec. 1.742-1). This rule insures that the items 
     of IRD held by a partnership are not later offset by a loss 
     arising from a stepped-up basis. Although S corporation 
     income is taxed to its shareholders in a manner similar to 
     the taxation of a partnership and its partners, no comparable 
     regulation requires a reduction in the basis of stock in an S 
     corporation acquired from a decedent where the S corporation 
     holds items of IRD.
     House bill
       The House bill provides that a person acquiring stock in an 
     S corporation from a decedent would treat as IRD his or her 
     pro rata share of any item of income of the corporation that 
     would have been IRD if that item had been acquired directly 
     from the decedent. Where an item is treated as IRD, a 
     deduction for the estate tax attributable to the item 
     generally will be allowed under the provisions of section 
     691(c). The stepped-up basis in the stock in an S corporation 
     acquired from a decedent is reduced by the extent to which 
     the value of the stock is attributable to items consisting of 
     IRD. This basis rule is comparable to the present-law 
     partnership rule.
       Effective date.--The provision applies with respect to 
     decedents dying after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


   14. s corporations eligible for rules applicable to real property 
subdivided for sale by noncorporate taxpayers (sec. 14514 of the house 
                                 bill)

     Present law
       Under present-law section 1237, a lot or parcel of land 
     held by a taxpayer other than a corporation generally is not 
     treated as ordinary income property solely by reason of the 
     land being subdivided if: (1) such parcel had not previously 
     been held as ordinary income property and if in the year of 
     sale, the taxpayer did not hold other real property; (2) no 
     substantial improvement has been made on the land by the 
     taxpayer, a related party, a lessee, or a government; and (3) 
     the land has been held by the taxpayer for five years.
     House bill
       The House bill allows the present-law capital gains 
     presumption in the case of land held by an S corporation. It 
     is expected that rules similar to the attribution rules for 
     partnerships will apply to S corporation (Treas. reg. sec. 
     1.1237-1(b)(3)).
       Effective date.--The provision is effective for sales in 
     taxable years beginning after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


   15. reelecting subchapter s status (sec. 14515 of the house bill)

     Present law
       A small business corporation that terminates its subchapter 
     S election (whether by revocation or otherwise) may not make 
     another election to be an S corporation for five taxable 
     years unless the Secretary of the Treasury consents to such 
     election.
     House bill
       For purposes of the five-year rule, any termination of 
     subchapter S status in effect immediately before the date of 
     enactment of the proposal is not be taken into account. Thus, 
     any small business corporation that had terminated its S 
     corporation election within the five-year period before the 
     date of enactment may re-elect subchapter S status upon 
     enactment of the bill without the consent of the Secretary of 
     the Treasury.
       Effective date.--The provision is effective upon the date 
     of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


B. Provisions Relating to Regulated Investment Companies (``RICs'') and 
               Real Estate Investment Trusts (``REITS'')

1. Repeal the short-short test for regulated investment companies (sec. 
                        14521 of the House bill)

     Present law
       A regulated investment company (``RIC'') generally is 
     treated as a conduit for Federal income tax purposes.
       Among other requirements, to be a RIC a corporation must 
     derive less than 30 percent of its gross income from the sale 
     or disposition of certain investments (including stock, 
     securities, options, futures, and forward contracts) held 
     less than three months (the ``short-short test'').
     House bill
       The House bill repeals the short-short test.
       Effective date.--Taxable years ending after the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


  2. Modifications of rules for real estate investment trusts (secs. 
                     14531-14543 of the House bill)

     Present law
       In general, a real estate investment trust (``REIT'') is an 
     entity that receives most of its income from passive real 
     estate related investments and that receives conduit 
     treatment for income that is distributed to shareholders.
       Election to be treated as a REIT
       A newly-electing entity generally cannot have earnings and 
     profits accumulated from any year in which the entity was in 
     existence and not treated as a real estate investment trust. 
     To satisfy this requirement, the entity must distribute, 
     during its first REIT taxable year, any earnings and profits 
     that were accumulated in non-REIT years. For this purpose, 
     distributions by the entity generally are treated as being 
     made from the most recently accumulated earnings and profits.
       Taxation of REITs
       Capital gains.--A REIT that has a net capital gain for a 
     taxable year generally is subject to tax on such capital gain 
     under the capital gains tax regime generally applicable to 
     corporations. However, a REIT may diminish or eliminate its 
     tax liability attributable to such capital gain by paying a 
     ``capital gain dividend'' to its shareholders. Shareholders 
     who receive capital gain dividends treat the amount of such 
     dividends as long-term capital gain regardless of their 
     holding period of the stock.
       Income from foreclosure property.--In addition to tax on 
     its REIT taxable income, a REIT is subject to tax at the 
     highest rate of tax paid by corporations on its net income 
     from foreclosure property. Foreclosure property is any real 
     property or personal property incident to such real property 
     that is acquired by a REIT as a result of default or imminent 
     default on a lease of such property or indebtedness secured 
     by such property, 

[[Page H 12928]]
     provided that (unless acquired as foreclosure property), such property 
     was not held by the REIT for sale to customers. A property 
     generally may be treated as foreclosure property for a period 
     of two years after the date the property is acquired by the 
     REIT.
       Income or loss from prohibited transactions.--A 100-percent 
     tax is imposed on the net income of a REIT from ``prohibited 
     transactions.'' A prohibited transaction is the sale or other 
     disposition of property described in section 1221(1) of the 
     Code (property held for sale in the ordinary course of a 
     trade or business) other than foreclosure property. A safe 
     harbor is provided for certain sales that otherwise might be 
     considered prohibited transactions. The safe harbor is 
     limited to seven or fewer sales a year or, alternatively, any 
     number of sales provided that the aggregate adjusted basis of 
     the property sold does not exceed 10 percent of the aggregate 
     basis of all the REIT's assets at the beginning of the REIT's 
     taxable year.
       Organizational structure requirements
       To qualify as a REIT, an entity must be for its entire 
     taxable year a corporation or an unincorporated trust or 
     association that would be taxable as a domestic corporation 
     but for the REIT provisions, and must be managed by one or 
     more trustees. Except for the first taxable year for which an 
     entity elects to be a REIT, the beneficial ownership of the 
     entity must be held by 100 or more persons, and the entity 
     may not be so closely held by individuals that it would be 
     treated as a personal holding company. A REIT is disqualified 
     for any year in which it does not comply with regulations to 
     ascertain the actual ownership of the REIT's outstanding 
     shares.
       Income requirements
       In general.--In order for an entity to qualify as a REIT, 
     at least 95 percent of its gross income generally must be 
     derived from certain passive sources (the ``95-percent 
     test''). In addition, at least 75 percent of its income 
     generally must be from certain real estate sources (the ``75-
     percent test''), including rents from real property.
       In addition, less than 30 percent of the entity's gross 
     income may be derived from gain from the sale or other 
     disposition of stock or securities held for less than one 
     year, real property held less than four years , and property 
     that is sold or disposed of in a prohibited transaction.
       Definition of rents.--For purposes of the income 
     requirements, rents from real property generally include 
     rents from interests in real property, charges for services 
     customarily rendered or furnished in connection with the 
     rental of real property, whether or not such charges are 
     separately stated, and rent attributable to personal property 
     that is leased under or in connection with a lease of real 
     property, but only if the rent attributable to such personal 
     property does not exceed 15 percent of the total rent for the 
     year under the lease.
       Hedging instruments.--Interest rate swaps or cap agreements 
     that protect a REIT from interest rate fluctuations on 
     variable rate debt incurred to acquire or carry real property 
     are treated as securities under the 30-percent test and 
     payments under these agreements are treated as qualifying 
     under the 95-percent test.
       Asset requirements
       REIT subsidiaries.--A subsidiary of a REIT is a qualified 
     REIT subsidiary if and only if 100 percent of the 
     subsidiary's stock is owned by the REIT at all times that the 
     subsidiary is in existence. If at any time the REIT ceases to 
     own 100 percent of the stock of the subsidiary, or if the 
     REIT ceases to qualify for (or revokes an election of) REIT 
     status, such subsidiary is treated as a new corporation that 
     acquired all of its assets in exchange for its stock (and 
     assumption of liabilities) immediately before the time that 
     the REIT ceased to own 100 percent of the subsidiary's stock, 
     or ceased to be a REIT as the case may be.
       Distribution requirements
       To satisfy the distribution requirement, a REIT must 
     distribute as dividends to its shareholders during the 
     taxable year an amount equal to or exceeding (1) the sum of 
     95 percent of its REITTI other than net capital gain income 
     and 95 percent of the excess of its net income from 
     foreclosure property over the tax imposed on that income 
     minus (2) certain excess noncash income.
       Excess noncash items include: (1) the excess of the amounts 
     that the REIT is required to include in income under section 
     467 with respect to certain rental agreements involving 
     deferred rents, over the amounts that the REIT otherwise 
     would recognize under its regular method of accounting; (2) 
     in the case of a REIT using the cash method of accounting, 
     the excess of the amount of original issue discount and 
     coupon interest that the REIT is required to take into 
     account with respect to a loan to which section 1274 applies, 
     over the amount of money and fair market value of other 
     property received with respect to the loan; and (3) income 
     arising from the disposition of a real estate asset in 
     certain transactions that failed to qualify as like-kind 
     exchanges under section 1031.
     House bill
       Election to be treated as a REIT
       The House bill changes the ordering rule for purposes of 
     the requirement that newly-electing REITs distribute earnings 
     and profits that were accumulated in non-REIT years. Under 
     the House bill, distributions of accumulated earnings and 
     profits generally would be treated as made from the entity's 
     earliest accumulated earnings and profits.
       Taxation of REITs
       Capital gains.--The House bill permits a REIT to elect to 
     retain and pay income tax on net long-term capital gains it 
     received during the tax year.
       Income from foreclosure property.--The House bill lengthens 
     the original grace period for foreclosure property until the 
     last day of the third full taxable year following the 
     election. The grace period also could be extended for an 
     additional three years by filing a request to the IRS. Under 
     the House bill, a REIT could revoke an election to treat 
     property as foreclosure property for any taxable year by 
     filing a revocation on or before its due date for filing its 
     tax return.
       The House bill conforms the definition of independent 
     contractor for purposes of the foreclosure property rule to 
     the definition of independent contractor for purposes of the 
     general rules.
       Income or loss from prohibited transactions.--The House 
     bill excludes from the prohibited sales rules property that 
     was involuntarily converted.
       Organizational structure requirements
       The House bill replaces the rule that disqualifies a REIT 
     for any year in which the REIT failed to comply with 
     regulations to ascertain its ownership, with an intermediate 
     penalty for failing to do so. Under the House bill, the 
     penalty is $25,000 ($50,000 for intentional violations) for 
     any year in which the REIT did not comply with the ownership 
     regulations.
       In addition, a REIT that complied with the regulations for 
     ascertaining its ownership, and which did not know, or have 
     reason to know, that it was so closely held as to be 
     classified as a personal holding company, is not to be 
     treated as a personal holding company.
       Income requirements
       In general.--The House bill repeals the rule that requires 
     less than 30 percent of a REIT's gross income be derived from 
     gain from the sale or other disposition of stock or 
     securities held for less than one year, certain real property 
     held less than four years, and property that is sold or 
     disposed of in a prohibited transaction.
       Definition of rents.--The House bill permits a REIT to 
     render a de minimis amount of impermissible services to 
     tenants, or in connection with the management of property, 
     and still treat amounts received with respect to that 
     property as rent.
       The House bill modifies the attribution to partnerships for 
     purposes of defining rent, so that attribution would occur 
     only when a partner owns a 25 percent or greater interest in 
     the partnership.
       Hedging instruments.--Under the House bill, income from all 
     hedges that reduce the interest rate risk of REIT 
     liabilities, not just from interest rate swaps and caps, is 
     treated as qualifying under the 95-percent test.
       Asset requirements
       REIT subsidiaries.--The House bill permits any wholly-owned 
     corporation of a REIT to be treated as a qualified 
     subsidiary, regardless of whether the corporation had always 
     been owned by the REIT. In addition, any pre-REIT earnings 
     and profits of the subsidiary must be distributed before the 
     end of the REIT's taxable year.
       Distribution requirements
       The House bill (1) expands the class of excess noncash 
     items to include income from the cancellation of indebtedness 
     and (2) extends the treatment of original issue discount and 
     coupon interest as excess noncash items to REITs that use an 
     accrual method of taxation.
       Effective date.--Taxable years beginning after the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provisions.


                        C. Accounting Provisions

1. Modifications to the look-back method for long-term contracts (sec. 
                        14551 of the House bill)

     Present law
       Taxpayers engaged in the production of property under a 
     long-term contract generally must compute income from the 
     contract under the percentage of completion method. Under the 
     percentage of completion method, a taxpayer must include in 
     gross income for any taxable year an amount that is based on 
     the product of (1) the gross contract price and (2) the 
     percentage of the contract completed as of the end of the 
     year. The percentage of the contract completed as of the end 
     of the year is determined by comparing costs incurred with 
     respect to the contract as of the end of the year with 
     estimated total contract costs.
       Because the percentage of completion method relies upon 
     estimated, rather than actual, contract price and costs to 
     determine gross income for any taxable year, a ``look-back 
     method'' is applied in the year a contract is completed in 
     order to compensate the taxpayer (or the Internal Revenue 
     Service) for the acceleration (or deferral) of taxes paid 
     over the contract term. The first step of the look-back 
     method is to reapply the percentage of completion method 
     using actual contract price and costs rather than estimated 
     contract price and costs. The second 

[[Page H 12929]]
     step generally requires the taxpayer to recompute its tax liability for 
     each year of the contract using gross income as reallocated 
     under the look-back method. If there is any difference 
     between the recomputed tax liability and the tax liability as 
     previously determined for a year, such difference is treated 
     as a hypothetical underpayment or overpayment of tax to which 
     the taxpayer applies a rate of interest equal to the 
     overpayment rate, compounded daily. The taxpayer receives (or 
     pays) interest if the net amount of interest applicable to 
     hypothetical overpayments exceeds (or is less than) the 
     amount of interest applicable to hypothetical underpayments. 
     The look-back method must be reapplied for any item of income 
     or cost that is properly taken into account after the 
     completion of the contract.
     House bill
       The House bill provides that a taxpayer may elect not to 
     apply the look-back method with respect to a long-term 
     contract if for each prior contract year, the cumulative 
     taxable income (or loss) under the contract as determined 
     using estimated contract price and costs is within 10 percent 
     of the cumulative taxable income (or loss) as determined 
     using actual contract price and costs. The bill also provides 
     that a taxpayer may elect not to reapply the look-back method 
     with respect to a contract if, as of the close of any taxable 
     year after the year the contract is completed, the cumulative 
     taxable income (or loss) under the contract is within 10 
     percent of the cumulative look-back income (or loss) as of 
     the close of the most recent year in which the look-back 
     method was applied (or would have applied but for the other 
     de minimis exception described above). Finally, the bill 
     reduces the number of interest rates applicable under the 
     look-back method.
       Effective date.--The provision applies to contracts 
     completed in taxable years ending after the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


   2. Application of mark-to-market accounting method to traders in 
               securities (sec. 14552 of the House bill)

     Present law
       A dealer in securities must compute its income pursuant to 
     a ``mark-to-market'' method of accounting prescribed by 
     section 475. Under section 475, any security that is 
     inventory in the hands of a dealer must be included in 
     inventory at its fair market value and any security that is 
     that is not inventory in the hands of a dealer and that is 
     held at year end shall be treated as sold for its fair market 
     value. For this purpose, a ``dealer in securities'' is any 
     person who (1) regularly purchases securities from or sells 
     securities to customers in the ordinary course of a trade or 
     business, or (2) regularly offers to enter into, assume, 
     offset, assign or otherwise terminate positions in securities 
     with customers in the ordinary course of a trade or business.
       Traders in securities generally are taxpayers who derive 
     their income principally from the active sale or exchange of 
     securities on the market (rather than to customers, as in the 
     case of a dealer in securities). Section 475 does not 
     explicitly apply to traders in securities. In general, there 
     are no specific statutory provisions that mandate the use of 
     an overall method of accounting by traders. Thus, traders 
     generally account for gains and losses on trading securities 
     when the securities are sold, rather than marking the 
     securities to market, for Federal income tax purposes.
     House bill
       The House bill provides that a trader in securities may, 
     with the consent of the Secretary of the Treasury, elect to 
     change its method of accounting to adopt a mark-to-market 
     method for its trading activities. Such method may be based 
     on the provisions of present-law section 475, modified to 
     clearly reflect the income of the taxpayer. The adoption of a 
     mark-to-market method of accounting may not change the 
     character of the gain or loss with respect to the securities.
       Effective date.--The provision is effective for taxable 
     years ending on or after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


  3. Modification of ruling amounts for nuclear decommissioning costs 
                     (sec. 14553 of the House bill)

     Present law
       Under the economic performance rules, a deduction for 
     accrual basis taxpayers generally is deferred until there is 
     economic performance for the item for which the deduction is 
     claimed (sec. 461(h)). Present law contains an exception to 
     the economic performance rules under which a taxpayer 
     responsible for nuclear power plant decommissioning may elect 
     to deduct contributions made to a qualified nuclear 
     decommissioning fund (sec. 468A).
       A qualified decommissioning fund is a segregated fund 
     established by the taxpayer that is used exclusively for the 
     payment of decommissioning costs, taxes on fund income, 
     payment of management costs of the fund, and investment in 
     certain types of investments. Contributions to the fund are 
     deductible in the year made to the extent that these amounts 
     were collected as part of the cost of service to ratepayers. 
     Withdrawals of funds by the taxpayer to pay for 
     decommissioning expenses are included in income at that time, 
     but the taxpayer also is entitled to a deduction at that time 
     for decommissioning expenses as economic performance for 
     those costs occurs. A 20-percent tax rate applies to the 
     taxable income of the fund .
       In order to prevent accumulations of funds over the 
     remaining life of the plant in excess of those required to 
     pay future decommissioning costs and to ensure that 
     contributions to the funds are not deducted more rapidly than 
     level funding, taxpayers are required to obtain a ruling from 
     the IRS to establish the maximum contribution that may be 
     made to the fund. Taxpayers are required to obtain subsequent 
     rulings to reflect changes in the ruling amount in certain 
     instances.
     House bill
       The House bill repeals the requirement that a taxpayer 
     obtain certain rulings from the IRS in order to deduct 
     contributions to a nuclear decommissioning fund. Under the 
     House bill, a taxpayer is required to obtain an initial 
     ruling to determine its maximum deduction for contributions 
     to a fund, but is not required to obtain subsequent rulings 
     if such amounts are not substantially modified. The taxpayer 
     is required to notify the Secretary of the Treasury whenever 
     the ruling amount is modified.
       Effective date.--The provision applies to modifications 
     after the date of enactment
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


    4. Election of alternative taxable years by partnerships and S 
              corporations (sec. 14554 of the House bill)

     Present law
       The taxable income of a partnership or an S corporation (a 
     ``flow-thru entity'') generally is reported by the 
     partnership's partners or the corporation's shareholders (the 
     ``owners'') in the taxable year within which the taxable year 
     of the flow-thru entity ends. As a result, if a flow-thru 
     entity uses a taxable year that is the same as the taxable 
     year of its owners, the owners will report income earned by 
     the entity in the year that the income is earned. If a flow-
     thru entity uses a taxable year that is different than the 
     taxable year of its owners, the owners will defer reporting a 
     portion of the income earned by the entity until the year 
     following the year the income was earned. In order to avoid 
     this deferral, under present law, a flow-through entity 
     generally must use a taxable year that corresponds to the 
     taxable years of its owners (i.e., generally, the calendar 
     year in the case of an entity owned by individuals).
       However, under certain circumstances, deferral through use 
     of a fiscal year is permitted (sec. 444). A flow-thru entity 
     may use a fiscal year that it used prior to 1987 or a fiscal 
     year that provides up to a 3-month deferral so long as it 
     makes a payment equal to the income attributable to the 
     deferral period times the highest individual tax rate plus 1 
     percentage point (currently, 40.6 percent). Such payments 
     remain on deposit and may be refunded if the income of the 
     entity for the deferral period diminishes or the entity 
     abandons its fiscal year (sec. 7519).
     House bill
       The House bill allows any flow-thru entity to use a fiscal 
     year so long as the entity makes quarterly estimated tax 
     payments at an applicable rate. These estimated tax payments 
     are treated as estimated tax payments of the owners of the 
     flow-thru entity for the owners' taxable year in which the 
     fiscal year ends. Estimated tax payments are not required for 
     a taxable year if the amount of aggregate payments otherwise 
     due is $5,000 or less.
       In determining its quarterly estimated tax payments, the 
     entity may use (1) the 100-percent method, (2) the 110-
     percent method, or (3) the annualization method. Under the 
     100-percent method, the required quarterly installment is 
     one-quarter of the product of the entity's applicable income 
     for the current year and the applicable rate. Under the 110- 
     percent method, the required quarterly installment is one-
     quarter of 110 percent of the product of the entity's 
     applicable income for the preceding year and the applicable 
     rate. The 110-percent method is not available if the entity's 
     current year applicable income exceeds its preceding-year 
     applicable income by more than $750,000. Under the 
     annualization method, the required quarterly installment is 
     one-quarter of the product of the entity's annualized 
     applicable income and the applicable rate. ``Applicable 
     income'' is determined by taking the entity's items into 
     account under subchapter K or S, as the case may be, with 
     certain adjustments. The ``applicable rate'' is 34 percent, 
     unless the flow-thru entity is a ``high income average 
     entity,'' in which case the applicable rate is 39.6 percent. 
     A ``high average income entity'' is one where the average 
     applicable income of the 2-percent owners for the preceding 
     year was at least $250,000 or, in the case of a partnership, 
     the applicable income for the preceding year was at least 
     $10,000,000.

[[Page H 12930]]

       A flow-thru entity is not allowed to make a new election 
     under present-law section 444. An entity that currently has a 
     section 444 election in effect may (1) retain the election or 
     (2) revoke the election and receive a refund of its deposit, 
     or (3) make a new section 444 election and treat its deposit 
     as a payment of estimated tax under the provision.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 1996.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


                     D. Tax-Exempt Bond Provisions

   1. Repeal of $100,000 limitation on unspent proceeds under 1-year 
          exception from rebate (sec. 14561 of the House bill)

     Present law
       Generally, arbitrage profits from investing bond proceeds 
     in investments unrelated to the governmental purpose of the 
     borrowing must be rebated to the Federal Government. No 
     rebate is required six months after issuance by issuers of 
     certain governmental bonds and qualified 501(c)(3) bonds if 
     (1) all proceeds other than an amount not exceeding the 
     lesser of five percent or $100,000 are spent within six 
     months and (2) the remaining proceeds are spent within one 
     year after the bonds are issued.
     House bill
       The House bill repeals the $100,000 limit on proceeds that 
     may remain unspent after six months for certain governmental 
     and qualified 501(c)(3) bonds.
       Effective date.--Bonds issued after the date of enactment.
     Senate agreement
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


 2. Exception from rebate for earnings on bona fide debt service fund 
      under construction bond rules (sec. 14562 of the House bill)

     Present law
       In general, arbitrage profits from investing bond proceeds 
     in investments unrelated to the governmental purpose of the 
     borrowing must be rebated to the Federal Government. An 
     exception is provided for certain construction bond issues if 
     the available construction proceeds of the issue are spent at 
     minimum specified rates during the 24-month period after the 
     bonds are issued. The exception does not apply to bond 
     proceeds invested after the 24-month expenditure period as 
     part of a bona fide debt service fund.
     House bill
       The House bill exempts earnings on bond proceeds invested 
     in bona fide debt service funds from the arbitrage rebate 
     requirement and the penalty requirement of the 24-month 
     exception if the spending requirements of that exception are 
     otherwise satisfied.
       Effective date.--Bonds issued after the date of enactment.
     Senate agreement
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


  3. Repeal of debt service-based limitation on investment in certain 
         nonpurpose investments (sec. 14563 of the House bill)

     Present law
       With certain exceptions, present law limits the amount of 
     the proceeds of private activity bonds (other than qualified 
     501(c)(3) bonds) that may be invested at materially higher 
     yields at any time during a bond year to 150 percent of the 
     debt service for that bond year. (Any profits earned from 
     higher yielding investments generally must be rebated to the 
     Federal government.)
     House bill
       The House bill repeals the 150-percent of debt service 
     yield restriction.
       Effective date.--Bonds issued after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


  4. Repeal of expired tax-exempt bond provisions (sec. 14564 of the 
                              House bill)

     Present law
       Present law includes two special exceptions to the 
     arbitrage rebate and pooled financing temporary period rules 
     for certain qualified student loan bonds. These exceptions 
     applied only to bonds issued before January 1, 1989.
     House bill
       The House bill repeals these special exceptions as 
     ``deadwood.''
       Effective date.--Date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


                        E. Insurance Provisions

  1. Treatment of certain insurance contracts on retired lives (sec. 
    14571 of the House bill and sec. 12877 of the Senate amendment)

     Present law
       Life insurance companies are allowed a deduction for any 
     net increase in reserves and are required to include in 
     income any net decrease in reserves. The reserve of a life 
     insurance company for any contract is the greater of the net 
     surrender value of the contract or the reserve determined 
     under Federally prescribed rules. In no event, however, may 
     the amount of the reserve for tax purposes for any contract 
     at any time exceed the amount of the reserve for annual 
     statement purposes.
       Special rules are provided in the case of a variable 
     contract. Under these rules, the reserve for a variable 
     contract is adjusted by (1) subtracting any amount that has 
     been added to the reserve by reason of appreciation in the 
     value of assets underlying such contract, and (2) adding any 
     amount that has been subtracted from the reserve by reason of 
     depreciation in the value of assets underlying such contract. 
     In addition, the basis of each asset underlying a variable 
     contract is adjusted for appreciation or depreciation to the 
     extent the reserve is adjusted.
       A variable contract generally is defined as any annuity or 
     life insurance contract (1) that provides for the allocation 
     of all or part of the amounts received under the contract to 
     an account that is segregated from the general asset accounts 
     of the company, and (2) under which, in the case of an 
     annuity contract, the amounts paid in, or the amounts paid 
     out, reflect the investment return and the market value of 
     the segregated asset account, or, in the case of a life 
     insurance contract, the amount of the death benefit (or the 
     period of coverage) is adjusted on the basis of the 
     investment return and the market value of the segregated 
     asset account. A pension plan contract that is not a life, 
     accident, or health, property, casualty, or liability 
     insurance contract is treated as an annuity contract for 
     purposes of this definition.
     House bill
       The House bill provides that a variable contract is to 
     include a contract that provides for the funding of group 
     term life or group accident and health insurance on retired 
     lives if: (1) the contract provides for the allocation of all 
     or part of the amounts received under the contract to an 
     account that is segregated from the general asset account of 
     the company; and (2) the amounts paid in, or the amounts paid 
     out, under the contract reflect the investment return and the 
     market value of the segregated asset account underlying the 
     contract.
       Thus, the reserve for such a contract is to be adjusted by 
     (1) subtracting any amount that has been added to the reserve 
     by reason of appreciation in the value of assets underlying 
     such contract, and (2) adding any amount that has been 
     subtracted from the reserve by reason of depreciation in the 
     value of assets underlying such contract. In addition, the 
     basis of each asset underlying the contract is to be adjusted 
     for appreciation or depreciation to the extent that the 
     reserve is adjusted.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 1995.
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


2. Treatment of modified guaranteed contracts (sec. 14572 of the House 
              bill and sec. 12878 of the Senate amendment)

     Present law
       Life insurance companies are allowed a deduction for any 
     net increase in reserves and are required to include in 
     income any net decrease in reserves. The reserve of a life 
     insurance company for any contract is the greater of the net 
     surrender value of the contract or the reserve determined 
     under Federally prescribed rules. The net surrender value of 
     a contract is the cash surrender value reduced by any 
     surrender penalty, except that any market value adjustment 
     required on surrender is not taken into account. In no event, 
     however, may the amount of the reserve for tax purposes for 
     any contract at any time exceed the amount of the reserve for 
     annual statement purposes.
       In general, assets held for investment are treated as 
     capital assets. Any gain or loss from the sale or exchange of 
     a capital asset is treated as a capital gain or loss and is 
     taken into account for the taxable year in which the asset is 
     sold or exchanged.
     House bill
       The House bill generally applies a mark-to-market regime to 
     assets held as part of a segregated account under a modified 
     guaranteed contract issued by a life insurance company. Gain 
     or loss with respect to such assets held as of the close of 
     any taxable year are taken into account for that year (even 
     though the assets have not been sold or exchanged),119 
     and are treated as ordinary. If gain or loss is taken into 
     account by reason of the mark-to-market requirement, then the 
     amount of gain or loss subsequently realized as a result of 
     sale, exchange, or other disposition of the asset, or as a 
     result of the application of the mark-to-market requirement 
     is appropriately adjusted to reflect 

[[Page H 12931]]
     such gain or loss. In addition, the reserve for a modified guaranteed 
     contract is determined by taking into account the market 
     value adjustment required on surrender of the contract.
     \119\ The wash sale rules of section 1091 of the Code are not 
     to apply to any loss that is required to be taken into 
     account solely by reason of the mark-to-market requirement.
---------------------------------------------------------------------------
       A modified guaranteed contract is defined as any life 
     insurance contract, annuity contract or pension plan contract 
     120 that is not a variable contract (within the meaning 
     of Code section 817), and that satisfies the following 
     requirements. All or a part of the amounts received under the 
     contract must be allocated to an account which, pursuant to 
     State law or regulation, is segregated from the general asset 
     accounts of the company and is valued from time to time by 
     reference to market values.
     \120\ The provision applies only to a pension plan contract 
     that is not a life, accident or health, property, casualty, 
     or liability contract.
---------------------------------------------------------------------------
       The Treasury Department is authorized to issue regulations 
     or other guidance under the provision.
       Effective date.--The provision applies to taxable years 
     beginning after December 31, 1995. A taxpayer that is 
     required to (1) change its calculation of reserves to take 
     into account market value adjustments and (2) mark to market 
     its segregated assets in order to comply with the 
     requirements of the provision is treated as having initiated 
     changes in method of accounting and as having received the 
     consent of the Treasury Department to make such changes.
       The section 481(a) adjustments required by reason of the 
     changes in method of accounting are to be combined and taken 
     into account as a single net adjustment for the taxpayer's 
     first taxable year beginning after December 31, 1995.
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment, with clarifications.
       Under the House bill and the Senate amendment, the reserves 
     for a modified guaranteed contract must be valued at market 
     for annual statement purposes and the Federally prescribed 
     reserve for the contract under section 807(d)(2) must be 
     valued at market. The Senate Finance committee report 
     provides that for this purpose, reserves are valued at market 
     if they are calculated using a current market rate of 
     interest, as of the reserve valuation date, that is 
     appropriate for the obligations under the contract to which 
     the reserve relates.
       The House bill and the Senate amendment also provide that 
     the Treasury Department is authorized to determine the 
     interest rates applicable under sections 807(c)(3), 
     807(d)(2)(B) and 812 with respect to modified guaranteed 
     contracts annually, calculating such rates as appropriate for 
     modified guaranteed contracts. For example, it may be 
     appropriate to take into account the yield on the assets 
     underlying the contract in determining such rates.
       The conference agreement clarifies that the Treasury 
     Department has discretion to determine an appropriate rate 
     that is a current market rate, which could be determined, for 
     example, either by using a rate that is appropriate for the 
     obligations under the contract to which the reserve relates, 
     or by taking into account the yield on the assets underlying 
     the contract.
       The conferees intend that the Treasury Department may 
     exercise this authority by issuing a periodic announcement of 
     the appropriate market interest rates or formula for 
     determining such rates.


  3. Minimum tax treatment of certain property and casualty insurance 
                companies (sec. 14573 of the House bill)

     Present law
       Property and casualty insurance companies whose net written 
     premiums (or if greater, direct written premiums) for the 
     taxable year exceed $350,000 but do not exceed $1,200,000 may 
     elect to be taxed only on taxable investment income for 
     regular tax purposes, without regard to underwriting income 
     or expense (sec. 831(b)).
       This election does not apply for alternative minimum tax 
     purposes. All corporations, including insurance companies, 
     are subject to an alternative minimum tax. Alternative 
     minimum taxable income is increased by 75 percent of the 
     excess of adjusted current earnings over alternative minimum 
     taxable income (determined without regard to this adjustment 
     and without regard to net operating losses).
     House bill
       The House bill provides that a property and casualty 
     insurance company that elects for regular tax purposes to be 
     taxed only on taxable investment income determines its 
     adjusted current earnings under the alternative minimum tax 
     without regard to any amount not taken into account in 
     determining its gross investment income under section 834(b). 
     Thus, adjusted current earnings of an electing company is 
     determined without regard to underwriting income (or 
     underwriting expense, as provided in sec. 
     56(g)(4)(B)(I)(II)).
       Effective date.--Taxable years beginning after December 31, 
     1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


                          F. Other Provisions

1. Closing of partnership taxable year with respect to deceased partner 
                     (sec. 14581 of the House bill)

     Present law
       The partnership taxable year closes with respect to a 
     partner whose entire interest is sold, exchanged or 
     liquidated, but generally not upon the death of a partner. A 
     decedent's entire share of items of income, gain, loss, 
     deduction and credit for the partnership taxable year in 
     which death occurs is taxed to the decedent's estate or 
     successor in interest, rather than to the decedent on his or 
     her final tax return. See Estate of Hesse v. Commissioner, 74 
     T.C. 1307, 1311 (1980).
     House bill
       The House bill provides that the taxable year of a 
     partnership closes with respect to a partner whose entire 
     interest in the partnership terminates, whether by death, 
     liquidation or otherwise. The provision is not intended to 
     change present law with respect to the effect upon the 
     partnership taxable year of a transfer of a partnership 
     interest by a debtor to the debtor's estate (under Chapters 7 
     or 11 of Title 11, relating to bankruptcy).
       Effective date.--Partnership taxable years beginning after 
     December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


 2. Tax credit for Social Security taxes paid with respect to employee 
                cash tips (sec. 14582 of the House bill)

     Present law
       Employee tip income is treated as employer-provided wages 
     for purposes of the Federal Insurance Contributions Act 
     (''FICA''). Employees are required to report to the employer 
     the amount of tips received. The Omnibus Budget 
     Reconciliation Act of 1993 (''OBRA 1993'') provided a 
     business tax credit with respect to certain employer FICA 
     taxes paid with respect to tips treated as paid by the 
     employer. The credit applies to tips received from customers 
     in connection with the provision of food or beverages for 
     consumption on the premises of an establishment with respect 
     to which the tipping of employees is customary. OBRA 1993 
     provided that the FICA tip credit is effective for taxes paid 
     after December 31, 1993. Temporary Treasury regulations 
     provide that the tax credit is available only with respect to 
     tips reported by the employee. The temporary regulations also 
     provide that the credit is effective for FICA taxes paid by 
     an employer after December 31, 1993, with respect to tips 
     received for services performed after December 31, 1993.
     House bill
       The House bill clarifies the credit with respect to 
     employer FICA taxes paid on tips by providing that the credit 
     is available whether or not the employee reported the tips 
     and that the credit is effective with respect to taxes paid 
     after December 31, 1993, regardless of when the services with 
     respect to which the tips are received were performed.
       Effective date.--The provision is effective as if included 
     in OBRA 1993.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


    3. Due date for first quarter estimated tax payments by private 
               foundations (sec. 14583 of the House bill)

     Present law
       Under section 4940, tax-exempt private foundations 
     generally are required to pay an excise tax equal to two 
     percent of their net investment income for the taxable year. 
     Under section 6655(g)(3), private foundations are required to 
     pay estimated tax with respect to their excise tax liability 
     under section 4940 (as well as any unrelated business income 
     tax (UBIT) liability under section 511). 121 Section 
     6655(c) provides that this estimated tax is payable in 
     quarterly installments and that, for calendar-year 
     foundations, the first quarterly installment is due on April 
     15th. Under section 6655(I), foundations with taxable years 
     other than the calendar year must make their quarterly 
     estimated tax payments no later than the dates in their 
     fiscal years that correspond to the dates applicable to 
     calendar-year foundations.
     \121\ Generally, the amount of the first quarter payment must 
     be at least 25 percent of the lesser of (1) the preceding 
     year's tax liability, as shown on the foundation's Form 990-
     PF, or (2) 95 percent of the foundation's current-year tax 
     liability.
---------------------------------------------------------------------------
     House bill
       The House bill amends section 6655(g)(3) to provide that a 
     calendar-year foundation's first-quarter estimated tax 
     payment is due on May 15th (which is the same day that its 
     annual return, Form 990-PF, for the preceding year is due). 
     As a result of the operation of present-law section 6655(I), 
     fiscal-year foundations will be required to make their first-
     quarter estimated tax payment no later than the 15th day of 
     the fifth month of their taxable year.
       Effective date.--Taxable years beginning after 1995.
     Senate amendment
       No provision.

[[Page H 12932]]

     Conference agreement
       The conference agreement follows the House bill.

 XVI. Simplification Provisions Relating to Estates, Gifts, and Trusts


               A. Estate and Trust Income Tax Provisions

 1. Certain revocable trusts treated as part of estate (sec. 14601 of 
                            the House bill)

     Present law
       While both estates and revocable inter vivos trusts perform 
     essentially the same function of administering the 
     disposition of the decedent's property after the testator or 
     grantor's death, numerous differences presently exist between 
     the income tax treatment of estates and revocable trusts.
     House bill
       The House bill provides an irrevocable election to treat a 
     qualified revocable trust as part of the decedent's estate 
     for Federal income tax purposes. This elective treatment is 
     effective from the date of the decedent's death until two 
     years after his or her death (if no estate tax return is 
     required) or six months after the final determination of 
     estate tax liability (if an estate tax return is required).
       Effective date.--Effective for decedents dying after the 
     date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill, with 
     technical modifications that (1) provide an election for a 
     revocable trust to be treated as an estate in cases where 
     there is no taxable estate; and (2) permit the election to be 
     made in cases where only a portion of a revocable trust is 
     treated as owned by the decedent.


 2. distributions during first 65 days of taxable year of estate (sec. 
                        14602 of the house bill)

     Present law
       Under the ``65-day rule,'' a trust may elect to treat 
     distributions paid within 65 days after the close of its 
     taxable year as paid on the last day of its taxable year 
     (sec. 663(b)). The 65-day rule is not applicable to estates.
     House bill
       The House bill extends application of the 65-day rule to 
     distributions by estates. Thus, an executor can elect to 
     treat distributions paid within 65 days after the close of 
     the estate's taxable year as having been paid on the last day 
     of such taxable year.
       Effective date.--Effective for taxable years beginning 
     after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


 3. separate share rules available to estates (sec. 14603 of the house 
                                 bill)

     Present law
       Trusts with more than one beneficiary must use the 
     ``separate share'' rule under which different tax treatment 
     is accorded to distributions to different beneficiaries to 
     reflect the income earned by different shares of the trust's 
     corpus (sec. 663(c)). The separate share rule does not apply 
     to estates.
     House bill
       The House bill extends the application of the separate 
     share rule to estates. There are separate shares in an estate 
     when the governing instrument of the estate creates separate 
     economic interests in one beneficiary or class of 
     beneficiaries such that the economic interests of those 
     beneficiaries are not affected by economic interests accruing 
     to another separate beneficiary or class of beneficiaries.
       Effective date.--Effective for decedents dying after the 
     date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


4. executor of estate and beneficiaries treated as related persons for 
      disallowance of losses, etc. (sec. 14604 of the house bill)

     Present law
       Section 267 disallows a deduction for any loss on the sale 
     of an asset to a person related to the taxpayer. Section 1239 
     disallows capital gain treatment on the sale of depreciable 
     property to a related person. Neither section 267 or section 
     1239 presently treat an estate and a beneficiary of the 
     estate as related persons.
     House bill
       An estate and a beneficiary of that estate are treated as 
     related persons for purposes of sections 267 and 1239, except 
     in the case of a sale or exchange in satisfaction of a 
     pecuniary bequest.
       Effective date.--Effective for taxable years beginning 
     after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


5. limitation on taxable year of estates (sec. 14605 of the house bill)

     Present law
       Trusts are required to use a calendar year and, 
     consequently, income of a trust that is distributed to a 
     calendar-year beneficiary in the year earned is taxed to the 
     beneficiary in the year earned. In contrast, estates are 
     allowed to use any fiscal year and, consequently, the 
     taxation of distributions to a calendar-year beneficiary in 
     up to the last 11 months of the calendar year can be deferred 
     until the next taxable year depending upon the fiscal year 
     selected.
     House bill
       The House bill limits the taxable year of an estate to a 
     year ending on October 31, November 30, or December 31. Thus, 
     the maximum deferral allowable to a calendar-year beneficiary 
     is with respect to distributions made in the last two months 
     of the calendar year.
       Effective date.--Effective for decedents dying after the 
     date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


  6. repeal of certain throwback rules applicable to domestic trusts 
                     (sec. 14606 of the house bill)

     Present law
       Nongrantor trusts are subject to a separate graduated tax 
     rate structure which historically has permitted accumulated 
     trust income to be taxed at lower rates than the rates 
     applicable to trust beneficiaries. Under the so-called 
     ``throwback'' rules, the distribution of previously 
     accumulated trust income to a beneficiary is subject to tax 
     (in addition to any tax paid by the trust on that income) 
     where the beneficiary's average top marginal rate in the 
     previous five years is higher than that of the trust.
       Under section 644, if property is sold within two years of 
     its contribution to a trust, the gain that would have been 
     recognized had the contributor sold the property is taxed at 
     the contributor's marginal tax rates. In effect, section 644 
     treats such gains as if the contributor had realized the gain 
     and then transferred the net after-tax proceeds from the sale 
     to the trust as corpus.
     House bill
       The House bill exempts from the throwback rules amounts 
     distributed by a domestic trust after December 31, 1995. The 
     provision also provides that precontribution gain on property 
     sold by a domestic trust no longer is subject to section 644 
     (i.e., taxed at the contributor's marginal tax rates).
       Effective date.--The provision with respect to the 
     throwback rules is effective for distributions made in 
     taxable years beginning after December 31, 1995. The 
     modification to section 644 applies to sales or exchanges 
     after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


     7. treatment of funeral trusts (sec. 14607 of the house bill)

     Present law
       A pre-need funeral trust is an arrangement where an 
     individual purchases funeral services or merchandise in 
     advance of the individual's death. The individual enters into 
     a contract with the provider of such services or merchandise 
     whereby the individual selects the services or merchandise to 
     be provided upon his or her death, and agrees to pay for them 
     in advance of his or her death. Such amounts (or a portion 
     thereof) are held in trust during the individual's lifetime 
     and are paid to the seller upon the individual's death.
       Under present law, pre-need funeral trusts generally are 
     treated as grantor trusts, and the annual income earned by 
     such trusts is taxed to the purchaser/grantor of the trust. 
     Rev. Rul. 87-127. Any amount received from the trust by the 
     seller (as payment for services or merchandise) is includible 
     in the gross income of the seller.
     House bill
       The House bill allows the trustee of a pre-need funeral 
     trust to elect special tax treatment for such a trust, to the 
     extent the trust would otherwise be treated as a grantor 
     trust. A qualified funeral trust is defined as one which 
     meets the following requirements: (1) the trust arises as the 
     result of a contract between a person engaged in the trade or 
     business of providing funeral or burial services or 
     merchandise and one or more individuals to have such services 
     or property provided upon such individuals' death; (2) the 
     only beneficiaries of the trust are individuals who have 
     entered into contracts to have such services or merchandise 
     provided upon their death; (3) the only contributions to the 
     trust are contributions by or for the benefit of the trust 
     beneficiaries; (4) the trust's only purpose is to hold and 
     invest funds that will be used to make payments for funeral 
     or burial services or merchandise for the trust 
     beneficiaries; and (5) the trust has not accepted 
     contributions totaling more than $5,000 by or for the benefit 
     of any individual.
       The trustee's election to have this provision apply to a 
     qualified funeral trust is to be made separately with respect 
     to each purchaser's trust. The amount of tax paid with 
     respect to each purchaser's trust is determined in accordance 
     with the income tax rate schedule generally applicable to 
     estates and trusts (Code sec. 1(e)), but no deduction 

[[Page H 12933]]
     is allowed under section 642(b). The tax on the annual earnings of the 
     trust is payable by the trustee.
       Effective date.--Effective for taxable years beginning 
     after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill, with the 
     modification that a qualified funeral trust may accept 
     aggregate contributions of up to $7,000 by or for the benefit 
     of any individual.


                   b. estate and gift tax provisions

1. clarification of waiver of certain rights of recovery (sec. 14611 of 
                            the house bill)

     Present law
       For estate and gift tax purposes, a marital deduction is 
     allowed for qualified terminable interest property (QTIP). 
     Such property generally is included in the surviving spouse's 
     gross estate upon his or her death. The surviving spouse's 
     estate is entitled to recover the portion of the estate tax 
     attributable to inclusion of QTIP from the person receiving 
     the property, unless the spouse directs otherwise by will 
     (sec. 2207A). For this purpose, a will provision specifying 
     that all taxes shall be paid by the estate is sufficient to 
     waive the right of recovery.
       A decedent's gross estate includes the value of previously 
     transferred property in which the decedent retains enjoyment 
     or the right to income (sec. 2036). The estate is entitled to 
     recover from the person receiving the property a portion of 
     the estate tax attributable to the inclusion (sec. 2207B). 
     This right may be waived only by a provision in the will (or 
     revocable trust) specifically referring to section 2207B.
     House bill
       The House bill provides that the right of recovery with 
     respect to QTIP is waived only to the extent that language in 
     the decedent's will or revocable trust specifically so 
     indicates (e.g., by a specific reference to QTIP, the QTIP 
     trust, section 2044, or section 2207A). Thus, a general 
     provision specifying that all taxes be paid by the estate is 
     no longer sufficient to waive the right of recovery.
       The House bill also provides that the right of contribution 
     for property over which the decedent retained enjoyment or 
     the right to income is waived by a specific indication in the 
     decedent's will or revocable trust, but specific reference to 
     section 2207B is no longer required.
       Effective date.--Effective for decedents dying after the 
     date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


2. adjustments for gifts within 3 years of decedent's death (sec. 14612 
                           of the house bill)

     Present law
       A taxpayer may exclude $10,000 of gifts of present 
     interests in property made to each donee during a calendar 
     year. Certain transfers made from a revocable trust within 
     three years of death may be included in the decedent's gross 
     estate even though such transfers would qualify for the 
     annual $10,000 exclusion if made by the decedent directly.
     House bill
       The House bill provides that a transfer from a revocable 
     trust is treated as if made directly by the grantor. Thus, an 
     annual exclusion gift from such trust is not included in the 
     gross estate.
       Effective date.--Effective for decedents dying after the 
     date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


3. clarification of qualified terminable interest rules (sec. 14613 of 
                            the house bill)

     Present law
       A marital deduction is allowed for qualified terminal 
     interest property (``QTIP''). Property is QTIP only if the 
     surviving spouse is entitled to all income from the property 
     for life, payable at least annually. QTIP generally is 
     includible in the surviving spouse's gross estate.
       The United States Tax Court has held that, in order to 
     satisfy the QTIP requirements, the income accumulating 
     between the last distribution date and the date of the 
     surviving spouse's death (the ``accumulated income'') must be 
     paid to the spouse's estate or be subject to a power of 
     appointment held by the spouse. In contrast, proposed 
     Treasury regulations presently provide that the QTIP 
     requirements may be satisfied even if the accumulated income 
     is not required to be distributed to the surviving spouse or 
     the surviving spouse's estate.
     House bill
       The House bill provides that property does not fail to be 
     QTIP solely because the accumulated income is not required to 
     be distributed to the surviving spouse. Such income is 
     includible in the surviving spouse's gross estate.
       Effective date.--Effective for decedents dying, and gifts 
     made, after the date of enactment. However, the bill does not 
     include in the surviving spouse's gross estate property 
     transferred before the date of enactment for which no marital 
     deduction was claimed.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


4. transitional rule under section 2056A (sec. 14614 of the house bill)

     Present law
       A ``marital deduction'' generally is allowed for estate and 
     gift tax purposes for the value of property passing to a 
     spouse. The marital deduction is not available for property 
     passing to an alien spouse outside a qualified domestic trust 
     (''QDT''). An estate tax generally is imposed on corpus 
     distributions from a QDT.
       A QDT was originally defined as a trust that, among other 
     things, required all trustees be U.S. citizens or domestic 
     corporations. This provision was later modified to require 
     that at least one trustee be a U.S. citizen or domestic 
     corporation and that no corpus distribution be made unless 
     such trustee has the right to withhold any estate tax imposed 
     on the distribution (the ``withholding requirement'').
     House bill
       A trust created before the enactment of the Omnibus Budget 
     Reconciliation Act of 1990 is treated as satisfying the 
     withholding requirement if its governing instrument requires 
     that all trustees be U.S. citizens or domestic corporations.
       Effective date.--The provision applies as if included in 
     the Omnibus Budget Reconciliation Act of 1990.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


 5. opportunity to correct certain failures under section 2032A (sec. 
                        14615 of the house bill)

     Present law
       For estate tax purposes, an executor may elect to value 
     certain real property used in farming or other closely held 
     business operations at its current use value rather than its 
     highest and best use (sec. 2032A). A written agreement signed 
     by each person who has an interest in the property must be 
     filed with the election.
       In 1984, section 2032A was amended to provide that if an 
     executor makes a timely election that substantially complies 
     with Treasury regulations, but fails to provide all required 
     information or the signatures of all persons required to 
     enter into the agreement, the executor may supply the missing 
     information within a reasonable period of time (not exceeding 
     90 days) after notification by the Treasury Department.
     House bill
       The House bill extends the procedures allowing subsequent 
     submission of information to any executor who makes a timely 
     election and submits the recapture agreement, without regard 
     to substantial compliance with the Treasury regulations. 
     Thus, the bill allows a technically defective current use 
     valuation election to be corrected if the executor supplies 
     the missing information or signatures within a reasonable 
     period of time (not exceeding 90 days) after notification by 
     the Treasury Department.
       Effective date.--The provision applies to decedents dying 
     after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill. The 
     conferees believe that the Treasury Department has taken an 
     unnecessarily restrictive view of the 1984 amendment to 
     section 2032A and intend no inference that the Treasury 
     Department lacks the power, under the law in effect prior to 
     enactment of the conference agreement, to correct the 
     situation addressed by this provision. The conferees intend 
     that, with respect to technically defective 2032A elections 
     made prior to the date of enactment, prior law should be 
     applied in a manner consistent with the provision.


  6. unified credit of decedent increased by unified credit of spouse 
 used on split gift included in decedent's gross estate (sec. 14616 of 
                            the house bill)

     Present law
       The estate tax is imposed on all of the assets held by the 
     decedent at his death, including the value of property 
     previously transferred by the decedent in which the decedent 
     retained certain powers or interests, e.g., sections 2036 
     (transfers with retained life estate), 2037 (transfers taking 
     effect at death), 2038 (revocable transfers), or 2042 
     (proceeds of life insurance). Under section 2035, the estate 
     tax also would apply with respect to property in which such a 
     retained power or interest is transferred within three years 
     of death.
       Under section 2513, spouses may elect to treat a gift made 
     by one spouse to a third person as made one-half by each 
     spouse (i.e., ``gift-splitting'').
     House bill
       With respect to any split-gift property that is 
     subsequently included in the estate of the transferor spouse 
     under sections 2035, 2036, 2037 or 2038, the House bill 
     increases the unified credit allowable to the transferor 
     spouse's estate by the amount of the unified credit 
     previously allowed to the 

[[Page H 12934]]
     nontransferor spouse with respect to the split gift.
       Effective date.--The provision applies to gifts made after 
     the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


7. reformation of defective bequests, etc. to spouse of decedent (sec. 
                        14617 of the house bill)

     Present law
       A marital deduction generally is allowed for estate and 
     gift tax purposes for the value of property passing to a 
     spouse. However, ``terminable interest'' property (i.e., an 
     interest in property that will terminate or fail) transferred 
     to a spouse generally will only qualify for the marital 
     deduction under certain special rules designed to ensure that 
     there will be an estate or gift tax to the transferee spouse 
     on unspent transferred proceeds.
       One of the special terminable interest rules allows a 
     marital deduction where the decedent transfers property to a 
     ``power of appointment trust,'' i.e., a trust that is 
     required to pay income to the surviving spouse and over which 
     the surviving spouse has a general power of appointment at 
     that spouse's death (sec. 2056(b)(5)). Another special rule 
     called the ``qualified terminable interest property'' rule 
     (''QTIP'') generally permits a marital deduction for 
     transfers by the decedent to a trust that is required to 
     distribute all income to the surviving spouse for life at 
     least annually and an election is made to subject the 
     transferee spouse to transfer tax on the trust property.
       To qualify for the marital deduction, a power of 
     appointment trust or QTIP trust must meet certain specific 
     requirements. If there is a technical defect in meeting those 
     requirements, the marital deduction may be lost.
     House bill
       The House bill allows the marital deduction with respect to 
     a defective power of appointment or QTIP trust if there is a 
     ``qualified reformation'' of the trust that changes the 
     governing instrument in a manner that corrects the defect. 
     Where a reformation proceeding is commenced after the due 
     date for the estate tax return (including extensions), the 
     reformation qualifies only if, prior to reformation, the 
     governing instrument provides (1) that the surviving spouse 
     is entitled to all income from the property for life, and (2) 
     no person other than the surviving spouse is entitled to any 
     distributions during the surviving spouse's life. With 
     respect to QTIP, an election to qualify must be made by the 
     executor on the estate tax return as required by section 
     2056(b)(7)(B)(v).
       The determination as to whether the property qualifies for 
     the marital deduction is made either as of the due date for 
     filing the estate or gift tax return (including any 
     extensions) or the time that changes are completed pursuant 
     to a reformation proceeding. The statute of limitations is 
     extended with respect to the estate or gift tax attributable 
     to the trust property until one year after the date the 
     Treasury Department is notified that a qualified reformation 
     has been completed or that the reformation proceeding has 
     otherwise terminated.
       Effective date.--The provision applies to decedents dying 
     after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


 8. gifts may not be revalued for estate tax purposes after expiration 
        of statute of limitations (sec. 14618 of the house bill)

     Present law
       The Federal estate and gift taxes are unified so that a 
     single progressive rate schedule is applied to an 
     individual's cumulative gifts and bequests. The tax on gifts 
     made in a particular year is computed by determining the tax 
     on the sum of the taxable gifts made that year and all prior 
     years and then subtracting the tax on the prior years' 
     taxable gifts and the unified credit. Similarly, the estate 
     tax is computed by determining the tax on the sum of the 
     taxable estate and prior taxable gifts and then subtracting 
     the tax on taxable gifts and the unified credit. Under a 
     special rule applicable to the computation of the gift tax 
     (sec. 2504(c)), the value of gifts made in prior years is the 
     value that was used to determine the prior year's gift tax. 
     There is no comparable rule in the case of the computation of 
     the estate tax.
       Generally, any estate or gift tax must be assessed within 
     three years after the filing of the return. No proceeding in 
     a court for the collection of an estate or gift tax can be 
     begun without an assessment within the three-year period. If 
     no return is filed, the tax may be assessed, or a suit 
     commenced to collect the tax without assessment, at any time. 
     If an estate or gift tax return is filed, and the amount of 
     unreported items exceeds 25 percent of the amount of the 
     reported items, the tax may be assessed or a suit commenced 
     to collect the tax without assessment, within six years after 
     the return was filed (sec. 6501).
       Commencement of the statute of limitations generally does 
     not require that a particular gift be disclosed. A special 
     rule, however, applies to certain gifts that are valued under 
     the special valuation rules of Chapter 14. The gift tax 
     statute of limitations runs for such a gift only if it is 
     disclosed on a gift tax return in a manner adequate to 
     apprise the Secretary of the Treasury of the nature of the 
     item.
       Most courts have permitted the Commissioner to redetermine 
     the value of a gift for which the statute of limitations 
     period for the gift tax has expired in order to determine the 
     appropriate tax rate bracket and unified credit for the 
     estate tax.
     House bill
       The House bill provides that a gift for which the 
     limitations period has passed cannot be revalued for purposes 
     of determining the applicable estate tax bracket and 
     available unified credit. For gifts made in calendar years 
     after the date of enactment, the House bill also extends the 
     special rule governing gifts valued under Chapter 14 to all 
     gifts. Thus, the statute of limitations will not run on an 
     inadequately disclosed transfer in calendar years after the 
     date of enactment, regardless of whether a gift tax return 
     was filed for other transfers in that same year.
       It is intended that, in order to revalue a gift that has 
     been adequately disclosed on a gift tax return, the IRS must 
     issue a final notice of redetermination of value (a ``final 
     notice'') within the statute of limitations applicable to the 
     gift for gift tax purposes (generally, three years). This 
     rule is applicable even where the value of the gift as shown 
     on the return does not result in any gift tax being owed 
     (e.g., through use of the unified credit). It also is 
     anticipated that the IRS will develop an administrative 
     appeals process whereby a taxpayer can challenge a 
     redetermination of value by the IRS prior to issuance of a 
     final notice.
       A taxpayer who is mailed a final notice may challenge the 
     redetermined value of the gift (as contained in the final 
     notice) by filing a motion for a declaratory judgment with 
     the United States Tax Court. The motion must be filed on or 
     before 90 days from the date that the final notice was 
     mailed. The statute of limitations is tolled during the 
     pendency of the Tax Court proceeding.
       Effective date.--The provision generally applies to gifts 
     made after the date of enactment. The extension of the 
     special rule under chapter 14 to all gifts applies to gifts 
     made in calendar years after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


  9. clarifications relating to disclaimers (sec. 14619 of the house 
                                 bill)

     Present law
       Historically, there must be acceptance of a gift in order 
     for the gift to be completed under State law and there is no 
     taxable gift for Federal gift tax purposes unless there is a 
     completed gift. Most States have rules that provide that, 
     where there is a disclaimer of a gift, the property passes to 
     the person who is entitled to the property had the 
     disclaiming party died before the purported transfer.
       Under section 2518, a State law type disclaimer is 
     effective for Federal transfer tax purposes if it is an 
     irrevocable and unqualified refusal to accept an interest in 
     property and certain other requirements are satisfied. One of 
     these other requirements is that the disclaimer generally 
     must be made in writing not later than nine months after the 
     transfer creating the interest occurs. Section 2518 is not 
     presently effective for Federal tax purposes other than 
     transfer taxes.
       Certain transfers of property also can be treated as 
     qualified disclaimers under section 2518. In order to 
     qualify, these transfer-type disclaimers must be a written 
     transfer of the disclaimant's ``entire interest in the 
     property'' to persons who would have received the property 
     had there been a valid disclaimer under State law (sec. 
     2518(c)(3)). Like other disclaimers, the transfer-type 
     disclaimer generally must be made within nine months of the 
     transfer creating the interest.
     House bill
       The House bill allows a transfer-type disclaimer of an 
     ``undivided portion'' of the disclaimant transferor's 
     interest in property to qualify under section 2518. The House 
     bill also allows a spouse to make a qualified transfer-type 
     disclaimer where the disclaimed property is transferred to a 
     trust in which the disclaimant spouse has an interest (e.g., 
     a credit shelter trust). Finally, the House bill provides 
     that a qualified disclaimer for transfer tax purposes under 
     section 2518 also is effective for Federal income tax 
     purposes (e.g., disclaimers of interests in annuities and 
     income in respect of a decedent).
       Effective date.--The provision applies to disclaimers made 
     after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


 10. Clarification of treatment of survivor annuities under qualified 
        terminable interest rules (sec. 14620 of the House bill)

     Present law
       Under State community property laws, each spouse owns an 
     undivided one-half interest in each community property asset. 
     In community property States, a nonparticipant spouse may be 
     treated as 

[[Page H 12935]]
     having a vested community property interest in his or her spouse's 
     qualified plan, individual retirement arrangement, or 
     simplified employee pension plan.
       A survivorship interest in an annuity interest arising out 
     of the decedent's employment that is includible his or her 
     estate (under section 2039) that passes to the non- 
     participant spouse is treated as a deductible marital 
     transfer under the qualified terminable interest property 
     (``QTIP'') rules unless the executor of the decedent's estate 
     elects otherwise (sec. 2056(b)(7)(C)). Thus, in noncommunity 
     property States, no estate tax generally is imposed on such 
     survivor annuity interests in the non-surviving spouse's 
     estate. In contrast, an interest of the non-participant 
     spouse arising under community property laws in an annuity 
     derived from the employment of his or her spouse is 
     includible in his or her estate under section 2033 and, 
     therefore, may not qualify as a deductible transfer to his or 
     her surviving spouse under the QTIP rules.
     House bill
       The House bill clarifies that the marital deduction is 
     available with respect to a nonparticipant spouse's interest 
     in an annuity attributable to community property laws where 
     he or she predeceases the participant spouse. Under the House 
     bill, the nonparticipant spouse's interest in an annuity 
     arising under the community property laws of a State that 
     passes to the surviving participant spouse may qualify for 
     treatment as QTIP under section 2056(b)(7).
       Effective date.--The provision applies to decedents dying, 
     or waivers, transfers and disclaimers made, after the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


    11. Treatment under qualified domestic trust rules of forms of 
     ownership which are not trusts (sec. 14621 of the House bill)

     Present law
       A marital deduction generally is allowed for estate and 
     gift tax purposes for the value of property passing to a 
     spouse. The marital deduction is not available for property 
     passing to an alien spouse outside a qualified domestic trust 
     (``QDT''). An estate tax generally is imposed on corpus 
     distributions from a QDT.
       Trusts are not permitted in some countries (e.g., many 
     civil law countries). As a result, it is not possible to 
     create a QDT in those countries.
     House bill
       The House bill provides the Treasury Department with 
     regulatory authority to treat as trusts legal arrangements 
     that have substantially the same effect as a trust. It is 
     anticipated that such regulations, if any, would only permit 
     a marital deduction with respect to non-trust arrangements 
     under which the U.S. would retain jurisdiction and adequate 
     security to impose U.S. transfer tax on transfers by the 
     surviving spouse of the property transferred by the decedent.
       Effective date.--The provision applies to decedents dying 
     after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


    12. Authority to waive requirement of United States trustee for 
        qualified domestic trusts (sec. 14622 of the House bill)

     Present law
       In order for a trust to be a QDT, a U.S. trustee must have 
     the power to approve all corpus distributions from the trust. 
     In some countries, trusts may be prohibited from having a 
     U.S. trustee (e.g., some countries do not allow real property 
     to be placed in trust if a U.S. trustee must approve 
     distributions from the trust.) As a result, such trusts 
     cannot qualify as a QDT.
     House bill
       In order to permit the establishment of a QDT in those 
     situations where a country prohibits a trust from having a 
     U.S. trustee, the House bill provides the Treasury Department 
     with regulatory authority to waive the requirement that a QDT 
     have a U.S. trustee. It is anticipated that such regulations, 
     if any, provide an alternative mechanism under which the U.S. 
     would retain jurisdiction and adequate security to impose 
     U.S. transfer tax on transfers by the surviving spouse of the 
     property transferred by the decedent.
       Effective date.--The provision applies to decedents dying 
     after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


                 C. Generation-Skipping Tax Provisions

  1. Severing of trusts holding property having an inclusion ratio of 
            greater than zero (sec. 14631 of the House bill)

     Present law
       A generation-skipping transfer tax (``GST'' tax) generally 
     is imposed on transfers to an individual who is in more than 
     one generation below that of the transferor. An exemption of 
     $1 million is provided for each person making generation-
     skipping transfers. The transferor (or his or her executor) 
     may allocate the exemption to transferred property. If the 
     value of the transferred property exceeds the amount of the 
     GST exemption allocated to that property, an ``inclusion 
     ratio'' and an ``exclusion ratio'' are determined with 
     respect to the property. The exclusion ratio is equal to the 
     amount of the GST exemption allocated to the property divided 
     by the value of the property. The inclusion ration is equal 
     to one minus the exclusion ratio. For any taxable event that 
     occurs with respect to the property, the amount of GST tax 
     generally is determined by multiplying highest estate tax 
     rate by the inclusion ratio and the value of the taxable 
     property at the time of the taxable event.
     House bill
       If a trust with an inclusion ratio of greater than zero is 
     severed into two separate trusts, the bill allows the trustee 
     to elect to treat one of the separate trusts as having an 
     inclusion ratio of zero and the other separate trust as 
     having an inclusion ratio of one. To qualify for this 
     treatment, the separate trust with the inclusion ratio of one 
     must receive an interest in each property held by the single 
     trust (prior to severance) equal to the single trust's 
     inclusion ratio, except to the extent otherwise provided by 
     Treasury regulation. The remaining interests in each property 
     will be transferred to the separate trust with the inclusion 
     ratio of zero.
       Effective date.--The provision is effective for severances 
     of trusts occurring after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


 2. Clarification of who is transferor where subsequent gift by reason 
         of power of appointment (sec. 14632 of the House bill)

     Present law
       The exercise or release of a general power of appointment 
     (e.g., a power of withdrawal) generally is treated as a 
     transfer of property by the person who possesses such power 
     (sec. 2514(b)). Under section 2514(e), the lapse of a general 
     power of appointment also is treated as a taxable transfer 
     except to the extent that the power does not exceed the 
     greater of $5,000 or five percent of the fair market value of 
     the property with respect to which the power could have been 
     exercised.
     House bill
       The House bill clarifies that an individual cannot be 
     treated as a ``transferor'' with respect to any portion of 
     property with respect to which another person is treated as 
     the ``transferor'' by reason of the exercise, release or 
     lapse of a general power of appointment with respect to such 
     property.
       Effective date.--The provision applies to the exercise, 
     release or lapse of a general power of appointment occurring 
     after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision, because the conferees believe that the House 
     provision reflects present law.


 3. Taxable termination not to include direct skips (sec. 14633 of the 
                              House bill)

     Present law
       A generation-skipping transfer tax (``GST'' tax) generally 
     is imposed on transfers to an individual who is in more than 
     one generation below that of the transferor. Transfers 
     subject to the GST tax include direct skips, taxable 
     terminations and taxable distributions. For this purpose, a 
     direct skip is any transfer subject to estate or gift tax of 
     an interest in property to a skip person (sec. 2612(c)(1)). A 
     taxable termination is a termination (by death, lapse of 
     time, release of power, or otherwise) of an interest in 
     property held in trust unless, immediately after such 
     termination, a non-skip person has an interest in the 
     property, or unless at no time after the termination may a 
     distribution (including a distribution upon termination) be 
     made from the trust to a skip person (sec. 2612(a)). A 
     taxable distribution is a distribution from a trust to a skip 
     person (other than a taxable termination or a direct 
     skip)(sec. 2612(b)).
       Direct skips are subject to less GST tax than taxable 
     terminations and distributions since the GST tax on direct 
     skips is paid by the transferor (sec. 2603(a)(3)) and, 
     therefore, the tax base for a direct skip is tax exclusive 
     (like the Federal gift tax), while the GST tax on taxable 
     terminations and distributions is paid by the trust or 
     beneficiary (secs. 2603(a)(1) & (2)) and, therefore, the tax 
     base on taxable terminations and distributions is tax 
     inclusive (like the Federal estate tax).
     House bill
       The House bill provides that, when a transfer is described 
     as both a direct skip and a taxable termination, the 
     transaction will be treated as a direct skip (i.e., treatment 
     as a direct skip takes precedence over treatment as a taxable 
     termination).
       Effective date.--Effective for generation skipping 
     transfers occurring after the date of enactment.
     Senate amendment
       No provision.

[[Page H 12936]]

     Conference agreement
       The conference agreement follows the House bill.

               XVII. Excise Tax Simplification Provisions


  A. Provisions Relating to Distilled Spirits, Wines, and Beer (secs. 
                     14701-14711 of the House bill)

     Present law
       Credit or refund for imported distilled spirits returned 
     bonded premises.--When tax-paid distilled spirits which have 
     been withdrawn from bonded premises of a distilled spirits 
     plant are returned for destruction or redistilling, the 
     excise tax is refunded. This provision does not apply to 
     imported bottled distilled spirits because they are withdrawn 
     from customs custody and not from bonded premises of a 
     distilled spirits plant.
       Authority to cancel or credit bonds without submission of 
     records.--Bond generally must be furnished to the Treasury 
     Department when distilled spirits are removed from bonded 
     premises of a distilled spirits plant for exportation without 
     payment of tax. These bonds are canceled or credited when 
     evidence is submitted to the Treasury that the distilled 
     spirits have been exported.
       Required maintenance of records on premises of distilled 
     spirits plant.--Distilled spirits plant proprietors are 
     required to maintain records of their production, storage, 
     denaturation, and other processing activities on the premises 
     where the operations covered by the records are carried out.
       Transfers from breweries to distilled spirits plants.--
     Under present law, beer may be transferred without payment of 
     tax from a brewery to a distilled spirits plant to be used in 
     the production of distilled spirits, but only if the brewery 
     is contiguous to the distilled spirits plant.
       Requirement that wholesale dealers in liquors post sign.--
     Wholesale liquor dealers (i.e., dealers, other than wholesale 
     dealers in beer alone) are required to post a sign 
     conspicuously on the outside of their place of business 
     indicating that they are wholesale liquor dealers.
       Refund of tax on wine returned to bond.--When 
     unmerchantable wine is returned to bonded production 
     premises, tax that has been paid is returned or credited to 
     the proprietor of the bonded wine cellar to which the wine is 
     delivered.
       Use of ameliorating material in certain wines.--Tax law 
     rules govern the extent to which ameliorating material (e.g., 
     sugar) may be added to wines made from high acid fruits and 
     the product still be labeled as a standard, natural wine.
       Domestically produced beer for use by foreign embassies, 
     etc.--Distilled spirits, wine, and imported beer may be 
     removed from bond, without payment of tax, for transfer to 
     any customs bonded warehouse for storage pending removal for 
     the official or family use of representatives of foreign 
     governments or public international organizations. No such 
     provision exists under present law for domestically produced 
     beer.
       Withdrawal of beer for destruction.--Present law does not 
     specifically permit beer to be removed from a brewery for 
     destruction without payment of tax.
       Records of exportation of beer.--Present law provides that 
     a brewer is allowed a refund of tax paid on exported beer 
     upon submission to Treasury Department of certain records 
     indicating that the beer has been exported.
       Transfer to brewery of beer imported in bulk.--Imported 
     beer brought into the United States in bulk containers may 
     not be transferred from customs custody to brewery premises 
     without payment of tax. Under certain circumstances, 
     distilled spirits imported into the United States in bulk 
     containers may be transferred from customs custody to bonded 
     premises of a distilled spirits plant where bottling will 
     occur without payment of tax.
     House bill
       Credit or refund for imported bottled distilled spirits 
     returned to bonded premises.--The House bill conforms the 
     procedures for refunds of tax collected on imported bottled 
     distilled spirits returned to bonded premises to the rules 
     for domestically produced and imported bulk distilled 
     spirits.
       Authority to cancel or credit bonds without submission of 
     records.--The House bill authorizes the Treasury Department 
     to permit records of exportation to be maintained by the 
     exporter, rather than requiring submission of proof of 
     exportation to Treasury in all cases.
       Repeal of required maintenance of records on premises of 
     distilled spirits plant.--The House bill permits distilled 
     spirits plant proprietors to maintain records of their 
     activities at locations other than the premises where the 
     operations covered by the records are carried out (e.g., 
     corporate headquarters) provided that the records are 
     available for inspection by the Treasury Department during 
     business hours.
       Fermented material from any brewery may be received at a 
     distilled spirits plant.--The House bill allows beer to be 
     transferred without payment of tax from a brewery to a 
     distilled spirits plant to be used in the production of 
     distilled spirits, regardless of whether the brewery is 
     contiguous to the distilled spirits plant.
       Repeal of requirement that wholesale dealers in liquors 
     post sign.--The House bill repeals the requirement that 
     wholesale liquor dealers post a sign outside their place of 
     business indicating that they are wholesale liquor dealers.
       Refund of tax on wine returned to bond not limited to 
     unmerchantable wine.--The House bill repeals the requirement 
     that wine returned to bonded premises be ``unmerchantable'' 
     in order for tax to be refunded to the proprietor of the 
     bonded wine cellar to which the wine is delivered.
       Use of additional ameliorating material in certain wines.--
     The House bill modifies the wine labeling restrictions to 
     allow any wine made exclusively from a fruit or berry with a 
     natural fixed acid of made exclusively from a fruit or berry 
     with a natural fixed acid of 20 parts per thousand or more 
     (before any correction of such fruit or berry) to contain a 
     volume of ameliorating material not in excess of 60 percent.
       Domestically produced beer may be withdrawn free of tax for 
     use by foreign embassies, etc.--The House bill extends to 
     domestically produced beer the present-law rule which permits 
     other alcoholic beverages to be withdrawn from the place of 
     production without payment of tax for the official or family 
     use of representatives of foreign governments or public 
     international organizations.
       Beer may be withdrawn free of tax for destruction.--The 
     House bill permits beer to be removed from a brewery without 
     payment of tax for destruction, subject to Treasury 
     Department regulations.
       Authority to allow drawback on exported beer without 
     submission of records.--The House bill repeals the present-
     law requirement that proof of exportation be submitted to the 
     Treasury Department in all cases as a condition of receiving 
     a refund of tax.
       Transfer to brewery of beer imported in bulk without 
     payment of tax.--The House bill extends the present-law rule 
     applicable to distilled spirits imported into the United 
     States in bulk containers to beer imported into the United 
     States in bulk containers.
       Effective date.--Beginning 180 days after date of 
     enactment. (The provision deleting the requirement that 
     wholesale liquor dealers post a sign outside their place of 
     business is effective on the date of the bill's enactment.)
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill, with a 
     modification deleting the following provisions:
       (1) Authority for the Bureau of Alcohol, Tobacco, and 
     Firearms (``BATF'') to cancel or credit bonds without 
     submission of records;
       (2) Repeal of required maintenance of records on premises 
     of distilled spirits plant;
       (3) Repeal of requirement that wholesale dealers in liquors 
     post sign;
       (4) Relaxation of rules on use of ameliorating material in 
     certain wines;
       (5) Provision allowing domestically produced beer to be 
     withdrawn free of tax for use by foreign embassies; and
       (6) Authority for BATF to allow drawback on exported beer 
     without submission of records.


B. Consolidation of Taxes on Aviation Gasoline (sec. 14721 of the House 
                                 bill)

     Present law
       Gasoline used in noncommercial (not for hire) aviation is 
     subject to a 19.4-cents-per-gallon excise tax. 18.4 cents per 
     gallon of this tax is collected when the gasoline is removed 
     from a pipeline or barge terminal. The remaining 1 cent per 
     gallon is imposed at the retail level.
     House bill
       The House bill consolidates imposition of the aviation 
     gasoline excise tax, with the entire 19.4-cents-per-gallon 
     rate being imposed when the gasoline is removed from a 
     terminal facility.
       Effective date.--Sales or uses beginning on or after 
     January 1, 1996.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


                     C. Other Excise Tax Provisions

     1. Authority to grant exemptions from excise tax registration 
              requirements (sec. 14731 of the House bill)

     Present law
       Certain sales for exempt use of articles subject to Federal 
     excise taxes may not be made without payment of tax unless 
     the manufacturer, the first purchaser, and the second 
     purchaser (if any), are all registered under regulations 
     prescribed by the Secretary of Treasury.
     House bill
       The House bill allows the IRS to provide exemptions from 
     generally applicable excise tax registration requirements for 
     certain classes of taxpayers (rather than only all taxpayers 
     or individually identified taxpayers).
       Effective date.--Sales occurring after 180 days after date 
     of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


 2. Certain combinations not treated as manufacture under retail sales 
           tax on heavy trucks (sec. 14732 of the House bill)

     Present law
       A 12-percent excise tax is imposed on the sale of trucks, 
     tractors, and trailers having a 

[[Page H 12937]]
     gross vehicle weight in excess of specified amounts. The tax is imposed 
     on the first retail sale of a taxable vehicle or addition 
     thereto.
       Generally, repairs of used vehicles are treated as 
     remanufacture (giving rise to tax on the entire vehicle) if 
     certain tests are met.
       The mere addition of a fifth wheel to a taxable truck is 
     not treated as remanufacture, although the fifth wheel itself 
     would be taxed.
     House bill
       The House bill clarifies that the following activities do 
     not constitute remanufacture when performed on a used truck 
     or tractor chassis:
       (1) removal of a fifth wheel and addition of a power take-
     off, hoist, and dump body; or
       (2) simple addition of a power take-off, hoist, and dump 
     body.
       These activities will remain taxable to the extent of the 
     modifications made.
       Effective date.--Date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


  3. Repeal of expired excise tax provisions (sec. 14734 of the House 
                                 bill)

     Present law
       Temporary reduction in tax on piggyback trailers
       Piggyback trailers and semitrailers sold within the one-
     year period beginning on July 18, 1984, were permitted a 
     temporary reduction in the retail excise tax rate on 
     trailers.
       Expiration of excise tax on deep seabed minerals
       The Deep Seabed Mineral Resources Act (Public Law 96-283) 
     imposed an excise tax on certain hard minerals mined on the 
     deep seabed. The tax revenues were intended to fund 
     obligations of the United States under a contemplated Law of 
     the Sea Convention. Because the United States did not sign 
     the treaty, this excise tax never became effective and the 
     tax expired after June 28, 1990.
     House bill
       The House bill repeals the expired tax reduction for piggy 
     back trailers and the excise tax on deep seabed hard minerals 
     as ``deadwood.''
       Effective date.--Date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.

            XVIII. Administrative Simplification Provisions


                         A. General Provisions

1. Repeal of authority to disclose whether a prospective juror has been 
                 audited (sec. 14801 of the House bill)

     Present law
       In connection with a civil or criminal tax proceeding to 
     which the United States is a party, the Secretary must 
     disclose, upon the written request of either party to the 
     lawsuit, whether an individual who is a prospective juror has 
     or has not been the subject of an audit or other tax 
     investigation by the Internal Revenue Service (sec. 
     6103(h)(5)).
     House bill
       The House bill repeals the requirement that the Secretary 
     disclose, upon the written request of either party to the 
     lawsuit, whether an individual who is a prospective juror has 
     or has not been the subject of an audit or other tax 
     investigation by the Internal Revenue Service.
       Effective date.--The provision is effective for judicial 
     proceedings pending on, or commenced after, the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


  2. Clarification of statute of limitations (sec. 14802 of the House 
                                 bill)

     Present law
       Passthrough entities (such as S corporations, partnerships, 
     and certain trusts) generally are not subject to income tax 
     on their taxable income. Instead, these entities file 
     information returns and the entities' shareholders (or 
     beneficial owners) report their pro rata share of the gross 
     income and are liable for any taxes due.
       Some believe that, prior to 1993, it may have been unclear 
     as to whether the statute of limitations for adjustments that 
     arise from distributions from passthrough entities should be 
     applied at the entity or individual level (i.e., whether the 
     3-year statute of limitations for assessments runs from the 
     time that the entity files its information return or from the 
     time that a shareholder timely files his or her income tax 
     return). In 1993, the Supreme Court held that the limitations 
     period for assessing the income tax liability of an S 
     corporation shareholder runs from the date the shareholder's 
     return is filed (Bufferd v. Comm., 113 S. Ct. 927 (1993)).
     House bill
       The House bill clarifies that the return that starts the 
     running of the statute of limitations for a taxpayer is the 
     return of the taxpayer and not the return of another person 
     from whom the taxpayer has received an item of income, gain, 
     loss, deduction, or credit.
       Effective date.--The provision is effective for taxable 
     years beginning after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


3. Certain notices disregarded under provision increasing interest rate 
    on large corporate underpayments (sec. 14803 of the House bill)

     Present law
       The interest rate on a large corporate underpayment of tax 
     is the Federal short-term rate plus five percentage points. A 
     large corporate underpayment is any underpayment by a 
     subchapter C corporation of any tax imposed for any taxable 
     period, if the amount of such underpayment for such period 
     exceeds $100,000. The large corporate underpayment rate 
     generally applies to periods beginning 30 days after the 
     earlier of the date on which the first letter of proposed 
     deficiency, a statutory notice of deficiency, or a 
     nondeficiency letter or notice of assessment or proposed 
     assessment is sent. For this purpose, a letter or notice is 
     disregarded if the taxpayer makes a payment equal to the 
     amount shown on the letter or notice within that 30-day 
     period.
     House bill
       For purposes of determining the period to which the large 
     corporate underpayment rate applies, any letter or notice is 
     disregarded if the amount of the deficiency, proposed 
     deficiency, assessment, or proposed assessment set forth in 
     the letter or notice is not greater than $100,000 (determined 
     by not taking into account any interest, penalties, or 
     additions to tax).
       Effective date.--The provision is effective for purposes of 
     determining interest for periods after December 31, 1995.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


4. Clarification of authority to withhold Puerto Rico income taxes from 
      salaries of Federal employees (sec. 14804 of the House bill)

     Present law
       If State law provides generally for the withholding of 
     State income taxes from the wages of employees in a State, 
     the Secretary of the Treasury shall (upon the request of the 
     State) enter into an agreement with the State providing for 
     the withholding of State income taxes from the wages of 
     Federal employees in the State. For this purpose, a State is 
     a State, territory, or possession of the United States. The 
     Court of Appeals for the Federal Circuit recently held in 
     Romero v. United States (38 F. 3d 1204 (1994)) that Puerto 
     Rico was not encompassed within this definition; 
     consequently, the court invalidated an agreement between the 
     Secretary of the Treasury and Puerto Rico that provided for 
     the withholding of Puerto Rico income taxes from the wages of 
     Federal employees.
     House bill
       The House bill makes any Commonwealth eligible to enter 
     into an agreement with the Secretary of the Treasury that 
     would provide for income tax withholding from the wages of 
     Federal employees.
       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


                        B. Tax Court Procedures

  1. Overpayment determinations of Tax Court (sec. 14811 of the House 
                                 bill)

     Present law
       The Tax Court may order the refund of an overpayment 
     determined by the Court, plus interest, if the IRS fails to 
     refund such overpayment and interest within 120 days after 
     the Court's decision becomes final. Whether such an order is 
     appealable is uncertain.
       In addition, it is unclear whether the Tax Court has 
     jurisdiction over the validity or merits of certain credits 
     or offsets (e.g., providing for collection of student loans, 
     child support, etc.) made by the IRS that reduce or eliminate 
     the refund to which the taxpayer was otherwise entitled.
     House bill
       The House bill clarifies that an order to refund an 
     overpayment is appealable in the same manner as a decision of 
     the Tax Court. The House bill also clarifies that the Tax 
     Court does not have jurisdiction over the validity or merits 
     of the credits or offsets that reduce or eliminate the refund 
     to which the taxpayer was otherwise entitled.
       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.

[[Page H 12938]]



   2. Awarding of administrative costs (sec. 14812 of the House bill)

     Present law
       Any person who substantially prevails in any action brought 
     by or against the United States in connection with the 
     determination, collection, or refund of any tax, interest, or 
     penalty may be awarded reasonable administrative costs 
     incurred before the IRS and reasonable litigation costs 
     incurred in connection with any court proceeding.
       No time limit is specified for the taxpayer to apply to the 
     IRS for an award of administrative costs. In addition, no 
     time limit is specified for a taxpayer to appeal to the Tax 
     Court an IRS decision denying an award of administrative 
     costs. Finally, the procedural rules for adjudicating a 
     denial of administrative costs are unclear.
     House bill
       The House bill provides that a taxpayer who seeks an award 
     of administrative costs must apply for such costs within 90 
     days of the date on which the taxpayer was determined to be a 
     prevailing party. The House bill also provides that a 
     taxpayer who seeks to appeal an IRS denial of an 
     administrative cost award must petition the Tax Court within 
     90 days after the date that the IRS mails the denial notice.
       The House bill clarifies that dispositions by the Tax Court 
     of petitions relating only to administrative costs are to be 
     reviewed in the same manner as other decisions of the Tax 
     Court.
       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


 3. Redetermination of interest pursuant to motion (sec. 14813 of the 
                              House bill)

     Present law
       A taxpayer may seek a redetermination of interest after 
     certain decisions of the Tax Court have become final by 
     filing a petition with the Tax Court.
     House bill
       The House bill provides that a taxpayer must file a 
     ``motion'' (rather than a ``petition'') to seek a 
     redetermination of interest in the Tax Court.
       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


4. Application of net worth requirement for awards of litigation costs 
                     (sec. 14814 of the House bill)

     Present law
       Any person who substantially prevails in any action brought 
     by or against the United States in connection with the 
     determination, collection, or refund of any tax, interest, or 
     penalty may be awarded reasonable administrative costs 
     incurred before the IRS and reasonable litigation costs 
     incurred in connection with any court proceeding. A person 
     who substantially prevails must meet certain net worth 
     requirements to be eligible for an award of administrative or 
     litigation costs. In general, only an individual whose net 
     worth does not exceed $2,000,000 is eligible for an award, 
     and only a corporation or partnership whose net worth does 
     not exceed $7,000,000 is eligible for an award. (The net 
     worth determination with respect to a partnership or S 
     corporation applies to all actions that are in substance 
     partnership actions or S corporation actions, including 
     unified entity-level proceedings under sections 6226 or 6228, 
     that are nominally brought in the name of a partner or a 
     shareholder.)
     House bill
       The House bill provides that the net worth limitations 
     currently applicable to individuals also apply to estates and 
     trusts. The House bill also provides that individuals who 
     file a joint tax return shall be treated as one individual 
     for purposes of computing the net worth limitations. 
     Consequently, the net worths of both spouses are aggregated 
     for purposes of this computation. An exception to this rule 
     is provided in the case of a spouse otherwise qualifying for 
     innocent spouse relief.
       Effective date.--The provision applies to proceedings 
     commenced after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


  C. Authority for Cooperative Agreements With State Tax Authorities 
                     (sec. 14821 of the House bill)

     Present law
       The IRS is generally not authorized to provide services to 
     non-Federal agencies even if the cost is reimbursed (62 Comp. 
     Gen. 323, 335 (1983)).
     House bill
       The House bill provides that the Secretary is authorized to 
     enter into cooperative agreements with State tax authorities 
     to enhance joint tax administration. These agreements may 
     include (1) joint filing of Federal and State income tax 
     returns, (2) single processing of these returns, and (3) 
     joint collection of taxes (other than Federal income taxes).
       The House bill provides that these agreements may require 
     reimbursement for services provided by either party to the 
     agreement. Any funds appropriated for tax administration may 
     be used to carry out the responsibilities of the IRS under 
     these agreements, and any reimbursement received under an 
     agreement would be credited to the amount appropriated.
       No agreement may be entered into that does not provide for 
     the protection of confidentiality of taxpayer information 
     that is required by section 6103.
       Effective date.--The provision is effective on the date of 
     enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.

                      XIX. Public Debt Provisions


 1. Public debt reduction trust fund (secs. 6341 and 6343 of H.R. 1215)

     Present law
       The Presidential Election Campaign Fund (''Campaign Fund'') 
     provides for public financing of a portion of qualified 
     Presidential election campaign expenditures and certain 
     convention costs (sec. 9001 et seq.) The Campaign Fund is 
     financed through the voluntary designation by individual 
     taxpayers on their Federal income tax returns of $3 of tax 
     liability, which is commonly known as the Presidential 
     election campaign checkoff (sec. 6096). This checkoff can be 
     made only by individuals (not corporations) and does not 
     affect the individual's tax liability. The Treasury 
     Department accumulates revenues in the Campaign Fund over a 
     four-year period and then disburses funds to eligible 
     candidates for President, Vice President, and conventions 
     during the Presidential election year.
       Individuals who itemize deductions (as well as 
     corporations) are allowed a deduction, subject to certain 
     limitations, for contributions made to qualified charitable 
     organizations or to Federal, State, and local governments. 
     Instructions to IRS income tax forms inform taxpayers that 
     they may make a gift to the Federal Government to reduce the 
     public debt by enclosing with their return a separate check 
     made payable to the ``Bureau of Public Debt.'' In addition, 
     various public laws provide that contributions to specific 
     Federal entities or programs are regarded as gifts to the 
     United States. Such contributions to the Bureau of Public 
     Debt and to specific Federal entities or programs are 
     deductible if the donor itemizes deductions for the year in 
     which the contribution is made.
     House bill
       Under the House bill, individual taxpayers will be allowed 
     to designate an amount up to 10 percent of their Federal 
     income tax liability for a taxable year to be earmarked to 
     reduce the Federal public debt. Such a designation may be 
     made only at the time the taxpayer files his or her income 
     tax return for a particular taxable year. An individual's 
     decision whether or not to make a designation under the 
     provision will not affect his or her tax liability. If an 
     individual has no Federal income tax liability for a taxable 
     year--i.e., the individual owes no Federal income tax after 
     claiming allowable credits (other than the EITC) and any 
     designation to the Presidential Election Campaign Fund--then 
     such individual will not be allowed to make a designation to 
     reduce the Federal debt on his or her return for that year.
       Under the House bill, amounts earmarked by taxpayers to 
     reduce the public debt will be transferred into a Public Debt 
     Reduction Trust Fund, which will be used only to retire or 
     purchase Federal securities (other than obligations held by 
     the Social Security Trust Fund, the Civil Service Retirement 
     and Disability Fund, and the Department of Defense Military 
     Retirement Fund). Related provisions (contained in another 
     section of the House bill) require either specific spending 
     cuts or an across-the-board sequestration in Federal spending 
     (with certain exceptions) to match the amounts designated by 
     taxpayers for debt reduction.
       Effective date.--The provision is effective for taxable 
     years ending after the date of enactment, and will remain in 
     effect until the entire outstanding Federal public debt is 
     retired.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.


2. Increase in the public debt limit (sec. 13801 of the House bill and 
                   sec. 7471 of the Senate amendment)

     Present law
       The statutory limit on the public debt currently is $4.9 
     trillion.
     House bill
       The House bill increases the statutory limit on the public 
     debt to $5.5 trillion.
     Senate amendment
       The Senate amendment is the same as the House bill.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment. 

[[Page H 12939]]


 XX. Adjustment to Contract With America Tax Relief Act (sec. 19002 of 
                            the House bill)

     Present law
       No provision.
     House bill
       In order to bring the budget reconciliation bill into 
     compliance with the budget resolution, the House bill 
     generally provides various adjustments to the provisions of 
     the Contract with America Tax Relief Act of 1995. (Title VI 
     of H.R. 1215, as passed by the House, with certain 
     modifications, and incorporated in the House bill by 
     reference.)
       In general, the effects of the changes in income and estate 
     tax liability occurring as a result of the provisions of the 
     Contract With America Tax Relief Act would be changed by 27 
     percent, with the following exceptions.
       In the case of capital gains, the benefit of the corporate 
     rate reduction on, and the individual deduction for, capital 
     gain income would be reduced by 15 percent for 1995 and by 31 
     percent for 1996 and thereafter. In the case of the indexing 
     of the basis of capital assets, the adjustment to basis would 
     be reduced by 31 percent for 1996 and thereafter.
       In the case of American Dream Savings accounts, taxpayers 
     would be entitled to 69 percent of the benefits of the 
     American Dream Savings accounts to which they otherwise are 
     entitled
       In the case of the alternative minimum tax, after 1994, 
     depreciation would no longer be treated as a preference item 
     in the case of individuals and the alternative minimum tax 
     rate applicable to corporations would be zero. The effects of 
     this modification would be suspended for taxable years 
     beginning in 1995 and 1996. Thus, for the first three taxable 
     years beginning after 1996, taxpayers would be entitled to a 
     refund equal to 1/3 of the amount of minimum tax paid by 
     corporations and the amount of minimum tax liability 
     attributable to depreciation in the case of individual 
     taxpayers for taxable year beginning in 1995 and 1996.
       The provisions relating to neutral cost recovery would be 
     deleted.
       Effective date.--Date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement does not include the House bill 
     provision.

                         XXI. Trade Provisions


      A. Technical Corrections and Miscellaneous Trade Provisions

     Present law
       1. Section 642(c) of the Customs Modernization Act provides 
     for interest accrual on entries from the date of deposit to 
     the date of liquidation or reliquidation. Under this 
     authority, interest is collected or refunded, as appropriate. 
     Section 642 of the Customs Modernization Act does not include 
     an effective date.
       2a. Section 509(a) of the Tariff Act of 1930 provides the 
     U.S. Customs Service the authority to examine books and 
     summon witnesses in its investigations and inquiries.
       2b. Section 7 of the Tariff Act of 1930 requires 
     certificates of importation for alcoholic beverages on small 
     vessels.
       2c. Section 434 of the Tariff Act of 1930 requires every 
     vessel entering the U.S. to present a manifest in compliance 
     with Customs regulations.
       2d. Section 484(a)(1) of the Tariff Act of 1930 provides 
     requirements for the entry of merchandise.
       2e. Section 592 of the Tariff Act of 1930 provides rules 
     for the imposition of penalties for fraud, negligence, and 
     gross negligence.
       2f. Section 592(d) of the Tariff Act of 1930 provides for 
     the restoration of lawful duties if the U.S. has been 
     deprived of such in the event of a violation.
       2g. Section 401 of the Tariff Act of 1930 provides 
     miscellaneous definitions and section 508 of the Tariff Act 
     of 1930 provides the requirements, time periods and 
     limitations for recordkeeping related to importing.
       2h. Section 504 of the Tariff Act of 1930 provides for 
     limitations on liquidation of entries.
       2i. Section 321(a)(2)(B) of the Tariff Act of 1930 
     originally applied to returning residents arriving from 
     foreign countries other than the insular possessions but, due 
     to a split in tariff classification numbers, the tariff 
     numbers applicable to returning residents arriving from a 
     foreign country were inadvertently dropped.
       2j. Section 631(a) of the Tariff Act of 1930 provides for 
     the use of private collection agencies to recover 
     indebtedness arising under the customs laws and owed to the 
     U.S.
       2k. Section 509 of the Tariff Act of 1930 provides Customs 
     with the authority to examine books and summon witnesses in 
     its investigations and inquiries.
       2l. Section 515 of the Tariff Act of 1930 provides for 
     reviews of protests, administrative review, modifications of 
     decisions, and requests for accelerated dispositions.
       3. Section 111(b) of the Customs and Trade Act of 1990 
     provides that, in the case of agricultural products of the 
     United States processed and packed in foreign trade zones, 
     the ad valorem merchandise processing fee (MPF) shall be 
     applied solely to the value of the foreign material used to 
     make the container; it exempts the value of the domestic 
     agricultural products from the MPF. The U.S. Customs Service 
     has ruled that, for all products not covered by this 
     provision and in the absence of an express provision to the 
     contrary, the MPF would be assessed on both the domestic and 
     foreign value of the merchandise entering from foreign trade 
     zones.
       4. Subsection (b) of section 484H of the Customs and Trade 
     Act of 1990 provides for the transportation in bond of 
     Canadian lottery material.
       5. Section 213(h) of the Caribbean Basin Economic Recovery 
     Act (CBERA) and section 204(c)(1) of the Andean Trade 
     Preference Act (ATPA) provide for duty reductions on certain 
     handbags, luggage, flat goods, work gloves, and leather 
     wearing apparel.
       6. Section 13031(b)(9)(A) of the Consolidated Omnibus 
     Budget Reconciliation Act of 1985 (COBRA) authorizes the 
     Customs Service to provide reimbursable services to air 
     couriers operating in express consignment carrier facilities 
     and in centralized hub facilities. Customs has interpreted 
     the present statute to prevent Customs from providing 
     reimbursable services to centralized hub facilities during 
     daytime hours.
       7. Section 313(r) of the Tariff Act of 1930 requires that a 
     drawback entry and all documents necessary to complete a 
     drawback claim, including those issued by the Customs 
     Service, shall be filed or applied for, as applicable, within 
     three years after the date of exportation or destruction of 
     the articles on which a drawback is claimed. Customs has no 
     discretion to extend the deadline.
       8. Sections 514 and 520 of the Tariff Act of 1930 provide 
     for protests against decisions of the Customs Service, and 
     refunds and errors, respectively.
       9. Subchapter II of chapter 99 of the Harmonized Tariff 
     Schedule of the United States provides for temporary 
     reductions in rates of duty. Heading 9902.98.04 provides for 
     the duty- free entry of the personal effects, equipment and 
     other materials of participants in, officials of, or 
     accredited members of delegations to world athletic events 
     including the XXVI Summer Olympiad and the 1996 Atlanta 
     Paralympic Games.
       10a. Section 313(s)(2)(B) of the Tariff Act of 1930 
     provides that a drawback successor may designate imported 
     merchandise or certain other merchandise for which the 
     successor received, before the date of succession, from the 
     person who imported and paid any duty due on the imported 
     merchandise, a certificate of delivery transferring the 
     merchandise to the successor.
       10b. Section 301(c)(4) of the Trade Act of 1974 provides 
     the authority for the United States Trade Representative to 
     carry out mandatory and discretionary trade actions under 
     section 301 of the Trade Act of 1974.
       11. Section 405(b) of the Uruguay Round Agreements Act 
     provides the authority for the President to impose a duty 
     with respect to a special safeguard agricultural good.
       12. General Note 6 of the Harmonized Tariff Schedule of the 
     United States provides guidelines for those articles eligible 
     for duty-free treatment pursuant to the Agreement on Trade in 
     Civil Aircraft.
       13. Section 484E(b)(2)(B) of the Customs and Trade Act of 
     1990 provides for a temporary exemption from duties imposed 
     on the foreign repair of vessels.
       14. Section 13031(b) of the Consolidated Omnibus Budget 
     Reconciliation Act of 1985 provides for limitations on the 
     collection of fees for Customs services.
       15. Subheading 2933.90.02 of the Harmonized Tariff Schedule 
     of the United States provides for the entry of heterocyclic 
     compounds with nitrogen hetero-atom(s) only; nucleic acids 
     and their salts.
       16. Section 304 of the Tariff Act of 1930 requires that, 
     with certain exceptions, every article of foreign origin 
     imported into the United States, or its container, must be 
     marked with the country of origin of the article.
       17. Section 514 of the Tariff Act of 1930, as amended, 
     outlines rules for protest against decisions of the Customs 
     Service.
       18. The Uruguay Round Agreements Act amended section 310 of 
     the Trade Act of 1974, as amended by the Omnibus Trade and 
     Competitiveness Act of 1988, to extend a revised ``Super 
     301'' procedure to review trade expansion priorities and 
     identify priority foreign practices for the year 1995.
     House Bill
       1. Section 12001 of the House bill amends section 505(c) of 
     the Tariff Act of 1930 to provide an exemption for interest 
     accrual on duty paid or owed where an entry is liquidated or 
     reliquidated due to an importer's claim for preference tariff 
     treatment under the NAFTA. Further, the House bill amends 
     section 642 to provide that this section is effective for 
     claims made on or after April 25, 1995.
       2a. Section 12002(a) amends section 509(a)(2) of the Tariff 
     Act of 1930 to make a technical correction to a citation.
       2b. Section 12002(b) repeals section 7 of the Tariff Act of 
     1930, which is an obsolete statute.
       2c. Section 12002(c) amends section 431(c)(1) of the Tariff 
     Act of 1930 to clarify that section 434 refers to vessel 
     manifests and does not include any other types of manifests.
       2d. Section 12002(d) amends section 484(a)(1) of the Tariff 
     Act of 1930 to delete an obsolete statutory reference 
     regarding the requirements for the entry of merchandise.
       2e. Section 12002(e) amends section 592 of the Tariff Act 
     of 1930 to replace references to ``lawful duties'' with 
     ``lawful duties, fees and taxes,'' as appropriate in order to 
     recognize that Customs collects fees and taxes, as well as 
     duties.
       2f. Section 12002(f) amends section 592(d) of the Tariff 
     Act of 1930 to require the restoration of duties, fees, and 
     taxes if the U.S. was deprived of any duties, fees, or taxes.

[[Page H 12940]]

       2g. Section 12002(g) amends sections 401(s) and 508(c)(1) 
     of the Tariff Act of 1930 to clarify that a reconciliation 
     should be treated as an entry for purposes of recordkeeping 
     laws. Thus, records pertaining to reconciliation should be 
     retained for a period of five years from the date of filing 
     of the reconciliation.
       2h. Section 12002(h) amends section 504(d) of the Tariff 
     Act of 1930 to ensure that an entry whose liquidation is 
     suspended is not liquidated when the suspension is removed 
     where an extension of liquidation is issued.
       2i. Section 12002(i) amends section 321(a)(2)(B) of the 
     Tariff Act of 1930 to allow Customs to apply administrative 
     exemptions to returning residents arriving from foreign 
     countries other than insular possessions.
       2j. Section 12002(j) amends section 631(a) of the Tariff 
     Act of 1930 to clarify that compensation paid to debt 
     collection agencies applies to debts owed to Customs.
       2k. Section 12002(k) amends section 509(b) of the Tariff 
     Act of 1930 to delete ``appropriate regional commissioner'' 
     and substitute ``officer designated pursuant to 
     regulations.''
       2l. Section 12002(l) amends section 515(d) of the Tariff 
     Act of 1930 to delete ``district director'' and substitute 
     ``port director.''
       3. Section 12003 amends section 111(b) of the Customs and 
     Trade Act of 1990 and section 13031(b)(8) of the Consolidated 
     Omnibus Reconciliation Act of 1985 to clarify that the MPF is 
     to be applied only to the foreign value of merchandise 
     entered from a foreign trade zone. Further, the House bill 
     provides that the provision made by section 111(b)(2)(D)(iv) 
     of the Customs and Trade Act of 1990 regarding the 
     application of the MPF to processed agricultural products 
     will also apply to all entries for which liquidation has not 
     been finalized from foreign trade zones.
       4. Section 12004 amends subsection (b) of section 484H of 
     the Customs and Trade Act of 1990 to replace the phrase 
     ``entered or withdrawn from warehouse for consumption'' in 
     the ``Effective Date'' section with ``entered for 
     transportation in bond.'' This is necessary to clarify that 
     Canadian lottery material is not entered into the U.S. for 
     consumption.
       5. Section 12005 amends section 213(h)(1) of the CBERA and 
     204(c)(1) of the ATPA to clarify that, effective 15 days 
     after the date of enactment, the duty reductions specified in 
     these sections do not apply to such articles made of textiles 
     and subject to textile agreements.
       6. Section 12006 amends section 13031(b)(9)(A) of the COBRA 
     to clarify that Customs may provide daytime reimbursable 
     services to centralized hub facilities during daytime hours. 
     The provision also clarifies that Customs may be reimbursed 
     for all services related to the determination to release 
     cargo, and not just ``inspectional'' services. These services 
     are reimbursable regardless of whether or not they are 
     performed on site.
       7. Section 12007 amends section 313(r) of the Tariff Act of 
     1930 to permit a one-year extension for filing drawback 
     claims in cases where the President has declared a major 
     disaster on or after January 1, 1994, and the claimant files 
     a request for such extension with the Customs Service within 
     one year from the date the claim is filed.
       8. Section 12008 provides for the liquidation or 
     reliquidation of certain entries in accordance with an 
     administrative review by the International Trade 
     Administration. The bill provides that any amounts owed by 
     the United States pursuant to the liquidation or 
     reliquidation of these entries shall be paid within 90 days 
     after such liquidation or reliquidation.
       9. Section 12009 adds subheading 9902.98.05 to provide for 
     the duty-free entry of the personal effects, equipment and 
     other materials of participants in, officials of, or 
     accredited members of delegations to the 1998 Goodwill Games.
       10. Section 12010 amends 313(s)(2)(B) of the Tariff Act of 
     1930 and section 301(c)(4) of the Trade Act of 1974 (19 
     U.S.C. 2411(c)(4)) to make technical corrections to language 
     in the provisions.
       11. Section 12011 amends section 405(b) of the Uruguay 
     Round Agreements Act to make a technical correction to a 
     citation.
       12. Section 12012 amends General Note 6 of the Harmonized 
     Tariff Schedule of the United States to allow for the 
     electronic filing of civil aircraft parts certifications.
       13. Section 12013 amends section 484E(b)(2)(B) of the 
     Customs and Trade Act of 1990 to extend the temporary 
     exemption for those entries made after December 31, 1992 and 
     before January 1, 1995.
       14. Section 12014 amends section 13031(b) of the COBRA to 
     clarify the application of section 521 of the North American 
     Free Trade Agreement Implementation Act to provide for the 
     collection of fees only one time in the course of a single 
     voyage for a passenger aboard a commercial vessel.
       15. Section 12015 amends subheading 2933.90.02 of the 
     Harmonized Tariff Schedule of the United States to strike 
     Quizalofop-ethyl.
       16. Section 12016 amends section 304 of the Tariff Act of 
     1930 to exempt certain metal forgings for hand tools, coffee 
     products, teas and spices from country of origin marking 
     requirements.
       17. Section 12017 instructs the Customs Service to treat 
     the re-entry of a single entry of four warp-knitting machines 
     from Venezuela as a duty-free entry, and to refund any 
     duties, with interest, which the company has paid as a result 
     of the improper classification.
       18. Section 12018 extends Super 301 (section 310 of the 
     Trade Act of 1974), in its revised form, through the year 
     2000.
     Senate amendment
       No provision.
     Conference agreement
       The House recedes.


                  B. Generalized System of Preferences

                     1. Basic Authority (Sec. 501)

     Present law
       Title V of the Trade Act of 1974, as amended, (Generalized 
     System of Preferences) grants authority to the President to 
     provide duty-free treatment on imports of eligible articles 
     from designated beneficiary developing countries (BDCs), 
     subject to certain conditions and limitations. Section 505(a) 
     of the Trade Act of 1974 provides that no duty-free treatment 
     under Title V shall remain in effect after July 31, 1995.
     House bill
       The House bill amends section 505(a) of the Trade Act of 
     1974 to authorize an extension through December 31, 1997. It 
     also provides that, notwithstanding section 514 of the Tariff 
     Act of 1930 or any other provision of law, the entry a) of 
     any article to which duty-free treatment under title V of the 
     Trade Act of 1974 would have applied if the entry had been 
     made on July 31, 1995, and b) that was made after July 31, 
     1995, and before the enactment of this Act, shall be 
     liquidated or reliquidated as free of duty and the Secretary 
     of Treasury shall refund any duty paid, upon proper request 
     filed with the appropriate customs officer, within 180 days 
     after the date of enactment.
     Senate amendment
       No provision.
     Conference agreement
       The Senate recedes, with an amendment to authorize an 
     extension of the Generalized System of Preferences (GSP) 
     through December 31, 1996.


           2. Designation of Beneficiary Developing Countries

     Present law
       Section 502 sets forth both the procedures for designating 
     countries as Beneficiary Developing Countries (BDCs) and the 
     conditions of such designation. This section establishes 
     conditions for designation which are mandatory and others 
     which are discretionary. With regard to mandatory conditions, 
     the President is prohibited from designating any country for 
     GSP benefits which is a developed country listed in 502(b).
     House bill
       The House bill amends the definition of country to include 
     ``any territory'' and deletes the reference in 502(b) to 
     Austria, Finland, and Sweden which are now European Union 
     Member states.
     Senate amendment
       No provision.
     Conference agreement
       The Senate recedes.


                        3. Mandatory Conditions

     Present Law
       Under section 502(c) the President is prohibited from 
     designating as a BDC a country which:
       (1) is a Communist country, unless (a) its products receive 
     non-discriminatory most- favored-nation (MFN) treatment, (b) 
     it is a GATT Contracting Party and a member of the 
     International Monetary Fund (IMF), and (c) it is not 
     dominated or controlled by international communism;
       (2) is an OPEC member, or a party to another arrangement, 
     and participates in an action the effect of which is to 
     withhold supplies of vital commodity resources from 
     international trade or raise their price to an unreasonable 
     level and to cause disruption of the world economy, subject 
     to trade agreement exemptions consistent with objectives 
     under the Trade Act of 1974;
       (3) affords ``reverse preferences'' having or likely to 
     have a significant adverse effect on U.S. commerce, unless 
     the President receives satisfactory assurances of elimination 
     before January 1, 1976;
       (4) has nationalized or expropriated U.S. property, or 
     taken similar actions, unless compensation is made, being 
     negotiated, or in arbitration;
       (5) fails to recognize as binding or enforce arbitral 
     awards in favor of U.S. citizens;
       (6) aids or abets, by granting sanctuary from prosecution 
     to, any individual or group which has committed an act of 
     international terrorism;
       (7) has not taken or is not taking steps to afford 
     internationally recognized worker rights to its workers.
     House Bill
       The House bill retains present law, except, with respect to 
     mandatory conditions: in (1)(b), replace ``is a GATT 
     contracting party'' with ``is a Member of the World Trade 
     Organization.''; in (2), delete the reference to OPEC member 
     and the exemption authority; in (3), delete the satisfactory 
     assurances exemption for reverse preferences.
     Senate amendment
       No provision.
     Conference agreement
       The Senate recedes.


                       4. discretionary criteria

     Present law
       Under section 502(c) the President must take into account a 
     list of factors in determining whether to designate a country 
     a 

[[Page H 12941]]
     BDC, including the extent to which the country is providing adequate 
     and effective intellectual property protection.
     House bill
       The House bill substitutes ``whether or not'' for ``the 
     extent to which'' in the intellectual property rights 
     criterion, and clarifies that such protection may not be 
     provided notwithstanding compliance with the Uruguay Round 
     TRIPs Agreement. The bill also adds new discretionary 
     criteria for country designation. In determining whether to 
     designate any country as a beneficiary developing country 
     under this title, the President must take into account the 
     extent to which such country fails to cooperate with the 
     United States in preventing the proliferation of nuclear 
     weapons, nuclear weapons components, and nuclear weapons 
     delivery systems and in preventing illegal drug trafficking.
     Senate amendment
       No provision.
     Conference agreement
       The House recedes.


                         5. graduation of bdcs

     Present law
       Countries are graduated from GSP eligibility if the per 
     capita GNP of any BDC for any year exceeds a dollar limit 
     ($11,800 in 1994), indexed annually under a formula from 
     $8,500 in 1984. When the income level reaches this amount, 
     such country is subject to a 25, rather than 50, percent 
     competitive need import share limit on all eligible articles 
     for up to the following two years. After that time, the 
     country is no longer treated as a BDC.
     House bill
       Under the House bill, if the President determines that a 
     beneficiary developing country has become a ``high income'' 
     country as designated by the World Bank (about $8,600 per 
     capita GNP in 1993), the President would be required to 
     remove the country from eligibility under the program. The 
     bill would eliminate the 25 percent competitive need limit 
     during the two-year phase-out period.
     Senate amendment
       No provision.
     Conference agreement
       The Senate recedes.


                  6. designation of eligible articles

     Present law
       Under Section 503 the President may not designate any 
     article as GSP eligible within the following categories of 
     import-sensitive articles:
       1. textile and apparel articles which are subject to 
     textile agreements;
       2. watches, except watches entered after June 30, 1989 that 
     the President determines will not cause material injury to 
     watch or watch band, strap, or bracelet manufacturing and 
     assembly operations in the United States or U.S. insular 
     possessions;
       3. import-sensitive electronic articles;
       4. import-sensitive steel articles;
       5. footwear, handbags, luggage, flat goods, work gloves, 
     and leather wearing apparel which were not GSP eligible 
     articles on April 1, 1984;
       6. import-sensitive semi-manufactured and manufactured 
     glass products; and
       7. any other articles the President determines to be 
     import-sensitive in the context of GSP.
     House bill
       The House bill retains all provisions of present law, 
     except, with respect to changes in the following statutory 
     exemptions: in (1), it replaces the present provision with 
     exemption of textile and apparel articles which were not GSP 
     eligible on January 1, 1994; in (2), it deletes statutory 
     exemption for watches; in (5), it applies exemption to 
     footwear and related articles which were not GSP eligible on 
     January 1, 1995.
       The House bill also prohibits consideration of an article 
     for designation of eligibility for three years following 
     formal consideration and denial of that article. Further, the 
     House bill provides specific authority for the President to 
     designate any article that is the growth, product, or 
     manufacture of a least-developed developing country (LDDC) as 
     an eligible article with respect to imports from LDDCs, if 
     the President determines such an article is not import-
     sensitive in the context of imports from LDDCs. This 
     authority does not apply to statutorily exempt articles. LDDC 
     designations are to be based upon the overall statutory 
     considerations and discretionary designation criteria.
     Senate amendment
       No provision.
     Conference agreement
       The Senate recedes, with an amendment to preserve the 
     statutory exemption for watches in current law.


                  7. Limits on Preferential Authority

     Present law
       Under Section 504 of the Trade Act of 1974, the President 
     may withdraw, suspend, or limit GSP duty-free treatment with 
     respect to any article or any country, after considering the 
     overall GSP and discretionary BDC designation factors. The 
     President shall withdraw or suspend the BDC designation of 
     any country if he determines that, as a result of changed 
     circumstances, the country would be barred from designation.
     House bill
       The House bill adds a requirement that, except in 
     exceptional circumstances, the President may not take action 
     to withdraw, suspend, or terminate or limit GSP treatment 
     with respect to any country without first providing a period 
     for the submission of public comments.
     Senate amendment
       No provision.
     Conference agreement
       The House recedes.


                       8. competitive need limits

     Present law
       Whenever the President determines that exports by any BDC 
     to the United States of a GSP eligible article during any 
     year--
       1. exceed a dollar limit ($114 million in 1994) based on 
     $25 million adjusted annually relative to changes in the U.S. 
     GNP since 1974, or
       2. equal or exceed a 50 percent share of the total value of 
     U.S. imports of the article, then, no later than July 1 of 
     the next year, such country is NOT treated as a BDC with 
     respect to such article.
       Not later than January 4, 1987, and periodically 
     thereafter, the President must conduct a general review of 
     eligible articles and, if he determines that a BDC has 
     demonstrated a sufficient degree of competitiveness relative 
     to other BDCs on any eligible article, then a lower 
     competitive need dollar limit ($41.9 million in 1993, indexed 
     annually from 1984 base) and 25 percent total import share 
     limit apply.
     House bill
       The House bill reduces the basic competitive need limit to 
     $75 million for any year beginning January 1, 1996, and 
     substitutes a standard annual increase of $5 million for the 
     indexing formula in current law. The House bill preserves the 
     50 percent market share competitive need limit. The House 
     bill deletes the general review requirements and lower 
     limits.
     Senate amendment
       No provision.
     Conference Agreement
       The Senate recedes.


             9. authority to waive competitive need limits

     Present law
       The President may waive the dollar and import share 
     competitive need limits on any eligible article of any BDC if 
     he (1) receives International Trade Commission (ITC) advice 
     on the likely effect of the waiver; (2) determines, based on 
     the overall GSP and discretionary country designation 
     considerations and the ITC advice, that the waiver is in the 
     U.S. national economic interest; and (3) publishes the 
     determination in the Federal Register.
       The import share competitive need limit may be disregarded 
     if total U.S. imports of the eligible article during the 
     preceding year do not exceed a de minimis amount of $5 
     million adjusted annually ($13.4 million in 1994) according 
     to changes in U.S. GNP since 1979. The import share limit 
     does not apply to any eligible article that was not produced 
     in the United States as of January 3, 1985.
     House bill
       The House bill retains the present waiver authority and 
     updates January 3, 1985 for no U.S. production to January 1, 
     1995. The House bill also retains the de minimis import 
     provision, but substitutes $13 million in 1995 and a standard 
     annual increase of $500,000 beginning January 1, 1996 for the 
     indexing formula in current law. Further, the House bill 
     provides for the refund of duties paid on buffalo leather 
     from Thailand during the month of July 1995.
     Senate amendment
       No provision.
     Conference agreement
       The Senate recedes, with an amendment to strike the refund 
     of duties paid on buffalo leather from Thailand.


                  10. other provisions of current law

     Present law
       Under section 504(c)(3)(D) of the Trade Act of 1974, the 
     President may not exercise the competitive need waiver 
     authority in any year on imports of eligible articles 
     exceeding:
       1. 30 percent of total GSP duty-free imports during the 
     preceding year, or
       2. 15 percent of total GSP duty-free imports during the 
     preceding year from BDCs which had (a) a per capita GNP of 
     $5,000 or more, or (b) exported to the United States more 
     than 10 percent of total GSP duty-free imports during that 
     year.
       The President may waive competitive need limits in certain 
     cases where there has been a historical preferential trade 
     relationship between the United States and that country.
       Appropriate U.S. agencies must assist BDCs to develop 
     policies to assure that their agriculture sectors are not 
     directed to export markets to the detriment of foodstuff 
     production for their citizens.
     House bill
       The House bill deletes provisions in current law regarding 
     waiver trade limits, historical preferences, and agriculture 
     production.
     Senate amendment
       No provision.
     Conference agreement
       The House recedes.

[[Page H 12942]]



                C. trade adjustment assistance programs

              modification of trade adjustment assistance

     Present Law
       Title II of the Trade Act of 1974 authorizes Trade 
     Adjustment Assistance (TAA) programs for workers and firms 
     adversely affected by increased imports. Eligibility of 
     workers and firms is certified by the Employment and Training 
     Administration (ETA) of the Department of Labor, and the 
     Economic Development Administration (EDA) of the Department 
     of Commerce, respectively.
       Subchapter D of chapter 2 of Title II of the Trade Act of 
     1974 establishes TAA programs for workers adversely affected 
     by increased imports or production relocation associated with 
     the implementation of the North American Free Trade Agreement 
     (NAFTA).
       Workers certified by the Secretary of Labor for approved 
     training qualify for Trade Adjustment Allowance (TRA) 
     payments, following their exhaustion of unemployment 
     insurance (UI) benefits, equal to their weekly UI amount for 
     up to 52 weeks of UI and TRA combined. Workers may receive an 
     additional 26 weeks of TRA benefits to complete approved 
     training. Workers must enter training unless a waiver is 
     granted by the Secretary of Labor where it is not feasible or 
     appropriate to approve a training program.
       Certified workers under NAFTA-related TAA receive training 
     allowances in the same manner and to the same extent as 
     workers under general TAA. However, certified workers must 
     enroll in a training program within six weeks of 
     certification, and the Secretary of Labor may not waive 
     training requirements. Under both general TAA and NAFTA-
     related TAA, certified workers may receive job search and 
     relocation allowances.
       The ``cap'' on payments for training under general worker 
     TAA for any fiscal year is $80 million, except for fiscal 
     year 1997, during which the ``cap'' is $70 million. Under the 
     NAFTA- related programs, the ``cap'' on payments for training 
     for any fiscal year is $30 million.
       Under TAA for firms, the Commerce Department provides 
     eligible firms with technical assistance to prepare and 
     implement economic adjustment plans, or for industry-wide 
     assistance through twelve regional Trade Adjustment 
     Assistance Centers (TAACs).
       Appropriations for TAA for workers and TAA for firms are 
     authorized through fiscal year 1998. These programs and 
     NAFTA-related TAA programs terminate after fiscal year 1998.
     House bill
       Section 12201 of the House bill amends general TAA so that 
     waivers of the training requirement may be granted only where 
     a training program is not available. The effective date for 
     this provision is October 1, 1996. The House bill also 
     eliminates relocation allowances for both general TAA and 
     NAFTA-related TAA eligible workers. The effective date for 
     this provision is October 1, 1996. Lastly, the House bill 
     would extend authorization of appropriations for general TAA 
     for workers and TAA for firms through fiscal year 2000, after 
     which the programs terminate. NAFTA-related TAA is authorized 
     through fiscal year 1998 as under present law. No benefits 
     may be granted under either the general worker TAA programs 
     or TAA for firms after September 30, 2000.
     Senate amendment
       No provision.
     Conference agreement
       The House recedes.

  TITLE XII--TEACHING HOSPITALS AND GRADUATE MEDICAL EDUCATION; ASSET 
                  SALES; WELFARE; AND OTHER PROVISIONS


 subtitle a--block grants to states for temporary assistance for needy 
                                families

                             1. objectives

     Present law
       To provide for the general welfare by...enabling the 
     several States to make more adequate provision 
     for...dependent children... (Social Security Act, 1935)
     House bill
       To restore the American family, reduce illegitimacy, 
     control welfare spending and reduce welfare dependence.
     Senate amendment
       To enhance support and work opportunities for families with 
     children, reduce welfare dependence, and control welfare 
     spending.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment as follows: To restore the American family, 
     enhance support and work opportunities for families with 
     children, reduce out-of-wedlock pregnancies, reduce welfare 
     dependence, and control welfare spending.


                             2. short title

     Present law
       Not applicable.
     House bill
       The Personal Responsibility Act of 1995.
     Senate amendment
       The Work Opportunity Act of 1995.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment as follows: The Personal Responsibility and 
     Work Opportunity Act of 1995.


                  3. sense of the congress on families

     Present law
        No provision.
     House bill
       It is the sense of the Congress that marriage is the 
     foundation of a successful society, and an essential social 
     institution which promotes the interests of children and 
     society at large. The negative consequences of an out-of-
     wedlock birth on the child, the mother, and society are well 
     documented. Yet the nation suffers unprecedented and growing 
     levels of illegitimacy. In light of this crisis, the 
     reduction of out-of-wedlock births is an important government 
     interest and the policy contained in provisions of this title 
     address the crisis.
     Senate amendment
       Congress finds that marriage is the foundation of a 
     successful society and an essential institution that promotes 
     the interests of children. Promotion of responsible 
     fatherhood and motherhood is integral to successful child-
     rearing and well-being of children. It is the sense of 
     Congress that prevention of out-of-wedlock pregnancy and 
     reduction in out-of-wedlock birth are very important 
     government interests and that the policy contained in 
     provisions of this title is intended to address the crisis.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                 4. grants to states for needy families

                               A. Purpose

     Present law
       Title IV-A, which provides grants to States for aid and 
     services to needy families with children (AFDC), is designed 
     to encourage care of dependent children in their own homes by 
     enabling States to provide cash aid and services, maintain 
     and strengthen family life, and help parents attain maximum 
     self-support consistent with maintaining parental care and 
     protection.
     House bill
       Block grants for temporary assistance for needy families 
     (Title IV-A) are established to increase the flexibility of 
     States in operating a program designed to:
       (1) provide assistance to needy families so that children 
     may be cared for in their homes or in the homes of relatives;
       (2) end the dependence of needy parents on government 
     benefits by promoting work and marriage; and
       (3) discourage out-of-wedlock births.
     Senate Amendment
       Block grants for temporary assistance for needy families 
     (Title IV-A) are established to increase the flexibility of 
     States in operating a program designed to:
       (1) provide assistance to needy families with minor 
     children;
       (2) provide job preparation and opportunities for such 
     families; and
       (3) prevent and reduce the incidence of out-of-wedlock 
     pregnancies, with a special emphasis on teen pregnancies, and 
     establish annual goals for preventing and reducing these 
     pregnancies for fiscal years 1996 through 2000.
     Conference Agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).
       B. Eligible States; State Plan
     Present Law
       A State must have an approved State plan for aid and 
     services to needy families containing 43 provisions, ranging 
     from single-agency administration to overpayment recovery 
     rules. State plans explain the aid and services that are 
     offered by the State. Aid is defined as money payments. For 
     most parents without a child under age 3, States must provide 
     education, work, or training under the JOBS program to help 
     needy families with children avoid long-term welfare 
     dependence. To receive Federal funds, States must share in 
     program costs. The Federal share of costs (matching rate) 
     varies among States and is inversely related to the square of 
     State per capita income. For AFDC benefits and child care, 
     the Medicaid matching rate is used. This rate now ranges from 
     50 percent to 79 percent among States and averages about 55%. 
     For JOBS activities, the rate averages 60%; for 
     administrative costs, 50%. In fiscal year 1995, 20 percent of 
     employable (nonexempt) adult recipients must participate in 
     education, work, or training under JOBS, and at least one 
     parent in 50 percent of unemployed-parent families must 
     participate at least 16 hours weekly in an unpaid work 
     experience or other work program. States must restrict 
     disclosure of information to purposes directly connected to 
     administration of the program and to any connected 
     investigation, prosecution, legal proceeding or audit. Each 
     State must offer family planning services to all 
     ``appropriate'' cases, including minors considered sexually 
     active. States may not require acceptance of these services. 
     States must have in effect an approved child support program. 
     States must also have an approved plan for foster care and 
     adoption assistance. States must have an income and 
     verification system (covering AFDC, Medicaid, unemployment 
     compensation, food stamps, and--in outlying areas--adult cash 
     aid) in accordance with Sec. 1137 of the Social Security Act.

[[Page H 12943]]

     House bill
       An ``eligible State'' is a State that, during the 3-year 
     period immediately preceding the fiscal year, had submitted a 
     plan to the Secretary of HHS for approval. The plan must 
     include:
       (1) A written document describing how the State will:
       a. conduct a program that provides cash benefits to needy 
     families with children, and provides parents with help in 
     preparing for and obtaining employment and becoming self-
     sufficient;
       b. require at least one parent in a family that has 
     received benefits for 24 months to engage in work activities 
     defined by the State;
       c. ensure that parents engage in work activities in accord 
     with section 404;
       d. treat interstate immigrants, if their benefits differ 
     from State residents;
       e. take such reasonable steps as State deems necessary to 
     restrict use and disclosure of information about recipients;
       f. take actions to reduce out-of-wedlock pregnancies, 
     including helping unmarried mothers and fathers avoid 
     subsequent pregnancies and provide care for their children; 
     and
       g. reduce teen pregnancy, including through the provision 
     of education and counseling to male and female teens.
       (2) Certification by the Governor that the State will 
     operate a child support enforcement program.
       (3) Certification by the Governor that the State will 
     operate a child protection program, including a foster care 
     and adoption program.
       (4) The Secretary shall determine whether the State plan 
     contains the material required.
     Senate amendment
       An ``eligible State'' is a State that annually submits to 
     the Secretary: an outline of its program; a 3-year strategic 
     plan; various certifications on programs offered by the 
     State; and an estimate of State and local expenditures. The 
     detailed requirements of State plan submissions to the 
     Secretary are:
       (1) A written document outlining how the State intends to:
       a. provide aid to needy families with at least one minor 
     child (or any expectant family); and provide a parent or 
     (other) caretaker in these families with work activities and 
     support services to enable them to leave the program and 
     become self-sufficient;
       b. conduct a program designed to serve all political 
     subdivisions;
       c. provide a parent or caretaker in such families with work 
     experience, assistance in finding employment, and other work 
     preparation activities and support services that the State 
     considers appropriate to enable such families to leave the 
     program and become self-sufficient;
       d. require a parent or caretaker to engage in work, as 
     defined by the State, after 24 months of benefits, or, if 
     earlier, when the State finds the person ready for work (see 
     i. below for community service rule after 3 months of 
     benefits);
       e. satisfy the minimum participation rate specified in 
     section 404;
       f. treat families with minor children moving into the 
     State; and noncitizens of the U.S.;
       g. safeguard and restrict use and disclosure of information 
     about recipients;
       h. establish goals and take action to prevent and reduce 
     out-of-wedlock pregnancies, with emphasis on teenage 
     pregnancies; and
       i. unless the State opts out by notice to the Secretary, 
     require participation in community service (with hours and 
     tasks set by the State), after 3 months of benefits, by a 
     parent or caretaker not exempt from work requirements 
     (effective 2 years after enactment).
       (2) A strategic plan that shall include:
       a. a description of the goals of the 3-year strategic plan, 
     including outcome-related goals of, and benchmarks for, 
     program activities;
       b. a description of how the above goals and benchmarks will 
     be achieved, or progress made toward them, in the current 
     year;
       c. a description of performance indicators to be used in 
     measuring/assessing output service levels and outcomes of 
     activities;
       d. information on external factors that could significantly 
     affect attainment of goals and benchmarks;
       e. information on a mechanism for conducting program 
     evaluation, for use in comparing results with goals and 
     benchmarks;
       f. information on how minimum participation rates specified 
     in section 404 will be satisfied; and
       g. an estimate of the total amount of State and local 
     expenditures under the program for the current fiscal year.
       (3) Certification that the State will operate a child 
     support enforcement program.
       (4) Certification that the State will operate child 
     protection programs, including a foster care and adoption 
     programs, under parts B and E.
       (5) Certification by the Chief Executive Officer that State 
     will participate during the fiscal year in the income and 
     eligibility verification system (IEVS) required by Section 
     1137 of Social Security Act.
       (6) Certification by the Chief Executive Officer specifying 
     which State agency or agencies will administer and supervise 
     the program and ensuring that local governments and private 
     sector organizations have been consulted about the plan and 
     design of welfare services in the State.
       (7) Certification by the Chief Executive Officer that the 
     State shall provide the Secretary with required reports.
       (8) Estimate of the total amount of State and local 
     expenditures under the State program for the fiscal year.
       (9) The Chief Executive Officer must certify that the State 
     will provide Indians in each tribe that does not have a 
     tribal family assistance plan with equitable access to 
     assistance under the State block grant program.
       (10) The State shall make available to the public a summary 
     of the State plan and shall provide a copy to the ``approved 
     entity'' conducting the audit of State expenditures from the 
     block grant.
       Conference Agreement
       An ``eligible State'' is a State that once every two years 
     submits to the Secretary an outline of its program and 
     various certifications on programs offered by the State. The 
     detailed requirements of State plan submissions to the 
     Secretary are:
       (1) A written document describing how the State will:
       a. conduct a program that provides assistance to needy 
     families with children (or families that include a pregnant 
     mother) and provides parents with job preparation, work and 
     support services to enable them to leave the program and 
     become self-sufficient;
       b. conduct a program designed to serve all political 
     subdivisions;
       c. require a parent or caretaker to engage in work, as 
     defined by the State, after 24 months of benefits, or, if 
     earlier, when the State finds the person ready for work;
       d. ensure that families engage in work activities in accord 
     with section 404;
       e. treat families moving into the State from another State, 
     if such families are to be treated differently than other 
     families;
       f. take such reasonable steps as State deems necessary to 
     safeguard and restrict the use and disclosure of information 
     about recipients;
       g. establish goals and take action to prevent and reduce 
     out-of-wedlock pregnancies, with emphasis on teenage 
     pregnancies; and
       h. treat noncitizens, if the State and local benefits for 
     which they may be eligible will be different than those 
     available to citizens.
       (2) Certification by the chief executive officer that the 
     State operate a child support enforcement program;
       (3) Certification by the chief executive officer that the 
     State will operate a child protection program and a foster 
     care and adoption program under part B;
       (4) Certification by the chief executive officer specifying 
     which State agency or agencies will administer and supervise 
     the program and ensuring that local governments and private 
     sector organizations have had 60 days to submit comments 
     about the plan and the design of welfare services in the 
     State;
       (5) Certification by the chief executive officer that the 
     State will provide Indians in each tribe that does not have a 
     tribal family assistance plan with equitable access to 
     assistance under the program; and
       (6) The State shall make available to the public a summary 
     of the State plan.
       For purposes of this section, the term ``Eligibile State'' 
     means, with respect to fiscal year 1996, a State that has 
     submitted to the Secretary the plan described above within 3 
     months after the date of enactment.


                         C. payments to states

                              entitlements

     Present law
       AFDC entitles States to Federal matching funds. Current law 
     provides permanent authority for appropriations without limit 
     for grants to States for AFDC benefits, administration, and 
     AFDC-related child care. Over the years, because of court 
     rulings, AFDC has evolved into an entitlement for individuals 
     to receive cash benefits. In general, States must give AFDC 
     to all persons whose income and resources are below State-set 
     limits if they are in a class or category eligible under 
     Federal rules.
       There is no grants increased to reward states that reduce 
     of out-of-wedlock births (illegitimacy ratio).
       There is no adjustment for population growth. Instead, 
     current law provides unlimited matching funds. When AFDC 
     enrollment climbs, Federal funding automatically rises.
       There is no adjustment for emergency assistance (EA) plan 
     amendments. Current law provides unlimited matching funds for 
     EA expenditures.
       There is no job placement performance bonus, performance 
     bonus, or high performance bonus.
       The law imposes an aggregate ceiling on matching funds for 
     AFDC, adult cash welfare (aged, blind, disabled), and foster 
     care and adoption assistance in Guam, Puerto Rico, the Virgin 
     Islands, and American Samoa (AFDC, foster care, and adoption 
     assistance only). (Sec. 1108(a) and (d) of the Social 
     Security Act.) The Federal matching rate is 75%, except for 
     adoption assistance and foster care maintenance payments, 
     whose matching rate is 50%. (Note: American Samoa has not 
     implemented AFDC). Separate funding ceilings apply to 
     matching funds for AFDC family planning services (75% 
     Federal) and for Medicaid (50% Federal) in each territory 
     (sec. 1108(b) and (c) of the Social Security Act). The 
     outlying areas listed above are entitled to JOBS matching 
     funds (75% Federal), allocated on the same basis as States 
     (by share of AFDC adult recipients). (Sec. 403(1)(1)(A) of 
     the Social Security Act.)
       Indian tribes and Alaska native organizations receive no 
     special treatment regarding AFDC, and tribes and native 
     organizations 

[[Page H 12944]]
     do not administer AFDC funds. Indian and Alaska families with children 
     receive AFDC benefits on the same terms as other families in 
     their States or from State or local AFDC agencies. More than 
     80 tribes and native organizations in 24 States are JOBS 
     grantees, having applied to conduct JOBS within 6 months of 
     enactment of the law establishing it. Their allocation of 
     JOBS funds is based on the percentage of AFDC adult 
     recipients within the State who are in the tribal service 
     area. Their JOBS allocation is subtracted from that of their 
     State. JOBS funds granted to Indians and Alaska natives are 
     100% Federal, requiring no matching. Further, their JOBS 
     programs need not meet participation rules of the regular 
     JOBS program. In fiscal year 1995 the estimated allocation of 
     JOBS funds for these groups totaled $8.9 million.
     House Bill
       Each eligible State is entitled to receive a grant from the 
     Secretary for each of 5 fiscal years (1996-2000) in the 
     amount equal to the State family assistance grant for the 
     fiscal year. There is no individual entitlement (implicit in 
     bill). For each fiscal year beginning with 1998, a State's 
     grant amount is increased by 5 percent if the State 
     illegitimacy ratio is 1 percentage point lower in that year 
     than its 1995 illegitimacy ratio; the State grant is 
     increased 10 percent if the illegitimacy ratio is 2 or more 
     percentage points lower than its 1995 illegitimacy ratio. In 
     1997, 1998, 1999, and 2000, a State's grant amount is 
     increased by the State's percentage share of national 
     population growth among growing States multiplied by $100 
     million. States that have negative population growth are 
     omitted from the calculation. The House bill entitles 
     territories to a cash block grant for temporary assistance to 
     needy families (on same basis as States). It repeals AFDC and 
     foster care/adoption assistance (and, accordingly, 
     territorial ceilings for them and for AFDC family planning). 
     (Sec. 104(e)(1) of H.R. 4.) It establishes new separate 
     territorial ceilings for adult cash welfare. The bill retains 
     territorial ceilings for Medicaid, but repeals ceilings for 
     AFDC family planning (along with AFDC itself). As noted, the 
     bill repeals JOBS. The basic cash block grant for outlying 
     areas includes base-year level JOBS funds. Indian tribes and 
     Alaska native organizations receive no special treatment 
     regarding the cash block grant that will replace AFDC. Tribes 
     and native organizations would not administer the new grants. 
     The bill repeals JOBS (sec. 104(c)), and the basic cash block 
     grant includes base-year level JOBS funds of each State 
     (those funds include ones earmarked previously for 
     administration by Indian tribes and Alaska native 
     organizations). Tribes and native organizations would not 
     administer the new grants.
     Senate Amendment
       The Secretary is required to pay each eligible State for 
     each of 5 fiscal years (1996 - 2000) a grant equal to the 
     State family assistance grant for the fiscal year. The 
     amendment states that no person is entitled to any assistance 
     under Title IV-A. For fiscal years 1998, 1999 and 2000, a 
     State's grant amount is increased if the State illegitimacy 
     ratio is at least 1 percentage point lower than its 1995 
     illegitimacy ratio and the State rate of ``induced pregnancy 
     terminations'' is no higher than in 1995. The bonus equals 
     $25 times the number of children in the State in families 
     with income below the poverty line, according to the most 
     recently available Census data. The bonus is $50 per poor 
     child if the illegitimacy ratio is at least 2 percentage 
     points lower and the abortion rate no higher than in 1995. 
     The bonus shall not be paid if the Secretary finds that the 
     illegitimacy ratio declined, or the abortion rate held 
     steady, because of a change in State reporting methods. The 
     amendment authorizes to be appropriated, and appropriates, 
     sums necessary for these grants. For each of fiscal years 
     1997, 1998, 1999, and 2000, qualifying States shall receive a 
     supplemental grant amount equal to 2.5 percent of the block 
     grant received in the preceding fiscal year. For this 
     purpose, a qualifying State is one with an average level of 
     State welfare spending per poor person in the preceding 
     fiscal year below the national average and with an estimated 
     rate of State population growth above the average growth rate 
     for all States for the most recent fiscal year for which 
     information is available. Additionally, States whose 
     population rose more than 10% from April 1, 1990, to July 1, 
     1994, are deemed eligible, as are States with a fiscal year 
     1996 level of State welfare spending per poor person that is 
     less than 35 percent of the national average level. State 
     welfare spending per poor person is defined as the State cash 
     block grant divided by the number of persons in the State who 
     had an income below the poverty line, according to the 1990 
     decennial census. For these grants, a total of $878 million 
     is authorized to be appropriated, and is appropriated to be 
     spent in 1997, 1998, 1999, and 2000. The Senate amendment 
     makes available up to a total of $800 million for grants for 
     years fiscal year 1996 through fiscal year 2000 equal to 
     increased EA expenditures in fiscal year 1995 attributable to 
     State EA plan amendments made during fiscal year 1994. If 
     this amount is insufficient, State EA adjustment grants are 
     to be reduced proportionately. For each of 2 years (fiscal 
     years 1998 and 1999) the Secretary shall pay a job placement 
     performance bonus to eligible States. This bonus fund shall 
     equal 3% of the national cash block grant for fiscal year 
     1998 and 4% for fiscal year 1999. The DHHS Secretary shall 
     develop a formula for allocating funds to States on the basis 
     of the number of families who, during the previous year, lost 
     eligibility for continued aid from the cash block grant 
     program because of obtaining unsubsidized employment. The 
     formula must provide a larger bonus for families who remain 
     employed for longer periods or who are at greater risk of 
     long-term welfare enrollment and take into account each State 
     or geographic area's unemployment condition. For fiscal year 
     2000, the Secretary shall pay a performance bonus to each 
     qualified State. To qualify for a performance bonus, a State 
     must exceed overall average performance of all States in a 
     measurement category (in the time period starting 6 months 
     after enactment and ending on September 30, 1999) or improve 
     its own performance in a category by at least 15% over that 
     of fiscal year 1994. The 5 measurement categories are: 
     reduction in average length of time families receive cash 
     aid, increase in the percentage of recipient families that 
     receive child support payments, increase in the number of 
     families who lose eligibility for continued cash aid as a 
     result of unsubsidized work, increase in earnings of 
     recipient families, and reduction in percentage of families 
     that become re-eligible for cash aid within 18 months after 
     leaving the program. The bonus fund shall equal 5% of the 
     national cash block grant and is to be deducted from that 
     grant (by reducing each State's fiscal year 2000 grant by 
     5%). For fiscal year 2000, in addition, ``high performance'' 
     States shall be entitled to a share of a high performance 
     bonus fund. Appropriated for the high performance bonus fund 
     is an amount equal to penalties imposed on States (and 
     ``collected'' by reductions in State grants) for FYs 1996-
     1999. High performance bonuses will be awarded for each of 
     the 5 measurement categories to the 5 States with the highest 
     percentage of improvement over their fiscal year 94 baseline 
     in the category and to the 5 States with the highest overall 
     average performance in the category. Retains but increases 
     aggregate ceilings in each of the territories for cash aid to 
     needy families, cash aid to needy aged, blind or disabled 
     adults, and foster care/adoption assistance. Ends requirement 
     that territories share cost of cash aid for needy families. 
     Ceilings for Puerto Rico, Guam, and the Virgin Islands would 
     rise by $19.521 million (representing a 12.5 percent increase 
     in the old ceilings, plus $8.446 million for their fiscal 
     year 1994 JOBS funds). Retains territorial ceilings for 
     Medicaid, but repeals ceilings for AFDC family planning 
     (along with AFDC itself). The Senate amendment repeals JOBS, 
     but increases ceilings for the outlying areas to include 
     their base-year level JOBS funds. The Senate amendment allows 
     block grant funds to be directly administered by Indian 
     tribes and Alaska native organizations. The amount is the 
     total of Federal AFDC payments to the State for fiscal year 
     1994 attributable to Indian families. The Senate amendment 
     requires the DHHS Secretary to continue to pay Indian tribes 
     and Alaska native organizations that have been JOBS grantees 
     an annual grant equal to the amount they received in fiscal 
     year 95 for JOBS for each of fiscal years 1996, 1997, 1998, 
     1999 and 2000. For this purpose it appropriates $7,638,474 
     for each year. These funds are separate from, and in addition 
     to, the national cash block grant.
     Conference Agreement
       The conference agreement follows the House bill and the 
     Senate amendment on grants for family assistance, so that 
     each eligible State is entitled to receive a grant equal to 
     the State family assistance grant from the Secretary for each 
     of 5 fiscal years (1996-2000). With respect to the Senate 
     amendment's explicit statement that no person is entitled to 
     any assistance under Title IV-A of the Social Security Act, 
     this provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).
       The conference agreement follows the House bill with 
     respect to the amount of Grant Increases to Reward States 
     that Reduce Out-of-Wedlock births (namely grant increases of 
     5% and 10%, based on reductions in illegitimacy). The 
     conference agreement follows the Senate amendment with 
     respect to the determination of how States may qualify for 
     grant increases for this purpose, including the prohibition 
     on a State's receiving a grant increase for this purpose if 
     the State rate of induced pregnancy terminations is higher 
     than in 1995.
       For purposes of this part, the Secretary is to disregard 
     changes in rates of illegitimacy due to a change in State 
     methods of reporting such data.
       The conference agreement generally follows the Senate 
     amendment with regard to the Adjustment for Population 
     Growth, with the modification that $800 million is authorized 
     and appropriated for this purpose.
       The conference agreement follows the House bill regarding 
     the adjustment for Emergency Assistance Plan Amendments.
       The conference agreement follows the House bill regarding 
     the Job Placement Performance Bonus.
       The conference agreement follows the Senate amendment 
     regarding the Performance Bonus, except that States that are 
     most successful or most improved in moving families off 
     welfare into work may reduce their 75 percent State 
     maintenance of effort requirement by up to 8 percentage 
     points.
       The conference agreement follows the House bill regarding 
     the High Performance Bonus.
       The conference agreement generally follows the Senate 
     amendment regarding the 

[[Page H 12945]]
     treatment of outlying areas, with certain modifications to the 
     aggregate ceilings on cash benefits for the specified 
     territories.
       The conference agreement generally follows the Senate 
     amendment regarding the treatment of Indian tribes and Alaska 
     native organizations, except that these groups will receive 
     benefits through their State's block grant in fiscal year 
     1996 and will be eligible to receive separate payments in 
     fiscal year 1997 and thereafter. With regard to the specific 
     provision outlining the purpose of the section providing for 
     direct funding and administration by Indian tribes, this 
     provision was dropped from the Reconciliation bill because it 
     violates the Byrd Rule (section 313 of Congressional Budget 
     Act of 1974).
           Definitions
     Present Law
       AFDC law defines ``State'' to include the 50 States, the 
     District of Columbia, Puerto Rico, Virgin Islands, Guam, and 
     American Samoa. However, special funding ceilings apply to 
     them.
     House Bill
       The ``State family assistance grant'' is determined by the 
     greater of (1) the average of Federal obligations to the 
     State for selected programs (AFDC benefits and 
     administration, Emergency Assistance, and JOBS) authorized by 
     Title IV-A for fiscal years 1992-1994; or (2) the amount of 
     Federal obligations for fiscal year 1994, multiplied by the 
     total amount of State outlays for these programs for fiscal 
     year 1994, divided by the amount of Federal obligations for 
     fiscal year 1994. The selected programs are all those 
     authorized under Title IV-A of current law except the day 
     care programs (the at-risk program, AFDC/JOBS day care, and 
     transitional day care). If the sum of all the State shares, 
     as calculated here, exceeds (or falls short of) the national 
     block grant amount below ((2)(b)), each State's share will be 
     reduced (or increased) proportionately.
       In each fiscal year between 1996 and 2000, the ``National 
     Block Grant Amount'' available to all eligible States will be 
     equal to $15,390,296,000.
       The State's ``Illegitimacy Ratio'' for a fiscal year is the 
     sum of the number of out-of-wedlock births that occurred in 
     the State during the most recent fiscal year for which the 
     data are available and the amount, if any, by which the 
     number of abortions performed in the State during the most 
     recent year for which information is available exceeds the 
     number of abortions performed in the State during the fiscal 
     year that immediately precedes such most recent fiscal year, 
     divided by the number of births that occurred in the State 
     for the most recent fiscal year.
       The term ``State'' includes the 50 States, the District of 
     Columbia, Puerto Rico, Virgin Islands, Guam, and American 
     Samoa.
     Senate Amendment
       The State share of the block grant for each year equals the 
     total Federal payments to the State under Title IV-A in 
     Fiscal Year 1994 (for AFDC benefits and administration, 
     Emergency Assistance, JOBS, and three child care programs-- 
     AFDC/JOBS child care, ``transitional'' child care, and ``at-
     risk child care''); reduced by any amount set aside for 
     tribal family assistance programs in the State and (fiscal 
     year 2000 only) by 5% (for the performance bonus fund) and 
     increased by the amount, if any, of increased fiscal year 95 
     Emergency Assistance spending attributable to fiscal year 94 
     amendments.
       The block grant amount is $16,803,769,000.
     (Note: A major reason for the difference between the House 
     and Senate block grant amount is that the House removed 
     mandatory child care funds currently authorized under Title 
     IV-A and placed most of the money in a separate discretionary 
     child care block grant, while the Senate kept IV-A child care 
     funds in the cash block grant but earmarked them for child 
     care.)
       The term ``illegitimacy ratio'' means the number of out-of-
     wedlock births that occurred in the State during the most 
     recent fiscal year for which the data are available, divided 
     by the number of births that occurred in the State during the 
     most recent fiscal year for which the data are available.
       The term ``State'' is identical to the House bill. However, 
     for supplemental grants for population increases, the term 
     ``State'' applies only to the 50 States.
       In general, the terms ``Indian,'' ``Indian tribe,'' and 
     ``tribal organization'' have the meaning given by section 4 
     of the Indian Self-Determination and Education Assistance Act 
     (25 U.S.C. 450b). The Senate amendment provides that only 12 
     specified regional non-profit corporations of Alaska natives 
     can administer tribal family assistance grants.
     Conference Agreement
       The conference agreement follows the House bill with regard 
     to the State family assistance grant, except that the State 
     share of the block grant is determined by the greater of (1) 
     the average of Federal payments for fiscal years 1992-94; (2) 
     Federal payments in fiscal year 1994; or (3) Federal payments 
     in fiscal year 1995. House conferees recede with regard to 
     the proportionate reduction in State shares included in the 
     House bill. For all programs except JOBS, Federal payments 
     represent the Federal share of a State's total expenditures 
     on these programs, as reported by the States. For JOBS, the 
     payment represents the grant amount.
       The conference agreement follows the Senate amendment 
     regarding the definition of a State's Illegitimacy Ratio
       The conference agreement follows the House bill and Senate 
     amendment regarding the definition of ``State'', but the 
     House recedes to the Senate so that, for purposes of the 
     supplemental grants for population increases only, the term 
     ``State'' applies only to the 50 States and the District of 
     Columbia.
       The conference agreement follows the Senate amendment 
     regarding the definition of ``Indian.''
           Use of Grant
     Present Law
       AFDC and JOBS funds are to be used in conformity with State 
     plans. A State may replace a caretaker relative with a 
     protective payee or a guardian or legal representative.
       Current law sets aside some JOBS funds (deducting them from 
     State allocations) for Indian tribes and Native Alaska 
     organizations. See (4)(C)(1)(f).
       Regulations permit States to receive Federal reimbursement 
     funds (50% administrative cost-sharing rate) for operation of 
     electronic benefit systems. To do so, States must receive 
     advance approval from DHHS and must comply with automatic 
     data processing rules.
     House bill
       States may use funds in any manner reasonably calculated to 
     accomplish the purpose of this part (except for prohibitions 
     listed below under (4)(F)). No part of the grant may be used 
     to provide medical services. Explicitly allowed are noncash 
     aid to mothers under the age of 18 and assistance to low-
     income households for heating and cooling costs.
       The House bill has no set-aside provision.
       In the case of families that have lived in a State for less 
     than 12 months, States are authorized to provide them with 
     the benefit level of the State from which they moved.
       States may transfer up to 30 percent of the funds paid to 
     the State under this section to any or all of the following: 
     (1) child protection block grant; (2) social services block 
     grant under title XX of the Social Security Act; (3) any food 
     and nutrition block grant passed during the 104th Congress; 
     and (4) the child care and development block grant program. 
     Rules of the recipient program will apply to the transferred 
     funds.
       States are allowed to reserve some block grant funds 
     received for any fiscal year for the purpose of providing 
     emergency assistance under the block grant program.
       States are encouraged to implement an electronic benefit 
     transfer system for providing assistance under the State 
     program funded under this part, and may use the grant for 
     such purpose. In general, exempts State and local government 
     electronic transfers of need-based benefits from certain 
     rules issued by the Federal Reserve Board regarding 
     electronic fund transfers, (i.e., Regulation E, which limits 
     liability of cardholders).
     Senate amendment
       States may use funds in any manner reasonably calculated to 
     accomplish the purpose of this part, provided that 
     administrative costs not exceed 15% of the State's grant 
     (except for prohibitions listed below, under section F).
       The following rules apply to set-asides under the Senate 
     amendment: (1) maintains current law set-asides for JOBS 
     funding for Indian tribes and Alaska native organizations; 
     (2) from the national cash block grant, the Senate amendment 
     earmarks for child care annually the amount paid with Federal 
     funds in fiscal year 1994 for AFDC-related child care (about 
     $980 million); and (3) for the Performance fund (fiscal year 
     2000 only), each State's share of the family assistance block 
     grant shall be reduced by 5%. These set-aside funds are to 
     finance fiscal year 2000 performance bonuses.
       With regard to the treatment of ``interstate immigrants'', 
     the Senate amendment includes a similar provision, with 
     slight differences in wording, in relation to the House bill.
       States may transfer up to 30 percent of block grant funds 
     to the child care and development block grant program.
       A State may reserve amounts paid to the State for any 
     fiscal year for the purpose of providing assistance under 
     this part. Reserve funds can be used in any fiscal year. Any 
     funds set aside for child care, if reserved, must be used 
     only for child care.
       States may use a portion of the temporary assistance block 
     grant to make payments (or provide job placement vouchers) to 
     State-approved agencies that provide employment services to 
     recipients of cash aid.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment with respect to the general uses of the grant, 
     clarifying that the grant may be used in any manner 
     reasonably calculated to increase the flexibility of States 
     in operating a program designed to: (1) provide assistance to 
     needy families so that children may be cared for in their own 
     homes or in the homes of relatives; (2) end the dependence of 
     needy parents on government benefits by promoting job 
     preparation, work, and marriage; (3) prevent and reduce the 
     incidence of out-of-wedlock pregnancies and establish annual 
     numerical goals for preventing and reducing the incidence of 
     these pregnancies; and (4) encourage the formation and 
     maintenance of two-parent families. 

[[Page H 12946]]

       The conference agreement follows the Senate amendment's 15% 
     cap on administrative spending. However, spending for 
     information technology and computerization needed to 
     implement the tracking and monitoring required by this title 
     are excluded from this limitation.
       The conference agreement follows the House bill with regard 
     to set-asides for child care and the performance fund, and 
     follows the Senate amendment with regard to the set-aside for 
     Indians.
       It is the intent of the conferees that States be permitted 
     to determine the treatment of interstate immigrants, 
     including whether to provide such persons with benefits 
     equaling those they would have received in their former 
     State, for a period of up to 12 months. A provision 
     specifically authorizing such treatment was dropped from the 
     Reconciliation bill because it violates the Byrd Rule 
     (section 313 of Congressional Budget Act of 1974).
       The conference agreement follows the House bill with regard 
     to transfer of funds.
       The conference agreement follows the Senate amendment on 
     reservation of funds. The conference agreement follows the 
     House bill with regard to the Electronic Benefit Transfer 
     System.
       The conference agreement follows the Senate amendment on 
     the authority of States to use funds to operate an employment 
     placement program.


                              Cost-Sharing

     Present law
       Current law requires States to share program costs. For 
     administrative costs the rate is 50%. For other costs it 
     varies among States (and, within limits, is inversely related 
     to the square of State per capita income, compared to the 
     square of national per capita income). For AFDC benefits and 
     AFDC-related child care, the Medicaid Federal matching rate 
     is used; it now ranges among States from a floor of 50% to 
     79%. For JOBS activities, the law provides an ``enhanced'' 
     rate, ranging from 60% to 79%.
     House bill
       No cost-sharing required.
     Senate amendment
       The Senate amendment requires State cost-sharing 
     (maintenance of effort) for the temporary assistance block 
     grant for 4 years, starting in fiscal year 1997. To receive 
     the full grant for one of these years, States must spend in 
     the preceding year from their own funds under their temporary 
     assistance program at least 80% of the amount they spent in 
     fiscal year 1994 on the replaced programs--AFDC benefits, 
     AFDC-related child care, Emergency Assistance, and JOBS. 
     Grants are to be reduced one dollar for each dollar by which 
     a State falls short of this requirement. Cost-sharing also is 
     required for ``contingency'' funds and additional child care 
     funds. For contingency funds States must spend at least 100% 
     of fiscal year 1994 expenditures on programs replaced by the 
     cash block grant. For additional child care funds they must 
     spend at least 100% of fiscal year 1994 expenditures on AFDC-
     related child care.
     Conference agreement
       The conference agreement follows the Senate amendment, with 
     the modification that States must spend at least 75 percent 
     of the amount they spent in fiscal year 1995.


                           Timing of Payments

     Present law
       The Secretary pays AFDC funds to the State on a quarterly 
     basis.
     House bill
       The Secretary shall make each grant payable to a State in 
     quarterly installments.
     Senate amendment
       Similar to the House provision.
     Conference agreement
       The conference agreement follows the House bill.


                               Penalties

     Present law
       If the Secretary finds that a State has failed to comply 
     with the State plan, she is to withhold all payments from the 
     State (or limit payments to categories not affected by 
     noncompliance).
       There is no specific penalty for failure to submit a 
     report, although the general noncompliance penalty could 
     apply.
       The Secretary is to reduce payments by 1% for failure to 
     offer and provide family planning services to all appropriate 
     AFDC recipients who request them.
       Except as expressly provided, the Secretary may not 
     regulate the conduct of the States or enforce any provisions 
     of this paragraph.
       The penalty against a State for noncompliance with child 
     support enforcement rules--loss of AFDC matching funds--shall 
     be suspended if a State submits and implements a corrective 
     action plan.
     House bill
       The Secretary shall reduce the funds paid to a State by any 
     amount found by audit to be in violation of this part, but 
     the Secretary cannot reduce any quarterly payment by more 
     than 25 percent. If necessary, funds will be withheld from 
     the State's payments during the following year.
       The Secretary must reduce by 3 percent the amount otherwise 
     payable to a State for a fiscal year if the State has not 
     submitted the annual report regarding the use of block grant 
     funds within 6 months after the end of the immediately 
     preceding fiscal year. The penalty is rescinded if the report 
     has been submitted within 12 months.
       The Secretary must reduce by 1 percent the amount of a 
     State's annual grant if the State fails to participate in the 
     IEVS designed to reduce welfare fraud.
       With regard to failure to offer and provide family planning 
     services, there is no penalty specified, but States are 
     allowed to use block grant funds to pay for family planning 
     services.
       Except as expressly provided, the Secretary may not 
     regulate the conduct of States under Part A of Title IV or 
     enforce any provision of it.
       There is no provision in the House bill regarding overdue 
     repayments to the Federal rainy day loan fund, which is 
     described below.
     Senate amendment
       For all penalties, the Secretary may not impose any of the 
     penalties if she finds the State had reasonable cause for its 
     failure to comply with the relevant provision. The State must 
     spend on the block grant program a sum of its own funds to 
     equal the amount of withheld Federal dollars. No quarterly 
     payment may be reduced more than 25%. If necessary, penalty 
     funds will be withheld from the State's payment for the next 
     year. Except for the first item, all penalties take effect 
     October 1, 1996.
       The Secretary shall reduce funds paid to a State by any 
     amount found by audit to be in violation of this part. If the 
     State does not prove to the Secretary that the unlawful 
     expenditure was not made intentionally, the Secretary shall 
     impose an additional penalty of 5 percent of the basic block 
     grant.
       If a State fails to submit the annual report required by 
     sec. 409 within 6 months after the end of a fiscal year, the 
     Secretary shall reduce by 5 percent the amount otherwise 
     payable to the State for the next year. However, the penalty 
     shall be rescinded if the State submits the report before the 
     end of the year in which the report was due.
       The Secretary shall reduce by not more than 5 percent the 
     annual grant of a State, if the State fails to participate in 
     the IEVS designed to reduce welfare fraud.
       If the Secretary determines that a State does not enforce 
     penalties requested by the Title IV-D child support 
     enforcement agency against recipients of cash aid who fail to 
     cooperate in establishing paternity in accordance with Part 
     D, the Secretary shall reduce the cash assistance block grant 
     by not more than 5 percent.
       Except as expressly provided, neither the DHHS Secretary 
     nor the Treasury Secretary may regulate the conduct of States 
     under Part A of Title IV nor enforce any provision of it.
       If a State fails to pay any amount borrowed from the 
     Federal Loan Fund for State Welfare Programs within the 
     maturity period, plus any interest owed, the Secretary shall 
     reduce the State's cash assistance block grant for the 
     immediately succeeding fiscal year quarter by the outstanding 
     loan amount, plus the interest owed on it. The Secretary may 
     not forgive these overdue debts.
       The Senate amendment requires the Federal government, 
     before assessing a penalty against a State under any program 
     established or modified by the act, to notify the State about 
     the violation and allow it to enter into a corrective 
     compliance plan within 60 days after notification. The 
     Federal government shall have 60 days to accept or reject the 
     plan; if it accepts the plan, and if the State corrects the 
     violation, no penalty shall be assessed. If the State fails 
     to make a timely correction, some or all of the penalty shall 
     be assessed. An alternate corrective action section requires 
     a State to correct the violation pursuant to its plan within 
     90 days after the Federal government accepts the plan.
     Conference agreement
       The conference agreement follows the Senate amendment on 
     the general conditions for setting penalties (i.e. penalties 
     may not be imposed if the Secretary finds the State had 
     reasonable cause for its failure to comply; the State must 
     spend on the block grant program a sum of its own funds to 
     equal the amount of withheld Federal dollars; no quarterly 
     payment may be reduced more than 25%; if necessary, penalty 
     funds will be withheld from the State's payment for the next 
     year; and that, except for the first item, all penalties take 
     effect October 1, 1996).
       The conference agreement follows the Senate amendment on 
     penalties for use of the grant for unauthorized purposes. The 
     conference agreement follows the House bill and the Senate 
     amendment regarding penalties for State failure to submit the 
     required report, except that the penalty is to be 4 percent. 
     The conference agreement follows the House bill and the 
     Senate amendment regarding penalties for State failure to 
     participate in IEVS, except that the penalty is to be 2 
     percent.
       The conference agreement follows the Senate amendment on 
     penalties for State failure to cooperate on child support 
     enforcement. The conference agreement follows the House bill 
     and the Senate amendment regarding penalties for failure to 
     offer and provide family planning services. The conference 
     agreement includes penalties for failure to satisfy minimum 
     work participation rates. The conference agreement follows 
     the Senate amendment regarding the limitation of Federal 
     authority.
       The conference agreement follows the Senate amendment 
     regarding the penalty for 

[[Page H 12947]]
     failure to timely repay the Federal loan fund for State welfare 
     programs. The conference agreement follows the Senate 
     amendment regarding the Corrective Action Plan.


                      Federal Rainy Day Loan Fund

     Present law
       No provision. Instead, current law provides unlimited 
     matching funds.
     House bill
       The Federal government will establish a fund of $1 billion 
     modeled on the Federal Unemployment Account, which is part of 
     the Unemployment Compensation system. The fund is to be 
     administered by the Secretary of Health and Human Services, 
     who must deposit into the fund any principal or interest 
     payments received with respect to a loan made under this 
     provision. Funds are to remain available without fiscal year 
     limitation for the purpose of making loans and receiving 
     payments of principal and interest. States must repay their 
     loans, with interest, within 3 years. The rate of interest 
     will equal the current average market yield on outstanding 
     marketable obligations of the United States with remaining 
     periods to maturity comparable to the period to maturity of 
     the loan. At any given time, no State can borrow more from 
     the fund than half its annual share of block grant funds or 
     $100 million, whichever is less. States may borrow from the 
     fund if their total unemployment rate for any given 3 month 
     period is more than 6.5 percent and is at least 110 percent 
     of the same measure in the corresponding quarter of the 
     previous 2 years.
     Senate amendment
       Establishes a $1.7 billion revolving loan fund called the 
     ``Federal Loan Fund for State Welfare Programs.'' The 
     Secretary shall make loans, and the rate of interest will 
     equal the current average market yield on outstanding 
     marketable obligations of the United States with remaining 
     periods to maturity comparable to the period to maturity of 
     the loan. Ineligible are States that have been penalized for 
     misspending block grant funds as determined by an audit. 
     Loans are to mature in 3 years, at the latest, and the 
     maximum amount loaned to a State cannot exceed 10 percent of 
     its basic block grant, and States face penalties for failing 
     to make timely payments on their loan.
     Conference agreement
       The conference agreement follows the Senate amendment.


          contingency fund (for states with high unemployment)

     Present law
       No provision. Current law provides unlimited matching 
     funds.
     House bill
       No provision.
     Senate amendment
       Establishes a ``Contingency Fund for State Welfare 
     Programs'' and appropriates funds of up to $1 billion for a 
     total period of 7 years (fiscal year 1996-2002). The fund 
     would provide matching grants (at the Medicaid matching rate) 
     to States that have unemployment rates above specified 
     levels, provided they first spent from their own funds a 
     yearly sum at least equal to their fiscal year 1994 
     expenditures on AFDC, AFDC-related child care, Emergency 
     Assistance, and JOBS. The maximum contingency grant could not 
     exceed 20 percent of a State's temporary assistance block 
     grant. Eligible would be States that met the maintenance of 
     effort requirement and had an average rate of total 
     unemployment, seasonally adjusted, of at least 6.5 percent 
     during the most recent 3 months with published data and a 
     rate at least 10 percent above that of either or both of the 
     corresponding 3-month periods in the 2 preceding calendar 
     years.
     Conference agreement
       The conference agreement follows the Senate amendment, with 
     the modification that $800 million is appropriated for this 
     purpose. The provision requiring the Secretary of the 
     Treasury to annually report to Congress on the status of the 
     fund was dropped from the Reconciliation bill because it 
     violates the Byrd Rule (section 313 of Congressional Budget 
     Act of 1974).


                       additional day care funds

     Present law
       No provision. Current law provides unlimited matching funds 
     for AFDC/JOBS child care and transitional child care (but a 
     capped amount for ``at-risk'' care).
     House bill
       No provision.
     Senate amendment
       The Senate amendment authorizes to be appropriated, and 
     appropriates, $3 billion in matching grants to States for the 
     5-year period beginning in fiscal year 1996 for child care 
     assistance (in addition to Federal funds set aside for child 
     care in the family assistance block grant). The funds, which 
     are allocated among the States on the basis of their share of 
     the nation's child population, are to be used to reimburse a 
     State, at the Medicaid matching rate, for child care spending 
     in a fiscal year that exceeds its share of child care set-
     aside funds (100 percent Federal) plus the amount it spent 
     from its own funds in fiscal year 1994 for AFDC/JOBS child 
     care, transitional child care, and at-risk child care. Funds 
     are to be used only for child care assistance under Part IV-
     A. In the last quarter of the fiscal year, fiscal year 2000, 
     if any portion of a State allotment is not used, the 
     Secretary shall make it available to applicant States. 
     Notwithstanding section 658T of the Child Care and 
     Development Block Grant Act, the State agency administering 
     the family assistance block grant shall determine eligibility 
     for all child care assistance provided under Title IV-A. (For 
     budget scoring, the Amendment states that the baseline shall 
     assume that no grant will be made after fiscal year 2000.)
     Conference agreement
       See discussion in Subtitle I of the conference agreement 
     under Child Care and Development Block Grant.


                     d. contracts/client agreements

                                 terms

     Present law
       After assessing the needs and skills of recipients and 
     developing an employability plan, States may require JOBS 
     participants to negotiate and enter into an agreement that 
     specifies their obligations.
     House bill
       No provision.
     Senate amendment
       States must assess, through a case manager, the skills of 
     each parent for use in developing and negotiating a personal 
     responsibility contract (PRC). Each recipient family must 
     enter into a contract developed by the State or into a 
     limited benefit plan. The PRC means a binding contract 
     outlining steps to be taken by the family and State to get 
     the family ``off of welfare'' and specifying a negotiated 
     time-limited period of eligibility for cash aid. An alternate 
     provision requires the case manager to consult with the 
     parent applicant (client) in developing a PRC, lists client 
     activities that the PRC might require, specifies that clients 
     must agree to accept a bona fide offer of an unsubsidized 
     full-time job unless they have good cause not to, but does 
     not require a time limit in the PRC nor make provision for a 
     limited benefit plan. A State may exempt a battered person 
     from entering into a PRC if its terms would endanger his/her 
     well-being.
     Conference agreement
       The conference agreement follows the House bill.


                               penalties

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       The PRC is to provide that if a family fails to comply with 
     its terms, the family automatically will enter into a limited 
     benefit plan (with a reduced benefit and later termination of 
     aid, in accordance with a schedule determined by the State). 
     If the State agency violates the PRC, the contract shall be 
     invalid. The State is to establish a procedure, including the 
     opportunity for hearing, to resolve disputes concerning 
     participation in the PRC. The alternate PRC language provides 
     these penalties: for the first act of noncompliance with the 
     PRC, 33 percent reduction in the family's benefit for one 
     month; for the second act, 66 percent reduction for 3 months; 
     for third and subsequent acts of noncompliance, loss of 
     eligibility for 6 months. Job refusal without good cause is 
     treated as a third violation. However, in no case shall the 
     penalty period extend beyond the duration of noncompliance.
     Conference agreement
       The conference agreement follows the House bill.


                     e. mandatory work requirements

                            work activities

     Present law
       JOBS programs must include specified educational activities 
     (high school or equivalent education, basic and remedial 
     education, and education for those with limited English 
     proficiency); job skills training, job readiness activities, 
     and job development and placement. In addition, States must 
     offer at least two of these four items: group and individual 
     job search; on-the-job training; work supplementation or 
     community work experience program (CWEP) (or another work 
     experience program approved by the DHHS Secretary). The State 
     also may offer postsecondary education in ``appropriate'' 
     cases.
     House bill
       ``Work activities'' are defined as unsubsidized employment, 
     subsidized employment, subsidized public sector employment or 
     work experience, on-the-job training, job search, education 
     and training directly related to employment, and jobs skills 
     training directly related to employment. Satisfactory 
     attendance at secondary school, at State option, may be 
     included as a work activity for a parent under 20 who has not 
     completed high school.
     Senate amendment
       Establishes this list of work activities: unsubsidized 
     employment, subsidized employment, on-the-job training, 
     community service programs, job search (first 4 weeks only) 
     and vocational educational training (12 months maximum). For 
     work participation requirements, the proportion of persons 
     counted as engaged in ``work'' through participation in 
     vocational educational training cannot exceed 25 percent. For 
     each tribe receiving a family assistance block grant, the 
     Secretary, with participation of Indian tribes, shall 
     establish minimum work participation rules, appropriate time 
     limits for 

[[Page H 12948]]
     benefits, and penalties, similar to the general family assistance rules 
     but consistent with the economic conditions and resources of 
     the tribe.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment, with the modification that, for the work 
     participation requirements, the proportion of persons counted 
     as engaged in work through participation in vocational 
     education cannot exceed 20 percent.
       Participation Requirements: All Families
     Present law
       The following minimum percentage of non-exempt AFDC 
     families must participate in JOBS:
Fiscal year:                                         Minimum percentage
1995 (last year).....................................................20
1996 and thereafter...............................................\1\ 0

\1\ No requirement.

       Exempt from JOBS are parents whose youngest child is under 
     3 (1, at State option). Other exemptions include persons who 
     are ill, incapacitated or needed at home because of illness 
     or incapacity of another person. Also exempt are parents of a 
     child under 6, unless the State guarantees child care and 
     requires no more than 20 hours weekly of JOBS activity.
       Participation rates are calculated for each month. A 
     State's rate, expressed as a percentage, equals the number of 
     actual JOBS participants divided by the number of AFDC 
     recipients required to participate (non-exempt from JOBS).
       In calculating a State's overall JOBS participation rate, a 
     standard of 20 hours per week is used. The welfare agency is 
     to count as participants the largest number of persons whose 
     combined and averaged hours in JOBS activities during the 
     month equal 20 per week.
       The law requires States to guarantee child care when needed 
     for JOBS participants and for other AFDC parents in approved 
     education and training activities. Regulations require States 
     to guarantee care for children under age 13 (older if 
     incapable of self-care) to the extent that it is needed to 
     permit the parent to work, train, or attend school. States 
     must continue child care benefits for 1 year to ex-AFDC 
     working families, but must charge them an income-related fee.
     House bill
       The following minimum percentages of all families receiving 
     cash assistance must engage in work activities:
Fiscal year:                                         Minimum percentage
1996.................................................................10
1997.................................................................15
1998.................................................................20
1999.................................................................25
2000.................................................................27
2001.................................................................29
2002.................................................................40
2003 or thereafter...................................................50
       If States achieve net caseload reductions, they receive 
     credit for the number of families by which the caseload is 
     reduced for purposes of meeting the overall family 
     participation requirements. The minimum participation rate 
     shall be reduced by the percentage by which the number of 
     recipient families during the fiscal year falls below the 
     number of AFDC families in fiscal year 1995, except to the 
     extent that the Secretary determines that the caseload 
     reduction was required by terms of Federal law.
       The fiscal year participation rates are the average of the 
     rates for each month during the year. The monthly 
     participation rates are measured by the number of recipient 
     families in which an individual is engaged in work activities 
     for the month, divided by the total number of recipient 
     families that include a person who is 18 or older.
       To be counted as engaged in work activities for a month, 
     the recipient must be making progress in qualified activities 
     for at least the minimum average number of hours per week 
     shown in the table below. Of these hours, at least 20 hours 
     must be spent in unsubsidized employment, subsidized private 
     sector employment, subsidized public sector employment, work 
     experience, or on-the-job training. During the first 4 weeks 
     of required work activity, hourly credit also is given for 
     job search and job readiness assistance.

        Fiscal year                        Minimum average hours weekly
1996.................................................................20
1997.................................................................20
1998.................................................................20
1999.................................................................25
2000.................................................................30
2001.................................................................30
2002.................................................................35
2003 or thereafter...................................................35

       Although a person must work at least 20 hours weekly in 
     order for any hours of their training or education to count 
     toward required participation, the bill does not prohibit a 
     State from offering cash recipients an opportunity to 
     participate in education or training before requiring them to 
     work. In this case, however, participation does not count 
     toward fulfillment of the State mandatory participation rate. 
     Note: although the above table is in a paragraph entitled 
     ``requirements applicable to all families receiving 
     assistance,'' another paragraph establishes a higher hourly 
     requirement (35 hours weekly) in all years for 2-parent 
     families. See below.
     Senate amendment
       The following minimum percentages of all families receiving 
     cash assistance (except those with a child under 1, if 
     exempted by the State) must participate in work activities:

        Fiscal year                                  Minimum percentage
1996.................................................................25
1997.................................................................30
1998.................................................................35
1999.................................................................40
2000 or thereafter...................................................50

       The Secretary is directed to prescribe regulations for 
     reducing the minimum participation rate required for a State 
     if its caseload under the new program is smaller than in the 
     final year of AFDC, but not if the decrease was required by 
     Federal law or results from changes in eligibility criteria 
     adopted by the State. With these qualifications, the 
     regulations are to reduce the participation rate by the 
     number of percentage points, if any, by which the caseload in 
     a fiscal year is smaller than in fiscal year 1995.
       States may exempt a parent or caretaker relative of a child 
     under one year old and may exclude them from the 
     participation rate calculation. States may exempt a battered 
     person if their well-being would be endangered by a work 
     requirement.
       As in the House bill, the fiscal year participation rate is 
     the average of the rates for each month of the year. However, 
     overall monthly rates are measured by adding (1) the number 
     of recipient families with an adult engaged in work for the 
     month, (2) the number subject to a work refusal penalty in 
     the month (if not subject to the penalty for more than 3 
     months out of the preceding 12), and (3) the number who 
     worked their way off the program in the previous 6 months and 
     that include an adult who is working for the month, and then 
     dividing this total by the number of families enrolled in the 
     program during the month that include an adult recipient. 
     States have the option to include in the calculation of 
     monthly participation rates families who receive assistance 
     under a tribal family assistance plan if the Indian or Alaska 
     Native is participating in work under standards comparable to 
     those of the State for being engaged in work.
       To be counted as engaged in work for a month, an adult must 
     be participating in work for at least the minimum average 
     number of hours per week shown in the table below (of which 
     not fewer than 20 hours per week are attributable to a work 
     activity). See list of work activities above.
       Exception to the table: In fiscal year 1999 and thereafter, 
     when required weekly hours rise above 20, a State may count a 
     single parent with a child under age 6 as engaged in work for 
     a month if the parent works an average of 20 hours weekly. 
     Also, community service participants may be treated as 
     engaged in work if they provide child care services for 
     another participant for the number of hours deemed 
     appropriate by the State.

        Fiscal year                        Minimum average hours weekly
1996.................................................................20
1997.................................................................20
1998.................................................................20
1999.................................................................25
2000.................................................................30
2001.................................................................30
2002.................................................................35
2003 or thereafter...................................................35

       Note: Although the above table is in a paragraph entitled 
     ``all families,'' another paragraph establishes a higher 
     hourly requirement (35 hours weekly) in all years for 2-
     parent families. See below.
       The Senate amendment states that nothing in sec. 421 
     (amounts for child care) shall be construed to provide an 
     entitlement to child care services to any child.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment as follows:
       The following minimum percentages of all families receiving 
     cash assistance must participate in work activities:

        Fiscal year                                  Minimum percentage
1996.................................................................15
1997.................................................................20
1998.................................................................25
1999.................................................................30
2000.................................................................35
2001.................................................................40
2002 or thereafter..................................................50.

       The conference agreement generally follows the Senate 
     amendment regarding reduction in the participation rate, with 
     the modification that regulations shall not take into account 
     families diverted from the State program as a result of 
     differences in eligibility criteria under the State program 
     (in comparison with the AFDC program that operated prior to 
     the date of enactment). The regulations shall place the 
     burden on the Secretary to prove that families were diverted 
     as a direct result of differences in eligibility criteria.
       The conference agreement follows the House bill regarding 
     exemptions from the work requirement for battered 
     individuals. The provision regarding the state option to 
     exempt families with a child under 1 was dropped from the 
     Reconciliation bill because it violates the Byrd Rule 
     (section 313 of the Congressional Budget Act of 1974).
       The conference agreement follows the House bill and the 
     Senate amendment regarding the calculation of the fiscal year 
     rate. The conference agreement generally follows the Senate 
     amendment regarding the calculation of monthly rates, except 
     that the Senate recedes on counting people who have worked 
     their way off the rolls in the previous 6 months and 
     including sanctioned individuals in the numerator; conferees 
     agree 

[[Page H 12949]]
     that sanctioned persons are to be subtracted from the denominator in 
     determining monthly rates.
       The conference agreement follows the House bill with regard 
     to the number counted as engaged in work, except that the 
     phrase ``making progress in qualified activities'' is 
     replaced with ``participating in qualified activities''.


            Participation Requirements: Two-Parent Families

     Present law
       The following minimum percentages of two-parent families 
     receiving cash assistance must participate in specified work 
     activities:

        Fiscal year                                  Minimum percentage
1995.................................................................50
1996.................................................................60
1997.................................................................75
1998 (last year).....................................................75
1999 and thereafter (no requirement)..................................0

       Participation rates for a month equal the number of parents 
     who participate divided by the number of principal earners in 
     AFDC-UP families (but excluding families who received aid for 
     2 months or less, if one parent engaged in intensive job 
     search).
       One parent in the 2-parent family must participate at least 
     16 hours weekly in on-the-job training, work supplementation, 
     community work experience program, or a State-designed work 
     program.
     House bill
       The following minimum percentages of two-parent families 
     receiving cash assistance must engage in work activities:

        Fiscal year                                  Minimum percentage
1996.................................................................50
1997.................................................................50
1998.................................................................90
1999 and thereafter..................................................90

       Participation rates for a month are measured by the number 
     of two-parent recipient families in which at least one adult 
     is engaged in work activities for the month, divided by the 
     total number of two-parent families that received cash aid 
     during the month.
       An adult in a 2-parent family is engaged in work activities 
     when making progress in them for 35 hours per week, at least 
     30 of which are in unsubsidized employment, subsidized 
     private sector employment, subsidized public sector 
     employment, work experience, or on-the-job training (or job 
     search and job readiness assistance for the first 4 weeks 
     only).
     Senate amendment
       The following minimum percentages of two-parent families 
     receiving cash assistance must participate in work:

        Fiscal year                                  Minimum percentage
1996.................................................................60
1997.................................................................75
1998.................................................................75
1999 and thereafter..................................................90

       Participation rates for 2-parent families are measured 
     (like those for all families) by adding (1) the number of 2-
     parent recipient families with an adult engaged in work for 
     the month; (2) the number of 2-parent families subject to a 
     work refusal penalty in the month (if not subject to the 
     penalty for more than 3 months out of the preceding 12); and 
     (3) the number of 2-parent families who worked their way off 
     the program in the previous 6 months and that include an 
     adult who is working for the month, and then dividing this 
     total by the number of 2-parent families enrolled in the 
     program during the month that include an adult recipient.
       An adult in a 2-parent family must participate in work for 
     at least 35 hours per week during the month, and at least 30 
     hours weekly must be attributable to one or more of the 6 
     work activities listed above in ``4.E. Mandatory Work 
     Requirements,'' above.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment so that the following minimum percentages of two-
     parent families receiving cash assistance must participate in 
     specified work activities:

        Fiscal year                                  Minimum percentage
1996.................................................................50
1997.................................................................75
1998.................................................................75
1999 and thereafter..................................................90

       With regard to participation rates for a month, the 
     conference agreement for 2-parent families matches the 
     agreement for all families described above, so that the rates 
     equal the number of two-parent recipient families in which at 
     least one adult is engaged in work activities for the month, 
     divided by the total number of two-parent families that 
     received cash assistance minus sanctioned persons.
       The conference agreement follows the House bill and the 
     Senate amendment regarding creditable activities, except the 
     Senate recedes so that the percentage of the caseload able to 
     be counted as engaged in a work activity through vocational 
     education training cannot exceed 20 percent.


                               Penalties

     Present law
       For failure to meet JOBS requirements without good cause, 
     AFDC benefits are denied to the offending parent and payments 
     for the children are made to a third party.
       In a 2-parent family, failure of 1 parent to meet JOBS 
     requirements without good cause results in denial of benefits 
     for both parents (unless the other parent participates) and 
     third-party payment on behalf of the children. Repeated 
     failures to comply bring potentially longer penalty periods.
       If a State fails to achieve the two required participation 
     rates (overall and for 2-parent families), the Federal 
     reimbursement rate for its JOBS spending (which ranges among 
     States from 60% to 79% for most JOBS costs) is to be reduced 
     to 50%.
     House bill
       If recipients refuse to participate in required work 
     activities, their cash assistance is reduced by an amount to 
     be determined by individual States, subject to good cause and 
     other exceptions that the State may establish.
       Recipients in two-parent families who fail to work the 
     required number of hours receive the proportion of their 
     monthly cash grant that equals the proportion of required 
     work hours they actually worked during the month, or less at 
     State option.
       No officer or employee of the Federal government may 
     regulate the conduct of States under this paragraph (about 
     penalties against individuals) or enforce this paragraph 
     against any State.
       States not meeting the required participation rates have 
     their overall grant (calculated without the bonus for 
     reducing out-of-wedlock births and before other penalties 
     listed in C(5) above) reduced by up to 5 percent the 
     following fiscal year; penalties shall be based on the degree 
     of noncompliance as determined by the Secretary.
     Senate amendment
       If an adult recipient refuses to engage in required work, 
     the State shall reduce the amount of assistance to the family 
     pro rata (or more, at State option) with respect to the 
     period of work refusal, or shall discontinue aid, subject to 
     good cause and other exceptions that the State may establish. 
     A State may not penalize a single parent caring for a child 
     under age 6 for refusal to work if the parent has a 
     demonstrated inability to obtain needed child care. Penalties 
     against individuals in 2-parent families follow those against 
     individuals, except that the penalties may apply against 
     parents of children under 6 who refuse to work due to an 
     inability to obtain child care.
       No specific provision about regulation of penalties against 
     individuals. However, the amendment provides that neither the 
     DHHS Secretary nor the Treasury Secretary may regulate the 
     conduct of States under Title IV-A or enforce any of its 
     provisions, except to the extent expressly provided in the 
     Act.
       If a State fails to meet minimum work participation rates, 
     the Secretary is to reduce the family assistance block grant 
     as follows: For the first year of failure, by 5% (applied in 
     the next year); for subsequent years of failure, by an 
     additional 5% (thus, by 5.25%). The Secretary shall impose 
     reductions on the basis of the degree of noncompliance.
     Conference agreement
       The conference agreement follows the Senate amendment 
     regarding penalties against individuals, except with the 
     modification that the burden of proof to demonstrate an 
     inability to find needed child care rests on the parent of a 
     child under age 6. The conference agreement follows the 
     Senate amendment regarding penalties against individuals in 
     two-parent families.
       The conference agreement follows the House bill on 
     penalties against States not meeting work requirements, 
     except the House recedes to the Senate on corrective action 
     provisions.


       Rule of Interpretation (concerning education and training)

     Present law
       JOBS programs must include specified educational activities 
     and job skills training.
     House bill
       This part does not prohibit a State from establishing a 
     program for recipients that involves education and training.
     Senate amendment
       No explicit statement. However, the amendment qualifies 
     vocational educational training as a ``work activity,'' with 
     a 12-month maximum and a limit on the proportion of 
     vocational educational trainees who can be counted in 
     calculating work participation rates.
     Conference agreement
       The House recedes, so no specific provision.


                     Research (about work programs)

     Present law
       Authorizes States to make ``initial'' evaluations (in 
     fiscal year 1991) of demographic characteristics of JOBS 
     participants and requires the DHHS Secretary, in consultation 
     with the Labor Secretary, to assist the States as needed.
     House bill
       The Secretary is to conduct research on the costs and 
     benefits of mandatory work requirements in the Act, and to 
     evaluate promising State approaches in employing welfare 
     recipients. See also ``Research, Evaluations, and National 
     Studies'' below.
     Senate amendment
       The Secretary is to conduct research on the costs, 
     benefits, and effects of operating different State programs 
     of temporary assistance to needy families, including their 
     time limits. Research shall include studies of effects on 
     employment rates. See also ``Research, Evaluations, and 
     National Studies'' below.

[[Page H 12950]]

     Conference agreement
       The conference agreement generally follows the House bill 
     and the Senate amendment.


    Evaluation of Innovative Approaches to Employing Recipients of 
                               Assistance

     Present law
       No provision.
     House bill
       The Secretary shall evaluate innovative approaches by the 
     States to employ recipients of assistance.
     Senate amendment
       The Secretary may assist States in developing, and shall 
     evaluate innovative approaches for reducing welfare 
     dependency and increasing the well-being of minor children, 
     using random assignments in these evaluations ``to the 
     maximum extent feasible.''
     Conference agreement
       The conference agreement follows the Senate amendment.


          Annual Ranking of States and Review of Work Programs

     Present law
       No provision.
     House bill
       The Secretary must annually rank the States in the order of 
     their success in moving recipients into long-term private 
     sector jobs, and review the 3 most and 3 least successful 
     programs. HHS will develop these rankings based on data 
     collected under the bill.
     Senate amendment
       Taking account of the number of poor children in the State 
     and funds provided for them, the Secretary of HHS shall rank 
     the States annually in the order of their success in placing 
     recipients into long-term private sector jobs, reducing the 
     overall caseload, and, when a practicable method for 
     calculation becomes available, diverting persons from 
     application and entry into the program. The Secretary shall 
     review the 3 most and 3 least successful programs that 
     provide work experience, help in finding jobs, and provide 
     other support services to enable families to become 
     independent of the program.
     Conference agreement
       The conference agreement follows the House bill.


      Annual Ranking of States and Review of Out-of-Wedlock Births

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       The Secretary also is to annually rank States in the order 
     of their success in reducing out-of-wedlock births and to 
     review the programs of the 5 ranked highest and 5 ranked 
     lowest in decreasing their absolute out-of-wedlock birth 
     ratios (defined as the total number of out-of-wedlock births 
     in families receiving cash assistance, divided by the total 
     number of births in recipient families).
     Conference agreement
       The conference agreement follows the Senate amendment.


 Sense of Congress on Work Priority for Mothers Without Young Children

     Present law
       No provision.
     House bill
       It is the sense of Congress that States should give highest 
     priority to requiring families with older preschool children 
     or school-aged children to engage in work activities.
     Senate amendment
       Adds to highest priority group ``adults in 2-parent 
     families and adults in single-parent families with children 
     that are older than preschool age.''
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


           Work/School Requirements for Noncustodial Parents

     Present law
       The Secretary shall permit up to 5 States, on a voluntary 
     or mandatory basis, to provide JOBS services to unemployed 
     noncustodial parents unable to pay child support.
     House bill
       States must adopt procedures to ensure that persons owing 
     past-due support to a child (or to a child and parent) 
     receiving Title IV-A either work or have a plan for payment 
     of that support. They must seek a court order requiring the 
     parent to make payment, in accordance with a court-approved 
     plan to work (unless incapacitated). It is the sense of 
     Congress that States should require non-custodial, non-
     supporting parents under age 18 to fulfill community work 
     obligations and attend appropriate parenting or money 
     management classes after school.
     Senate amendment
       States must seek a court order or administrative order 
     requiring a person who owes support to a child receiving 
     Title IV-D services to pay the support in accordance with a 
     court-approved plan or to work (unless incapacitated).
     Conference agreement
       The conference agreement follows the House bill, except 
     that the sense of Congress that States should require non-
     custodial, non-supporting parents under age 18 to fulfill 
     community work obligations and attend appropriate parenting 
     or money management classes after school was dropped from the 
     Reconciliation bill because it violates the Byrd Rule 
     (section 313 of Congressional Budget Act of 1974).


                      Delivery of Work Activities

     Present law
       Current law permits States to carry out JOBS programs 
     directly or through arrangement or under contracts with 
     administrative entities under the Job Training Partnership 
     Act (JTPA), with State and local educational agencies or with 
     private organizations, including community-based 
     organizations as defined in JTPA (Section 485(A) of Social 
     Security Act.
     House bill
       No provision.
     Senate amendment
       Requires that work activities for recipients of the 
     temporary family assistance program be delivered through the 
     statewide workforce development system that was earlier 
     included in the Work Opportunity Act, unless a required 
     activity is not available locally through the statewide 
     workforce development system. However, as passed, the 
     amendment does not include the workforce development title.
     Conference agreement
       The conference agreement follows the House bill.


                        Displacement of Workers

     Present law
       Under JOBS law, no work assignment may displace any 
     currently employer worker or position (including partial 
     displacement such as a reduction in hours of non-overtime 
     work, wages, or employment benefits). Nor may a JOBS 
     participant fill a position vacant because of layoff or 
     because the employer has reduced the workforce with the 
     effect of creating a position to be subsidized.
     House bill
       No provision.
     Senate amendment
       Provides that no adult in a Title IV-A work activity shall 
     be employed or assigned when another person is on layoff from 
     the same or a substantially equivalent job, or when the 
     employer has terminated the employment of a regular worker or 
     otherwise caused an involuntary reduction of its workforce in 
     order to fill the vacancy thus created with a subsidized 
     worker. This provision does not preempt or supersede any 
     State or local law providing greater protection from 
     displacement.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                            F. Prohibitions

                     Families Without a Minor Child

     Present law
       Only families with dependent children (under age 18, or 19 
     at State option if the child is still in secondary school or 
     in the equivalent level of vocational or technical training) 
     can participate in the program.
     House bill
       Only families with minor children (under 18 years of age or 
     under 19 years of age for full-time students in a secondary 
     school or the equivalent) can participate in the program.
     Senate amendment
       Similar to House bill, but specifies that the minor 
     children must live with their parent or other caretaker 
     relative.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment, with the modification that a pregnant 
     individual may receive assistance under the block grant.


                         Assistance for Aliens

     Present law
       Illegal aliens are ineligible, but legal aliens and others 
     permanently residing under color of law are eligible for 
     Federal means-tested benefit programs. States must operate a 
     System for Verification of Eligibility (SAVE) for 
     determination of immigration or citizenship status of 
     applicants and must verify the immigration status of aliens 
     with the Immigration and Naturalization Service.
     House bill
       Block grant funds may not be used to provide cash benefits 
     to a non-citizen unless the individual is a refugee under 
     section 207 of the Immigration and Nationality Act who has 
     been in the U.S. for under 5 years, a legal permanent 
     resident over age 75 who has lived in the U.S. at least 5 
     years, a veteran (or the spouse or unmarried dependent child 
     of a veteran) honorably discharged from the U.S. Armed 
     Forces, or a legal permanent resident unable because of 
     disability or mental impairment to comply with certain 
     naturalization requirements. In addition, legal permanent 
     residents who are current beneficiaries retain eligibility 
     for the first year after enactment.
     Senate amendment
       Aliens entering after enactment are barred from receiving 
     benefits for 5 years, with exceptions similar to House bill. 
     Separately, 

[[Page H 12951]]
     States have the option to deny non-citizens benefits using block grant 
     funds. Eligibility may be affected by changes in the sponsor-
     to-alien deeming provisions. These changes may affect their 
     eligibility even after aliens have attained citizenship.
     Conference agreement
       The conference agreement generally follows the Senate 
     amendment so that noncitizens arriving after the date of 
     enactment may not receive benefits from the block grant 
     during their first 5 years in the U.S.; the conference 
     agreement modifies the Senate amendment so that there is a 
     State option to provide block grant assistance to noncitizens 
     currently residing in the U.S., except that noncitizens 
     receiving AFDC benefits on the date of enactment would 
     continue to be eligible to receive block grant benefits until 
     January 1, 1997. The conference agreement makes specific 
     exceptions to these restrictions for refugees, asylees, 
     veterans and active duty military, and aliens who have worked 
     at least 40 calendar quarters as defined under title II of 
     the Social Security Act. For further details see Subtitle D: 
     Noncitizens.
           No Cash Assistance for Out-of-Wedlock Births
     Present law
        No provision forbidding eligibility. Current law permits a 
     State to provide AFDC to an unwed mother under 18 and her 
     child only if they live with their parent or another adult 
     relative or in another adult-supervised supportive 
     arrangement; exceptions are allowed (Sec. 402(A)).
        AFDC law has no provision directly comparable for funding 
     second-chance homes.
       AFDC law requires States, to the extent resources permit, 
     to require mothers under age 20 who failed to complete high 
     school to participate in an educational activity, even if 
     they otherwise would be exempt because of having a child 
     under age 3 (or, at State option, under age 1). However, 
     States may exempt some school dropout mothers under 18 years 
     old from this requirement.
     House bill
       Temporary Assistance to Needy Families Block Grant funds 
     may not be used to provide cash benefits to a child born out-
     of-wedlock to a mother under age 18 or to the mother until 
     the mother reaches age 18. States must exempt mothers to whom 
     children are born as a result of rape or incest. Block grant 
     funds can be used to provide non-cash (e.g. voucher) 
     assistance to young mothers and their children.
     Senate amendment
       Explicitly permits States to decide whether or not to give 
     assistance to a child born out-of-wedlock to a mother under 
     18 years old, and to the mother until she reaches 18. 
     However, if a State elects to extend assistance to these 
     families, the minor mother must live with a parent, legal 
     guardian or other adult relative unless they have no such 
     appropriate relative or the State agency determines (1) that 
     they had suffered, or might suffer, harm in the relative's 
     home or (2) that the requirement should be waived for the 
     sake of the child.
       The State shall provide or assist a minor mother in finding 
     a suitable home, a second chance home, maternity home, or 
     other appropriate adult-supervised supportive living 
     arrangement. The amendment authorizes to be appropriated, and 
     appropriates funding for second-chance homes for unmarried 
     teenage parents ($25 million yearly for FYs 1996 and 1997 and 
     $20 million yearly for FYs 1998-2000).
       Further, if a State aids these unwed minor mothers, it must 
     require those who have not completed high school, or its 
     equivalent, to attend school unless their child is under 12 
     weeks old. If the mother fails to attend high school or an 
     approved alternative training program, the State must reduce 
     her benefit or end it.
     Conference agreement
       The conference agreement generally follows the Senate 
     amendment, except that the provision extending a state option 
     to deny cash assistance for out-of-wedlock births was dropped 
     from the Reconciliation bill because it violates the Byrd 
     Rule (section 313 of Congressional Budget Act of 1974). With 
     regard to second chance homes, the conference agreement 
     follows the Senate amendment except that funding is 
     authorized but not appropriated for this purpose. The 
     conference agreement follows the Senate amendment regarding 
     the school requirement for unwed minor mothers.
           No Additional Assistance for Additional Children
     Present law
       No provision.
     House bill
       Block grant funds may not be used to provide additional 
     cash benefits for a child born to a recipient of cash welfare 
     benefits, or an individual who received cash benefits at any 
     time during the 10-month period ending with the birth of the 
     child. Mothers to whom children are born as a result of rape 
     or incest are exempted. Block grant funds can be used to 
     provide non-cash (voucher) assistance to young mothers and 
     their children.
     Senate amendment
       Explicitly permits States to deny aid to child born to a 
     mother already receiving aid under the program or to one who 
     received benefits from the program at any time during the 10 
     months ending with the baby's birth.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment, with the modification that the States may 
     exempt up to 50% of their caseload from the 60-month limit.
           No Assistance for More Than 5 Years
     Present law
       No provision.
     House bill
       Block grant funds may not be used to provide cash benefits 
     for the family of an individual who, after attaining 18 years 
     of age, has received block grant funds for 60 months, whether 
     or not successive; States are permitted to provide hardship 
     exemptions from the 60-month time limit for up to 10 percent 
     of their caseload.
     Senate amendment
       Block grant funds may not be used to provide cash benefits 
     for the family of a person who has received block grant aid 
     for 60 months (or less at State option), whether or not 
     consecutive. States may give hardship exemptions to up to 20 
     percent of their caseload. (Exempted from the 60-month time 
     limit is a person who received aid as a minor child and who 
     later applied as the head of her own household with a minor 
     child.)
     Conference agreement
       The conference agreement follows the Senate amendment, with 
     the modification that no assistance may be provided beyond 5 
     years and that States may exempt up to 15 percent of their 
     caseload from this limit. Battered individuals may qualify 
     for this exemption, but States are not required to exempt 
     such individuals.
           No Assistance for Families Not Cooperating with 
           Paternity Establishment
     Present law
       As a condition of eligibility, applicants or recipients 
     must cooperate in establishing paternity of a child born out-
     of-wedlock, in obtaining support payments, and in identifying 
     any third party who may be liable to pay for medical care and 
     services for the child.
     House bill
       Block grant funds may not be used to provide cash benefits 
     to persons who fail to cooperate with the State child support 
     enforcement agency in establishing the paternity of any child 
     of the individual; the child support agency defines 
     cooperation.
     Senate amendment
       Maintains current law. In addition, see ``Payments To 
     States'' for penalty against a State that fails to enforce 
     penalty requested by the IV-D agency against a person who 
     does not cooperate in establishing paternity.
     Conference agreement
       The conference agreement follows the Senate amendment with 
     the modification that States must deny a parent's share of 
     the family welfare benefit if the parent fails to cooperate; 
     the State may deny benefits to the entire family for failure 
     to cooperate.
           No Assistance for Families Not Assigning Support Rights 
           to the State
     Present law
       As a condition of AFDC eligibility, applicants must assign 
     child support and spousal support rights to the State.
     House bill
       Block grant funds may not be used to provide cash benefits 
     to a family with an adult who has not assigned to the State 
     rights to child support or spousal support.
     Senate amendment
       Gives States the option to require applicants for temporary 
     family assistance (and recipients) to assign child support 
     and spousal support rights to the State.
     Conference agreement
       The conference agreement follows the House bill.
           Withholding Portion of Aid for Child Whose Paternity is 
           Not Established
     Present law
       No provision.
     House bill
       If, at the time a family applies for assistance, the 
     paternity of a child in the family has not been established, 
     the State must impose a financial penalty ($50 or 15 percent 
     of the monthly benefits of a family of that size, whichever 
     the State chooses) until the paternity of the child is 
     established. Once paternity is established, all the money 
     withheld as a penalty must be remitted to the family if it is 
     still eligible for aid. Mothers to whom children are born as 
     a result of rape or incest are exempted from this penalty. 
     Provision effective 1 year after enactment (2 years at State 
     option).
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill with the 
     modification that States may impose a financial penalty if 
     paternity is not established.
           Denial of Benefits to Persons Who Fraudulently Received 
           Aid in Two States
     Present law
       No provision.
     House bill
       Ineligible for block grant assistance for 10 years is any 
     individual convicted of having 

[[Page H 12952]]
     fraudulently misrepresented residence (or found by a State to have made 
     a fraudulent statement) in order to obtain benefits or 
     services from two or more States from the block grant, 
     Medicaid, Food Stamps, or Supplemental Security Income.
     Senate amendment
       Ineligible for block grant assistance for 10 years is any 
     person convicted in Federal court or State court of having 
     fraudulently misrepresented residence in order to obtain 
     benefits or services from two or more States from the cash 
     block grant, Medicaid, Food Stamps, or Supplemental Security 
     Income.
     Conference agreement
       The conference agreement follows the Senate amendment.
           Denial of Aid for Fugitive Felons, Probation and Parole 
           Violators
     Present law
       No provision.
     House bill
       No assistance may be provided to an individual who is 
     fleeing to avoid prosecution, custody or confinement after 
     conviction for a crime (or an attempt to commit a crime) that 
     is a felony (or, in New Jersey, a high misdemeanor), or who 
     violates probation or parole imposed under Federal or State 
     law.
       Any safeguards established by the State against use or 
     disclosure of information about individual recipients shall 
     not prevent the agency, under certain conditions, from 
     providing the address of a recipient to a law enforcement 
     officer who is pursuing a fugitive felon or parole or 
     probation violator. This provision applies also to a 
     recipient sought by an officer not because he is a fugitive 
     but because he has information that the officer says is 
     necessary for his official duties. In both cases the officer 
     must notify the State that location or apprehension of the 
     recipient is within his official duties.
     Senate amendment
       A State shall furnish law enforcement officers, upon their 
     request, the address, social security number, and photograph 
     (if available) of any recipient if the officers notify the 
     agency that the recipient is a fugitive felon, or a violator 
     of probation or parole, or that he has information needed by 
     the officers to perform their duties, and that the location 
     or apprehension of the recipient is within the officers' 
     official duties.
     Conference agreement
       The conference agreement follows the House bill.


No Assistance for Minor Children Who Are Absent, or Relatives who Fail 
                  to Notify Agency of Child's Absence

     Present law
       Regulations allow benefits to continue for children who are 
     ``temporarily absent'' from home.
     House bill
       No assistance may be provided for a minor child who has 
     been absent from the home for 45 consecutive days or, at 
     State option, between 30 and 90 consecutive days. States may 
     establish a good cause exemption as long as it is detailed in 
     the State report to the Secretary. No assistance can be given 
     to a parent or caretaker who fails to report a missing minor 
     child within 5 days of the time it is clear that the child is 
     absent.
     Senate amendment
       Similar provision to House bill, with different wording.
     Conference agreement
       The conference agreement follows the House bill.


   G. Income/Resource Limits, Treatment of Earnings and Other Income 
                            Resource Limits

     Present law
       $1,000 per family in counted resources (excluding home and 
     some of the value of an auto, funeral arrangements, burial 
     plots, real property that the family is attempting to sell, 
     and--for two months--refunds of the Earned Income Tax Credit 
     (EITC)).
     House bill
       No provision.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                             Income Limits

     Present law
       Gross family income limit: 185% of the State standard of 
     need.
     House bill
       No provision.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                                Earnings

     Present law
       Mandatory disregard: during first 4 months of a job, $120 
     and one-third, plus child care costs up to a limit; next 8 
     months, $120 plus child care; after 12 months, $90 plus child 
     care.
     House bill
       No provision.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                        Earned Income Tax Credit

     Present law
       Mandatory disregard: advance EITC payments must be 
     disregarded.
     House bill
       Repeals mandatory EITC disregard (a provision of AFDC law). 
     States would set policy about treatment of EITC payments by 
     block grant program.
     Senate amendment
       Provision is identical to House position.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                             Child Support

     Present law
       Mandatory disregard: first $50 monthly in child support 
     collections is passed through to the family. In some States, 
     child support payments that fill some or all of the gap 
     between payment and need standard must be ignored.
     House bill
       In determining a family's eligibility and payment amount 
     under the block grant, a State may not disregard child 
     support collected by the State and distributed to the family.
     Senate amendment
       State option. Repeals required disregard of the first $50 
     monthly in child support collections distributed to the 
     family (a provision of AFDC law).
     Conference agreement
       The conference agreement follows the Senate amendment.


                             Other Cash Aid

     Present law
       AFDC benefits may not be paid to a recipient of old-age 
     assistance (predecessor to Supplemental Security Income (SSI) 
     and now available only in Puerto Rico, Guam, and the U.S. 
     Virgin Islands), SSI, or AFDC foster care payments.
     House bill
       If block grant funds are used to provide payments to a 
     recipient of old-age assistance, SSI, or payments under the 
     Child Protection Block grant, a State may not disregard these 
     other payments in determining a family's eligibility for and 
     payment amount from the block grant.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


                 H. Various Procedural and Policy Rules

                         Statewide Requirement

     Present law
       AFDC must be available in all political subdivisions, and, 
     if administered by them, be mandatory upon them.
     House bill
       No provision.
     Senate amendment
       Under the State plan, a State must outline how it intends 
     to conduct a family assistance program ``designed to serve 
     all political subdivisions in the State.''
     Conference agreement
       The conference agreement follows the Senate amendment.


                          Single State Agency

     Present law
       Single agency must administer or supervise administration 
     of the plan.
     House bill
       No provision.
     Senate amendment
       The State's Chief Executive Officer must certify which 
     State agency or agencies are responsible for administration 
     and supervision of the program for the fiscal year.
     Conference agreement
       The conference agreement follows the Senate amendment, with 
     the modification that public and local agencies must have 60 
     days to submit comments.


                           State Cost Sharing

     Present law
       State must share in program costs.
     House bill
       No provision.
     Senate amendment
       For the basic temporary assistance block grant, for 4 
     years, for ``contingency'' funds, and for additional child 
     care funds (beyond those earmarked in the block grant) States 
     must share in program costs.
     Conference agreement
       The conference agreement generally follows the Senate 
     amendment, with modifications to the amount of required state 
     cost sharing.


                          Aid to All Eligibles

     Present law
       State must furnish aid to eligible persons with reasonable 
     promptness and give opportunity to make application to all 
     wishing it.
     House bill
       No provision.
     Senate amendment
       No provision.

[[Page H 12953]]

     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                              Fair Hearing

     Present law
       State must give fair hearing opportunity to person whose 
     claim is denied or not acted upon promptly.
     House bill
       No provision.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                         Administrative Methods

     Present law
       State must adopt administrative methods found necessary by 
     the Secretary.
     House bill
       No provision.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.
           Zero Benefit Below $10, Rounding Benefits
     Present law
       State cannot pay AFDC below $10 monthly and must round down 
     to the next lower dollar both the need standard and the 
     benefit.
     House bill
       No provision.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.
           Pre-Eligibility Fraud Detection
     Present law
       State must have measures to detect fraudulent applications 
     for AFDC before establishment of eligibility.
     House bill
       No provision.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.
       Correction of Erroneous Payments
     Present law
       State must promptly correct overpayments and underpayments.
     House Bill
       No provision.
     Senate amendment
       Requires the Treasury Secretary, upon notification from a 
     State that it has overpaid a former recipient of temporary 
     cash assistance and has attempted unsuccessfully to collect 
     the overpayment, to collect the sum from Federal tax refunds.
     Conference agreement
       The conference agreement follows the Senate amendment.
           Appeal Procedure (for States)
     Present law
       Current law (sec. 1116 of the Social Security Act) entitles 
     a State to a reconsideration, which DHHS must grant upon 
     request, of any disallowed reimbursement claim for an item or 
     class of items. The section also provides for administrative 
     and judicial review, upon petition of a State, of DHHS 
     decisions about approval of State plans. At the option of a 
     State, any plan amendment may be treated as the submission of 
     a new plan.
     House bill
       Repeals reference to Title IV-A in section 1116.
     Senate amendment
       Requires the Secretary to notify the Governor of a State of 
     any adverse decision or action under Title IV-A, including 
     any decision about the State's plan or imposition of a 
     penalty. Provides for administrative review by a Departmental 
     Appeals Board within DHHS and requires a Board decision 
     within 60 days after an appeal is filed. Provides for 
     judicial review (by a United States district court) within 90 
     days after a final decision by the Board. The Amendment also 
     repeals the reference to Title IV-A in section 1116.
     Conference agreement
       The conference agreement follows the Senate amendment.
           I. Quality Control/Audits
     Present law
       The Secretary must operate a quality control system to 
     determine the amount of Federal matching funds to be 
     disallowed, if any, because of erroneous payments. The law 
     also prescribes penalties for payment error rates above the 
     national average. AFDC payments to States are subject to 
     audits conducted under the Single Audit Act [Ch. 75, Title 
     31, U.S.C.]
     House bill
       Family assistance block grants are subject to the Single 
     Audit Act. If an audit conducted under this Act finds that a 
     State has used block grant funds in violation of the law, its 
     grant for the next year is to be reduced by that amount (but 
     no quarterly payment is to be reduced by more than one-
     fourth).
     Senate amendment
       Requires a State to offset loss of Federal funds with its 
     own, maintaining the full block grant level. Also, the 
     penalty shall not be imposed if the State proves to the 
     Secretary that the violation was not intentional, and if the 
     State implements an approved corrective action plan. Each 
     State must audit its cash block grant expenditures annually 
     and submit a copy to the State legislature, Treasury 
     Secretary and DHHS Secretary. The audit must be conducted by 
     an entity that is independent from any agency administering 
     activities under title IV-A. Further, the DHHS Secretary is 
     to develop a quality assurance system of data collection and 
     reporting.Also subject to the Single Audit Act.
     Conference agreement
       The conference agreement follows the House bill regarding 
     audits to review States' use of funds. See also Penalties, 
     e.g. against States misusing funds and against States failing 
     to meet work requirements.
       J. Data Collection and Reporting
           Reporting Requirements
     Present law
       States are required to report the average monthly number of 
     families in each JOBS activity, their types, amounts spent 
     per family, length of JOBS participation and the number of 
     families aided with AFDC/JOBS child care services, the kinds 
     of child care services provided, and sliding fee schedules. 
     States that disallow AFDC for minor mothers in their own 
     living quarters are required to report the number living in 
     their parent's home or in another supervised arrangement. 
     States also must report data (including numbers aided, types 
     of families, how long aided, payments made) for families who 
     receive transitional Medicaid benefits. DHHS collects data 
     about demographic characteristics and financial circumstances 
     of AFDC families from its National Integrated Quality Control 
     System (NIQCS) and publishes State and national information 
     that represents average monthly amounts for a fiscal year. 
     The NIQCS uses monthly samples of AFDC cases.
     House bill
       States are required, not later than 6 months after the end 
     of each fiscal year, to transmit to the Secretary the 
     following aggregate information on families receiving block 
     grant benefits during the fiscal year:
       (a) the number of adults receiving assistance;
       (b) the number of children receiving assistance and the 
     average age of children;
       (c) the employment status and average earnings of employed 
     adults;
       (d) the number of one-parent families in which the sole 
     parent is a widow or widower, is divorced, is separated, or 
     is never married;
       (e) the age, race, educational attainment, and employment 
     status of parents;
       (f) the average assistance provided to families;
       (g) whether, at the time of application, the families or 
     anyone in the families receive benefits from the following 
     public programs: (1) Housing (2) Food Stamps (3) Head Start 
     (4) Job Training;
       (h) the number of months the families have been on welfare 
     during their current spell;
       (i) the total number of months for which benefits have been 
     provided to the families;
       (j) data necessary to indicate whether the State is in 
     compliance with the State's plan;
       (k) the components of any employment and training 
     activities, and the average monthly number of adults in each 
     component; and
       (l) the number of part-time and full-time job placements 
     made by the program, the number of cases with reduced 
     assistance, and the number of cases closed due to employment.
     Senate amendment
       States are required to make quarterly reports based on 
     sample case records providing disaggregated data for the 
     quality assurance system, including:
       (a) age of adults and children (including pregnant women) 
     in each family;
       (b) marital and familial status of each family member 
     (including whether family includes 2 parents and whether 
     child is living with an adult relative other than a parent);
       (c) gender, educational level, work experience, and race of 
     each family head;
       (d) health status of each family member (including whether 
     any is seriously ill, disabled, or incapacitated and is being 
     care for by another family member);
       (e) type and amount of any benefit or assistance received, 
     including amount of and reason for any benefit reduction, and 
     if help is ended, whether this is because of employment, 
     sanction, or time limit;
       (f) any benefit or assistance received by a family member 
     with respect to housing, food stamps, job training, or Head 
     Start;
       (g) number of months since the family's most recent 
     application for aid, and if application was denied, the 
     reason;
       (h) number of times a family applied for and received aid 
     from the cash block grant program and the number of months 
     were received in each ``spell'' of assistance;
       (i) employment status of adults in family (including hours 
     worked and amount earned);
       (j) date on which an adult family member began to engage in 
     work, hours worked, work activity performed, amount of child 
     care assistance, if any; 

[[Page H 12954]]

       (k) number of persons in each family receiving, and the 
     number not receiving, assistance, and the relationship of 
     each person to the youngest child in the family;
       (l) citizenship status of each family member;
       (m) housing arrangement of each family member;
       (n) amount of unearned income, child support; assets and 
     other financial factors relevant to eligibility;
       (o) location in the State of each recipient family; and
       (p) any other data determined by Secretary to be necessary 
     for efficient and effective administration.
       States are required to report the following aggregated 
     monthly data about families who received temporary family 
     assistance for each month in the calendar quarter preceding 
     the one in which the data are submitted, families applying 
     for assistance in the preceding quarter, and families that 
     became ineligible for aid during that quarter: (1) number of 
     families, (2) number of adults in each family, (3) number of 
     children in each family, and (4) number of families whose 
     assistance ended because of employment, sanctions, or time 
     limits.
       The Secretary shall determine appropriate subsets of the 
     data listed above that a State is required to submit 
     regarding applicant and no-longer eligible families.
     Conference agreement
       The conference agreement generally follows the House bill 
     and the Senate amendment, except that provisions that make 
     reference to ``race'' are dropped from the Reconciliation 
     bill because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).
           Authority of States to Use Estimates
     Present law
       The National Integrated Quality Control System (above) uses 
     monthly samples of AFDC cases. JOBS regulations require 
     States to submit a sample of monthly unaggregated case record 
     data.
     House bill
       States may use scientifically acceptable sampling methods 
     to estimate the data elements required for annual reports.
     Senate amendment
       The Secretary shall provide States with case sampling plans 
     and data collection procedures deemed necessary for 
     statistically valid estimates.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment, and clarifies that the Secretary may, in 
     the case of States that use sampling methods, challenge the 
     sampling plan as scientifically invalid.
           Other State Reporting Requirements
     Present law
       Regulations require each State to submit quarterly 
     estimates of the total amount (and the Federal share) of 
     expenditures for AFDC benefits and administration.
       Required quarterly reports include estimates of the Federal 
     share of child support collections made by the State; see 
     above for transitional child care and Medicaid reporting 
     requirements.
     House bill
       The report submitted by the State each fiscal year must 
     also include:
       (1) a statement of the percentage of the funds paid to the 
     State that are used to cover administrative costs or 
     overhead;
       (2) a statement of the total amount expended by the State 
     during the fiscal year on programs for needy families; and
       (3) the number of noncustodial parents in the State who 
     participated in work activities as defined in the bill during 
     the fiscal year.
     Senate amendment
       The report required by a State for a fiscal year must 
     include:
       (1) a statement of the total amount and percentage of 
     Federal funds paid to the State under Title IV-A that are 
     used for administrative costs or overhead;
       (2) a statement of the total amount of State funds expended 
     on programs for the needy;
       (3) the number of noncustodial parents who participated in 
     work activities during the fiscal year;
       (4) the total amount of child support collected by the 
     State IV-D agency on behalf of a family in the cash 
     assistance program;
       (5) the total amount spent by the State for child care 
     under Title IV-A, with a description of the types of care, 
     including transitional care for families who no longer 
     receive assistance because of work and ``at-risk'' care for 
     persons who otherwise might become eligible for assistance; 
     and
       (6) the total amount spent by the State for providing 
     transitional services to a family that no longer receive 
     assistance because of employment, along with a description of 
     those services.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment as follows:
       (1) administrative funds--follow House bill;
       (2) State spending--follow House bill;
       (3) noncustodial parent--follow House bill;
       (4) child support--follow House bill;
       (5) child care--follow House bill; and
       (6) transition services--follow Senate amendment.
       K. Reports Required by DHHS Secretary
     Present Law
       The law requires the DHHS Secretary to report promptly to 
     Congress the results of State reevaluations of AFDC need 
     standards and payment standards required at least every 3 
     years. The Secretary is to annually compile and submit to 
     Congress annual State reports on at-risk child care. The 
     Family Support Act required the Secretary to submit 
     recommendations regarding JOBS performance standards by a 
     deadline that was extended.
     House bill
       The DHHS Secretary must report to Congress within 6 months 
     on the status of automatic data processing systems in the 
     States and on what would be required to produce a system 
     capable of tracking participants in public programs over time 
     and checking case records across States to determine whether 
     some individuals are participating in public programs in more 
     than one State. The report should include a plan for building 
     on the current automatic data processing system to produce a 
     system capable of performing these funcitions as well as an 
     estimate of the time required to put the system in place and 
     the cost of the system.
       The DHHS Secretary must report to Congress within 6 months 
     on the status of automatic data processing systems in the 
     States and on what would be required to produce a system 
     capable of tracking participants in public programs over time 
     and checking case records across States to determine whether 
     some individuals are participating in public programs in more 
     than one State. The report should include a plan for building 
     on the current automatic data processing system to produce a 
     system capable of performing these functions as well as an 
     estimate of the time required to put the system in place and 
     the cost of the system. The DHHS Secretary must, to the 
     extent feasible, produce and publish for each State, county, 
     and local unit of government for which data have been 
     compiled in the most recent census of population, and for 
     each school district, data about the incidence of poverty. 
     Data shall include, for each school district, the number of 
     children age 5 to 17 inclusive, in families below the poverty 
     level, and, for each State and county for which data have 
     been compiled by the Census Bureau, the number of persons 
     aged 65 or older. Data shall be published for each State, 
     county and local unit of government in 1996 and at least 
     every second year thereafter; and for each school district, 
     in 1998 and at least every second year thereafter. Data may 
     be produced by means of sampling, estimation, or any other 
     method that the Secretary determines will produce current, 
     comprehensive, and reliable information. If reliable data 
     could not be otherwise produced, the Secretary is given 
     authority to aggregate school districts. The DHHS Secretary 
     is to consult with the Secretary of Education in producing 
     data about school districts. If unable to produce and publish 
     the required data, the Secretary must submit a report to the 
     President of the Senate and the Speaker of the House not 
     later than 90 days before the start of the following year, 
     enumerating each government or school district excluded and 
     giving the reason for the exclusion.
     Senate amendment
       The Secretary must, in cooperation with the States, study 
     and analyze measures of program outcomes (as an alternative 
     to minimum participation rates) for evaluating the success of 
     State block grant programs in helping recipients leave 
     welfare. The study must include a determination of whether 
     outcomes measures should be applied on a State or national 
     basis and a preliminary assessment of the job placement 
     performance bonus established in the Act. The Secretary must 
     report findings to the Committee on Finance and the Committee 
     on Ways and Means not later than September 30, 1998.
       The Secretary is to report by Dec. 31, 1997, to the 
     Committee on Ways and Means and the Committee on Economic and 
     Educational Opportunities of the House and the Committee on 
     Finance, the Committee on Labor and Human Resources, and the 
     Special Committee on Aging of the Senate setting forth 
     findings of a study on the effects of welfare changes made by 
     the Act on grandparents who are primary caregivers for their 
     grandchildren. The study is to identify barriers to 
     participation in public programs by grandparent caregivers, 
     including inconsistent policies, standards, and definitions 
     of programs providing medical aid, cash, child support 
     enforcement, and foster care.
       Not later than March 31, 1998, and each fiscal year 
     thereafter, the Secretary shall send Congress a report 
     describing:
       (1) whether States are meeting minimum participation rates 
     and whether they are meeting objectives of increasing 
     employment and earnings of needy families, increasing child 
     support collections, and decreasing out-of-wedlock 
     pregnancies and child poverty;
       (2) demographic and financial characteristics of applicant 
     families, recipient families, and those no longer ineligible 
     for temporary family assistance;
       (3) characteristics of each State program of temporary 
     family assistance; and
       (4) trends in employment and earnings of needy families 
     with minor children.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment as follows:
       (1) data processing--follow House bill;
       (2) poverty--follow Senate amendment;

[[Page H 12955]]

       (3) alternatives--the provision in the Senate amendment was 
     dropped from the Reconciliation bill because it violates the 
     Byrd Rule (section 313 of the Congressional Budget Act of 
     1974);
       (4) grandparents--follow House bill; and
        (5) State progress--follows Senate amendment with the 
     modification that in evaluating innovative approaches to 
     reducing welfare dependency, attention should be paid to 
     welfare recipients who suffer from substance abuse or 
     addiction..
       L. Research, Evaluations, and National Studies
     Present law
       The law authorizes $5 million annually for cooperative 
     research or demonstration projects, such as those relating to 
     the prevention and reduction of dependency.
     House bill
       The Secretary may conduct research on the effects, costs, 
     benefits, and caseloads of State programs funded under this 
     part. The Secretary may assist the States in developing, and 
     shall evaluate (using random assignment to experimental and 
     control groups to the maximum extent feasible), innovative 
     approaches to employing recipients of cash aid under this 
     part. The Secretary may conduct studies of the welfare 
     caseloads of States operating welfare reform programs. The 
     Secretary shall develop innovative methods of disseminating 
     information on research, evaluations, and studies.
     Senate amendment
       The Secretary may conduct research on the effects, 
     benefits, and costs of operating different State programs of 
     Temporary Assistance to Needy Families, including time limits 
     for eligibility. The research shall include studies on the 
     effects of different programs and the operation of the 
     programs on welfare dependency, illegitimacy, teen pregnancy, 
     employment rates, child well-being, and any other appropriate 
     area. The Secretary may assist States in developing, and 
     shall evaluate innovative approaches for reducing welfare 
     dependency and increasing the well-being of minor children, 
     using random assignments in these evaluations ``to the 
     maximum extent feasible.''
       The Secretary shall develop innovative methods of 
     disseminating information on research, evaluations, and 
     studies, including ways to facilitate sharing of information 
     via computers and other technologies. The Senate amendment 
     makes a State eligible to receive funding to evaluate its 
     family assistance program if it submits an evaluation design 
     determined by the Secretary to be rigorous and likely to 
     yield credible and useful information. The State must pay 10 
     percent of the study's cost, unless the Secretary waives this 
     rule. For these State-initiated evaluation studies of the 
     family assistance program (and for costs of operating and 
     evaluating demonstration projects begun under the AFDC waiver 
     process) the amendment authorizes to be appropriated, and 
     appropriates, a total of $20 million annually for 5 years 
     (FYs 1996-2000).
     Conference agreement
       The conference agreement follows the Senate amendment 
     except that $15 million is appropriated annually for this 
     purpose.


                               M. Waivers

     Present law
       The law authorizes DHHS Secretary to waive specified 
     requirements of State AFDC plans in order to enable a State 
     to carry out any experimental, pilot, or demonstration 
     project that the Secretary judges likely to assist in 
     promoting the program's objective. (Sec. 1115 of Social 
     Security Act) Some 34 States have received waivers from the 
     Clinton Administration for welfare reforms of their own.
     House bill
       Repeals AFDC. Also, expressly repeals authority for waiver 
     of specified provisions of AFDC law (Sec. 402, State plan 
     requirements, and Sec. 403, terms of payment to States) for 
     demonstration projects.
     Senate amendment
       Provides that terms of AFDC waivers in effect, or approved, 
     as of October 1, 1995, will continue until their expiration, 
     except that beginning with fiscal year 1996 a State operating 
     under a waiver shall receive the block grant described under 
     Section 403 in lieu of any other payment provided for in the 
     waiver. The amendment gives States the option to terminate 
     waivers before their expiration, but requires that early-
     ended projects be summarized. The amendment provides that a 
     State that submits a request to end a waiver by January 1, 
     1996, or 90 days after adjournment of the first regular 
     session of the State legislature that begins after the date 
     of enactment, shall be held harmless for accrued cost 
     neutrality liabilities incurred under the waiver.
       The Secretary is directed to encourage any State now 
     operating a waiver to continue the project and to evaluate 
     its result or effect. The amendment allows a State to elect 
     to continue one or more individual waivers.
     Conference agreement
       The conference agreement follows the Senate amendment.
       N. Studies by the Census Bureau
     Present law
       No provision.
     House bill
       The Census Bureau must expand the Survey of Income and 
     Program Participation to evaluate the impact of welfare 
     reforms made by this title on a random national sample of 
     recipients and, as appropriate, other low-income families. 
     The study should focus on the impact of welfare reform on 
     children and families, and should pay particular attention to 
     the issues of out-of-wedlock birth, welfare dependency, the 
     beginning and end of welfare spells, and the causes of repeat 
     welfare spells. Ten million dollars per year for 4 years in 
     entitlement funds are authorized for this study.
     Senate amendment
       Expansion of SIPP is identical to House provision.
       In addition, the Secretary of Commerce shall expand the 
     Census Bureau's question (for the decennial census and mid-
     decade census) concerning households with both grandparents 
     and their grandchildren so as to distinguish between 
     households in which a grandparent temporarily provides a home 
     and those where the grandparent serves as primary caregiver.
     Conference agreement
       The conference agreement follows the House bill regarding 
     the expansion of SIPP to evaluate welfare programs. The 
     provision in the Senate amendment regarding census data on 
     grandparents as caregivers was dropped from the 
     Reconciliation bill because it violates the Byrd Rule 
     (section 313 of the Congressional Budget Act of 1974).


    O. Services from Charitable, Religious, or Private Organizations

     Present law
       The Child Care and Development Block Grant Act prohibits 
     use of any financial assistance provided through any grant or 
     contract for any sectarian purpose or activity. In general, 
     it requires religious nondiscrimination, but it does allow a 
     sectarian organization to require employees to adhere to its 
     religious tenets and teachings.
     House bill
       No provision.
     Senate amendment
       Authorizes States to administer and provide family 
     assistance services (and services under Supplemental Security 
     Income and public housing) through contracts with charitable, 
     religious, or private organizations. Authorizes States to pay 
     recipients by means of certificates, vouchers, or other forms 
     of disbursement that are redeemable with these private 
     organizations. States that religious organizations are 
     eligible, on the same basis as any other private 
     organization, to provide assistance as contractors or to 
     accept certificates and vouchers so long as their programs 
     ``are implemented consistent with'' the Establishment Clause 
     of the Constitution. Stipulates that any religious 
     organization with a contract to provide welfare services 
     shall retain independence from all units of government and 
     that such a religious organization (or one that redeems 
     welfare certificates) may require employees who render 
     service related to the contract or certificates to adhere to 
     the religious tenets and teaching of the organization and to 
     its rules, if any, regarding use of drugs or alcohol. 
     Provides that, except as otherwise allowed by law, a 
     religious organization administering the program may not 
     discriminate against beneficiaries on the basis of religious 
     belief, or refusal to participate in a religious practice. 
     Requires States to provide an alternative provider for a 
     beneficiary who objects to the religious character of the 
     designated organization. Provides that no funds provided 
     directly to institutions or organizations to provide services 
     and administer programs shall be spent for sectarian worship 
     or instruction, but does not apply this limitation to 
     financial assistance in the form of certificates or vouchers, 
     if the beneficiary may choose where the aid is redeemed.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).


                              5. transfers

                       A. Child Support Penalties

     Present law
       If a State's child support plan fails to comply 
     substantially with Federal requirements, the Secretary is to 
     reduce its AFDC matching funds by percentages that rise for 
     successive violations (Sec. 403(h) of the Social Security 
     Act).
     House bill
       The provision for child support review penalties--loss of 
     Federal payments for cash assistance--now found in 403(h) of 
     part A of the Social Security Act is retained in the block 
     grant.
     Senate amendment
       No provision. However, there is a penalty assessed against 
     States for failure to enforce penalties requested by child 
     support agency against recipients who do not cooperate in 
     establishing paternity.
     Conference agreement
       The conference agreement follows the House bill.


               B. Assistant Secretary for Family Support

     Present law
       An Assistant Secretary for Family Support, appointed by the 
     President by and with consent of the Senate, is to administer 
     AFDC, child support enforcement, and the Jobs Opportunities 
     and Basic Skills (JOBS) program.

[[Page H 12956]]

     House bill
       The provision for an Assistant Secretary for Family Support 
     now found in section 417 of Part A of the Social Security Act 
     is retained in the block grant (as sec. 409), but modified to 
     remove the reference to JOBS (which the House bill repeals).
     Senate amendment
       Identical provision placed in sec. 415.
     Conference agreement
       The conference agreement follows the House bill.


          6. conforming amendments to the social security act

     Present law
       No provision.
     House bill
       This section makes a series of technical amendments that 
     conform the provisions of the House bill with various titles 
     of the Social Security Act and provide for the repeal of Part 
     F of Title IV (the JOBS program).
     Senate amendment
       This section makes a series of amendments that conform 
     provisions of the Senate amendment with various titles of the 
     Social Security Act.
     Conference agreement
       The conference agreement generally follows the House bill 
     and the Senate amendment, with changes made as appropriate.


                 7. Conforming Amendments to Other Laws

     Present law
       No provision.
     House bill
       This section makes a series of technical amendments to 
     conform provisions of the House bill to the Internal Revenue 
     Code, the Omnibus Reconciliation Act of 1987, the Housing and 
     Urban-Rural Recovery Act of 1983, the Tax Equity and Fiscal 
     Responsibility Act of 1982, and the Stewart B. McKinney 
     Homeless Assistance Amendments Act of 1988.
     Senate amendment
       Section 107 makes a series of amendments that conform 
     provisions of the Senate amendment to the Food Stamp Act, the 
     Agriculture and Consumer Protection Act, the National School 
     Lunch Act, and the Child Nutrition Act.
       Section 108 makes a series of amendments that conform 
     provisions of the Senate amendment to the Unemployment 
     Compensation Amendments of 1976, the Omnibus Budget 
     Reconciliation Act of 1987, the House and Urban-Rural 
     Recovery Act of 1983, the Tax Equity and Fiscal 
     Responsibility Act of 1982, the Social Security Amendments of 
     1967, the Stewart B. McKinney Homeless Assistance Amendments 
     Act of 1988, the Higher Education Act of 1965, the Carl D. 
     Perkins Vocational and Applied Technology Education Act, the 
     Elementary and Secondary Education Act of 1965, Public Law 
     99-88, the Internal Revenue Code of 1986, the Wagner-Peyser 
     Act, the Job Training Partnership Act, the Low-Income Home 
     Energy Assistance Act of 1981, the Family Support Act of 
     1988, the Balanced Budget and Emergency Deficit Control Act 
     of 1985, the Immigration and Nationality Act, the Head Start 
     Act, and the School-to-Work Opportunities Act of 1994.
     Conference agreement
       The conference agreement generally follows the House bill 
     and the Senate amendment, with changes made as appropriate.


  8. Continued Application of Current Standards Under Medicaid Program

     Present law
       States must continue Medicaid (or pay premiums for 
     employer-provided health insurance) for 6 months to a family 
     that loses AFDC eligibility because of hours of, or income 
     from, work of the caretaker relative, or because of loss of 
     the earned income disregard after 4 months of work. States 
     must offer an additional 6 months of medical assistance, for 
     which it may require a premium payment if the family's income 
     after child care expenses is not above the poverty guideline. 
     For extended medical aid, families must submit specified 
     reports. States must continue Medicaid for 4 months to those 
     who lose AFDC because of increased child or spousal support.
     House bill
       Although AFDC would be repealed, its standards would 
     continue to be used by the Medicaid program. States would 
     have to give Medicaid to families who would have received 
     AFDC if it still existed as in effect on March 7, 1995. The 
     frozen AFDC rules would govern Medicaid eligibility for both 
     recipients and non-recipients of the new block grant funds, 
     including those categorically ineligible for cash benefits.
     Senate amendment
       Same as House provision except for date at which AFDC rules 
     would be ``frozen'' (June 1, 1995, rather than March 7, 
     1995). If an AFDC waiver (as of June 1, 1995) affects 
     Medicaid eligibility, the State has the option to continue to 
     apply the waiver in regard to Medicaid after the date when 
     the waiver otherwise would end.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment with the clarification that States will 
     determine Medicaid eligibility for recipients of block grant 
     assistance (in conformity with other pending Medicaid 
     changes).


                           9. Effective Dates

     Present law
       No provision.
     House bill
       The amendments and repeals made by this title take effect 
     on October 1, 1995. The authority to reduce assistance for 
     certain families that include a child whose paternity is not 
     established will begin 1 year after the effective date or, at 
     the option of the State, 2 years after the effective date.
       Amendments made by Title I (Block Grants for Temporary 
     Assistance for Needy Families) shall not apply to powers, 
     duties, functions, rights, claims, penalties, or obligations 
     applicable to aid, or services provided (under AFDC) before 
     the effective date of the Act. Nor shall amendments of the 
     bill apply to administrative actions and proceedings 
     commenced or authorized before the effective date of the 
     bill.
     Senate amendment
       AFDC is repealed effective October 1, 1995. Family 
     assistance block grant provisions also take effect October 1, 
     1995 (except for penalties, most of which are effective 
     October 1, 1996), but expire on September 30, 2000. A State 
     may continue to operate its AFDC program for 9 months, until 
     June 30, 1996. If it does so, its fiscal year 1996 cash block 
     grant under the new program shall be reduced by the amount of 
     Federal matching funds received for that year for AFDC 
     expenditures.
     Conference agreement
       The conference agreement follows the Senate amendment.


                           10. Miscellaneous

             A. County Authority for Demonstration Projects

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Requires the DHHS Secretary and the Agriculture Secretary 
     jointly to enter into negotiations with all counties having a 
     population greater than 500,000 that desire to conduct a 
     demonstration project in which: (1) the county shall have the 
     authority and duty to administer the operation of the family 
     assistance program as if the county were considered a State; 
     (2) the State shall pass through directly to the county the 
     portion of the block grant that the State determines is 
     attributable to the residents of the county; and (3) the 
     project shall last 5 years.
       To be eligible: (1) a county already must be administering 
     the Title IV-A program; (2) must represent less than 25 
     percent of the State's total welfare caseload; and (3) the 
     State must have more than one county with a population of 
     greater than 500,000.
       Not later than 6 months after the end of a county 
     demonstration project, the two Secretaries shall send a 
     report to Congress that includes a description of the 
     project, its rules, and innovations (if any).
     Conference agreement
       The conference agreement follows the House bill.


         B. Collection of Overpayments from Federal Tax Refunds

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Requires the Treasury Secretary, upon notification from a 
     State that it has overpaid a former recipient of temporary 
     cash assistance and has attempted unsuccessfully to collect 
     the overpayment, to collect the sum from Federal tax refunds.
     Conference agreement
       The conference agreement follows the Senate amendment.


                  C. Tamper-Proof Social Security Card

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Requires the Commissioner of Social Security to develop a 
     prototype of a counterfeit-resistant social security card. 
     The card must be made of a durable, tamper-resistant material 
     such as plastic or polyester, employ technologies that 
     provide security features, and be developed so as to provide 
     individuals with reliable proof of citizenship or legal 
     resident alien status. The Commissioner is to report to 
     Congress on the cost of issuing a tamper-proof card for all 
     persons over a 3-, 5-, and 10-year period. Copies of the 
     report, along with a facsimile of the prototype card, shall 
     be submitted to the Committees on Ways and Means and 
     Judiciary of the House and the Committees on Finance and 
     Judiciary of the Senate within one year of enactment.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).


               D. Disclosure of Receipt of Federal Funds

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Requires disclosure of specified public funds received by 
     501(c) organizations, which 

[[Page H 12957]]
     are non-profit and tax-exempt. When a 501(c) organization that accepts 
     Federal funds under the Work Opportunity Act makes any 
     communication that intends to promote public support or 
     opposition to any governmental policy (Federal, State or 
     local) through any broadcasting station, newspaper, magazine, 
     outdoor advertising facility, direct mailing, or any other 
     type of general public advertising, the communication must 
     state: ``This was prepared and paid for by an organization 
     that accepts taxpayer dollars''.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).


    E. Projects to Expand Job Opportunities for Certain Low-Income 
                           Individuals (JOLI)

     Present law
       The Family Support Act of 1988 (Sec. 505) directed the 
     Secretary to enter into agreement with between 5 and 10 
     nonprofit organizations to conduct demonstrations to create 
     job opportunities for AFDC recipients and other low-income 
     persons. For these projects, $6.5 million was authorized to 
     be appropriated for each fiscal year, 1990-1992.
     House bill
       No provision.
     Senate amendment
       Strikes the word ``demonstration'' from the description of 
     these projects and converts them to grant status. It requires 
     the Secretary to enter into agreements with nonprofit 
     organizations to conduct projects to create job opportunities 
     for recipients of family assistance and other persons with 
     income below the poverty guideline. It authorizes 
     appropriations of $25 million annually for these projects.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).


           F. Demonstration Projects to Expand Use of Schools

     Present law
       The 21st Century Community Learning Centers Act 
     (established by P.L. 103-382) makes available funds directly 
     to rural or inner-city schools, or consortia of them, to act 
     as centers for providing education and human resources 
     services. Services allowed include: literacy education, 
     parenting skills education, employment counseling, training 
     and placement. The Elementary and Secondary Education Act 
     includes a program called ``Extended Time for Learning and 
     Longer School Year,'' which supports local educational 
     agencies' efforts to lengthen learning time. Grantees may 
     engage other community members in these efforts.
     House bill
       No provision.
     Senate amendment
       The Secretary of Education is required to make grants to 
     not more than 5 States for demonstration grants to increase 
     the number of hours when public school facilities are 
     available for use. Schools selected must have a significant 
     percentage of students receiving family assistance benefits. 
     The longer hours are intended to enable volunteers and 
     parents or professionals paid from other sources to teach, 
     tutor, coach, organize, advise, or monitor students. Grants 
     are intended also to make school facilities available for 
     clubs, civic associations, Boy and Girl Scouts and other 
     groups. The amendment authorizes $10 million annually (FYs 
     1996-2000) for grants plus $1 million annually for 
     administration by the Secretary.
     Conference agreement
       The conference agreement follows the House bill.


  G. Secretarial Submission of Legislative Proposal for Technical and 
                         Conforming Amendments

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Not later than 90 days after enactment of this Act, the 
     Secretary must submit to the appropriate committees of 
     Congress a legislative proposal providing for technical and 
     conforming amendments.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).

                Subtitle B--Supplemental Security Income


                  Chapter 1--Eligibility Restrictions

    1. Denial of Supplemental Security Income Benefits by Reason of 
               Disability to Drug Addicts and Alcoholics

                             A. In General

     Present law
       Individuals whose drug addiction or alcoholism is a 
     contributing factor material to their disability are eligible 
     to receive SSI cash benefits for up to three years if they 
     meet SSI income and resource requirements. These recipients 
     must have a representative payee, must participate in an 
     approved treatment program when available and appropriate, 
     and must allow their participation in a treatment program to 
     be monitored. Medicaid benefits continue beyond the 3-year 
     limit, as long as the individual remains disabled, unless the 
     individual was expelled from SSI for failure to participate 
     in a treatment program.
     House bill
       Under the House provision, an individual is not considered 
     disabled if drug addiction or alcoholism is a contributing 
     factor material to his or her disability. Individuals with 
     drug addiction and/or alcoholism who cannot qualify based on 
     another disabling condition will not be eligible for SSI 
     benefits.
     Senate amendment
       Identical to House bill.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment.


                  B. Representative Payee Requirements

     Present law
       SSI law requires that the SSI payments of individuals whose 
     drug addiction or alcoholism is a contributing factor 
     material to their disability must be made to another 
     individual, or an appropriate public or private organization 
     (i.e., the individual's ``representative payee'') for the use 
     and benefit of the individual or eligible spouse.
     House bill
       No provision.
     Senate amendment
       Under the Senate amendment, if a disabled person also has 
     an alcoholism or drug addiction condition (as determined by 
     the Commissioner of Social Security), their SSI checks must 
     be sent to a representative payee.
     Conference agreement
       The conference agreement generally follows the Senate 
     amendment with modification to require that a representative 
     payee be appointed only in those cases in which the 
     Commissioner determines that payment to a representative 
     payee would serve the interest of the beneficiary because 
     such individual also has an alcoholism or drug addiction 
     condition that prevents such individual from managing his or 
     her own benefits.


   C. Treatment Referrals For Individuals With an Alcoholism or Drug 
                          Addiction Condition

     Present law
       Federal law requires SSI recipients whose drug addiction or 
     alcoholism is a contributing factor material to their 
     disability to undergo appropriate treatment, if it is 
     available.
     House bill
       No provision.
     Senate amendment
       The Senate amendment requires the Commissioner of Social 
     Security to refer to the appropriate State agency 
     administering the State plan for substance abuse services any 
     disabled SSI recipient who is identified as having an 
     alcoholism or drug addiction condition. Any individual who 
     refuses to accept the referred services without good cause is 
     no longer eligible for SSI benefits.
     Conference agreement
       The conference agreement follows the Senate amendment with 
     modification to require that only those SSI disability 
     recipients who are unable to manage their own benefits as a 
     result of an alcoholism or drug addiction condition be 
     referred to the State agencies administering such treatment. 
     While additional treatment funds are being provided to States 
     in a separate provision, it is not the intent of the 
     conferees that States are required to provide treatment.
       Although this legislation eliminates drug addiction and 
     alcoholism as the basis for awarding disability benefits to 
     an SSI claimant, the conferees believe it is important that 
     SSI recipients with severe drug or alcohol abuse continue to 
     be referred to treatment sources. While the conferees do not 
     expect that the Commissioner will routinely inquire in all 
     representative payee cases whether drug addiction or 
     alcoholism causes an individual's inability to manage his or 
     her own affairs, it is expected that whenever there is any 
     indication that this may be the case, the Commissioner will 
     investigate to determine whether referral is appropriate.


                        D. Conforming Amendments

     E. Funding of Certain Programs for Drug Addicts and Alcoholics

     Present law
       SSI cash benefits are limited to 3 years for recipients 
     whose drug addiction or alcoholism is a contributing factor 
     material to their disability. These individuals must undergo 
     ``appropriate substance abuse treatment.'' While the Social 
     Security Administration currently contracts with agencies for 
     referral, monitoring and reporting of compliance with 
     treatment, it does not pay for treatment. Medicaid benefits 
     are to continue beyond the 3-year limit, as long as the 
     individual remains disabled, unless the individual was 
     expelled from SSI for noncompliance with treatment.
     House bill
       For four years beginning with fiscal year 1997, $100 
     million of the savings realized from denying cash SSI 
     payments and Medicaid coverage to individuals whose drug 
     addiction or alcoholism is a contributing factor material to 
     their disability will be targeted to drug treatment and drug 
     abuse research. Each year, $95 million will be expended 
     through the Federal Capacity Expansion 

[[Page H 12958]]
     Program (CEP) to expand drug treatment availability and $5 million will 
     be allocated to the National Institute on Drug Abuse to be 
     expended solely on the medication development project to 
     improve drug abuse and drug treatment research.
     Senate amendment
       For two years beginning with fiscal year 1997, $50 million 
     will be spent to fund additional drug (including alcohol) 
     treatment programs and services through Substance Abuse 
     Prevention and Treatment Block Grant. The conferees expect 
     that States will use funds made available under this 
     provision to provide treatment to current and former SSI 
     recipients as their first priority.
     Conference agreement
       The conference agreement follows the Senate amendment.


                           F. Effective Date

     Present law
       Not applicable.
     House bill
       This section of the bill becomes effective on October 1, 
     1995, and applies with respect to months beginning on or 
     after that date.
     Senate amendment
       Generally, changes apply to applicants for benefits for 
     months beginning on or after the date of enactment. An 
     individual receiving benefits on the date of enactment whose 
     eligibility would end would continue to be eligible for 
     benefits until January 1, 1997. The Commissioner of Social 
     Security shall notify individuals losing eligibility within 
     three months of the date of enactment.
       In addition, in the case of an individual with an 
     alcoholism or drug addiction condition who is receiving SSI 
     benefits on the date of enactment, the representative payee 
     requirement will apply on or after the first continuing 
     disability review occurring after enactment. For recipients 
     with an addiction who are over the age of 65, the 
     Commissioner will determine appropriate representative payee 
     requirements.
     Conference agreement
       The conference agreement follows the Senate amendment with 
     modification that the referral to treatment requirement for 
     an individual with an alcoholism or drug addiction condition 
     receiving benefits on the date of enactment will apply on or 
     after the first continuing disability review occurring after 
     enactment.
           Reapplication
     Present law
       Not applicable.
     House bill
       No provision.
     Senate amendment
       Individuals receiving SSI benefits on the date of enactment 
     who are notified of their termination of eligibility and who 
     desire to reapply for benefits must do so within four months 
     after the date of enactment. The Commissioner of Social 
     Security will determine within one year after the date of 
     enactment the eligibility of individuals who reapply.
     Conference agreement
       The conference agreement generally follows the Senate 
     amendment with technical modification.


  2. denial of ssi benefits for 10 years to individuals found to have 
   fraudulently misrepresented residence in order to obtain benefits 
                   simultaneously in 2 or more states

       Refer to Title I.


3. denial of ssi benefits for fugitive felons and probation and parole 
                               violations

       Refer to Title I.


               chapter 2--benefits for disabled children

                  1. definition and eligibility rules

                 a. definition of childhood disability

       Comparable Severity Repealed
     Present law
       A needy individual under age 18 is determined eligible for 
     SSI ``if he suffers from any medically determinable physical 
     or mental impairment of comparable severity'' with that of an 
     adult considered work disabled and otherwise eligible for SSI 
     benefits.
     House bill
       The ``comparable severity'' test in statute for determining 
     disability of children (defined as individuals under 18) is 
     repealed.
     Senate amendment
       Similar to the House bill.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment.


                           disability definition

     Present law
       There is no definition of childhood disability in the 
     statute. Under current disability evaluation procedures, to 
     be found disabled, a child must have a medically determinable 
     physical or mental impairment that substantially reduces his 
     or her ability to independently and effectively engage in 
     age-appropriate activities. This impairment must be expected 
     to result in death or to last for a continuous period of not 
     less than 12 months.
     House bill
       Eligibility, as determined by the Commissioner of Social 
     Security, for cash benefits or new medical or non-medical 
     services described below will be based solely on: (1) meeting 
     the non-disability-related requirement for eligibility; (2) 
     meeting or equalling the current Listing of Impairments set 
     forth in the Code of Federal Regulations (i.e., the Listing 
     which is currently in regulations is to be codified in 
     statute); and (3) being a disabled SSI recipient in the month 
     prior to this provision's effective date or being in a 
     hospital, skilled nursing facility, residential treatment 
     facility, intermediate care facility for the mentally 
     retarded, or otherwise would be placed in such a facility if 
     the child were not receiving personal assistance necessitated 
     by the impairment. Personal assistance refers to assistance 
     with activities of daily living such as eating and toileting.
     Senate amendment
       Adds a new statutory definition of childhood disability. An 
     individual under the age of 18 is considered disabled for the 
     purposes of this section if the individual has a medically 
     determinable physical or mental impairment, which results in 
     marked and severe functional limitations, and which can be 
     expected to result in death or which has lasted or can be 
     expected to last for a continuous period of not less than 12 
     months.
     Conference agreement
       The conference agreement follows the Senate amendment with 
     technical modification and provides that the Commissioner of 
     Social Security shall submit for review to the committees of 
     jurisdiction in the Congress any final regulation with 
     supporting documentation pertaining to the eligibility of 
     individuals under age 18 for SSI benefits at least 45 days 
     before the effective date of such regulation.
       By this definition, the conferees intend that only needy 
     children with severe disabilities be eligible for children's 
     SSI and that the Listing and other disability determination 
     regulations as modified by the conference agreement properly 
     reflect the severity of disability contemplated by the 
     statutory definition. In those areas of the Listing that 
     involve domains of functioning, the conferees expect no less 
     than two marked limitations in no fewer than two domains or 
     extreme limitations in at least one domain as the standard 
     for qualification. The conferees are also aware that the 
     Social Security Administration uses the term ``severe'' to 
     often mean ``other than minor'' in an initial screening 
     procedure for disability determination and in other places. 
     The conferees, however, use the term ``severe'' in its common 
     sense meaning.
       The conferees do not intend to suggest by this definition 
     of childhood disability that every child need be especially 
     evaluated for functional limitations, or that this definition 
     creates a supposition for any such examination. Under current 
     procedures for writing individual listings, level of 
     functioning is an explicit consideration in deciding which 
     impairment, with what medical or other findings, are of 
     sufficient severity to be included in the Listing. 
     Nonetheless, the conferees do not intend to limit the use of 
     functional assessments and functional information, if 
     reflecting sufficient severity and are otherwise appropriate.


                b. changes to childhood ssi regulations

           Reliance on ``Listing of Impairments''
     Present law
       Under the disability determination process for children, 
     individuals whose impairments do not meet or equal the 
     ``Listing of Impairments'' in Federal regulations are subject 
     to an ``Individualized Functional Assessment (IFA)''. This 
     assessment examines whether the child can engage in age-
     appropriate activities effectively. If the child cannot, he 
     or she is determined disabled.
     House bill
       The Commissioner of Social Security must annually report to 
     Congress on the Listings and recommend any needed revisions. 
     Individualized functional assessments are no longer grounds 
     for determination of disability.
     Senate amendment
       The Commissioner of Social Security shall discontinue the 
     individualized functional assessment for children set forth 
     in the Code of Federal Regulations.
     Conference agreement
       The conference agreement follows the Senate amendment. The 
     conferees agree that a significant amount of the growth of 
     the children's SSI program resulted from regulations issued 
     in 1991 by the Social Security Administration establishing 
     the individualized functional assessment which liberalized 
     program eligibility criteria beyond Congressional intent. 
     Children with modest conditions or impairments were made 
     eligible for SSI due to the individualized functional 
     assessment, and therefore should not be eligible for SSI 
     benefits.


         Multiple References to ``Maladaptive Behavior'' Eliminated

     Present law
       Under the disability determination process for children, 
     the Social Security Administration first determines if a 
     child meets or equals the Listings of Impairments. Under the 
     Listings that relate to mental disorders, maladaptive 
     behavior may be scored twice, in domains of social 
     functioning and of personal/behavior functioning.
     House bill
       No provision.
     Senate amendment
       Requires the Commissioner of Social Security to eliminate 
     references in the Listing to maladaptive behavior among 
     medical criteria for evaluation of mental and emotional 

[[Page H 12959]]
     disorders in the domain of personal/behavioral function.
     Conference agreement
       The conference agreement follows the Senate amendment.


                         c. amount of benefits

     Present law
       A child who is determined to be disabled and who is 
     eligible on the basis of his income and resources shall be 
     paid benefits. If the child lives at home, the parents' 
     financial resources are deemed available to the child. If the 
     same child is institutionalized, after the first month away 
     from home only the child's own financial resources are deemed 
     to be available for the child's care. The child may then 
     qualify for a reduced (``personal needs allowance'') SSI 
     benefit and for Medicaid coverage. Because of these 
     ``deeming'' rules, some children who could have been cared 
     for at home might remain in institutions because, if they 
     were to return home, they would lose Medicaid benefits. 
     Medicaid ``waivers'' allow States to disregard the deeming 
     rule, provide Medicaid coverage, and pay for support services 
     to help families keep children at home.
     House bill
       Children may be eligible for cash SSI payments in one of 
     three circumstances:
       (1) if a child who is currently (defined as during the 
     month prior to the first month for which this provision takes 
     effect) receiving cash SSI payments by reason of disability 
     will continue to be eligible for cash SSI benefits if the 
     child has an impairment that meets or equals an impairment 
     specified in the Listing of Impairments. Children receiving 
     cash benefits under the grandfather provision whose financial 
     eligibility is suspended would continue to receive cash 
     benefits if financial eligibility is restored;
       (2) for all other children, a child may only receive cash 
     SSI payments if the child has an impairment which meets or 
     equals an impairment specified in the Listings of Impairments 
     cited above, and is either in a hospital, skilled nursing 
     facility, residential treatment facility, intermediate care 
     facility for the mentally retarded, or otherwise would be 
     placed in such a facility if the child were not receiving 
     personal assistance necessitated by the impairment. Personal 
     assistance refers to assistance with activities of daily 
     living such as eating and toileting; and
       (3) if a child who is overseas as a dependent of a member 
     of the U.S. Armed Forces and who is eligible for block grant 
     services but not eligible for cash benefits under the new 
     criteria shall be eligible for cash benefits. Cash benefits 
     cease when the child returns to the United States.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows a modified version of the 
     House bill. Once an eligible child is determined to meet the 
     definition of disability, the amount of the individual's cash 
     benefit will be based on whether the child meets the newly 
     developed criteria for needing personal assistance enabling 
     the child to remain with their family at home. This criteria 
     is as follows:
       For a child under age 6--such individual has a medical 
     impairment that severely limits the individual's ability to 
     function in a manner appropriate to individuals of the same 
     age and who without special personal assistance would require 
     specialized care outside the individual's home; or
       For a child age 6 or over--such individual requires 
     personal care assistance with: (a) at least two activities of 
     daily living, (b) continual 24-hour supervision or monitoring 
     to avoid causing injury or harm to self or others, or (c) the 
     administration of medical treatment; and who without such 
     assistance would require full-time or part-time specialized 
     care outside the individual's home.
       The conferees have provided a different definition of the 
     eligibility for children under age 6 and over age 6 because 
     of the differing expectations of age appropriate behavior for 
     children above and below this age. As described below, the 
     conferees have requested the Commissioner of Social Security 
     to undertake a study on ways to improve these definitions and 
     the disability determination process.
       Children with disabilities meeting this criteria will 
     receive 100 percent of the benefit amount provided by current 
     law. Disabled children who do not meet this criteria will 
     receive seventy-five percent of the benefit amount provided 
     by current law. The conferees note that the SSI benefit under 
     either tier is very generous. In 1995, the average SSI 
     benefit for a child recipient is $5,040. Seventy-five percent 
     of that benefit would be $3,780. Both the maximum children's 
     SSI benefit or seventy-five percent of the maximum benefit is 
     greater than the maximum 1995 AFDC benefit for a family of 
     three in many States.
       The conferees acknowledge that many families of disabled 
     children incur expenses beyond those by families of 
     nondisabled children. However, the conferees agree that the 
     extra expenses related to a child's disability vary widely 
     depending on the nature and degree of disability and the 
     availability of Federal, State, and local health care and/or 
     disability programs. In order to reduce the inequity of the 
     current system which provides one benefit level to all 
     families without regard to additional disability-related 
     financial needs, the conferees agree to establish a two-
     tiered benefit system. The higher tier is intended for 
     families of children with the most severe disabilities who 
     require full or part-time personal assistance which would 
     prevent a parent from working full-time or which would 
     require the presence of a personal assistance provider.
       The conferees also believe that Congress should investigate 
     whether the unmet needs of families of disabled children 
     could be better and more efficiently met through services, 
     such as mental health treatment or purchase of items of 
     assistive technology, rather than cash payments. In the 
     twenty three years since the SSI program was created, 
     substantial new Federal programs have been authorized to 
     assist children with disabilities, including Federal, State 
     and local funding of special education and expansion of 
     Medicaid. The impact of these programs on cash needs of 
     children with disabilities merits further investigation by 
     Congress. In order to have better data on the cost incurred 
     by a family with a disabled child, the conferees request that 
     the General Accounting Office undertake a study of the extra 
     expenses incurred by such families with a child receiving SSI 
     benefits, including what expenses are covered by other 
     benefits such children receive through Federal, State, and 
     local programs, and the lost income to families because of 
     care they provide their child.
       Lastly, the conferees remain concerned about the adequacy 
     of the Listing of Impairments. The conferees strongly urge 
     the Social Security Administration to contract with the 
     National Academy of Sciences, or another independent entity, 
     to conduct a study aimed at improving both the process of 
     disability determination and the validity of the Listing of 
     Impairments in light of current scientific knowledge.


                           d. effective date

     Present law
       Not applicable.
     House bill
       Changes apply to benefits for months beginning ninety or 
     more days after enactment, without regard to whether 
     regulations have been issued. Recipients of SSI cash benefits 
     during the month of enactment who would lose eligibility 
     under the House bill may continue to receive SSI benefits for 
     up to 6 months.
     Senate amendment
       The Senate amendment changes apply to applicants for months 
     beginning on or after the date of enactment, without regard 
     to whether regulations have been issued. However, the 
     Commissioner must issue necessary regulations within two 
     months of enactment. For child SSI recipients who were 
     eligible for SSI on the date of enactment but who would lose 
     eligibility under the Senate amendment, the changes would not 
     take effect until January 1, 1997. The Commissioner is to 
     redetermine the eligibility of these persons within one year 
     of enactment.
     Conference agreement
       The conference agreement follows the Senate amendment with 
     modification that the effective date for the two-tiered 
     benefit system is January 1, 1997, for current recipients and 
     new applications. The conferees agreed to require the 
     Commissioner to report to Congress within 180 days regarding 
     the progress made in implementing the SSI children's 
     provisions, however this provision was dropped from the 
     Reconciliation bill because it violates the Byrd Rule 
     (section 313 of Congressional Budget Act of 1974).


                                 notice

     Present law
       Not applicable.
     House bill
       Not later than one month after the date of enactment, the 
     Commissioner must notify individuals whose eligibility for 
     SSI benefits will terminate.
     Senate amendment
       Within three months of enactment, the Commissioner must 
     notify individuals whose eligibility for SSI benefits will 
     terminate.
     Conference agreement
       The conference agreement follows the Senate amendment.


    new provision for administrative funds for the social security 
                             administration

     Present law
       Not applicable.
     House bill
       No provision.
     Senate amendment
       No provision.
     Conference agreement
       The conferees recognize that implementation of the SSI 
     provisions by the Social Security Administration is a big job 
     and have provided $300 million to assist the agency meeting 
     their obligations. The conferees are very mindful of the 
     problems encountered by the Social Security Administration in 
     the early 1980s in conducting a large number of 
     redeterminations and continuing disability reviews, and 
     strongly urge the Commissioner to conduct the 
     redeterminations and continuing disability reviews required 
     in this bill in an orderly and careful manner.


         block grants to states for children with disabilities

                         entitlement to grants

     Present law
       Not applicable.
     House bill
       Each State that meets the requirements listed below for 
     fiscal year 1997 or later years 

[[Page H 12960]]
     shall be entitled to receive a grant equal to the State's allotment for 
     that fiscal year. The Commissioner of Social Security will 
     make block grants to States for the purpose of providing 
     specified medical and non-medical benefits for children who 
     have an impairment which meets or equals an impairment 
     specified in the Listing of Impairments. Grants are an 
     entitlement to eligible States on behalf of qualifying 
     children, not an entitlement to any such child.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the Senate amendment 
     (i.e., no provision).


                              requirements

     Present law
       Not applicable.
     House bill
       Each State must establish a program to provide block grant 
     services. The State will submit to the Commissioner an 
     application for the grant. In the application, the State 
     agrees it must spend grant funds to provide authorized 
     services designed to meet the unique needs of qualifying 
     children. The application must also contain information, 
     agreements, and assurances required by the Commissioner. In 
     providing authorized services, States will make every 
     reasonable effort to obtain payment for the services from 
     other Federal or State programs that provide such services. 
     States will expend the grant only to the extent that payments 
     from other programs are not available.
       In order to receive a block grant under this section, the 
     State must agree to maintain non-Federal spending for any 
     purposes designed to meet the needs of qualifying children 
     with physical or mental impairments. States have discretion 
     to select the purposes for which the State expends non-
     Federal amounts, within the purposes of providing for the 
     needs of qualifying children. The Consumer Price Index will 
     be used to adjust for inflation in judging whether the State 
     meets the maintenance of effort requirements in future years.
       No child who has an impairment which meets or equals an 
     impairment specified in the Listing of Impairments will be 
     denied the opportunity to apply for services and to have his 
     or her case assessed to determine the child's service needs.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the Senate amendment 
     (i.e., no provision).


                           authority of state

     Present law
       Not applicable.
     House bill
       The following decisions are in the discretion of a State:
         (1) which authorized services to provide;
         (2) who among qualifying children receives services; and
         (3) the number of services provided a qualifying child 
     and their duration.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the Senate amendment 
     (i.e., no provision).


                          authorized services

     Present law
       Not applicable.
     House bill
       The Commissioner shall issue regulations designating the 
     purposes for which grants may be spent by States. The 
     Commissioner must ensure that services on the list are 
     designed to meet the unique needs of qualifying children that 
     arise from their physical and mental impairments, that both 
     medical and non-medical services are included, and that cash 
     assistance is not available through the block grant.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the Senate amendment 
     (i.e., no provision).


                           general provisions

     Present law
       Not applicable.
     House bill
       Necessary regulations are to be issued, but payments under 
     the block grant must begin not later than January 1, 1997, 
     regardless of whether final rules have been issued.
       The value of the authorized services provided through the 
     block grant cannot be taken into account in determining 
     eligibility for, or the amount of, benefits or services under 
     any Federal or Federally-assisted program. For the purposes 
     of Medicaid, each qualifying child shall be considered to be 
     a recipient of Supplemental Security Income benefits under 
     this title.
       States are encouraged to use an existing delivery system to 
     administer block grant services.
       States that do not participate in offering block grant 
     services are not permitted to use social security numbers in 
     the administration of any tax, public assistance, driver's 
     license or motor vehicle registration law. (Because of the 
     extreme duress this would impose on States, this is regarded 
     as effectively a ``requirement.'')
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the Senate amendment 
     (i.e., no provision).


                              definitions

     Present law
       Not applicable.
     House bill
       A State's ``Allotment'' of block grant funds equals the 
     product of 75 percent of the average cash SSI benefit in the 
     State and the number of children in the State receiving non-
     cash SSI benefits under this section.
       ``Authorized Service'' means each service authorized by the 
     Commissioner.
       A ``Qualifying Child'' means an individual under 18 years 
     of age who is eligible for cash benefits under this title by 
     reason of disability; or an individual under 18 years of age 
     who is eligible for SSI non-cash benefits as described above. 
     The Commissioner will determine whether individuals meet the 
     criteria to be eligible for block grant services.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the Senate amendment 
     (i.e., no provision).


                             effective date

     Present law
       Not applicable.
     House bill
       Block grants are available to eligible States beginning in 
     fiscal year 1997.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the Senate amendment 
     (i.e., no provision).


   2. Eligibility Redeterminations and Continuing Disability Reviews

         A. Continuing Disability Reviews for Certain Children

     Present law
       Federal law requires that SSI recipients be subject to a 
     Continuing Disability Review (CDR) at least once every 3 
     years, except for recipients whose impairments are judged to 
     be permanent. The Commissioner is required to conduct 
     periodic CDRs of at least 100,000 disabled SSI recipients per 
     year for a period of 3 years (i.e., fiscal year 1996-1998) 
     and report to Congress on CDRs for disabled SSI recipients no 
     later than October 1, 1998.
     House bill
       In addition to the provisions of current law, at least once 
     every 3 years the Commissioner must conduct CDRs for SSI 
     benefits of children receiving benefits. For children who are 
     eligible for benefits and whose medical condition is not 
     expected to improve, the requirement to perform such reviews 
     does not apply.
     Senate amendment
       Same as the House bill, with minor differences in wording. 
     At the time of review the parent or guardian must present 
     evidence demonstrating that the recipient is and has been 
     receiving appropriate treatment for his or her disability.
     Conference agreement
       The conference agreement generally follows the Senate 
     amendment with modification requiring evidence of needed 
     treatment for continued representative payee status.


B. Disability Review Required for SSI Recipients Who Attain 18 Years of 
                                  Age

     Present law
       Current law also specifies that the Commissioner must 
     reevaluate under adult disability criteria the eligibility of 
     at least one-third of SSI children who turn age 18 in each of 
     the fiscal years 1996, 1997, and 1998 (the CDR must be 
     completed before these children reach age 19) and report to 
     Congress no later than October 1, 1998, on CDRs for disabled 
     children.
     House bill
       The eligibility for all children qualifying for SSI 
     benefits must be redetermined using the adult criteria within 
     one year after turning 18 years of age. The review will be 
     considered a substitute for any other review required under 
     the changes made in this section.
       Not later than October 1, 1998, the Commissioner of Social 
     Security must submit to the House Committee on Ways and Means 
     and the Senate Committee on Finance a report on disability 
     reviews for children enrolled in SSI.
       The ``minimum number of reviews'' and the ``sunset'' 
     provisions of section 207 of the Social Security Independence 
     and Program Improvements Act of 1994 are eliminated.
     Senate amendment
       Same as the House bill with differences in wording. Like 
     the House bill, the Senate amendment repeals section 207 of 
     the Social Security Independence and Program Improvements Act 
     of 1994.
     Conference agreement
       The conference agreement generally follows the House bill 
     with modification that the Commissioner does not have to 
     submit a report to Congress on disability reviews for SSI 
     children.


  C. Disability Review Required for Low Birth Weight Babies Who Have 
                  Received SSI Benefits for 12 Months

     Present law
       Not applicable.

[[Page H 12961]]

     House bill
       A review for continuing disability must be performed for 
     all children qualifying for SSI due to low birth weight when 
     the child has received benefits for 12 months.
     Senate amendment
       A review must be conducted 12 months after the birth of a 
     child whose low birth weight is a contributing factor to the 
     child's disability. At the time of review, the parent or 
     guardian must present evidence demonstrating that the 
     recipient is and has been receiving appropriate treatment for 
     his or her disability.
     Conference agreement
       The conference agreement follows the Senate amendment with 
     modification requiring evidence of needed treatment for 
     continued representative payee status.


                           D. Effective Date

     Present law
       Not applicable.
     House bill
       This section applies to benefits for months beginning 
     ninety or more days after enactment, regardless of whether 
     regulations have been issued.
     Senate amendment
       Applies to benefits for months beginning on or after the 
     date of enactment, regardless of whether regulations have 
     been issued.
     Conference agreement
       The conference agreement follows the Senate amendment.


               3. Additional Accountability Requirements

       A. Disposal of Assets
     Present law
       No provision. There is a transfer of assets provision in 
     Medicaid law that is similar to H.R. 4 provision (Sec. 
     1917(c) of the Social Security Act).
     House bill
       The House bill delays eligibility for any child applicant 
     whose parents or guardians, in order to qualify a child for 
     benefits, dispose of assets for less than fair market value 
     within 36 months of the date of application. The provision 
     stipulates that any assets in a trust in which the child 
     (i.e., parent or representative payee) has control shall be 
     considered assets of the child and subject to the 36-month 
     ``look-back'' rule. The delay (in months) is equal to the 
     amount of assets divided by the SSI standard benefit.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill with 
     technical modifications.
       Requirement to Establish Account
     Present law
       Not applicable.
     House bill
       No provision.
     Senate amendment
       At the request of the representative payee (i.e., the 
     parent), the Commissioner of Social Security may pay any lump 
     sum payment for the benefit of a child into a dedicated 
     savings account for the purpose of covering the costs of 
     needs related to the child's disability and/or increasing the 
     child's independence. The dedicated savings account could 
     only be used to purchase education and job skills training, 
     special equipment or housing modifications related to the 
     child's disability, and appropriate therapy and 
     rehabilitation. The funds in these accounts would not be 
     counted as resources in determining SSI eligibility. This 
     provision would take effect upon enactment.
     Conference agreement
       The conference agreement generally follows the Senate 
     amendment with modification requiring the dedicated savings 
     account (instead of it being optional at the request of the 
     representative payee), expanding the list of allowable 
     expenses, and requiring the Commissioner to establish a 
     system for accountability monitoring.


                         Conforming Amendments

     Present law
       Not applicable.
     House bill
       The House bill makes a number of conforming amendments, 
     reflecting the addition of non-cash SSI benefits as described 
     above.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the Senate Amendment 
     (i.e., no provision).


          Improvements to Disability Evaluations for Children

     Present law
       Not applicable.
     House bill
       No provision.
     Senate amendment
       The Senate amendment directs the Commissioner of Social 
     Security, within sixty days of enactment, to issue a request 
     for comments in the Federal Register regarding improvements 
     in the disability evaluation and determination procedures for 
     children under age 18. The Commissioner must review the 
     comments and issue regulations implementing changes within 18 
     months after enactment.
     Conference agreement
       The conference agreement follows the House bill (i.e., no 
     provision).


  Temporary Eligibility for Cash Benefits for Poor Disabled Children 
 Residing in States Applying Alternative Income Eligibility Standards 
                             Under Medicaid

     Present law
       States generally are required to provide Medicaid coverage 
     for recipients of SSI. However, States may use more 
     restrictive eligibility standards for Medicaid than those for 
     SSI if they were using those standards on January 1, 1972 
     (before implementation of SSI). States that have chosen to 
     apply at least one more restrictive standard are known as 
     ``section 209(b)'' States, after the section of the Social 
     Security Amendments of 1972 (P.L. 92-603) that established 
     the option. These States may vary in their definition of 
     disability, or in their standards related to income or 
     resources. There are 12 section 209(b) States: Connecticut, 
     Hawaii, Illinois, Indiana, Minnesota, Missouri, New 
     Hampshire, North Carolina, North Dakota, Ohio, Oklahoma, and 
     Virginia.
     House bill
       The House bill provides for temporary eligibility for cash 
     SSI benefits (through the end of fiscal year 1996) for 
     children who live in States that apply alternative income 
     eligibility standards under Medicaid (also known as 
     ``209(b)'' States).
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the Senate amendment 
     (i.e., no provision).


  4. Reduction of Cash Benefits Payable to Institutionalized Children 
          Whose Medical Costs Are Covered by Private Insurance

     Present law
       Federal law stipulates that when an individual enters a 
     hospital or other medical institution in which more than half 
     of the bill is paid by the Medicaid program, his or her 
     monthly SSI benefit standard is reduced to $30 per month. 
     This personal needs allowance is intended to pay for small 
     personal expenses, with the cost of maintenance and medical 
     care provided by the Medicaid program.
     House bill
       Cash SSI payments to institutionalized children would be 
     reduced for those whose medical costs are covered by private 
     insurance.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


    Additional Accountability Requirements for Parents or Guardians

     Present law
       Not applicable.
     House bill
       No provision.
     Senate amendment
       The Senate amendment requires a disabled child's 
     representative payee (usually the parent) to document 
     expenditures. These expenditures would be subject to 
     increased review by the Social Security Administration. 
     Effective for benefits paid after enactment.
     Conference agreement
       The conference agreement follows the House bill (i.e., no 
     provision).


                             5. Regulations

     Present law
       Not applicable.
     House bill
       The Commissioner of Social Security and the Secretary of 
     HHS will prescribe necessary regulations within three months 
     after enactment of this Act.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


    Examination of Mental Listings Used to Determine Eligibility of 
           Children for SSI Benefits by Reason of Disability

     Present law
       Section 202 of the Social Security Independence and Program 
     Improvements Act of 1994 established a Childhood Disability 
     Commission to study the desirability and methods of 
     increasing the extent to which benefits are used in the 
     effort to assist disabled children in achieving independence 
     and engaging in substantial gainful activity. The Commission 
     was also charged with examining the effects of the SSI 
     program on disabled children and their families.
     House bill
       The Childhood Disability Commission must review the mental 
     listings used by the Social Security Administration to 
     determine child SSI eligibility. The Commission should 
     conduct this investigation to ensure that the criteria in 
     these listings are appropriate and that SSI eligibility is 
     limited to children with serious disabilities for whom 
     Federal assistance is necessary to improve the child's 
     condition or quality of life.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the Senate amendment 
     (i.e., no provision) due to the Childhood Disability 
     Commission having completed their final report.

[[Page H 12962]]



Limitation on Payments to Puerto Rico, the U.S. Virgin Islands and Guam 
         Under Programs of Aid to the Aged, Blind, or Disabled

       Refer to Title I.


  Repeal of Maintenance of Effort Requirement Applicable to Optional 
           State Programs for Supplementation of SSI Benefits

     Present law
       Since the beginning of the SSI program, States have had the 
     option to supplement (with State funds) the Federal SSI 
     payment. The purpose of section 1618 was to encourage States 
     to pass along to SSI recipients the amount of any Federal SSI 
     benefit increase. Under section 1618, a State that is found 
     to be not in compliance with the ``pass along/maintenance of 
     effort provision'' is subject to loss of its Medicaid 
     reimbursements. Section 1618 allows States to comply with the 
     ``pass along/ maintenance of effort'' provision by either 
     maintaining their State supplementary payment levels at or 
     above 1983 levels or by maintaining total annual expenditures 
     for supplementary payments (including any Federal cost-of-
     living adjustment) at a level at least equal to the prior 12-
     month period, provided the State was in compliance for that 
     period. In effect, section 1618 requires that once a State 
     elects to provide supplementary payments it must continue to 
     do so. [Sec. 1618 of the Social Security Act]
     House bill
       The House bill repeals the maintenance of effort 
     requirements (Sec. 1618) applicable to optional State 
     programs for supplementation of SSI benefits effective date 
     of enactment.
     Senate amendment
       Similar to the House bill.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


          Limited Eligibility of Noncitizens for SSI Benefits

       Refer to Title IV.


                          Annual Report on SSI

     Present law
       To date, the Department of Health and Human Services and 
     now the Social Security Administration have collected, 
     compiled, and published annual and monthly SSI data, but 
     Federal law does not require an annual report on the SSI 
     program.
     House bill
       No provision.
     Senate amendment
       The Senate amendment requires the Commissioner of Social 
     Security to prepare and provide to the President and the 
     Congress an annual report on the SSI program, which includes 
     specified information and data. The report is due May 30 of 
     each year.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


               Study of Disability Determination Process

     Present law
       Not applicable.
     House bill
       No provision.
     Senate amendment
       Within 90 days of enactment, the Commissioner must contract 
     with the National Academy of Sciences or another independent 
     entity to conduct a comprehensive study of the disability 
     determination process for SSI and SSDI. The study must 
     examine the validity, reliability and consistency with 
     current scientific standards of the Listings of Impairments 
     cited above.
       The study must also examine the appropriateness of the 
     definitions of disability (and possible alternatives) used in 
     connection with SSI and SSDI; and the operation of the 
     disability determination process, including the appropriate 
     method of performing comprehensive assessments of individuals 
     under age 18 with physical or mental impairments.
       The Commissioner must issue interim and final reports of 
     the findings and recommendations of the study within 18 
     months and 24 months, respectively, from the date of contract 
     for the study.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                    General Accounting Office Study

     Present law
       Not applicable.
     House bill
       No provision.
     Senate amendment
       The Senate amendment requires the General Accounting Office 
     to study and report on the impact of title II of the Senate 
     amendment on the SSI program by January 1, 1998.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


            National Commission on the Future of Disability

                            A. Establishment

     Present law
       Not applicable.
     House bill
       No provision.
     Senate amendment
       The Commission is established and expenses are to be paid 
     from funds appropriated to the Social Security 
     Administration.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                               B. Duties

     Present law
       Not applicable.
     House bill
       No provision.
     Senate amendment
       The Commission must study all matters related to the 
     nature, purpose and adequacy of all Federal programs for the 
     disabled, and especially SSI and SSDI.
       The Commission must examine: projected growth in the number 
     of individuals with disabilities and the implications for 
     program planning; possible performance standards for 
     disability programs; the adequacy of Federal rehabilitation 
     research and training; and the adequacy of policy research 
     available to the Federal government and possible 
     improvements.
       The Commission must submit to the President and the proper 
     Congressional committees recommendations and possible 
     legislative proposals effecting needed program changes.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                             C. Membership

     Present law
       Not applicable.
     House bill
       No provision.
     Senate amendment
       The Commission is to be composed of 15 members, appointed 
     by the President and Congressional leadership. Members are to 
     be chosen based on their education, training or experience, 
     with consideration for representing the diversity of 
     individuals with disabilities in the U.S.
       The Comptroller General must serve as an ex officio member 
     of the Commission to advise on the methodology of the study. 
     With the exception of the Comptroller General, no officer or 
     employee of any government may serve on the Commission.
       Members are to be appointed not later than 60 days after 
     enactment. Members serve for the life of the Commission, 
     which will be headquartered in D.C. and meet at least 
     quarterly.
       The Senate amendment includes a number of specific 
     requirements on the Commission regarding quorums, the naming 
     of chairpersons, member replacement, and benefits.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                     D. Staff and Support Services

     Present law
       Not applicable.
     House bill
       No provision.
     Senate amendment
       The Commission will have a director, appointed by the 
     Chair, and appropriate staff, resources, and facilities.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                               E. Powers

     Present law
       Not applicable.
     House bill
       No provision.
     Senate amendment
       The Commission may conduct public hearings and obtain 
     information from Federal agencies necessary to perform its 
     duties.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                               f. reports

     Present law
       Not applicable.
     House bill
       No provision.
     Senate amendment
       The Commission must issue an interim report to Congress and 
     the President not later than 1 year prior to terminating. A 
     final public report must be submitted prior to termination.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd 

[[Page H 12963]]
     Rule (section 313 of Congressional Budget Act of 1974).


                             g. termination

     Present law
       Not applicable.
     House bill
       No provision.
     Senate amendment
       The Commission will terminate 2 years after first having 
     met and named a chair and vice chair.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                 Chapter 6--Retirement Age Eligibility

 13. eligibility for ssi benefits based on social security retirement 
                                  age

     Present law
       The SSI program guarantees a minimum level of cash income 
     to all aged, blind, or disabled persons with limited 
     resources. The SSI program defines ``aged'' as persons age 65 
     and older.
     House bill
       No provision.
     Senate amendment
       The Senate amendment deletes references to age 65 and 
     instead defines as ``aged'' those persons who reach 
     ``retirement age'' as defined by the Social Security program. 
     The Social Security ``retirement age''--the age at which 
     retired workers receive benefits that are not reduced for 
     ``early retirement''--gradually will rise from 65 to 67. It 
     will do so in two steps. First, the retirement age will 
     increase by 2 months for each year that a person was born 
     after 1937, until it reaches age 66 for those born in 1943 
     (i.e., those who attain age 66 in 2009). Second, it will 
     again increase by 2 months for each year that a person was 
     born after 1954 until it reaches age 67 for those born after 
     1959.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).

                 Subtitle C--Child Support Enforcement


     Chapter 1--Eligibility for Services; Distribution of Payments

                             1. references

     Present law
       No provision.
     House bill
       Any reference in this title expressed in terms of an 
     amendment to or repeal of a section or other provision is 
     made to the Social Security Act.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


   2. state obligation to provide child support enforcement services

     Present law
       States are required to establish paternity for children 
     born out of wedlock if they are recipients of AFDC or 
     Medicaid, and to obtain child and spousal support payments 
     from noncustodial parents of children receiving AFDC, 
     Medicaid benefits, or foster care maintenance payments. 
     States must provide child support collection or paternity 
     determination services to persons not otherwise eligible if 
     the person applies for services. Federal law requires States 
     to cooperate with other States in establishing paternity (if 
     necessary), locating absent parents, collecting child support 
     payments, and carrying out other child support enforcement 
     functions.
     House bill
       States must provide services, including paternity 
     establishment and establishment, modification, or enforcement 
     of support obligations, for children receiving benefits under 
     part A (Temporary Assistance for Needy Families block grant-
     TANF), part B (child protection block grant), Medicaid, and 
     any child of an individual who applies for services. States 
     must enforce support obligations with respect to children in 
     their caseload and the custodial parents of such children. 
     States must also make child support enforcement services 
     available to nonresidents on the same terms as to residents. 
     The provision also makes minor technical amendments to SSA 
     section 454.
     Senate amendment
       Similar to House provision with one exception: instead of 
     reference to part B as in House bill, reference is to part E-
     foster care and adoption assistance.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment except the House recedes by agreeing States be 
     required to provide child support services only to children 
     actually receiving foster care payments.


              3. distribution of child support collections

                  a. distribution of collected support

     Present law
       To receive AFDC benefits, a custodial parent must assign to 
     the State her right to collect child support payments. This 
     assignment covers current support and any arrearages, and 
     lasts as long as the family receives AFDC. Federal law 
     requires that child support collections be distributed as 
     follows: First, up to the first $50 in current support is 
     paid to the AFDC family (a ``disregard'' that does not affect 
     the family's AFDC benefit or eligibility status). Second, the 
     Federal and State governments are reimbursed for the AFDC 
     benefit paid to the family in that month. Third, if there is 
     money left, the family receives it up to the amount of the 
     current month's child support obligation. Fourth, if there is 
     still money left, the State keeps it to reimburse itself for 
     any arrearages owed to it under the AFDC assignment (with 
     appropriate reimbursement of the Federal share of the 
     collection to the Federal government). If no arrearages are 
     owed the State, the money is used to pay arrearages to the 
     family; such moneys are considered income under the AFDC 
     program and would reduce the family's AFDC benefit.
     House bill
       To receive funds from the Temporary Assistance for Needy 
     Families (TANF) block grant, a custodial parents must assign 
     to the State their right to child support payments. (p. 39) 
     The bill ends the $50 child support disregard to (TANF) 
     families. Families receiving cash assistance--States are 
     given the option of passing the entire child support payment 
     through to families. If States elect this option, they must 
     pay the Federal share of the collection to the Federal 
     government. Families that formerly received cash assistance--
     Current child support payments go to the family. Payments on 
     arrearages that accrued before or after the custodial parent 
     received cash assistance are paid to the family first if the 
     family leaves welfare. Only after all arrearages owed to the 
     custodial parent and children have been repaid are arrearages 
     owed to the State and Federal government repaid. Payments on 
     arrearages that accrued while the family received assistance 
     must be retained by the State. The State is required to keep 
     the State share of the collected amount, and pay to the 
     Federal government the Federal share of the amount collected 
     (to the extent necessary to reimburse amounts paid to the 
     family as cash assistance). As a general rule, States must 
     pay to the Federal government the Federal share of child 
     support collections for parents on the Temporary Family 
     Assistance program. This share is calculated using the 
     State's Medicaid match rate in effect in 1995 or in 
     subsequent years, whichever is greater. Families that never 
     received cash assistance--All child support payments go 
     directly to the family.
     Senate amendment
       Any rights to child support that were assigned to the State 
     before the effective date of the amendment are to remain so 
     assigned. Gives States the option of requiring TANF 
     applicants and recipients to assign to the State their rights 
     to child support payments. The amendment eliminates 
     references (in both the TANF block grant title of the 
     amendment and the CSE title) to the $50 child support 
     disregard, but does not explicitly eliminate the $50 child 
     support disregard. Families receiving cash assistance--States 
     are given the option of passing the entire child support 
     payment through to families. If States elect this option, 
     they must pay the Federal share of the collection to the 
     Federal government. Families that formerly received cash 
     assistance--Current child support payments go to the family. 
     Payments on arrearages that accrued after the custodial 
     parent left welfare are paid to the family. With respect to 
     payments on arrearages that accrued before or while the 
     family received assistance, the State may retain all or part 
     of the State share, and if the State does so, it must retain 
     and pay to the Federal Government the Federal share (to the 
     extent the amount retained does not exceed the cash 
     assistance paid to the family). The Federal share is 
     calculated using the State's Medicaid match rate in effect in 
     1995 or in subsequent years, whichever is greater. Families 
     that never received cash assistance--All child support 
     payments go directly to the family. In addition, in the case 
     of a family receiving cash assistance from an Indian tribe, 
     the child support collection is to be distributed according 
     to the agreement specified in the State plan.
     Conference agreement
       The conference agreement modifies the House bill and Senate 
     amendment as follows: (1) the $50 passthrough is ended; (2) 
     beginning October 1, 1997, arrearages that accumulate during 
     the period after the family leaves welfare and that are paid 
     through the tax intercept are paid to the State; payments 
     made by any other method are paid to the family; and (3) 
     beginning October 1, 2000, arrearages that accumulated during 
     the period before the mother went on welfare and that are 
     paid through the tax intercept are paid to the State; 
     arrearage payments made by any other method are paid to the 
     family. Conferees also agree that if the amount of pre-
     welfare arrearages paid to the family exceeds the amount 
     saved by a given State by ending the $50 passthrough and by 
     other methods of improving collections contained in this 
     legislation, the Federal government will pay that State an 
     amount equal to the difference between pre-welfare arrearage 
     payments to the family and State savings caused by this 
     legislation. Finally, child support assignment rules are 
     modified to conform to the changes described above in 
     distribution rules.

[[Page H 12964]]



 B. Continuation of Services for Families Ceasing to Receive Assistance

     Present law
       Federal law requires States to continue providing child 
     support enforcement services to AFDC, Medicaid, and foster 
     care families who no longer qualify for AFDC benefits on the 
     same basis as in the case of those who receive benefits or 
     services, except that no application or request for services 
     is required.
     House bill
       When families leave the TANF program, States are required 
     to continue providing child support enforcement services to 
     them subject to the same conditions and on the same basis as 
     in the case of individuals who receive assistance.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment.


                           C. Effective Date

     Present law
       No provision.
     House bill
       The effective date for provisions relating to distribution 
     of support collected for families who formerly received cash 
     assistance is October 1, 1995. For all others it is October 
     1, 1999.
     Senate amendment
       The effective date for distribution of support collected 
     for families receiving cash assistance is October 1, 1999. 
     The effective date for the clerical amendments and provisions 
     relating to the distribution of child support collected for 
     families who formerly received cash assistance or who never 
     received cash assistance is October 1, 1995.
     Conference agreement
       The effective date for ending the $50 passthrough is 
     October 1, 1996 or sooner at State option. The effective date 
     for implementing the new distribution rules applying to post-
     welfare arrearages is October 1, 1997; for pre-welfare 
     arrearages, the effective date is October 1, 2000.


                         4. Privacy Safeguards

     Present law
       Federal law limits the use or disclosure of information 
     concerning recipients of Child Support Enforcement Services 
     to purposes connected with administering specified Federal 
     welfare programs.
     House bill
       States must implement safeguards against unauthorized use 
     or disclosure of information related to proceedings or 
     actions to establish paternity or to enforce child support. 
     These safeguards must include prohibitions on release of 
     information where there is a protective order or where the 
     State has reason to believe a party is at risk of physical or 
     emotional harm from the other party. This provision is 
     effective October 1, 1997.
     Senate amendment
       Identical provision.
     Conference Agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                 5. Rights to Notification and Hearing

     Present law
       Most States have procedural due process requirements with 
     respect to wage withholding. Federal law requires States to 
     carry out withholding in full compliance with all procedural 
     due process requirements of the State.
     House bill
       No provision.
     Senate amendment
       Parties to child support cases under Title IV-D must 
     receive notice of proceedings in which child support is 
     established or modified and must receive a copy of orders 
     establishing or modifying child support within 14 days of 
     issuance. Individuals served by the child support program 
     must also have access to a fair hearing or other complaint 
     procedures. These rules and procedures become effective on 
     October 1, 1997.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                  Chapter 2--Locate and Case Tracking

                         6. State Case Registry

                              A. Contents

     Present law
       No provision.
     House bill
       The automated State Case Registry must contain a record on 
     each case in which services are being provided by the State 
     agency, as well as each support order established or modified 
     in the State on or after October 1, 1998.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                     B. Linking of Local Registries

     Present law
       No provision.
     House bill
       The Registry may be established by linking local case 
     registries of support orders through an automated information 
     network.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                  C. Use of Standardized Data Elements

     Present law
       No provision.
     House bill
       The registry record will contain data elements on both 
     parents, such as names, Social Security numbers and other 
     uniform identification numbers, dates of birth, case 
     identification numbers, and any other data the Secretary may 
     require.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                           D. Payment Records

     Present law
       Federal law, with respect to wage withholding, requires 
     that wage withholding be administered by a public agency 
     capable of documenting payments of support and tracking and 
     monitoring such payments.
     House bill
       Each case record will contain the amount of support owed 
     under the order and other amounts due or overdue, any amounts 
     that have been collected and distributed, the birth date of 
     any child for whom the order requires the provision of 
     support, and the amount of any lien imposed by the State.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                       E. Updating and Monitoring

     Present law
       Federal law requires that child support orders be reviewed 
     and adjusted, as appropriate, at least once every 3 years.
     House bill
       The State agency operating the registry will promptly 
     establish and maintain and regularly update case records in 
     the registry with respect to which services are being 
     provided under the State plan. Updating will be based on 
     administrative actions and administrative and judicial 
     proceedings and orders relating to paternity and support, as 
     well as information obtained from comparison with Federal, 
     State, and local sources of information, information on 
     support collections and distributions, and any other relevant 
     information.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


            F. Information Comparisons and Other Disclosures

     Present law
       No provision.
     House bill
       The State automated system will be used to extract data for 
     purposes of sharing and matching with Federal and State data 
     bases and locator services, including the Federal Case 
     Registry of Child Support Orders, the Federal Parent Locator 
     Service, Temporary Assistance for Needy Families and Medicaid 
     agencies, and intra- and interstate information comparisons.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


           7. Collection and Disbursement of Support Payments

                       A. State Disbursement Unit

     Present law
       No provision. But States may provide that, at the request 
     of either parent, child support payments be made through the 
     child support enforcement agency or the agency that 
     administers the State's income withholding system regardless 
     of whether there is an arrearage. States must charge the 
     parent who requests child support services a fee equal to the 
     cost incurred by the State for these services, up to a 
     maximum of $25 per year.
     House bill
       By October 1, 1998, State child support agencies are 
     required to operate a centralized, automated unit for 
     collection and disbursement of payments on child support 
     orders enforced by the child support agency. The specifics of 
     how States will establish and operate their State 
     Disbursement Unit must be outlined in the State plan.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                              B. Operation

     Present law
       No provision.
     House bill
       The State Disbursement Unit must be operated directly by 
     the State agency, by two or more State agencies under a 
     regional cooperative agreement, or by a contractor 
     responsible directly to the State agency.

[[Page H 12965]]

     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                 C. Linking of Local Disbursement Units

     Present law
       No provision.
     House bill
       The State Disbursement Unit may be established by linking 
     local disbursement units through an automated information 
     network. The Secretary must agree that the system will not 
     cost more nor take more time to establish than a centralized 
     system. In addition, employers shall be given one location 
     per State to which income withholding is sent.
     Senate amendment
       Similar provision except that whereas the House requires 
     only that the system not cost more or take more time to 
     establish, the Senate adds the condition that the system also 
     cannot take more time to operate.
     Conference agreement
       The House recedes to the Senate provision allowing States 
     to establish their State Disbursement Unit by linking local 
     disbursement units only if linking units does not cost more 
     money nor take more time to establish and to operate.


                         D. Required Procedures

     Present law
       No provision.
     House bill
       The Disbursement Unit will be used to collect and disburse 
     support payments, to generate orders and notices of 
     withholding to employers, to keep an accurate identification 
     of payments, to promptly distribute money to custodial 
     parents or other States, and to furnish parents with a record 
     of the current status of support payments. The Unit shall use 
     automated procedures, electronic processes, and computer-
     driven technology to the maximum extent feasible, efficient, 
     and economical.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                       E. Timing of Disbursements

     Present law
       No provision.
     House bill
       The Disbursement Unit must distribute all amounts payable 
     within 2 business days after receiving money and identifying 
     information from the employer or other source of periodic 
     income, if sufficient information identifying the payee is 
     provided.
     Senate amendment
       Similar to House provision, except permits the retention of 
     arrearages in the case of appeals until they are resolved.
     Conference agreement
       The Conference agreement follows the House bill and Senate 
     amendment except that the House recedes to the Senate 
     requirement that States be allowed to retain arrearages in 
     the case of appeals until they are resolved.


                       F. Use of Automated System

     Present law
       No provision.
     House bill
       States must use their automated system to facilitate 
     collection and disbursement including at least:
       (1) transmission of orders and notices to employers within 
     2 days after receipt of the withholding notice;
       (2) monitoring to identify missed payments of support; and
       (3) automatic use of enforcement procedures when payments 
     are missed.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment.


                           G. Effective Date

     Present law
       No provision.
     House bill
       This section of the bill will go into effect on October 1, 
     1998.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                    8. State Directory of New Hires

                       A. State Plan Requirement

     Present law
       No provision.
     House bill
       State plans must include the provision that by October 1, 
     1997 States will operate a Directory of New Hires (as 
     outlined below).
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                            B. Establishment

     Present law
       No provision.
     House bill
       States are required to establish a State Directory of New 
     Hires to which employers and labor organizations in the State 
     must furnish a report for each newly hired employee, unless 
     reporting could endanger the safety of the employee or 
     compromise an ongoing investigation or intelligence mission 
     as determined by the head of an agency.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment with the clarification that States that 
     already have new hire reporting laws may continue to follow 
     the provisions of their own law until October 1, 1996, at 
     which time States must conform to Federal law.


                        C. Employer Information

     Present law
       No provision.
     House bill
       Employers must furnish to the State Directory of New Hires 
     the name, address, and Social Security number of every new 
     employee and the name and identification number of the 
     employer. Multistate employers may report to the State in 
     which they have the most employees.
     Senate amendment
       Similar to House provision, but allows multistate employers 
     to report to the State they designate. The employer must 
     notify the DHHS Secretary as to the name of the designated 
     State.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment except that the House recedes to the Senate 
     provision allowing multistate employers to report to the 
     State of their choice. Employers must notify the Secretary of 
     the name of the designated State.


                          D. Timing of Report

     Present law
       No provision.
     House bill
       Employers must report new hire information within 15 days 
     of the hire or on the date the employee first receives wages.
     Senate amendment
       Employers must report new hire information within 30 days 
     of the hire or if the employer reports by magnetic or 
     electronic means, the employer can report by the first 
     business day of the week following the date on which the 
     employee first receives wages.
     Conference agreement
       Conferees agree on two general rules for timing of new hire 
     reports. First, except as noted below, employers must report 
     new hire information within 20 days of the date of hire.


                     E. Reporting Format and Method

     Present law
       No provision.
     House bill
       The report required in this section will be made on a W-4 
     form or the equivalent, and can be transmitted magnetically, 
     electronically, or by first class mail.
     Senate amendment
       Similar to House provision, but only allows the report to 
     be filed on a W-4 form, not the equivalent.
     Conference agreement
       The conferees agreed to follow both the House and Senate 
     provisions except that the Senate would recede to the House 
     provision allowing employers, at their option, to use an 
     equivalent form. The decision of which reporting method to 
     use is entirely up to employers.


           F. Civil Money Penalties on Noncomplying Employers

     Present law
       In general, no provision.
       Section 1128 of the Social Security Act is an antifraud 
     provision which excludes individuals and entities that have 
     committed fraud from participation in Medicare and State 
     health care programs. Section 1128A pertains to civil 
     monetary penalties and describes the appropriate procedures 
     and proceedings for such penalties.
     House bill
       An employer failing to make a timely report is subject to a 
     $25 fine for each unreported employee. There is also a $500 
     penalty on employers for every employee for whom they do not 
     transmit a W-4 form if, under the laws of the State, there is 
     shown to be a conspiracy between the employer and the 
     employee to prevent the proper information from being filed.
       The House bill makes several but not all provisions of 
     section 1128 applicable to employers that violate reporting 
     requirements.
     Senate amendment
       States have the option of setting a civil money penalty 
     which shall be not less than $25 or $500 if, under State law, 
     the failure is the result of a conspiracy between the 
     employer and employee. The Senate amendment does not make any 
     provisions of section 1128 applicable to employers.
     Conference agreement
       The conference agreement follows both the House and Senate 
     provisions except that the 

[[Page H 12966]]
     House recedes to the Senate provision of making the penalties a State 
     option.


                    G. Entry of New Hire Information

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       New hire information must be entered into the State data 
     base within 5 business days of receipt from employer.
     Conference agreement
       The House recedes to the Senate requirement of requiring 
     States to enter New Hire information in their data base 
     within 5 business days.


                       H. Information Comparisons

     Present law
       No provision.
     House bill
       By October 1, 1997, each State Directory of New Hires must 
     conduct automated matches of the Social Security numbers of 
     reported employees against the Social Security numbers of 
     records in the State Case Registry being enforced by the 
     State agency and report the name, Social Security number, and 
     employer identification number on matches to the State child 
     support agency.
     Senate amendment
       Similar to House provision, except requires comparisons to 
     begin by October 1, 1998 rather than 1997.
     Conference agreement
       Conferees agreed to follow the House and Senate provisions 
     but to compromise on the date by which comparisons must begin 
     by adopting a May 1, 1998 effective date.


                     I. Transmission of Information

     Present law
       No provision.
     House bill
       Within two business days of the entry of data in the 
     registry, the State must transmit a withholding order 
     directing the employer to withhold wages in accord with the 
     child support order. Within four days, the State Directory of 
     New Hires must furnish employee information to the National 
     Directory of New Hires for matching with the records of other 
     State case registries. The State Directory of New Hires must 
     also report quarterly to the National Directory of New Hires 
     information on wages and unemployment compensation taken from 
     the quarterly report to the Secretary of Labor now required 
     by Title III of the Social Security Act.
     Senate amendment
       Similar to House provision, except requires State Directory 
     to report to the National Directory within two, rather than 
     four, days.
     Conference agreement
       The conference agreement is to follow the House and Senate 
     provisions and to compromise on the reporting date by 
     allowing States three days to report to the National 
     Directory of New Hires.


                 J. Other Uses of New Hire Information

     Present law
       No provision.
     House bill
       The State child support agency must use the new hire 
     information for purposes of establishing paternity as well as 
     establishing, modifying, and enforcing child support 
     obligations. New hire information (pursuant to section 1137 
     of the Social Security Act) must also be disclosed to the 
     State agency administering the Temporary Assistance for Needy 
     Families, Medicaid, Unemployment Compensation, Food Stamp, 
     SSI, and territorial cash assistance programs for income 
     eligibility verification, and to State agencies administering 
     unemployment and workers' compensation programs to assist 
     determinations of the allowability of claims.
     Senate amendment
       Similar to House provision, except requires State and local 
     government agencies to be included in quarterly wage 
     reporting unless the agency performs intelligence or 
     counterintelligence functions and it is determined that wage 
     reporting could endanger the safety of the employee or 
     compromise the investigation or intelligence mission.
     Conference agreement
       The conference agreement follows the House and Senate 
     provisions except that the House recedes to the Senate 
     provision allowing State and local government agencies to 
     exempt employees doing intelligence or counterintelligence 
     work whose safety might be compromised by the reporting.


              9. Amendments Concerning Income Withholding

     Present law
       Since November 1, 1990, all new or modified child support 
     orders that were being enforced by the State's child support 
     enforcement agency have been subject to immediate income 
     withholding. If the noncustodial parent's wages are not 
     subject to income withholding (pursuant to the November 1, 
     1990 provision), such parent's wages would become subject to 
     withholding on the date when support payments are 30 days 
     past due. Since January 1, 1994, the law has required States 
     to use immediate income withholding for all new support 
     orders, regardless of whether a parent has applied for child 
     support enforcement services. There are two circumstances in 
     which income withholding does not apply: 1) one of the 
     parents demonstrates and the court or administrative agency 
     finds that there is good cause not to do so, or 2) a written 
     agreement is reached between both parents which provides for 
     an alternative arrangement. States must implement procedures 
     under which income withholding for child support can occur 
     without the need for any amendment to the support order or 
     for any further action by the court or administrative entity 
     that issued the order. States are also required to implement 
     income withholding in full compliance with all procedural due 
     process requirements of the State, and States must send 
     advance notice to each nonresident parent to whom income 
     withholding applies (with an exception for some States that 
     had income withholding before enactment of this provision 
     that met State due process requirements). States must extend 
     their income withholding systems to include out-of-State 
     support orders.
     House bill
       States must have laws providing that all child support 
     orders issued or modified before October 1, 1996, which are 
     not otherwise subject to income withholding, will become 
     subject to income withholding immediately if arrearages 
     occur, without the need for judicial or administrative 
     hearing. State law must also allow the child support agency 
     to execute a withholding order through electronic means and 
     without advance notice to the obligor. Employers must remit 
     to the State disbursement unit income withheld within 2 
     working days after the date such amount would have been paid 
     or credited to the employee.
     Senate amendment
       Similar to House provision, but requires all child support 
     orders which are not part of the State IV-D program to be 
     processed through the State disbursement unit. In addition, 
     States must notify noncustodial parents that income 
     withholding has commenced and inform them of procedures for 
     contesting income withholding.
     Conference agreement
       The conference agreement follows the House and Senate 
     provisions except that the House recedes to the Senate 
     provision requiring all child support orders which are not 
     part of the State IV-D program to be processed through the 
     State disbursement unit. In addition, States must notify 
     noncustodial parents that income withholding has commenced 
     and inform them of procedures for contesting income 
     withholding.


            10. Locator Information from Interstate Networks

     Present law
       No provision.
     House bill
       All State and the Federal Child Support Enforcement 
     agencies must have access to the motor vehicle and law 
     enforcement locator systems of all States.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


          11. Expansion of the Federal Parent Locator Service

         A. Expanded Authority to Locate Individuals and Assets

     Present law
       The law requires that the Federal Parent Locator Service 
     (FPLS) be used to obtain and transmit information about the 
     location of any absent parent when that information is to be 
     used for the purpose of enforcing child support.
     House bill
       The purposes of the Federal Parent Locator Service are 
     expanded. For the purposes of establishing parentage, 
     establishing support orders or modifying them, or enforcing 
     support orders, the Federal Parent Locator Service will 
     provide information to locate individuals who owe child 
     support or against whom an obligation is sought or to whom 
     such an obligation is owed. Information in the FPLS includes 
     Social Security number, address, name and address of 
     employer, and wages and employee benefits (including 
     information about health care coverage).
     Senate amendment
       Similar to House provision, except clarifies current law by 
     stating that information from the Federal Parent Locator 
     Service can be used to enforce visitation orders. Senate also 
     allows FPLS to contain and provide information on assets and 
     debts.
     Conference agreement
       The conference agreement is similar to both the House bill 
     and the Senate amendment. The agreement clarifies the statute 
     so that nonresident parents are given access to information 
     from the FPLS if these requests are made through a court or 
     through the State child support agency.


                           B. Reimbursements

     Present law
       Federal law requires that any department or agency of the 
     United States must be reimbursed for costs incurred for 
     providing requested information to the FPLS.
     House bill
       The Secretary is authorized to set reasonable rates for 
     reimbursing Federal and State agencies for the costs of 
     providing information to the FPLS and to set reimbursement 

[[Page H 12967]]
     rates that State and Federal agencies that use information from the 
     FPLS must pay to the Secretary.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                       C. New Components of FPLS

           (1) Federal Case Registry of Child Support Orders

     Present law
       No provision.
     House bill
       The House bill establishes within the FPLS an automated 
     registry known as the Federal Case Registry of Child Support 
     Orders. The Federal Case Registry contains abstracts of child 
     support orders and other information specified by the 
     Secretary (such as names, Social Security numbers or other 
     uniform identification numbers, State case identification 
     numbers, wages or other income, and rights to health care 
     coverage) to identify individuals who owe or are owed support 
     (or for or against whom support is sought to be established), 
     and the State which has the case. States must begin reporting 
     this information in accord with regulations issued by the 
     Secretary, by October 1, 1998.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                  (2) National Directory of New Hires

     Present law
       No provision.
     House bill
       The House bill establishes within the FPLS a National 
     Directory of New Hires containing information supplied by 
     State Directories of New Hires, beginning October 1, 1996. 
     When fully implemented, the Federal Directory of New Hires 
     will contain identifying information on virtually every 
     person who is hired in the United States. In addition, the 
     FPLS will contain quarterly data supplied by the State 
     Directory of New Hires on wages and Unemployment Compensation 
     paid. The Secretary of the Treasury must have access to 
     information in the Federal Directory of New Hires for the 
     purpose of administering section 32 of the Internal Revenue 
     Code and the Earned Income Tax Credit.
     Senate amendment
       The Senate provision is similar to the House provision with 
     two exceptions: 1) the Senate amendment includes the 
     requirement that the information for the National Directory 
     of New Hires must be entered within 2 days of receipt; and2) 
     the Senate amendment requires the DHHS Secretary to maintain 
     within the National Directory of New Hires a list of 
     multistate employers who choose a State to send their report 
     to and the name of the State so designated.
     Conference agreement
       Conferees agree to follow both the House bill and Senate 
     amendment except that the House recedes on the points of 
     difference. Thus, the National Directory must enter new 
     information within 2 days and the Secretary must maintain a 
     list of the States to which multistate employers send their 
     new hire information.


            D. Information Comparisons and Other Disclosures

     Present law
       Upon request, the Secretary must provide to an ``authorized 
     person'' (i.e., an employee or attorney of a child support 
     agency, a court with jurisdiction over the parties involved, 
     the custodial parent, legal guardian, or attorney of the 
     child) the most recent address and place of employment of any 
     absent parent if the information is contained in the records 
     of the Department of Health and Human Services, or can be 
     obtained from any other department or agency of the United 
     States or of any State. The FPLS also can be used in 
     connection with the enforcement or determination of child 
     custody and in cases of parental kidnapping. Federal law 
     requires the Secretary of Labor and the Secretary of Health 
     and Human Services to enter into an agreement to give the 
     FPLS prompt access to wage and unemployment compensation 
     claims information useful in locating a noncustodial parent 
     or his employer.
     House bill
       The Secretary must verify the accuracy of the name, Social 
     Security number, birth date, and employer identification 
     number of individuals in the Federal Parent Locator Service 
     with the Social Security Administration. The Secretary is 
     required to match data in the National Directory of New Hires 
     against the child support order abstracts in the Federal Case 
     Registry at least every 2 working days and to report 
     information obtained from matches to the State child support 
     agency responsible for the case within 2 days. The 
     information is to be used for purposes of locating 
     individuals to establish paternity, and to establish, modify, 
     or enforce child support orders. The Secretary may also 
     compare information across all components of the FPLS to the 
     extent and with the frequency that the Secretary determines 
     will be effective. The Secretary will share information from 
     the FPLS with several potential users including State 
     agencies administering the Temporary Assistance for Needy 
     Families program, the Commissioner of Social Security (to 
     determine the accuracy of Social Security and Supplemental 
     Security Income), and researchers under some circumstances.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                                E. Fees

     Present law
       ``Authorized persons'' who request information from FPLS 
     must be charged a fee.
     House bill
       The Secretary must reimburse the Commissioner of Social 
     Security for costs incurred in performing verification of 
     Social Security information and to States for submitting 
     information on New Hires. States or Federal agencies that use 
     information from FPLS must pay fees established by the 
     Secretary.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                  F. Restriction on Disclosure and Use

     Present law
       Federal law stipulates that no information shall be 
     disclosed if the disclosure would contravene the national 
     policy or security interests of the United States or the 
     confidentiality of Census data.
     House bill
       Information from the FPLS cannot be used for purposes other 
     than those provided in this section, subject to section 6103 
     of the Internal Revenue Code.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment.


                 G. Information Integrity and Security

     Present law
       No provision.
     House bill
       The Secretary must establish and use safeguards to ensure 
     the accuracy and completeness of information from the FPLS 
     and restrict access to confidential information in the FPLS 
     to authorized persons and purposes.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                      H. Quarterly Wage Reporting

     Present law
       Requires the Secretary of Labor to provide prompt access 
     for the DHHS Secretary to wage and unemployment compensation 
     claims information and data maintained by the Labor 
     Department or State employment security agencies.
     House bill
       No provision.
     Senate amendment
       Each department in U.S. shall submit name, Social Security 
     number and wages paid the employee, on a quarterly basis to 
     the FPLS. Quarterly wage reporting shall not be filed for a 
     Federal or State employee performing intelligence or counter-
     intelligence functions, if it is determined that filing such 
     a report could endanger the employee or compromise an ongoing 
     investigation.
     Conference agreement
       The conference agreement follows the Senate amendment.


                        I. Conforming Amendments

     Present law
       No provision.
     House bill
       This section makes several conforming amendments to Titles 
     III and IV of the Social Security Act and the Federal 
     Unemployment Tax Act.
     Senate amendment
       Similar to House provision, except amends section 303(h) to 
     require State unemployment insurance agencies to report 
     quarterly wage information to the Secretary of HHS or suffer 
     financial penalties, while the House bill amends section 
     303(a) and simply requires quarterly reports to the Secretary 
     of HHS.
     Conference agreement
       Conferees agreed to follow both the House and Senate 
     provisions but to follow the Senate amendment by requiring 
     State unemployment insurance agencies to file quarterly wage 
     reports with the Secretary or pay penalties.


    J. Authorized Person for Information Regarding Visitation Rights

     Present law
       FPLS can also be used to provide information to authorized 
     individuals and agencies making or entering a child custody 
     order (see Sec. 463 of Social Security Act).
     House bill
       No provision.
     Senate amendment
       Expands functions of FPLS by requiring that information be 
     made available to non-

[[Page H 12968]]
     custodial parents for purposes of seeking or enforcing child visitation 
     orders.
     Conference agreement
       The House recedes to the Senate amendment on this provision 
     but with the agreement that nonresident parents cannot obtain 
     information directly from the FPLS but must present their 
     request through the courts or through the State child support 
     agency. In addition, the agreement requires State child 
     support agencies to treat requests for information from 
     nonresident parents on the same basis and with the same 
     priority as requests from resident parents.


  12. collection and use of social security numbers for use in child 
                          support enforcement

     Present law
       Federal law requires that in the administration of any law 
     involving the issuance of a birth certificate, States must 
     require each parent to furnish their Social Security number 
     for the birth records. The State is required to make such 
     numbers available to child support agencies in accordance 
     with Federal or State law. States may not place Social 
     Security numbers directly on birth certificates.
     House bill
       States must have laws requiring that Social Security 
     numbers be placed on applications for professional licenses, 
     commercial drivers licenses, and occupational licenses, 
     marriage licenses, and in the records for divorce decrees, 
     child support orders, and paternity determination or 
     acknowledgment orders. Individuals who die will have their 
     Social Security number placed in the records relating to the 
     death and recorded on the death certificate. There are 
     several conforming amendments.
     Senate amendment
       Similar to House provision, except gives States the option 
     of not including Social Security numbers on applications for 
     licenses and bars the placement of Social Security numbers on 
     marriage licenses.
     Conference agreement
       The conference agreement generally follows the House bill 
     and the Senate amendment except that the House recedes to the 
     Senate requirements that States have the option of not 
     including Social Security numbers on applications and that 
     States be barred from placing Social Security numbers on 
     marriage licenses.

          Chapter 3--Streamlining and Uniformity of Procedures


                   13. adoption of uniform state laws

     Present law
       States have several options available for pursuing 
     interstate child support cases including direct income 
     withholding, interstate income withholding, and long-arm 
     statutes which require the use of the court system in the 
     State of the custodial parent. In addition, States use the 
     Uniform Reciprocal Enforcement of Support Act (URESA) and the 
     Revised Uniform Reciprocal Enforcement of Support Act 
     (RURESA) to conduct interstate cases. Moreover, Federal law 
     imposes a Federal criminal penalty for the willful failure to 
     pay past-due child support to a child who resides in a State 
     other than the State of the obligor. In 1992, the National 
     Conference of Commissioners on State Uniform Laws approved a 
     new model State law for handling interstate CSE cases. The 
     new Uniform Interstate Family Support Act (UIFSA) is designed 
     to deal with desertion and nonsupport by instituting uniform 
     laws in all 50 States that limit control of a child support 
     case to a single State. This approach ensures that only one 
     child support order from one court or child support agency 
     will be in effect at any given time. It also helps to 
     eliminate jurisdictional disputes between States that are 
     impediments to locating parents and enforcing child support 
     orders across State lines. As of March, 1995, 23 States had 
     enacted UIFSA, 15 verbatim and 8 with minor changes.
     House bill
       By January 1, 1997, all States must have enacted the 
     Uniform Interstate Family Support Act (UIFSA) and have the 
     procedures required for its implementation in effect. States 
     are required to apply UIFSA to any case involving an order 
     established or modified in one State that is sought to be 
     modified in another State. States must also have a new 
     provision on long-arm statutes and petitioning for 
     modifications of orders, and are required to recognize as 
     valid any method of service of process used in another State 
     that is valid in that State.
     Senate amendment
        Similar to House provision, except permits but does not 
     require States to apply UIFSA to all interstate cases.
     Conference agreement
       The conference agreement is that States must adopt UIFSA by 
     January 1, 1998. The House recedes to the Senate on when 
     UIFSA is used.


   14. improvements to full faith and credit for child support orders

     Present law
       Federal law requires States to treat past-due support 
     obligations as final judgments that are entitled to full 
     faith and credit in every State. This means that a person who 
     has a support order in one State does not have to obtain a 
     second order in another State to obtain support due should 
     the debtor parent move from the issuing court's jurisdiction. 
     P.L. 103-383 restricts a State court's ability to modify a 
     support order issued by another State unless the child and 
     the custodial parent have moved to the State where the 
     modification is sought or have agreed to the modification.
     House bill
       The provision clarifies the definition of a child's home 
     State, makes several revisions to ensure that full faith and 
     credit laws can be applied consistently with UIFSA, and 
     clarifies the rules regarding which child support orders 
     States must honor when there is more than one order.
     Senate amendment
       Similar to House provision.
     Conference agreement
       The conference agreement follows both the House and Senate 
     provisions but the House recedes on ``more than 1 court''.


           15. administrative enforcement in interstate cases

     Present law
       No provision.
     House bill
       States are required to have laws that permit them to send 
     orders to and receive orders from other States without 
     registering the underlying order unless the enforcement 
     action is contested by the obligor on the grounds of mistake 
     of fact or invalid order. The transmission of the order 
     itself serves as certification to the responding State of the 
     arrears amount and of the fact that the initiating State met 
     all procedural due process requirements. No court action is 
     required or permitted by the responding State. In addition, 
     each responding State must, without requiring the case to be 
     transferred to their State, match the case against its data 
     bases, take appropriate action if a match occurs, and send 
     the collections, if any, to the initiating State. States must 
     keep records of the number of requests they receive, the 
     number of cases that result in a collection, and the amount 
     collected. States must respond to interstate requests within 
     5 days.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


               16. use of forms in interstate enforcement

     Present law
       No provision.
     House bill
       The Secretary must issue forms that States must use for 
     income withholding, for imposing liens, and for issuing 
     administrative subpoenas in interstate cases. The forms must 
     be issued by June 30, 1996 and States must be using the forms 
     by October 1, 1996.
     Senate amendment
       Requires the DHHS Secretary to establish an advisory 
     committee which must include State child support directors, 
     and not later than June 30, 1996, after consultation with the 
     advisory committee to issue forms that States must use for 
     income withholding, for imposing liens, and for issuing 
     administrative subpoenas in interstate cases. The forms must 
     be issued by June 30, 1996 and States must be using the forms 
     by October 1, 1996.
     Conference agreement
       Conferees agree to follow both the House and Senate 
     provisions with a compromise on requiring the Secretary to 
     consult with States. Rather than forming an advisory 
     committee, the conference agreement requires the Secretary to 
     consult with States before issuing the interstate forms. It 
     is the intention of conferees to facilitate timely issuance 
     of the forms but also to mandate that the Secretary work 
     closely with State child support directors in developing the 
     forms.


             17. state laws providing expedited procedures

       A. Administrative Action by State Agency
     Present law
       States must have procedures under which expedited processes 
     are in effect under the State judicial system or under State 
     administrative processes for obtaining and enforcing support 
     orders and for establishing paternity.
     House Bill
       States must adopt a series of procedures to expedite both 
     the establishment of paternity and the establishment, 
     enforcement, and modification of support. These procedures 
     provide for: (1) ordering genetic testing in appropriate 
     cases; (2) entering a default order upon a showing of service 
     of process and any other showing required by State law to 
     establish paternity if the putative father refuses to submit 
     to genetic testing and to establish or modify a support order 
     when a parent fails to appear for a hearing; (3) issuing 
     subpoenas to obtain information necessary to establish, 
     modify or enforce an order, with appropriate sanctions for 
     failure to respond to the subpoena; (4) obtaining access to 
     records including: records of other State and local 
     government agencies, law enforcement records, and corrections 
     records, including automated access to records maintained in 
     automated data bases; (5) directing the parties to pay 
     support to the appropriate government entity; (6) ordering 
     income withholding; (7) securing assets to satisfy arrearages 
     by intercepting or seizing periodic or lump sum payments from 
     States or local agencies; these payments include Unemployment 
     Compensation, workers' compensation, 

[[Page H 12969]]
     judgements, settlements, lottery winnings, assets held by financial 
     institutions, and public and private retirement funds; and 
     (8) increasing automatically the monthly support due to 
     include amounts to offset arrears.
     Senate amendment
       Similar to House provision, except requires States to 
     include the following additional procedures: (1) requiring 
     all entities in the State (including for-profit, nonprofit, 
     and governmental employers) to provide information on 
     employment, compensation and benefits of any employee or 
     contractor in response to a request from the State IV-D 
     agency; (2) obtaining access to a variety of public and 
     private records including: vital statistics, State and local 
     tax records, real and personal property, occupational and 
     professional licenses and records concerning ownership and 
     control of corporations, partnerships and other business 
     entities, employment security records, public assistance 
     records, motor vehicle records, corrections records, customer 
     records of public utilities and cable TV companies, and 
     records of financial institutions; (3) imposing liens to 
     force the sale of property and distribution of proceeds; (4) 
     requiring financial institutions (subject to the limitation 
     on liabilities arising from affording such access) to provide 
     information held by them on individuals who owe or are owed 
     child support (or against or with respect to whom a support 
     obligation is sought) to State child support agencies; and 
     (5) requiring that due process safeguards be followed.
       The amendment does not include the House provision 
     regarding default orders in paternity cases upon a showing of 
     service of process.
     Conference agreement
       The House recedes to the Senate on the five additional 
     expedited procedures and includes the House provision 
     regarding default orders in paternity cases upon a showing of 
     service of process.
       B. Substantive and Procedural Rules
     Present law
       Federal regulations provide a number of safeguards, such as 
     requiring that the due process rights of the parties involved 
     be protected.
     House bill
       States must follow a series of procedural rules that apply 
     to all of the expedited procedures outlined in the preceding 
     section:
       (1) Locator Information and Notice--requires parties in 
     paternity and child support actions to file and update 
     information about identity, address, and employer with the 
     tribunal and with the State Case Registry upon entry of the 
     order. The tribunal can deem due process requirements for 
     notice and service of process to be met in any subsequent 
     action upon delivery of written notice to the most recent 
     residential or employer address filed with the tribunal.
       (2) Statewide Jurisdiction--grants the child support agency 
     and any administrative or judicial tribunal with authority to 
     hear child support and paternity cases, to exert Statewide 
     jurisdiction over the parties, and to grant orders that have 
     Statewide effect; also permits transfer of cases between 
     administrative areas without additional filing or service of 
     process.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment except House recede to Senate language by 
     replacing the term ``administrative areas'' with the term 
     ``local jurisdictions'' in the section on Statewide 
     jurisdiction.
       C. Automation of State Agency Functions
     Present law
       No provision.
     House bill
       The automated systems being developed by States are to be 
     used, to the maximum extent possible, to implement the 
     expedited procedures.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.

                   Chapter 4--Paternity Establishment


           18. state laws concerning paternity establishment

       A. Establishment Process Available From Birth Until Age 18
     Present law
       Federal law requires States to strengthen their paternity 
     establishment laws by requiring that paternity may be 
     established until the child reaches age 18. As of August 16, 
     1984, these procedures would apply to a child for whom 
     paternity has not been established or for whom a paternity 
     action was brought but dismissed because of statute of 
     limitations of less than 18 years was then in effect in the 
     State.
     House bill
       Same as current law.
     Senate Amendment
       Similar to House provision, except requires that paternity 
     may be established until age 21 rather than 18.
     Conference agreement
       The Senate recedes so that States are required to have laws 
     that permit paternity establishment until at least age 18 (or 
     a higher limit at State option).
       B. Procedures Concerning Genetic Testing
     Present law
       Federal law requires States to implement laws under which 
     the child and all other parties must undergo genetic testing 
     upon the request of a party in contested cases.
     House bill
       The child and all other parties must undergo genetic 
     testing upon the request of a party, where the request is 
     supported by a sworn statement establishing a reasonable 
     possibility of parentage or nonparentage. When the tests are 
     ordered by the State agency, States must pay for the costs, 
     subject to recoupment at State option from the father if 
     paternity is established.
     Senate amendment
       Similar provision. House mandates genetic tests in certain 
     cases while Senate allows States with laws against genetic 
     testing in some cases to follow State law.
     Conference agreement
       The conference agreement follows both House and Senate 
     provisions but the House recedes on the provision allowing 
     States to exempt certain cases from the requirement for 
     mandatory genetic testing. No State exemption, however, can 
     permit a putative father to avoid paternity establishment 
     procedures.
       C. Voluntary Paternity Acknowledgment
     Present law
       Federal law requires States to implement procedures for a 
     simple civil process for voluntary paternity acknowledgment, 
     including hospital-based programs.
     House bill
       (1) Simple Civil Process. States must have procedures that 
     create a simple civil process for voluntary acknowledging 
     paternity under which benefits, rights and responsibilities 
     of acknowledgement are explained to unwed parents;
       (2) Hospital Program. States must have procedures that 
     establish a paternity acknowledgement program through 
     hospitals and birth record agencies (and other agencies as 
     designated by the Secretary).
       (3) Paternity Services. States must have procedures that 
     require the agency responsible for maintaining birth records 
     to offer voluntary paternity establishment services. The 
     Secretary must issue regulations, including regulations on 
     other State agencies that may offer voluntary paternity 
     acknowledgement services and the conditions such agencies 
     must meet.
       (4) Affidavit. States must have procedures that require 
     agencies to use a uniform affidavit developed by the 
     Secretary that is entitled to full faith and credit in any 
     other State.
     Senate amendment
       (1) Simple Civil Process. Similar to House provision; 
     Senate does not include language requiring that the 
     explanation of alternatives, legal consequences, and rights 
     and responsibilities be ``in a language that each can 
     understand''.
       (2) Hospital Program. Similar to House provision, except 
     States must also establish good cause exceptions for not 
     trying to establish paternity.
       (3) Paternity Services. Identical to House provision.
       (4) Affidavit. Similar provision but Senate amendment 
     allows States to develop their own voluntary paternity 
     acknowledgement form as long as they follow all the basic 
     elements of a form developed by the Secretary.
     Conference agreement
       (1) Simple Civil Process. The conference agreement follows 
     the House and Senate provisions except the House agrees to 
     drop its requirement that the explanation be ``in a language 
     that each [parent] can understand''.
       (2) Hospital Program. Conferees agree to follow the House 
     and Senate provisions but with a modification of the Senate 
     language on ``good cause'' exceptions so that such exceptions 
     become a State option.
       (3) Paternity Services. The conference agreement follows 
     the House bill and the Senate amendment.
       (4) Affidavit. The House recedes to allow States to develop 
     their own voluntary acknowledgment form as long as the form 
     contains all the basic elements of a form developed by the 
     Secretary.
       D. Status of Signed Paternity Acknowledgment
     Present law
       Federal law requires States to implement procedures under 
     which the voluntary acknowledgment of paternity creates a 
     rebuttable presumption, or at State option, a conclusive 
     presumption of paternity.
     House bill
       (1) Legal Finding. States must have procedures under which 
     a signed acknowledgement of paternity is considered a legal 
     finding of paternity unless rescinded within 60 days.
       (2) Contest. States must have procedures under which a 
     paternity acknowledgment can be challenged in court only on 
     the basis of fraud, duress, or material mistake of fact.
       (3) Rescission. States must have procedures under which 
     minors who sign a voluntary paternity acknowledgement are 
     allowed to rescind it until age 18 or the date of the first 
     proceeding to establish a support order, visitation, or 
     custody rights.

[[Page H 12970]]

     Senate amendment
       (1) Legal Finding. Adds the requirement that the name of 
     the father appear in the birth records only if there is a 
     paternity acknowledgement signed by both parents or paternity 
     has been established by court order;
       (2) Contest. Identical to House provision.
       (3) Rescission. No provision.
     Conference agreement
       (1) Legal Finding. The House recedes to the Senate 
     requirement that the father's name appear in the birth 
     records only if certain conditions are met;
       (2) Contest. The conference agreement follows the House 
     bill and the Senate amendment.
       (3) Rescission. The House agrees to drop the rescission 
     requirement, thereby leaving this decision up to States.
       E. Bar on Acknowledgment Ratification Proceedings
     Present Law
       Federal law requires States to implement procedures under 
     which such voluntary acknowledgment is admissible as evidence 
     of paternity and the voluntary acknowledgment of paternity 
     must be recognized as a basis for seeking a support order 
     without requiring any further proceedings to establish 
     paternity.
     House bill
       No judicial or administrative proceedings are required or 
     permitted to ratify a paternity acknowledgement which is not 
     challenged by the parents.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.
       F. Admissibility of Genetic Testing Results
     Present law
       Federal law requires States to implement procedures which 
     provide that any objection to genetic testing results must be 
     made in writing within a specified number of days before any 
     hearing at which such results may be introduced into 
     evidence. If no objection is made, the test results must be 
     admissible as evidence of paternity without the need for 
     foundation testimony or other proof of authenticity or 
     accuracy.
     House bill
       States must have procedures for admitting into evidence 
     accredited genetic tests, unless any objection is made within 
     a specified number of days, and if no objection is made, 
     clarifying that test results are admissible without the need 
     for foundation or other testimony.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


              G. Presumption of Paternity in Certain Cases

     Present law
       Federal law requires States to implement procedures which 
     create a rebuttable or, at State option, conclusive 
     presumption of paternity based on genetic testing results 
     indicating a threshold probability that the alleged father is 
     the father of the child.
     House bill
       States must have laws that create a rebuttable or, at State 
     option, conclusive presumption of paternity when results from 
     genetic testing indicate a threshold probability that the 
     alleged father is the father of the child.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                           H. Default Orders

     Present law
       Federal law requires States to implement procedures that 
     require a default order to be entered in a paternity case 
     upon a showing of service of process on the defendant and any 
     additional showing required by State law.
     House bill
       A default order must be entered in a paternity case upon a 
     showing of service of process on the defendant and any 
     additional showing required by the State law.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                       I. No Right to Jury Trial

     Present law
       No provision.
     House bill
       State laws must state that parties in a contested paternity 
     action are not entitled to a jury trial.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


            J. Temporary Support Based on Probable Paternity

     Present law
       No provision.
     House bill
       Upon motion of a party, State law must require issuance of 
     a temporary support order pending an administrative or 
     judicial determination of parentage if paternity is indicated 
     by genetic testing or other clear and convincing evidence.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


     K. Proof of Certain Support and Paternity Establishment Costs

     Present Law
       No provision.
     House bill
       Bills for pregnancy, childbirth, and genetic testing must 
     be admissible in judicial proceedings without foundation 
     testimony.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                    L. Standing of Putative Fathers

     Present law
       No provision.
     House bill
       Putative fathers must have a reasonable opportunity to 
     initiate paternity action.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


    M. Filing of Acknowledgments and Adjudications in State Registry

     Present law
       No provision.
     House bill
       Both voluntary acknowledgements and adjudications of 
     paternity must be filed with the State registry of birth 
     records for data matches with the central Case Registry of 
     Child Support Orders established by the State.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


             N. National Paternity Acknowledgment Affidavit

     Present law
       No provision.
     House bill
       The Secretary is required to develop an affidavit to be 
     used for voluntary acknowledgement of paternity which 
     includes the Social Security number of each parent.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House and Senate 
     provisions but includes a clarification that the Secretary, 
     after consulting with the State child support directors, 
     should list the common elements that States must include on 
     their forms.


           19. Outreach for Voluntary Paternity Establishment

     Present law
       States are required to regularly and frequently publicize, 
     through public service announcements, the availability of 
     child support enforcement services.
     House Bill
       States must publicize the availability and encourage the 
     use of procedures for voluntary establishment of paternity 
     and child support.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


     20. Cooperation by Applicants For and Recipients of Temporary 
                     Assistance for Needy Families

     Present law
       AFDC applicants and recipients are required to cooperate 
     with the State in establishing the paternity of a child and 
     in obtaining child support payments unless the applicant or 
     recipient is found to have good cause for refusing to 
     cooperate. Under the ``good cause'' regulations, the child 
     support agency may determine that it is against the best 
     interests of the child to seek to establish paternity in 
     cases involving incest, rape, or pending procedures for 
     adoption. Moreover, the agency may determine that it is 
     against the best interest of the child to require the mother 
     to cooperate if it is anticipated that such cooperation will 
     result in the physical or emotional harm of the child, 
     parent, or caretaker relative.
     House bill
       Individuals who apply for or receive public assistance 
     under the Temporary Assistance for Needy Families program 
     must cooperate with child support enforcement efforts 
     (establishing paternity, establishing, modifying or enforcing 
     a support order) by providing specific identifying 
     information about the other parent, unless the applicant or 
     recipient is found to have good cause for refusing to 
     cooperate. ``Good cause'' is defined by States. States may 
     also require the applicant and child to submit to genetic 
     testing. 

[[Page H 12971]]
     (See also Prohibitions in Title I, Section 101 of the House bill.)
     Senate amendment
       The Senate provision is similar to the House provision 
     except the Senate amendment places additional specific 
     requirements on State procedures. These include requiring the 
     custodial parent to appear at interviews, hearings, and legal 
     proceedings; requiring the State child support agency to 
     notify the custodial parent and the IV-A and Medicaid 
     agencies of whether she is cooperating and if not what she 
     must do to cooperate; and requiring that when determining the 
     custodial parent's cooperation States take into account the 
     best interests of the child. Also requires the individual and 
     the child to submit to genetic tests pursuant to a judicial 
     or administrative order. Responsibility for determining 
     failure to cooperate is shifted from the agency that 
     administers the Temporary Assistance program to the agency 
     that administers the child support program.
     Conference agreement
       The House recedes to the Senate's additional requirements 
     for cooperation by adults applying for or receiving IV-A 
     benefits.


             Chapter 5--Program Administration and Funding

                     21. Federal Matching Payments

     Present law
       The Federal Government currently reimburses each State at 
     the rate of 66 percent for the cost of administering its 
     child support enforcement program. The Federal Government 
     also reimburses States 90 percent of the laboratory costs of 
     establishing paternity, and through fiscal year 1995, 90 
     percent of the costs of developing comprehensive Statewide 
     automated systems. (There is no maintenance of effort 
     provision in current law.)
     House bill
       The Federal matching payment for child support activities 
     is maintained at 66 percent. The bill also adds a maintenance 
     of effort requirement that the non-Federal share of IV-D 
     funding for fiscal year 1997 and succeeding years not be less 
     than such funding for fiscal year 1996.
     Senate amendment
       No provision. Maintains present law with respect to the 
     Federal match rate of 66 percent.
     Conference Agreement
       The conference agreement follows the Senate amendment.


             22. Performance-Based Incentives and Penalties

           A. Incentive Adjustments to Federal Matching Rate

     Present law
       The Federal government reimburses approved administrative 
     expenditures of States at a rate of 66%. In addition, the 
     Federal government pays States an incentive amount ranging 
     from 6 percent to 10 percent of both AFDC and non-AFDC 
     collections.
     House bill
       Beginning in 1999, a new incentive system will reward good 
     State performance by increasing the State's basic matching 
     rate by up to 12 percentage points for outstanding 
     performance in establishing paternity and by up to an 
     additional 12 percentage points for overall performance (as 
     measured by the percentage of cases that have support orders, 
     the percentage of cases in which support is being paid, the 
     ratio of child support collected to child support due, and 
     cost-effectiveness). The Secretary will design the specific 
     features of the system. In doing so, she will maintain 
     overall Federal reimbursement of State programs through the 
     combined matching rate and incentives at the level projected 
     for the current combined matching and incentive payments to 
     States. The effect of this provision is to change Federal 
     financing so that relatively more Federal dollars will be 
     awarded to States for good performance. The State must spend 
     the money from incentive payments on their child support 
     enforcement program.
     Senate amendment
       As under current law, the Senate amendment provides for an 
     incentive payment to States, the funds for which come from 
     the reimbursement of cash welfare payments to the Federal 
     Government that is the Federal share of child support 
     collections paid on behalf of families. Not later than 60 
     days after enactment, the DHHS Secretary is required to 
     establish a committee, which must include State child support 
     directors, which must develop for the Secretary's approval a 
     formula for the distribution of incentive payments to the 
     States. The State's incentive payment is based on its 
     comparative performance as measured by five criteria and 
     seven factors that are stipulated in the amendment.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                        B. Conforming Amendments

     Present law
       No provision.
     House bill
       Two conforming amendments are made in Section 454 of the 
     Social Security Act.
     Senate amendment
       No provision.
     Conference agreement
       The Senate recedes to the two conforming amendments in the 
     House bill.


       C. Calculation of IV-D Paternity Establishment Percentage

     Present law
       States are required to meet Federal standards for the 
     establishment of paternity. The standard relates to the 
     percentage obtained by dividing the number of children in the 
     State who are born out of wedlock, are receiving AFDC or 
     child support enforcement services, and for whom paternity 
     has been established by the number of children who are born 
     out of wedlock and are receiving AFDC or child support 
     enforcement services. To meet Federal requirements, this 
     percentage in a State must be at least 75 percent or meet the 
     following standards of improvement from the preceding year: 
     1) if the State paternity establishment ratio is between 50 
     and 75 percent, the State ratio must increase by 3 or more 
     percentage points from the ratio of the preceding year; 2) if 
     the State ratio is between 45 and 50, the ratio must increase 
     at least 4 percentage points; 3) if the State ratio is 
     between 40 and 45 percent, it must increase at least 5 
     percentage points; and 4) if the State ratio is below 40 
     percent, it must increase at least 6 percentage points. If an 
     audit finds that the State's child support enforcement 
     program has not substantially complied with the requirements 
     of its State plan, the State is subject to a penalty. In 
     accord with this penalty, the Secretary must reduce a State's 
     AFDC benefit payment by not less than 1 percent nor more than 
     2 percent for the first failure to comply; by not less than 2 
     percent nor more than 3 percent for the second consecutive 
     failure to comply; and by not less than 3 percent nor more 
     than 5 percent for third or subsequent consecutive failure to 
     comply.
     House bill
       The IV-D paternity establishment percentage for a fiscal 
     year is equal to: (1) the total number of children in the 
     State who were born out-of-wedlock, who have not reached age 
     1 and for whom paternity is acknowledged or established 
     during the fiscal year, divided by (2) the total number of 
     children born out-of-wedlock in the State during the fiscal 
     year. The requirements for meeting the standard are the same 
     as current law except the 75 percent rule is increased to 90 
     percent. The noncompliance provisions of the child support 
     program are modified so that the Secretary must take overall 
     program performance into account and the minimum paternity 
     establishment percentage is raised from 75 to 90.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                           D. Effective Dates

     Present law
       No provision.
     House bill
       The new incentive payments go into effect on October 1, 
     1997, but procedures for computing the State incentive 
     payments are not actually based on the new system until 
     fiscal year 1999; the changes in penalty procedure become 
     effective upon enactment.
     Senate amendment
       Effective upon enactment, except present law applies for 
     purposes of incentive payments for fiscal years before fiscal 
     year 2000.
     Conference agreement
       Effective upon enactment.


                23. Federal and State Reviews and Audits

                       A. State Agency Activities

     Present law
       States are required to maintain a full record of child 
     support collections and disbursements and to maintain an 
     adequate reporting system.
     House bill
       States are required to annually review and report to the 
     Secretary, using data from their automatic data processing 
     system, both information adequate to determine the State's 
     compliance with Federal requirements for expedited procedures 
     and timely case processing as well as the information 
     necessary to calculate their levels of accomplishment and 
     rates of improvement on the performance indicators in the 
     bill.
     Senate amendment
       Similar to House provision, except does not include 
     requirement that States submit process information on State 
     compliance with Federal mandates on timely case processing.
     Conference agreement
       The conference agreement follows both the House and Senate 
     provisions but the House recedes on its requirement that 
     States submit information on timely case processing.


                         B. Federal Activities

     Present law
       The Secretary must collect and maintain, on a fiscal year 
     basis, up-to-date State-by-State statistics on each of the 
     services provided under the child support enforcement 
     program. The Secretary is also required to evaluate the 
     implementation of State child support enforcement programs 
     and conduct audits of these programs as necessary, but not 
     less often than once every 3 years (or annually if a State 
     has been found to be out of compliance with program rules).

[[Page H 12972]]

     House bill
       The Secretary is required to determine the amount (if any) 
     of incentives or penalties. The Secretary must also review 
     State reports on compliance with Federal requirements and 
     provide States with recommendations for corrective action. 
     Audits must be conducted at least once every 3 years, or more 
     often in the case of States that fail to meet Federal 
     requirements. The purpose of the audits is to assess the 
     completeness, reliability, accuracy, and security of data 
     reported for use in calculating the performance indicators 
     and to assess the adequacy of financial management of the 
     State program.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment.


                           C. Effective Date

     Present law
       No provision.
     House bill
       These provisions take effect beginning with the calendar 
     quarter that begins 12 months after enactment.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment.


                   24. Required Reporting Procedures

     Present law
       The Secretary is required to assist States in establishing 
     adequate reporting procedures and must maintain records of 
     child support enforcement operations and of amounts collected 
     and disbursed, including costs incurred in collecting support 
     payments.
     House bill
       The Secretary is required to establish procedures and 
     uniform definitions for State collection and reporting of 
     information necessary to measure State compliance with 
     expedited processes and timely case processing.
     Senate amendment
       Similar to House provision, except does not mention timely 
     case processing.
     Conference agreement
       The conference agreement follows both the House and Senate 
     provisions except, as in the State Agency Activities 
     provision (see 23A above), the House recedes by dropping 
     State reports on timely case processing.


               25. Automated Data Processing Requirements

                             A. In General

     Present law
       Federal law (P.L. 104-35) requires that by October 1, 1997, 
     States have an operational automated data processing and 
     information retrieval system designed to control, account 
     for, and monitor all factors in the support enforcement and 
     paternity determination process, the collection and 
     distribution of support payments, and the costs of all 
     services rendered.
     House bill
       States are required to have a single Statewide automated 
     data processing and information retrieval system which has 
     the capacity to perform the necessary functions, as described 
     in this section.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment.


                         B. Program Management

     Present law
       Federal law requires that the automated data processing 
     system be capable of providing management information on all 
     IV-D cases from initial referral or application through 
     collection and enforcement.
     House bill
       The State data system must be used to perform functions the 
     Secretary specifies, including controlling and accounting for 
     the use of Federal, State, and local funds and maintaining 
     the data necessary to meet Federal reporting requirements in 
     carrying out the program.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment.


                C. Calculation of Performance Indicators

     Present law
       No provision.
     House bill
       The automated system must maintain the requisite data for 
     Federal reporting, calculate the State's performance for 
     purposes of the incentive and penalty provisions, and have in 
     place systems controls to ensure the completeness, 
     reliability, and accuracy of the data.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment.


                 D. Information Integrity and Security

     Present law
       Federal law requires that the automated data processing 
     system be capable of providing security against unauthorized 
     access to, or use of, the data in such system.
     House bill
       The State agency must have safeguards to protect the 
     integrity, accuracy, and completeness of, and access to, data 
     in the automated systems (including restricting access to 
     passwords, monitoring of access to and use of the system, 
     training, and imposing penalties).
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment.


                             E. Regulations

     Present law
       No provision.
     House bill
       The Secretary shall prescribe final regulations for 
     implementation of this section no later than 2 years after 
     the date of the enactment of this Act.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment.


                      F. Implementation Timetable

     Present law
       No provision.
     House bill
       The statutory provisions for State implementation of 
     Federal automatic data processing requirements are revised to 
     provide that, first, all requirements enacted on or before 
     the date of enactment of the Family Support Act of 1988 are 
     to be met by October 1, 1995. The requirements enacted on or 
     before the date of enactment of this bill must be met by 
     October 1, 1999. The October 1, 1999 deadline will be 
     extended by one day for each day by which the Secretary fails 
     to meet the 2-year deadline for regulations.
     Senate amendment
       Similar to House provision, except allows States to meet 
     requirements of the Family Support Act by October 1, 1997 
     rather than 1995.
     Conference agreement
       The conference agreement follows both House and Senate 
     provisions but the completion date for data requirements 
     imposed on States by the Family Support Act follows the 
     Senate provision of October 1, 1997.


  G. Special Federal Matching Rate for Development Costs of Automated 
                                Systems

     Present law
       The Federal Government, through FY 1995, reimburses States 
     at a 90 percent matching rate for the costs of developing 
     comprehensive Statewide automated systems.
     House bill
       The Federal government will provide 90 percent matching 
     funds for fiscal year 1996 that will be applied to all State 
     activities related to developing a comprehensive Statewide 
     automated system. For fiscal years 1997 through 2001, the 
     matching rate for the provisions of this bill and other 
     authorized provisions will be the higher of 80 percent or the 
     matching rate generally applicable to the State IV-D program, 
     including incentive payments (which could be as high as 90 
     percent).
     Senate amendment
       Similar provision except Senate amendment continues the 90 
     percent matching rate for 1996 and 1997 in the case of 
     provisions outlined in advanced planning documents submitted 
     before May 1, 1995.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment but the House recedes on the provision to continue 
     90 percent reimbursement of data processing activities that 
     were included in any advanced planning document submitted by 
     States and approved by the Secretary before May 1, 1995. The 
     90 percent funding, which continues through October 1, 1997, 
     includes approved expenditures by States that were made 
     between October 1, 1995 and the date of passage of this 
     legislation.


H. Temporary Limitation on Payments Under Special Federal Matching Rate

     Present law
       No provision.
     House bill
       The Secretary must create procedures to cap these payments 
     at $260,000,000 over 5 years (fiscal year 1996-2000) to be 
     distributed among States by a formula set in regulations 
     which takes into account the relative size of State caseloads 
     and the level of automation needed to meet applicable 
     automatic data processing requirements.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and Senate 
     amendment, except the limitation on payments is increased 
     from $260,000,000 to $400,000,000.


                        26. Technical Assistance

     Present law
       Annual appropriations are made to cover the expenses of the 
     Administration for Children and Families, which includes the 
     Federal Office of Child Support Enforcement 

[[Page H 12973]]
     (OCSE). Among OCSE's administrative expenses are the costs of providing 
     technical assistance to the States.
     House bill
       The Secretary can use 1 percent of the Federal share of 
     child support collections on behalf of families in the 
     Temporary Assistance for Needy Families program the preceding 
     year to provide technical assistance to the States. Technical 
     assistance can include training of State and Federal staff, 
     research and demonstration programs, and special projects of 
     regional or national significance. The Secretary must use up 
     to 2 percent of the Federal share of collections for 
     operation of the Federal Parent Locator Service to the extent 
     that costs of the Parent Locator Service are not recovered by 
     user fees.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


            27. Reports and Data Collection by the Secretary

     Present law
       The Secretary is required to submit to Congress, not later 
     than 3 months after the end of the fiscal year, a complete 
     report on all child support enforcement activities.
     House bill
       In addition to current reporting requirements, the 
     Secretary is required to report the following data to 
     Congress in her annual report each fiscal year:
       (1) the total amount of child support payments collected;
       (2) the cost to the State and Federal governments of 
     furnishing child support services;
       (3) the number of cases involving families that became 
     ineligible for aid under part A with respect to whom a child 
     support payment was received:
       (4) the total amount of current support collected and 
     distributed;
       (5) the total amount of past due support collected and 
     distributed as arrearages; and
       (6) the total amount of support due and unpaid for all 
     fiscal years.

     These requirements apply to fiscal year 1996 and succeeding 
     fiscal years.
     Senate amendment
       Similar to House provision, except requires the Secretary 
     to include information on the degree to which States met 
     Federal statutory time limits in responding to interstate 
     requests and in distributing child support collections.
     Conference agreement
       Conferees agree to follow the provisions in both bills 
     except that the House recedes on the additional requirements 
     the Senate included in the Secretary's report to Congress.

      Chapter 6--Establishment and Modification of Support Orders


            28. National Child Support Guidelines Commission

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Establishes a National Child Support Guidelines Commission 
     that is responsible for deciding whether it is appropriate to 
     develop national child support guidelines for consideration 
     by the Congress or for adoption by individual States and the 
     benefits and deficiencies of such models. Several matters the 
     Commission must consider, such as the feasibility of adapting 
     uniform terms in all child support orders, are outlined. The 
     Commission is to be comprised of 12 individuals, 2 each 
     appointed by the Chairman of Finance and Ways and Means, 1 
     each by the ranking member of Finance and Ways and Means, and 
     6 by the Secretary. The Commission report must be issued 
     within 2 years.
     Conference agreement
       The Senate recedes to the House provision of no National 
     Guidelines Commission.


   29. Simplified Process for Review and Adjustment of Child Support 
                                 Orders

     Present law
       A child support order legally obligates noncustodial 
     parents to provide financial support for their child and 
     stipulates the amount of the obligation and how it is to be 
     paid. In 1984, P.L. 98-378 required States to establish 
     guidelines for establishing child support orders. In 1988, 
     P.L. 100-485 made the guidelines binding on judges and other 
     officials who had authority to establish support orders. P.L. 
     100-485 also required States to review and adjust individual 
     child support orders once every 3 years under some 
     circumstances. States are required to notify both resident 
     and nonresident parents of their right to a review.
     House bill
       States must review and, as appropriate, adjust the support 
     order every 3 years. States may adjust child support orders 
     by either applying the State guidelines and updating the 
     reward amount or by applying a cost of living increase to the 
     order. Both parties must be given 30 days after notice of 
     adjustment to contest the results. States may use automated 
     methods to identify orders eligible for review, conduct the 
     review, identify orders eligible for adjustment, and apply 
     the appropriate adjustment to the orders based on the 
     threshold established by the State. States must also review 
     and, upon a showing of a change in circumstances, adjust 
     orders pursuant to the child support guidelines upon request 
     of a party. States are required to give parties one notice of 
     their right to request review and adjustment, which may be 
     included in the order establishing the support amount.
     Senate amendment
       Similar to House provision, except adds that review and 
     adjustment must be done ``upon the request of either parent 
     or the State.'' If neither parent requests a review, States 
     have the option of avoiding the 3-year review requirement.
     Conference agreement
       Conferees agree to follow the House and Senate provisions 
     with one exception. The House recedes to the Senate provision 
     that States are not required to conduct reviews unless 
     requested by either parent but with the additional 
     requirement that States inform mothers at least once every 3 
     years in writing of their right to a review.


30. Furnishing Consumer Reports for Certain Purposes Relating to Child 
                                Support

     Present law
       P.L. 102-537 amends the Fair Credit Act to require consumer 
     reporting agencies to include in any consumer report 
     information on child support delinquencies provided by or 
     verified by a child support enforcement agency, which 
     antedates the report by 7 years.
     House bill
       This section amends the Fair Credit Reporting Act. In 
     response to a request by the head of a State or local child 
     support agency (or a State or local government official 
     authorized by the head of such an agency), consumer credit 
     agencies must release information if the person making the 
     request: certifies that the consumer report is needed to 
     establish an individual's capacity to make child support 
     payments or determine the level of payments; gives the 
     consumer credit agency 10 days notice that the report is 
     being requested; and provides assurances that the consumer 
     report will be kept confidential, will be used solely for 
     child support purposes, and will not be used in connection 
     with any other civil, administrative, or criminal proceeding 
     or for any other purpose. Consumer reporting agencies must 
     also give reports to a child support agency for use to set an 
     initial or modified award.
     Senate amendment
       Similar to House provision, except requires that the 
     consumer must have been shown to be the father (i.e., 
     paternity must be established).
     Conference agreement
       The conference agreement follows both the House and Senate 
     provisions except that the House receded to the Senate 
     requirement that the consumer must have been shown to be the 
     father.


   31. Nonliability for Depository Institutions Providing Financial 
                                Records

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Depository institutions are not liable for information 
     provided to child support agencies. Child support agencies 
     can disclose information obtained from depository 
     institutions only for child support purposes. Individuals who 
     knowingly disclose information from financial records can 
     have civil actions brought against them in Federal district 
     court; the maximum penalty is $1,000 for each disclosure or 
     actual damages plus, in the case of ``willful disclosure'' 
     resulting from ``gross negligence,'' punitive damages, plus 
     the costs of the action.
     Conference agreement
       The House recedes to the Senate requirement that Sates have 
     laws protecting depository institutions when information is 
     provided to child support agencies.

                Chapter 7--Enforcement of Support Orders


                  32. Federal Income Tax Refund Offset

  A. Changed Order of Refund Distribution Under Internal Revenue Code

     Present law
       Since 1981 in AFDC cases, and 1984 in non-AFDC cases, 
     Federal law has required States to implement procedures under 
     which child support agencies can collect child support 
     arrearages through the interception of Federal income tax 
     refunds.
       Child support arrearages obtained through Federal income 
     tax refunds are distributed to the State and are retained by 
     the State for arrearages owed to it under the AFDC 
     assignment. States must reimburse the Federal government for 
     their share of these arrearage payments. If no arrearages are 
     owed the State, the money is used to pay arrearages to the 
     family.
     House bill
       The Internal Revenue Code is amended so that offsets of 
     child support arrears owed to individuals take priority over 
     most debts owed Federal agencies. Proceeds from tax 
     intercepts will be distributed as follows:
       (1) for Federal education debts and debts to the Department 
     of Health and Human Services;
       (2) for child support owed to individuals;
       (3) for child support arrearages owed to State governments; 
     and 

[[Page H 12974]]

       (4) for other Federal debts.
       The provision also amends the Internal Revenue Code so that 
     the order of priority for distribution of tax offsets follows 
     the distribution rules for child support payments specified 
     in subtitle A of this bill.
     Senate amendment
       No provision.
     Conference agreement
       The House recedes to the Senate so that the order of 
     payments from tax intercepts remains unchanged. This 
     provision was dropped from the Reconciliation bill because it 
     violates the Byrd Rule (section 313 of Congressional Budget 
     Act of 1974).


B. Elimination of Disparities in Treatment of Assigned and Non-Assigned 
                               Arrearages

     Present law
       Federal rules set different criteria for AFDC and non-AFDC 
     cases. For example, in AFDC cases arrearages may be collected 
     through the income tax offset program regardless of the 
     child's age. In non-AFDC cases, the tax offset program can be 
     used only if the postminor child is disabled (pursuant to the 
     meaning of disability under titles II or XVI of the SSA). 
     Moreover, the arrearage in AFDC cases must be only $150 or 
     more, whereas the arrearage in non-AFDC cases must be at 
     least $500.
     House bill
       The bill eliminates disparate treatment of families not 
     receiving public assistance by repealing provisions 
     applicable only to support arrears not assigned to the State. 
     The Secretary of the Treasury is given access to information 
     in the National Directory of new Hires for tax purposes.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


         33. Internal Revenue Service Collection of Arrearages

     Present law
       If the amount of overdue child support is at least $750, 
     the Internal Revenue Service can enforce the child support 
     obligation through its regular collection process, which may 
     include seizure of property, freezing accounts, or use of 
     other procedures if the child support enforcement agencies 
     requests assistance according to prescribed rules (e.g., 
     certifying that the delinquency is at least $750, etc.)
     House bill
       No provision.
     Senate amendment
       Amends the Internal Revenue Code so that no additional fees 
     can be assessed for adjustment to previously certified 
     amounts for the same obligor, effective October 1, 1997.
     Conference agreement
       The House recedes to the Senate requirement that IRS cannot 
     charge additional fees in the case of a previously certified 
     amount for the same obligor.


        34. Authority to Collect Support from Federal Employees

            A. Consolidation and Streamlining of Authorities

     Present law
       Federal law allows the wages of Federal employees to be 
     garnished to enforce legal obligations for child support or 
     alimony. Federal law provides that moneys payable by the 
     United States to any individual are subject to being 
     garnished in order to meet an individual's legal obligation 
     to provide child support or make alimony payments. An 
     executive order issued 2/27/95 establishes the Federal 
     government as a model employer in promoting and facilitating 
     the establishment and enforcement of child support.
       By Executive Order on 2/27/95, all Federal agencies, 
     including the Uniformed Services, are required to cooperate 
     fully in efforts to establish paternity and child support and 
     to enforce the collection of child and medical support. All 
     Federal agencies are to review their wage withholding 
     procedures to ensure that they are in full compliance.
       Beginning no later than July 1, 1995, the Director of the 
     Office of Personal Management must publish annually in the 
     Federal Register the list of agents (and their addresses) 
     designated to receive service of withholding notices for 
     Federal employees.
       Federal law states that neither the United States nor any 
     disbursing officer or government entity shall be liable with 
     respect to any payment made from moneys due or payable from 
     the United States pursuant to the legal process.
       Federal law provides that money that may be garnished 
     includes compensation for personal services, whether such 
     compensation is denominated as wages, salary, commission, 
     bonus, pay, or otherwise, and includes but is not limited to, 
     severance pay, sick pay, incentive payments, and periodic 
     payments.
       Includes definitions of ``United States'', ``child 
     support'', ``alimony'', ``private person'', and ``legal 
     process''.
     House bill
       Federal Employees are subject to wage withholding and other 
     actions taken against them by State Child Support Enforcement 
     Agencies.
       Federal agencies are responsible for wage withholding and 
     other child support actions taken by the State as if they 
     were a private employer.
       The head of each Federal agency must designate an agent and 
     place the agent's name, title, address, and telephone number 
     in the Federal Register annually. The agent must, upon 
     receipt of process, send written notice to the individual 
     involved as soon as possible, but no later than 15 days, and 
     to comply with any notice of wage withholding or respond to 
     other process within 30 days.
       Amends existing law governing allocation of moneys owed by 
     a Federal employee to give priority to child support, to 
     require allocation of available funds, up to the amount owed, 
     among child support claimants, and to allocate remaining 
     funds to other claimants on a first-come, first-served basis.
       A government entity served with notice of process for 
     enforcement of child support is not required to change its 
     normal pay and disbursement cycle to comply with the legal 
     process.
       Similar to current law, the U.S., the government of the 
     District of Columbia, and disbursing officers are not liable 
     for child support payments made in accord with this section; 
     nor is any Federal employee subject to disciplinary action or 
     civil or criminal liability for disclosing information while 
     carrying out the provisions of this section.
       The President has the authority to promulgate regulations 
     to implement this section as it applies to Federal employees 
     of the Administrative branch of government; the President Pro 
     Tempore of the Senate and Speaker of the House can issue 
     regulations governing their employees; and the Chief Justice 
     can issue regulations applicable to the Judicial branch.
       This section broadens the definition of income to include 
     funds such as insurance benefits, retirement and pension pay, 
     survivor's benefits, compensation for death and black lung 
     disease, veteran's benefits, and workers' compensation; but 
     to exclude from income funds paid to defray expenses incurred 
     in carrying out job duties, owed to the U.S., used to pay 
     Federal employment taxes and fines and forfeitures ordered by 
     court martial, withheld for tax purposes, used for health 
     insurance or life insurance premiums, normal retirement 
     contributions, or life insurance premiums.
       This section includes definitions of ``United States'', 
     ``child support'', ``alimony'', ``private person'', and 
     ``legal process''.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                        B. Conforming Amendments

     Present law
       No provision.
     House bill
       This section includes conforming amendments to Title IV of 
     the Social Security Act and Title 5 of the United States 
     Code.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                  C. Military Retired and Retainer Pay

     Present law
       No provision.
     House bill
       This section expands the definition of court to include an 
     administrative or judicial tribunal which includes the child 
     support enforcement agency.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                           D. Effective Date

     Present law
       No provision.
     House bill
       This section goes into effect 6 months after the date of 
     enactment.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


 35. Enforcement of Child Support Obligations of Members of the Armed 
                                 Forces

                 A. Availability of Locator Information

     Present law
       The Executive Order issued 2/27/95 requires a study which 
     would include recommendations related to how to improve 
     service of process for civilian employees and members of the 
     Uniformed Services stationed outside of the United States.
     House bill
       The Secretary of Defense must establish a central personnel 
     locator service that contains residential or, in specified 
     instances, duty addresses of every member of the Armed 
     Services (including retirees, the National Guard, and the 
     Reserves). The locator service must be updated within 30 days 
     of the time an individual establishes a new address. 
     Information from the locator service must be made available 
     to the Federal Parent Locator Service.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.

[[Page H 12975]]



      B. Facilitating Granting of Leave for Attendance at Hearings

     Present law
       No provision.
     House bill
       The Secretary of Defense must issue regulations to 
     facilitate granting of leave for members of the Armed 
     Services to attend hearings to establish paternity or to 
     establish child support orders.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


  C. Payment of Military Retired Pay in Compliance With Child Support 
                                 Orders

     Present law
       Federal law requires allotments from the pay and allowances 
     of any member of the uniformed service when the member fails 
     to pay child (or child and spousal) support payments.
     House bill
       The Secretary of each branch of the Armed Forces (including 
     retirees, the Coast Guard, the National Guard, and the 
     Reserves) is required to make child support payments directly 
     to any State to which a custodial parent has assigned support 
     rights as a condition of receiving public assistance. The 
     Secretary of Defense must also ensure that payments to 
     satisfy current support or child support arrears are made 
     from disposable retirement pay. Payroll deductions must begin 
     within 30 days or the first pay period after 30 days of 
     receiving a wage withholding order.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                  36. Voiding of Fraudulent Transfers

     Present law
       No provision.
     House bill
       States must have in effect the Uniform Fraudulent 
     Conveyance Act of 1981, the Uniform Fraudulent Transfer Act 
     of 1984, or an equivalent law providing for voiding transfers 
     of income or property in order to avoid payment of child 
     support.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


    37. Sense of the Congress that States Should Suspend Drivers', 
  Business, and Occupational Licenses of Persons Owing Past-Due Child 
                                Support

     Present law
       No provision.
     House bill
       It is the sense of Congress that each State should suspend 
     any driver's license, business license, or occupational 
     license issued to any person who owes past-due child support.
     Senate amendment
       No provision.
     Conference agreement
       House recedes (no provision).


     38. Work Requirement for Persons Owing Past-Due Child Support

     Present law
       P.L. 100-485 required the Secretary to grant waivers to up 
     to 5 States allowing them to provide JOBS services on a 
     voluntary or mandatory basis to noncustodial parents who are 
     unemployed and unable to meet their child support 
     obligations. (In their report the conferees noted that the 
     demonstrations would not grant any new powers to the States 
     to require participation by noncustodial parents. The 
     demonstrations were to be evaluated.
     House bill
       States must have laws that direct courts to order 
     individuals owing past-due child support for a child 
     receiving assistance under the Temporary Family Assistance 
     program either to pay the support due or to participate in 
     work activities. ``Past-due support'' is defined.
     Senate amendment
       Similar to House provision, except refers to ``support'' 
     rather than ``past-due support.''
     Conference agreement
       Conferees agree to follow the House and Senate provisions 
     except that the Senate recedes to the House provision that 
     work apply only to nonresident parents owing past-due 
     support.


                    39. Definition of Support Order

     Present law
       No provision.
     House bill
       A support order is defined as an order issued by a court or 
     an administrative process established under State law that 
     requires support of a child or of a child and the parent with 
     whom the child lives.
     Senate amendment
       A support order is defined as a judgement, decree, or order 
     (whether temporary, final, or subject to modification) issued 
     by a court or an administrative agency for the support 
     (monetary support, health care, arrearages, or reimbursement) 
     of a child (including a child who has reached the age of 
     majority under State law) or of a child and the parent with 
     whom the child lives.
     Conference agreement
       The House recedes to the Senate definition of a support 
     order.


               40. reporting arrearage to credit bureaus

     Present law
       Federal law requires States to implement procedures which 
     require them to periodically report to consumer reporting 
     agencies the name of debtor parents owing at least 2 months 
     of overdue child support and the amount of child support 
     overdue. However, if the amount overdue is less than $1,000, 
     information regarding it shall be made available only at the 
     option of the State. Moreover, any information may only be 
     made available after the noncustodial parent has been 
     notified of the proposed action and has been given reasonable 
     opportunity to contest the accuracy of the information. 
     States are permitted to charge consumer reporting agencies 
     that request child support arrearage information for a fee, 
     not to exceed the actual cost.
     House bill
       No provision.
     Senate amendment
       States are required to have procedures to periodically 
     report to consumer credit reporting agencies the name of any 
     noncustodial parent who is delinquent in the payment of 
     support and the amount of overdue support owed by the parent.
     Conference agreement
       The House recedes to the Senate requirement that States 
     periodically report to consumer credit reporting agencies.


                               41. Liens

     Present law
       Federal law requires States to implement procedures under 
     which liens are imposed against real and personal property 
     for amounts of overdue support owed by a noncustodial parent 
     who resides or owns property in the State.
     House bill
       States are required to have procedures to accord full faith 
     and credit and to enforce in accordance with State law a lien 
     from another State. The lien must be accompanied by a 
     certification from the State issuing the lien of the amount 
     of overdue support and a certification that due process 
     requirements have been met. The second State is not required 
     to register the underlying order, unless contested on the 
     grounds of mistake of fact.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


            42. state law authorizing suspension of licenses

     Present law
       No provision.
     House bill
       States have the authority to withhold, suspend, or restrict 
     the use of drivers' licenses, professional and occupational 
     licenses, and recreational licenses of individuals owing 
     past-due support or failing, after receiving appropriate 
     notice, to comply with subpoenas or warrants relating to 
     paternity or child support proceedings.
     Senate amendment
        Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


        43. denial of passports for nonpayment of child support

     Present law
        No provision.
     House bill
       No provision.
     Senate amendment
       If an individual owes arrearages in excess of $5,000 of 
     child support, the Secretary of HHS must request that the 
     State Department deny, revoke, or limit the individual's 
     passport. State child support agencies must have procedures 
     for certifying arrearages in excess of $5,000 and for 
     notifying individuals who are in arrears.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).


              44. international child support enforcement

     Present law
       The United States has not signed any of the major treaties 
     regarding international support enforcement. Pursuant to the 
     Uniform Reciprocal Enforcement of Support Act (URESA), most 
     States have reciprocal agreements with at least one foreign 
     country regarding reciprocal enforcement of support orders. 
     States do not have the power to enter into treaties.
     House bill
       No provision.
     Senate amendment
       The Secretary of State is authorized to negotiate 
     reciprocal agreements with foreign 

[[Page H 12976]]
     nations on behalf of the States, territories, and possessions of the 
     United States regarding the international enforcement of 
     child support obligations.
     Conference agreement
       The conference agreement follows the Senate amendment with 
     substantial modification. The Secretary of State, with 
     concurrence of the Secretary of HHS, is authorized to declare 
     reciprocity with foreign countries having requisite 
     procedures for establishing and enforcing support orders. The 
     Secretary may revoke reciprocity if she determines that the 
     enforcement procedures do not continue to meet the requisite 
     criteria.
       The requirements for reciprocity include procedures in the 
     foreign country for U.S. residents--available at no cost--to 
     establish parentage, to establish and enforce support orders 
     for children and custodial parents, and to distribute 
     payments.
       The Secretary of HHS is required to facilitate enforcement 
     services in international cases involving residents of the 
     U.S. and of foreign reciprocating countries, including 
     developing uniform forms and procedures, and providing 
     information from the FPLS on the State of residence of the 
     obligor.
       Where there is no Federal reciprocity agreement, States are 
     permitted to enter into reciprocal agreements with foreign 
     countries.
       The State plan must provide that request for services in 
     international cases be treated the same as interstate cases, 
     except that no application will be required and no costs will 
     be assessed against the foreign country or the obligee (costs 
     may be assessed at State option against the obligor).


45. denial of means-tested federal benefits to noncustodial parents who 
                 are delinquent in paying child support

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Noncustodial parents who are more than 2 months delinquent 
     in paying child support are not eligible to receive means-
     tested Federal benefits.
     Conference agreement
       Senate recede (no provision).


            46. child support enforcement for indian tribes

     Present law
       There are about 340 Federally recognized Indian tribes in 
     the 48 contiguous States. Among these tribes there are 
     approximately 130 tribal courts and 17 Courts of Indian 
     Offenses. Most tribal codes authorize their courts to hear 
     parentage and child support matters that involve at least one 
     member of the tribe or person living on the reservation. This 
     jurisdiction may be exclusive or concurrent with State court 
     jurisdiction, depending on specified circumstances.
     House bill
        No provision.
     Senate amendment
       Requires States to make reasonable efforts to enter into 
     cooperative agreements with an Indian tribe or organization 
     if the tribe or organization has an established tribal court 
     system to establish paternity, establish and enforce support 
     orders, and enter support orders in accordance with 
     guidelines established by the tribe or organization. Such 
     agreements shall provide for the cooperative delivery of 
     child support enforcement services in Indian country and for 
     the forwarding of all funds collected by the tribe or 
     organization to the State agency, or conversely, by the State 
     agency to the tribe or organization, which shall distribute 
     the funds according to the agreement. The DHHS Secretary in 
     appropriate cases is authorized to send Federal funds 
     directly to the tribe or organization.
     Conference agreement
        Senate recede (no provision).


                 47. financial institution data matches

     Present law
        No provision.
     House bill
        No provision.
     Senate amendment
        States are required to implement procedures under which 
     the State child support agency shall enter into agreements 
     with financial institutions doing business within the State 
     to develop and operate a data match system, using automated 
     data exchanges to the maximum extent feasible, in which such 
     financial institutions are required to provide for each 
     calendar quarter the name, address, Social Security number, 
     and other identifying information for each noncustodial 
     parent identified by the State who has an account at the 
     institution and, in response to a notice of lien or levy, to 
     encumber or surrender assets held by the institution on 
     behalf of the noncustodial parent who is subject to the child 
     support lien. Includes definition of the term ``financial 
     institution.''
     Conference agreement
        Conferees agree that the House recede to the Senate 
     requirement that States perform data matches on information 
     supplied by financial institutions in the case of parents who 
     owe past-due child support and have liens against them.


  48. enforcement of orders against paternal grandparents in cases of 
                             minor parents

     Present law
        No provision. However, Wisconsin and Hawaii have State 
     laws that make grandparents financially responsible for their 
     minor children's dependents.
     House bill
        No provision.
     Senate amendment
        States would be required to implement procedures under 
     which any child support order enforced by a child support 
     enforcement agency would be enforceable against the paternal 
     grandparents of a minor father if the child's minor mother 
     were receiving benefits from the Temporary Assistance for 
     Needy Families block grant program.
     Conference agreement
        The House recedes to the Senate requirement that paternal 
     grandparents be held accountable for paying child support in 
     the case of minor mother with children being supported by 
     benefits from the Temporary Assistance for Needy Families 
     block grant, or that the maternal grandparents be held 
     accountable for paying child support in the case of a minor 
     father raising children who receive benefits from the 
     Temporary Assistance for Needy Families block grant.


                       chapter 8--medical support

 49. technical correction to erisa definition of medical child support 
                                 order

     Present law
        P.L. 103-66 requires States to adopt laws to require 
     health insurers and employers to enforce orders for medical 
     and child support and forbids health insurers from denying 
     coverage to children who are not living with the covered 
     individual or who were born outside of marriage. Under P.L. 
     103-66, group health plans are required to honor ``qualified 
     medical child support orders.''
     House bill
        This provision expands the definition of medical child 
     support order in ERISA to clarify that any judgement, decree, 
     or order that is issued by a court of competent jurisdiction 
     or by an administrative adjudication has the force and effect 
     of law.
     Senate amendment
       Identical provision.
     Conference agreement
        The conference agreement follows the House bill and the 
     Senate amendment.


           50. enforcement of orders for health care coverage

     Present law
       Federal law requires the Secretary to require IV-D agencies 
     to petition for the inclusion of medical support as part of 
     child support whenever health care coverage is available to 
     the noncustodial parent at reasonable cost.
     House bill
       No provision.
     Senate amendment
       All orders enforced under this part must include a 
     provision for health care coverage. If the noncustodial 
     parent changes jobs and the new employer provides health 
     coverage, the State must send notice of coverage, which shall 
     operate to enroll the child in the health plan, to the new 
     employer.
     Conference agreement
       The House recedes to the Senate provision on medical care 
     coverage provided to children by nonresident parents changing 
     jobs.

Chapter 9--Enhancing Responsibility and Opportunity for Non-Residential 
                                Parents


        51. grants to states for access and visitation programs

                             a. in general

     Present law
       In 1988, Congress authorized the Secretary to fund for 
     fiscal year 1990 and fiscal year 1991 demonstration projects 
     by States to help divorcing or never-married parents 
     cooperate with each other, especially in arranging for visits 
     between the child and the nonresident parent.
     House bill
       The bill authorizes grants to States for access and 
     visitation programs including mediation, counseling, 
     education, development of parenting plans, and visitation 
     enforcement. Visitation enforcement can include monitoring, 
     supervision, neutral drop-off and pick-up, and development of 
     guidelines for visitation and alternative custody agreements. 
     States are required to monitor and evaluate their programs 
     and are given the authority to subcontract the program to 
     courts, local public agencies, or private non-profit 
     agencies. Programs operating under the grant do not have to 
     be Statewide. Funding is authorized as capped spending under 
     section IV-D of the Social Security Act. Projects are 
     required to supplement rather than supplant State funds.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                           b. amount of grant

     Present law
       No provision.
     House bill
       The amount of the grant to a State is equal to either 90 
     percent of the State expenditures during the year for access 
     and 

[[Page H 12977]]
     visitation programs or the allotment for the State for the fiscal year.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                         c. Allotment to States

     Present law
       No provision.
     House bill
       The allotment to the State bears the same ratio to the 
     amount appropriated for the fiscal year as the number of 
     children living in the State with one biological parent 
     divided by the national number of children living with one 
     biological parent. The Administration for Children and 
     Families must adjust allotments to ensure that no State is 
     allotted less than $50,000 for fiscal years 1996 or 1997 or 
     less than $100,000 for any year after 1997.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                        d. state administration

     Present law
       No provision.
     House bill
       States may use the money to create their own programs or to 
     fund grant programs with courts, local public agencies, or 
     non-profit organizations. The programs do not need to be 
     Statewide. States must monitor, evaluate, and report on their 
     programs in accord with the regulations issued by the 
     Secretary.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.

                    Chapter 10--Effect of Enactment


                          52. effective dates

     Present law
       No provision.
     House bill
       Except as noted in the text of the bill for specific 
     provisions, the general effective date for provisions in the 
     bill is October 1, 1996. However, given that many of the 
     changes required by this bill must be approved by State 
     Legislatures, the bill contains a grace period tied to the 
     meeting schedule of State Legislatures. In any given State, 
     the bill becomes effective either on October 1, 1996 or on 
     the first day of the first calendar quarter after the close 
     of the first regular session of the State Legislature that 
     begins after the date of enactment of the bill. In the case 
     of States that require a constitutional amendment to comply 
     with the requirements of the bill, the grace period is 
     extended either 1 year after the effective date of the 
     necessary State constitutional amendment or 5 years after the 
     date of enactment of the bill.
     Senate amendment
       Identical provision.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.

     Subtitle D--Restricting Welfare and Public Benefits for Aliens


  1. statements of national policy concerning welfare and immigration

     Present law
       No provision.
     House bill
       The Congress makes the following statements concerning 
     national policy with respect to welfare and immigration:
       (i) Self-sufficiency has been a basic principle of U.S. 
     immigration law since this country's earliest immigration 
     statutes;
       (ii) It continues to be the immigration policy of the U.S. 
     that aliens within the nation's borders depend not on public 
     resources, but rely on their own capabilities and the 
     resources of their families and sponsors and that the 
     availability of public benefits not constitute an incentive 
     for immigration;
       (iii) Aliens have been applying for and receiving public 
     benefits at increasing rates;
       (iv) Current eligibility rules and unenforceable financial 
     support agreements have proved incapable of assuring that 
     individual aliens not burden the public benefits system;
       (v) It is a compelling government interest to enact new 
     rules for eligibility and sponsorship agreements to assure 
     that aliens become self-reliant; and
       (vi) It is a compelling government interest to remove the 
     incentive for illegal immigration provided by the 
     availability of public benefits.
     Senate amendment
       No provision.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).

          Chapter 1--Eligibility for Federal Benefits Programs


    2. Ineligibility of Illegal Aliens for Certain Federal Benefits 
                                Programs

     Present law
       Current law limits alien eligibility for most major Federal 
     assistance programs, including restrictions on, among other 
     programs, Supplemental Security Income, Aid to Families with 
     Dependent Children, housing assistance, and Food Stamps 
     Programs. Current law is silent on alienage under, among 
     other programs, school lunch and nutrition, Special 
     Supplemental Food Program for Women, Infants, and Children 
     (WIC), Head Start, migrant health centers, and the earned 
     income tax credit.
       Under the programs with restrictions, benefits are 
     generally allowed for permanent resident aliens (also 
     referred to as immigrants and green card holders), refugees, 
     asylees, and parolees, but benefits (other than emergency 
     Medicaid) are denied to nonimmigrants (or aliens lawfully 
     admitted as, e.g., tourists, students, or temporary workers) 
     and illegal aliens. Benefits are permitted under AFDC, SSI, 
     unemployment compensation, and nonemergency Medicaid to other 
     aliens permanently residing in the U.S. under color of law 
     (PRUCOL).
     House bill
       Any alien who is not lawfully present in the U.S. shall not 
     be eligible for any Federal means-tested public benefits 
     program, with the exception of non-cash, in-kind emergency 
     assistance, including emergency medical services. Housing-
     related assistance, which allows limited assistance for 
     households containing both eligible and ineligible 
     individuals, remains prohibited as under current law.
       The Attorney General is to decide which aliens are lawfully 
     present for purposes of benefit eligibility. In doing so, the 
     Attorney General is not required to consider an alien to be 
     lawfully present solely because the alien is considered to be 
     permanently residing under color of law (PRUCOL) under 
     current standards.
     Senate amendment
       Any individual who is not lawfully present in the U.S. is 
     ineligible for any Federal benefit other than: emergency 
     medical services under Medicaid; short-term emergency 
     disaster relief; assistance under the National School Lunch 
     Act or the Child Nutrition Act of 1966; and public health 
     assistance for immunizations and, if found necessary by HHS, 
     testing for and treatment of communicable diseases. 
     Similarly, States which administer a Federally-funded benefit 
     program (or provide benefits pursuant to such a program) are 
     not required to assist aliens who are not lawfully present.
       An individual is lawfully present for purposes of 
     qualifying for benefits if the individual is a citizen, non-
     citizen national (i.e. American Samoan), permanent resident 
     alien, refugee, asylee (including an alien who has had his/
     her deportation stayed because it would return the alien to a 
     country which would persecute him/her), or an alien who has 
     been paroled into the U.S. by the Attorney General for at 
     least 1 year.
       Noncitizens are not lawfully present for the purposes of 
     the SSI program merely because they are considered to be 
     permanently residing under color of law (PRUCOL).
     Conference agreement
       The conference agreement generally follows the House bill 
     and the Senate amendment, except that aliens who are not 
     lawfully present in the U.S. and nonimmigrants and aliens 
     paroled into the U.S. for a period of less than 1 year as 
     described below are grouped together and defined as classes 
     ``not qualified'' to receive most mandatory Federal public 
     benefits. However, even these ``non-qualified'' aliens may 
     continue to receive: short-term, in-kind, emergency disaster 
     relief; emergency medical services under Medicaid; public 
     health assistance for immunizations and testing and treatment 
     to prevent the spread of communicable diseases; and programs 
     specified by the Attorney General as necessary to protect 
     life and safety, such as soup kitchens and crisis counseling. 
     With regard to public housing assistance, non-qualified 
     aliens receiving benefits on the date of enactment will 
     continue to be treated as they are under current law.
       The conference agreement follows the Senate amendment 
     regarding the definition of Federal public benefits for this 
     and subsequent sections, namely: any mandatory grant, 
     contract, loan, professional license, or commercial license 
     provided by an agency of the United States or by directly 
     appropriated funds of the United States; and any mandatory 
     retirement, welfare, health, disability, public or assisted 
     housing, post-secondary education, food assistance, 
     unemployment benefit, or any other similar benefit for which 
     payments or assistance are provided to an individual, 
     household, or family by an agency of the U.S. or by directly 
     appropriated funds of the U.S.
       The allowance for treatment of communicable diseases is 
     very narrow. The conferees intend that it only apply where 
     absolutely necessary to prevent the spread of such diseases. 
     This is only a stop-gap measure until the deportation of a 
     person or persons unlawfully here. It is not intended to 
     provide authority for continued treatment of such diseases 
     for a long term.
       The allowance for emergency medical services under Medicaid 
     is very narrow. The conferees intend that it only apply to 
     medical care that is strictly of an emergency nature, such as 
     medical treatment administered in an emergency room, critical 
     care unit, or intensive care unit. The conferees do not 
     intend that emergency medical services include pre-natal or 
     delivery care assistance that is not strictly of an emergency 
     nature as specified herein.

[[Page H 12978]]

       The intent of the conferees is that title I, part A of the 
     Elementary and Secondary Education Act would not be affected 
     by section 12401 because the benefit is not provided to an 
     individual, household, or family eligibility unit.
       The conferees believe that, as a matter of national 
     immigration policy regarding immigration and welfare, self-
     sufficiency has been a basic principle of United States 
     immigration law since this country's earliest immigration 
     statutes.
       It continues to be the immigration policy of the United 
     States that aliens within the nation's borders not depend on 
     taxpayer-funded public resources to meet their needs, but 
     rather rely on their own capabilities and the resources of 
     their families, their sponsors, and private organizations. 
     The availability of taxpayer-funded public benefits should 
     not constitute an incentive for immigration to the United 
     States.
       Despite the principle of self-sufficiency, aliens have been 
     applying for and receiving public benefits from Federal, 
     State, and local governments at increasing rates. Current 
     eligibility rules for public benefits and unenforceable 
     financial support agreements have proved wholly incapable of 
     assuring that individual aliens not burden the public 
     benefits system.
       The conferees further believe that it is a compelling 
     government interest to enact new rules for eligibility and 
     sponsorship agreements in order to assure that aliens be 
     self-reliant in accordance with national immigration policy. 
     It is also a compelling government interest to remove the 
     incentive for illegal immigration provided by the 
     availability of public benefits. Finally, with respect to the 
     State authority to make determinations concerning alien 
     eligibility for public benefits in this subtitle, a State 
     that chooses to follow the Federal classifications in 
     determining the eligibility of aliens for public benefits 
     shall be considered to have chosen the least restrictive 
     means available for achieving the compelling government 
     interest of assuring that aliens be self-reliant in 
     accordance with national immigration policy.


 3. ineligibility of nonimmigrants, asylees, and parolees for certain 
                       federal benefits programs

                             a. in general

     Present law
       The Immigration and Nationality Act lists 19 categories of 
     nonimmigrant aliens, including tourists, business visitors, 
     foreign students, exchange visitors, temporary workers, and 
     diplomats. Aliens granted political asylum and aliens allowed 
     into the U.S. under the Attorney General's discretionary 
     parole power are not among the nonimmigrant categories. 
     Nonimmigrants generally are denied benefits under public 
     benefits programs that have alienage restrictions. By 
     contrast, asylees and parolees are not disqualified.
     House bill
       Aliens who are lawfully in the U.S. as nonimmigrants are 
     ineligible for means-tested Federal benefits, other than the 
     programs excepted below. Nonimmigrants admitted as temporary 
     agricultural workers are not to be treated as nonimmigrants 
     for public benefits purposes, but rather are to be treated as 
     immigrants. Other aliens who also are not to be treated as 
     nonimmigrants include aliens granted asylum and aliens 
     paroled into the U.S. for 1 year or longer. However, aliens 
     paroled into the U.S. for a period briefer than 1 year are 
     subject to the nonimmigrant restrictions.
     Senate amendment
        Nonimmigrant aliens are not considered lawfully present 
     for Federal benefits purposes, and are thus ineligible for 
     any Federal benefit other than the programs specifically 
     excepted below.
     Conference agreement
       The conference agreement generally follows the Senate 
     amendment, as described in section 2 above.
       The conferees believe that, as a matter of national 
     immigration policy regarding immigration and welfare, self-
     sufficiency has been a basic principle of United States 
     immigration law since this country's earliest immigration 
     statutes.
       It continues to be the immigration policy of the United 
     States that aliens within the nation's borders not depend on 
     mandatory taxpayer-funded public resources to meet their 
     needs, but rather rely on their own capabilities and the 
     resources of their families, their sponsors, and private 
     organizations. The availability of taxpayer-funded public 
     benefits should not constitute an incentive for immigration 
     to the United States.
       Despite the principle of self-sufficiency, aliens have been 
     applying for and receiving public benefits from Federal, 
     State, and local governments at increasing rates. Current 
     eligibility rules for public benefits and unenforceable 
     financial support agreements have proved wholly incapable of 
     assuring that individual aliens not burden the public 
     benefits system.
       The conferees further believe that it is a compelling 
     government interest to enact new rules for eligibility and 
     sponsorship agreements in order to assure that aliens be 
     self-reliant in accordance with national immigration policy. 
     It is also a compelling government interest to remove the 
     incentive for illegal immigration provided by the 
     availability of public benefits. Finally, with respect to the 
     State authority to make determinations concerning alien 
     eligibility for public benefits in this subtitle, a State 
     that chooses to follow the Federal classifications in 
     determining the eligibility of aliens for public benefits 
     shall be considered to have chosen the least restrictive 
     means available for achieving the compelling government 
     interest of assuring that aliens be self-reliant in 
     accordance with national immigration policy.


                          B. Excepted Programs

     Present law
       Of Federal programs with alien eligibility restrictions, 
     nonimmigrants are eligible for emergency services under 
     Medicaid. Temporary agricultural workers may receive legal 
     services funded through the Legal Services Corporation with 
     respect to their wages, housing, and other employment rights 
     covered by their employment contract. Those nonimmigrants 
     whose wages are not exempt from unemployment taxes (FUTA) may 
     qualify for unemployment compensation under certain 
     circumstances.
     House bill
       Exception to the bill's blanket denial of Federal means-
     tested assistance to nonimmigrants is made for Emergency 
     Assistance, including non-cash emergency medical services. 
     Housing-related assistance is not covered by the bill's 
     general rule, but rather existing restrictions under housing 
     programs are to continue to apply. These restrictions deny 
     assisted housing to nonimmigrants except as they may 
     incidentally benefit as members of mixed families. However, 
     all aliens granted parole are eligible for housing 
     assistance.
     Senate amendment
       Permits nonimmigrants (and all others who are not lawfully 
     present) to receive: emergency medical services under 
     Medicaid; short-term emergency disaster relief; school lunch 
     and child nutrition assistance; and public health assistance 
     for immunizations and, if found necessary by HHS, testing for 
     and treatment of communicable diseases.
     Conference agreement
       The conference agreement generally follows the Senate 
     amendment, as described in section 2 above.
       The allowance for treatment of communicable diseases is 
     very narrow. The conferees intend that it only apply where 
     absolutely necessary to prevent the spread of such diseases. 
     This is only a stop-gap measure until the deportation of a 
     person or persons unlawfully here. It is not intended to 
     provide authority for continued treatment of such diseases 
     for a long term.
       The allowance for emergency medical services under Medicaid 
     is very narrow. The conferees intend that it only apply to 
     medical care that is strictly of an emergency nature, such as 
     medical treatment administered in an emergency room, critical 
     care unit, or intensive care unit. The conferees do not 
     intend that emergency medical services include pre-natal or 
     delivery care assistance that is not strictly of an emergency 
     nature as specified herein.


              C. Treatment of Aliens Paroled Into the U.S.

     Present law
       In some cases, aliens paroled into the U.S. are entitled to 
     public benefits while they remain in parole status.
     House bill
       Aliens paroled into the U.S. for less than 1 year are 
     treated as nonimmigrants for benefits purposes (i.e., general 
     ineligibility) but aliens paroled into the U.S. for longer 
     than 1 year are treated as immigrants (i.e. somewhat broader, 
     but still limited, eligibility).
     Senate amendment
       Aliens who have been paroled into the U.S. for a period of 
     less than 1 year are not considered to be lawfully present 
     for benefits purposes and therefore are generally ineligible 
     for benefits. (Aliens who have been paroled into the U.S. for 
     a period of 1 year or longer are considered to be lawfully 
     present.)
     Conference agreement
       The conference agreement generally follows the Senate 
     amendment, as described in section 2 above.


     4. Limited Eligibility of Lawfully Present Aliens (Other than 
                  Nonimmigrants) for Federal Benefits

                             A. In General

     Present law
       With the exception of certain buy-in rights under Medicare, 
     immigrants (or aliens lawfully admitted for permanent 
     residence) are eligible for major Federal benefits, but the 
     ability of some immigrants to meet the needs tests for SSI, 
     AFDC, and food stamps may be affected by the sponsor-to-alien 
     deeming provisions discussed below. Refugees, asylees, and 
     parolees also generally are eligible. Benefits are permitted 
     under AFDC, SSI, unemployment compensation, and nonemergency 
     Medicaid to other aliens permanently residing in the U.S. 
     under color of law (PRUCOL).
     House bill
       With certain specific exceptions noted below, any alien who 
     is lawfully present in the U.S. shall not be eligible for any 
     of the following Federal means-tested public benefits 
     programs (except as they provide non-cash, in-kind emergency 
     services): Supplemental Security Income, Temporary Assistance 
     for Needy Families, Social Services Block Grant (Title XX), 
     Medicaid, and Food Stamps.

[[Page H 12979]]

       Under programs other than the foregoing 5 major benefits 
     programs, the eligibility of lawfully present aliens (other 
     than nonimmigrants) for benefits would continue to be 
     governed by current law as modified by the sponsor-to-alien 
     deeming provisions discussed below. The Attorney General is 
     to determine which aliens are ``lawfully present'' and is not 
     bound in doing so by current interpretations of ``PRUCOL'', 
     or ``permanently residing under color of law.''
     Senate amendment
       Expect for specific classes noted below, all aliens are to 
     be denied SSI.
       Except for specific classes and programs noted below, all 
     aliens arriving after enactment are ineligible for all 
     Federal needs-based assistance for 5 years after entry.
       Except for specific classes and programs noted below, 
     States may deny noncitizens need-based assistance funded by 
     the Federal Government (e.g., Temporary Assistance for Needy 
     Families and similar block grants).
       For lawfully present aliens who are in the U.S. on the date 
     of enactment and who have been here 5 years, current rules 
     will continue to apply to programs other than SSI, except as 
     eligibility may be affected by the State option to deny 
     noncitizens needs-based assistance funded by Federal funds.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment with the following modifications:
       (1) current resident aliens and those arriving after 
     enactment (with the exception of the specific classes 
     described below) may not receive SSI or food stamps until 
     attaining citizenship or working long enough (that is, at 
     least 10 years) to qualify for Social Security retirement 
     benefits;
       (2) aliens have no entitlement to benefits;
       (3) States have the option of providing benefits to 
     lawfully present aliens under the TANF, Medicaid, or Title XX 
     programs; and
       (4) new entrants are denied benefits under all mandatory 
     Federal means-tested programs for five years after their 
     entry into the U.S. with the exception of those programs 
     described in section (4)(B) below.


                          B. Excepted Programs

     Present law
       Not applicable. (See above.)
     House bill
       Only exception is for non-cash, in-kind emergency services, 
     as described above.
     Senate amendment
       The 5-year bar on Federally-funded assistance to new 
     arrivals does not apply to:
       (1) emergency medical services under Medicaid;
       (2) short-term emergency disaster relief;
       (3) assistance under the National School Lunch Act or the 
     Child Nutrition Act of 1966;
       (4) the Head Start program;
       (5) foster care and adoption assistance (but foster parents 
     or adoptive parents cannot be aliens who are ineligible for 
     benefits due to this provision);
       (6) public health assistance for immunizations and, if 
     found necessary by HHS, testing for and treatment of 
     communicable diseases; and
       (7) programs specified by the Attorney General that (i) 
     deliver services at the community level, (ii) do not 
     condition assistance on the recipient's income or resources, 
     and (iii) are necessary to protect life, safety, or public 
     health (e.g. soup kitchens).
       States may deny needs-based assistance funded by the 
     Federal government to all noncitizens except (1) programs 
     described above in 1, 2, 3, 4, 6, or 7; or (2) assistance to 
     noncitizens in the classes described below.
     Conference agreement
       The conference agreement follows the Senate amendment, with 
     the modification that the following programs are also 
     excepted: (1) programs of student assistance under titles IV, 
     V, IX, and X of the Higher Education Act of 1965, and (2) 
     means-tested programs under the Elementary and Secondary 
     Education Act of 1965.


                          C. Excepted Classes

     Present law
       Not applicable. (See above.)
     House bill
       Excepted are: (i) refugees during their first 5 years in 
     the U.S; (ii) aliens who have been lawfully admitted to the 
     U.S. for permanent residence, are over 75 years of age, and 
     have resided in U.S. for at least 5 years; (iii) honorably 
     discharged veterans and active duty personnel or their 
     spouses and unmarried dependent children lawfully residing in 
     any State or territory or possession of the U.S.; (iv) aliens 
     lawfully residing in any State or Territory or Possession of 
     the U.S. during the first year of enactment; and (v) 
     immigrants who are unable to comply with naturalization 
     requirements because of disability or mental impairment.
     Senate amendment
       Excepted are: (i) refugees during their first 5 years in 
     the U.S.; (ii) honorably discharged veterans (if determined 
     by the Attorney General to be lawfully present), and their 
     spouses and unmarried dependent children; (iii) aliens 
     receiving SSI benefits on the date of enactment (whose 
     eligibility would end) will remain eligible for SSI until 
     January 1, 1997; (iv) asylees (including those who have had 
     deportation stayed because it would return them to a country 
     which would persecute them) during their first 5 years in the 
     U.S.; (v) noncitizens who have worked long enough to be fully 
     insured for Social Security or disability insurance benefits 
     are exempt from the ban on SSI and the prospective 5 year 
     ban; and (vi) agencies may exempt individuals who have been 
     battered or subjected to extreme cruelty from the denial of 
     State-administered Federal benefits (and the sponsor-alien 
     ``deeming'' provision discussed below) if the resulting 
     denial of assistance will endanger their well-being.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment so that the following classes are excepted:
       (1) refugees (during their first 5 years in the U.S.), 
     asylees (for 5 years after being adjudicated as an asylee), 
     and aliens whose deportation has been withheld (during their 
     first 5 years after their deportation has been withheld);
       (2) aliens who have been lawfully admitted to the U.S. for 
     permanent residence and have worked at least 40 quarters 
     (that is, at least 10 years which is currently the criteria 
     for eligibility for Social Security retirement benefits), 
     when a worker reaches retirement age;
       (3) honorably discharged veterans and active duty personnel 
     or their spouses and unmarried dependent children lawfully 
     residing in any State, territory, or possession of the U.S.; 
     and
       (4) lawfully present aliens receiving SSI or food stamps on 
     the date of enactment, whose eligibility would end January 1, 
     1997.


                          D. Effective Date(s)

     Present law
       Not applicable.
     House bill
       In general, applies to applicants for benefits after the 
     date of enactment. For current residents of the U.S. on the 
     date of enactment, restriction on eligibility does not apply 
     until 1 year after enactment.
     Senate amendment
       In general, applies to benefits on or after the date of 
     enactment. Current SSI recipients lose eligibility after 
     January 1, 1997. The Attorney General must adopt regulations 
     to verify the eligibility of applicants for Federal benefits 
     no later than 18 months after enactment. States must have a 
     verification system that complies with these regulations 
     within 24 months of their adoption.
     Conference agreement
       The conference agreement follows the Senate amendment, with 
     the modification that the eligibility of current resident 
     noncitizens receiving SSI and food stamps on the date of 
     enactment ends for months beginning on or after January 1, 
     1997.


                            E. Reapplication

     Present law
       An individual who is eligible for SSI but who thereafter 
     becomes ineligible for a period of 12 consecutive months must 
     reapply for benefits.
     House bill
       No provision.
     Senate amendment
       Individuals receiving SSI benefits on the date of enactment 
     who are notified of their termination of eligibility may 
     reapply for benefits within 4 months after the date of 
     enactment. The Commissioner of Social Security shall 
     determine within 1 year of enactment the eligibility of 
     individuals who reapply within 1 year after enactment.
     Conference agreement
       The conference agreement follows the Senate amendment, with 
     the modification that similar reapplication procedures are 
     established with regard to food stamps.


                            5. Notification

     Present law
       Under regulation, individual advance written notice must be 
     given of an intent to suspend, reduce, or terminate SSI 
     benefits.
     House bill
       Each Federal Agency that administers an affected program 
     shall post information and provide general notification to 
     the public and to program recipients of changes regarding 
     eligibility.
     Senate amendment
       The Commissioner of Social Security shall notify 
     noncitizens made ineligible for SSI benefits within 3 months 
     after the date of enactment.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                6. Verification and Information Sharing

     Present law
       State agencies that administer most major Federal programs 
     with alienage restrictions generally use the SAVE (Systematic 
     Alien Verification for Entitlements) system to verify the 
     immigration status of aliens applying for benefits.
       AFDC and SSI require safeguards that restrict the use or 
     disclosure of information concerning applicants or recipients 
     to purposes connected to the administration of needs-based 
     Federal programs.
     House bill
       No provision.
     Senate amendment
       The Attorney General must adopt regulations to verify the 
     lawful presence of applicants for Federal benefits no later 
     than 18 

[[Page H 12980]]
     months after enactment. States must have a verification system that 
     complies with these regulations within 24 months of their 
     adoption.
       The agencies which administer SSI, housing assistance 
     programs under the United States Housing Act of 1937, or 
     block grants for temporary assistance for needy families (the 
     successor program to AFDC) are required to furnish 
     information to the Immigration and Naturalization Service 
     (INS) about aliens they know to be unlawfully in the United 
     States at least 4 times annually and upon INS request.
     Conference agreement
       The conference agreement follows the Senate amendment, 
     except with regard to agencies required to furnish 
     information to the INS, which was dropped from the 
     Reconciliation bill because it violates the Byrd Rule 
     (section 313 of Congressional Budget Act of 1974).


  chapter 2--eligibility for state and local public benefits programs

7. Ineligibility of Illegal Aliens for State and Local Public Benefits 
                                Programs

     Present law
       Under Plyler v. Doe (457 U.S. 202 (1982)), States may not 
     deny illegal alien children access to a public elementary 
     education. However, the narrow 5-4 Supreme Court decision may 
     imply that illegal aliens may be denied at least some State 
     benefits and that Congress may influence the eligibility of 
     illegal aliens for State benefits. Many, but not all, State 
     general assistance laws currently deny illegal aliens means-
     tested general assistance.
     House bill
       No alien who is not lawfully present in the U.S. shall be 
     eligible for any State and local means-tested public benefits 
     programs (see definitions below). The only exception is 
     emergency medical services.
     Senate amendment
       No provision affects programs wholly administered and 
     funded by State or local governments. Aliens who are not 
     lawfully present are ineligible for benefits paid with 
     Federal funds under State-administered programs (or paid with 
     State funds pursuant to such programs).
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


 8. Ineligibility of Nonimmigrants for State and Local Public Benefits 
                                Programs

     Present law
       Currently, there is no Federal law barring nonimmigrants 
     from State and local needs-based programs. In general, States 
     are restricted in denying assistance to nonimmigrants where 
     the denial is inconsistent with the terms under which the 
     nonimmigrants were admitted. Where a denial of benefits is 
     not inconsistent with Federal immigration law, however, 
     States have broader authority to deny benefits and States 
     often do deny certain benefits to nonimmigrants. Also, aliens 
     in most nonimmigrant categories generally may have difficulty 
     qualifying for many State and local benefits because of 
     requirements that they be State ``residents.''
     House bill
       No alien who is lawfully present in the U.S. as a non-
     immigrant shall be eligible for any State and local means-
     tested public benefit programs. Exceptions for: non-cash 
     emergency assistance (including emergency medical services) 
     aliens granted asylum, and certain temporary agricultural 
     workers who are treated as immigrants for purposes of 
     application for State and local means-tested benefits (see 
     below). Aliens paroled into the U.S. for a period of less 
     than 1 year are considered to be nonimmigrants under this 
     part.
     Senate amendment
       No provision affects programs wholly administered and 
     funded by State or local governments. Nonimmigrants are not 
     considered to be lawfully present for Federal benefits 
     purposes and are thus ineligible for benefits paid with 
     Federal funds under State-administered programs (or paid with 
     State funds pursuant to such programs).
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


  9. State Authority to Limit Eligibility of Immigrants for State and 
              Local Means-Tested Public Benefits Programs

     Present Law
       Under Graham v. Richardson (403 U.S. 365 (1971)), States 
     are barred from denying legal permanent residents from State-
     funded assistance that is provided to equally needy citizens.
     House bill
       States are authorized to determine eligibility requirements 
     for aliens who are lawfully present in the U.S. for any State 
     and local means-tested public benefit program (other than 
     non-cash emergency assistance, including emergency medical 
     services), with exception of:
       (i) refugees during their first 5 years in the U.S.;
       (ii) Aliens who have been lawfully admitted to the U.S. for 
     permanent residence, are over 75 years of age, and have 
     resided in U.S. for five years;
       (iii) Honorably discharged veterans and active duty 
     personnel or their spouses and unmarried dependent children 
     lawfully residing in any State or territory or possession of 
     the U.S.; and
       (iv) Aliens lawfully residing in any State or Territory or 
     possession of the U.S. during the first year after the date 
     of enactment. Aliens lawfully present would remain eligible 
     for emergency medical services.
       In addition to enhancing State discretion to impose 
     alienage restrictions, eligibility for State and local needs-
     based benefits also would be restricted by application of new 
     sponsor-to-alien deeming requirements discussed below.
     Senate amendment
       No provision restricts benefits wholly funded by State or 
     local governments, but States may use the sponsor-alien 
     deeming provisions, described below, to determine whether a 
     sponsored individual qualifies for assistance under such a 
     program.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


       Chapter 3--Attribution of Income and Affidavits of Support

               10. Requirements for Affidavits of Support

                  A. When Required and Enforceability

     Present law
       Administrative authorities may request an affidavit of 
     support on behalf of an alien seeking permanent residency. 
     Requirements for affidavits of support are not specified 
     under current law.
       Under the Immigration and Nationality Act, an alien who is 
     likely to become a public charge may be excluded from entry 
     unless this restriction is waived, as is the case for 
     refugees. By regulation and administrative practice, the 
     State Department and the Immigration and Naturalization 
     Service permit a prospective permanent resident alien (also 
     immigrant or green card holder) who otherwise would be 
     excluded as a public charge (i.e., insufficient means or 
     prospective income) to overcome exclusion through an 
     affidavit of support or similar document executed by a 
     individual in the U.S. Individuals who execute affidavits of 
     support commonly are called sponsors, even though that term 
     also is used under immigration practice to refer to 
     individuals and other entities who undertake various other 
     acts (e.g., file a visa preference petition for a relative or 
     prospective employee or undertake to resettle individuals who 
     enter in refugee status) and who may or may not also execute 
     affidavits of support. About one-half of the aliens who 
     obtain legal permanent resident status have had affidavits of 
     support filed on their behalf.
       Various State court decisions and decisions by immigration 
     courts have held that these affidavits, as currently 
     constituted, do not impose a binding obligation on the 
     sponsor to reimburse State agencies providing aid to the 
     sponsored alien.
     House bill
       When affidavits of support are required, they must comply 
     with the following:
       (A) no affidavit of support may be accepted to overcome a 
     public charge exclusion unless the affidavit is executed as a 
     contract that is legally enforceable against the sponsor by 
     the Federal government and by any State or local government 
     with respect to any means-tested benefits paid to the 
     sponsored alien before the alien becomes a citizen. However, 
     affidavits of support are not to be construed to provide any 
     right to sponsored aliens;
       (B) any Federal, State or local means-tested benefits paid 
     to sponsored alien;
       (C) to qualify to execute an affidavit of support, an 
     individual must be within the definition of sponsor set out 
     in item G(1), below;
       (D) governmental entities that provide benefits may seek 
     reimbursement up to 10 years after a sponsored alien last 
     receives benefits. In the affidavit of support, the sponsor 
     must agree to submit to the jurisdiction of any Federal or 
     State court regarding reimbursement of the cost of benefits 
     received by the alien; and
       (E) sponsorship extends until alien becomes a citizen.
     Senate amendment
       When affidavits of support are required, they must comply 
     with the following:
       (A) no affidavit of support may be relied upon to overcome 
     a public charge exclusion unless the affidavit is executed as 
     a contract that is legally enforceable against the sponsor by 
     the sponsored alien and by Federal, State, and local 
     governmental entities that provide the sponsored alien with 
     means-tested assistance during the support period described 
     below;
       (B) programs for which reimbursement shall be requested 
     are: (1) AFDC or its successor; (2) Medicaid; (3) Food 
     Stamps; (4) SSI; (5) any State general assistance program; 
     and (6) and other Federal, State or local need-based program. 
     However, governmental entities cannot seek reimbursement with 
     respect to (1) emergency medical services under Medicaid; (2) 
     short-term emergency disaster relief; (3) assistance provided 
     under the National School Lunch Act or the Child Nutrition 
     Act of 1966; (4) the Head Start program; (5) public health 
     assistance for immunizations and, if determined necessary by 
     HHS, testing for or treatment of 

[[Page H 12981]]
     communicable diseases; and (6) programs specified by the Attorney 
     General that (i) deliver services at the community level, 
     (ii) do not condition assistance on the recipient's income or 
     resources, and (iii) are necessary to protect life, safety, 
     or public health (e.g. soup kitchens);
       (C) to qualify to execute an affidavit of support, an 
     individual must be within the definition of sponsor set out 
     in item G(1), below;
       (D) governmental entities may seek reimbursement of other 
     means-tested assistance up to 10 years after a sponsored 
     alien last receives benefits. In the affidavit of support, 
     the sponsor must agree to submit to the jurisdiction of any 
     Federal or State court regarding reimbursement of the cost of 
     benefits received by the alien; and
       (E) sponsor must agree in the affidavit of support to 
     provide sufficient financial support so that the sponsored 
     individual will not become a public charge until the 
     individual has worked in the U.S. for 40 qualifying quarters, 
     regardless of whether the individual chooses to naturalize or 
     not. A qualifying quarter is a 3-month period (1) which 
     counts as a quarter for the purposes of social security 
     coverage, (2) during which the individual did not receive 
     needs-based assistance, and (3) which occurs in a tax year 
     for which the individual had income tax liability.
     Conference Agreement
       The conference agreement follows the House bill and the 
     Senate amendment as follows:
       When affidavits of support are required, they must comply 
     with the following:
       (A) no affidavit of support may be accepted to overcome a 
     public charge exclusion unless the affidavit is executed as a 
     contract that is legally enforceable against the sponsor by 
     the Federal government with respect to any mandatory means-
     tested benefits paid to the sponsored alien before the alien 
     becomes a citizen. However, affidavits of support are not to 
     be construed to provide any right to sponsored aliens;
       (B) programs for which reimbursement shall be requested 
     are: (1) AFDC or its successor; (2) Medicaid; (3) Food 
     Stamps; (4) SSI; and (5) other mandatory Federal need-based 
     programs. However, governmental entities cannot seek 
     reimbursement with respect to (1) emergency medical services 
     under Medicaid; (2) short-term emergency disaster relief; (3) 
     assistance provided under the National School Lunch Act or 
     the Child Nutrition Act of 1966; (4) the Head Start program; 
     (5) public health assistance for immunizations and, if 
     determined necessary by HHS, testing for or treatment of 
     communicable diseases; (6) programs specified by the Attorney 
     General that (i) deliver services at the community level, 
     (ii) do not condition assistance on the recipient's income or 
     resources, and (iii) are necessary to protect life, safety, 
     or public health (e.g. soup kitchens); and (7) postsecondary 
     education benefits (however, in the event a permanent 
     resident alien applies for Federal student loans, the sponsor 
     or citizen must cosign the loan);
       (C) to qualify to execute an affidavit of support, an 
     individual must be within the definition of sponsor set out 
     in item G(1) below;
       (D) governmental entities that provide benefits may seek 
     reimbursement up to 10 years after a sponsored alien last 
     receives benefits. In the affidavit of support, the sponsor 
     must agree to submit to the jurisdiction of any Federal or 
     State court regarding reimbursement of the cost of benefits 
     received by the alien; and
       (E) sponsorship extends until alien becomes a citizen.
       The allowance for treatment of communicable diseases is 
     very narrow. The conferees intend that it only apply where 
     absolutely necessary to prevent the spread of such diseases. 
     This is only a stop-gap measure until the deportation of a 
     person or persons unlawfully here. It is not intended to 
     provide authority for continued treatment of such diseases 
     for a long term.
       The allowance for emergency medical services under Medicaid 
     is very narrow. The conferees intend that it only apply to 
     medical care that is strictly of an emergency nature, such as 
     medical treatment administered in an emergency room, critical 
     care unit, or intensive care unit. The conferees do not 
     intend that emergency medical services include pre-natal or 
     delivery care assistance that is not strictly of an emergency 
     nature as specified herein.


                                b. forms

     Present law
       No statutory provision. The Department of Justice issues a 
     form (Form I-134) that complies with current sponsorship 
     guidelines.
     House bill
       The Attorney General, in consultation with the Secretary of 
     State and the Secretary of HHS, shall formulate an affidavit 
     of support within 90 days after enactment, consistent with 
     this section.
     Senate amendment
       The Attorney General, the Secretary of State, and the 
     Secretary of HHS shall jointly formulate an affidavit of 
     support within 90 days after enactment, consistent with this 
     section.
     Conference agreement
       The conference agreement follows the House bill.


                       c. statutory construction

     Present law
       No provision.
     House bill
       Nothing in this section shall be construed to grant third 
     party beneficiary rights to any sponsored alien under an 
     affidavit of support.
     Senate amendment
       The Senate amendment expressly requires that affidavits of 
     support permit sponsored individuals to enforce support 
     obligations of their sponsors as contained in the affidavits.
     Conference agreement
       The conference agreement follows the Senate amendment.


                  d. notification of change of address

     Present law
       There is no express requirement under current 
     administrative practice that sponsors inform welfare agencies 
     of a change in address. However, a sponsored alien who 
     applies for benefits for which deeming is required must 
     provide various information regarding the alien's sponsor.
     House bill
       Until they no longer are potentially liable for 
     reimbursement of benefits paid to sponsored aliens, sponsors 
     must notify welfare agencies of any change of their address 
     within 30 days of moving. Failure to notify may result in a 
     civil penalty of up to $2000 or, if the failure occurs after 
     knowledge that the sponsored alien has received a 
     reimbursable benefit, of up to $5000.
     Senate amendment
       Until they no longer are potentially liable for 
     reimbursement of benefits paid to sponsored individuals, 
     sponsors must notify the Attorney General and the State, 
     district, territory or possession in which the sponsored 
     individual resides of any change of their address within 30 
     days of moving. Failure to notify may result in a civil 
     penalty of up to $2000 or, if the failure occurs after 
     knowledge that the sponsored individual has received a 
     reimbursable benefit, of up to $5000.
     Conference agreement
       The conference agreement follows the Senate amendment.


                      e. reimbursement procedures

     Present law
       Various State court decisions and decisions by immigration 
     courts have held that these affidavits, as currently 
     constituted, do not impose a binding obligation on the 
     sponsor to reimburse State agencies providing aid to the 
     sponsored alien.
     House bill
       If a sponsored alien receives any benefit under any means-
     tested public assistance program, the appropriate Federal, 
     State, or local official shall request reimbursement by the 
     sponsor in the amount of such assistance. Thereafter the 
     official may seek reimbursement in court if the sponsor fails 
     to respond within 45 days of the request that the sponsor is 
     willing to begin repayments. The official also may seek 
     reimbursement through the courts within 60 days after a 
     sponsor fails to comply with the terms of repayment. The 
     Attorney General in consultation with the Secretary of HHS, 
     shall prescribe regulations on requesting reimbursement. No 
     action may be brought later than 10 years after the alien 
     last received benefits.
     Senate amendment
       Upon notification that a sponsored individual has received 
     a reimbursable need-based benefit (see above), the 
     appropriate government official shall request reimbursement 
     in accordance with the same procedures and limitations that 
     are in the House bill. The Commissioner of Social Security is 
     to prescribe regulations for requesting reimbursement from 
     sponsors, and such regulations must include the notification 
     of sponsors (at their last known address) by certified mail.
     Conference agreement
       The conference agreement follows the House bill.


                            f. jurisdiction

     Present law
       State law sets forth which types of cases its courts will 
     hear, subject to due process requirements on minimal 
     connections between activities, people, or property within 
     the State and the matter being litigated.
     House bill
       No provision.
     Senate amendment
       No State court shall decline for lack of jurisdiction to 
     hear any action brought against a sponsor for reimbursement 
     for the cost of any benefit if the sponsored individual 
     received public assistance while residing in the State.
     Conference agreement
       The conference agreement follows the Senate amendment. The 
     conferees intend that both Federal and State courts have 
     jurisdiction over reimbursement actions against a sponsor.


                             g. definitions

     Present law
       No provision.
     House bill
       A ``Sponsor'' is an individual who (1) is a citizen or 
     national of the U.S. or an alien who is lawfully admitted to 
     the U.S. for permanent residence; (2) is at least 18 years of 
     age; and (3) resides in any State.

[[Page H 12982]]

       A ``Means-Tested Public Benefits Program'' is a program of 
     public benefits of the Federal, State or local government in 
     which eligibility or the amount of benefits or both are 
     determined on the basis of income, resources, or financial 
     need.
     Senate amendment
       A ``Sponsor'' is an individual who (1) is a citizen or 
     national of the U.S. or an alien who is lawfully admitted to 
     the U.S. for permanent residence; (2) is at least 18 years of 
     age; (3) resides in any State or U.S. territory; and (4) is 
     able to demonstrate (through evidence which includes attested 
     copies of tax returns for the 2 most recent tax years) the 
     means to maintain an income equal to 200% of the Federal 
     poverty line for the individual and the individual's family, 
     including the person sponsored.
       ``Federal Poverty Line'' has the same meaning as in section 
     673(2) of the Community Services Block Grant Act.
       A ``Qualifying Quarter'' is a 3-month period (1) in which 
     the sponsored individual earned at least the minimum 
     necessary for the period to count as one of 40 calendar 
     quarters required to qualify for Social Security retirement 
     benefits; (2) during which the sponsored individual did not 
     receive need-based public assistance; and (3) which falls 
     within a tax year for which the sponsored individual had 
     income tax liability.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment, except that the sponsor is not required to 
     demonstrate the means to maintain an income equal to 200% of 
     the poverty level and the Senate recedes on the conditions 
     that a qualifying quarter is (1) one in which the sponsored 
     individual did not receive need-based public assistance, and 
     (2) which falls within a tax year for which the sponsored 
     individual has tax liability. The sponsor must also be the 
     person petitioning for the alien's admission.


                         h. clerical amendment

     Present law
       Not applicable.
     House bill
       A minor clerical amendment.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


                           i. effective date

     Present law
       Not applicable.
     House bill
       The changes regarding affidavits of support shall apply to 
     affidavits of support executed no earlier than 60 days or 
     later than 90 days after the Attorney General promulgates the 
     form.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


    11. Attribution of Sponsor's Income and Resources to Sponsored 
                               Immigrants

                          a. federal benefits

     Present law
       In determining whether an alien meets the means test for 
     Aid to Families with Dependent Children (AFDC), Supplemental 
     Security Income (SSI), and Food Stamps, the resources and 
     income of an individual who filed an affidavit of support for 
     the alien (and the income and resources of the individual's 
     spouse) are taken into account during a designated period 
     after entry.
     House bill
       During the applicable deeming period, the income and 
     resources of an individual who files a binding affidavit of 
     support (as required above) for an alien (and the income and 
     resources of the individual's spouse) are to taken into 
     account under all Federal means-tested programs (with the 
     exception of housing-related assistance) in determining a 
     sponsored alien's neediness. Current law remains effective 
     for aliens whose sponsors filed affidavits before the new 
     affidavit requirements become effective (60-90 days after 
     enactment).
     Senate amendment
       During the applicable deeming period, the income and 
     resources of an individual who filed an affidavit of support 
     for an alien (and the income and resources of the 
     individual's spouse) are to be taken into account under all 
     Federally-funded means-tested programs (with the exception of 
     the programs below) in determining the sponsored individual's 
     neediness.
       Excepted programs are (1) emergency Medicaid services; (2) 
     short-term emergency disaster relief; (3) assistance provided 
     under the National School Lunch Act or the Child Nutrition 
     Act of 1966; (4) the Head Start program; (5) public health 
     assistance for immunizations and, if determined by HHS, 
     testing for or treatment of communicable diseases; and (6) 
     programs specified by the Attorney General that (i) deliver 
     services at the community level, (ii) do not condition 
     assistance on the recipient's income or resources, and (iii) 
     are necessary to protect life, safety, or public health (e.g. 
     soup kitchens).
       Individuals who are exempt from deeming include (1) 
     honorably discharged legal alien veterans and their spouses 
     and unmarried children; (2) refugees; (3) asylees (including 
     aliens who have had their deportation stayed because it would 
     return them to a country which will persecute them); and (4) 
     individuals who have been battered or subjected to extreme 
     cruelty, if application of deeming would endanger their well-
     being.
     Conference Agreement
       The conference agreement follows the Senate amendment, 
     except that post-secondary education is included as an 
     excepted program and battered individuals are not included as 
     an excepted class.
       The allowance for treatment of communicable diseases is 
     very narrow. The conferees intend that it only apply where 
     absolutely necessary to prevent the spread of such diseases. 
     This is only a stop-gap measure until the deportation of a 
     person or persons unlawfully here. It is not intended to 
     provide authority for continued treatment of such diseases 
     for a long term.
       The allowance for emergency medical services under Medicaid 
     is very narrow. The conferees intend that it only apply to 
     medical care that is strictly of an emergency nature, such as 
     medical treatment administered in an emergency room, critical 
     care unit, or intensive care unit. The conferees do not 
     intend that emergency medical services include pre-natal or 
     delivery care assistance that is not strictly of an emergency 
     nature as specified herein.


                b. amount of income and resources deemed

     Present law
       While the offset formulas vary among the programs, the 
     amount of income and resources deemed under AFDC, SSI, and 
     Food Stamps is reduced by certain offsets to provide for some 
     of the sponsor's own needs.
     House bill
       The full income and resources of the sponsor and the 
     sponsor's spouse are deemed to be that of the sponsored 
     alien.
     Senate amendment
       If an agency determines that a sponsored individual would 
     not be able to obtain food and shelter without the agency's 
     assistance (taking into account the income and resources 
     actually provided to the individual by the sponsor and 
     others), then deeming will not apply for a period of 12 
     months and the agency need take into account during this 
     period only the amount of support the sponsor actually 
     provides.
       If the address of the sponsor is unknown to the sponsored 
     individual, then assistance is provided until 12 months after 
     the sponsor is located.
     Conference agreement
       The conference agreement follows the House bill.


                      C. length of deeming period

     Present law
       For AFDC and Food Stamps, sponsor-to-alien deeming applies 
     to a sponsored alien seeking assistance within 3 years of 
     entry. Until September 1996, sponsor-to-alien deeming applies 
     to a sponsored alien seeking SSI within 5 years of entry.
     House bill
       For aliens whose sponsors have filed binding affidavits of 
     support as required above, the sponsors' income and resources 
     are deemed to the alien until the alien becomes a citizen. 
     Current law remains effective for aliens whose sponsors filed 
     affidavits before the new affidavit requirements become 
     effective (60-90 days after enactment).
     Senate amendment
       Deeming applies until the immigrant has worked 40 
     qualifying quarters (the period of time future sponsors must 
     agree to support the immigrant) or for 5 years from the 
     alien's arrival in the U.S. (for current noncitizens), 
     whichever is longer. Deeming continues until the above 
     requirements are met, regardless of whether the immigrant 
     naturalizes or not. [A qualifying quarter is a 3-month period 
     (1) in which the sponsored individual earned at least the 
     minimum necessary for the period to count as one of 40 
     calendar quarters required to qualify for Social Security 
     retirement benefits; (2) during which the sponsored 
     individual did not receive need-based public assistance; and 
     (3) which falls within a tax year for which the sponsored 
     individual had income tax liability.]
     Conference agreement
       The conference agreement follows the House bill.


                      d. state and local benefits

     Present law
       The highest courts of at least 2 States have held that the 
     Supreme Court decision barring State discrimination against 
     legal aliens in providing State benefits (Graham v. 
     Richardson, 403 U.S. 365 (1971)) prohibits State sponsor-to-
     alien deeming requirements for State benefits.
     House bill
       In determining the eligibility and amount of benefits of an 
     alien for any State or local means-tested public benefit 
     program, the income and resources of the alien shall be 
     deemed to include the income and resources of their sponsor 
     (and their sponsor's spouse). Housing related assistance 
     continues to be treated as under current law.
     Senate amendment
       With the exception of those programs exempted from all 
     benefit restrictions (see 

[[Page H 12983]]
     above) and those aliens exempt from deeming requirements, States and 
     local governments may deem a sponsor's income and resources 
     (and those of the sponsor's spouse) to a sponsored individual 
     in determining eligibility for and the amount of needs-based 
     benefits. State deeming provisions must also provide for 
     temporary assistance if the sponsor is not assisting the 
     sponsored individual or cannot be located.
     Conference agreement
       The conference agreement follows the Senate amendment. This 
     provision was dropped from the Reconciliation bill because it 
     violates the Byrd Rule (section 313 of the Congressional 
     Budget Act of 1974).


                     chapter 4--general provisions

                            12. definitions

                             a. in general

     Present law
       Federal assistance programs that have alien eligibility 
     restrictions generally reference specific classes defined in 
     the Immigration and Nationality Act.
     House bill
       Unless otherwise provided, the terms used in this title 
     have the same meaning as defined in Section 101(a) of the 
     Immigration and Nationality Act.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


                           b. lawful presence

     Present law
       Some programs allow benefits for otherwise eligible aliens 
     who are ``permanently residing under color of law (PRUCOL).'' 
     This term is not defined under the Immigration and 
     Nationality Act, and there has been some inconsistency in 
     determining which classes of aliens fit within the PRUCOL 
     standard.
     House bill
       For purposes of this Title, the determination of whether an 
     alien is lawfully present in the U.S. shall be made in 
     accordance with regulations issued by the Attorney General. 
     An alien shall not be considered to be lawfully present in 
     the U.S. merely because the alien may be considered to be 
     permanently residing in the U.S. under color of law 
     (``PRUCOL'') for purposes of any particular program.
     Senate amendment
       An individual is lawfully present if the individual is a 
     citizen, non-citizen national (i.e. American Samoan), 
     permanent resident alien, refugee, asylee (including an alien 
     who has had his/her deportation stayed because it would 
     return him/her to a country which would persecute him/her), 
     or an alien who has been paroled into the U.S. by the 
     Attorney General for at least 1 year. Individuals who are not 
     lawfully present are ineligible for any Federal benefit.
     Conference agreement
       The conference agreement follows the Senate amendment with 
     a modification that eligibility is determined by specific 
     classes of aliens, not whether noncitizens are ``lawfully 
     present.''


                                c. state

     Present law
       There is no single definition of ``State'' for purposes of 
     alien eligibility under Federal assistance programs. The 
     Immigration and Nationality Act defines ``State'' to include 
     the District of Columbia, Puerto Rico, Guam, and the Virgin 
     Islands of the United States.
     House bill
       The term ``State'' includes the District of Columbia, 
     Puerto Rico, the U.S. Virgin Islands, Guam, the Northern 
     Mariana Islands, and American Samoa.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


                      d. public benefits programs

     Present law
       No provision.
     House bill
       A ``Means-Tested Program'' is a program of public benefits 
     of the Federal government in which eligibility for benefits 
     under the program, or the amount of benefits, or both, are 
     determined on basis of income, resources or financial need.
       A ``Federal Means-Tested Public Benefits Program'' is a 
     means-tested public benefit program of (or contributed to by) 
     the Federal Government under which the Federal Government 
     establishes standards for eligibility.
       A ``State Means-Tested Public Benefits Program'' is a 
     means-tested program of a State or political subdivision 
     under which the State or political subdivision specifies the 
     standards of eligibility, and does not include any Federal 
     means-tested public benefits program.
     Senate amendment
       ``Federal Benefit'' means any grant, contract loan, 
     professional or commercial license, retirement benefit, 
     health or disability benefit, public housing, food stamps, 
     higher education benefits, unemployment benefit, or any 
     similar benefit provided by a Federal agency or with 
     appropriated Federal funds. (Individuals who are not lawfully 
     present are ineligible for Federal benefits.)
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.


                            13. construction

     Present law
       Not applicable.
     House bill
       Nothing in this title shall be construed as addressing 
     alien eligibility for governmental programs that are not 
     means-tested public benefits programs.
     Senate amendment
       The Senate amendment's bar to Federal benefits for 
     individuals who are not lawfully present covers a wide range 
     of contracts, grants, licenses, and other assistance that is 
     not means-tested.
     Conference agreement
       The conference agreement follows the House bill with a 
     clarification that the subtitle is silent on alien 
     eligibility for a basic public elementary education as 
     determined by the U.S. Supreme Court in Plyler v. Doe, 457 
     U.S. 202 (1982).


                   Subtitle E--Conforming Amendments

         14. conforming amendments relating to assisted housing

     Present law
       No provision.
     House bill
       A series of technical and conforming amendments.
     Senate amendment
       A series of technical and conforming amendments.
     Conference agreement
       The conference agreement follows the House bill and the 
     Senate amendment.

         Subtitle E--Reduction in Federal Government Positions

       This Subtitle was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).

                          Subtitle F--Housing

       This Subtitle was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).

                 Subtitle F--National Defense Stockpile


  Disposal of Certain Materials in the National Defense Stockpile for 
                           Deficit Reduction

     House bill
       Section 8021 of the House bill contained a provision that 
     would authorize disposal of certain materials from the 
     National Defense Stockpile.
     Senate amendment
       Section 2001 of the Senate amendment contained a similar 
     provision.
     Conference agreement
       The conferees agree to a provision that would require 
     disposal of certain materials, to result in receipts to the 
     general fund of the Treasury equal to $649.0 million by the 
     year 2002. The disposal authority of this provision would be 
     considered new disposal authority, meaning that it is in 
     addition to any other disposal authority provided by law, and 
     the authority would expire after achieving the $649.0 million 
     revenue target. The provision would require the President to 
     dispose of materials previously authorized for disposal under 
     the Strategic and Critical Materials Stock Piling Act (50 
     U.S.C. 98h).
       The conferees are confident that the Department of Defense 
     process for conducting such disposals, to include review by 
     the Market Impact Committee, will continue to ensure an 
     orderly and successful disposal of Stockpile materials.

 Subtitle G--Child Protection Block Grant Program and Foster Care and 
                          Adoption Assistance


                      1. Establishment of Program

       A. Purpose
     Present law
       Child Welfare Services, now provided for in Title IV-B of 
     the Social Security Act, are designed to help States provide 
     child welfare services, family preservation and community-
     based family support services, and improve State court 
     procedures related to child welfare.
       Title IV-E Foster Care and Title IV-E Adoption Assistance 
     are intended to help States finance foster care and adoption 
     assistance maintenance payments, administration, child 
     placement services, and training related to foster care and 
     adoption assistance.
       The purpose of the Title IV-E Independent Living program is 
     to help older foster children make the transition to 
     independent living.
     House bill
       The House provision replaces Title IV-B and Title IV-E of 
     the Social Security Act and several additional programs (see 
     below) by establishing a block grant to enable eligible 
     States to carry out child protection programs to:
       (1) identify and assist families at risk of abusing or 
     neglecting their children;
       (2) operate a system for receiving reports of abuse or 
     neglect of children;
       (3) investigate families reported to abuse or neglect their 
     children;
       (4) provide support, treatment, and family preservation 
     services to families which are, 

[[Page H 12984]]
     or are at risk of, abusing or neglecting their children;
       (5) support children who must be removed from or who cannot 
     live with their families;
       (6) make timely decisions about permanent living 
     arrangements for children who must be removed from or who 
     cannot live with their families; and
       (7) provide for continuing evaluation and improvement of 
     child protection laws, regulations, and services.
       Additional programs to be replaced are: the Child Abuse 
     Prevention and Treatment Act; the Abandoned Infants 
     Assistance Act; adoption opportunities under the Child Abuse 
     Prevention and Treatment and Adoption Reform Act; family 
     support centers under the McKinney Homeless Assistance Act; 
     grants to improve investigation and prosecution of child 
     abuse cases, and children's advocacy centers under the 
     Victims of Child Abuse Act; crisis nurseries under the 
     Temporary Child Care and Crisis Nurseries Act; and Family 
     Unification under Section 8 of the Housing Act.
     Senate amendment
       The Senate amendment would leave intact child welfare 
     services, foster care, adoption assistance and independent 
     living, which are permanently authorized under Titles IV-B 
     and IV-E of the Social Security Act. The Senate amendment 
     would reauthorize the Child Abuse Prevention and Treatment 
     Act; adoption opportunities; abandoned infants assistance; 
     missing children's assistance; investigation and prosecution 
     grants, and children's advocacy centers under the Victims of 
     Child Abuse Act. The amendment would repeal both the 
     Temporary Child Care and Crisis Nurseries Act and the Family 
     Support Centers under the McKinney Homeless Assistance Act.
       The Senate amendment gives the Secretary authority under 
     CAPTA to make grants to the States for purposes of assisting 
     the States in improving the child protective service system 
     of each State in:
       (1) screening intake, assessing, and investigating of 
     reports of abuse and neglect;
       (2) creating and improving the use of multidisciplinary 
     teams and interagency protocols to enhance investigations;
       (3) improving case management and delivery of services;
       (4) enhancing the general child protection system by 
     improving risk and safety assessment tools and protocols and 
     automation systems;
       (5) developing, strengthening, and facilitating training 
     opportunities and requirements for individuals overseeing and 
     providing services to children and their families;
       (6) developing and facilitating training protocols for 
     individuals mandated to report child abuse or neglect;
       (7) developing, strengthening, and supporting child abuse 
     and neglect prevention, treatment, and research programs in 
     the public and private sectors;
       (8) developing, implementing, or operating information and 
     education programs or training programs designed to improve 
     the provision of services to disabled infants with life-
     threatening conditions; and
       (9) developing and enhancing the capacity of community-
     based programs to integrate shared leadership strategies 
     between parents and professionals to prevent and treat child 
     abuse and neglect at the neighborhood level.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).
       B. Eligible States
       Eligible State
     Present law
       To be eligible for funding under Title IV-B and IV-E, 
     States must have State plans (developed jointly with the 
     Secretary under title IV-B, and approved by the Secretary 
     under Title IV-E).
     House bill
       An ``Eligible State'' is one that, during the 3-year period 
     that ends on October 1 of the fiscal year, has submitted to 
     the Secretary a plan that describes how the State intends to 
     pursue the purposes described above.
     Senate amendment
       No directly comparable provision in Titles IV-B or IV-E. 
     Current law would remain intact. See Item 6.I., below, for 
     summary of State eligibility under CAPTA.
     Conference agreement
       An ``Eligible State'' is one that has submitted to the 
     Secretary, not later than October 1, 1996 and every three 
     years thereafter, a plan (as described below) which has been 
     signed by the Chief Executive officer of the State.
           Outline of Child Protection Program
     Present law
       States must have a child welfare services plan developed 
     jointly by the Secretary and the relevant State agency which 
     provides for single agency administration and describe 
     services to be provided and geographic areas where services 
     will be available, among numerous other requirements. To 
     receive their full allotment of incentive funds under Title 
     IV-B, States also must comply with extensive Federal Section 
     427 protections. The State plan also must meet many other 
     requirements, such as setting forth a 5-year statement of 
     goals for family preservation and family support and assuring 
     the review of progress toward those goals. For foster care 
     and adoption assistance, States must submit for approval a 
     Title IV-E plan providing for a foster care and adoption 
     assistance program and satisfying numerous requirements. The 
     Child Abuse Prevention and Treatment Act requires States to 
     have in effect a law for reporting known and suspected child 
     abuse and neglect as well as providing for prompt 
     investigation of child abuse and neglect reports, among many 
     other requirements.
     House bill
       A State plan must include the following outline of Child 
     Protection Program including procedures to be used for:
       a. receiving reports of child abuse or neglect;
       b. investigating such reports;
       c. protecting children in families in which child abuse or 
     neglect is found to have occurred;
       d. removing children from dangerous settings;
       e. protecting children in foster care;
       f. promoting timely adoptions;
       g. protecting the rights of families, using adult relatives 
     as the preferred placement for children separated from their 
     parents if such relatives meet all relevant standards;
       h. preventing child abuse and neglect; and
       i. establishing and responding to citizen review panels.
     Senate amendment
       No directly comparable provision in Titles IV-B or IV-E. 
     Current law would remain intact. CAPTA requires a 5-year plan 
     that is coordinated with the State plan for child welfare 
     services and family preservation. For amendments to CAPTA 
     requirements, see Section 6 of this document, below.
     Conference agreement
       A State plan must include information on the Child 
     Protection Program including procedures to be used for:
       a. receiving and assessing reports of child abuse or 
     neglect;
       b. investigating such reports;
       c. with respect to families in which abuse or neglect has 
     been confirmed, providing services or referral for services 
     for families and children where the State makes a 
     determination that the child may safely remain.
       d. protecting children by removing them from dangerous 
     settings and ensuring their placement in a safe environment;
       e. providing training for individuals mandated to report 
     suspected cases of child abuse or neglect;
       f. protecting children in foster care;
       g. promoting timely adoptions;
       h. protecting the rights of families, using adult relatives 
     as the preferred placement for children separated from their 
     parents if such relatives meet all relevant standards;
       h. providing services aimed at preventing child abuse and 
     neglect; and
       i. establishing and responding to citizen review panels.
           Certifications
     Present law
       To receive funds under the Child Abuse Prevention and 
     Treatment Act, States must have a law in effect that provides 
     for reporting of known and suspected instances of child abuse 
     and neglect and provides immunity from prosecution for 
     reporters of abuse or neglect. States also must have a 
     program to investigate allegations of abuse or neglect, must 
     preserve confidentiality of records, provide that every 
     abused or neglected child involved in a court proceeding is 
     represented by a guardian ad litem. To receive funding under 
     Title IV-B and IV-E of the Social Security Act, States must 
     comply with certain procedures for removal of children from 
     their families when necessary, and must develop case plans 
     for each child that are reviewed at least every six months 
     and contain specified information.
     House bill
       Also included in the submitted plan must be the following 
     certifications:
       a. certification of State law requiring reporting of child 
     abuse and neglect;
       b. certification of State program to investigate child 
     abuse and neglect cases;
       c. certification of State procedures for removal and 
     placement of abused or neglected children;
       d. certification of State procedures for developing and 
     reviewing written plans for permanent placement of each child 
     removed from the family that:
       1) specifies the goal for achieving a permanent placement 
     for the child in a timely fashion;
       2) ensures that the plan is reviewed every 6 months; and
       3) ensures that information about the child is gathered 
     regularly and placed in the case record;
       e. certification that when the State begins operating under 
     the block grant on or after October 1, 1995, families 
     receiving adoption assistance payments at that time continue 
     to receive adoption assistance payments;
       f. certification of State program to provide Independent 
     Living services to 16-19 year old youths (at State option to 
     age 21) who are in the foster care system but have no family 
     to turn to for support;
       g. certification of State procedures to respond to 
     reporting of medical neglect of disabled infants; and
       h. a declaration of State child welfare goals; States must, 
     within 3 years of the date 

[[Page H 12985]]
     of passage, report quantifiable information on whether they are making 
     progress toward achieving their self-defined child protection 
     goals. (See Data Collection and Reporting, item G. below).
     Senate amendment
       No directly comparable provision in Titles IV-B or IV-E. 
     Current law would remain intact. CAPTA requires several 
     certifications, many of which are identical to those outlined 
     for the House bill. For amendments to CAPTA requirements, see 
     Section 6 of this document, below.
     Conference agreement
       The following certifications must be included in the State 
     plan:
       (1) certification of State law requiring reporting of child 
     abuse and neglect;
       (2) certification of State procedures for the immediate 
     screening, safety assessment, and prompt investigation of 
     such reports;
       (3) certification of State procedures for the removal and 
     placement of abused or neglected children;
       (4) certification of State laws requiring immunity from 
     prosecution under State and local laws for individuals making 
     good faith reports of suspected or known cases of child abuse 
     or neglect;
       (5) certification of State law and procedures for 
     expungement of any public records on false or unsubstantiated 
     cases;
       (6) certification of State laws and procedures affording 
     individuals an opportunity to appeal an official finding of 
     abuse or neglect;
       (7) certification of State procedures for developing and 
     reviewing written plans for permanent placement of each child 
     removed from the family that:
       (A) specifies the goal for achieving a permanent placement 
     for the child in a timely fashion;
       (B) ensures that the plan is reviewed every 6 months; and
       (C) ensures that information about the child is gathered 
     regularly and placed in the case record;
       (8) certification of State program to provide Independent 
     Living services to 16-19 year old youths (at State option to 
     age 21) who are in the foster care system but have no family 
     to turn to for support;
       (9) certification of State procedures to respond to 
     reporting of medical neglect of disabled infants;
       (10) a declaration of quantifiable State child welfare 
     goals;
       (11) with respect to fiscal years beginning on or after 
     April 1, 1996, certification that--
       (A) the State has completed an inventory of all children 
     who, before the inventory, had been in foster care under the 
     responsibility of the State for 6 months or more, which 
     determined--
       (i) the appropriateness of, and necessity for, the foster 
     care placement;
       (ii) whether the child could or should be returned to the 
     parents of the child or should be freed for adoption or other 
     permanent placement; and
       (iii) the services necessary to facilitate the return of 
     the child or the placement of the child for adoption or legal 
     guardianship;
       (B) is operating to the satisfaction of the Secretary--
       (i) a statewide information system on children who are or 
     have been in foster care in the last year;
       (ii) a case review system for each child receiving foster 
     care under the supervision of the State;
       (iii) a service program designed to help children--
       (I) return to families from which they have been removed; 
     or
       (II) be placed for adoption
       (iv) a preplacement preventive service program; and
       (C) has reviewed (or, will review by October 1, 1997) State 
     policies and procedures in effect for children abandoned at 
     birth; and is implementing (or, will implement by October 1, 
     1997) such policies or procedures to enable permanent 
     decisions to be made expeditiously with respect to the 
     placement of such children.
       (12) certification of reasonable efforts to prevent 
     placement of children in foster care; and
       (13) certification of cooperative efforts to secure an 
     assignment to the State of any rights to support on behalf of 
     each child receiving foster care maintenance payments.
           Determinations
     Present law
       State Title IV-B plans are developed jointly with the 
     Secretary. State Title IV-E plans must be approved by the 
     Secretary. The Secretary must approve any plan that complies 
     with statutory provisions.
     House bill
       The Secretary of HHS must determine whether the State plan 
     includes all of the elements required above but cannot add 
     new elements or review the adequacy of State procedures. The 
     Secretary may not require a State to alter its child 
     protection law regarding determination of the adequacy, type 
     and timing of health care.
     Senate amendment
       No directly comparable provision in Titles IV-B or IV-E. 
     Current law would remain intact. See item 6.N., below for 
     description of similar CAPTA provision on medical care.
     Conference agreement
       The Secretary of HHS must determine whether the State plan 
     includes the required materials and certifications (except 
     material related to the certification of State procedures to 
     respond to reporting of medical neglect of disabled infants). 
     The Secretary cannot add new elements beyond those listed 
     above.
       C. Grants to States for Child Protection
           Entitlement
     Present law
       Titles IV-B and IV-E of the Social Security Act contain 
     several types of funding, including substantial entitlement 
     funding, for helping States provide assistance to troubled 
     families and their children.
     House bill
       The block grant money is guaranteed funding to States. Each 
     eligible State is entitled to receive from the Secretary an 
     amount equal to the State share of the Child Protection Grant 
     amount for fiscal years 1996 through 2000.
     Senate amendment
       No directly comparable provision in Titles IV-B or IV-E. 
     Current law would remain intact. See item 6, below for 
     description of similar CAPTA provision.
     Conference agreement
       As explained above, the Child Protection Block Grant 
     includes a capped entitlement component for States. Each 
     eligible State is entitled to receive from the Secretary an 
     amount equal to the State share of the Child Protection Grant 
     amount which increases from $1.938 billion in 1996 to $2.593 
     in 2002. In addition, each eligible State is entitled to 
     receive reimbursements, on an open-ended basis, for the State 
     share of allowable expenditures on eligible children placed 
     in qualified foster care and adoption.
           Child Protection Grant Amount
     Present law
       Federal funds for child welfare and child protection 
     activities consist both of direct spending under Titles IV-B 
     and IV-E of the Social Security Act, and appropriated funds 
     under Title IV-B of the Social Security Act and selected 
     additional programs, including the Child Abuse Prevention and 
     Treatment Act. (For additional programs, see Item 1.A. of 
     this document, above.)
     House bill
       The Child Protection Grant amount is composed of both a 
     direct spending component and an appropriated component as 
     follows: $3.930 billion in 1996, $4.195 billion in 1997, 
     $4.507 billion in 1998, $4.767 billion in 1999, and $5.071 
     billion in 2000 in direct spending; and $486 million in each 
     year 1996-2000 in appropriated spending.
     Senate amendment
       No directly comparable provision in Titles IV-B or IV-E. 
     Current law would remain intact. The amendment authorizes a 
     total of $263 million for fiscal year 1996 and such sums as 
     necessary for fiscal year 1997 through fiscal year 2000 for 
     State grants, State demonstration projects, discretionary 
     activities and community-based family resource and support 
     grants under CAPTA; adoption opportunities grants; and 
     abandoned infants assistance grants.
     Conference agreement
       The conference agreement generally follows the House bill, 
     with the modification that the discretionary component of the 
     block grant was dropped from the Reconciliation bill because 
     it violates the Byrd Rule (section 313 of Congressional 
     Budget Act of 1974).
           State Share
     Present law
       No specific allocation formula governs the allocation of 
     foster care and adoption assistance funds to States; States 
     are reimbursed on an open-ended entitlement basis for 
     eligible expenditures on behalf of eligible children. 
     Independent living allocations to States are based on each 
     State's share of Title IV-E foster children in fiscal year 
     1984. Family violence grants are awarded on the basis of 
     State population. [Note: The family violence program would 
     not be repealed by H.R. 4.] Child abuse State grants and 
     community-based family resource grants are awarded on the 
     basis of population under the age of 18. State allocations 
     for child welfare services under Title IV-B are based on per 
     capita income and population age 21 and under.
     House bill
       ``State Share'' means each State receives the same 
     proportion of the block grant each year as it received of 
     payments to States by the Federal government for the 
     following selected child welfare programs in either the 
     average of years 1992 through 1994 or in 1994, whichever is 
     greater:
       a. foster care maintenance, administration, and training;
       b. adoption assistance maintenance, administration, and 
     training;
       c. title IV-E independent living awards;
       d. family violence and prevention services;
       e. child abuse State grants;
       f. child abuse community-based prevention grants; and
       g. child welfare services.
     Senate amendment
       No directly comparable provision in Titles IV-B or IV-E. 
     Current law would remain intact. See Item 6, below, for 
     description of similar CAPTA provision.
     Conference agreement
       The conference agreement follows the House bill, except the 
     selected child welfare programs on which the State share is 
     to be based are:

[[Page H 12986]]

       1) foster care administration and training;
       2) adoption assistance administration and training;
       3) child welfare services;
       4) family preservation and family support; and
       5) independent living services.
           Definition of State
     Present law
       Under Titles IV-B and IV-E of the Social Security Act, 
     ``State'' means the 50 States and the District of Columbia. 
     The Commonwealth of Puerto Rico, the U.S. Virgin Islands, 
     Guam, and American Samoa receive funds through set-asides and 
     under special rules.
     House bill
       ``State'' includes the several States, the District of 
     Columbia, the Commonwealth of Puerto Rico, the U.S. Virgin 
     Islands, Guam, and American Samoa.
     Senate amendment
       No directly comparable provision in Titles IV-B or IV-E. 
     Current law would remain intact.
     Conference agreement
       ``State'' includes the several States and the District of 
     Columbia. The territories will carry out a child protection 
     program in accordance with this part; entitlement funding is 
     provided under section 1108 of the Social Security Act.
           Use of Grant
     Present law
       Funds must be used for: ``protecting and promoting the 
     welfare of children . . . preventing unnecessary separation 
     of children from their families . . .restoring children to 
     their families if they have been removed . . . family 
     preservation services . . . community-based family support 
     services to promote the well-being of children and families 
     and to increase parents' confidence and competence.'' Foster 
     care maintenance and adoption assistance payments are an 
     open-ended entitlement to individuals.
     House bill
       A State to which funds are paid under this section may use 
     such funds in any manner that the State deems appropriate to 
     accomplish the purposes of this part. Permissible spending 
     includes, but is not limited to: abuse and neglect reporting 
     systems, abuse and neglect prevention, family preservation, 
     foster care, adoption, program administration, and training.
     Senate amendment
       No directly comparable provision in Titles IV-B or IV-E. 
     Current law would remain intact. CAPTA grants can be used for 
     improving child protective services, investigation and 
     reporting of abuse and neglect, case management and delivery 
     of services to children and families, training for service 
     providers and abuse reporters, demonstration projects, 
     kinship care arrangements, abuse and neglect prevention, and 
     similar activities.
     Conference agreement
       The conference agreement follows the House bill. A State to 
     which funds are paid under this section may use such funds in 
     any manner that the State deems appropriate to accomplish the 
     purposes of this part.
           Transfer of Funds
     Present law
       No provision.
     House bill
       In fiscal year 1998 and succeeding years, States may 
     transfer up to 30% of funds paid under this section for 
     activities under any or all of the following: the temporary 
     assistance for needy families block grant; the social 
     services block grant under Title XX of the Social Security 
     Act; the child care and development block grant; and any food 
     and nutrition or employment and training grants enacted 
     during the 104th Congress. Rules of the recipient program 
     will apply to the transferred funds. Funds may be transferred 
     into the Child Protection Block Grant from other block grants 
     and are then subject to the rules of this part.
     Senate amendment
       No provision.
     Conference agreement
       Conferees agree that no funds can be transferred out of the 
     block grant.
           Timing of Expenditures
     Present law
       Provisions vary under programs to be replaced. Under Title 
     IV-E, States have up to two fiscal years in which to claim 
     reimbursement for expenditures.
     House bill
       A State to which funds are paid under this section for a 
     fiscal year shall expend such funds not later than the end of 
     the immediately succeeding fiscal year.
     Senate amendment
       No directly comparable provision in Titles IV-B or IV-E. 
     Current law would remain intact.
     Conference agreement
       The conference agreement follows the House bill.
           Rule of Interpretation
     Present law
       For-profit foster care providers are not eligible for 
     Federal funding under Title IV-E.
     House bill
       Nothing in this act shall preclude for-profit short- and 
     long-term foster care facilities from being eligible to 
     receive funds from this block grant.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.
           Timing of Payments
     Present law
       Under Title IV-B, the Secretary makes payments to States 
     periodically. Under Title IV-E, the Secretary reimburses 
     States for expenditures on a quarterly basis.
     House bill
       The Secretary must make payments on a quarterly basis.
     Senate amendment
       No directly comparable provision in Titles IV-B or IV-E. 
     Current law would remain intact.
     Conference agreement
       The conference agreement follows the House bill.
           Penalties
     Present law
       States that do not comply with Section 427 child 
     protections may not receive their share of Title IV-B 
     appropriations above $141 million. However, effective April 
     1, 1996, these protections are to become State plan 
     requirements and the incentive funding mechanism will no 
     longer be in effect. Section 1123 of the Social Security Act 
     requires the Secretary to establish by regulation a new 
     Federal review system for child welfare, which would allow 
     penalties for misuse of funds.
     House bill
       The Secretary must reduce amounts otherwise payable to a 
     State by any amount which an audit conducted under the Single 
     Audit Act finds has been used in violation of this part. The 
     Secretary, however, shall not reduce any quarterly payment by 
     more than 25 percent. The amount of misspent funds will be 
     withheld from the State's payments during the following year, 
     if necessary, to recover the full amount of the penalty.
       If an audit conducted pursuant to the Single Audit Act 
     finds that a State has reduced its level of expenditures in 
     fiscal year 1996 or 1997 below its level of non-Federal 
     expenditures in fiscal year 1995 under Title IV-B or Title 
     IV-E, the Secretary must reduce subsequent amounts otherwise 
     payable to the State by an amount equal to the difference 
     between State spending in fiscal year 1995 and the current 
     year.
       The Secretary must reduce by 3 percent the amount otherwise 
     payable to a State for a fiscal year if the State has not 
     submitted a report required (see item 7 below) for the 
     immediately preceding fiscal year within 6 months after the 
     end of the year. The penalty may be rescinded if the report 
     is submitted within 12 months after the end of the year.
     Senate amendment
       No directly comparable provision in Titles IV-B or IV-E. 
     Current law would remain intact.
     Conference agreement
       The conference agreement follows the House bill, except 
     that an additional penalty equal to 5% of a State's block 
     grant amount will be imposed in cases where the Secretary 
     finds that funds have been spent in violation of the part, or 
     where a State has failed to meet its maintenance-of-effort 
     requirement. States will be required to maintain 100% of 
     their fiscal year 1995 non-Federal expenditure level in 
     fiscal year 1996 and 1997, and 75% of such expenditures in 
     subsequent years.
       The agreement provides that the Secretary may not impose a 
     penalty if she determines that the State has reasonable cause 
     for failing to comply with the requirement. Further, a State 
     must be informed before any penalty is imposed and be given 
     an opportunity to enter into a corrective compliance plan. 
     The agreement provides a series of deadlines for submission 
     of such corrective compliance plans, and review by the 
     Federal government.
           Limitation on Federal Authority
     Present law
       See above.
     House bill
       Except as expressly provided in this part, the Secretary 
     may not regulate the conduct of States under this part or 
     enforce any provision of this part.
     Senate amendment
       No directly comparable provision in Titles IV-B or IV-E. 
     Current law would remain intact.
     Conference agreement
       The conference agreement follows the House bill.
       D. Child Protection Standards
     Present law
       In order to receive its full share of appropriations for 
     child welfare services under subpart 1 of Title IV-B, each 
     State must meet section 427 protections, including 
     requirements that it: conduct an inventory of children in 
     foster care; operate a tracking system for all children in 
     foster care; operate a case review system for all children in 
     foster care; and conduct a service program to reunite foster 
     children with their families if appropriate, or be placed for 
     adoption or another permanent placement. In addition, if 

[[Page H 12987]]
     Federal appropriations for the program reach $325 million for two 
     consecutive years, States also must implement a preplacement 
     preventive services program to help children remain with 
     their families. [This funding level has never been reached.] 
     Effective April 1, 1996, these provisions are scheduled to 
     become mandatory State plan requirements, rather than funding 
     incentives, under legislation enacted on Oct. 31, 1994 (P.L. 
     103-432). States also will be required to review their 
     policies and procedures regarding abandoned children and to 
     implement policies and procedures considered necessary to 
     enable permanent decisions to be made expeditiously with 
     regard to placement of such children.
     House bill
       The following standards are included in the bill to 
     indicate what States must do to assure the protection of 
     children and to provide guidance to the Citizen Review 
     Panels:
       a. the primary standard by which child welfare system shall 
     be judged is the protection of children;
       b. each State shall investigate reports of abuse and 
     neglect promptly;
       c. children removed from their homes shall have a 
     permanency plan and a dispositional hearing within 3 months 
     after a fact-finding hearing; and
       d. all child protection cases with an out-of-home placement 
     shall be reviewed every 6 months unless the child is already 
     in a long-term placement.
       A State receiving funds from this block grant may consider: 
     establishing a new type of permanent foster care placement 
     referred to as ``kinship care'' in which adult relatives 
     would be the preferred placement option if they met all 
     relevant standards, and could receive needs-based payments 
     and supportive services; and, in placing children for 
     adoption, giving preference to adult relatives who meet 
     applicable standards.
     Senate amendment
       No directly comparable provision in Titles IV-B or IV-E. 
     Current law would remain intact. CAPTA requires a number of 
     certifications by the State, including several that are 
     similar to standards in the House block grant. For details 
     see Item 6.I., below.
       No directly comparable provision in Titles IV-B or IV-E. 
     Under CAPTA, the Secretary may award grants to public 
     entities to develop or implement procedures using adult 
     relatives as the preferred placement for children removed 
     from their home; see item 6.H. below.
     Conference agreement
       In order for a State to receive foster care maintenance 
     payments such State must certify that it has conducted an 
     inventory of children in foster care; is operating a tracking 
     system for all children in foster care; is operating a case 
     review system for all children in foster care; and conducting 
     a service program to reunite foster children with their 
     families if appropriate, or be placed for adoption or another 
     permanent placement.
       Effective April 1, 1996, these provisions are scheduled to 
     become mandatory State plan requirements, rather than funding 
     incentives, under legislation enacted on Oct. 31, 1994 (P.L. 
     103-432). States also will be required to review their 
     policies and procedures regarding abandoned children and to 
     implement policies and procedures considered necessary to 
     enable permanent decisions to be made expeditiously with 
     regard to placement of such children.


                        E. Citizen Review Panels

     Present law
       No provision.
     House bill
       Each State to which funds are paid under this part must 
     have at least three Citizen Review Panels. Each Panel is to 
     be broadly representative of the community from which it is 
     drawn.
       The Panels, which must meet at least quarterly, are charged 
     with the responsibility of reviewing cases from the child 
     welfare system to determine whether State and local agencies 
     receiving funds under this program are carrying out 
     activities in accord with the State plan, are achieving the 
     child protection standards, and are meeting any other child 
     welfare criteria that the Panels consider important.
       The members and staff of any Panel must not disclose to any 
     person or government agency any information about specific 
     cases. States must afford a Panel access to any information 
     on any case that the Panel desires to review, and shall 
     provide the Panels with staff assistance in performing their 
     duties.
       Panels must produce a public report after each meeting and 
     States must include information in their annual report 
     detailing their responses to the panel report and 
     recommendations. (See Data Collection and Reporting, item G. 
     below.)
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill.


     F. Clearinghouse and Hotline for Missing and Runaway Children

     Present law
       The Missing Children's Assistance Act, authorized as part 
     of the Juvenile Justice and Delinquency Prevention Act, 
     authorizes a toll-free hotline and national clearinghouse to 
     collect and disseminate information about missing children.
     House bill
       The Attorney General of the United States shall have the 
     authority to establish and operate a national information 
     clearinghouse, including a 24-hour toll free telephone 
     hotline, for information on missing children cases. An 
     appropriation not to exceed $7 million per fiscal year is 
     authorized for this purpose.
     Senate amendment
       Reauthorizes the Missing Children's Assistance Act through 
     fiscal year 1997 (see Item 12.A. of this document, below).
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                    G. Data Collection and Reporting

     Present law
       States are not required to report specific child welfare 
     data. Section 479 requires the Secretary to publish 
     regulations that implement a system for the collection of 
     adoption and foster care data. These regulations were 
     published as final on Dec. 22, 1993, and are mandatory for 
     all States. In addition, section 13713 of the Omnibus Budget 
     Reconciliation Act of 1993 (P.L. 103-66) makes available 
     enhanced Federal matching funds (75 percent Federal match 
     instead of 50 percent) for planning, design, development and 
     installation of statewide automated child welfare information 
     systems. Regulations governing these systems were published 
     on Dec. 22, 1993, and May 19, 1995. The enhanced match 
     expires after Sept. 30, 1996.
     House bill
       Three years after the effective date and annually 
     thereafter, each State to which funds are paid under this 
     part must submit to the Secretary a report containing 
     quantitative information on the extent to which the State is 
     making progress toward its child protection program goals (as 
     described above).
       Each State to which funds are paid under this part must 
     annually submit to the Secretary of Health and Human Services 
     a report that includes the following annual statistics:
       (1) the number of children reported to the State during the 
     year as abused or neglected;
       (2) of the number of reported cases of abuse or neglect, 
     the number that were substantiated;
       (3) of the number of reported cases that were 
     substantiated, (a) the number that received no services under 
     the State program funded under this part; (b) the number that 
     received services under the State program funded under this 
     part; and (c) the number removed from their families;
       (4) the number of families that received preventive 
     services from the State;
       (5) the number of children who entered foster care under 
     the responsibility of the State;
       (6) the number of children who exited foster care under the 
     responsibility of the State;
       (7) types of foster care placements made by State and the 
     number of children in each type of care;
       (8) average length of foster care placements made by State;
       (9) the age, ethnicity, gender, and family income of 
     children placed in foster care under the responsibility of 
     the State;
       (10) the number of children in foster care for whom the 
     State has the goal of adoption;
       (11) the number of children in foster care under the 
     responsibility of the State who were freed for adoption;
       (12) the number of children in foster care under the 
     responsibility of the State whose adoptions were finalized;
       (13) the number of disrupted adoptions in the State;
       (14) quantitative measurements showing whether the State is 
     making progress toward the child protection goals identified 
     by the State;
       (15) the number of infants abandoned during the year, the 
     number of these infants who were adopted, and the length of 
     time between abandonment and legal adoption;
       (16) the number of deaths of children occurring while said 
     children were in custody of the State;
       (17) the number of deaths of children resulting from child 
     abuse or neglect;
       (18) the number of children served by the State Independent 
     Living program;
       (19) other information which the Secretary and a majority 
     of the States agree is appropriate to collect for purposes of 
     this part; and
       (20) the response of the State to findings and 
     recommendations of the citizen review panels.
       States may fulfill the data collection and reporting 
     requirements by collecting the required information on either 
     individual children and families receiving child protection 
     services or by using scientific statistical sampling methods.
       Within 6 months after the end of each fiscal year, the 
     Secretary must prepare an annual report on State data for 
     Congress and the public.
     Senate amendment
       No directly comparable provision in Titles IV-B or IV-E. 
     Current law would remain intact. States receiving CAPTA 
     grants must submit annual data reports to the Secretary (see 
     Item 6.I, below). CAPTA requires States to report 10 data 
     elements, many of which are substantially similar to the 
     House reporting requirements.
       Requires the Secretary, in administering CAPTA, to prepare 
     annual reports, based on 

[[Page H 12988]]
     State data, for Congress and the national information clearinghouse on 
     child abuse and neglect. (See Item 6.I, below.) Requires 
     Secretary in 6 months after receiving State reports to 
     prepare and submit annual report to Congress.
     Conference agreement
       The conference agreement follows the House bill with regard 
     to annual State reports containing quantitative information 
     showing progress toward achieving State child protection 
     goals.
       Of all children receiving publicly-supported child welfare 
     services, the following information shall be reported every 6 
     months:
       (1) whether the child received services under the programs 
     funded under this part:
       (2) the age, gender, and family income of the parents and 
     child;
       (3) county of residence;
       (4) whether the child was removed from the family;
       (5) whether the child entered foster care under the 
     responsibility of the State:
       (6) the type of out-of-home care in which the child was 
     placed (institution, group home, family foster care, or 
     relative placement);
       (7) the child's permanency planning goal, such as family 
     reunification, adoption, or independent living;
       (8) whether the child was freed for adoption;
       (9) whether the child exited from foster care, and, if so, 
     the reason for the exit, such as return to family, placement 
     with relatives, adoption, independent living, or death.
       References to race in the information that is reported 
     annually by States was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).
       States may be required to report other information approved 
     by the Secretary and agreed to by a majority of States, 
     including information necessary to assure a smooth transition 
     from AFCARS and NCANDS to the data reporting system required 
     by this legislation.
       States must also submit the following aggregate data 
     annually:
       (1) the number of children reported to the State during the 
     year as alleged victims of abuse or neglect;
       (2) the number of children for whom an investigation of 
     alleged maltreatment resulted in a determination of 
     substantiated abuse or neglect, the number for whom 
     maltreatment was unsubstantiated, determined to be false;
       (3) the number of families that received preventive 
     services;
       (4) the number of infants abandoned during the year, the 
     number of these infants who were adopted, and the length of 
     time between abandonment and adoption;
       (5) the number of deaths resulting from child abuse or 
     neglect;
       (6) the number of deaths of children occurring while 
     children were in custody of the State;
       (7) the number of children served by the State Independent 
     Living Program
       (8) quantitative measurements showing whether the State is 
     making progress toward the child protection goals identified 
     by the State;
       (9) types of maltreatment suffered by victims of abuse and 
     neglect;
       (10) number of abused and neglected children receiving 
     services;
       (11) average length of stay in out-of-home care;
       (12) the response of the State to findings and 
     recommendations of the citizen review panels; and
       (13) other information which the Secretary and a majority 
     of States agree is appropriated to collect for purposes of 
     this part.
       States may fulfill the data collection and reporting 
     requirements by collecting the required information on either 
     individual children and families receiving child protection 
     services or by using scientific statistical sampling methods. 
     If States use sampling, the Secretary must review and approve 
     their methods.
       The requirement that the Secretary prepare an annual report 
     on State data for Congress and the public was dropped from 
     the Reconciliation bill because it violates the Byrd Rule 
     (section 313 of Congressional Budget Act of 1974).


                        H. Research and Training

     Present law
       Current law authorizes appropriations for research under 
     Title IV-B of the Social Security Act and the Child Abuse 
     Prevention and Treatment Act. In fiscal year 1995, $6 million 
     is appropriated under Title IV-B and $9 million under CAPTA.
     House bill
       An appropriation of $10 million per year is authorized for 
     the Secretary to spend at her discretion on research and 
     training in child welfare.
     Senate amendment
       No directly comparable provision in Titles IV-B or IV-E. 
     Current law under Title IV-B would remain intact, and CAPTA 
     would be reauthorized. Although CAPTA has no separate 
     authorization for research and training, the Secretary has 
     discretionary authority to conduct research and training. For 
     details see Item 6.G., below.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


            I. National Random Sample Study of Child Welfare

     Present law
       No provision.
     House bill
       The Secretary is provided with $6 million per year for 
     fiscal years 1996-2000 to conduct a national random-sample 
     study of child welfare. The study will have a longitudinal 
     component, yield data reliable at the State level for as many 
     States as the Secretary determines is feasible, and should 
     alternate data collection in small States from year-to-year 
     to yield an occasional picture of child welfare in small 
     States. The Secretary has discretion in drawing the sample 
     and in selecting measures, but should carefully consider 
     selecting the sample from all cases of confirmed abuse and 
     neglect and then following each case over several years while 
     obtaining such measures as type of abuse or neglect involved, 
     frequency of contact with agencies, whether the child was 
     separated from the family, types and characteristics of out-
     of-home placements, number of placements, and average length 
     of placement. The Secretary must prepare occasional reports 
     on this study and make them available to the public. The 
     reports should summarize and compare the results of this 
     study with the data reported by States. Written reports or 
     tapes of the raw data from the study should be made available 
     to the public at a fee the Secretary thinks appropriate.
     Senate amendment
       No provision.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


             J. Removal of Barriers to Interethnic Adoption

     Present law
       State law governs adoption and foster care placement. Forty 
     three States permit race matching either in regulation, 
     statute, policy or practice. The Metzenbaum Multiethnic 
     Placement Act of 1994 permits States to consider race and 
     ethnicity in selecting a foster care or adoptive home, but 
     States cannot delay or deny the placement of the child solely 
     on the basis of race, color or national origin.
       Noncompliance with the Metzenbaum Act is deemed a violation 
     of title VI of the Civil Rights Act.
     House bill
       Section 553 of the Howard M. Metzenbaum Multiethnic 
     Placement Act of 1994 is repealed. (See conforming 
     amendments, item 2 below.) In addition, a State or other 
     entity that receives Federal assistance may not deny to any 
     person the opportunity to become an adoptive or a foster 
     parent on the basis of the race, color, or national origin of 
     the person or of the child involved. Similarly, no State or 
     other entity receiving Federal funds can delay or deny the 
     placement of a child for adoption or foster care, or 
     otherwise discriminate in making a placement decision, on the 
     basis of the race, color, or national origin of the adoptive 
     or foster parent or the child involved.
       A State or other entity that violates this provision during 
     a period shall remit to the Secretary all funds that were 
     paid to the State or entity during the period.
       An action under this paragraph may not be brought more than 
     2 years after the date the alleged violation occurred.
     Senate amendment
       No provision.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                        2. conforming amendments

     Present law
       No provision.
     House bill
       This section contains technical amendments that conform 
     provisions of the bill to Titles IV-D and XVI of the Social 
     Security Act, and to the Omnibus Budget Reconciliation Act of 
     1986, and provide for the repeal of Section 553 of the Howard 
     M. Metzenbaum Multiethnic Placement Act of 1994, Title IV-E 
     of the Social Security Act, section 13712 of the Omnibus 
     Budget Reconciliation Act of 1993, and subtitle C of Title 17 
     of the Violent Crime Control and Law Enforcement Act of 1994. 
     (Under section 371 of Title III-C of the House bill, the 
     following additional programs are repealed related to the 
     Child Protection Block Grant: abandoned infants assistance, 
     the Child Abuse Prevention and Treatment Act, adoption 
     opportunities, crisis nurseries, missing children's 
     assistance, family support centers, certain activities under 
     the Victims of Child Abuse Act, and Family Unification under 
     the Housing Act.)
     Senate amendment
       No provision.
     Conference agreement
       The provision requiring the Secretary of HHS to submit, 
     within 90 days of enactment, a legislative proposal providing 
     necessary technical and conforming amendments was dropped 
     from the Reconciliation bill because it violates the Byrd 
     Rule (section 313 of Congressional Budget Act of 1974).

[[Page H 12989]]

       The agreement also repeals Title IV-E of the Social 
     Security Act and section 13712 of the Omnibus Budget 
     Reconciliation Act of 1993, and makes a conforming amendment 
     to section 9442(4) of the Omnibus Budget Reconciliation Act 
     of 1986. Additional repeals and technical amendments are 
     described below.


  3. continued application of current standards under medicaid program

     Present law
        Children for whom Federal foster care payments are made 
     are deemed to be ``dependent children'' for purposes of 
     Medicaid eligibility.
     House bill
       Conforms Medicaid coverage of this title with title I of 
     the House bill. In general, the Medicaid provision is 
     designed to ensure that individuals who receive Medicaid 
     coverage under current law will continue to be covered after 
     passage of H.R.4. Here is a summary of Medicaid provision 
     from title I: ``An individual who on enactment was receiving 
     AFDC, was eligible for medical assistance under the State 
     plan under this title, and would be eligible to receive aid 
     or assistance under a State plan approved under part A of 
     title IV but for the prohibition on grant funds being used to 
     provide assistance to noncitizens, minor unwed mothers or 
     their children, or children born to families already on 
     welfare, would continue to be eligible for Medicaid. Families 
     leaving welfare for work would also continue to receive the 
     1-year Medicaid transition benefit.''
     Senate amendment
       No provision.
     Conference agreement
       See Medicaid Section.


                           4. effective date

     Present law
       No provision.
     House bill
       Unless otherwise indicated in particular sections of the 
     bill, the amendments and repeals made by this title take 
     effect on October 1, 1995. The amendments shall not apply 
     with respect to powers, duties, functions, rights, claims, 
     penalties, or obligations applicable to aid or services 
     provided before the effective date, or to administrative 
     actions and proceedings commenced, or authorized to be 
     commenced, before the effective date.
     Senate amendment
       No provision.
     Conference agreement
       The conference agreement follows the House bill, and also 
     provides a transition rule that allows States to continue 
     current programs under Titles IV-B and IV-E of the Social 
     Security Act until June 30, 1996, and provides for a 
     corresponding reduction in the payment made to such States 
     from the new program created by this legislation. The 
     agreement also contains provisions related to the closing out 
     of accounts for programs that are ended or substantially 
     modified.


     5. sense of the congress regarding timely adoption of children

     Present law
       No provision.
     House bill
       It is the sense of the Congress that:
       (1) too many adoptable children are spending too much time 
     in foster care;
       (2) States must increase the number of waiting children 
     being adopted in a timely manner;
       (3) Studies have shown that States would save significant 
     amounts of money if they offered incentives to families to 
     adopt special needs children who would otherwise require 
     foster care;
       (4) States should allocate sufficient funds for adoption 
     and medical assistance to encourage families to adopt 
     children who are languishing in foster care;
       (5) States should offer incentives for families that adopt 
     special needs children to make adoption more affordable for 
     middle-income families;
       (6) States should strive to provide children removed from 
     their biological parents with a single foster care placement 
     and case team and to conclude an adoption of the child, when 
     adoption is the goal, within one year of the child's 
     placement in foster care; and
       (7) States should participate in programs to enable maximum 
     visibility of waiting children to potential parents, 
     including a nationwide computer network to disseminate 
     information on children eligible for adoption.
     Senate amendment
       Title VIII of the Senate amendment addresses adoption 
     issues. See Section 13, below.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


        6. child abuse prevention and treatment; general program

                              A. reference

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Provides that, unless otherwise indicated, any amendments 
     or repeals should be considered to apply to the Child Abuse 
     Prevention and Treatment Act (CAPTA).
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                              B. Findings

     Present law
       Section 2 of CAPTA contains findings with regard to the 
     scope of child abuse and neglect, the need for a 
     comprehensive approach to address child abuse and neglect, 
     various goals with regard to national policy, and the 
     appropriate Federal role in this area.
     House bill
       No provision.
     Senate amendment
       Amends section 2 to update findings with regard to the 
     scope of child abuse and neglect and to make minor changes, 
     including change of references from ``child protection'' to 
     ``child and family protection.''
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                  C. office of child abuse and neglect

     Present law
       Section 101 of CAPTA requires the Secretary of HHS to 
     establish a National Center on Child Abuse and Neglect.
     House bill
       No provision.
     Senate amendment
       Amends section 101 to allow the Secretary of HHS to 
     establish an Office on Child Abuse and Neglect which would be 
     responsible for executing and coordinating the functions and 
     activities authorized by CAPTA. Repeals current mandate for a 
     National Center on Child Abuse and Neglect.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


              D. advisory board on child abuse and neglect

     Present law
       Section 102 of CAPTA requires the Secretary to appoint a 
     U.S. Advisory Board on Child Abuse and Neglect, and specifies 
     the composition and duties of the board.
     House bill
       No provision.
     Senate amendment
       Amends section 102 by repealing current mandate for a U.S. 
     Advisory Board on Child Abuse and Neglect, and instead allows 
     the Secretary of HHS to appoint an advisory board to make 
     recommendations concerning child abuse and neglect issues. 
     Duties of the new board would include making recommendations 
     on coordination of Federal, State and local child abuse and 
     neglect activities with similar activities regarding family 
     violence at those levels; specific modifications needed in 
     Federal and State laws to reduce the number of unfounded or 
     unsubstantiated cases of child maltreatment; and 
     modifications needed to facilitate coordinated data 
     collection with respect to child protection and child 
     welfare.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                  E. Repeal of Interagency Task Force

     Present law
       Section 103 of CAPTA requires the Secretary to establish an 
     Interagency Task Force on Child Abuse and Neglect.
     House bill
       No provision.
     Senate amendment
       Repeals section 103 of CAPTA.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


 F. National Clearinghouse for Information Relating to Child Abuse and 
                                Neglect

     Present law
       Section 104 of CAPTA requires the Secretary to establish a 
     national clearinghouse for information relating to child 
     abuse and neglect.
     House bill
       No provision.
     Senate amendment
       Amends section 104 to retain authorization for a national 
     information clearinghouse on child abuse and neglect, and 
     expands the duties of the clearinghouse to include collecting 
     data on false and unsubstantiated reports and deaths 
     resulting from child abuse and neglect, and, through a 
     national data collection and analysis program, to collect and 
     make available State child abuse and neglect reporting 
     information which, to the extent practical, is universal and 
     case specific, and integrated with other case-based foster 
     care and adoption data collected by HHS.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd 

[[Page H 12990]]
     Rule (section 313 of Congressional Budget Act of 1974).


           G. Research, Evaluation and Assistance Activities

     Present law
       Section 105 of CAPTA authorizes the Secretary, through the 
     National Center, to conduct research and technical assistance 
     related to child abuse and neglect.
     House bill
       Authorizes appropriations of $10 million annually for the 
     Secretary to conduct research and training related to child 
     welfare. (See Item 1.H., above).
     Senate amendment
       Amends section 105 to restructure the research activities 
     function of the Secretary of HHS by deleting references to 
     the National Center and by requiring research on additional 
     issues, including substantiated and unsubstantiated reported 
     child abuse cases. Authorizes technical assistance to include 
     evaluation or identification of: various methods for 
     investigation, assessment, and prosecution of child physical 
     and sexual abuse cases; ways to mitigate psychological trauma 
     to child victims; and effective programs carried out under 
     CAPTA. Allows the Secretary of HHS to provide for 
     dissemination of information related to various training 
     resources available at the State and local levels. Continues 
     authorization for a formal peer review process which utilizes 
     scientifically valid review criteria.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                  H. Grants for Demonstration Programs

     Present law
       Section 106 of CAPTA authorizes the Secretary to make 
     grants to public agencies and private nonprofit organizations 
     for demonstration or service programs or projects, that must 
     include an evaluation component; resource centers; and 
     discretionary grants that may be used for a variety of 
     purposes.
     House bill
       No provision.
     Senate amendment
       Amends section 106 to retain authority for the 
     demonstration grants program and to change the criteria for 
     awarding grants. Authorizes the following purposes for 
     demonstration programs and projects: training programs, 
     mutual support and self-help programs for parents, innovative 
     programs that use collaborative partnerships between various 
     agencies to allow for establishment of a triage system in 
     responding to child abuse and neglect reports; kinship care 
     programs, and supervised visitation centers for families 
     where there has been child abuse or domestic violence. All 
     demonstration projects will be evaluated for their 
     effectiveness.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


         I. State Grants for Prevention and Treatment Programs

     Present law
       Section 107 of CAPTA authorizes the Secretary to make 
     development and operation grants to States to assist them in 
     improving their child protective service systems. States must 
     meet certain eligibility requirements, which include having a 
     State law in effect providing for reporting of child abuse or 
     neglect allegations and providing immunity from prosecution 
     for reporters of abuse or neglect.
       Requires that States have in place procedures for 
     responding to reports of medical neglect, including instances 
     of withholding medically indicated treatment from disabled 
     infants with life-threatening conditions.
     House bill
       States would receive Child Protection Block Grants, which 
     would be used for child protective service systems, among 
     other related activities. To receive block grants, States 
     must certify that they have in effect a State law for 
     reporting of child abuse or neglect, a program to investigate 
     child abuse and neglect reports, and procedures to respond to 
     reporting of medical neglect of disabled infants among other 
     requirements. (See Item 1.B. (2) and (3), above.)
       Requires States participating in the Child Protection Block 
     Grant to submit detailed annual data reports to the 
     Secretary. (See Item 1.G.2., above.) The Secretary would 
     prepare annual reports for Congress. (See Item 1.G.4., 
     above.)
     Senate amendment
       Revises section 107. Under revised eligibility 
     requirements, States would provide an assurance or 
     certification, signed by the chief executive officer of the 
     State, that the State has a law or statewide program relating 
     to procedures for: reporting of known and suspected instances 
     of child abuse and neglect; immediate screening, safety 
     assessment, and prompt investigation of such reports; 
     procedures for immediate steps to be taken to protect the 
     safety of children; provisions for immunity from prosecution 
     for individuals making good faith reports of child abuse; 
     methods for preserving confidentiality of records; 
     requirements for the prompt disclosure of relevant 
     information to appropriate entities working to protect 
     children; the cooperation of law enforcement officials, court 
     personnel and human services agencies; provision for the 
     appointment of a guardian ad litem to represent the child in 
     any judicial proceedings; and provisions that facilitate the 
     prompt expungement of unsubstantiated or false child abuse 
     reports.
       Requires that States have in place procedures for 
     responding to reports of medical neglect, including instances 
     of withholding medically indicated treatment from disabled 
     infants with life-threatening conditions.
       States must have in place, within two years of enactment, 
     provisions by which individuals who disagree with an official 
     finding of abuse or neglect can appeal such a finding.
       States would submit a plan every 5 years, instead of 4, 
     demonstrating their eligibility and specifics about how their 
     grant money will be used.
       States would be required to work annually with the 
     Secretary to provide, to the maximum extent practicable, a 
     report containing specified data on their child protective 
     service systems, including the number of children reported as 
     abused or neglected, data on substantiation of reports, 
     services provided to reported children, preventive services 
     provided to families, the number of child deaths resulting 
     from abuse or neglect including the number of children who 
     died while in foster care, number of caseworkers responsible 
     for intake and screening, agency response time to abuse or 
     neglect reports, response time with respect to provision of 
     services to families where abuse or neglect has been alleged, 
     and the number of caseworkers relative to the number of 
     reports investigated in the previous year. The Secretary 
     would prepare a report based on State data, to be submitted 
     to Congress and the national information clearinghouse on 
     child abuse and neglect.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                               J. Repeal

     Present law
       Section 108 of CAPTA authorizes the Secretary to provide 
     training and technical assistance to States.
     House bill
       No provision.
     Senate amendment
       Repeals section 108.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                     K. Miscellaneous Requirements

     Present law
       Section 110(c) of CAPTA requires the Secretary to ensure 
     that a majority share of assistance under CAPTA is available 
     for discretionary research and demonstration grants.
     House bill
       No provision.
     Senate amendment
       Strikes section 110(c).
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                             L. Definitions

     Present law
       Section 113 of CAPTA contains definitions.
     House bill
       No provision.
     Senate amendment
       Amends section 113 to change some definitions. Strikes 
     definitions of ``Board'' and ``Center,'' and changes the 
     definition of ``child abuse and neglect'' to mean, at a 
     minimum, ``any recent act or failure to act on the part of a 
     parent or caretaker, which results in death, serious physical 
     or emotional harm, sexual abuse or exploitation, or an act or 
     failure to act which presents an imminent risk of serious 
     harm.''
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                   M. Authorization of Appropriations

     Present law
       Section 114(a) authorizes appropriations for Title I of 
     CAPTA, and specifies how funds are to be allocated among 
     authorized activities. The authorization of appropriations 
     expires at the end of fiscal year 1995.
     House bill
       The House bill has no funding for CAPTA but includes 
     funding for the Child Protection Block Grant; see sections 
     C.1. and C.2., above.
     Senate amendment
       Amends section 114(a) to authorize $100 million in fiscal 
     year 1996, and ``such sums as necessary'' in fiscal year 
     1997-FY2000, for Title I of CAPTA. Requires that one-third of 
     funds be spent on discretionary activities and, that of funds 
     reserved for discretionary activities, no more than 40 
     percent shall be for demonstration projects under section 
     106.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd 

[[Page H 12991]]
     Rule (section 313 of Congressional Budget Act of 1974).


                        N. Rule of Construction

     Present law
       No provision.
     House bill
       No directly comparable provision, but see section 1.B.4., 
     above.
     Senate amendment
       Establishes a new section of CAPTA that addresses the issue 
     of spiritual treatment of children. The section does not 
     require a parent or legal guardian to provide a child with 
     medical service or treatment, against his or her religious 
     beliefs, nor does it require a State to find, or prohibit a 
     State from finding, abuse or neglect in cases where the 
     parent or guardian relied solely or partially on spiritual 
     means rather than medical treatment, in accordance with their 
     religious beliefs. The section requires a State to have in 
     place authority under State law to pursue any legal remedies 
     necessary to provide medical care or treatment when such care 
     or treatment is necessary to prevent or remedy serious harm 
     to the child, or to prevent the withholding of medically 
     indicated treatment from children with life-threatening 
     conditions. Each State has sole discretion over its case-by-
     case determinations relating to medical neglect.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                         O. Technical Amendment

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Makes a technical amendment to section 1404A of the Victims 
     of Crime Act.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


         7. Community-Based Family Resource and Support Grants

     Present law
       Title II of CAPTA authorizes the Secretary to make grants 
     to States for Community-Based Family Resource Programs.
     House bill
       No provision.
     Senate Amendment
       Replaces current law with a new Title II to establish 
     Community-Based Family Resource and Support Grants.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                        A. Purpose and Authority

     Present law
       No provision.
     House bill
       States could use Child Protection Block Grant allotments 
     for family resource and support services. (See Item 1.C.(5), 
     above.)
     Senate amendment
       Establishes the purpose of Title II as: to support State 
     efforts to develop, operate, expand and enhance a network of 
     community-based, prevention-focused, family resource and 
     support programs. Authorizes the Secretary of HHS to make 
     grants on a formula basis to entities designated by States as 
     ``lead entities.''
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                             B. Eligibility

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Establishes eligibility requirements for States to receive 
     grants. States are eligible if:
       1) the chief executive officer has designated a lead entity 
     that is an existing public, quasi-public or nonprofit private 
     entity, with priority for the State trust fund advisory board 
     or an existing entity that leverages funds for a broad range 
     of child abuse and neglect prevention activities and family 
     resource programs;
       2) the chief executive officer assures that the lead entity 
     will provide or be responsible for providing a network of 
     community-based family resource and support programs and 
     providing direction and oversight to the network; and
       3) the chief executive officer assures that the lead entity 
     has a demonstrated commitment to parental participation, a 
     demonstrated ability to work with State and community-based 
     public and private nonprofit organizations, the capacity to 
     provide operational support and training and technical 
     assistance to the statewide network of community-based family 
     resource and support programs, and will integrate its efforts 
     with experienced individuals and organizations.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                           C. Amount of Grant

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Reserves 1 percent of appropriations for Title II of CAPTA 
     for allotments to Indian tribes and tribal organizations and 
     migrant programs. Remaining funds are allotted to States 
     equally according to the State ``minor child amount'' and the 
     State ``matchable amount.'' The State minor child amount is 
     based on the State's relative population of children under 
     18, except that no State can receive less than $250,000. The 
     State matching amount is based each State's relative amount 
     of funds (including foundation, corporate and other private 
     funding, State revenues and Federal funds) that have been 
     dedicated toward the purposes of this program.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                  D. Existing and Continuation Grants

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Provides that any State or entity that has a grant, 
     contract, or cooperative agreement in effective on the date 
     of enactment, under the Family Resource and Support Program, 
     the Community-Based Family Resource Program, the Family 
     Support Center Program, the Emergency Child Abuse Prevention 
     Grant Program, or the Temporary Child Care and Crisis 
     Nurseries Program, shall continue to be funded under the 
     original terms through the end of the applicable grant cycle. 
     Also allows the Secretary to continue grants for Family 
     Resource and Support Program grantees and other programs 
     funded under CAPTA on a non-competitive basis, subject to 
     available appropriations, grantee performance, and receipt of 
     required reports.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                             E. Application

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Provides that, to receive grants under Title II, States 
     must submit an application to the Secretary containing 
     information requested by the Secretary, including:
       1) a description of the lead entity;
       2) a description of how the network of community-based, 
     prevention-focused, family resource and support programs will 
     operate, and how family resource and support services will be 
     integrated into a continuum of preventive services for 
     children and families;
       3) an assurance that an inventory of current family 
     resource programs, respite, child abuse and neglect 
     prevention activities, and other family resource programs in 
     the State, and a description of current unmet needs, will be 
     provided;
       4) a budget for the State's network of community-based, 
     prevention-focused, family resource and support programs that 
     verifies that the State will spend an amount equal to no less 
     than 20 percent of the amount received under this program (in 
     cash, not in-kind);
       5) an assurance that funds received under this Title will 
     supplement and not supplant other State and local public 
     funds designated for the statewide network of family resource 
     and support programs;
       6) an assurance that the statewide network of family 
     resource and support programs will maintain cultural 
     diversity, and be culturally competent and socially sensitive 
     and responsive to the needs of families with children with 
     disabilities;
       7) an assurance that the State has the capacity to ensure 
     meaningful involvement of parents;
       8) a description of the criteria to be used to develop, or 
     select and fund, individual programs to be part of the 
     statewide network;
       9) a description of outreach activities that will be used 
     to maximize the participation of racial and ethnic 
     minorities, new immigrant populations, children and adults 
     with disabilities, homeless families and those at risk of 
     homelessness, and members of other under-served or under-
     represented groups;
       10) a plan for providing operational support, training and 
     technical assistance to family resource and support programs;
       11) a description of how activities will be evaluated;
       12) a description of actions that will be taken to advocate 
     changes in State policies, practices, procedures, and 
     regulations to improve the delivery of family resource and 
     support program services to all children and families; and 

[[Page H 12992]]

       13) an assurance that reports will be submitted to the 
     Secretary on time and containing requested information.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                     F. Local Program Requirements

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Grants will be used for family resource and support 
     programs that:
       1) assess community assets and needs through a planning 
     process that includes parents, local agencies, and private 
     sector representatives;
       2) develop a strategy to provide a continuum of preventive, 
     holistic, family-centered services to children and families;
       3) provide ``core'' services, such as parent education, 
     support and self-help, and leadership services, developmental 
     screening of children, outreach, referral and follow-up 
     services; ``other core'' services, which can be provided 
     directly or through contracts, including respite services; 
     and access to ``optional'' services, including child care, 
     early childhood development and intervention, services for 
     families with children with disabilities, job readiness, 
     educational services, self-sufficiency and life management 
     skills training, community referral services, and peer 
     counseling
       4) develop leadership roles for the meaningful involvement 
     of parents;
       5) provide leadership in mobilizing local resources to 
     support family resource and support programs; and
       6) participate with other community-based, prevention-
     focused family resource and support programs in developing 
     and operating the statewide network.
       Priority for local grants shall be given to community-based 
     programs serving low-income communities and those serving 
     young parents or parents with young children, and to family 
     resource and support programs previously funded under the 
     programs consolidated by this Title.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                        G. Performance Measures

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       States receiving grants must submit reports to the 
     Secretary that:
       1) demonstrate effective development of a statewide network 
     of family resource and support programs;
       2) supply an inventory and description of services provided 
     to families, including ``core'' and ``optional'' services;
       3) demonstrate the establishment of new respite and other 
     new family services, and expansion of existing services, to 
     meet identified unmet needs;
       4) describe number of families served (including families 
     with children with disabilities), and the involvement of a 
     diverse representation of families in designing, operating 
     and evaluating the statewide network of family resource and 
     support programs;
       5) demonstrate a high level of satisfaction among families 
     that have used family resource and support program services;
       6) demonstrate innovative funding mechanisms that blend 
     Federal, State, local and private funds, and innovative and 
     interdisciplinary service delivery mechanisms;
       7) describe the results of a peer review process conducted 
     under the State program; and
       8) demonstrate an implementation plan to ensure continued 
     leadership of parents in family resource and support 
     programs.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


    H. National Network for Community-Based Family Resource Programs

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Authorizes the Secretary to allocate such sums as necessary 
     from the amount provided under the State allotment to support 
     State activities related to a peer review process, an 
     information clearinghouse, a yearly symposium, a computerized 
     communication system between State lead entities, and State-
     to-State technical assistance through biannual conferences.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                             I. Definitions

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Defines the following terms: ``children with 
     disabilities,'' ``community referral services,'' ``culturally 
     competent,'' ``family resource and support program,'' 
     ``national network for community-based family resource 
     programs,'' ``outreach services,'' and ``respite services.''
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                   J. Authorization of Appropriations

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Authorizes $108 million for Title II for each of fiscal 
     year 1996-fiscal year 2000.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                               8. Repeals

     Present law
       No provision.
     House bill
       Repeals the crisis nurseries portion of Temporary Child 
     Care and Crisis Nurseries; and family support centers under 
     the Stewart B. McKinney Homeless Assistance Act. (See Item 2, 
     above.)
     Senate amendment
       Repeals the Temporary Child Care for Children with 
     Disabilities and Crisis Nurseries Act. Also repeals family 
     support centers under Subtitle F of Title VII of the Stewart 
     B. McKinney Homeless Assistance Act.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


               9. Family Violence Prevention and Services

                     A. State Demonstration Grants

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Amends section 303(e) of the Family Violence Prevention and 
     Services Act, relating to non-Federal matching requirements.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                             B. Allotments

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Amends section 304(a)(1) of Family Violence Prevention and 
     Services Act.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                   C. Authorization of Appropriations

     Present law
       Section 310 of the Family Violence Prevention and Services 
     Act authorizes appropriations for the program and specifies 
     how funds are to be allocated among activities.
     House bill
       No provision.
     Senate amendment
       Amends section 310 of Family Violence Prevention and 
     Services Act to reduce from 80% to 70% the minimum amount of 
     funds to be used for making grants to States for family 
     violence activities. Also requires the Secretary to use not 
     less than 10% of appropriations for grants for State family 
     violence coalitions, and provides that Federal funds made 
     available under this program must be used to supplement and 
     not supplant other Federal, State or local public funds 
     expended for similar activities.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                 10. Adoption Opportunities; Reference

                        A. Findings and Purpose

     Present law
       Section 201 of the adoption opportunities program 
     establishes congressional findings with regard to the child 
     welfare population, and declares the program's purpose to 
     facilitate the elimination of barriers to adoption and to 
     provide permanent homes for children who would benefit from 
     adoption, particularly children with special needs.
     House bill


    repeals the adoption opportunities program. (see item 2, above.)

     Senate amendment
       Amends section 201 of the adoption opportunities program to 
     update congressional 

[[Page H 12993]]
     findings, and delete references to the promotion of model adoption 
     legislation and procedures.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                      b. information and services

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Amends section 203 of the adoption opportunities program, 
     to require the Secretary of HHS to conduct studies related to 
     kinship care, recruitment of foster and adoptive parents; and 
     to provide technical assistance and resource and referral 
     information related to termination of parental rights, 
     recruitment and retention of adoptive placements, placement 
     of special needs children, provision of pre- and post-
     placement services, and other assistance to help State and 
     local governments replicate successful adoption-related 
     projects.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                   c. authorization of appropriations

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Authorizes $20 million for fiscal year 1996, and such sums 
     as necessary for each of fiscal year 1997-FY2000, for the 
     adoption opportunities program.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                  11. abandoned infants assistance act

     Present law
       No provision.
     House bill
       Repeals abandoned infants assistance.
     Senate amendment
       Authorizes $35 million for each of fiscal year 1995-FY1996, 
     and such sums as necessary for each of fiscal year 1997-
     FY2000, for abandoned infants assistance.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                12. reauthorization of various programs

                  a. missing children's assistance act

     Present law
       The Missing Children's Assistance Act is authorized through 
     fiscal year 1996.
     House bill
       Repeals the Missing Children's Assistance Act (see Item 2, 
     above; however, authorizes appropriations of $7 million for 
     the Attorney General to operate an information clearinghouse 
     and telephone hotline for information on missing children 
     (see Item 1.F, above).
     Senate amendment
       Extends the authorization for the Missing Children's 
     Assistance Act through fiscal year 1997; such sums as 
     necessary are authorized. Provides that the Department of 
     Justice shall use no more than 5 percent of appropriations in 
     a fiscal year to evaluate the program.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                 b. victims of child abuse act of 1990

     Present law
       Appropriations are authorized through fiscal year 1996 for 
     grants to improve investigation and prosecution of child 
     abuse cases, and for children's advocacy centers, under the 
     Victims of Child Abuse Act.
     House bill
       Repeals grants to improve investigation and prosecution of 
     child abuse and neglect cases, and children's advocacy 
     centers, under the Victims of Child Abuse Act. (See Item 2, 
     above.)
     Senate amendment
       Extends the authorization through fiscal year 1997, at such 
     sums as necessary, for these two programs under the Victims 
     of Child Abuse Act.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                         13. adoption expenses

               a. refundable credit for adoption expenses

     Present law
       No provision.
     House bill
       No provision in H.R. 4, but similar provision in the House-
     passed H.R. 1215.
     Senate amendment
       Amends subpart C of part IV of subchapter A of chapter 1 of 
     the Internal Revenue Code of 1986, to insert a new section 
     35, adoption expenses, that would provide a tax credit for 
     expenditures for adoption fees, court costs, attorney fees, 
     and other expenses directly related to a legal and finalized 
     adoption. This dollar-for-dollar tax credit of up to $5,000 
     per child is reduced for taxpayers with adjusted gross income 
     above $60,000 and is fully phased out at incomes of $100,000. 
     Married couples must file a joint return and the credit is 
     not available for expenditures that contradict State or 
     Federal law. The amendment prohibits double benefits. The 
     amendment will apply to taxable years beginning after Dec. 
     31, 1995.
     Conference agreement
       [This provision has been moved to the tax portion of the 
     Reconciliation Act of 1995 and will provide a tax credit for 
     expenditures for adoption fees, court costs, attorney fees, 
     and other expenses directly related to a legal and finalized 
     adoption. This dollar-for-dollar tax credit of up to $5,000 
     per child is reduced for taxpayers with adjusted gross income 
     above $75,000 and is fully phased out at incomes of $115,000. 
     The credit is not available for expenditures that contradict 
     State or Federal law. The amendment prohibits double benefits 
     with respect to State and local credits, except in cases of 
     ``special children''. The amendment will apply to taxable 
     years beginning after Dec. 31, 1995 and allow for carry over 
     of up to five years in the event tax liability does not cover 
     the entire credit during a single year.]


                  b. exclusion of adoption assistance

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Amends part III of subchapter B of chapter 1 of the 
     Internal Revenue Code of 1986 by inserting a new section 137, 
     which treats as a tax-free fringe benefit employer-provided 
     adoption assistance benefits, or reimbursement by the 
     employer of qualified adoption expenses, provided the adoptee 
     is physically or mentally incapable of self-care (a ``special 
     needs'' child). Military adoption assistance benefits for 
     these children also would be free of tax. The amendment will 
     apply to taxable years beginning after Dec. 31, 1995.
     Conference agreement
       [This provision has been moved to the tax portion of the 
     Reconciliation Act of 1995. This provision treats as a tax-
     free fringe benefit employer-provided adoption assistance 
     benefits of up to $5,000, or reimbursement by the employer of 
     qualified adoption expenses The amendment will apply to 
     taxable years beginning after Dec. 31, 1995. This benefit is 
     not available if the credit (above) is chosen.]


              c. withdrawal from ira for adoption expenses

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Amends subsection (d) of section 408 of the Internal 
     Revenue Code of 1986 to permit tax-free withdrawals from an 
     individual retirement account (IRA) for qualified adoption 
     expenses.
     Conference agreement
       The Senate recedes.

                         Subtitle H--Child Care


                                1. goals

     Present law
       No provision.
     House bill
       Adds the following goals:
       (1) to allow each State maximum flexibility in developing 
     child care programs and policies that best suit the needs of 
     children and parents within such State;
       (2) to promote parental choice to empower working parents 
     to make their own decisions on the child care that best suits 
     their family's needs;
       (3) to encourage States to provide consumer education 
     information to help parents make informed choices about child 
     care;
       (4) to assist States to provide child care to parents 
     trying to achieve independence from public assistance; and
       (5) to assist States in implementing the health, safety, 
     licensing and registration standards established in State 
     regulation.
     Senate amendment
       No provision.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                   2. authorization of appropriations

     Present law
       The authorization of appropriations expires at the end of 
     fiscal year 1995. Appropriations in fiscal year 1995 are $935 
     million; such sums as necessary are authorized. [Sec. 658B of 
     the CCDBG Act]
       [Note: In addition, entitlement funds are available for 
     child care under the AFDC Child Care, Transitional Child 
     Care, and At-Risk Child Care programs authorized by Title IV-
     A of the Social Security Act.]
     House bill
       Authorizes appropriations of $2,093 million for each of 
     fiscal year 1996-2000.

[[Page H 12994]]

       [Note: Title I of the House bill repeals the AFDC Child 
     Care, Transitional Child Care, and At-Risk Child Care 
     programs.]
     Senate amendment
       Authorizes appropriations as follows: $1 billion for fiscal 
     year 1996, and such sums as may be necessary for each of 
     fiscal year 1997-2000.
       [Note: Additional funds are provided for child care under 
     Title I of the Senate amendment, to replace the current AFDC 
     Child Care, Transitional Child Care, and At-Risk Child Care 
     programs--$8 billion over 5 years in direct spending.]
     Conference agreement
       The conference agreement establishes a single child care 
     block grant and State administrative system by adding 
     mandatory funds to the existing Child Care and Development 
     Block Grant (CCDBG). Specifically, one discretionary and two 
     mandatory streams of funding will be consolidated in a 
     reconstituted CCDBG.
       The child care funds made available in the Child Care Block 
     Grant total $17 billion over 7 years; $10 billion in 
     mandatory funds ($1.17 billion in fiscal year 1996, $1.24 
     billion in fiscal year 1997, $1.32 billion in fiscal year 
     1998, $1.4 billion fiscal year 1999, $1.5 billion in fiscal 
     year 2000, $1.625 billion in fiscal year 2001, and $1.745 in 
     fiscal year 2002) combined with $1 billion each year (fiscal 
     year 1996-FY2002) in discretionary funds.
       Each State will receive the amount of funds it received for 
     child care under all of the entitlement programs currently 
     under title IV of the Social Security Act (AFDC Child Care, 
     transitional Child Care, and At-Risk Child Care) in the 1994 
     fiscal year, or the average amount of funds received for 
     those programs from fiscal year 1992 through fiscal year 
     1994, which ever is greater. These programs, combined, 
     provide approximately $990 million in mandatory child care 
     funding for the States.
       The mandatory funds remaining after the State allocations 
     based on previous years child care allotments will be 
     distributed among the States based on the formula currently 
     used in the title IV-A At-Risk Child Care grant. 
     Specifically, funds will be distributed based on the 
     proportion of the number of children under the age of 13 
     residing in the State to the number of all of the nation's 
     children under the age of 13. States must provide matching 
     funds in the amount of the fiscal year 1995 State Medicaid 
     rate to receive these funds.
       Discretionary funds appropriated for the Child Care Block 
     Grant will be distributed to States based on the current 
     formula for the Child Care and Development Block Grant. This 
     formula utilizes the number of children in low income 
     families and the State per capita income as criteria for the 
     distribution of funds to States. As in current law governing 
     the CCDBG, there is no requirement for the State to provide 
     matching funds to receive an allotment from the discretionary 
     funds appropriated for the Child Care Block Grant.
       If a State does not use their full portion of funds, the 
     remaining portion will be redistributed to the states 
     according to section 402(i) (as such section was in effect 
     before October 1, 1995).
       For the first year of enactment, States will receive their 
     total allotment (mandatory and discretionary) for child care 
     less any amount States had already spent on Title IV of 
     Social Security child care programs in fiscal year 1996 on 
     the day before enactment.


                             3. Lead Agency

     Present law
       Requires the chief executive officer of a State to 
     designate an appropriate State agency to act as the lead 
     agency in administering financial assistance under the Act. 
     [Sec. 658D of the CCDBG Act]
     House bill
       Changes the term ``agency'' to ``entity.''
     Senate amendment
       Allows the State lead agency to administer financial 
     assistance received under the Act through other 
     ``governmental or nongovernmental'' agencies (instead of 
     other ``State'' agencies); requires that ``sufficient time 
     and Statewide distribution of the notice'' be given of the 
     public hearing on development of the State plan; and strikes 
     language on issues that may be considered during consultation 
     with local governments on development of the State plan.
     Conference agreement
       The House recedes.


                        4. Application and Plan

     Present law
       Requires States to prepare and submit to the Secretary an 
     application that includes a State plan. The initial plan must 
     cover a 3-year period, and subsequent plans must cover a 2-
     year period. Required contents of the plan include 
     designation of a lead agency; policies and procedures 
     regarding parental choice of providers, unlimited parental 
     access, parental complaints, consumer education, compliance 
     with State and local regulatory requirements, establishment 
     of and compliance with health and safety requirements, review 
     of State licensing and regulatory requirements, and 
     supplementation.
       In addition, the State plan must provide that funds will be 
     used for child care services, and that 25% of funds will be 
     reserved for activities to improve the quality of child care 
     and to increase the availability of early childhood 
     development and before- and after-school child care. [Sec. 
     658E of the CCDBG Act]
       Further, State plans must assure that payment rates will be 
     adequate to provide eligible children equal access to child 
     care as compared with children whose families are not 
     eligible for subsidies, and must assure that the State will 
     establish and periodically revise a sliding fee scale that 
     provides for cost sharing by families that receive child care 
     subsidies.
     House bill
       Requires the State plan to cover a 2-year period. Requires 
     States to provide a detailed description of procedures to be 
     used to assure parental choice of providers. Changes 
     ``provide assurances'' to ``certify'' that procedures are in 
     effect within the State to ensure unlimited parental access 
     to children and parental choice; also requires that the State 
     plan provide a detailed description of such procedures. 
     Changes ``provide assurances'' to ``certify'' that the State 
     maintains a record of parental complaints, and requires the 
     State to provide a detailed description of how such a record 
     is maintained and made available. Changes the consumer 
     education part of the State plan to require assurances that 
     the State will collect and disseminate consumer education 
     information. Requires that the State certify that providers 
     comply with State and local health, safety and licensing or 
     regulatory requirements and provide a detailed description of 
     such requirements and how they are enforced. Eliminates 
     current law provisions requiring establishment of and 
     compliance with health and safety requirements, review of 
     State licensing and regulatory requirements, notification to 
     HHS when standards are reduced, and supplementation. 
     Eliminates the requirement that unlicensed providers be 
     registered.
       Adds a requirement that a summary of the facts relied upon 
     by the State to determine that payment rates are sufficient 
     to ensure equal access to child care is included in the State 
     plan. Eliminates the assurance that the State will establish 
     a sliding fee scale. Also provides that funds, other than 
     amounts transferred under section 658T (see Item 14, below), 
     will be used for child care services, activities to improve 
     the quality and availability of such services, and any other 
     activity that the State deems appropriated to realize the 
     goals specified above (see Item 1). Deletes the current law 
     requirement that States reserve 25% of funds for activities 
     to improve the quality of child care and to increase 
     availability of early childhood development and before- and 
     after-school care.
       Requires States to spend no more than 5% on administrative 
     costs.
     Senate amendment
       Requires the State plan to cover a 2-year period. Replaces 
     the requirement that providers not subject to licensing or 
     regulation be registered with the State, with a requirement 
     that the State implement mechanisms to ensure proper payment 
     to providers. Requires the Secretary to develop minimum 
     standards for Indian tribes and tribal organizations 
     receiving assistance under the Act, in lieu of State or local 
     licensing or regulatory requirements. Eliminates provisions 
     related to reduction in standards and reviews of State 
     licensing and regulatory requirements.
       Requires the State plan to describe the manner in which 
     services will be provided to the working poor. Reserves 15% 
     of each State's allotment for activities to improve quality 
     of child care, instead of 25% for both quality improvement 
     and before- and after-school child care services.
       Requires States to spend no more than 5% on administrative 
     costs, not including direct service costs. Administrative 
     costs shall not include direct service costs.
     Conference agreement
       The Senate recedes, with a modification that the States 
     must certify that they have licensing standards for child 
     care which are applied uniformly without regard to whether a 
     child care provider is receiving Federal funds. Nothing in 
     this Act shall either require or prohibit the application of 
     State licensing standards, regulations, or laws to a 
     particular type of child care or child care provider. The 
     Secretary must develop minimum standards for Indian tribes 
     and tribal organizations receiving assistance under this Act, 
     in lieu of State or local licensing or regulatory 
     requirements. at least 70% of the mandatory funding must be 
     used to provide child care for children in families who are 
     receiving welfare, working their way off welfare, or at risk 
     of becoming welfare dependent. A substantial portion of the 
     discretionary funding for child care authorized under this 
     Act is intended to be used for low-income working families 
     who are not working their way off welfare or at risk of 
     becoming welfare dependent. The State plan must demonstrate 
     how the State is meeting the specific needs of each of these 
     populations.


                   5. Limitation on State Allotments

     Present law
       Prohibits the use of funds for purchase or improvement of 
     land or buildings, except in the case of sectarian agencies 
     or organizations that need to make renovations or repairs in 
     order to comply with specific health and safety requirements 
     that States are required to establish. [Sec. 658F of the 
     CCDBG Act]
     House bill
       Amends section 658F to make a conforming amendment 
     referring to the elimination of specific health and safety 
     requirements.

[[Page H 12995]]

     Senate amendment
       No provision (maintains current law).
     Conference agreement
       The Senate recedes, with a modification that this Act 
     prohibit the use of funds for purchase or improvement of land 
     or buildings except for Indian tribes or tribal 
     organizations. Indian tribes and tribal organizations may use 
     funds for construction or renovation of facilities, upon the 
     request by the tribe or tribal organization and subject to 
     the approval by the Secretary.


           6. Activities to Improve the Quality of Child Care

     Present law
       As stated above, 25% of State allotments must be reserved 
     for activities to improve child care quality and to increase 
     the availability of early childhood development and before- 
     and after-school child care (see Item 1.D, above). Section 
     658G specifies how these funds are to be used. Of reserved 
     funds, requires States to use no less than 20% for activities 
     to improve the quality of care, including resource and 
     referral programs, grants or loans to assist providers in 
     meeting State and local standards, monitoring of compliance 
     with licensing and regulatory requirements, training of child 
     care personnel, and improving compensation for child care 
     personnel. [Sec. 658G of the CCDBG Act]
     House bill
       Repeals the requirement that 25% of funds be set aside for 
     quality improvement activities (see Item 5, above). Repeals 
     section 658G regarding the use of these set-aside funds.
     Senate amendment
       As stated above, reduces quality improvement set-aside to 
     15% (see Item 5, above). Amends section 658G to require 
     States to use their quality improvement set-aside for 
     resource and referral activities, including ``providing 
     comprehensive consumer education to parents and the public, 
     referrals that honor parental choice, and activities designed 
     to improve the quality and availability of child care,'' and 
     for one or more ``other activities,'' which include those 
     listed in the current section 658G, plus activities to 
     increase the availability of before- and after-school care, 
     infant care, and child care between the hours of 5:00 p.m. 
     and 8:00 a.m.
       Adds new language to prohibit States from discriminating 
     against providers that wish to participate in resource and 
     referral systems, that are operating legally within the State 
     but that are exempt from State licensing requirements.
     Conference agreement
       The Senate recedes, with a modification that States retain 
     at least a 3% set-aside of the total mandatory and 
     discretionary funding received for child care under this Act 
     for activities designed to provide comprehensive consumer 
     education to parents and the public, activities that increase 
     parental choice, and activities designed to improve the 
     quality and availability of child care, such as resource and 
     referral services.
       The House recedes, with a modification to limit the amount 
     of total child care funds made available under this Act for 
     administrative costs to 3%. Administrative cost shall not 
     include direct service costs.


    7. Early Childhood Development and Before- and After-School Care

     Present law
       Requires States to use no less than 75% of funds reserved 
     for quality improvement for activities to expand and conduct 
     early childhood development programs and before- and after-
     school child care. [Sec. 658H of the CCDBG Act]
     House bill
       Repeals section 658H.
     Senate amendment
       Repeals section 658H.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                   8. Administration and Enforcement

     Present law
       Requires the Secretary of Health and Human Services (HHS) 
     to coordinate HHS and other Federal child care activities, to 
     collect and publish a list of State child care standards 
     every 3 years, and to provide technical assistance to States. 
     Requires the Secretary to review, monitor, and enforce 
     compliance with the Act and the State plan by withholding 
     payments and imposing additional sanctions in certain cases. 
     [Sec. 658I of the CCDBG Act]
     House bill
       Deletes the requirement that the Secretary of HHS collect 
     and publish a list of child care standards every 3 years. 
     Maintains current law for repayment.
     Senate amendment
       Strikes the current law requirement that the Secretary 
     withhold further payments to a State in case of a finding of 
     noncompliance until the noncompliance is corrected. Instead, 
     authorizes the Secretary, in such cases, to impose additional 
     program requirements on the State, such as a requirement that 
     the State reimburse the Secretary for any improperly spent 
     funds, or the Secretary may deduct from the administrative 
     portion of the State's subsequent allotment an amount equal 
     to or less than the misspent funds, or a combination of such 
     options. The amendment also strikes sections related to 
     additional sanctions and notice of such additional sanctions.
     Conference agreement
       The House recedes, with a modification that the Secretary 
     may not impose additional program requirements on the State 
     for an improperly spent funds.


                              9. Payments

     Present law
       Provides that payments received by a State for a fiscal 
     year may be expended in that fiscal year or in the succeeding 
     3 fiscal years. [Sec. 658J of the CCDBG Act]
     House bill
       Provides that payments received by a State for a fiscal 
     year may be obligated in the fiscal year received or the 
     succeeding fiscal year, instead of expended in the fiscal 
     year received or the succeeding 3 fiscal years.
     Senate amendment
       No provision (maintains current law).
     Conference agreement
       The Senate recedes.


                      10. Annual Report and Audits

     Present law
       Requires each State to prepare and submit to the Secretary 
     every year a report: specifying how funds are used; 
     containing data on the manner in which the child care needs 
     of families in the State are being fulfilled, including 
     information on the number of children served, child care 
     programs in the State, compensation provided to child care 
     staff, and activities to encourage public-private 
     partnerships in child care; describing the extent to which 
     affordability and availability of child care has increased; 
     summarizing findings from a review of State licensing and 
     regulatory requirements, if applicable; explaining any action 
     taken by the State to reduce standards, if applicable; and 
     describing standards and health and safety requirements 
     applied to child care providers in the State, including a 
     description of efforts to improve the quality of child care. 
     [Sec. 658K of the CCDBG Act]
     House bill
       Changes the title of the section from ``Annual Report and 
     Audits'' to ``Annual Report, Evaluation Plans, and Audits.'' 
     Changes required data elements in annual reports to include:
       (1) the number and ages of children being assisted with 
     funds provided under this subchapter;
       (2) with respect to the families of such children:
       the number of other children in such families;
       the number of such families that include only 1 parent;
       the number of such families that include both parents;
       the ages of the mothers of such children;
       the ages of the fathers of such children;
       the sources of the economic resources of such families, 
     including the amount of such resources obtained from (and 
     separately identified as being from)
       a. employment, including self-employment;
       b. assistance received under part A of title IV of the 
     Social Security Act (SSA);
       c. part B of title IV of the SSA;
       d. the Child Nutrition Act of 1966;
       e. the National School Lunch Act;
       f. assistance received under title XVI of the SSA;
       g. assistance received under title XIV of the SSA;
       h. assistance received under title XIX of the SSA;
       i. assistance received under title XX of the SSA; and
       j. any other source of economic resources the Secretary 
     determines to be appropriate;
       (3) the number of such providers separately identified with 
     respect to each type of child care provider specified in 
     section 658P(5) that provided child care services obtained 
     with assistance provided under this subchapter;
       (4) the cost of child care services and the portion of such 
     cost paid with assistance from this Act;
       (5) the manner in which consumer education information was 
     provided to parents and the number of parents to whom such 
     information was provided;
       (6) the number of parental complaints about child care that 
     were found to have merit and a description of corrective 
     actions taken by the State; and
       (7) information on programs to which funds were transferred 
     under section 658T (see item 15, below).
       States are also required to present evidence demonstrating 
     that they have State requirements designed to protect the 
     health and safety of children.
       Deletes current report requirements on: 1) increasing the 
     affordability and availability of child care; 2) reviewing 
     findings on State licensing and regulatory requirements; and 
     3) reducing standards.
       Requires States to include an evaluation plan in their 
     first annual report due after enactment and every 2 years 
     thereafter, and to include the results of such evaluation in 
     the second annual report due after enactment and every 2 
     years thereafter. The plan must include an evaluation 
     regarding the extent to which the State has realized the 
     following goals:
       (1) promoting parental choice to make their own decisions 
     on the child care that best suits their family's needs;
       (2) providing consumer education information to help 
     parents make informed choices about child care; 

[[Page H 12996]]

       (3) providing child care to parents trying to achieve 
     independence from public assistance; and
       (4) implementing the health, safety, licensing, and 
     registration standards established in State regulations.
     Senate amendment
       Requires States to submit reports every 2 years, rather 
     than every year, with the first report due no later than 
     December 31, 1996. Requires that States include information 
     on the type of Federal child care and preschool programs 
     serving children in the State, and requires that States 
     describe the extent and manner to which resource and referral 
     activities are being carried out by the State. Strikes the 
     current requirement for information on the type and number of 
     child care programs, providers, caregivers and support 
     personnel in the State, and strikes the provision related to 
     review findings of State licensing and regulatory 
     requirements.
     Conference agreement
       The Senate recedes, with a modification that the State 
     prepare and submit a data report to the Secretary every six 
     months, and that the report include: (1) family income; (2) 
     county of residence; (3) the sex, age of children receiving 
     benefits; (4) whether the family includes only one parent; 
     (5) the sources o f family income, including the amount 
     obtained from (and separately identified as being from): a) 
     employment, including self-employment; b) Part A cash 
     assistance or other assistance; c) housing assistance; d) 
     food stamps; and e) other; (6) the number of months the 
     family has received benefits; (7) the type of care in which 
     the child was enrolled (family day care, center, own home); 
     (8) whether the provider was a relative; (9) the cost of 
     care; and (10) the average hours per week of care. Annually, 
     the State must submit the following aggregate data: (1) the 
     number of providers separately identified in accord with each 
     type of provider specified in section 658P(5) that received 
     funding under this subchapter; (2) the monthly cost of child 
     care services and the portion of such cost paid with 
     assistance from this Act by type of care; (3) the number and 
     total amount of payments by the State in vouchers, contracts, 
     cash, and disregards from public benefit programs by type of 
     care; (4) the manner in which consumer education information 
     was provided; (5) information on programs from which funds 
     were transferred under 658T; and (6) total number 
     (unduplicated) of children and families served.
       States are required to present evidence demonstrating that 
     they have State requirements designed to protect the health 
     and safety of children.
       The House recedes on the requirement that States include an 
     evaluation plan in their reports to the Secretary.
       Deletes current report requirements on: (1) increasing the 
     affordability and availability of child care; (2) reviewing 
     findings on State licensing and regulatry reauirements; and 
     (3) reducing standards.


                      11. Report by the Secretary

     Present law
       Requires the Secretary to prepare and submit an annual 
     report, summarizing and analyzing information provided by 
     States, to the House Education and Labor Committee and the 
     Senate Labor and Human Resources Committee. This report must 
     contain an assessment and, where appropriate, recommendations 
     to Congress regarding efforts that should be taken to improve 
     access of the public to quality and affordable child care. 
     [Sec. 658L of the CCDBG Act]
     House bill
       Revises the Secretary's report to become a biennial report 
     to the Speaker and the President pro tempore.
     Senate amendment
       Requires the Secretary to prepare and submit biennial 
     reports, rather than annual, with the first report due no 
     later than July 31, 1997; and replaces the reference to the 
     House Education and Labor Committee with the House Economic 
     and Educational Opportunities Committee.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                             12. Allotments

     Present law
       Requires the Secretary to reserve one-half of 1% of 
     appropriations for payment to Guam, American Samoa, the 
     Virgin Islands, the Northern Marianas and the Trust Territory 
     of the Pacific Islands. The Secretary also must reserve no 
     more than 3% for payment to Indian tribes and tribal 
     organizations with approved applications. Remaining funds are 
     allocated to the States based on the States' proportion of 
     children under age 5 and the number of children receiving 
     free or reduced-price school lunches, as well as the States' 
     per capita income. Any portion of a State's reallotment that 
     the Secretary determines is not needed by the State to carry 
     out its plan for the allotment period, must be reallotted by 
     the Secretary to the other States in the same proportion as 
     the original allotments. [Sec. 658O of the CCDBG Act]
     House bill
       Maintains the current law set-asides for the Territories 
     and Indian tribes and tribal organizations, except that the 
     Trust Territory of the Pacific Islands is deleted from the 
     set-aside for Territories. Allots remaining funds to States 
     as follows: each State will receive an amount based on its 
     relative share of the aggregate amount of Federal funds 
     received by the State in fiscal year 1994 under the Child 
     Care and Development Block Grant Act, and under child care 
     programs for AFDC recipients and former AFDC recipients and 
     the At-Risk Child Care program under Title IV-A of the Social 
     Security Act. Eliminates reallotment provisions.
     Senate amendment
       Maintains current law allotment procedures. Amends section 
     658O(c), related to payments for the benefit of Indian 
     children, to add new provisions allowing the use of funds by 
     Indian tribes or tribal organizations for construction or 
     renovation of facilities, upon request by the tribe or tribal 
     organization and subject to approval by the Secretary. The 
     Secretary may not permit a tribe or tribal organization to 
     use funds for construction or renovation if such use will 
     result in a decrease in the level of child care services. The 
     Secretary is also allowed to reallot to other tribes any 
     tribal allotments that are not expended, which is similar to 
     what happens with unused State allotments.
     Conference agreement
       The Senate recedes, with a modification that the set-aside 
     for Indian tribes and tribal organizations and Native 
     Hawaiian Organizations is 1% of the total funds for child 
     care made available under this Act. Any portion of a State's 
     allotment that the Secretary determines is not needed by the 
     State to carry out its plan for the allotment period must be 
     reallotted by the Secretary to the other States in the same 
     proportion as the original allotments. The Secretary is also 
     allowed to reallot to other tribes any tribal allotments that 
     are expended, which is similar to the process for reallotment 
     to States.


                            13. Definitions

     Present law
       Provides definitions of the following terms: caregiver, 
     child care certificate, elementary school, eligible child, 
     eligible child care provider, family child care provider, 
     Indian tribe, lead agency, parent, secondary school, 
     Secretary, sliding fee scale, State, and tribal organization. 
     [Sec. 658P of the CCDBG Act]
     House bill
       Includes definitions for lead entity and child care 
     services, and strikes definitions for elementary school, 
     secondary school, and sliding fee scale.
     Senate amendment
       Revises the definition of eligible child to one whose 
     family income does not exceed 100% of the State median, 
     instead of 75%.
       Adds the following as an allowable use of a child care 
     certificate: ``as a deposit for child care services if such a 
     deposit is required of other children being cared for by the 
     provider.''
       Revise the definition of relative child care provider by 
     adding great grandchild and sibling (if the provider lives in 
     a separate residence) to the list of eligible children; by 
     striking the requirement that such providers be registered; 
     and by requiring such providers to comply with any 
     ``applicable'' requirements governing child care provided by 
     a relative.
     Conference agreement
       The House recedes, with a modification that strikes the 
     definition for elementary and secondary school and revises 
     the definition of eligible child to one whose family income 
     does not exceed 85% of the State median income.


                         14. Transfer of Funds

     Present law
       No provision.
     House bill
       Adds a new section 658T to the CCDBG Act, allowing a State 
     to transfer no more than 20% of CCDBG funds to one or more of 
     the following programs:
       1. Part A of Title IV of the Social Security Act;
       2. Part B of Title IV of the Social Security Act;
       3. Child Nutrition Act of 1966;
       4. National School Lunch Act; and
       5. Title XX of the Social Security Act.
       Transferred funds would be subject to the rules of the 
     program to which they are transferred.
     Senate amendment
       States can transfer up to 30% of their cash assistance 
     block grant (title IV-A) into the CCDBG.
     Conference agreement
       The House recedes, no funds can be transfered out of the 
     Child Care and Development Block Grant.


                   15. Application to Other Programs

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Adds a new section 658T to the CCDBG Act, that requires 
     States that use any Federal funds for child care services to 
     ensure that such services meet the requirements, standards 
     and criteria, with the exception of the 15% quality set-
     aside, of the CCDBG and any regulations issued under the 
     CCDBG. These 

[[Page H 12997]]
     funds must be administered through a uniform State plan and, to the 
     maximum extent practicable, shall be transferred to the lead 
     agency and integrated into the CCDBG program.
     Conference agreement
       The Senate recedes.


          16. Repeals and Technical and Conforming Amendments

     Present law
       Not applicable.
     House bill
       Repeals the following programs:
       (1) Child Development Associate (CDA) Scholarship 
     Assistance;
       (2) State Dependent Care Development Grants;
       (3) Programs of National Significance under Title X of the 
     Elementary and Secondary Education Assistance Act of 1965 
     (child care related to Cultural Partnerships for At-Risk 
     Children and Youth, and Urban and Rural Education 
     Assistance); and
       (4) Native-Hawaiian Family-Based Education Centers.
       [Note: Title I of the House bill also repeals child care 
     assistance provided under current law by Title IV-A of the 
     Social Security Act. This assistance is provided under 3 
     programs known as AFDC Child Care, Transitional Child Care, 
     and At-Risk Child Care.]
     Senate amendment
       Repeals CDA Scholarship Assistance and State Dependent Care 
     Development Grants.
       Requires the Secretary of HHS, after consultation with the 
     appropriate committees of Congress and the Director of the 
     Office of Management and Budget, to prepare and submit to 
     Congress, within 6 months after enactment, a legislative 
     proposal containing technical and conforming amendments that 
     reflect the amendments and repeals made by this Act.
       [Note: Title I of the Senate amendment also earmarks and 
     provides additional funds for child care, to replace the AFDC 
     Child Care, Transitional Child Care, and At-Risk Child Care 
     programs.]
     Conference agreement
       These repeals were dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).

                      Subtitle I--Child Nutrition


                     1. Child Nutrition Act of 1966

     Present law
       Authorizes the Special Supplemental Nutrition Program for 
     Women, Infants, and Children (WIC), the School Breakfast 
     program, the Special Milk program, assistance to States for 
     child nutrition administrative expenses and nutrition 
     education and training, and school breakfast assistance for 
     Defense Department overseas dependents' schools.
       The WIC program provides specific nutritious foods to 
     lower-income pregnant, postpartum, and breastfeeding women, 
     and infants and children (up to age 5). Recipients' family 
     income must be below 185% of Federal poverty guidelines, and 
     they must be judged at nutritional risk. Federal funds, set 
     by appropriation levels, are made available to State health 
     agencies under a formula. States then provide funds to local 
     health agencies, which are responsible for day-to-day 
     operations. Funds also are used for food, nutrition 
     assessments and counselling, referrals to other programs, 
     breastfeeding promotion, and a farmers' market program. [Sec. 
     17 and 21 of the Child Nutrition Act]
       Under the School Breakfast program, schools choosing to 
     participate in the program receive per-meal Federal cash 
     subsidies for all breakfasts they serve that meet Federal 
     nutrition standards. Subsidies are indexed annually for 
     inflation and differ depending on whether the meal is served 
     free (to children from families with income below 130% of 
     poverty), at a reduced price (to children with family income 
     between 130% and 185% of poverty), or at ``full price'' (so-
     called ``paid'' meals for those with family income above 185% 
     of poverty or who do not apply for free or reduced-price 
     meals). Schools with high proportions of lower-income 
     students get larger per-meal subsidies, and special grants 
     are provided to assist in paying start-up and expansion 
     costs. [Sec. 4 of the Child Nutrition Act]
       Under the Special Milk program, schools and institutions 
     not otherwise participating in a meal service program (and 
     schools with split sessions for kindergartners) provide milk 
     to all children at a low price or free, and each half-pint 
     served is federally subsidized at a different rate--depending 
     on whether it is served free or not. Provision of free milk 
     is not required. [Sec. 3 of the Child Nutrition Act]
       Under the State administrative expense assistance program, 
     grants are made to States to help cover administrative costs 
     associated with child nutrition programs. The amount 
     available each year is 1.5% of Federal cash payments for 
     School Lunch, School Breakfast, Child and Adult Care Food, 
     and Special Milk programs. [Sec. 7 of the Child Nutrition 
     Act]
       For nutrition education and training, States are provided 
     with Federal funds for training school food service personnel 
     in food service management, instructing teachers in nutrition 
     education, and teaching children about nutrition. [Sec. 19 of 
     the Child Nutrition Act]
       Special provisions are made for Federal assistance for 
     school breakfast programs in Defense Department overseas 
     dependents' schools. [Sec. 20 of the Child Nutrition Act]
     House bill
       Retains the designation of the Act as the Child Nutrition 
     Act of 1966 and replaces the Act's current provisions with 
     authorization for a Family Nutrition Block Grant Program.
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment to:
       A. Create an optional State block grant entitled, ``CHILD 
     CARE AND SUMMER FOOD SERVICE OPTIONAL BLOCK GRANT.''
       OPTIONAL BLOCK GRANT--Under the terms of the optional block 
     grant, all States have the option of receiving funds for the 
     Child Care Food and Summer Food Programs through a block 
     grant. For fiscal year 1996, 22 States will have the option 
     to participate. In fiscal year 1997, all States will have the 
     option to participate.
       DECISION TO PARTICIPATE--States opting to participate in 
     the block grant may reverse a decision to participate in the 
     block grant once prior to the termination date and only after 
     a two-year period of participation. If a State opts out, such 
     State may resume participation under the summer food service 
     program and the child care food program.
       STATE PLAN--States are required to submit a State plan to 
     the Secretary in order to participate in the block grant.
       USE OF FUNDS--States must insure that the funds will only 
     be used to provide assistance in providing meals and meal 
     supplements in summer food service facilities and 
     nonresidential child care institutions that are licensed or 
     approved by the Federal Government, the State, or a local 
     government (State option to make payments to sponsoring 
     organizations).
       ADMINISTRATIVE EXPENSES--None of the funds under the block 
     grant are to be used for State administrative expenses 
     (States will continue to receive such funds under current SAE 
     provisions).
       NUTRITIONAL REQUIREMENTS--States are to provide minimum 
     nutritional requirements for meals and meal supplements based 
     on the most recent tested nutritional research available. 
     Such requirements shall, to the extent practicable, be 
     consistent with the goals of the most recent Dietary 
     Guidelines for Americans. Meals shall provide, on the average 
     over a week, at least \1/3\ of the recommended dietary 
     allowance for lunches and dinners and \1/4\ of the 
     recommended dietary allowance for breakfasts. The Secretary 
     may not impose any additional nutritional requirements beyond 
     those specified in this section.
       STATE REVIEW--States will review the meal operations in 
     each participating summer food service facility and 
     nonresidential child care institution no later than two years 
     after implementation of the block grant and at the end of 
     each 5-year period thereafter.
       INCOME ELIGIBILITY--The State plan will describe how the 
     block grant will serve specific groups of children in the 
     State. The plan will further describe the income eligibility 
     limitations established for meal and meal supplements. Only 
     children who are members of families with incomes below 185 
     percent of the poverty line are eligible to participate.
       SUMMER FOOD ELIGIBILITY--A summer food service facility may 
     only receive funds if it operates in an area where at least 
     50 percent of the children are eligible for free or reduce 
     price school meals--or be a residential public or nonprofit 
     private summer camp. Existing summer food service sponsors 
     must to given an opportunity to continue participation.
       DOD PARTICIPATION--Nonresidential child care institutions 
     on military installations are eligible to participate on an 
     equitable basis with all other nonresidential child care 
     institutions in the State participating in the block grant. 
     If such facility is licensed or approved by DOD, the State 
     may not require them to be licensed or approved under State 
     or local law.
       PRIVACY--States shall provide for safeguarding and 
     restricting the use and disclosure of information about 
     children receiving assistance under this Act. Physical 
     segregation and overt identification of children 
     participating in the block grant is prohibited.
       REQUIRED REPORT--In order to participate, States must agree 
     to submit a report to the Secretary each fiscal year 
     describing (a) the number of children receiving assistance; 
     (b) the different types of assistance provided; (c) the 
     extent to which assistance was effective in achieving program 
     goals; (d) the standards and methods used to ensure the 
     nutritional quality of meals and meal supplements and (e) 
     other information the Secretary may reasonably require. 
     Failure to submit the required report will reduce the amounts 
     otherwise payable to a State.
       COMPLIANCE--The Secretary is required to review and monitor 
     State compliance and withhold funds to the State with respect 
     to the program or activity for which noncompliance is found, 
     until the Secretary determines the problem has been 
     corrected. The Secretary may seek financial restitution for 
     misused funds.
       PAYMENTS TO STATES--Payments to States under the block 
     grant shall be on a quarterly basis and may be expended by 
     the State for the current fiscal year or the succeeding 
     fiscal year.
       AUDITS--A yearly audit is required. 

[[Page H 12998]]

       ALLOTMENT--In the first year of participation, the 
     Secretary is required to allot to each participating State an 
     amount that is equal to the amount the Secretary projects 
     will be made available to the State to carry out the current 
     law summer food service program and the child care food 
     program for the current fiscal year. In the succeeding years 
     such amount will be adjusted to reflect changes in the 
     Consumer Price Index, series for food away from home and 
     changes in each State's child population.
       ALTERNATIVE ASSISTANCE--The Secretary is to arrange for the 
     provision of such assistance and reduce the State allotment 
     accordingly in cases where a State prohibited by law from 
     providing assistance to an eligible sponsoring organization 
     or a DOD domestic dependents' school, as well as States that 
     have substantially failed or are unwilling to provide such 
     assistance.
       EVALUATION--No later than three years after the 
     establishment of the block grant the Secretary is to conduct 
     an evaluation and submit a report to Congress, including the 
     comments of the Comptroller General. The report is to include 
     information on the effects of the block grant on the 
     nutritional quality of meals; the income distribution of 
     children served, the difference between implementation of the 
     block grant and implementation of the existing Summer Food 
     program and Child Care Food program.
       AUTHORIZATION PERIOD--the block grant option is authorized 
     through September 30, 2002.
       B. Streamlining provisions in the Child Nutrition Act of 
     1966. The following changes are intended to streamline the 
     operation of programs under the Child Nutrition Act.
       56. Revise Sec. 19(f)(1)(A), striking clauses (ix)-(xix), 
     eliminating unnecessary stipulations on uses of funds.
       57. Strike Sec. 19(f)(1)(B) to eliminate ``language 
     appropriate'' information provision.
       58. Strike Sec. 19(f)(2) and 19(f)(4). Technical and 
     conforming.
       63. Revise Sec. 19(i), making discretionary and authorizing 
     appropriations of $10 million per year.


           2. Authorization for Family Nutrition Block Grant

                       A. Requirement for Grants

     Present law
       The Child Nutrition Act (see item 1) and the National 
     School Lunch Act (see item 11) require that the Secretary of 
     Agriculture provide Federal assistance to States for the WIC, 
     Child and Adult Care Food, Summer Food Service, and Special 
     Milk programs, as well as other support (e.g., for State 
     administrative expenses and nutrition education and 
     training), under terms of agreements with States meeting 
     Federal standards.
     House bill
       Directs the Secretary of Agriculture to provide to each 
     State that submits an annual application in accordance with 
     the revised Child Nutrition Act's requirements (see item 4) 
     an annual family nutrition grant for the purpose of achieving 
     the goals of the Family Nutrition Block Grant Program (see 
     item 2B for the program's goals and item 3 for State 
     allotments).
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment creating an optional State 
     block grant and making changes to Child Nutrition Act (see 
     Item #1).


                                B. Goals

     Present law
       The Child Nutrition Act declares it the policy of Congress 
     to extend, expand, and strengthen child nutrition programs as 
     a measure to safeguard the health and well-being of the 
     Nation's children and to encourage the domestic consumption 
     of agricultural commodities by assisting States through 
     grants and other means to more effectively meet children's 
     nutritional needs. [Sec. 2 of the Child Nutrition Act]
     House bill
       Establishes the goals of the Family Nutrition Block Grant 
     Program:
       (1) to provide nutritional risk assessments, food 
     assistance based on the assessments, and nutrition education 
     and counseling to economically disadvantaged pregnant, 
     postpartum, and breastfeeding women, as well as infants and 
     young children, determined to be at nutritional risk (see 
     item 10 for definitions);
       (2) to provide nutritional risk assessments of 
     participating women so that food assistance and nutrition 
     education is provided that meets their specific needs;
       (3) to provide nutrition education to participating women 
     to increase their awareness of the foods needed for good 
     health;
       (4) to provide food assistance, including nutritious 
     supplements, to participating women in order to reduce the 
     incidence of low-birthweight babies and babies born with 
     birth defects because of nutritional deficiencies;
       (5) to provide food assistance, including nutritious 
     supplements, to participating women, infants, and children to 
     ensure their future good health;
       (6) to ensure that participating women, infants, and 
     children are referred to other health services, including 
     routine pediatric/obstetric care;
       (7) to ensure that children from economically disadvantaged 
     families in day care facilities, family day care homes, 
     homeless shelters, settlement houses, recreational centers, 
     Head Start centers, Even Start programs, and facilities for 
     disabled children receive nutritious meals, supplements, and 
     low-cost milk; (see item 10B for definition of ``economically 
     disadvantaged''); and
       (8) to provide summer food service programs for children 
     from economically disadvantaged families when school is not 
     in session (see item 10B for definition of ``economically 
     disadvantaged'').
     Senate amendment
       No provision.
     Conference agreement
       Senate recedes, deleting all references to the Special 
     Supplemental Food Program for Women, Infants and Children.


                         C. Timing of Payments

     Present law
       No provision.
     House bill
       Directs that the Secretary of Agriculture make family 
     nutrition grant payments to the States on a quarterly basis.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to the Child Nutrition Act (see Item 
     #1).


              3. Allotment of Family Nutrition Block Grant

     Present law
       Current activities that may be funded under the House 
     bill's Family Nutrition Block Grant include those now 
     supported by the WIC program, the Homeless Children Nutrition 
     program (authorized under section 17B of the National School 
     Lunch Act), the Child and Adult Care Food program (authorized 
     under section 17 of the National School Lunch Act), the 
     Summer Food Service program (authorized under section 13 of 
     the National School Lunch Act), and the Special Milk program.
       Under the WIC program, Federal funds, determined by 
     appropriations levels, are made available to States under a 
     formula that reflects State caseloads, food cost inflation, 
     need (as evidenced by poverty and health indices), and a 
     specified national average per participant grant; in effect, 
     funds are allotted so that each State can maintain its 
     caseload from year to year, and extra money is shared so as 
     to support expanded enrollment in States with greater need.
       Under the Homeless Children Nutrition program, Federal 
     funds are made available to existing projects to continue 
     operations and, from any additional amounts, money is 
     provided for new projects or to expand existing projects.
       Under the Child and Adult Care Food program, child and 
     adult care centers and family day care homes receive Federal 
     reimbursements for each meal or supplement served at 
     legislatively established, inflation indexed rates.
       Under the Summer Food Service program, sponsors receive 
     Federal reimbursements for each meal or supplement served, at 
     legislatively established, inflation indexed rates.
       Under the Special Milk program, schools and other 
     participating institutions receive specified, inflation 
     indexed Federal reimbursements for each half-pint of milk 
     served.
     House bill
       As set forth below, provides for the Secretary of 
     Agriculture to make State allotments of funds appropriated 
     for the Family Nutrition Block Grant.
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to child Nutrition Act (see Item 
     #1).


                     A. First Year State Allotments

     Present law
       No provisions.
     House bill
       For the first fiscal year in which grants are made, 
     provides that the Secretary make allotments to States based 
     on the projections of funds each State would receive under 
     current law for the upcoming fiscal year.
       Base-Year State Shares: Each State's allotment would be its 
     prior-year share of funds received under the WIC and Homeless 
     Children Nutrition programs, plus its prior-year share of 
     87.5% of the amounts received under the Child and Adult Care 
     Food, Summer Food Service, and Special Milk programs.
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to Child Nutrition Act (see Item 
     #1).


                    B. Second Year State Allotments

     Present law
       No provision.
     House bill
       For the second fiscal year in which grants are made, 
     provides that (1) 95% of the amount appropriated be allotted 
     according to each State's share of the amount allotted in the 
     first year and (2) 5% of the amount allotted be based on each 
     State's share of the number of individuals receiving 
     assistance 

[[Page H 12999]]
     under the grant during the 1-year period ending the preceding June 30.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to Child Nutrition Act (see Item 
     #1).


               C. Third and Fourth Year State Allotments

     Present law
       No provision.
     House bill
       For the third and fourth fiscal years in which grants are 
     made, provides that (1) 90% of the amount appropriated be 
     allotted according to each State's share of the amount 
     allotted in the preceding year and (2) 10% of the amount 
     allotted be based on each State's share of the number of 
     individuals receiving assistance under the grant during the 
     1-year period ending the preceding June 30.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment allowing an optional 
     family nutrition block grant for summer food and child care 
     food programs only and making changes to the Child Nutrition 
     Act (see Item #1).


                     D. Fifth Year State Allotments

     Present Law
       No provision.
     House bill
       For the fifth fiscal year in which grants are made, 
     provides that (1) 85% of the amount appropriated be allotted 
     according to each State's share of the amount allotted in the 
     fourth year and (2) 15% of the amount allotted be based on 
     each State's share of the number of individuals receiving 
     assistance under the grant during the 1-year period ending 
     the preceding June 30.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment allowing an optional 
     family nutrition block grant for summer food and child care 
     food programs only (see Item #1).


               4. Application for Family Nutrition Grants

     Present law
       Nutrition requirements for food assistance provided under 
     the current WIC, Child and Adult Care Food, and Summer Food 
     Service programs are established by the Secretary of 
     Agriculture, as are the general standards for determining 
     nutritional risk in women, infants, and children, on the 
     basis of tested nutritional research. [Sec. 17(b)(8) & (14) 
     and (f)(12) of the Child Nutrition Act; Sec. 17(g)(1) and 
     Sec. 13(f) of the National School Lunch Act]
       The use/disclosure of information obtained from 
     applications for free/reduced-price meals is limited to those 
     administering/enforcing child nutrition programs, 
     administrators of other health or education programs (with 
     restrictions), and the General Accounting Office and law 
     enforcement officials. [Sec. 9(b)(2) of the National School 
     Lunch Act]
     House bill
       Provides that the Secretary make a family nutrition grant 
     to a State if it submits an application containing only the 
     following:
       (1) an agreement that the State will use the grant in 
     accordance with Family Nutrition Block Grant program 
     requirements (see item 5);
       (2) an agreement that the State will set minimum nutrition 
     requirements for food assistance provided under the grant 
     based on the most recent tested nutrition research available 
     (but the requirements may not prohibit the substitution of 
     foods to accommodate medical or other special dietary needs, 
     and would have to be based, at a minimum, on the weekly 
     average nutrient content of school lunches or other standards 
     set by the State);
       (3) an agreement that, with respect to assistance to 
     pregnant, postpartum, and breastfeeding women, and infants 
     and children, the State will implement minimum nutrition 
     requirements based on the most recent tested nutritional 
     research available or the model nutrition standards developed 
     by the National Academy of Sciences (see item 8B);
       (4) an agreement that the State will take reasonable steps 
     it deems necessary to restrict the use and disclosure of 
     information about those receiving assistance under the grant;
       (5) an agreement that the State will not use more than 5% 
     of its grant for administrative costs incurred to provide 
     assistance (costs associated with nutritional risk 
     assessments of pregnant, postpartum, and breastfeeding women, 
     and infants and children, as well as those associated with 
     nutrition education and counseling for these individuals, 
     would not be considered administrative costs subject to the 
     5% limit); and
       (6) an agreement that the State will submit an annual 
     report to the Secretary (see item 6).
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to Child Nutrition Act (see Item 
     #1).


   5. Use of Amounts Provided Under the Family Nutrition Block Grant

                        A. Activities Supported

     Present law
       The WIC program provides nutritional risk assessment, 
     specific nutritious foods (under Federal guidelines), 
     nutrition education/ counseling, breastfeeding support, and a 
     farmers' market program for lower-income pregnant, 
     postpartum, and breastfeeding women, as well as infants and 
     children (up to age 5). Recipients' family income must be 
     below 185% of poverty, and they must be judged at nutritional 
     risk. [Sec. 17 of the Child Nutrition Act]
       The Special Milk program provides Federal reimbursement for 
     each half-pint of milk served in schools and other child care 
     institutions not participating in a meal service program (and 
     schools with split sessions for kindergartners). Milk is 
     served at a low price or for free and each half-pint is 
     subsidized at a different rate depending on whether it served 
     free or not. Provision of free milk is not required. [Sec. 3 
     of the Child Nutrition Act]
       The Child and Adult Care Food program provides Federal per-
     meal/supplement reimbursements for all meals and supplements 
     served in public and private nonprofit child care centers, 
     public and private nonprofit adult day care centers, certain 
     for-profit child and adult day care centers, and family day 
     care homes. Reimbursements for meals/ supplements served in 
     child/adult care centers differ according to whether they are 
     served free (to children from families with income below 130% 
     of Federal poverty guidelines), at a reduced price (to 
     children with family income between 130% and 185% of the 
     poverty guidelines), or at ``full price'' (so-called ``paid'' 
     meals and supplements for those with family income above 185% 
     of poverty or who do not apply for free or reduced price 
     meals/supplements). Reimbursements for meals and supplements 
     served in family day care homes do not vary by the family 
     income of the child, and sponsors of family day care homes 
     receive monthly payments for administrative costs. [Sec. 17 
     of the National School Lunch Act]
       The Summer Food Service program provides Federal per meal/
     supplement reimbursements for all summer meals and 
     supplements served through public and private nonprofit 
     sponsors (including schools and local governments) to 
     children in areas where 50% or more have family income below 
     185% of the Federal poverty guidelines (are eligible for free 
     or reduced-price school meals). Summer food service subsidies 
     also are provided to public and private nonprofit summer 
     camps and higher education institutions in the National Youth 
     Sports program. [Sec. 13 of the National School Lunch Act]
       The Homeless Children Nutrition program grants funds to 
     public and private nonprofit sponsors providing food service 
     (meals and supplements), similar to that provided under the 
     Child and Adult Care Food program, to homeless children under 
     age 6 in shelters. [Sec. 17B of the National School Lunch 
     Act] [General Note: In addition to cash reimbursements, 
     Federal commodity assistance is available for the Child and 
     Adult Care Food and Summer Food Service programs.]
     House bill
       Provides that the Secretary of Agriculture make family 
     nutrition grants to States if they agree to use their grant 
     to:
       (1) provide nutritional risk assessment, food assistance 
     based on the assessment, and nutrition education and 
     counseling to economically disadvantaged pregnant, 
     postpartum, and breastfeeding women, and infants and young 
     children, who are determined to be at nutritional risk (see 
     item 10 for definitions);
       (2) provide milk in nonprofit nursery schools, child care 
     centers, settlement houses, summer camps, and similar child 
     care settings to children from economically disadvantaged 
     families (see item 10 for definitions) [Note: Under the 
     School-Based Nutrition Block Grant Program, support could be 
     provided for milk served in schools.];
       (3) provide food service in institutions and family day 
     care homes providing child care to children from economically 
     disadvantaged families (see item 10 for definitions) [Note: 
     Under the School-Based Nutrition Block Grant Program, support 
     could be provided for child care food service provided 
     through schools. Further Note: Adult-care food service would 
     not be funded under the Family Nutrition Block Grant 
     program.];
       (4) provide summer food service to economically 
     disadvantaged children through programs carried out by 
     nonprofit food authorities, local governments, higher 
     education institutions in the National Youth Sports program, 
     and nonprofit summer camps (see item 10 for definitions) 
     [Note: Under the School-Based Nutrition Block Grant Program, 
     support could be provided for summer food service by 
     schools.]; and
       (5) provide nutritious meals to pre-school-age homeless 
     children in shelters and other facilities serving the 
     homeless.
       [General Note: Federal commodity assistance would not be 
     available for child care food and summer food service 
     activities under the family nutrition grant.]
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to Child Nutrition Act (see Item 
     #1).

[[Page H 13000]]



   B. Additional Requirements for Assistance for Women, Infants, and 
                                Children

     Present law
       Under the WIC program, States must carry out cost 
     containment measures in procuring infant formula (and, where 
     practicable, other foods). Cost containment must be by 
     competitive bidding (selection of a single source offering 
     the lowest price) or another method that yields equal or 
     greater savings. Cost savings (e.g., through manufacturer 
     rebates) may be used by the State for WIC program purposes. 
     The Secretary of Agriculture must provide technical 
     assistance for cost-containment bids and offer to solicit 
     multi-State bids for infant formula and infant cereal. In 
     addition, certain rules against bid-rigging and anti-
     competitive practices are established. [Sec. 17(b) (17)-(20) 
     and (h)(8) & (9) of the Child Nutrition Act, and Sec. 25 of 
     the National School Lunch Act]
     House bill
       Requires that each State ensure that not less than 80% of 
     its family nutrition grant is used to provide nutrition risk 
     assessment, food assistance based on the assessment, and 
     nutrition education and counseling to economically 
     disadvantaged pregnant women, postpartum women, breastfeeding 
     women, infants, and young children.
       With respect to assistance provided to women, infants, and 
     young children, requires States to establish and carry out a 
     cost containment system for procuring infant formula. 
     Requires States to use cost containment savings for any of 
     the activities supported under their family nutrition grant. 
     Requires States to submit annual reports to the Secretary (1) 
     describing their infant formula cost containment system and 
     (2) estimating the cost savings from the system for the 
     report year compared to savings from the preceding year, 
     where appropriate.
       Requires States to ensure that equitable assistance for 
     economically disadvantaged pregnant women, postpartum women, 
     breastfeeding women, infants, and young children is provided 
     to members of the Armed Forces and their dependents, 
     regardless of their State of residence (see item 10 for 
     definitions).
     Senate amendment
       Includes findings on the success of the WIC program in 
     improving the health status of women, infants, and children 
     and saving Medicaid expenditures, as well as the importance 
     of manufacturer rebates in helping to fund the WIC program. 
     Provides that it is the sense of the Senate that any 
     legislation not eliminate or in any way weaken present 
     competitive bidding requirements for the purchase of infant 
     formula in programs supported with Federal funds.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to Child Nutrition Act (see Item 
     #1).


        C. Child Care Food Assistance on Military Installations

     Present law
       Assisted child care facilities must be licensed under 
     Federal, State, or local rules. [Sec. 17(a)(1) of the 
     National School Lunch Act]
     House bill
       Requires States to provide equitable assistance under its 
     program for child care facilities to Defense Department child 
     care programs on military installations--to the extent 
     consistent with the number of children in the programs and 
     after consultation with the programs' representatives.
       In carrying out programs for child care facilities, bars 
     States from requiring that those on military installations be 
     licensed under State law if they are licensed by the Defense 
     Department.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant (see Item #1).


  D. Authority to Use Family Nutrition Block Grant Amounts for Other 
                                Purposes

     Present law
       No provision.
     House bill
       Allows States to use not more than 20% of amounts received 
     from a family nutrition block grant for any fiscal year to 
     carry out State programs under other block grants authorized 
     by:
       (1) part A of title IV of the Social Security Act (relating 
     to welfare for families with children);
       (2) part B of title IV of the Social Security Act (relating 
     to provision of child welfare services);
       (3) title XX of the Social Security Act (relating to 
     provision of social services);
       (4) the National School Lunch Act (relating to school-based 
     nutrition block grants); and
       (5) the Child Care and Development Block Grant.
       Provides that States may not transfer funds to other block 
     grants unless the appropriate State agency makes a 
     determination that sufficient amounts will remain available 
     for the fiscal year to carry out activities under the Family 
     Nutrition Block Grant program.
       Provides that family nutrition grant amounts States 
     transfer to other block grants (noted above) will not be 
     subject to the requirements of the Family Nutrition Block 
     Grant program under the revised Child Nutrition Act, but will 
     be subject to the requirements that apply to Federal funds 
     provided directly to the block grant to which they are 
     transferred.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant (see Item #1).


                               6. Reports

     Present law
       No comparable provision.
     House bill
       Requires that States, as a condition of receiving a family 
     nutrition grant, agree to submit an annual report to the 
     Secretary of Agriculture describing:
       (1) the number of individuals receiving assistance under 
     the grant for the reporting (fiscal) year;
       (2) the different types of assistance provided;
       (3) the extent to which the assistance provided was 
     effective in achieving the goals of the Family Nutrition 
     Block Grant program (see item 2B);
       (4) the standards and methods the State is using to ensure 
     the nutritional quality of assistance under the grant;
       (5) the number of low-birthweight births in the State in 
     the reporting (fiscal) year compared to the number of low-
     birthweight births in the previous year; and
       (6) any other information that can be reasonably required 
     by the Secretary.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to the Child Nutrition Act (see Item 
     1).


                              7. Penalties

                       A. Penalty for Violations

     Present law
       The Child Nutrition and National School Lunch Acts provide 
     penalties for fraud in relation to assistance provided under 
     either Act, grant the Secretary of Agriculture authority to 
     establish and adjust claims against States, and establish a 
     compliance and accountability program to monitor the use of 
     Federal funds. [Sec. 12(g) and Sec. 22 of the National School 
     Lunch Act, and Sec. 16 of the Child Nutrition Act]
     House bill
       Requires the Secretary of Agriculture to reduce family 
     nutrition grant amounts otherwise payable to a State by any 
     amount paid under the grant that an audit made under the 
     ``Single Audit Act'' (chapter 75 of title 31 of the United 
     States Code) finds has been used in violation of the revised 
     Child Nutrition Act. However, the Secretary is barred from 
     reducing any quarterly payment to the State by more than 25%.
     Senate amendment
       No comparable provision.
       Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to Child Nutrition Act (see Item 1).


           B. Penalty for Failure to Submit a Required Report

     Present law
       No specific provision.
     House bill
       Requires the Secretary to reduce by 3% the family nutrition 
     grant amount otherwise payable to a State for any fiscal year 
     if the Secretary determines that the State has not submitted 
     the required annual report (see item 6) for the immediately 
     preceding fiscal year within 6 months after the end of that 
     fiscal year.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to Child Nutrition Act (see Item 1).


 8. Model Nutrition Standards for Food Assistance for Women, Infants, 
                              and Children

                             A. Requirement

     Present law
       No comparable provisions. [Note: The Secretary establishes 
     nutrition standards for and foods to be made available under 
     the WIC program; Sec. 17(b)(14) and 17(f)(12) of the Child 
     Nutrition Act.]
     House bill
       Not later than April 1, 1996, requires the National Academy 
     of Sciences to develop model nutrition standards for food 
     assistance provided to economically disadvantaged pregnant 
     women, postpartum women, breastfeeding women, infants, and 
     young children under the Family Nutrition Block Grant program 
     (see item 10 for definitions). The standards are to be 
     developed by the Food and Nutrition Board of the Academy's 
     Institute of Medicine, in cooperation with pediatricians, 
     obstetricians, nutritionists, and directors of programs 
     providing food assistance, nutrition education and counseling 
     to these women, infants, and children.
       The model standards must require that food assistance 
     provided to these women, infants, and children contain 
     nutrients that are lacking in their diets, as determined by 
     nutritional research.

[[Page H 13001]]

     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to Child Nutrition Act (see Item 1).


                         B. Report to Congress

     Present law
       No provision.
     House bill
       Not later than one year after the model nutrition standards 
     (noted above) are developed, requires the National Academy of 
     Sciences to report to Congress regarding efforts of States to 
     implement them.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to Child Nutrition Act (see Item 
     #1).


                   9. Authorization of Appropriations

                            A. Authorization

     Present law
       Federal appropriations for activities under current law 
     replaced by the House bill's Family Nutrition Block Grant 
     program are authorized at such sums as are necessary, except 
     for the Homeless Children Nutrition program (provided 
     specific amounts). [Sec. 13(r), 17(b), and 17B of the 
     National School Lunch Act; Sec. 3(a) and 4(a) of the Child 
     Nutrition Act]
     House bill
       Authorizes appropriations for the Family Nutrition Block 
     Grant program under the revised Child Nutrition Act at: 
     $4.606 billion for fiscal year 1996, $4.777 billion for 
     fiscal year 1997, $ $4.936 billion for fiscal year 1998, 
     $5.120 billion for fiscal year 1999, and $5.308 billion for 
     fiscal year 2000.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to Child Nutrition Act (see Item 1).


                            B. Availability

     Present law
       With the exception of funding for the WIC program, 
     appropriations for the activities under current law to be 
     replaced by the Family Nutrition Block Grant program 
     generally cannot be carried over to the next fiscal year.
     House bill
       Authorizes amounts for the Family Nutrition Block Grant 
     program to remain available until the end of the fiscal year 
     subsequent to the year they were appropriated for.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to Child Nutrition Act (see Item 1).


                            10. Definitions

A. Breastfeeding Women, Infants, Postpartum Women, Pregnant Women, and 
                             Young Children

     Present law
       For purposes of the WIC program: (1) breastfeeding women 
     are defined as women up to 1 year postpartum who are 
     breastfeeding their infants; (2) infants are defined as 
     persons under 1 year of age; (3) postpartum women are defined 
     as women up to 6 months after termination of pregnancy; (4) 
     pregnant women are defined as those who have 1 or more 
     fetuses in utero; and (5) young children are persons who have 
     had their first birthday but not attained their fifth 
     birthday. [Sec. 17(b) of the Child Nutrition Act]
     House bill
       For purposes of State family nutrition grant programs, 
     adopts present-law definitions of breastfeeding women, 
     infants, postpartum women, pregnant women, and young 
     children.
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to Child Nutrition Act (see Item 1).


                     B. Economically Disadvantaged

     Present law
       No directly comparable provisions. [Note: Under present 
     law, means tests for assistance apply as follows: (1) for the 
     WIC program, recipients must have family income below 185% of 
     the Federal poverty guidelines (but States may not set 
     standards below poverty); and (2) for those in child and 
     adult care centers under the Child and Adult Care Food 
     program, persons with family income below 130% of poverty are 
     eligible for free meals/supplements, those with family income 
     between 130% and 185% of poverty are eligible for reduced-
     price meals and supplements, and those with family income 
     above 185% of poverty (or who do not apply for free or 
     reduced-price treatment) are eligible for ``paid'' (but still 
     subsidized) meals and supplements. No individual income test 
     is applied in the family day care home component of the Child 
     and Adult Care Food program, the Summer Food Service program, 
     the Special Milk program, and the Homeless Children Nutrition 
     program.
     House bill
       The term ``economically disadvantaged'' is defined to apply 
     to individuals or families with annual income below 185% of 
     the Federal poverty guidelines. [Note: No assistance under a 
     family nutrition grant (other than aid to homeless children) 
     could be given to those with family income above 185% of 
     poverty.]
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to Child Nutrition Act (see Item 1).


                        C. School and Secretary

     Present law
       ``Schools'' are defined as public or private nonprofit 
     elementary, intermediate, or secondary schools. The 
     ``Secretary'' is defined as the Secretary of Agriculture.
     House bill
       ``Schools'' and the ``Secretary'' would, under the Family 
     Nutrition Block Grant program, have the same meaning as in 
     present law.
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to Child Nutrition Act (see Item 
     #1).


                                D. State

     Present law
       In general, ``State'' is defined as the 50 States, the 
     District of Columbia, Puerto Rico, the Northern Marianas, 
     American Samoa, Guam, and the Virgin Islands. In the WIC 
     program, it includes an Indian tribe, band, or group 
     recognized by the Interior Department, an intertribal council 
     or group recognized by the Interior Department, or the Indian 
     Health Service.
     House bill
       ``State'' would, under the Family Nutrition Block Grant 
     program have the same meaning as in present law. In addition, 
     Indian tribal organizations (as defined under section 4(l) of 
     the Indian Self-Determination and Education Assistance Act) 
     would be included as States and could apply for grants.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to Child Nutrition Act (see Item 
     #1).


                     11. National School Lunch Act

     Present law
       Authorizes the School Lunch, Summer Food Service, Child and 
     Adult Care Food, and Homeless Children Nutrition programs. 
     Also authorizes commodity assistance for child nutrition 
     programs and school lunch assistance for Defense Department 
     overseas dependents' schools.
        Under the School Lunch program, schools choosing to 
     participate receive per-meal Federal subsidies for all 
     lunches they serve that meet Federal nutrition standards. 
     Subsidies are indexed annually and differ depending on 
     whether the meal is served free (to children from families 
     with income below 130% of Federal poverty guidelines), at a 
     reduced price (to children with family income between 130% 
     and 185% of poverty), or at ``full price'' (so-called 
     ``paid'' lunches for those with family income above 185% of 
     poverty or who do not apply for free or reduced-price meals). 
     Schools with high proportions of free or reduced-price 
     participants receive an additional per-meal subsidy. [Sec. 4 
     & 11 of the National School Lunch Act]
       The Summer Food Service program provides Federal per-meal/
     supplement reimbursements for all summer meals and 
     supplements served through public and private nonprofit 
     sponsors (including schools and local governments) to 
     children in areas where 50% or more have family income below 
     185% of the Federal poverty guidelines (are eligible for free 
     or reduced-price school meals). Summer food service subsidies 
     also are provided to public and private nonprofit summer 
     camps and higher education institutions in the National Youth 
     Sports program. [Sec. 13 of the National School Lunch Act]
       The Child and Adult Care Food program provides Federal per-
     meal reimbursements for all meals and supplements served in 
     public and private nonprofit child care centers, public and 
     private nonprofit adult day care centers, certain for-profit 
     child and adult day care centers, and family day care homes. 
     Reimbursements for meals/supplements in centers vary by the 
     recipient's income, but not in family day care homes. Certain 
     schools with after-school care programs also may receive 
     assistance. [Sec. 17 & 17A of the National School Lunch Act] 
     The Homeless Children Nutrition program grants funds to 
     public and private nonprofit sponsors providing food service 
     (meals and supplements), similar to that provided under the 
     Child and Adult Care Food program, to homeless children under 
     age 6 in shelters.
       The Agriculture Department is required to provide commodity 
     support for meals served by institutions in the School Lunch, 
     Child and Adult Care Food, and Summer Food Service programs. 
     Schools and other institutions are ``entitled'' to a specific 
     dollar value of commodities based on the number of meals 
     served. Schools and other institutions 

[[Page H 13002]]
     also receive ``bonus'' commodities donated from Federal stocks at the 
     Agriculture Department's discretion. [Sec. 6 & 14 of the 
     National School Lunch Act]
        The Secretary of Agriculture is required to make funds 
     available for school lunch programs in Defense Department 
     overseas dependent's schools to the same degree as for other 
     schools (authority for school breakfast programs in these 
     schools is contained in Sec. 20 of the Child Nutrition Act). 
     [Sec. 17A of the National School Lunch Act]
     House bill
       Retains the designation of the Act as the National School 
     Lunch Act and replaces the Act's current provisions with 
     authority for a School-Based Nutrition Block Grant Program.
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment to:


 1A. Create an optional State block grant entitled, ``SCHOOL NUTRITION 
                        OPTIONAL BLOCK GRANT.''

       OPTIONAL BLOCK GRANT--Under the terms of the optional block 
     grant, not more than 22 States in fiscal year 1996 and, in 
     succeeding years, all States have the option of receiving 
     funds to carry out programs offering school breakfasts and 
     lunches for all school children under a block grant.
       DECISION TO PARTICIPATE--States opting to participate in 
     the block grant may reverse a decision to participate in the 
     block grant once prior to the termination date and only after 
     a two-year period of participation. If a State opts out, such 
     State may resume participation under the school lunch and 
     school breakfast programs and the commodity distribution 
     program.
       STATE PLAN--States are required to submit a State plan to 
     the Secretary in order to participate in the block grant.
       USE OF FUNDS--Allows States to use funds only for school 
     lunches, breakfasts, and supplements and for the purchase of 
     equipment or improvement of facilities needed to improve 
     school food services.
       NONPROFIT OPERATION--School lunch and breakfast programs 
     are to be operated on a nonprofit basis.
        ADMINISTRATIVE EXPENSES--None of the funds under the block 
     grant are to be used for State administrative expenses 
     (States will continue to receive such funds under current SAE 
     provisions).
       NUTRITIONAL REQUIREMENTS--States are to provide minimum 
     nutritional requirements for meals based on the most recent 
     tested nutritional research available. Such requirements 
     shall, to the extent practicable, be consistent with the 
     goals of the most recent Dietary Guidelines for Americans. 
     Meals shall provide, on the average over a week, at least \1/
     3\ of the recommended dietary allowance for lunches and \1/4\ 
     of the recommended dietary allowance for breakfasts. The 
     Secretary may not impose any additional nutritional 
     requirements beyond those specified in this section.
       STATE REVIEW--States will review the meal operations in 
     each school food authority participating in the block grant 
     no later than two years after implementation of the block 
     grant and at the end of each 5-year period thereafter.
       INCOME ELIGIBILITY--The State plan will describe how the 
     block grant will serve specific groups of children in the 
     State. The plan will further describe the income eligibility 
     limitations established for free meals and, if available, for 
     low-cost meals.
       FREE MEALS--State's plan are required to offer access to 
     free meals to students who are members of families with 
     incomes at or below 130 percent of poverty and who attend a 
     school participating in the block grant.
       CONTINUED PARTICIPATION--Each school participating in the 
     current school lunch and breakfast program in a State opting 
     for a block grant is to be given opportunity to participate 
     in State program under the block grant.
       CASH/CLOC--States are required to permit a school district, 
     nonprofit private school or DOD domestic dependents' school 
     to receive commodity assistance in the same form they 
     received such assistance as of January 1, 1987.
       PRIVACY--States shall provide for safeguarding and 
     restricting the use and disclosure of information about 
     children receiving assistance under this Act. Physical 
     segregation and overt identification of children 
     participating in the block grant is prohibited.
       REQUIRED REPORT--In order to participate, States must agree 
     to submit a report to the Secretary each fiscal year 
     describing (a) the number of children receiving assistance; 
     (b) the different types of assistance provided; (c) the 
     extent to which assistance was effective in achieving program 
     goals; (d) the standards and methods used to ensure the 
     nutritional quality of meals and meal supplements and (e) 
     other information the Secretary can reasonably require. 
     Failure to submit the required report will cause a 3 percent 
     reduction in amounts otherwise payable to a State.
       COMPLIANCE--The Secretary is required to review and monitor 
     State compliance and withhold funds to the State with respect 
     to the program or activity for which noncompliance is found, 
     until the Secretary determines the problem has been 
     corrected. The Secretary may seek financial restitution for 
     misused funds.
       PAYMENTS TO STATES--Payments to States under the block 
     grant shall be on a quarterly basis and may be expended by 
     the State for the current fiscal year or the succeeding 
     fiscal year.
       AUDITS--A yearly audit is required.
       ALLOTMENT--In the first year of participation, the 
     Secretary is required to allot to each participating State an 
     amount that is equal to the amount the Secretary projects 
     will be made available to the State to carry out the school 
     lunch and breakfast programs (including commodities) for the 
     current fiscal year. In succeeding years, the amount will 
     equal the amount provided in the preceding fiscal year, 
     adjusted to reflect changes in the consumer price index, 
     services for food away from home, and changes in each State's 
     student enrollment.
       COMMODITIES--Not less than 8 percent and not more than 10 
     percent of the amount of a State's allotment will be in the 
     form of commodities.
       ALTERNATIVE ASSISTANCE--Requires the Secretary to arrange 
     for the provision of assistance and reduce State allotments 
     accordingly, in cases where a State is prohibited by law from 
     providing assistance to a nonprofit private school or a DOD 
     domestic dependents' school or if a State has substantially 
     failed or is unwilling to provide such assistance to a 
     nonprofit private school, a DOD domestic dependents' school 
     or a public school.
       TRANSITION--A State taking the block grant option may use 
     funds and commodities from the preceding fiscal year under 
     the school lunch and breakfast program to transition into the 
     block grant and may use block grant funds to transition out 
     of the block grant if the State decides to end participation 
     before the end of the fiscal year.
       EVALUATION--No later than three years after the 
     establishment of the block grant the Secretary is to conduct 
     an evaluation and submit a report to Congress, including the 
     comments of the Comptroller General. The report is to include 
     information on the effects of the block grant on the 
     nutritional quality of meals; the degree to which children, 
     particularly low income children participated in the block 
     grant, the income distribution of children served and the 
     amount of assistance such children received; the types of 
     meals offered under the block grant; how the implementation 
     of the block grant differs from the implementation of the 
     school lunch and breakfast programs; the effect of the block 
     grant on state and school administrative costs, the effect of 
     the block grant on paperwork.
       AUTHORIZATION PERIOD--the block grant option is authorized 
     through September 30, 2002.


   B. Streamline provisions of the National School Lunch Act of 1966

       1. Revise Sec. 6(a)(3), striking provision that allows 
     schools to refuse up to 20% of commodities and the related 
     language and conforming reference to fruit and vegetable 
     refusals not counted towards the 20% maximum.
       2. Revise Sec. 6(e)(1(E) to eliminate provisions requiring 
     that not less than 75% of assistance be provided in the form 
     of commodities donated to school lunch programs.
       3. Revise Sec. 6(e)(2), substituting the first sentence 
     with ``Each State agency shall offer and equitably distribute 
     commodities among schools participating in the school lunch 
     program.''
       4. Strike Sec. 6(f) allowing commodities to be offered to 
     school breakfasts on a per meal basis.
       15. Revise Sec. 11(b), striking references to ``maximum per 
     lunch amounts.''
       30. Revise Sec. 13(a)(1) to eliminate reference to 
     expansion.
       34. Revise Sec. 13(b)(2) to provide that service 
     institutions that operate as camps or serve meals primarily 
     to migrant children may serve three meals or two meals and 
     one supplement.
       35. In Sec. 13, references to the National Youth Sports 
     Program are amended by (1) striking non summer months 
     payments; (2) striking severe needs reimbursements; and (3) 
     requiring that participants be from low-income areas.
       36. Revise Sec. 13(f) by permitting children attending a 
     site on school premises operated directly by the authority to 
     refuse not more than one item of a meal without affecting the 
     amount of payments made to the school.
       39. Revise Sec. 13(g)(1)(B) by striking second sentence to 
     eliminate technical assistance for those with difficulty 
     maintaining compliance.
       56. Revise Sec. 17 by, in the title of the section, 
     striking ``and Adult.''
       57. Revise Sec. 17(a) to eliminate reference to 
     authorization to ``expand'' programs.
       70. Repeal Section 26.
       72. Strike Sec. 18(d)(3)(A),(B),(C) to eliminate the 
     universal free pilot.
       73. Revise Sec. 18(e) to make the demonstration project for 
     outside school hours discretionary.


        12. Authorization for School-Based Nutrition Block Grant

                             A. Entitlement

     Present law
       States are entitled to ``performance-based'' funding 
     according to the number and type of meals and supplements 
     served under school-based programs authorized by the National 
     School Lunch and Child Nutrition Acts.
     House bill
       ``Entitles'' each State that submits an annual application 
     (see item 14) to receive an annual school-based nutrition 
     grant for the purpose of achieving the goals of the School-

[[Page H 13003]]
     Based Nutrition Block Grant Program (see item 12D for the program's 
     goals and item 13 for State entitlement allotments).
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item 11).


                 B. Requirement to Provide Commodities

     Present law
       The Secretary of Agriculture is required to ensure that no 
     less than 12% of the total amount of ``entitlement'' 
     commodity and cash assistance for the School Lunch program is 
     in the form of commodity support (including cash in lieu of 
     commodities in the limited instances where available and 
     administrative costs for procuring commodities). [Sec. 6(g) 
     of the National School Lunch Act]
     House bill
       Requires that 9% of the amount of assistance available 
     under the school-based block grant be in the form of 
     commodities.
     Senate amendment
       No directly comparable provision. [Note: See item 26]
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item 11).


               C. The School-Based Nutrition Block Grant

     Present law
       Federal funds for activities under existing law replaced by 
     the House bill's school-based grant are authorized at such 
     sums as are necessary and provided based on the number of 
     meals, supplements, and half-pints of milk served.
       The Secretary is required to make school lunch and school 
     breakfast funding and commodities available to Defense 
     Department overseas dependents' schools to the same degree as 
     other schools. [Sec. 20 of the National School Lunch Act and 
     Sec. 20 of the Child Nutrition Act]
     House bill
       Provides that the annual total school-based block grant 
     provided States as their ``entitlement'' will be: $6.681 
     billion for fiscal year 1996, $6.956 billion (fiscal year 
     1997), $7.237 billion (fiscal year 1998), $7.538 billion 
     (fiscal year 1999), and $7.849 billion (fiscal year 2000).
       For each fiscal year, requires the Secretary to reserve 
     from the total entitlement an amount determined necessary, in 
     consultation with the Secretary of Defense, to establish and 
     carry out nutritious food service programs at Defense 
     Department overseas dependents' schools.
       Permits States to obligate payments under a school-based 
     nutrition grant in the succeeding fiscal year.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item 11).


                                D. Goals

     Present law
       The National School Lunch Act declares it the policy of 
     Congress, as a measure of national security, to safeguard the 
     health and well-being of the Nation's children and to 
     encourage the domestic consumption of agricultural 
     commodities by assisting States through grants and other 
     means in providing support for the establishment, 
     maintenance, operation, and expansion of nonprofit school 
     lunch programs. [Sec. 2 of the National School Lunch Act]
     House bill
       Establishes the goals of the School-Based Block Grant 
     Program:
       (1) to safeguard the health and well-being of children 
     through the provision of nutritious, well-balanced meals and 
     food supplements;
       (2) to provide economically disadvantaged children (see 
     item 21B for definition) access to nutritious free or low-
     cost meals, food supplements, and low-cost milk;
       (3) to ensure that children served under the School-Based 
     Block Grant program are receiving the nutrition they require 
     to take advantage of educational opportunities;
       (4) to emphasize foods that are naturally good sources of 
     vitamins and minerals over enriched foods and those high in 
     fat or sodium content;
       (5) to provide a comprehensive school nutrition program for 
     children; and
       (6) to minimize paperwork burdens and administrative 
     expenses for participating schools.
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item 11).


                         E. Timing of Payments

     Present law
       No provision.
     House bill
       Directs that the Secretary of Agriculture make school-based 
     nutrition grant payments to the States on a quarterly basis.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item 11).


          13. Allotment of School-Based Nutrition Block Grant

     Present law
       Current activities that may be funded under the House 
     bill's School-Based Nutrition Block Grant program include 
     those now supported by the School Lunch and Breakfast 
     programs, and school-sponsored programs under the Child and 
     Adult Care Food program, the Summer Food Service program, and 
     the Special Milk program.
       In all cases, ``performance funding'' is provided for each 
     meal, supplement, or half-pint of milk served by 
     participating schools, at legislatively established, 
     inflation indexed rates.
     House bill
       As set forth below, provides for the Secretary of 
     Agriculture to make State allotments of the School-Based 
     Nutrition Block Grant entitlement.
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item 11).


                     A. First Year State Allotments

     Present law
       No provisions.
     House bill
       For the first fiscal year in which grants are made, 
     provides that the Secretary make allotments to States based 
     on the proportion of funds each State received under prior 
     law for the preceding fiscal year.
       Base-year State Shares: Each State's allotment would be its 
     prior-year share of funds received under the School Lunch and 
     Breakfast programs, plus 12.5% of the amounts received under 
     the Child and Adult Care Food, Summer Food Service, and 
     Special Milk programs.
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item 11).


                    B. Second Year State Allotments

     Present law
       No provision.
     House bill
       For the second fiscal year in which grants are made, 
     provides that (1) 95% of the total entitlement amount be 
     allotted according to each State's share of the amount 
     allotted in the first year and (2) 5% of the entitlement 
     amount allotted be based on each State's share of the number 
     of meals served under the grant during the 1-year period 
     ending the preceding June 30.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item 11).


               C. Third and Fourth Year State Allotments

     Present law
       No provision.
     House bill
       For the third and fourth fiscal years in which grants are 
     made, provides that (1) 90% of the total entitlement amount 
     be allotted according to each State's share of the amount 
     allotted in the preceding year and (2) 10% of the entitlement 
     amount allotted be based on each State's share of the number 
     of meals served under the grant during the 1-year period 
     ending the preceding June 30.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch (see Item 
     11).


                     D. Fifth Year State Allotments

     Present law
       No provision.
     House bill
       For the fifth fiscal year in which grants are made, 
     provides that (1) 85% of the total entitlement amount be 
     allotted according to each State's share of the amount 
     allotted in the fourth year and (2) 15% of the entitlement 
     amount allotted be based on each State's share of the number 
     of meals served under the grant during the 1-year period 
     ending the preceding June 30.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant an making changes to National School Lunch Act (see 
     Item 11).

[[Page H 13004]]



           14. Application for School-Based Nutrition Grants

     Present law
       Nutrition requirements for school-provided meals are 
     established by the Secretary of Agriculture on the basis of 
     tested nutritional research, are not to be construed to 
     prohibit substitution of foods to accommodate medical or 
     other special dietary needs, must, at a minimum, be based on 
     the weekly average nutrient content of school lunches, and 
     may, with certain limits on how schools may be required to 
     implement them, be based on the Federal ``Dietary Guidelines 
     for Americans.'' [Sec. 9(a) and Sec. 12(k) of the National 
     School Lunch Act, and Sec. 4(e) of the Child Nutrition Act]
       The use/disclosure of information obtained from 
     applications for free/reduced-price meals is limited to those 
     administering/enforcing child nutrition programs, 
     administrators of other health or education programs (with 
     restrictions), and the General Accounting Office and law 
     enforcement officials. [Sec. 9(b) of the National School 
     Lunch Act]
     House bill
       Provides that the Secretary make a school-based nutrition 
     grant to a State if it submits an application containing only 
     the following:
       (1) an agreement that the State will use the grant in 
     accordance with the School-Based Block Grant program 
     requirements (see item 15);
       (2) an agreement that the State will set minimum nutrition 
     requirements for meals provided under the grant based on the 
     most recent tested nutrition research available (but the 
     requirements could not be construed to prohibit the 
     substitution of foods to accommodate medical or other special 
     dietary needs and would have to be based, at a minimum, on 
     the weekly average nutrient content of school lunches or 
     other standards set by the State);
       (3) an agreement that, with respect to provision of meals 
     to students, the State will implement minimum nutrition 
     requirements based on the most recent tested nutrition 
     research available or the model nutrition standards developed 
     by the National Academy of Sciences (see item 20);
       (4) an agreement that the State will take reasonable steps 
     it deems necessary to restrict the use and disclosure of 
     information about those receiving assistance under the grant;
       (5) an agreement that the State will not use more than 2% 
     of its grant for administrative costs incurred to provide 
     assistance; and
       (6) an agreement that the State will submit an annual 
     report to the Secretary (see item 16).
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item 11).


  15. Use of Amounts Provided Under the School-Based Nutrition Block 
                                 Grant

                        A. Activities Supported

     Present law
       The School Lunch and Breakfast programs provide Federal 
     support to schools for nonprofit meal services to 
     schoolchildren. In addition, to a more limited degree, 
     schools offer (and receive Federal subsidies for) after-
     school food assistance, milk service, and summer food service 
     programs.
     House bill
       Provides that the Secretary of Agriculture make school-
     based nutrition grants to States if they agree to use their 
     grant to provide assistance to schools for nutritious food 
     service programs that provide affordable meals and 
     supplements to students, including nonprofit:
       (1) school breakfast programs;
       (2) school lunch programs;
       (3) before and after school supplement programs;
       (4) low-cost milk services; and
       (5) summer meal programs.
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item 11).


                       B. Additional Requirements

     Present law
       Under the School Lunch and Breakfast programs, and after-
     school assistance, milk service, and summer food service 
     programs, schools are provided with specific Federal 
     reimbursements for free and reduced-price meals, supplements, 
     and milk for lower-income children (with family income below 
     185% of poverty) that are higher than those granted for 
     ``paid'' meals, supplements, and milk provided those with 
     higher income.
     House bill
       Requires that each State ensure that not less than 80% of 
     its school-based grant is used to provide free or low-cost 
     meals to economically disadvantaged children (see item 21 for 
     definitions).
       Requires that each State ensure that nutritious food 
     service programs are established and carried out in private 
     nonprofit and Defense Department domestic dependents' schools 
     on an equitable basis with programs in public schools in the 
     State--to the extent consistent with the number of children 
     in these schools and after consultation with representatives 
     of the schools (see item 18).
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item 11).


  C. Authority to Use School-Based Nutrition Block Grant Amounts for 
                             Other Purposes

     Present law
       No provision.
       (2) Sufficient funding
       No provision.
       (3) Amounts used for other purposes
       No provision.
     House bill
       Allows States to use not more than 20% of amounts received 
     from a school-based nutrition grant for any fiscal year to 
     carry out State programs under other block grants authorized 
     by:
       (1) part A of title IV of the Social Security Act (relating 
     to welfare for families with children);
       (2) part B of title IV of the Social Security Act (relating 
     to provision of child welfare services);
       (3) title XX of the Social Security Act (relating to 
     provision of social services);
       (4) the Child Nutrition Act of 1966 (relating to family 
     nutrition block grants); and
       (5) the Child Care and Development Block Grant. Provides 
     that States may not transfer funds to other block grants 
     unless the appropriate State agency makes a determination 
     that sufficient funds will remain available for the fiscal 
     year to carry out activities under the School-Based Block 
     Nutrition Block Grant Program.
       Provides that school-based nutrition block grant amounts 
     States transfer to other block grants (noted above) will not 
     be subject to the requirements of the School-Based Nutrition 
     Block Grant program under the revised National School Lunch 
     Act, but will be subject to the requirements that apply to 
     Federal funds provided directly to the block grant to which 
     they are transferred.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item 11).


               D. Limitation on Provision of Commodities

     Present law
       Certain schools receive cash or commodity letters of credit 
     in lieu of entitlement commodities (so-called ``Cash/CLOC'' 
     schools). [Sec. 18(b) of the National School Lunch Act]
     House bill
       Provides that States may not require current Cash/CLOC 
     schools to accept commodities in lieu of cash or commodity 
     letters of credit.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item 11).


E. Segregation/Identification of Children Eligible for Free or Low-Cost 
                          Meals or Supplements

     Present law
       Schools may not physically segregate, overtly identify, or 
     otherwise discriminate against any child eligible for free or 
     reduced-price lunches. [Sec. 9(b)(4) of the National School 
     Lunch Act]
     House bill
       Requires States to ensure that schools receiving school-
     based nutrition grant assistance do not physically segregate, 
     overtly identify, or otherwise discriminate against children 
     eligible for free or low-cost meals or supplements.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item 11).


                              16. Reports

     Present law
       No comparable provision.
     House bill
       Requires that States, as a condition of receiving a school-
     based nutrition grant, agree to submit an annual report to 
     the Secretary of Agriculture describing:
       (1) the number of individuals receiving assistance under 
     the grant for the reporting (fiscal) year;
       (2) the different types of assistance provided;
       (3) the total number of meals served to students under the 
     grant, including the percentage served to economically 
     disadvantaged students;
       (4) the extent to which the assistance provided was 
     effective in achieving the goals of the School-Based 
     Nutrition Block Grant program (see item 12D); 

[[Page H 13005]]

       (5) the standards and methods the State is using to ensure 
     the nutritional quality of assistance under the grant; and
       (6) any other information that can be reasonably required 
     by the Secretary.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item 11).


                             17. Penalties

                       A. Penalty for Violations

     Present law
       [Note: See item 7.]
     House bill
       Requires the Secretary of Agriculture to reduce the school-
     based nutrition grant amount otherwise payable to a State by 
     any amount paid under the grant that an audit made under the 
     ``Single Audit Act'' (chapter 75 of title 31 of the United 
     States Code) finds has been used in violation of the revised 
     National School Lunch Act. However, the Secretary is barred 
     from reducing any quarterly payment to the State by more than 
     25%.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item #11).


           B. Penalty for Failure to Submit a Required Report

     Present law
       No specific provision.
     House bill
       Requires the Secretary to reduce by 3% the school-based 
     nutrition grant amount otherwise payable to a State for any 
     fiscal year if the Secretary determines that the State has 
     not submitted the required annual report (see item 16) for 
     the immediately preceding fiscal year within 6 months after 
     the end of the fiscal year.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item #11).


 18. Federal Assistance for Children in Private Nonprofit Schools and 
            Defense Department Domestic Dependents' Schools

     Present law
       Where States are by law precluded from providing child 
     nutrition assistance to certain types of schools (e.g. 
     private nonprofit schools), the Secretary is authorized to 
     provide assistance directly.
     House bill
       If a State is precluded by law from providing assistance 
     under the school-based nutrition grant to nonprofit private 
     schools or Defense Department domestic dependents' schools, 
     or the Secretary has determined that the State has 
     substantially failed or is unwilling to provide assistance to 
     the schools, requires the Secretary to arrange for provision 
     of school-based nutrition assistance to the schools, after 
     consultation with appropriate school representatives. In the 
     case that the Secretary provides assistance to private 
     nonprofit schools or Defense Department domestic dependents' 
     schools, the State's school-based nutrition grant would be 
     reduced to reflect the assistance provided.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item #11).


 19. Food Service Programs for Defense Department Overseas Dependents' 
                                Schools

                             A. Assistance

     Present law
       [Note: See item 12C(2)]
     House bill
       Requires the Secretary to make available to the Secretary 
     of Defense funds and commodities (as determined by the 
     Secretary in consultation with the Secretary of Defense, and 
     reserve from the total school-based grant) for establishing 
     and carrying out nutritious food service programs providing 
     affordable meals and supplements to students in Defense 
     Department overseas dependents' schools.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item # 11).


                            B. Requirements

     Present law
       Federally subsidized school meal programs in Defense 
     Department overseas dependents' schools must meet the same 
     requirements as programs in domestic schools.
     House bill
       In carrying out food service programs in Defense Department 
     overseas dependents' schools, requires the Secretary of 
     Defense to (1) ensure that not less than 80% of the 
     assistance is used to provide free or low-cost meals and 
     supplements to economically disadvantaged children (see item 
     21B for definition) and (2) the schools will implement 
     minimum nutrition requirements in the same way domestic 
     schools receiving assistance under the school-based nutrition 
     grant are required to (including optional use of model 
     nutrition standards).
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item #11).


            20. Model Nutrition Standards for Student Meals

                             A. Requirement

     Present law
       No comparable provisions. [Note: The Secretary establishes 
     nutrition standards for school meals.]
     House bill
       Not later than April 1, 1996, requires the National Academy 
     of Sciences to develop model nutrition standards for meals 
     provided to students under the School-Based Block Grant 
     Program. The standards are to be developed by the Food and 
     Nutrition Board of the Academy's Institute of Medicine, in 
     cooperation with nutritionists and directors of school meal 
     programs.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item #11).


                         B. Report to Congress

     Present law
       No provision.
     House bill
       Not later than one year after the model nutrition standards 
     (noted above) are developed, requires the National Academy of 
     Sciences to report to Congress regarding the efforts of 
     States to implement them.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item #11).


                            21. Definitions

                        A. Schools and Secretary

     Present law
       In general, ``schools'' are defined as public or private 
     nonprofit elementary, intermediate, or secondary schools. The 
     ``Secretary'' is defined as the Secretary of Agriculture.
     House bill
       ``Schools'' and ``Secretary'' would be defined as having 
     the same meaning as in existing law. In addition, parallel 
     definitions are added for Defense Department domestic and 
     overseas dependents' schools.
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item 11).


                     B. Economically Disadvantaged

     Present law
       No directly comparable provision. [Note: Subsidies are 
     provided for free and reduced-price meals served to children 
     with family income under 185% of the Federal poverty 
     guidelines. However, Federal school food service subsidies 
     are not limited to these lower-income children.]
     House bill
       The term ``economically disadvantaged'' is defined to apply 
     to individuals or families with annual income below 185% of 
     the Federal poverty guidelines. [Note: Assistance under the 
     School-Based Nutrition grant could be given to children with 
     family income above 185% of poverty.]
     Senate Amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item 11).


                                C. State

     Present law
       In general, for school food programs, ``State'' is defined 
     as the 50 States, the District of Columbia, Puerto Rico, the 
     Northern Marianas, American Samoa, and the Virgin Islands.
     House bill
       ``State,'' under the School-Based Nutrition grant, would 
     have the same meaning as in present law, except that Indian 
     tribal organizations (as defined under section 4(l) of the 
     Indian Self-Determination and Education Assistance Act) would 
     be included as States and could apply for grants.
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making 

[[Page H 13006]]
     changes to National School Lunch Act (see Item #11).


                             22. Repealers

     Present law
       Not applicable.
     House bill
       Makes conforming technical amendments repealing the 
     Commodity Distribution Reform Act and WIC Amendments of 1987 
     and the Child Nutrition and WIC Reauthorization Act of 1989.
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item #11).


                           23. Effective Date

     Present law
       Not applicable.
     House bill
       Makes amendments replacing Child Nutrition and National 
     School Lunch Act provisions with Family Nutrition and School-
     Based Nutrition Block Grants effective October 1, 1995.
     Senate amendment
       No comparable provision.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item #11).


              24. Application of Amendments and Repealers

     Present law
       Not applicable.
     House bill
       Provides that amendments and repealers associated with 
     replacing Child Nutrition and National School Lunch Act 
     provisions with Family Nutrition and School-Based Nutrition 
     Block Grants not apply with respect to (1) financial 
     assistance provided under prior law and (2) administrative 
     actions or proceedings commenced or authorized to be 
     commenced before the effective date.
     Senate amendment
       No comparable provisions.
     Conference agreement
       Senate recedes with an amendment creating an optional block 
     grant and making changes to National School Lunch Act (see 
     Item #11).


25. Termination of Additional Payments for Lunches Served in High Free 
                and Reduced Price Participation Schools

     Present law
       Lunches served by school food authorities where 60 percent 
     or more of the lunches are served free or at a reduced price 
     (to children with family income below 185 percent of the 
     Federal poverty income guidelines) are reimbursed at a rate 2 
     cents a meal higher than regular subsidy rates. [Sec. 4(b) of 
     the National School Lunch Act]
     House bill
       No comparable provision.
     Senate amendment
       Effective July 1, 1996 (the 1996-1997 school year), the 
     extra 2 cent per lunch reimbursement to schools with high 
     rates of free and reduced-price participation.
     Conference agreement
       House recedes with an amendment to drop by 1 cent the extra 
     2 cent per lunch reimbursement to schools with high rates of 
     free and reduced price participation effective July 1, 1998, 
     the extra 1 cent reimbursement is eliminated.


                        Value of Food Assistance

     Present law
       Schools and certain other child nutrition sponsors are 
     ``entitled'' to commodities valued at a legislatively set, 
     inflation-indexed amount per meal served. The per-meal 
     reimbursement rate is indexed annually to reflect the annual 
     percentage change in a 3-month average value of the Price 
     Index for Food Used in Schools and Institutions, and rounded 
     to the nearest 1/4 cent. [Sec. 6(e) of the National School 
     Lunch Act]
     House bill
       No directly comparable provision. [Note: See item 12B.]
     Senate Amendment
       Freezes (for one year) the guaranteed per-meal 
     reimbursement rate for entitlement commodity assistance and 
     revises (by changing rounding rules) the method of 
     calculating this reimbursement rate.
       On January 1, 1996, the entitlement commodity reimbursement 
     rate set under current law for the 1995-1996 school year (as 
     rounded to the nearest 1/4 cent) would be rounded down to the 
     nearest lower cent. For the 1996-1997 school year, the rate 
     would be frozen at the rate for the 1995-1996 school year (as 
     rounded down to the nearest lower cent). For the 1997-1998 
     school year, the rate would be the unrounded rate for the 
     1995-1996 school year, adjusted for inflation over the most 
     recent 12-month period and rounded down to the nearest lower 
     cent. For following school years, the rate would be the 
     unrounded rate for the preceding year, adjusted for inflation 
     over the most recent 12-month period and rounded down to the 
     nearest lower cent. (p. 348)
       [Note: Current-law rules as to the inflation-adjustment 
     factor to be used (i.e., the Price Index for Food Used in 
     Schools and Institutions) are not changed.]
     Conference agreement
       House recedes with an amendment providing that for the 
     1996-1997 and 1997-1998 school years the entitlement 
     commodity reimbursement rate is frozen at the rate for the 
     95-96 school year (as rounded down to the nearest lower 
     cent).


                27. Lunches, Breakfasts, and Supplements

     Present law
       ``Paid'' lunches, breakfasts, and supplements are served to 
     those with family income above 185 percent of the Federal 
     poverty guidelines. Guaranteed Federal reimbursement rates 
     for each paid lunch, breakfast, and supplement are indexed 
     annually to reflect changes in the food away from home series 
     of the Consumer Price Index. When indexed, all reimbursement 
     rates (i.e., for paid, free, and reduced-price meals and 
     supplements) are rounded to the nearest 1/4 cent. Present law 
     establishes reduced price lunch reimbursement rates set at 40 
     cents less than the free lunch rates, and sets a maximum meal 
     charge of 40 cents for these lunches. [Sec. 11(a) of the 
     National School Lunch Act]
     House bill
       No comparable provisions.
     Senate Amendment
       Freezes (for two years) reimbursement rates for paid 
     lunches, breakfasts, and supplements. Revises (by changing 
     rounding rules) the method for calculating reimbursement 
     rates for paid, free, and reduced-price lunches, breakfasts, 
     and supplements. [Note: Reimbursement rates for meals and 
     supplements served in family day care homes and the Summer 
     Food Service program are and would be governed by separate 
     provisions of law (see below).]
       On January 1, 1996, reimbursement rates for paid, free, and 
     reduced-price lunches, breakfasts, and supplements set under 
     current law for the 1995-1996 school year (as rounded to the 
     nearest 1/4 cent) would be rounded down to the nearest lower 
     cent. For the 1996-1997 and 1997-1998 school years, the 
     reimbursement rates for paid lunches, breakfasts, and 
     supplements would be frozen at the rates for the 1995-1996 
     school year (as rounded down to the nearest lower cent). For 
     the 1998-1999 school year, the reimbursement rates for paid 
     lunches, breakfasts, and supplements would be the unrounded 
     rates for the 1995-1996 school year adjusted for inflation 
     over the most recent 12-month period for which data are 
     available, and rounded down to the nearest lower cent. For 
     following school years, the reimbursement rates for paid 
     lunches, breakfasts, and supplements would be the unrounded 
     rates for the preceding year adjusted for inflation over the 
     most recent 12-month period, and rounded down to the nearest 
     lower cent.
       Reimbursement rates for free and reduced-price lunches, 
     breakfasts, and supplements would continue to be indexed 
     annually for inflation each school year (i.e., no two-year 
     freeze), but would be rounded down to the nearest lower cent. 
     [Note: Current-law rules as to the inflation-adjustment 
     factor to be used (i.e., the food away from home series of 
     the Consumer Price Index) are not changed.]
     Conference agreement
        Freezes (for two years) reimbursement rates for paid 
     lunches, breakfasts, and supplements. Revises (by changing 
     rounding rules) the method for calculating reimbursement 
     rates for paid, free, and reduced-price lunches, breakfasts, 
     and supplements. [Note: Reimbursement rates for meals and 
     supplements served in family day care homes and the Summer 
     Food Service program are and would be governed by separate 
     provisions of law (see below).]
       On January 1, 1996, reimbursement rates for paid, free, and 
     reduced-price breakfasts and supplements set under current 
     law for the 1995-1996 school year would be rounded down to 
     the nearest one cent. On July 1, 1996, reimbursement rates 
     for paid, free and reduced price lunches would be rounded 
     down to the nearest one cent. For the 1996-1997 and 1997-1998 
     school years, the reimbursement rates for paid lunches, 
     breakfasts, and supplements would be frozen at the rates for 
     the 1995-1996 school year (as rounded down to the nearest 
     lower cent). For the 1998-1999 school year, the reimbursement 
     rates for paid lunches, breakfasts, and supplements would be 
     the unrounded rates for the 1995-1996 school year adjusted 
     for inflation over the most recent 12-month period for which 
     data are available, and rounded down to the nearest lower 
     cent. For following school years, the reimbursement rates for 
     paid lunches, breakfasts, and supplements would be the 
     unrounded rates for the preceding year adjusted for inflation 
     over the most recent 12-month period, and rounded down to the 
     nearest lower cent.
       Reimbursement rates for free and reduced-price lunches, 
     breakfasts, and supplements would continue to be indexed 
     annually for inflation each school year (i.e., no two-year 
     freeze), but would be rounded down to the nearest lower cent. 
     [Note: Current-law rules as to the inflation-adjustment 
     factor to be used (i.e., the food away from home series of 
     the Consumer Price Index) are not changed.]
       The differential between free and reduced price lunch 
     reimbursements would be lowered by 5 cents (to 45 cents) 
     effective July 1, 2000, and by an additional 5 cents (to 50 
     cents) effective July 1, 2001, and corresponding changes 
     would be made to the reduced price meal charge limits. 

[[Page H 13007]]



              28. Summer Food Service Program for Children

     Present law
       Under the Summer Food Service program, all meals and 
     supplements served are federally subsidized at legislatively 
     set, inflation-indexed rates that, for the 1995 summer (set 
     in January 1995), were $2.12 for each lunch/supper, $1.18 for 
     each breakfast, and 55.5 cents for each supplement. In 
     addition, sponsors receive payments for administrative costs 
     based on the number of meals/supplements served. Basic 
     Federal payments for lunches, breakfasts, and supplements are 
     indexed for inflation annually based on the food away from 
     home series of the Consumer Price Index, and rounded to the 
     nearest 1/4 cent. [Sec. 13(b) of the National School Lunch 
     Act]
     House bill
       No comparable provisions.
     Senate Amendment
       Establishes new, lower reimbursement rates for meals and 
     supplements served in the Summer Food Service program as 
     follows: $2 for lunches/ suppers, $1.20 for breakfasts, and 
     50 cents for supplements. The new rates would become 
     effective January 1, 1996 (for the 1996 summer program), and 
     be adjusted each January thereafter to reflect changes in the 
     food away from home series of the Consumer Price Index (as 
     under current law). However, while each adjustment would be 
     based on the unrounded rates for the prior 12-month period, 
     it would be rounded down to the nearest cent. [Note: 
     Additional administrative-cost payment rates to sponsors are 
     not affected.]
     Conference agreement
       House recedes with an amendment establishing new, lower 
     rates for meals and supplements served in the Summer Food 
     service program as follows: $1.82 for lunches served; $1.13 
     each breakfast served and $.46 for each meal supplement 
     served.


                        29. Special Milk Program

     Present law
       Under the Special Milk program, the minimum per-half-pint 
     reimbursement rate is indexed annually to reflect changes in 
     the Producer Price Index for Fresh Processed Milk, and 
     rounded to the nearest 1/4 cent. [Sec. 3(a) of the Child 
     Nutrition Act]
      House bill
       No comparable provisions.
     Senate Amendment
       Freezes (for one year) the minimum per-half-pint 
     reimbursement rate and revises (by changing rounding rules) 
     the method of calculating the reimbursement rate.
       On Jan. 1, 1996, the minimum reimbursement rate set under 
     current law for the 1995-1996 school year (as rounded to the 
     nearest 1/4 cent) would be rounded down to the nearest cent. 
     For the 1996-1997 school year, the minimum reimbursement rate 
     would be frozen at the rate for the 1995-1996 school year (as 
     rounded down to the nearest cent). For the 1997-1998 school 
     year, the minimum reimbursement rate would be the unrounded 
     rate for the 1995-1996 school year adjusted for inflation 
     over the most recent 12-month period for which data are 
     available, and rounded down to the nearest lower cent. For 
     following school years, the minimum reimbursement rate would 
     be the unrounded rate for the preceding year adjusted 
     annually for inflation, and rounded down to the nearest lower 
     cent. [Note: Current-law rules as to the inflation adjustment 
     factor to be used (i.e., the Producer Price Index for Fresh 
     Processed Milk) are not changed.]
     Conference agreement
       House recedes with an amendment providing that for the 
     1996-1997 and 1997-1998 school years, the minimum 
     reimbursement rate is frozen at the rate for the 1995-1996 
     school year (as rounded down to the nearest lower cent).


                 30. Free and Reduced Price Breakfasts

     Present law
       Reimbursement rates for free and reduced-price breakfasts 
     are indexed annually for inflation and rounded to the nearest 
     1/4 cent. [Sec. 4(b) of the Child Nutrition Act]
     House bill
       No comparable provision.
     Senate Amendment
       Requires that annual adjustments to reimbursement rates for 
     free and reduced-price breakfasts be based on the previous 
     year's unrounded rates and, after adjustment for inflation, 
     rounded down to the nearest lower cent.
     Conference agreement
       House recedes.


      31. Conforming Reimbursement for Paid Breakfasts and Lunches

     Present law
       The per-meal reimbursement for paid breakfasts (paid meals 
     are those served to children with family income above 185 
     percent of the Federal poverty income guidelines) is higher 
     than the reimbursement rate for paid lunches--by about 2 
     cents a meal for the 1995-1996 school year. [Sec. 4(b) of the 
     Child Nutrition Act]
       [Note: The paid breakfast reimbursement rate is roughly the 
     same as the current-law paid lunch rate for schools with free 
     and reduced-price participation of 60 percent or more. This 
     special lunch rate would be eliminated under Sec. 401 of the 
     Senate amendment (see item 25).]
     House bill
       No comparable provision.
     Senate Amendment
       Requires that the reimbursement rate for paid breakfasts be 
     the same as the rate for paid lunches.
     Conference agreement
       House recedes.


                  32. School Breakfast Startup Grants

     Present law
       The Secretary is required to make competitive grants to 
     help defray costs associated with starting or expanding 
     school breakfast and summer food service programs. Funding of 
     $5 million a year is provided through fiscal year 1997; $6 
     million is provided for fiscal year 1998; and $7 million a 
     year is provided for fiscal year 1999 and each subsequent 
     year. [Sec. 4(g) of the Child Nutrition Act]
     House bill
       No comparable provision.
     Senate Amendment
       Repeals the startup/expansion competitive grant program.
     Conference agreement
       House recedes.


             33. Nutrition Education and Training Programs

     Present law
       The Secretary is required to make funding available to 
     States for child nutrition program nutrition education and 
     training activities. Funding of $10 million a year is 
     provided. [Sec. 19(i) of the Child Nutrition Act]
     House bill
       No comparable provision.
     Senate amendment
       Reduces the amount that must be provided for nutrition 
     education and training to $7 million a year.
     Conference agreement
       House recedes with an amendment eliminating mandatory 
     status. Authorizes appropriations of $10 million per year.


                           34. Effective Date

     Present law
       Not applicable.
     House bill
       No comparable provision.
     Senate amendment
       Establishes Oct. 1, 1996 as the effective date for repeal 
     of the startup/expansion competitive grant program and 
     reduction of funding for nutrition education and training.
     Conference agreement
       House recedes.


              36. Summer Food Service Program for Children

       Permitting Offer versus Serve
     Present law
       No provision. [Note: The ``offer versus serve'' option is 
     permitted in school meal programs.]
     House bill
       No comparable provision.
     Senate amendment
       Allows schools operating summer food service programs to 
     permit children attending a site on school premises to refuse 
     one item of a meal without affecting the Federal 
     reimbursement for the meal.
     Conference agreement
       House recedes.


                 37. Child and Adult Care Food Program

                    A. Payments to Sponsor Employees

     Present law
       No provision.
     House bill
       No comparable provision.
     Senate amendment
       Bars Child and Adult Care Food program sponsoring 
     organizations with more than one employee from basing 
     payments to employees on the number of family/group day care 
     homes recruited, managed, or monitored.
     Conference agreement
       House recedes.


         B. Improved Targeting of Day Care Home Reimbursements

     Present law
       Federal reimbursement rates for meals and supplements 
     served in family/group day care homes are standard for all 
     homes, established separately from those for day care 
     centers, not differentiated by the participating children's 
     family income (as is the case for day care centers), and set 
     approximately half-way between reimbursements for free and 
     reduced-price meals/supplements in day care centers. They are 
     indexed for inflation each July 1 (see item 36B(2)), and, for 
     the period July 1995--June 1996, they are: $1.5375 for all 
     lunches/suppers, 84.5 cents for all breakfasts, and 45.75 
     cents for all supplements. Family/group day care home 
     sponsors also receive separate administrative cost 
     reimbursements based on the number of homes sponsored. [Sec. 
     17(f) of the National School Lunch Act]
       Meal and supplement reimbursements for family/group day 
     care homes are indexed annually to reflect changes in the 
     Consumer Price Index for food away from home and rounded to 
     the nearest 1/4 cent. [Sec. 17(f) of the National School 
     Lunch Act]
     House bill
       No comparable provisions.
     Senate amendment
       Restructures reimbursements for meals and supplements 
     served in family/group day 

[[Page H 13008]]
     care homes. In general, homes would be divided into two ``tiers,'' one 
     of which would receive current-law reimbursements (with 
     indexing adjustments, see item 37B(2) for changes in 
     inflation indexing rules) and the other of which would 
     receive lower reimbursements as set out under the Senate 
     amendment. [Note: Separate payments to sponsors based on the 
     number of homes sponsored are not changed, and current rules 
     barring certain documentation requirements and reimbursements 
     for meals/supplements served to providers' children are 
     retained.]
       Tier I homes would be paid the meal/supplement 
     reimbursements for family/group homes in effect on the date 
     of enactment, adjusted on August 1, 1996, and each July 1 
     thereafter, to reflect inflation for the most recent 12-month 
     period for which data are available.
       Tier I homes would be those (1) located in areas, as 
     defined by the Secretary based on Census data, in which at 
     least half of the children are members of households with 
     income below 185 percent of the Federal poverty income 
     guidelines, (2) located in an area served by a school 
     enrolling elementary students in which at least 50 percent of 
     those enrolled are certified eligible for free or reduced-
     price school meals (i.e., have family income below 185 
     percent of the Federal poverty guidelines), or (3) operated 
     by a provider whose family income is verified by its 
     sponsoring organization to be below 185 percent of the 
     poverty guidelines.
       In general, tier II homes would be paid reimbursements of 
     $1 for each lunch/supper, 30 cents for each breakfast, and 15 
     cents for each supplement (all substantially below tier I 
     rates), adjusted on July 1, 1997, and each July 1 thereafter, 
     to reflect inflation for the most recent 12-month period for 
     which data are available.
       Tier II homes would be homes that do not meet the tier I 
     low-income area/provider standards.
       Tier II homes could, at their option, claim higher tier I 
     reimbursement rates under certain conditions: Tier II homes 
     could elect to receive tier I reimbursements for meals/
     supplements served to children in households with income 
     below 185 percent of the poverty guidelines, if the 
     sponsoring organization collects the necessary income 
     information and makes the appropriate eligibility 
     determinations (in accordance with the Secretary's rules). 
     Tier II homes also could receive tier I reimbursements for 
     children in or subsidized under (or children of parents in or 
     subsidized under) federally or State supported child care or 
     other benefit programs with an income limit that does not 
     exceed 185 percent of the poverty guidelines, and could 
     restrict their claim for tier I reimbursements to these 
     children if they opt not to have income statements collected 
     from parents/caretakers.
       The Secretary would be required to prescribe ``simplified'' 
     meal counting/reporting procedures for use by tier II homes 
     (and their sponsors) that elect to claim tier I 
     reimbursements for children meeting the income or program 
     participation requirements noted above. These procedures 
     could include: (1) setting an annual percentage of meals/
     supplements to be reimbursed at tier I rates based on the 
     family income of children enrolled during a specific month or 
     other period, (2) placing a home in a reimbursement category 
     based on the percentage of children with household income 
     below 185 percent of poverty, or (3) other procedures 
     determined by the Secretary.
       The Secretary also would be permitted to establish minimum 
     requirements for verifying income and program participation 
     for children in tier II homes opting to claim tier I 
     reimbursement rates.
       Requires that reimbursements for family/group day care 
     homes be indexed annually to reflect changes in the Consumer 
     Price Index for food at home, based on the unrounded rates 
     for the preceding 12-month period, and then rounded down to 
     the nearest lower cent.
       Requires the Secretary to reserve, from amounts available 
     for the Child and Adult Care Food program in fiscal year 
     1996, $5 million--to provide grants for (1) training, 
     materials, computer and other assistance to sponsoring 
     organization staff and (2) training and other aid to family/
     group day care homes in implementing the new reimbursement-
     rate structure directed by the Senate amendment. The funds 
     would be allocated among the States based on their proportion 
     of participating homes, with a minimum of $30,000 as a 
     State's base funding share, and States would not be allowed 
     to retain more than 30 percent of their grant at the State 
     level (passing the remainder to sponsors and providers).
       Requires (1) the Secretary to provide State agencies with 
     Census data necessary for determining homes' tier I status 
     and (2) State agencies to provide the data to day care home 
     sponsoring organizations.
       Requires State agencies administering school meal programs 
     to provide approved day care home sponsoring organizations a 
     list of schools serving elementary school children in which 
     at least half those enrolled are certified to receive free or 
     reduced-price meals (one test for an area eligible for tier I 
     reimbursements). The data for the list must be collected 
     annually and provided on a timely basis to any requesting 
     approved sponsoring organization.
       Provides that, in determining homes' tier I status, State 
     agencies and sponsoring organizations must use the most 
     current data available.
       Provides that a determination that a home is located in an 
     area that qualifies it as a tier I home be in effect for 
     three years, unless the State agency determine the area no 
     longer qualifies the home. In the case of a determination 
     made on the basis of Census data, the determination is to be 
     in effect until more recent data are available.
       Makes conforming technical amendments recognizing the new 
     structure of family/group day care home reimbursement rates.
     Conference agreement
       House recedes with an amendment to establish new lower 
     reimbursement rates for tier II homes for meals and 
     supplements as follows: $.90 for each lunch and supper; $.25 
     for each breakfast; and $.10 for supplements.


                       C. Disallowing Meal Claims

     Present law
       No specific provision.
     House bill
       No comparable provision.
     Senate amendment
       Makes clear that States and sponsoring organizations may 
     recoup reimbursements to day care home providers for 
     improperly claimed meals/supplements.
     Conference agreement
       House recedes.


         D. Elimination of State Paperwork and Outreach Burden

     Present law
       Provisions of the National School Lunch Act require (1) 
     States to take affirmative action to expand availability of 
     the Child and Adult Care Food program's benefits (including 
     annual notification of all nonparticipating family/group day 
     care home providers), (2) the Secretary to conduct 
     demonstration projects to test approaches to removing or 
     reducing barriers to participation by homes that operate in 
     low-income areas or primarily serve low-income children, (3) 
     the Secretary and States to provide training and technical 
     assistance to sponsoring organizations in reaching low-income 
     children, and (4) the Secretary to instruct States to provide 
     information/training about child health and development 
     through sponsoring organizations. [Sec. 17(k) of the National 
     School Lunch Act]
     House bill
       No comparable provision.
     Senate amendment
       Repeals existing ``outreach'' requirements noted under 
     present law and requires that (1) States provide sufficient 
     training, technical assistance, and monitoring to facilitate 
     effective operation of the Child and Adult Care Food program 
     and (2) the Secretary assist States in carrying out this 
     obligation.
     Conference agreement
       House recedes.


 E. Study of Impact of Amendments on Program Participation and Family 
                           Day Care Licensing

     Present law
       No provision.
     House bill
       No comparable provision.
     Senate amendment
       Not later than two years after the date of enactment, 
     requires the Secretary of Agriculture, in conjunction with 
     the Secretary of Health and Human Services, to study the 
     impact of the revisions to the Child and Adult Care Food 
     program under the Senate amendment on:
       (1) the number of participating family day care homes, day 
     care home sponsoring organizations, and day care homes that 
     are licensed, certified, registered, or approved by each 
     State;
       (2) the rate of growth in the number of participating 
     homes, sponsors, and licensed, certified, registered, or 
     approved homes;
       (3) the nutritional adequacy/quality of meals served in 
     family day care homes that no longer receive reimbursements 
     or no longer receive ``full'' reimbursements; and
       (4) the proportion of low-income children participating in 
     the program. (p. 377)
       Requires each State agency to submit data on (1) the number 
     of participating family day care homes on July 31, 1996, and 
     July 31, 1997, (2) the number of licensed, certified, 
     registered, or approved family day care homes on July 31, 
     1996, and July 31, 1997, and (3) other matters needed to 
     carry out the study as required by the Secretary.
     Conference agreement
       House recedes.


                   F. Effective Date and Regulations

     Present law
       Not applicable.
     House bill
       No comparable provisions.
     Senate amendment
       Establishes the effective date for changes in the family/
     group day care home reimbursement structure--August 1, 1996. 
     Other changes affecting the Child and Adult Care Food program 
     would be effective on enactment (e.g., grants to assist in 
     implementation of the changes, limits on payments to 
     sponsors' employees).
       Requires that, by February 1, 1996, the Secretary issue 
     interim regulations to implement (1) the changes in the 
     family/group day care home reimbursement structure and (2) 
     existing provisions of law for the use of sponsoring 
     organizations' administrative expense payments for startup/
     expansion and outreach 

[[Page H 13009]]
     and recruitment activities. Final regulations would be required by 
     August 1, 1996.
     Conference agreement
       House recedes.

           Subtitle J--Food Stamps and Commodity Distribution

     Food stamp reform


                        1. Declaration of Policy

     Present law
       The Food Stamp Act's declared policy is to safeguard the 
     health and well-being of the Nation's population by raising 
     levels of nutrition among low-income households. To alleviate 
     hunger and malnutrition among low-income households with 
     limited food purchasing power, the Act authorizes the food 
     stamp program to permit low-income households to obtain a 
     more nutritious diet through normal channels of trade by 
     increasing the food purchasing power of all eligible 
     households who apply. [Sec. 2]
     House bill
       No comparable provision.
     Senate amendment
       Adds to the existing Food Stamp Act declaration of policy a 
     statement that Congress intends that the food stamp program 
     support the employment focus and family strengthening mission 
     of public welfare and welfare replacement programs by 
     facilitating transition to economic self-sufficiency through 
     work, promoting employment as the primary means of income 
     support and reducing barriers to employment, and maintaining 
     and strengthening healthy family functioning and family life.
     Conference agreement
       The Conference agreement follows the House bill.


                             2. Short Title

     Present law
       No provision.
     House bill
       Cites this subtitle as ``The Food Stamp Simplification and 
     Reform Act of 1995.''
     Senate amendment
       No comparable provision.
     Conference agreement
       The Conference agreement follows the House bill.


           3. Establishment of Simplified Food Stamp Program

     Present law
       The Secretary is directed to establish uniform national 
     standards of eligibility for food stamps (with certain 
     variations allowed for Alaska, Hawaii, Guam, the Virgin 
     Islands, and certain administrative rules). States may not 
     impose any other standards of eligibility as a condition for 
     participation in the program. [Sec. 5(b)]
     House bill
       Permits States to operate a ``simplified food stamp 
     program,'' either statewide or in any political subdivision. 
     Under this program, households receiving regular cash 
     benefits under the Temporary Assistance for Needy Families 
     (TANF) block grant established by title I of the Personal 
     Responsibility Act (replacing the current Aid to Families 
     with Dependent Children (AFDC) program) could be provided 
     food stamp benefits using the rules and procedures 
     established by the State for its TANF block grant program, as 
     an alternative to using regular food stamp rules.
     Senate amendment
       Explicitly permits non-uniform standards of eligibility. 
     [Note: Also see item 38]
     Conference agreement
       The Conference agreement follows the Senate amendment.


                    4. Simplified Food Stamp Program

                         A. Basic State Option

     Present law
       Households composed entirely of AFDC recipients are 
     automatically eligible for food stamps, with few exceptions 
     (e.g., aliens who do not meet the Food Stamp program's more 
     stringent rules barring illegal aliens). [Sec. 5(a)]
       As with other households, food stamp benefits for AFDC 
     households are determined under Food Stamp program rules 
     governing counting of income, expense deductions, and 
     procedural requirements.
     House bill
        [Note: Sec. 542(a) of the House bill adds a new section 24 
     to the Food Stamp Act containing rules for the Simplified 
     Food Stamp Program.]
       If a State elects to exercise its option to use its TANF 
     block grant rules and procedures for food stamp benefits, 
     requires that (1) households in which all members receive 
     regular cash benefits under a TANF block grant program be 
     automatically eligible for food stamps and (2) food stamp 
     benefits for them be determined under rules and procedures 
     established by the State or locality under the State's TANF 
     block grant program or the regular food stamp program.
     Senate amendment
        [Note: Sec. 342(a) of the Senate amendment adds a new 
     section 24 to the Food Stamp Act containing rules for the 
     Simplified Food Stamp Program]
       Permits a State to exercise an option to use rules and 
     procedures established for its family assistance block grant 
     (under title I of the Senate amendment) to determine food 
     stamp benefits for households in which all members receive 
     family assistance block grant aid: (1) households in which 
     all members receive aid under a family assistance block grant 
     program would be automatically eligible for food stamps; and 
     (2) their food stamp benefits could be determined by using 
     rules and procedures established by the State for its family 
     assistance block grant program, regular food stamp program 
     rules and procedures, or a combination of the two. States 
     also would be allowed to apply a single ``shelter standard'' 
     to households that receive a housing subsidy and another to 
     households that do not.
     Conference agreement
        The Conference agreement follows the Senate amendment with 
     an amendment deleting the specific reference to use of a 
     single shelter standard.


                        B. Federal Cost Control

     Present law
        No comparable provisions.
     House bill
       Requires that, when approving a State's plan to exercise 
     its option for a simplified food stamp program, the Secretary 
     certify that the average per-household food stamp benefit 
     received by participating TANF households is not expected to 
     exceed the average food stamp benefit level for AFDC or TANF 
     recipients in the preceding fiscal year --adjusted for any 
     changes in the ``Thrifty Food Plan'' (the basis for food 
     stamp benefit levels). The Secretary also is required to 
     compute the ``permissible'' average per-household benefit for 
     each State or locality exercising the simplified program 
     option.
       Requires that, if average food stamp benefits under the 
     simplified program exceed the permissible level (the Thrifty-
     Food-Plan-adjusted prior year amount), the State must pay the 
     Federal Government the benefit cost of the excess within 90 
     days of notification.
     Senate amendment
       Provides that a State may not operate a simplified food 
     stamp program unless it has an approved plan and requires the 
     Secretary to approve any State plan if the Secretary 
     determines it complies with the provisions of law governing 
     the simplified food stamp program option and would not 
     increase Federal costs under the Food Stamp Act. Federal 
     costs for this purpose are defined to exclude research, 
     demonstration, and evaluation costs.
       Requires the Secretary to determine whether a State's 
     simplified food stamp program is increasing Federal costs 
     under the Food Stamp Act. In making the determination, the 
     Secretary (1) could not require States to collect or report 
     any information on households not included in the simplified 
     food stamp program and (2) could approve State requests to 
     use alternative accounting periods. If the Secretary 
     determines that a simplified food stamp program has increased 
     Federal costs, the State must be notified by January 1 of the 
     succeeding fiscal year.
       If the Secretary determines that a simplified program has 
     increased Federal costs for a two-year period, the State must 
     pay the Federal Government the amount of any increased costs 
     within 90 days of the determination (or have amounts due it 
     for administrative costs reduced).
     Conference agreement
       The Conference agreement follows the Senate amendment with 
     an amendment. The Secretary must, for each fiscal year, 
     determine whether a simplified program is increasing Federal 
     costs above those incurred under the food stamp program in 
     the fiscal year prior to implementation of the simplified 
     program, adjusted for changes in participation, the non-
     public-assistance income of participants, and the cost of the 
     Thrifty Food Plan. The Secretary must notify the State of a 
     determination of increased Federal costs, and the State must 
     submit for approval a corrective action plan designed to 
     prevent increased Federal costs. If a State fails to submit a 
     plan or carry out an approved plan, the Secretary must 
     terminate approval of the State's simplified program, and the 
     State is ineligible for future participation under simplified 
     program rules.


                          C. Disqualification

     Present law
       Households penalized for an intentional failure to comply 
     with a Federal, State, or local welfare program may not, for 
     the duration of the penalty, receive an increased food stamp 
     allotment because their welfare income has been reduced. 
     [Sec. 8(d)]
       [Note: This has been interpreted by regulation to apply 
     only to reductions in welfare income due to repayment of 
     overpayments resulting from a welfare violation, although a 
     revision of the regulation is scheduled.]
     House bill
        Provides that (1) households receiving food stamps under 
     the simplified program option who are sanctioned 
     (disqualified or have their benefits reduced) under a State's 
     TANF program may have the same penalty applied for food stamp 
     purposes and (2) food stamp benefits to households 
     participating under the simplified program option may not be 
     increased as the result of a reduction in their TANF benefits 
     caused by a sanction. Any household disqualified from food 
     stamps as the result of a TANF program sanction would be 
     eligible to apply for food stamps (as a new applicant) after 
     the disqualification period has expired.
     Senate amendment
        [Note: See items 10 and 43.]
     Conference agreement
        The Conference agreement follows the Senate amendment.

[[Page H 13010]]



               D. Extending Rules to ``Mixed'' Households

     Present law
        No comparable provisions.
     House bill
        Allows States the further option of applying their TANF 
     rules and procedures to food stamp households in which some, 
     but not all, members receive TANF benefits. These households 
     would not be automatically eligible for food stamps (they 
     would have to meet normal food stamp eligibility rules), but 
     their benefits could be determined under the State's TANF 
     rules and procedures, so long as the Secretary ensures that 
     the State's plan provides for an ``equitable'' distribution 
     of benefits among all household members.
     Senate amendment
        No comparable provisions.
     Conference agreement
        The Conference agreement follows the Senate amendment. The 
     conferees encourage the Secretary to work with States to test 
     methods for applying a single set of rules and procedures to 
     households in which some, but not all, members receive cash 
     welfare benefits under State rules.


                           E. Cash Assistance

     Present law
        No comparable provisions.
     House bill
        Allows States exercising the simplified program option to 
     pay food stamp benefits in cash to some participating 
     households. Cash benefits could be paid to households with 3 
     or more consecutive months' earned income of at least $350 a 
     month from a private sector employer.
       Provides that: (1) cash assistance in lieu of food stamps 
     be considered the food stamp benefit of the earner's 
     household, (2) the value of food stamp benefits provided in 
     cash be treated as food stamp coupons for taxation and other 
     purposes (i.e., disregarded), and (3) the State opting for 
     cash payments increase the payments (at State expense) to 
     offset the effect of any food sales taxes, unless the 
     Secretary determines it unnecessary because of the limited 
     nature of items taxed (sales taxes on food purchases with 
     food stamp benefits are barred by existing law).
       Requires States electing the cash benefit option to submit 
     a written evaluation of the effect of cash assistance after 2 
     years' operation.
     Senate amendment
        [Note: See item 55.]
     Conference agreement
       The Conference agreement follows the Senate amendment.


                      F. Federal Food Stamp Rules

     Present law
       The Federal Government shares 50% of any State food stamp 
     administrative costs (except that certain States with very 
     low rates of erroneous benefit and eligibility determinations 
     can receive up to 60%). States also may retain certain 
     proportions of any overissued benefits they recoup. Special 
     Federal cost-sharing rules apply in the case of employment 
     and training programs for food stamp recipients. States are 
     subject to a quality control system under which the extent of 
     erroneous benefit and eligibility decisions is measured. 
     Those with high rates of erroneous benefit and eligibility 
     decisions are subject to fiscal sanctions. [Sec. 16]
     House bill
       Requires States exercising the simplified program option 
     to, at a minimum, comply with certain rules mandated under 
     the Food Stamp Act:
       (1) requirements governing issuance procedures for food 
     stamp benefits;
       (2) the requirement that benefits be calculated by 
     subtracting 30% of a household's income (as determined by 
     State-established, not Federal, rules under the simplified 
     program option) from the maximum food stamp benefit;
       (3) the bar against counting food stamp benefits as income 
     or resources in other programs;
       (4) the requirements that State agencies assume 
     responsibility for eligibility certification and issuance of 
     benefits and keep records for inspection and audit;
       (5) the bar against discrimination by reason of race, sex, 
     religious creed, national origin, or political beliefs;
       (6) requirements related to submission and approval of 
     plans of operation and administration of the food stamp 
     program on Indian reservations;
       (7) limits on the use and disclosure of information about 
     food stamp households;
       (8) requirements for notice to and fair hearings for 
     aggrieved households (or comparable requirements established 
     by the State under its TANF program);
       (9) requirements for submission of reports and other 
     information required by the Secretary;
       (10) the requirement to report illegal aliens to the 
     Immigration and Naturalization Service;
       (11) requirements for use of certain Federal and State data 
     sources in verifying recipients' eligibility;
       (12) requirements to take measures to ensure that 
     households are not receiving duplicate benefits; and
       (13) requirements for the provision of social security 
     numbers as a condition of eligibility and for their use by 
     State agencies.
       States electing the simplified program option would be 
     subject to normal food stamp program cost-sharing rules.
       States electing the simplified option would be subject to 
     the food stamp quality control system (including fiscal 
     sanctions).
     Senate amendment
       Permits States exercising the option for a simplified food 
     stamp programs to apply rules and procedures under their 
     family assistance block grant, the rules/procedures of the 
     regular food stamp program, or the rules/procedures of one 
     program to certain matters and those of the other in 
     remaining matters. Permits States to standardize food stamp 
     expense ``deductions,'' but, in doing so, States would be 
     required to give consideration to the work expenses, 
     dependent care costs, and shelter costs of participating 
     households.
       Otherwise, the Senate amendment is the same as the House 
     bill, except that it also would (1) require that States 
     follow the revised rule in the Senate amendment (see item 43) 
     as to not increasing food stamp benefits when other public 
     assistance benefits are decreased (see item 4C in the House 
     bill), (2) require that eligible households be certified and 
     receive benefits not later than 30 days after application (as 
     now required under the regular food stamp program), and (3) 
     require that States issue ``expedited'' benefits to very low-
     income households (as required under the regular food stamp 
     program).
       Same as House bill.
     Conference agreement
       The Conference agreement follows the House bill with an 
     amendment (1) allowing States to standardize deductions and 
     (2) requiring States to follow the revised rule in the Senate 
     amendment as to not increasing food stamp benefits when other 
     public assistance benefits are decreased.


                             g. state plans

     Present law
       No comparable provision.
     House bill
       Requires that State plans for those States electing to 
     exercise the simplified program option include the rules and 
     procedures to be followed in determining benefits under the 
     option, whether the program will include households in which 
     not all members receive TANF grant benefits, and the method 
     by which the State or political subdivision participating in 
     the simplified program will carry out its quality control 
     obligations.
     Senate amendment
       Requires that State plans for those States electing to 
     exercise the simplified program option include the rules and 
     procedures to be followed in determining benefits under the 
     option, how the States will address the needs of households 
     with high shelter costs, and a description of the method by 
     which the State will carry out its quality control 
     obligations.
     Conference agreement
       The Conference agreement follows the Senate amendment.


        5. conforming amendments: simplified food stamp program

     Present law
       Allows the Secretary to operate pilot projects similar to 
     the simplified food stamp program State option proposed in 
     the House bill. [Sec. 8(e) and Sec. 17(i)]
     House bill
       Deletes provisions for pilot projects similar to the 
     simplified food stamp program State option.
     Senate amendment
       Same as the House bill.
     Conference agreement
       The Conference agreement follows the House bill with an 
     amendment to add necessary conforming amendments.


                          6. thrifty food plan

     Present law
       Maximum monthly food stamp benefits are defined as 103% of 
     the cost of the Agriculture Department's ``Thrifty Food 
     Plan,'' adjusted for food-price inflation each October 
     according to the plan's cost in the immediately preceding 
     June and rounded down to the nearest dollar by household 
     size. [Sec. 3(o)]
     House bill
       Provides that current maximum monthly food stamp benefits 
     (103% of the cost of the Thrifty Food Plan in June 1994) be 
     increased by 2% a year, beginning with the October 1995 
     adjustment, and rounded down to the nearest dollar by 
     household size.
     Senate amendment
       Sets maximum monthly food stamp benefits at 100% of the 
     cost of the Thrifty Food Plan, effective October 1, 1995, 
     adjusted annually, as under existing law and rounded down to 
     the nearest dollar by household size. Requires that the 
     October 1, 1995, adjustment not reduce maximum benefit 
     levels.
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment making it effective October 1, 1996.


               7. income deductions and energy assistance

                          a. energy assistance

     Present law
        Payments or allowances for energy assistance provided by 
     State or local law are, under rules set by the Secretary, 
     disregarded (``excluded'') as income. [Sec. 5(d)(11) and 
     5(k)]
        Payments or allowances for weatherization assistance are 
     disregarded as energy assistance. [Sec. 5(d)(11) and 5(k)] 
     [Note: Weatherization payments could otherwise be disregarded 
     as lump-sum payments, vendor payments, or reimbursements.]

[[Page H 13011]]

        Federal Low-Income Home Energy Assistance Program (LIHEAP) 
     benefits are disregarded as income. [Sec. 5(d)(11) and 5(k) 
     of the Food Stamp Act and sec. 2605(f) of the Low-Income Home 
     Energy Assistance Act]
        Certain utility allowances under Department of Housing and 
     Urban Development (HUD) programs are disregarded. [Sec. 
     5(d)(11) and 5(k)]
        Shelter expense deductions may be claimed for utility 
     costs covered by LIHEAP benefits, but not in the case of 
     other disregarded energy assistance unless the household has 
     additional out-of-pocket expenses. [Sec. 5(e) of the Food 
     Stamp Act and Sec. 2605(f) of the Low-Income Home Energy 
     Assistance Act]
     House bill
        Requires that State/local energy assistance be counted as 
     income.
        Continues to disregard as income payments or allowances 
     for weatherization assistance under a Federal energy 
     assistance program. Other weatherization assistance could be 
     disregarded as lump-sum payments, vendor payments, or 
     reimbursements.
        Bars claiming shelter expense deductions for utility costs 
     covered either directly or indirectly by the LIHEAP and other 
     disregarded energy assistance.
     Senate Amendment
        Requires that State/local energy assistance be counted as 
     income..
        Requires an income disregard for one-time payments/
     allowances under a Federal or State law for the costs of 
     weatherization or emergency repair/replacement of unsafe/
     inoperative furnaces or other heating/cooling devices.
        Counts Federal LIHEAP benefits as income.
        Counts HUD utility allowances as income.
        Allows claiming shelter expense deductions for utility 
     costs covered directly or indirectly by the LIHEAP and other 
     counted energy assistance.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                         b. standard deductions

     Present law
       For purposes of determining food stamp benefits and 
     eligibility, applicant/recipient households may claim 
     standard deductions from their otherwise countable income. 
     Standard deductions are indexed annually (each October 1) for 
     inflation based on the Consumer Price Index for items other 
     than food and rounded down to the nearest dollar. For fiscal 
     year 1995, standard deductions are set at: $134 a month for 
     the 48 States and the District of Columbia, $229 for Alaska, 
     $189 for Hawaii, $269 for Guam, and $118 for the Virgin 
     Islands. For fiscal year 1996, they were ``scheduled'' to 
     rise to: $138, $236, $195, $277, and $122, respectively, but 
     this was barred by the fiscal year 1996 agriculture 
     appropriations act.. [Sec. 5(e)]
     House bill
       Sets standard deductions at their fiscal year 1995 levels, 
     effective October 1, 1995.
     Senate amendment
        Reduces standard deductions:
        (1) for fiscal year 1996, they would be $132, $225, $186, 
     $265, and $116; and
        (2) for fiscal year 1997-2002, they would be $124, $211, 
     $174, $248, and $109.
        Inflation indexing of standard deductions would resume 
     October 1, 2002 (using existing indexing rules).
     Conference agreement
       The Conference agreement follows the House bill and 
     continues to set standard deductions at their fiscal year 
     1995 levels.


                       c. earned income deduction

     Present law
       Households may claim a deduction for 20% of any earned 
     income. This deduction is not allowed with respect to any 
     income that a household willfully or fraudulently fails to 
     report in a timely manner (as proven in a fraud hearing 
     proceeding)--i.e., it is not allowed when determining the 
     amount of a benefit overissuance. [Sec. 5(e)]
     House bill
       Denies an earned income deduction for the food stamp 
     benefit portion of income earned under a work 
     supplementation/support program. [Note: See item 15.]
     Senate amendment
       Disallows an earned income deduction for any income not 
     reported in a timely manner--i.e., the deduction would not be 
     allowed in determining the amount of any overissued benefits.
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment denying an earned income deduction for the 
     public assistance portion of income earned under a work 
     supplementation/support program.


                  d. excess shelter expense deduction

     Present law
       For purposes of determining food stamp benefits and 
     eligibility, applicant/recipient households may claim excess 
     shelter expense deductions from their otherwise countable 
     income--in the amount of any shelter expenses (including 
     utility costs) above 50% of their countable income after all 
     other deductions have been applied. For households with 
     elderly or disabled members, these deductions are unlimited. 
     For other households, they are limited by law through 
     December 1996; limits are lifted as of January 1, 1997. For 
     fiscal year 1995, excess shelter expense deductions were 
     capped at: $231 a month for the 48 States and the District of 
     Columbia, $402 for Alaska, $330 for Hawaii, $280 for Guam, 
     and $171 for the Virgin Islands. For October 1995 through 
     December 1996, the caps rose to $247, $429, $353, $300, and 
     $182, respectively. [Sec. 5(e)]
       States may use ``standard utility allowances'' (as approved 
     by the Secretary) in calculating households' shelter 
     expenses. However, households may claim actual expenses 
     instead of the allowance and may switch between an actual 
     expense claim and the standard allowance at the end of any 
     certification period and one additional time during any 12-
     month period. [Sec. 5(e)]
     House bill
       Sets the limits on excess shelter expense deductions at 
     fiscal year 1995 levels.
     Senate amendment
        Permits States to make the use of standard utility 
     allowances mandatory for all households if (1) the State has 
     developed separate standards that include the cost of heating 
     and cooling and do not include these costs and (2) the 
     Secretary finds that the standards will not result in 
     increased Federal costs.
        Removes the option for households to switch between a 
     standard utility allowance and actual costs once during every 
     12-month period.
     Conference agreement
        The Conference agreement follows the Senate amendment with 
     an amendment that establishes excess shelter expense 
     deduction limits at the October 1995/December 1996 levels.


                     e. homeless shelter deduction

     Present law
       For homeless households not receiving free shelter 
     throughout the month, States may develop a homeless shelter 
     expense estimate (a standard amount) to be used in 
     calculating an excess shelter expense deduction. States must 
     use this amount unless the household verifies higher 
     expenses. The Secretary may prohibit the use of the deduction 
     for households with extremely low shelter costs. The amount 
     is inflation indexed, and, for fiscal year 1995, it is 
     limited to $139 a month; effective October 1, 1995, it is 
     scheduled to rise to $143. [Sec. 11(e)(3)]
     House bill
       Sets the homeless shelter deduction at the fiscal year 1995 
     $139 a month amount and requires that it be used in 
     establishing homeless households' excess shelter expense 
     deductions when they do not receive free shelter throughout 
     the month.
     Senate amendment
       Same as the House bill, except that States may prohibit the 
     use of the deduction for households with extremely low 
     shelter costs.
     Conference agreement
        The Conference agreement follows the Senate amendment.


                          8. vehicle allowance

              a. threshold for counting a vehicle's value

     Present law
       In determining a household's liquid assets for food stamp 
     eligibility purposes, a vehicle's fair market value in excess 
     of $4,550 is counted. This threshold rose to $4,600 in 
     October 1995 and is scheduled to be annually indexed for 
     inflation beginning in fiscal year 1997. [Sec. 5(g)(2)] 
     [Note: Eligible households may have liquid assets of no more 
     than $2,000 ($3,000 for households with elderly members).]
     House bill
       Sets the threshold above which the fair market value of a 
     vehicle is counted as an asset at $4,550.
     Senate amendment
       Eliminates the October 1, 1995 increase in the threshold to 
     $4,600 and requires that the $4,550 threshold begin to be 
     inflation adjusted on October 1, 1996.
      Conference agreement
       The Conference agreement follows the House bill, with an 
     amendment setting the threshold at $4,600.


                   B. Vehicles Carrying Fuel or Water

     Present law
       In determining a household's liquid assets for food stamp 
     eligibility purposes, the value of a vehicle that the 
     household depends on to carry fuel for heating or water for 
     home use is excluded. [Sec. 5(g)(2)]
     House bill
       Deletes the asset exclusion for vehicles used to carry fuel 
     or water.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the House bill.


                          9. Work Requirements

       Non-exempt recipients between 16 and 60 are ineligible for 
     food stamps if they refuse to register for employment, refuse 
     to participate in an employment/training program when 
     required to do so by the State, or refuse a job offer meeting 
     minimum standards. [Sec. 6(d)]
       Exempt individuals are: (1) those who are not physically or 
     mentally fit, (2) those subject to and complying with a work/
     training requirement under the AFDC program or the 
     unemployment compensation system (although failure to comply 
     with an AFDC/unemployment system requirement is treated 

[[Page H 13012]]
     as a failure to comply with food stamp rules, if the requirement is 
     ``comparable''), (3) parents and other household members with 
     the responsibility for care of a dependent child under age 6 
     or an incapacitated person, (4) postsecondary students 
     enrolled at least half-time (separate rules bar eligibility 
     for most postsecondary students who are not working or do not 
     have dependents), (5) regular participants in drug addiction 
     or alcoholic treatment programs, (6) persons employed at 
     least 30 hours a week or receiving the minimum wage 
     equivalent, and (7) persons between 16 and 18 who are not 
     head of household and are in school at least half time. [Sec. 
     6(d)(1) and (2)]
       In addition, if a non-exempt head of household fails to 
     comply with one of the above-noted requirements or 
     voluntarily quits a job without good cause, or if any non-
     exempt household member is on strike, the entire household is 
     ineligible for food stamps. [Sec. 6(d)(1) & (3)]


                             A. Job Search

     Present law
       As noted above, non-exempt individuals refusing to 
     participate in an employment/ training program when required 
     to do so by the State are ineligible for food stamps (if they 
     are head of household, the entire household is ineligible). 
     State-designed employment and training programs may include a 
     requirement to perform job search activities. [Sec. 6(d)(1) & 
     (2)]
     House bill
       Makes ineligible non-exempt individuals (and their 
     households if they are head of household) who refuse to 
     participate in a State-established job search program. [Note: 
     Able-bodied non-elderly adults without dependents would be 
     subject to new work requirements, see below.]
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                    B. Comparable Work Requirements

     Present law
       As noted above, individuals are exempt from food stamp 
     employment/training requirements if they are subject to and 
     complying with an AFDC or unemployment compensation work/
     training requirement, and failure to comply with such an AFDC 
     or unemployment compensation requirement is treated as 
     failure to comply with food stamp employment/ training 
     requirements, if the requirement is ``comparable.'' [Sec. 
     6(d)(2)]
     House bill
       Requires that failure to comply with an TANF or 
     unemployment compensation system work/training requirement be 
     treated as failure to comply with a food stamp employment/
     training requirement, whether or not the requirement is 
     ``comparable.''
     Senate amendment
       Same as the House bill.
     Conference agreement
       The Conference agreement follows the House bill.


                        C. New Work Requirement

     Present law
       As noted above, non-exempt individuals are ineligible for 
     food stamps if they refuse to participate in an employment/
     training program when required to do so by the State. [Sec. 
     6(d)(1)]
     House bill
       Deletes provisions of law barring eligibility to those 
     refusing to participate in State-established employment/ 
     training programs.
       In their place, adds a new work requirement: non-exempt 
     recipients (see below) would be disqualified if they are not 
     employed a minimum of 20 hours a week or are not 
     participating in the work program newly established under the 
     House bill (see below) within 90 days of certification of 
     eligibility.
       Allows individuals who have been disqualified under the new 
     work requirement to re-establish food stamp eligibility if 
     they become exempt (under the rules noted immediately below), 
     become employed at least 20 hours a week during any 
     consecutive 30-day period, or participate in a work program 
     (see below).
       Exempt from the new requirement would be: (1) those under 
     18 or over 50, (2) those medically certified as physically or 
     mentally unfit for employment, (3) parents or other household 
     members responsible for the care of a dependent child, and 
     (4) those who are otherwise exempt from work registration and 
     job search rules (see present law description above).
       Upon a State's request, allows the Secretary to waive 
     application of the new work requirement for some or all 
     individuals in all or part of a State if the Secretary 
     determines that the area (1) has an unemployment rate over 
     10% or (2) does not have sufficient jobs to provide 
     employment for those subject to the new requirement. The 
     Secretary would be required to report to the Agriculture 
     Committees the basis for any waiver based on lack of 
     sufficient jobs.
      Senate amendment
       Adds a new work requirement: non-exempt persons (see below) 
     would be ineligible if, during the preceding 12-month period, 
     they received food stamps for 6 months or more while not 
     working 20 hours or more a week (averaged monthly) or 
     participating in and complying with a work/ training program 
     (see note regarding exemptions below) for at least 20 hours a 
     week.
       Exempt from the new requirement would be: (1) those under 
     18 or over 50, (2) those certified by a physician as 
     physically or mentally unfit for employment, (3) parents or 
     other household members responsible for the care of a 
     dependent, (4) those participating a minimum of 20 hours a 
     week in (and complying with the requirements of) a Job 
     Training Partnership Act (JTPA) program, a Trade Adjustment 
     Assistance Act training program, or a State or local 
     government employment or training program meeting Governor-
     approved standards, and (5) those otherwise exempt from work 
     registration and job search rules (see present law 
     description above.) [Note: The new work requirement could be 
     met by those participating in and complying with (for 20 
     hours a week or more) a JTPA program, a Trade Adjustment 
     Assistance training program, or a State/local employment or 
     training program meeting Governor-approved standards 
     (including a food stamp program employment/training activity 
     other than job search or job search training).]
       As in the House bill, waivers are allowed, except that the 
     unemployment rate threshold is 8% and the Secretary must 
     report the basis for any waiver.
       Provides for a transition to the new work requirement. 
     Prior to October 1, 1996, administrators would not ``look 
     back'' a full 12 months in determining whether a recipient 
     had been receiving food stamps and not meeting the new 
     requirement; they would look back only to October 1, 1995.
     Conference agreement
       The Conference agreement follows the House bill, with an 
     amendment. Non-exempt persons (see below) are ineligible if, 
     during the preceding 12-month period, they received food 
     stamps for 4 months or more while not working 20 hours or 
     more a week (averaged monthly), participating in and 
     complying with a work program (see below) for at least 20 
     hours a week, or participating in a workfare program.
       Exempt from the new requirement are: (1) those under 18 or 
     over 50, (2) those medically certified as physically or 
     mentally unfit for employment, (3) parents or other household 
     members responsible for the care of a dependent child, (4) 
     those otherwise exempt from work registration or job search 
     rules (e.g., those caring for incapacitated persons), and (5) 
     pregnant women.
       Work programs allowing an exemption are programs under the 
     JTPA or the Trade Adjustment Assistance Act, or employment/
     training programs operated or supervised by a State or 
     locality meeting standards approved by the Governor 
     (including a food stamp employment/training program)--except 
     for job search or job search training programs.
       Waiver reports are required for any waiver based on 
     unemployment rates (over 10%) or lack of sufficient jobs.
       The disqualification imposed by the new work requirement 
     ceases to apply if, during a 30-day period, an individual 
     works 80 hours or more, participates in and complies with a 
     work program for at least 80 hours, or participates in a 
     workfare program. In the subsequent 12-month period, an 
     individual is eligible for food stamps for up to 4 months 
     while not working for at least 20 hours a week, participating 
     in a work program for at least 20 hours a week, or 
     participating in a workfare program.
       As in the Senate amendment, a transition to the new work 
     requirement is provided.


                          D. Disqualification

     Present law
       [Note: See present law description above. In addition, 
     disqualification periods for failure to fulfill work 
     requirements are (1) 2 months or until compliance (whichever 
     is first) for most failures and (2) 90 days in case of a 
     voluntary quit.]
     House bill
       No comparable provisions. [Note: The House bill creates new 
     disqualification penalties for those covered by its new work 
     requirement.]
     Senate amendment
       Rewrites and adds to rules governing disqualification for 
     violation of work and employment/training requirements (other 
     than those for the new work requirement noted above).
       In addition to existing provisions for disqualification 
     (e.g., job refusal, failure to participate in an employment/
     training program), makes ineligible (1) individuals who 
     refuse without good cause to provide sufficient information 
     to allow a determination of their employment status or job 
     availability, (2) all individuals (in addition to heads of 
     household) who voluntarily and without good cause quit a job, 
     and (3) individuals who voluntarily and without good cause 
     reduce their work effort (and, after the reduction, are 
     working less than 30 hours a week).
       Establishes a new household ineligibility rule: if any 
     individual who is head of household is disqualified under a 
     work rule, the entire household would, at State option, be 
     ineligible for the lesser of the duration of the individual's 
     ineligibility or 180 days--as determined by the State.
       Establishes new mandatory minimum work-rule 
     disqualification periods for individuals. For the first 
     violation, individuals would be ineligible until the later of 
     the date they fulfill work rules, for 1 month, or a period 
     (determined by the State) not to exceed 3 months. For the 
     second violation, individuals would be ineligible until the 
     later of the 

[[Page H 13013]]
     date they fulfill work rules, for 3 months, or a period (determined by 
     the State) not to exceed 6 months. For a third or subsequent 
     violation, individuals would be ineligible until the later of 
     the date they fulfill work rules, 6 months, a date determined 
     by the State, or (at State option) permanently. These 
     disqualification periods also would apply to those failing to 
     meet any workfare requirements.
       In establishing good cause, voluntary quits, and reduction 
     of work effort, the Secretary would determine the meaning of 
     the terms. States would determine the meaning of other terms 
     and the procedures for making compliance decisions, but could 
     not make a determination that would be less restrictive than 
     a comparable one under the State's family assistance block 
     grant program.
       States would be required to include the standards and 
     procedures they use in making work-rule disqualification/
     compliance decisions in their State plan.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                         E. Caretaker Exemption

     Present law
       Parents or other household members with responsibility for 
     the care of a dependent child under age 6 or of an 
     incapacitated person are exempt from food stamp work rules. 
     [Sec. 6(d)(2)]
     House bill
       No provision.
     Senate amendment
       Permits States to lower the age at which a child 
     ``exempts'' a parent/caretaker from 6 to not under the age of 
     1.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                F. Work and Employment/Training Programs

     Present law
       States must operate employment and training programs for 
     non-exempt food stamp recipients and place at least 15% of 
     those covered in a program component. Exempt are those listed 
     above and those States opt to exempt under Federal rules. 
     Program components can range from job search or education 
     activities to work experience/ training and ``workfare'' 
     assignments. [Sec. 6(d)(4)]
       Work experience/training program components must limit 
     assignments to projects serving a useful public purpose, use 
     the prior training/ experience of assignees, not provide work 
     that has the effect of replacing others, and provide the same 
     benefits and working conditions provided to other comparable 
     employees. [Sec. 6(d)(4)(B)]
       States and political subdivisions also may operate workfare 
     programs under which non-exempt recipients may be required to 
     perform work in return for the minimum wage equivalent of 
     their household's monthly food stamp allotment. In general, 
     those exempt are those listed above (p. 16). [Sec. 20]
       Workfare assignments may not have the effect of replacing 
     or preventing the employment of others and must provide the 
     same benefits and working conditions provided to other 
     comparable employees. [Sec. 20(d)]
       The total hours of work required of a household under an 
     employment/training program (including workfare) cannot in 
     any month exceed the minimum wage equivalent of the 
     household's monthly food stamp benefit. The total hours of 
     participation in an employment and training program required 
     of any household member cannot in any month exceed 120 hours 
     (when added to other work). And, workfare hours (when added 
     to other work) cannot exceed 30 hours a week for a household 
     member. [Sec. 6(d)(4)(F) and Sec. 20(c)]
       Under employment and training programs for food stamp 
     recipients, States must provide or pay for transportation and 
     other costs directly related to participation (up to $25 a 
     month for each participant) and necessary dependent care 
     expenses (in general, up to $175 or $200 a month for each 
     dependent, depending on the dependent's age). Under workfare 
     programs, States must reimburse participants for 
     transportation and other costs directly related to 
     participation (up to $25 a month for each participant). [Sec. 
     6(d)(4)(I) and Sec. 20 (d)(3)]
     House bill
       Deletes the requirement for States to operate employment 
     and training programs and current provisions for work 
     experience/training and workfare programs.
       Instead, requires the Secretary to permit any State that 
     applies and submits a plan in compliance with the Secretary's 
     guidelines to operate a work program for food stamp 
     recipients subject to the new work requirement (see above) in 
     the State or any political subdivision. A State's work 
     program would require those accepting an offer of a work 
     position in order to maintain food stamp eligibility to 
     perform work on the State or local jurisdiction's behalf, or 
     on behalf of a private nonprofit entity. The Secretary's 
     guidelines would be required to allow States and localities 
     to operate a work program that is consistent and compatible 
     with similar programs they might operate.
       Requires that, in order to be approved, a State's work 
     program provide that participants work no more than the 
     minimum wage equivalent of their household's monthly food 
     stamp benefit (i.e., the number of hours equivalent to their 
     household's monthly benefit divided by the minimum wage).
       Limits the degree to which a State or locality can assign 
     participants to replace other workers. No State/locality 
     could replace an employed worker with a work program 
     participant, but participants could be placed in (1) new 
     positions, (2) positions that became available during the 
     normal course of business, (3) positions that involve 
     performing work that would otherwise be performed on an 
     overtime basis, or (4) positions that became available by 
     shifting current employees to an alternate position. [Note: 
     States would receive Federal cost sharing for work program 
     participant expenses (see below).]
     Senate amendment
       Revises the existing requirements for State-operated 
     employment/training programs for food stamp recipients: (1) 
     makes clear the work experience is a purpose of employment/
     training programs; (2) requires that each component of an 
     employment/training program be delivered through a 
     ``statewide workforce development system,'' unless the 
     component is not available locally; (3) expands the existing 
     State option to apply work rules to applicants at application 
     to all work requirements, not only job search; (4) removes 
     specific rules governing job search components (i.e., tied to 
     those for the AFDC program); (5) removes provisions for 
     employment/training components related to work experience 
     requiring that they be in public service work and use (to the 
     extent possible) recipients' prior training and experience; 
     (6) removes specific Federal rules as to States' authority to 
     exempt categories and individuals from employment/training 
     requirements; (7) removes the requirement to serve volunteers 
     in employment/training programs; (8) removes the requirement 
     for ``conciliation procedures'' for resolution of disputes 
     involving participation in an employment or training program; 
     (9) limits employment/training funding provided by the food 
     stamp program for services to AFDC or family assistance block 
     grant funding recipients to the amount used by the State for 
     AFDC recipients in fiscal year 1995; and (10) removes Federal 
     performance standards on States for employment/training 
     programs for food stamp recipients.
     Conference agreement
       The Conference agreement follows the Senate amendment.


            G. Funding Work and Employment/Training Programs

     Present law
       To support employment and training programs for food stamp 
     recipients, States receive a formula share of $75 million a 
     year (based partially on their share of food stamp recipients 
     not exempt from work registration and employment/training 
     requirements and partially on their share of those placed in 
     employment/training program components). Minimum State annual 
     allocations are $50,000.
       In addition to its portion of the $75 million annual grant, 
     each State is entitled to (1) 50% of any additional costs 
     incurred, (2) 50% of any transportation or other participant 
     costs paid or incurred up to half of $25 a month for each 
     participant, and (3) 50% of any dependent care costs paid or 
     incurred up to half of certain limits (generally, $175/$200 a 
     month for each dependent, depending on the dependent's age). 
     [Sec. 16(h)]
     House bill
       To support work programs for food stamp recipients, 
     requires the Secretary to allocate among States and 
     localities operating them $75 million a year, based on their 
     share of recipients subject to the new work requirement (see 
     above). Minimum State allocations would be $50,000.
       Requires States to notify the Secretary as to their 
     intention to operate a work program, and requires the 
     Secretary to reallocate unclaimed portions of the $75 million 
     annual grant to other States, as the Secretary deems 
     appropriate and equitable.
       Requires that, in addition to its portion of the $75 
     million annual grant, the Secretary pay each State (1) 50% of 
     any additional costs incurred and (2) 50% of any 
     transportation or other participant costs paid or incurred up 
     to half of $25 a month for each participant.
       Allows the Secretary to suspend or cancel some or all 
     payments made to States for the work program, or withdraw 
     approval, on a finding of noncompliance.
     Senate amendment
       To support employment/training programs for food stamp 
     recipients, requires the Secretary to ``reserve for 
     allocation'' to States: $77 million for fiscal year 1996, $80 
     million for fiscal year 1997, $83 million for fiscal year 
     1998, $86 million for fiscal year 1999, $89 million for 
     fiscal year 2000, $92 million for fiscal year 2001, and $95 
     million for fiscal year 2002. Allocations would be based on a 
     ``reasonable formula'' (determined by the Secretary) that 
     gives consideration to States' shares of the population 
     affected by the new work requirement (see above). Minimum 
     State allocations would be $50,000.
       Requires reallocations as in the House bill.
       Continues existing provisions for payments for additional 
     costs, but adds explicit permission for a 50% Federal share 
     of State case management costs.
     Conference agreement
       The Conference agreement follows the Senate amendment.

[[Page H 13014]]

       H. Conforming Amendment
     Present law
       There is authorized a demonstration project similar to the 
     new work requirement in the House bill; it has not been 
     implemented. [Sec. 17(d)]
     House bill
       Deletes authorization for a demonstration project similar 
     to the new work requirement in the House bill.
     Senate amendment
       Makes several technical and conforming amendments to 
     employment and training provisions.
     Conference agreement
       The Conference agreement follows the House bill and makes 
     technical and conforming amendments.


          10. Comparable Treatment of Disqualified Individuals

     Present law
       [Note: See item 4C.]
     House bill
       Requires that individuals who have been disqualified for 
     noncompliance with requirements under a TANF program not be 
     eligible to participate for food stamps during the 
     disqualification period.
     Senate amendment
       If an individual is disqualified for failure to perform an 
     action required under a Federal, State, or local welfare/
     public assistance program, permits States to impose the same 
     disqualification for food stamps.
       If a disqualification is imposed under the family 
     assistance block grant, permits States to use the family 
     assistance block grant's rules and procedures to impose the 
     same disqualification for food stamps.
       Permits individuals disqualified from food stamps because 
     of failure to perform a required action under another 
     welfare/public assistance program to apply for food stamps as 
     new applicants after the disqualification period has 
     expired--except that a prior disqualification under food 
     stamp work requirements must be considered in determining 
     eligibility.
       Requires States to include the guidelines they use in 
     carrying out food stamp disqualification for failure to 
     perform a required action in another welfare/public 
     assistance program in their State plans.
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment changing references to welfare or public 
     assistance programs to references to needs-tested public 
     assistance programs.


           11. Encourage Electronic Benefit Transfer Systems

                            A. Regulation E

     Present law
       The Federal Reserve Board has ruled that, as of March 1997 
     and with some minor modifications, its ``Regulation E'' will 
     apply to electronic benefit transfer systems. Regulation E 
     provides certain protections for consumers using cards to 
     access their accounts. It limits the liability of cardholders 
     for unauthorized withdrawals (to $50, if notification is 
     made) and requires periodic account statements and certain 
     error resolution procedures. [Federal Register of Mar. 7, 
     1994]
     House bill
       [Note: See item 56 for optional block grants for States 
     fully implementing electronic benefit transfer systems.]
       Provides that Regulation E not apply to any electronic 
     benefit transfer program (distributing needs-tested benefits) 
     established or administered by States or localities.
     Senate amendment
       Provides that Regulation E not apply to food stamp benefits 
     delivered through any electronic benefit transfer system.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).


      B. Charging for Electronic Benefit Transfer Card Replacement

     Present law
       No specific provision.
     House bill
       No provision.
     Senate amendment
       Provides that States may charge recipients for the cost of 
     replacing a lost or stolen electronic benefit transfer card 
     and may collect the charge by reducing the recipient's food 
     stamp benefit.
     Conference agreement
       The Conference agreement follows Senate amendment.


                     C. Photographic Identification

     Present law
       No provision.
     House bill
       Requires that each electronic benefit transfer card bear a 
     photograph of the members of the household to which the card 
     is issued.
     Senate amendment
       Permits States to require that electronic benefit transfer 
     cards contain a photograph of 1 or more household members and 
     requires that, if a State requires a photograph, it shall 
     establish procedures to ensure that other appropriate members 
     of the household and authorized representatives may use the 
     card.
     Conference agreement
       The Conference agreement follows the Senate amendment.


            D. Rules for Electronic Benefit Transfer Systems

     Present law
       State agencies, with the Secretary's approval, may 
     implement on-line electronic benefit transfer systems for 
     delivering food stamp benefits, in lieu of coupons. No State 
     may implement or expand an electronic benefit transfer system 
     without prior approval from the Secretary. States are 
     responsible for 50% of any electronic benefit transfer system 
     costs (as with any benefit issuance system), including 
     equipment and electronic benefit transfer cards. [Sec. 7(i)]
       The Secretary's regulations for approval must (1) include 
     standards that require that, in any one year, the operational 
     cost of an electronic benefit transfer system does not exceed 
     costs of prior issuance systems and (2) include system 
     security standards. [Sec. 7(i)]
     House bill
       Deletes requirements for the Secretary's prior approval, 
     ``encourages'' State agencies to implement on-line electronic 
     benefit transfer systems for delivering food stamp benefits, 
     and authorizes States to procure and implement these systems 
     (under terms, conditions and designs that the State deems 
     appropriate).
       Allows the Secretary to waive, on a State's request, any 
     provision of the Food Stamp Act that prohibits effective 
     implementation of an electronic benefit transfer system for 
     food stamp benefits.
       Requires re-issuance and revision of regulations governing 
     food stamp electronic benefit transfer systems (current 
     regulations for approval of these systems were issued in 
     April 1992).
       Deletes the requirement that the Secretary's regulations 
     for electronic benefit transfer systems require that costs of 
     the electronic benefit transfer system in any one year not 
     exceed costs of prior issuance systems.
       Adds requirements that the Secretary's standards for 
     electronic benefit transfer systems include (1) measures to 
     maximize system security using the most recent technology the 
     State considers appropriate (including personal 
     identification numbers, photographic identification on 
     electronic benefit transfer cards, and other measures to 
     protect against fraud and abuse) and (2) effective not later 
     than 2 years after enactment, measures that permit electronic 
     benefit transfer systems to differentiate food items that may 
     be acquired with food stamp benefits from those that may not.
     Senate amendment
       Permits States to implement EBT systems under rules 
     separate from those in existing law as amended, if a State 
     notifies the Secretary of its intent to convert to a 
     statewide system within 3 years of enactment. The Secretary 
     may not provide coupons to a State beginning 3 years after 
     the chief executive gives notification of intent to convert 
     under the EBT option-- but the State may extend this deadline 
     by 2 years and the Secretary may grant a waiver of up to 6 
     months for good cause. [Note: The Secretary is authorized to 
     provide coupons for disaster relief.]
       Places requirements on the Secretary under the EBT option. 
     The Secretary must:
       (1) assist States in converting to an EBT system and (in 
     consultation with the Inspector General and the Secret 
     Service) inform States about proper security features, 
     management techniques, and counterfeit deterrence;
       (2) reimburse States for purchasing and issuing EBT cards 
     [Note: The Secretary may charge recipients (through allotment 
     reduction or otherwise) for the cost of replacing lost or 
     stolen cards, unless stolen by force or threat of force];
       (3) assign additional employees to investigate and monitor 
     compliance with EBT and retailer participation rules;
       (4) establish a Transition Conversion Account (TCA) to be 
     funded with transaction fees of no more than 2 cents a 
     transaction (maximum of 16 cents a month) taken from each EBT 
     household's benefits [Note: Fees would be imposed during the 
     10-year period beginning on enactment and placed in the TCA 
     at the beginning of each year during the 10-year period 
     beginning with the first full fiscal year after enactment. 
     They would be imposed to the extent necessary to not increase 
     the Secretary's costs under the EBT option and could not be 
     greater than needed for the purposes of the TCA (see below). 
     Fees could be reduced for households receiving maximum 
     benefits.]
       (5) from the TCA and, to the extent necessary, from food 
     stamp appropriations, provide funds to States choosing the 
     EBT option for (1) reasonable purchase and installation costs 
     (including reimbursements to retailers) of single-function 
     point-of-sale equipment to be used only for Federal/State 
     assistance programs, (2) reasonable start-up purchase and 
     installation costs for telephone equipment and connections to 
     the point-of-sale equipment, and (3) modification of existing 
     EBT systems to the extent necessary to operate Statewide or 
     interstate;
       (6) from the TCA, provide funds to implement the EBT option 
     and for (1) start-up training, (2) reasonable one-time costs 
     of converting to a system capable of interstate 

[[Page H 13015]]
     and law enforcement functions, (3) liabilities assumed by the Secretary 
     under the EBT option (e.g., for replaced benefits), and (4) 
     implementing and expanding a nationwide program for 
     compliance with EBT and retailer rules; and
       (7) consult with government, food industry, financial 
     services, and food advocacy representatives in the conversion 
     to EBT as to (1) integrating EBT systems into commercial 
     networks, (2) EBT system security, (3) use of laser scanner 
     technology to ensure that only eligible items are purchased, 
     (4) use of EBT system data to identify fraud, (5) means of 
     ensuring confidentiality, (6) using existing terminals and 
     systems to reduce costs, and (7) using EBT systems for 
     multiple benefits.
       Places requirements and conditions on States under the EBT 
     option. States:
       (1) must take into account generally accepted operating 
     rules based on commercial technology and the need to permit 
     interstate operations and law enforcement monitoring and 
     investigations;
       (2) may use paper-based and other benefit transfer 
     approaches for special-need retailers (located in very rural 
     areas, without access to dependable electricity or regular 
     telephone service, farmers' markets, and house-to-house trade 
     routes);
       (3) must purchase and install (or reimburse for) single-
     function point-of-sale (and related telephone) equipment, 
     usable only for Federal/State assistance, for retailers that 
     do not have point-of-sale EBT equipment and do not intend to 
     obtain it in the near future [Note: Equipment must be capable 
     of interstate operations (based on commercial operating 
     principles) that permit law enforcement monitoring and be 
     capable of giving recipients access to multiple benefits.];
       (4) must purchase (or reimburse for) point-of-sale paper-
     based or alternative benefit transfer equipment for special-
     need retailers without this equipment who do not intend to 
     obtain it in the near future (equipment would be usable only 
     for Federal/State assistance);
       (5) must use competitive bidding systems in purchasing EBT 
     equipment and cards [Note: States may not have purchase 
     agreements conditioned on buying additional services or 
     equipment, the Secretary must monitor prices paid, and the 
     Inspector General must investigate possible wrongdoing,];
       (6) must advise recipients how to promptly report lost, 
     stolen, damaged, improperly manufactured, dysfunctional, or 
     destroyed EBT cards;
       (7) must not (following the Secretary's regulations) 
     replace benefits lost due to unauthorized use of an EBT card, 
     but recipients would receive replacement benefits for losses 
     caused by (1) force or threat of force, (2) unauthorized use 
     after the State gets notice a card was lost/stolen, or (3) 
     problems with the EBT system [Note: Except for losses caused 
     by force or threat of force, States must reimburse the 
     Secretary for benefit replacements, and States may obtain 
     reimbursement from service providers for losses caused by 
     system problems.];
       (8) may require an explanation from recipients on occasions 
     where they report lost or stolen cards or cards are used for 
     an unauthorized transaction;
       (9) must, in appropriate circumstances, investigate and act 
     on (through administrative disqualification or court 
     referral) cases of lost or stolen cards or unauthorized use;
       (10) must (1) take into account the needs of law 
     enforcement personnel and the need to permit and encourage 
     technological/scientific advances, (2) ensure security is 
     protected, (3) provide for recipient privacy, ease of EBT 
     card use, and access to and service by retailers, (4) provide 
     for financial accountability and system capability for 
     interstate operations and law enforcement monitoring, (5) 
     prohibit retailer participation unless appropriate equipment 
     is operational and reasonably available to recipients, and 
     (6) provide for monitoring and investigation by law 
     enforcement agencies;
       (11) must, on a recipient's request, provide, once a month, 
     a statement of benefit transfers and balances for the 
     preceding month; and
       (12) must design systems to timely resolve disputes over 
     errors. [Note: Recipients able to obtain error corrections 
     under the system would not be entitled to a fair hearing.].
       Provides that retailers may return equipment provided by 
     the State and obtain equipment with their own funds and that 
     the cost of documents or systems under the EBT option may not 
     be imposed on retailers.
       Provides that EBT retailer fraud and related activities be 
     governed by the Food Stamp Act and 18 U.S.C. 1029.
       Makes technical and conforming amendments and defines 
     electronic benefit transfer system, retail food store, 
     special-need retail food store, and electronic benefit 
     transfer card.
     Conference agreement
       The Conference agreement follows the House bill, with an 
     amendment. States are required to implement an electronic 
     benefit transfer system ('on-line' or 'off-line') before 
     October 1, 2002, unless the Secretary waives the requirement 
     because a State agency faces unusual barriers to 
     implementation, and State are encouraged to implement an 
     electronic benefit transfer system as soon as practicable. 
     Subject to Federal standards, States are allowed to procure 
     and implement an electronic benefit transfer system under 
     terms, conditions, and design that they consider appropriate, 
     and a new requirement for Federal procurement standards is 
     added. A requirement is added for electronic benefit transfer 
     standards following generally accepted standard operating 
     rules based on commercial technology, the need to permit 
     interstate operation and law enforcement, and the need to 
     permit monitoring and investigations by authorized law 
     enforcement officials. A requirement that regulations 
     regarding replacement of benefits under an electronic benefit 
     transfer system be similar to those in effect for a paper 
     food stamp issuance system is added. Provisions in the House 
     bill that are retained are: a provision deleting the 
     requirement that electronic benefit transfer systems be cost-
     neutral in any one year, requirements as to measures to 
     maximize security , and a provision requiring measures to 
     permit electronic benefit systems to differentiate among food 
     items (to the extent practicable). The House bill provision 
     allowing the Secretary to waive Food Stamp Act provisions 
     that prohibit effective implementation of electronic benefit 
     transfer systems is deleted.


                     12. Value of Minimum Allotment

     Present law
       The minimum monthly allotment for 1- and 2-person 
     households is set at $10. It is scheduled to rise to $15 in 
     fiscal year 1997 or 1998 (depending on food-price inflation). 
     [Sec. 8(a)]
     House bill
       Sets the minimum monthly allotment for 1- and 2-person 
     households at $10.
     Senate amendment
       Same as the House bill.
     Conference agreement
       The Conference agreement follows the House bill.


                13. Initial Month Benefit Determination

     Present law
       Recipient households not fulfilling eligibility 
     recertification requirements in the last month of their 
     certification period are allowed a 1-month ``grace period'' 
     in which to fulfill the requirements before their benefits 
     are pro-rated (reduced) to reflect the delay in meeting 
     recertification requirements. [Sec. 8(c)(2)(B)]
     House bill
       For those who do not complete all eligibility 
     recertification requirements in the last month of their 
     certification period, but are then determined eligible after 
     their certification period has expired, requires that they 
     receive reduced benefits in the first month of their new 
     certification period (i.e., their benefits would be pro-rated 
     to the date they met the requirements and were judged 
     eligible).
     Senate amendment
       Same as the House bill.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                  14. Improving Food Stamp Management


                  A. Quality Control Fiscal Sanctions

     Present law
       States are assessed fiscal sanctions if their ``quality 
     control'' combined (overpayment and underpayment) error rate 
     for a given fiscal year is higher than the national average 
     for that year. The amount of each State's sanction is 
     determined by using a ``sliding scale'' so that its penalty 
     assessment reflects the degree to which its combined error 
     rate exceeds the national average tolerance level. In effect, 
     the current system requires that States be sanctioned for a 
     portion of every benefit dollar that exceeds the tolerance 
     level. For example, if the tolerance level were 10% and the 
     State's combined error rate were 12%, or 2 percentage points 
     (20%) above the tolerance level, the State would be assessed 
     a penalty of .2% of benefits issued in the State that year 
     (i.e., 20% of the excess above the threshold). [Sec. 16(c)]
     House bill
       Requires the assessment of fiscal sanctions if a State's 
     combined error rate is above a tolerance level set at the 
     lowest national average combined error rate ever achieved, 
     plus 1 percentage point. States would be assessed a dollar 
     penalty for each dollar in error above the tolerance level. 
     For example, if a State's combined error rate were 2 
     percentage points above the lowest ever national average 
     tolerance level, plus 1 percentage point, it would be 
     assessed a penalty of 2% of benefits issued in the State that 
     year.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                B. Quality Control Administrative Rules

     Present law
       Errors resulting from the application of new regulations 
     are not included in a State's error rate for assessing 
     sanctions during the first 120 days from required 
     implementation of the regulations. [Sec. 16(c)(3)(A)]
       Specific time frames are set out for completion of quality 
     control reviews, determining final error rates, and various 
     steps of the appeals process. Administrative law judges are 
     required to consider all grounds for denying a sanction claim 
     against a State, including contentions that a claim should be 
     waived for good cause. [Sec. 16(c)(8)]
       For judging to what degree a State should be sanctioned, 
     ``good cause'' is defined as including: (1) a natural 
     disaster or civil disorder that adversely affects food stamp 
     operations, (2) a strike by State employees who 

[[Page H 13016]]
     are necessary for food stamp operations, (3) a significant growth in 
     food stamp caseload, (4) a change in the Food Stamp program 
     (or other Federal or State program) that has a substantial 
     adverse impact on the management of the Food Stamp program, 
     and (5) a significant circumstance beyond the control of a 
     State agency. [Sec. 16(c)(9)]
       If a State appeals a quality control sanction claim, 
     interest on any unpaid portion of the claim accrues from the 
     date of the decision on the administrative appeal or from a 
     date that is 1 year after the date a bill for the sanction is 
     received, whichever is earlier. [Sec. 13(a)(1)]
     House bill
       Bars inclusion of errors resulting from the application of 
     new regulations for 60 days (or 90 days at the Secretary's 
     discretion).
       Deletes specific time frames for reviews, error rates, and 
     the appeals process. Deletes the directive that 
     administrative law judges consider all grounds for denying a 
     sanction claim against a State.
       Deletes the Act's definition of good cause for the quality 
     control system.
       Requires that interest on sanction claims begin to accrue 
     from the date of the administrative appeal decision or 2 
     years after the sanction bill is received, whichever is 
     earlier.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the Senate amendment.


              15. Work Supplementation or Support Program

     Present law
       No provisions.
     House bill
       Permits States having a work supplementation or support 
     program (under which public assistance benefits are provided 
     to employers who hire public assistance recipients and then 
     used to pay part of their wages) to include the cash value of 
     a recipient's household food stamp benefits in the amount 
     paid the employer to subsidize wages paid. Work 
     supplementation/support programs would be required to meet 
     standards set by the Secretary in order to avail themselves 
     of the option to include food stamp benefits. The food stamp 
     benefit value of the supplement could not be considered 
     income for other purposes, and the household of the 
     participating member would not receive regular food stamp 
     allotments while the member was in a work supplementation/
     support program. States would be required to include any 
     plans for including food stamp recipients in work 
     supplementation or support programs in their State plans.
     Senate amendment
       Same as the House bill, except (1) a qualified work 
     supplementation/support program may not allow participation 
     of any individual for longer than one year (unless the 
     Secretary approves a longer period), and (2) a qualified work 
     supplementation/support program must be used for hiring and 
     employing new employees.
     Conference agreement
       The Conference agreement follows the House bill, with an 
     amendment to provide that (1) States must provide a 
     description of how recipients in the program will, within a 
     specific period of time, be moved to employment that is not 
     supplemented or supported and (2) programs not displace 
     employment of those who are not supplemented or supported.


                     16. Obligations and Allotments

     Present law
       The Food Stamp Act authorizes to be appropriated such sums 
     as are necessary for each fiscal year 1991-1995. [Sec. 18(a)]
     House bill
       Provides that the amount obligated under the Act will not 
     be in excess of the cost estimate of the Congressional Budget 
     Office for fiscal year 1996, with adjustments for additional 
     fiscal years--in both cases reflecting amendments made by the 
     Personal Responsibility Act.
       Requires the Secretary to file reports (each February, 
     April, and July) stating whether there is a need for 
     additional obligational authority and authorizes the 
     Secretary to provide recommendations as to how to equitably 
     achieve spending reductions if allotments must be limited in 
     any fiscal year.
     Senate amendment
       Authorizes such sums as are necessary through fiscal year 
     2002.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (sectio 313 of the 
     Congressional Budget Act of 1974).


    17. Reauthorization of Puerto Rico Nutrition Assistance Program

     Present law
       The Food Stamp Act requires the Secretary to pay specific 
     sums for Puerto Rico's nutrition assistance block grant for 
     fiscal year 1991-1995. The fiscal year 1995 amount is $1.143 
     billion. [Sec. 19(a)]
     House bill
       No provision.
     Senate amendment
       Requires the following payments for Puerto Rico's nutrition 
     assistance block grant: $1.143 billion for each of fiscal 
     year 1995 and fiscal year 1996, $1.182 billion for fiscal 
     year 1997, $1.223 billion for fiscal year 1998, $1.266 
     billion for fiscal year 1999, $1.310 billion for fiscal year 
     2000, $1.343 billion for fiscal year 2001, and $1.376 billion 
     for fiscal year 2002.
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment to require the following payments for Puerto 
     Rico's block grant: $1.143 billion for fiscal year 1996, 
     $1.182 billion for fiscal year 1997, $1.223 billion for 
     fiscal year 1998, $1.266 billion for fiscal year 1999, $1.310 
     billion for fiscal year 2000, $1.357 billion for fiscal year 
     2001, and $1.404 billion for fiscal year 2002.


            18. Authority to Establish Authorization Periods

     Present law
       No provision.
     House bill
       Requires the Secretary to establish specific time periods 
     during which retail food stores' and wholesale food concerns' 
     authorization to accept and redeem food stamp coupons (or 
     redeem food stamp benefits through an electronic benefit 
     transfer system) will be valid.
     Senate amendment
       Permits the Secretary to issue regulations establishing 
     specific time periods during which authorization to accept 
     and redeem food stamp coupons will be valid.
     Conference agreement
       The Conference agreement follows the House bill.


    19. Condition Precedent for Approval of Retail Food Stores And 
                        Wholesale Food Concerns

     Present law
       No provision.
     House bill
       Provides that no retail food stores or wholesale food 
     concerns be approved for participation in the Food Stamp 
     program unless an Agriculture Department employee (or, 
     whenever possible, a State or local government official 
     designated by the Department) has visited it.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the House bill, with an 
     amendment limiting stores and food concerns that must be 
     visited to those of a type, determined by the Secretary, 
     based on factors that include size, location, and type of 
     items sold.


 20. Waiting Period for Retail Food Stores and Wholesale Food Concerns 
               that are Denied Approval to Accept Coupons

     Present law
       No provision.
     House bill
       Provides that retail food stores and wholesale food 
     concerns that have failed to be approved for participation in 
     the Food Stamp program may not submit a new application for 
     approval for 6 months from the date they receive a notice of 
     denial. Current law provisions granting denied retailers and 
     wholesalers a hearing on a refusal are retained.
     Senate amendment
       Same as the House bill, except that stores and concerns may 
     not submit a new application for 6 months from the date of 
     the denial.
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment providing that stores and concerns denied 
     approval because they do not meet the Secretary's approval 
     criteria may not, for at least 6 months, submit a new 
     application. The Secretary is allowed to establish longer 
     waiting periods, including permanent disqualification, that 
     reflect the severity of the basis for denial.


 21. Disqualification of Retail Food Stores and Wholesale Food Concerns

     Present law
       No provision.
     House bill
       Requires that a retail food store or wholesale food concern 
     that is disqualified from participation in the Special 
     Supplemental Nutrition Program for Women, Infants, and 
     Children (WIC) also be disqualified from participating in the 
     Food Stamp program for the period of time it is disqualified 
     from the WIC program.
     Senate amendment
       Requires the Secretary to issue regulations providing 
     criteria for disqualifying from food stamps retail food 
     stores and wholesale food concerns disqualified from the WIC 
     program. Disqualification must be for the same period as 
     under the WIC program, may begin at a later date, and would 
     not be subject to food stamp administrative/judicial review 
     procedures.
     Conference agreement
       The Conference agreement follows the Senate amendment with 
     a technical amendment.


22. Authority to Suspend Stores Violating Program Requirements Pending 
                   Administrative and Judicial Review

     Present law
       No provision.
     House bill
       Requires that, where a retail food store or wholesale food 
     concern has been permanently disqualified (for its third 
     offense or 

[[Page H 13017]]
     for certain instances of trafficking), the disqualification period will 
     be effective from the date it receives notice of 
     disqualification, pending administrative and judicial review.
     Senate amendment
       Permits regulations establishing criteria under which 
     authorization of a retail food store or wholesale food 
     concern may be suspended at the time the store/concern is 
     initially found to have committed a violation that would 
     result in permanent disqualification; the suspension may 
     coincide with the period of administrative/judicial review. 
     The Secretary would not be liable for the value of any lost 
     sales during any suspension/ disqualification period.
       Requires notice in suspension cases. Stipulates that a 
     suspension period remains in effect pending administrative/
     judicial review and that the suspension period be part of any 
     disqualification imposed.
       Removes provisions for courts temporarily staying 
     administrative actions against stores, concerns, and States 
     pending judicial appeal.
     Conference agreement
       The Conference agreement follows the Senate amendment with 
     an amendment providing that any permanent disqualification of 
     a store or concern be effective from the date the notice of 
     disqualification is received. If the disqualification is 
     reversed through administrative or judicial review, the 
     Secretary is not liable for the value of lost sales during 
     the disqualification period.


                        23. Criminal Forfeiture

     Present law
       ``Administrative forfeiture'' rules allow the Secretary to 
     subject property involved in a program violation to 
     forfeiture to the United States. [Sec. 15(g)]
     House bill
       Establishes ``criminal forfeiture'' rules. Requires courts, 
     in imposing sentence on those convicted of trafficking in 
     food stamp benefits, to order that the person forfeit 
     property to the United States (in addition to any other 
     sentence imposed). Property subject to forfeiture would 
     include all property (real and personal) used in a 
     transaction (or attempted transaction) to commit (or 
     facilitate the commission of) a trafficking violation (other 
     than a misdemeanor); proceeds traceable to the violation also 
     would be subject to forfeiture. An owner's property interest 
     would not be subject to forfeiture if the owner establishes 
     that the violation was committed without the owner's 
     knowledge or consent. (p. 246)
       Requires that the proceeds from any sale of forfeited 
     properties, and any money forfeited, be used (1) to reimburse 
     the Justice Department for costs incurred in initiating and 
     completing forfeiture proceedings, (2) to reimburse the 
     Agriculture Department's Office of Inspector General for 
     costs incurred in the law enforcement effort that led to the 
     forfeiture, (3) to reimburse Federal or State law enforcement 
     agencies for costs incurred in the law enforcement effort 
     that led to the forfeiture, and (4) by the Secretary to carry 
     out store approval, reauthorization, and compliance 
     activities.
     Senate amendment
       Removes provisions for administrative forfeiture for 
     property ``intended to be furnished'' in trafficking cases.
       Establishes ``criminal forfeiture'' rules similar to those 
     in the House bill, but applied only in trafficking cases 
     involving benefits of $5,000 or more. Property subject to 
     forfeiture would include: (1) food stamp benefits, and any 
     property constituting, derived from, or traceable to any 
     proceeds obtained directly or indirectly as the result of the 
     violation and (2) food stamp benefits, and any property used 
     or intended to be used to commit or facilitate the violation.
       Food stamp benefits and property subject to criminal 
     forfeiture, any seizure or disposition of the benefits/
     property, and any administrative/ judicial proceeding 
     relating to the benefits/property would be subject to 
     forfeiture provisions of the Drug Abuse Prevention and 
     Control Act of 1970 (where consistent with Food Stamp Act 
     provisions). [Note: No specific Food Stamp Act provisions for 
     use of the proceeds from forfeited property are included]
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).


                 24. Expanded Definition of ``Coupon''

     Present law
       The Act defines ``coupon'' to mean any coupon, stamp, or 
     type of certificate issued under the provisions of the Food 
     Stamp Act. [Sec. 3(d)]
     House bill
       In order to expand the types of items to which trafficking 
     penalties apply, revises the current definition of ``coupon'' 
     to include authorization cards, cash or checks issued in lieu 
     of coupons, and ``access devices'' for electronic benefit 
     transfer systems (including electronic benefit transfer cards 
     and personal identification numbers).
     Senate amendment
       Same as the House bill.
     Conference agreement
       The Conference agreement follows the Senate amendment.


      25. Doubled Penalties for Violating Food Stamp Requirements

     Present law
       The disqualification penalty for the first intentional 
     violation of program requirements is 6 months. The penalty 
     for a second intentional violation (and the first violation 
     involving trading of a controlled substance) is 1 year. [Sec. 
     6(b)(1)]
     House bill
       Increases the disqualification penalty for a first 
     intentional violation to 1 year. Increases the 
     disqualification penalty for a second intentional violation 
     (and the first violation involving a controlled substance) to 
     2 years.
     Senate amendment
       Same as the House bill.
     Conference agreement
       The Conference agreement follows the Senate amendment.


             26. Disqualification of Convicted Individuals

     Present law
       Permanent disqualification is required for the third 
     intentional violation of program requirements, the second 
     violation involving trading of a controlled substance, and 
     the first violation involving trading of firearms, 
     ammunition, or explosives. [Sec. 6(b)(1)]
     House bill
       Adds a requirement for permanent disqualification of 
     persons convicted of trafficking in food stamp benefits where 
     the benefits trafficked have a value of $500 or more.
     Senate amendment
       No comparable provision.
     Conference agreement
       The Conference agreement follows the House bill, with a 
     technical amendment.


                         27. Claims Collection

                     A. Federal Income Tax Refunds

     Present law
       Otherwise uncollected overissued benefits may, except for 
     claims arising out of State agency error, may be recovered 
     from Federal pay or pensions. [Sec. 13(d) and Sec. 11(e)(8)]
     House bill
       Requires collection of otherwise uncollected overissued 
     benefits, other than those arising out of State agency error, 
     from Federal pay or pensions and from Federal income tax 
     refunds.
     Senate amendment
       Permits collection of all otherwise uncollected overissued 
     benefits from Federal pay or pensions and from Federal income 
     tax refunds.
     Conference agreement
       The Conference agreement follows the Senate amendment.
       B. Authority to Collect Overissuances
     Present law
       State collection of overissued benefits is limited in 
     certain circumstances. In the case of overissuances due to an 
     intentional program violation, households must agree to 
     repayment by either a reduction in future benefits or cash 
     repayment; States also are required to collect overissuances 
     to these households through other means, such as tax refund 
     or unemployment compensation collections (if a cash repayment 
     or reduction is not forthcoming), unless they demonstrate 
     that the other means are not cost effective. In cases of 
     overissuance because of inadvertent household ``error,'' 
     States must collect the overissuance through a reduction in 
     future benefits--except that households must be given 10 
     days' notice to elect another means, and collections are 
     limited to 10% of the monthly allotment or $10 a month 
     (whichever would result in faster collection)--and may use 
     other means of collection. In cases of overissuances because 
     of State agency error, States may request repayment or use 
     other means of collection (not including reduction in future 
     benefits). [Sec. 13(b)] States may retain 25% of 'non-fraud' 
     collections not caused by State error and 50% of 'fraud' 
     collections (increased from 10% and 25% on October 1, 1995). 
     [Sec. 16(a)
     House bill
       No provisions.
     Senate amendment
       Replaces existing overissuance collection rules with 
     provisions requiring States to collect any overissuance of 
     benefits by reducing future benefits, withholding 
     unemployment compensation, recovering from Federal pay or 
     income tax refunds, or any other means--unless the State 
     demonstrates that all of the means are not cost effective. 
     Bars the use of future benefit reductions as a claims 
     collection mechanism if it would cause a hardship on the 
     household (as determined by the State) and limits benefit 
     reductions (absent intentional program violations) to the 
     greater of 10% of the monthly benefit or $10 a month. 
     Provides that States must collect overissued benefits in 
     accordance with State-established requirements for notice, 
     electing a means of payment, and setting a schedule for 
     payment.
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment (1) deleting the specific bar against 
     collections in hardship cases and (2) setting the percentage 
     of collections (other than in cases of State agency error) 
     that a State may retain at a uniform 25%.

[[Page H 13018]]



28. Denial of Food Stamp Benefits For 10 Years to Individuals Found to 
Have Fraudulently Misrepresented Residence In Order To Obtain Benefits 
                   Simultaneously in 2 or More States

     Present law
       Disqualification periods ranging from 6 months to permanent 
     disqualification are prescribed for intentional violations of 
     Food Stamp program requirements. [Sec. 6(b)]
     House bill
       Disqualifies from food stamps for 10 years an individual 
     found to have fraudulently misrepresented the individual's 
     place of residence in order to receive food stamp, Medicaid, 
     TANF, or Supplemental Security Income (SSI) benefits in two 
     or more States.
     Senate amendment
       Disqualifies from food stamps permanently an individual 
     found to have fraudulently misrepresented the individual's 
     place of residence in order to receive food stamps in two or 
     more States.
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment disqualifying from food stamps for 10 years an 
     individual found by a State agency or court to have made a 
     fraudulent misrepresentation of identity or residence in 
     order to receive multiple benefits. The conferees note that 
     State agency hearing processes have sufficient recipient 
     protections to warrant a decision to impose a 10-year 
     disqualification in these cases.


         29. Disqualification Relating to Child Support Arrears

     Present law
       No provision.
     House bill
       Disqualifies individuals during any period the individual 
     has an unpaid liability that is under a court child support 
     order, unless the court is allowing delayed payments.
     Senate amendment
       Same as the House bill, except that States are permitted to 
     apply a child support arrears disqualification and compliance 
     with a child support agency payment plan also exempts 
     individuals from disqualification.
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment that requires disqualification.


30. Elimination of Food Stamp Benefits with Respect to Fugitive Felons 
                   and Probation and Parole Violators

       A. Disqualification of Fleeing Felons
     Present law
       No provision.
     House bill
       Disqualifies individuals while they are (1) fleeing to 
     avoid prosecution or custody after conviction for a crime (or 
     crime attempt) which is a felony or (2) violating a condition 
     of parole under Federal or State law.
     Senate amendment
       Same as the House bill.
     Conference agreement
       The Conference agreement follows the Senate amendment with 
     a technical amendment.
       B. Exchange of Information
     Present law
       Requires State agencies to immediately report to the 
     Immigration and Naturalization Service a determination that a 
     food stamp household member is ineligible for food stamps 
     because the individual is present in the United States in 
     violation of the Immigration and Nationality Act. [Sec. 
     11(e)(17)]
     House bill
       Requires State food stamp agencies to make available to law 
     enforcement officers the address of a food stamp recipient if 
     the officer furnishes the recipient's name and notifies the 
     agency that (1) the individual is fleeing to avoid 
     prosecution or custody for a felony crime (or attempt) or the 
     individual has information necessary for the officer to 
     conduct official duties, (2) the location or apprehension of 
     the individual is within the officer's official duties, and 
     (3) the request is made in the proper exercise of official 
     duties.
     Senate amendment
       Similar to the House bill, requires State food stamp 
     agencies to make available to law enforcement officers the 
     address, social security number, and (when available) 
     photograph of a food stamp recipient if the officer furnishes 
     the recipient's name and notifies the agency as stipulated in 
     the House bill.
       Requires State agencies to furnish the Immigration and 
     Naturalization Service with the name of, address of, and 
     identifying information on any individual the agency knows is 
     unlawfully in the United States.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).


                          31. Effective Dates

     Present law
       No provision.
     House bill
       Except for amendments dealing with the Food Stamp program's 
     quality control system (effective October 1, 1994), the food 
     stamp and commodity distribution program amendments made by 
     the Personal Responsibility Act would be effective October 1, 
     1995.
     Senate amendment
       Provides that Food Stamp Act amendments would be effective 
     October 1, 1995.
     Conference agreement
       The Conference agreement provides that (1) provisions 
     affecting deduction levels are effective October 1, 1996, and 
     (2) all other provisions are effective on enactment.


                         32. Sense of Congress

     Present law
       No provision.
     House bill
       Provides that it is the sense of Congress that States 
     operating electronic benefit transfer systems to provide food 
     stamp benefits should operate systems that are compatible 
     with each other.
     Senate amendment
       No provision.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).


                         33. Deficit Reduction

     Present law
       No provision.
     House bill
       Provides that it is the sense of the House Committee on 
     Agriculture that reductions in outlays resulting from Food 
     Stamp Act (and commodity distribution program) provisions of 
     the Personal Responsibility Act not be taken into account for 
     purposes of Section 252 of the Balanced Budget and Emergency 
     Deficit Control Act (relating to enforcement of ``pay-as-you-
     go'' provisions of the Budget Act).
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                        34. Certification Period

     Present law
       For households subject to periodic (monthly) reporting of 
     their circumstances, eligibility certification periods must 
     be 6-12 months, except that the Secretary may waive this rule 
     to improve program administration. For households receiving 
     federally aided public assistance or general assistance, 
     certification periods must coincide with the certification 
     periods for the other public assistance. For other 
     households, certification periods generally must be not less 
     than 3 months--but they can be (1) up to 12 months for those 
     consisting entirely of unemployable, elderly, or primarily 
     self-employed persons or (2) as short as circumstances 
     require for those with a substantial likelihood of frequent 
     changes in income or other household circumstances and for 
     any household on initial eligibility determination (as judged 
     by the Secretary). The Secretary may waive the maximum 12-
     month limit to improve program administration. [Sec. 3(c)]
     House bill
       No provision.
     Senate amendment
       Replaces existing provisions as to certification periods 
     with a requirement that certification periods not exceed 12 
     months--but can be up to 24 months if all adult household 
     members are elderly, disabled, or primarily self-employed.
       Requires State agencies to have at least 1 personal contact 
     with each certified household every 12 months.
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment allowing certification periods of up to 24 
     months for households whose adult members are all elderly or 
     disabled and deleting the reference to a ``personal'' 
     contact.


                35. Treatment of Children Living at Home

     Present law
       Parents and their children 21 years of age or younger who 
     live together must apply for food stamps as a single 
     household (thereby reducing aggregate household benefits)--
     except for children who are themselves parents living with 
     their children and children who are married and living with 
     their spouses. [Sec. 3(i)]
     House bill
       No provision.
     Senate amendment
       Removes the existing exception for children who are 
     themselves parents living with their children and children 
     who are married and living with their spouses.
     Conference agreement
       The Conference agreement follows the Senate amendment.


 36. Optional Additional Criteria for Separate Household Determinations

     Present law
       Certain persons who live together may apply for food stamps 
     as separate households (thereby increasing aggregate 
     household benefits) if they (1) are unrelated and purchase 
     food and prepare meals separately or (2) are related but are 
     not spouses or children living with their parents (See item 
     35). In addition, elderly persons who live with others and 
     cannot purchase food and prepare meals separately because of 
     a substantial disability may apply a separate households as 
     long as their co-residents' income is below prescribed limits 
     (165% of the Federal poverty income guidelines). [Sec. 3(i)]

[[Page H 13019]]

     House bill
       No provision.
     Senate amendment
       Permits States to establish criteria that prescribe when 
     individuals living together, and would otherwise be allowed 
     to apply as separate households, must apply as a single 
     household (without regard to common purchase of food and 
     preparation of meals).
     Conference agreement
       The Conference agreement follows the Senate amendment.


                 37. Definition of Homeless Individual

     Present law
       For food stamp eligibility and benefit determination 
     purposes, a ``homeless individual'' is a person lacking a 
     fixed/regular nighttime residence or one whose primary 
     nighttime residence is a shelter, a residence intended for 
     those to be institutionalized, a temporary accommodation in 
     the residence of another, or a public or private place not 
     designed to be a regular sleeping accommodation for humans. 
     [Sec. 3(s)]
     House bill
       No provision.
     Senate amendment
       Provides that persons whose primary nighttime residence is 
     a temporary accommodation in the home of another may only be 
     considered homeless if the accommodation is for no more than 
     90 days.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                    38. State Options in Regulations

     Present law
       The Secretary is directed to establish uniform national 
     standards of eligibility for food stamps (with certain 
     variations allowed for Alaska, Hawaii, Guam, and the Virgin 
     Islands) and in other cases (e.g., imposition of monthly 
     reporting requirements). States may not impose any other 
     standards of eligibility as a condition of participation in 
     the program. [Sec. 5(b)]
     House bill
       No directly comparable provision. [Note: See item 3.]
     Senate amendment
       Explicitly permits non-uniform standards of eligibility.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                        39. Earnings of Students

     Present law
       The earnings of an elementary/secondary student are 
     disregarded as income until the student's 22nd birthday. 
     [Sec. 5(d)(7)]
     House bill
       No provision.
     Senate amendment
       Requires that earnings of an elementary/secondary student 
     be counted as income once the student turns age 20.
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment requiring that earnings be counted for students 
     who are 19 or younger.


                        40. Benefits for Aliens

               A. Deeming Sponsors' Income and Resources

     Present law
       A portion of the income and resources of the sponsor of a 
     lawfully admitted alien must be deemed as available to the 
     sponsored alien for 3 years after the alien's entry. Income 
     is deemed to the extent it exceeds the appropriate food stamp 
     income eligibility limit (130% of the Federal income poverty 
     guidelines); liquid resources are deemed to the extent they 
     exceed $1,500. [Sec. 5(i)]
     House bill
       No directly comparable provision.
     Senate amendment
       Extends the deeming period for sponsored legal aliens to 5 
     years from lawful admittance or the period of time agreed to 
     in the sponsor's affidavit, whichever is longer. [Note: See 
     conference comparison for title IV in the House bill and 
     title V in the Senate amendment.]
     Conference agreement
       The Conference agreement follows the House bill.


                B. Counting Aliens' Income and Resources

     Present law
       The income (less a pro rata share) and all resources of 
     aliens who are ineligible for food stamps under provisions of 
     the Food Stamp Act are counted as income/ resources to the 
     rest of the household living with the alien. [Sec. 6(f)]
     House bill
       No provision.
     Senate amendment
       Permits States to count all of the income and resources of 
     aliens ineligible for food stamps under the provisions of the 
     Food Stamp Act as income/ resources to the rest of the 
     household.
     Conference agreement
       The Conference agreement follows the Senate amendment.


              41. Cooperation with Child Support Agencies

                          A. Custodial Parents

     Present law
       No provisions.
     House bill
       No provisions.
     Senate amendment
       Permits States to disqualify custodial parents of children 
     under the age of 18 who have an absent parent unless the 
     custodial parent cooperates with the State child support 
     agency in establishing the child's paternity and obtaining 
     support for the child and the custodial parent. Cooperation 
     would not be required if the State finds there is good cause 
     (in accordance with Federal standards taking into account the 
     child's best interest). Fees or other costs for services 
     could not be charged.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                        B. Non-custodial Parents

     Present law
       No provisions.
     House bill
       No provisions.
     Senate amendment
       Permits States to disqualify putative or identified non-
     custodial parents of children under 18 if they refuse to 
     cooperate with the State child support agency in establishing 
     the child's paternity and providing support for the child. 
     The Secretary and the Secretary of Health and Human Services 
     would develop guidelines for what constitutes a refusal to 
     cooperate, and States would develop procedures (using these 
     guidelines) for determining whether there has been a refusal 
     to cooperate. Fees or other costs for services could not be 
     charged. States would be required to provide safeguards to 
     restrict the use of information collected by the child 
     support agency to the purposes for which it was collected.
     Conference agreement
       The Conference agreement follows the Senate amendment.


        42. Optional Combined Allotment for Expedited Households

     Present law
       For households applying after the 15th day of the month, 
     States may provide an allotment that is the aggregate of the 
     initial (pro-rated) allotment and the first regular 
     allotment--but combined allotments must be provided to 
     households applying after 15th of the month who are entitled 
     to expedited service. [Sec. 8(c)(3)]
     House bill
       No provision.
     Senate amendment
       Makes provision of combined allotments a State option both 
     for regular and expedited service applicants.
     Conference agreement
       The Conference agreement follows the Senate amendment.


43. Failure to Comply with Other Welfare and Public Assistance Programs

     Present law
       Households penalized for an intentional failure to comply 
     with a Federal, State, or local welfare program may not, for 
     the duration of the penalty, receive an increased food stamp 
     allotment because their welfare income has been reduced. 
     [Sec. 8(d)]
       [Note: This has been interpreted by regulation to apply 
     only to reductions in welfare income due to repayment of 
     overpayments resulting from a welfare violation, although a 
     revision of the regulation is scheduled.]
     House bill
       [Note: See item 4C.]
     Senate amendment
       Bars increased food stamp allotments because the benefits 
     of a household are reduced under a Federal, State, or local 
     welfare or public assistance program for failure to perform a 
     required action. In carrying out this requirement, States 
     may, in determining food stamp allotments for the duration of 
     the public assistance reduction, use the household's pre-
     reduction welfare benefits.
       Permits States also to reduce the household's food stamp 
     allotment by up to 25%. If the allotment is reduced for 
     failure to perform an action required under a family 
     assistance block grant program, the State may use the rules 
     and procedures of that program to reduce the food stamp 
     allotment.
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment changing references to welfare or public 
     assistance programs to references to mean-tested public 
     assistance programs.


         44. Allotments for Households Residing in Institutions

     Present law
       Homeless shelters and residential drug or alcoholic 
     treatment centers may be designated as recipients' authorized 
     representatives. [Note: In the case of residential treatment 
     centers, benefits generally are provided to the center.]
     House bill
       No provision.
     Senate amendment
       Permits States to divide a month's food stamp benefits 
     between the shelter/center and an individual who leaves the 
     shelter/center.
       Permits States to require residents of shelters/centers to 
     designate the shelter/center as authorized representative.

[[Page H 13020]]

     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment deleting homeless shelters from those 
     institutions covered by the amendment.


                  45. Operation of Food Stamp Offices

                       A. State Plan Requirements

     Present law
       States must:
       (1) allow households contacting the food stamp office in 
     person during office hours to make an oral/written request 
     for aid and receive and file an application on the same day;
       (2) use a simplified, uniform federally designed 
     application, unless a waiver is approved;
       (3) include certain, specific information in applications;
       (4) waive in-person interviews under certain circumstances 
     (they may use telephone interviews or home visits instead);
       (5) provide for telephone contact and mail application by 
     households with transportation or similar difficulties;
       (6) require an adult representative of the household to 
     certify as to household members' citizenship/alien status;
       (6) provide a method of certifying and issuing benefits to 
     homeless households;
       (7) assist households in obtaining verification and 
     completing applications;
       (8) not require additional verification of currently 
     verified information (unless there is reason to believe that 
     the information is inaccurate, incomplete, or inconsistent);
       (9) not deny an application solely because a non-household 
     member fails to cooperate;
       (10) process applications if the household meets 
     cooperation requirements;
       (11) provide households (at certification and 
     recertification) with a statement of reporting 
     responsibilities;
       (12) provide a toll-free or local telephone number at which 
     households may reach State personnel;
       (13) display and make available nutrition information; and
       (14) use mail issuance in rural areas where low-income 
     households face substantial difficulties in obtaining 
     transportation (with exceptions for high mail losses). [Sec. 
     11(e)(2), (3), (14), & (25)]
     House bill
       No provisions.
     Senate amendment
       Replaces noted existing State plan requirements with 
     requirements that the State:
       (1) establish procedures governing the operation of food 
     stamp offices that it determines best serve households in the 
     State, including those with special needs (such as households 
     with elderly or disabled members, those in rural areas, the 
     homeless, households residing on reservations, and households 
     speaking a language other than English);
       (2) provide timely, accurate, and fair service to 
     applicants and participants;
       (3) permit applicants to apply and participate on the same 
     day they first contact the food stamp office during office 
     hours; and
       (4) consider an application filed on the date the applicant 
     submits an application that contains the applicant's name, 
     address, and signature.
       Permits States to establish operating procedures that vary 
     for local food stamp offices to reflect regional and local 
     differences.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).


                  B. Application and Denial Procedures

     Present law
       A single interview for determining AFDC and food stamp 
     benefits is required. Food stamp applications generally are 
     required to be contained in public assistance applications, 
     and applications and information on how to apply for food 
     stamps must be provided local general assistance applicants. 
     Applicants (including those who have recently lost or been 
     denied public assistance) must be certified eligible for food 
     stamps based on the information in their public assistance 
     casefile (to the extent it is reasonably verified).
       No household may be terminated from or denied food stamps 
     solely on the basis that it has been terminated from or 
     denied other public assistance and without a separate food 
     stamp eligibility determination.
     House bill
       No provisions.
     Senate amendment
       Deletes noted existing requirements for single interviews, 
     applications, and food stamp determinations based on public 
     assistance information.
       Permits disqualification for food stamps based on another 
     public assistance program's disqualification for failure to 
     comply with its rules or regulations.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).


               46. State Employee and Training Standards

     Present law
       States must employ agency personnel doing food stamp 
     certifications in accordance with current Federal ``merit 
     system'' standards. States must provide continuing, 
     comprehensive training for all certification personnel. 
     States may undertake intensive training of certification 
     personnel to ensure they are qualified for certifying farming 
     households. States may provide or contract for the provision 
     of training/assistance to persons working with volunteer or 
     nonprofit organizations that provide outreach and eligibility 
     screening activities. [Sec. 11(e)(6)]
     House bill
       No provision.
     Senate amendment
       Deletes noted existing provisions for merit system 
     standards and training.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).


                      47. Expedited Coupon Service

     Present law
       States must provide expedited benefits to applicant 
     households that (1) have gross income under $150 a month (or 
     are ``destitute'' migrant or seasonal farmworker households) 
     and have liquid resources of no more than $100, (2) homeless 
     households, and (3) households that have combined gross 
     income and liquid resources less than the household's monthly 
     shelter expenses.
       Expedited service means providing an allotment no later 
     than 5 days after application. [Sec. 11(e)(9)]
     House bill
       No provision.
     Senate amendment
       Deletes noted existing requirements to provide expedited 
     service to the homeless and households with shelter expenses 
     in excess of their income/resources.
       Lengthens the period in which expedited benefits must be 
     provided to 7 business days.
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment providing that expedited benefits must be 
     provided in 7 calendar days.


                           48. Fair Hearings

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Permits households to withdraw fair hearing requests orally 
     or in writing. If it is an oral request, the State must 
     provide a written notice to the household confirming the 
     request and providing the household with another chance to 
     request a hearing.
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment providing that permission for households to 
     withdraw fair hearing requests orally or in writing is a 
     State option.


             49. Income and Eligibility Verification System

     Present law
       States must use the ``income and eligibility verification 
     systems'' established under Sec. 1137 of the Social Security 
     Act to assist in verifying household circumstances; this 
     includes a system for verifying financial circumstances 
     (IEVS) and a system for verifying alien status (SAVE). [Sec. 
     11(e)(19) of the Food Stamp Act and Sec. 1137 of the Social 
     Security Act.]
     House bill
       No provision.
     Senate amendment
       Makes use of IEVS and SAVE optional with the States.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).


  50. Termination of Federal Match for Optional Information Activities

     Present law
       If a State opts to conduct informational (``outreach'') 
     activities for the food stamp program, the Federal Government 
     shares half the cost. [Sec. 11(e)(1) & Sec. 16(a)]
     House bill
       No provision.
     Senate amendment
       Terminates the Federal share of optional State outreach 
     activities. [Note: Sec. 333(b) makes a technical amendment to 
     Sec. 16(g) of the Food Stamp Act.]
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment that does not terminate the Federal share of 
     optional State outreach activities but bar a Federal share 
     for 'recruitment activities.'


                    51. Standards for Administration

     Present law
       The Secretary is required to (1) establish standards for 
     efficient and effective administration of the program, 
     including standards for review of food stamp office hours to 
     ensure that employed individuals are adequately served, and 
     (2) instruct States to submit reports on administrative 
     actions taken to meet the standards. [Sec. 16(b)]
     House bill
       No provision.

[[Page H 13021]]

     Senate amendment
       Deletes provisions on standards for administration.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).


                          52. Waiver Authority

     Present law
       The Secretary may waive Food Stamp Act requirements to the 
     degree necessary to conduct pilot/demonstration projects, but 
     no project may be implemented that would lower or further 
     restrict food stamp income/resource eligibility standards or 
     benefit levels (other than certain projects involving the 
     payment of the average value of allotments in cash and 
     certain work program demonstrations). [Sec. 17(b)(1)]
     House bill
       No provision.
     Senate amendment
       Replaces existing waiver authority with authority for the 
     Secretary to waive Food Stamp Act requirements to the extent 
     necessary to conduct pilot/experimental projects , including 
     those designed to test innovative welfare reform, promote 
     work, and allow conformity with other assistance programs.
       Requires that any project involving the payment of benefits 
     in the form of cash maintain the average value of allotments 
     for affected households.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).


                  53. Authorization of Pilot Projects

     Present law
       Existing pilot projects for the payment of food stamp 
     benefits in the form of cash to households composed of 
     elderly persons or SSI recipients are authorized to continue 
     through October 1, 1995, if a State requests. [Sec. 17(b)(1)]
     House bill
       No provision.
     Senate amendment
       Extends the authorization for elderly/SSI cash-out projects 
     through October 1, 2002.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                        54. Response to Waivers

     Present law
       No provisions.
     House bill
       No provisions.
     Senate amendment
       Requires that, not later than 60 days after receiving a 
     demonstration project waiver request, the Secretary (1) 
     approve the request, (2) deny the request and explain any 
     modifications needed for approval, (3) deny the request and 
     explain the grounds for denial, or (4) ask for clarification 
     of the request. If a response is not forthcoming in 60 days, 
     the waiver would be considered approved. If a waiver request 
     is denied, the Secretary must provide a copy of the waiver 
     request and the grounds for denial to the House and Senate 
     Agriculture Committees.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).


               55. Private Sector Employment Initiatives

     Present law
       No provisions.
     House bill
       [Note: See item 4E.]
     Senate amendment
       Allows certain States to operate ``private sector 
     employment initiatives'' under which food stamp benefits 
     could be paid in cash to some participating households. 
     States would be eligible to operate private sector employment 
     initiatives if not less than 50% of the households that 
     received food stamp benefits in the summer of 1993 also 
     received AFDC benefits. Households would be eligible to 
     receive cash payments if an adult member so elects and (1) 
     has worked in unsubsidized private sector employment for not 
     less than the 90 preceding days, (2) has earned not less than 
     $350 a month from that employment, (3) is eligible to receive 
     family assistance block grant benefits (or was eligible when 
     cash payments were first received and is no longer eligible 
     because of earned income), and (4) is continuing to earn not 
     less than $350 a month from private sector employment. States 
     operating a private sector employment initiative for 2 years 
     must provide a written evaluation of the impact of cash 
     assistance (the content of the evaluation would be determined 
     by the State).
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment requiring States that select this option to 
     increase benefits to compensate for State or local sales 
     taxes on food purchases.


                       56. Optional Block Grants

     Present law
       No provisions.
     House bill
       [Note: Sec. 556 (b) of the House bill adds a new section 25 
     to the Food Stamp Act containing provisions for an optional 
     block grant.]
       Allows States that have fully implemented an electronic 
     benefit transfer system to elect an annual block grant to 
     operate a low-income nutrition assistance program in lieu of 
     the food stamp program.
       Grants funds to States electing a block grant--States would 
     receive (1) the greater of: the total fiscal year 1994 amount 
     they received as food stamp benefits; or the fiscal years 
     1992-1994 average they received as food stamp benefits and 
     (2) the greater of: the fiscal year 1994 Federal share of 
     administrative costs; or the fiscal years 1992-1994 average 
     they received as the Federal share of administrative costs. 
     Grant payments would be made at times and in a manner 
     determined by the Secretary.
       Requires annual submission of a State plan specifying the 
     manner in which the block grant nutrition assistance program 
     will be conducted. The plan must:
       (1) certify that the State has implemented a State-wide 
     electronic benefit transfer system under Food Stamp Act 
     conditions;
       (2) designate a single State agency responsible for 
     administration;
       (3) assess the food and nutrition needs of needy persons in 
     the State;
       (4) limit assistance to the purchase of food;
       (5) describe the persons to whom aid will be provided;
       (6) assure that assistance will be provided to the most 
     needy;
       (7) assure that applicants for assistance have adequate 
     notice and fair hearing rights comparable to those under the 
     regular food stamp program;
       (8) provide that there be no discrimination on the basis of 
     race, sex, religion, national origin, or political beliefs; 
     and
       (9) include other information as required by the Secretary.
       In general, permits block grant payments to be expended 
     only in the fiscal year in which they are distributed to a 
     State. States may reserve up to 5% of a fiscal year's grant 
     to provide assistance in subsequent years, but reserved funds 
     may not total more than 20% of the total grant received for a 
     fiscal year.
       Requires States to keep records concerning block grant 
     program operations and make them available to the Secretary 
     and the Comptroller General.
       If the Secretary finds there is substantial failure by a 
     State to comply, requires the Secretary to (1) suspend all or 
     part of a grant payment until the State is determined in 
     substantial compliance, (2) withhold all/part of a grant 
     payment until the Secretary determines that there is no long 
     a failure to comply, or (3) terminate the State's authority 
     to operate a nutrition assistance block grant program.
       Requires States to provide for biennial audits of block 
     grant expenditures, provide the Secretary with the audit, and 
     make it available for public inspection.
       Requires an annual ``activities report'' comparing actual 
     spending for nutrition assistance in each fiscal year with 
     the spending predicted in the State plan; the report must be 
     made available for public inspection.
       Requires that whoever knowingly and willfully embezzles, 
     misapplies, steals, or obtains by fraud, false statement, or 
     forgery any funds or property provided or financed under a 
     nutrition assistance block grant be fined not more than 
     $10,000, imprisoned for not more than 5 years, or both.
       Requires that the State plan provide that there will be no 
     discrimination on the basis of race, sex, religion, national 
     origin, or political beliefs.
       Requires that all assistance provided under the block grant 
     be limited to the purchase of food. [Note: Because the State 
     would have fully implemented an electronic benefit transfer 
     system, benefits would be provided through these systems.]
     Senate amendment
       [Note: Sec. 343(a) of the Senate amendment adds a new 
     section 25 to the Food Stamp Act containing provisions for an 
     optional block grant]
       Requires the Secretary to establish a program to make 
     grants to States, in lieu of the food stamp program, to 
     provide food assistance to needy individuals and families, 
     wage subsidies and payments in return for work for needy 
     individuals, funds to operate an employment and training 
     program for needy individuals, and funds for administrative 
     costs incurred in providing assistance.
       Grants funds to States electing a block grant--States would 
     receive (1) the greater of: the total fiscal year 1994 amount 
     they received as food stamp benefits; or the fiscal years 
     1992-1994 average they received as food stamp benefits and 
     (2) the greater of: the fiscal year 1994 Federal share of 
     administrative costs and employment/ training program costs; 
     or the fiscal years 1992-1994 average they received as the 
     Federal share of administrative costs and employment/training 
     program costs. If total allotments for a fiscal year would 
     exceed the amount of funds made available to provide them, 
     the Secretary is required to reduce allotments on a pro rata 
     basis to the extent necessary. Grant payments would be made 
     by issuing 1 or more letters of credit, with necessary 
     adjustments for overpayments and underpayments.
       Requires annual submission of a State plan containing 
     information as required by the Secretary. The plan: 

[[Page H 13022]]

       (1) must have an assurance that the State will comply with 
     block grant requirements;
       (2) must identify a ``lead agency'' responsible for 
     administration, development of the plan, and coordination 
     with other programs;
       (3) must provide that the State will use grant funds as 
     follows:
       (a) to give food assistance to needy persons (other than 
     certain residents of institutions);
       (b) at State option, to provide wage subsidies and workfare 
     for needy persons;
       (c) to administer an employment and training program for 
     needy persons (and provide reimbursement for support 
     services); and
       (d) to pay administrative costs incurred in providing 
     assistance;
       (4) must describe how the program will serve specific 
     groups of persons (and how that treatment will differ from 
     the regular food stamp program) including the elderly, 
     migrants or seasonal farmworkers, the homeless, those under 
     the supervision of institutions, those with earnings, and 
     Indians;
       (5) must provide that benefits be available statewide;
       (6) must provide that applicants and recipients are 
     provided with notice and fair hearing rights;
       (7) may coordinate block grant assistance with aid under 
     the family assistance block grant;
       (8) may reduce food assistance or otherwise penalize 
     persons or families penalized for violating family assistance 
     block grant rules;
       (9) must assess the food and nutrition needs of needy 
     persons in the State;
       (10) must describe the income and resource eligibility 
     limits established under the block grant;
       (11) must establish a system to ensure that no persons 
     receive block grant benefits in more than 1 jurisdiction;
       (12) must provide for safeguarding and restricting the use 
     and disclosure of information about recipients; and
       (13) must contain other information as required by the 
     Secretary.
       Same as the House bill, except that States may reserve up 
     to 10% a year and reserved funds may not total more than 30% 
     of the total grant received.
       Requires the Secretary to review and monitor State 
     compliance with block grant rules and State plans. If the 
     Secretary (after notice and opportunity for a hearing) finds 
     that there has been a failure to substantially comply with 
     the State's plan or the provisions of the block grant, the 
     Secretary must notify the State and no further payments would 
     be made until the Secretary is satisfied that there is no 
     longer a failure to comply or that noncompliance will be 
     promptly corrected.
       Allows the Secretary (in cases of noncompliance) to impose 
     other appropriate sanctions on States in addition to, or in 
     lieu of, withholding block grant payments; these sanctions 
     may include recoupment of money improperly spent and 
     disqualification from receipt of a block grant. The Secretary 
     also is required to establish procedures for (1) receiving, 
     processing, and determining the validity of complaints about 
     States' failure to comply with block grant obligations and 
     (2) imposing sanctions. In addition, the Secretary is 
     permitted to withhold not more than 5% of a State's annual 
     allotment if the State does not use an ``income and 
     eligibility verification system'' established under Sec. 1137 
     of the Social Security Act.
       Requires States to arrange for annual independent audits of 
     block grant expenditures. Each annual audit must include an 
     audit of payment accuracy based on a statistically valid 
     sample and be submitted to the State legislature and the 
     Secretary. States must repay any amounts the audit determines 
     have not been expended in accordance with the State plan, or 
     the Secretary can offset amounts against any other amount 
     paid the State under the block grant.
       Provides that a State that elects a food assistance block 
     grant option may subsequently reverse that choice only once.
       Finds that the Senate has adopted a resolution that 
     Congress should not enact/adopt any legislation that will 
     increase the number of hungry children, that it is not its 
     intent to cause more children to be hungry, that the food 
     stamp program serves to prevent child hunger, and that a 
     State's election for a food assistance block grant should not 
     serve to increase the number hungry children in the State.
       Provides that a State's election for a food assistance 
     block grant be permanently revoked 180 days after the 
     Secretary of Health and Human Services has made 2 successive 
     findings (over a 6-year period) that the ``hunger rate'' 
     among children is significantly higher in a food assistance 
     block grant State than it would have been if the State had 
     not made the choice.
       Specifies procedures for a finding that a State's child 
     hunger rate has risen significantly. Every 3 years, the 
     Secretary must develop data and report with respect to any 
     significant increase in child hunger in States that have 
     elected a food assistance block grant. The Secretary must 
     provide the report to States that have elected a block grant 
     and must provide States with a higher child hunger rate with 
     an opportunity to respond. If the State's response does not 
     result in a reversal of the Secretary's determination that 
     the child hunger rate is significantly higher than it would 
     have been without the State's block grant election, the 
     Secretary must publish a determination that the State's block 
     grant choice is revoked.
       Requires States to designate a lead administrative agency. 
     The agency must administer (either directly or through other 
     agencies) the food assistance block grant aid, develop the 
     State plan, hold at least 1 hearing for public comment on the 
     plan, and coordinate food assistance block grant aid with 
     other government assistance. In developing the State plan, 
     the lead agency must consult with local governments and 
     private sector organizations so that services are provided in 
     a manner appropriate to local populations.
       Provides that nothing in the new food assistance block 
     grant section of the Food Stamp Act entitles anyone to 
     assistance or limits the right of States to impose additional 
     limits or conditions.
       Requires that no funds under the food assistance block 
     grant be spent for the purchase or improvement of land, or 
     for the purchase, construction, or permanent improvement of 
     any building/facility.
       Requires that no alien otherwise ineligible to participate 
     in the regular food stamp program be eligible to participate 
     in a food assistance block grant program, and that the income 
     of the sponsor of an alien be counted as in the regular food 
     stamp program.
       Requires that (1) no person be eligible to receive food 
     assistance block grant benefits if they do not meet regular 
     food stamp program work requirements and (2) that each State 
     operating a food assistance block grant implement an 
     employment and training program under regular food stamp 
     program rules.
       Bars the Secretary from providing assistance for any 
     program, project, or activity under a food assistance block 
     grant if any person with operational responsibilities 
     discriminates because of race, religion, color, national 
     origin, sex, or disability. Also provides for enforcement 
     through title VI of the Civil Rights Act.
       Requires that, in each fiscal year, at least 80% of Federal 
     funds expended under a State's block grant be for food 
     assistance and not more than 6% be for administrative 
     expenses. A State could provide food assistance to meet the 
     80% requirement in any manner it determines appropriate (such 
     as electronic benefit transfers, coupons, or direct provision 
     of commodities), but ``food assistance'' would be limited to 
     assistance that may only be used to obtain food (as defined 
     in the Food Stamp Act).
       Provides that the Secretary may conduct research on the 
     effects and costs of a State food assistance block grant 
     program.
     Conference agreement
       The Conference agreement follows the House bill with and 
     amendment. States that meet one of three conditions may elect 
     to receive an annual block grant to operate a food assistance 
     program for needy persons in lieu of the food stamp program. 
     Eligible States may opts for a block grant at any time, but, 
     if the State chooses to withdraw from the block grant or is 
     disqualfied, it may not again opt for a block grant. Eligible 
     States include: (1) those that have fully implemented a 
     statewide electronic benefit transfer system, (2) those for 
     which the dollar value of erroneous benefit and eligibility 
     determinations (overpayments, payments to ineligibles, and 
     underpayments) in the food stamp program or their food 
     assistance block grant program is 6% of benefits issued or 
     less (a 'payment error rate' of 6% or less), and (3) those 
     with a payment error rate higher than 6% that agree to 
     contribute, from non-Federal sources, a dollar amount equal 
     to the difference between their payment error rate and a 6% 
     rate to pay for benefits and administration of their food 
     assistance block grant program. A States's payment error rate 
     for block grant purposes is the most recent rate available, 
     as determined by the Secretary.
       States electing a block grant would be provided an annual 
     grant equal to: (1) the greater of the fiscal year 1994 
     amount they received as food stamp benefits, or the 1992-1994 
     average they received as food stamp benefits and (2) the 
     greater of the fiscal year 1994 Federal share of 
     administrative costs, or the 1992-1994 average they received 
     as the Federal share of administrative costs. However, grants 
     to States with payment error rates above 6 % would be reduced 
     by the amount they are required to contribute (i.e., the 
     dollar amount equal to the difference between their payment 
     error rate and a 6% rate). In general, block grant payments 
     must be expended in the fiscal year for which they were 
     distributed; but States may reserve up to 10% a year, up to a 
     total of 30% of the block grant. If total allotments for a 
     fiscal year would exceed the amount of funds made available 
     to provide them, the Secretary is required to reduce 
     allotments or a pro rata basis to the extent necessary. Grant 
     payments would be made by issuing letters of credit.
       Block grant funding may only be used for food assistance 
     and administrative costs related to its provision, and, in 
     each fiscal year, not more than 6% of total funds expended 
     (including State funds required to be spent) may be used for 
     administrative costs.
       Each participating block grant State is required to 
     maintain a food stamp quality control program to measure 
     erroneous benefit and eligibility determinations, and block 
     grant States would continue to be subject to the food stamp 
     program's quality control system (including eligibility for 
     incentive payments and imposition of fiscal sanction for very 
     high payment error rates). Each participating State is 
     required to implement an employment and training program 
     under Food Stamp Act terms and conditions and is 

[[Page H 13023]]
     eligible to receive Federal funding for employment and training 
     activities (in addition to the food stamp block grant 
     amount).
       In order to receive a block grant, a State must annually 
     submit a State plan for approval by the Secretary. The State 
     plan must: (1) identify a lead administering agency, (2) 
     describe how and to what extent the State's program serves 
     specific groups (e.g., the elderly, migrant and seasonal 
     farmworkers, the homeless, those with earnings, Indians) and 
     how the treatment differs from their treatment under the food 
     stamp program, (3) provide that benefits are available 
     statewide, (4) provide for notice and an opportunity for a 
     hearing to those adversely affected, (5) assess the food and 
     nutrition needs of needy persons in the State, (6) desribe 
     the State's eligibility standards for assistance under the 
     block grant program, (7) establish a system for exchanging 
     information with other States to verify recipients' identity 
     and the possible receipt of benefits in another State, (8) 
     provide for safeguarding and restricting the use and 
     disclosure of information about recipients, and (9) other 
     information required by the Secretary.
       Eligibility for assistance under the block grant is 
     determined by the State, and there is no individual 
     entitlement to assistance. However, certain Federal rules 
     apply: (1) aliens who would not be eligible under the food 
     stamp program are not eligible for block grant aid; and (2) 
     persons and households who would be ineligible under the food 
     stamp program's work rules are not eligible for block grant 
     aid.
       If the Secretary finds that there has been a failure to 
     comply with provisions of the block grant or the State's 
     approved plan or finds that, in the operation of any program 
     or activity for which assistance is provided, there is a 
     State failure to comply substantially with block grant 
     provisions--the Secretary must withhold funding, as 
     appropriate, until satisfied there is no longer a failure to 
     comply or that the noncompliance will be promptly corrected. 
     In addition, the Secretary may impose other appropriate 
     penalities, including recoupment of improperly spent money 
     and disqualification from the block grant. States must be 
     provided notice and an opportunity for a hearing in this 
     process.
       The Secretary is authorized to conduct research on the 
     effects and costs of a State food assistance block grant.


 57. Specific Period for Prohibiting Participation of Stores Based on 
                       Lack of Business Integrity

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Authorizes the Secretary to issue regulations establishing 
     specific time periods during which retailers/wholesalers that 
     have been denied approval or had approval withdrawn on the 
     basis of ``business integrity and reputation'' may not submit 
     a new application for approval. The periods established would 
     be required to reflect the severity of the business integrity 
     infractions on which the denial/withdrawal was based.
     Conference agreement
       See Item 20 above.


      58. Information for Verifying Eligibility for Authorization

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Permits the Secretary to require that retailers and 
     wholesalers seeking approval submit relevant income and sales 
     tax filing documents. Permits regulations requiring retailers 
     and wholesalers to provide written authorization for the 
     Secretary to verify all relevant tax filings and to obtain 
     corroborating documentation from other sources in order to 
     verify the accuracy of information provided by retailers and 
     wholesalers.
     Conference agreement
       The Conference agreement follows the Senate amendment.


            59. Bases for Suspensions and Disqualifications

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Requires criteria for finding violations by retailers and 
     wholesalers (and their suspension or disqualification) on the 
     basis of evidence including on-site investigations, 
     inconsistent redemption data, or electronic benefit transfer 
     system transaction reports.
     Conference agreement
       The Conference agreement follows the House bill. The 
     Conferees note that the Secretary currently has the authority 
     contained in the Senate amendment.


60. Permanent Debarment of Retailers Who Intentionally Submit Falsified 
                              Applications

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Requires regulations permanently disqualifying retailers 
     and wholesalers that knowingly submit an application for 
     approval that contains false information about a substantive 
     matter. A permanent disqualification for a knowingly false 
     application would be subject to administrative and judicial 
     review, but the disqualification would remain in effect 
     pending the review.
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment permitting the Secretary to disqualify a store 
     or concern, including permanently, upon knowing submission of 
     false information on an application.


                      61. Categorical Eligibility

     Present law
       Households in which all members are recipients of AFDC are 
     categorically eligible for food stamps. [Sec. 5(a)]
       Child support payments received by a household and excluded 
     under the AFDC program may be disregarded for food stamps, at 
     State option and expense. [Sec. 5(d)(13)]
       Household members who are AFDC recipients are considered to 
     have met food stamp resource (asset) eligibility standards. 
     [Sec. 5(j)]
       Persons who are AFDC recipients are exempt from food stamp 
     rules barring eligibility to most postsecondary students. 
     [Sec. 6(e)]
       In general, food stamp eligibility is barred to those with 
     total (gross) household income above 130% of the Federal 
     income poverty guidelines. [Sec. 5(c)]
       Political subdivisions electing to operate workfare 
     programs for food stamp recipients may comply with food stamp 
     requirements by operating a workfare program under title IV 
     of the Social Security Act. [Sec. 20(a)]
       Households exempt from food stamp work rules because of 
     participation in an AFDC community work experience program 
     are subject to a limit on the number of hours of work--their 
     cash assistance plus food stamps, divided by the minimum wage 
     (but no person can be required to work more than 120 hours a 
     month). [Sec. 20(a)]
     House bill
       No provision. [Note: TANF households would presumably be 
     categorically eligible for food stamps under existing 
     provisions of law.]
       No provision. [Note: TANF recipients would presumably be 
     considered to have met food stamp resource standards under 
     existing provisions of law.]
       No provision. [Note: TANF recipients would presumably not 
     be exempt from food stamp postsecondary student rules under 
     existing provisions of law.]
     Senate amendment
       Provides that households in which all members are 
     recipients of benefits under a State's family assistance 
     block grant program be categorically eligible for food 
     stamps, if the Secretary determines that the program complies 
     with Secretarial standards that ensure that State program 
     standards are comparable to or more restrictive than those in 
     effect June 1, 1995.
       Deletes the existing provision for a State-option child 
     support disregard. [Note: A separate provision (Sec. 5(m) of 
     the Food Stamp Act) providing for State funding of the 
     disregard is not deleted.]
       Provides that persons receiving benefits under a State's 
     family assistance block grant program will be considered to 
     have met food stamp resource eligibility standards, if the 
     Secretary determines that the program complies with 
     Secretarial standards that ensure that State program 
     standards are comparable to or more restrictive than those in 
     effect June 1, 1995.
       Provides that persons receiving benefits under a State's 
     family assistance block grant program are exempt from food 
     stamp rules barring eligibility to most postsecondary 
     students, if the Secretary determines that the program 
     complies with Secretarial standards that ensure that State 
     program standards are comparable to or more restrictive than 
     those in effect June 1, 1995.
       Provides that households may not receive food stamp 
     benefits as the result of eligibility under a State's family 
     assistance block grant program unless the Secretary 
     determines that households with income above 130% of the 
     poverty guidelines are not eligible for the State's program--
     notwithstanding any other provision of the Food Stamp Act.
       Deletes the existing provision allowing compliance with 
     food stamp workfare rules by operating a workfare program 
     under title IV of the Social Security Act.
       Deletes the existing rule placing limits on hours worked 
     for food stamp recipients in community work experience 
     programs.
       Makes various technical amendments to the Food Stamp Act 
     conforming its existing references to the AFDC program to 
     cite the new family assistance block grant program.
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment deleting references to standards comparable to 
     June 1, 1995, and revising various amendments conforming Food 
     Stamp Act references to the AFDC program to the new family 
     assistance block grant program.


                 62. Protection of Battered Individuals

     Present law
       No provision. [Note: Certain work rules contain a ``good 
     cause'' exemption.]
     House bill
       No provision.

[[Page H 13024]]

     Senate amendment
       In the case of individuals who were battered or subjected 
     to extreme cruelty, permits States to exempt them from the 
     following provisions of food stamp law (or modify their 
     application) if their physical, mental, or emotional well-
     being would be endangered:
       (1) the requirement that the income and resources of a 
     sponsor of an alien be deemed to the sponsored alien;
       (2) the requirement that custodial parents cooperate with 
     child support agencies (as added by the Senate amendment); 
     and
       (3) all work requirements (including the new work 
     requirement added by the Senate amendment).
     Conference agreement
       The Conference agreement follows the House bill. The 
     conferees note that the Food Stamp Act already provides 
     protection to battered individuals in the application of 
     child support enforcement and work rules.


                     63. Reconciliation Provisions

                        A. Transitional Housing

     Present law
       Payments form regular welfare benefits made on behalf of 
     households in transitional housing are disregarded as income. 
     (Sec. 5(k)]
     House bill
       No provision.
     Senate amendment
       Deletes disregard of transitional housing payments.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                           B. American Samoa

     Present law
       No provision. [Note: A food assistance program for American 
     Samoa is supported under provisions of law granting 
     Secretarial discretion to extend Agriculture Department 
     programs to American Samoa.]
     House bill
       No provision.
     Senate amendment
       Provides for funding of not more than $5.3 million a year 
     through fiscal year 2002 for a nutrition assistance program 
     in American Samoa.
     Conference agreement
       The Conference agreement follows the Senate amendment.


               C. Assistance for Community Food Projects

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Authorizes $2.5 million a year for community food project 
     grants to meet the food needs of low-income people, increase 
     the self-reliance of communities in providing for their own 
     food needs, and promote comprehensive responses to local 
     food, farm, and nutrition issues.
     Conference agreement
       The Conference agreement follows the Senate amendment, with 
     an amendment making the funding for community food projects 
     mandatory.


                         Commodity Distribution

                             1. Short Title

     Present law
       The Emergency Food Assistance Act (EFAA), The Hunger 
     Prevention Act of 1988, The Commodity Distribution Reform Act 
     and WIC Amendments, The Charitable Assistance and Food Bank 
     Act of 1987, The Food Security Act of 1985, The Agriculture 
     and Consumer Protection Act of 1973, and The Food, 
     Agriculture, Conservation, and Trade Act of 1990.
     House bill
       Combines several existing commodity donation programs and 
     authorities under one title, the Commodity Distribution Act 
     of 1995.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the House bill with an 
     amendment striking the House provision and replacing it with 
     a provision combining the emergency food assistance program 
     (TEFAP) with the soup kitchen/food bank program into one 
     program to be known as the TEFAP. The revised TEFAP is 
     reauthorized through 2002, and the Secretary is required to 
     purchase $300 million of commodities each year through 2002 
     for distribution through the TEFAP. The requirement to 
     purchase $300 million of commodities is included in the Food 
     Stamp Act authorization for appropriations.


                     2. Availability of Commodities

     Present law
       Requires the Secretary to purchase a variety of nutritious 
     and useful commodities using the resources of the CCC or 
     Section 32 to supplement commodities acquired from the excess 
     inventories of CCC for distribution to emergency feeding 
     organizations. [Sec. 214(c) of Emergency Food Assistance Act 
     (EFAA)]
       In addition to commodities donated from excess CCC 
     holdings, authorizes the Secretary to donate Section 32 
     commodities to eligible recipient agencies participating in 
     TEFAP. [Sec. 202(c)]
       Requires the Secretary to make available to eligible 
     recipient agencies, CCC commodities in excess of those needed 
     to meet domestic and international obligations and market 
     development and food aid commitments and to carry out farm 
     price and income stabilization features of the AAA of 1938, 
     the AA of 1949, and the CCC Charter. [Sec. 202(a), EFAA]
     House bill
       For fiscal years 1996-2000, authorizes the Secretary of 
     Agriculture to purchase a variety of nutritious and useful 
     commodities to distribute to the States for purposes laid out 
     in the subtitle.
       Similar to current law, but also authorizes the use of 
     Section 32 funds not otherwise used or needed, to purchase, 
     process, and distribute commodities for purposes under the 
     new program.
       Leaves current general authority untouched; maintains EFAA 
     requirement but adds language stipulating that donations are 
     to be in addition to authorized Section 32 donations.
     Senate amendment
       Extends existing law purchasing authorities through fiscal 
     year 2002.
     Conference agreement
       See Item 1 above.


                    3. Basis for Commodity Purchases

     Present law
       Requires that commodities made available under the EFAA 
     include a variety of items most useful to eligible recipient 
     agencies, including diary products, wheat and wheat products, 
     rice, honey, and cornmeal. [Sec. 202(d), EFAA]
     House bill
       Requires the Secretary to determine the types, varieties, 
     and amounts of commodities purchased under this subtitle, and 
     to make such purchases, to the maximum extent practicable and 
     appropriate, on the basis of agricultural market conditions, 
     State and distributing agency preferences and needs, and the 
     preferences of recipients.
     Senate amendment
       No provision.
     Conference agreement
       See Item 1 above.


           4. State and Local Supplementation of Commodities

     Present law
       Requires the Secretary to establish procedures by which 
     State and local agencies, charitable institutions, or other 
     person may supplement the commodities distributed under TEFAP 
     for use by emergency feeding organizations with donations of 
     nutritious and wholesome commodities. [Sec. 203D(a), EFAA]
       Allows States and emergency feeding organizations to use 
     TEFAP funds, equipment, structures, vehicles, and all other 
     facilities and personnel involved in the storage, handling, 
     and distribution of TEFAP commodities to store, handle, or 
     distribute commodities donated to supplement TEFAP 
     commodities. [Sec. 203D(b), EFAA]
       Requires States and emergency feeding organizations to 
     continue to use volunteer workers and commodities and foods 
     donated by charitable and other organizations, to the maximum 
     extent practical, in operating TEFAP.
     House bill
       Similar to current law except that supplementation applies 
     to all programs eligible to receive commodities under the new 
     program, not just TEFAP.
       Similar to current law except it allows use of these 
     sources to all programs eligible to participate in the new 
     program (not just TEFAP), and explicitly identifies the funds 
     that States and eligible agencies may use to help with 
     supplemental commodities as those appropriated for 
     administrative costs under the new Section 519(b).
       Same as current law, except substitutes recipient agencies 
     for emergency feeding organizations to reflect expansion of 
     provisions to cover other commodity donation programs as well 
     as TEFAP.
     Senate amendment
       No provision.
     Conference agreement
       See Item 1 above.


                             5. State Plan

     Present law
       Requires Secretary to expedite the distribution of 
     commodities to agencies designated by the Governor, or 
     directly distribute commodities to eligible recipient 
     agencies engaged in national commodity processing; allows 
     States to give priority to donations to existing food bank 
     networks serving low-income households. Requires States to 
     expeditiously distribute commodities to eligible recipient 
     agencies, and to encourage distribution to rural areas. Also 
     requires States to distribute commodities only to agencies 
     that serve needy persons and to set their own need criteria, 
     with the approval of the Secretary. [Sec. 203B(a) and (c) of 
     EFAA]
     House bill
       Requires that States seeking commodities under this program 
     submit a plan of operation and administration every four 
     years for approval by the Secretary and allows amendment of 
     the plan at any time.
       Requires that, at a minimum, the State receiving 
     commodities include in its plan:
       designation of the State agency responsible for 
     distributing commodities; 

[[Page H 13025]]

       the plan of operation and administration to expeditiously 
     distribute commodities in amounts requested by eligible 
     recipient agencies;
       the standards of eligibility for recipient agencies; and
       the individual or household eligibility standards for 
     commodity recipients, which shall require that they be needy, 
     and residing in the geographic location served by the 
     recipient agency.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the House bill.


                           6. Advisory Board

     Present law
       No provision.
     House bill
       Requires the Secretary to encourage States to establish 
     advisory boards consisting of representatives of all 
     interested entities, public and private, in the distribution 
     of commodities.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the House bill.


                  7. Cooperative Agreements/Transfers

     Present law
       Permits States receiving TEFAP commodities to enter into 
     cooperative agreements with agencies of other States to 
     jointly provide commodities serving eligible recipients from 
     each State in a single area, or to transfer commodities. 
     [Sec. 203B(d)]
     House bill
       Similar to current law, except adds language specifying 
     that the State may advise the Secretary of such agreements 
     and transfers. Note: Because the new commodity distribution 
     program covers more than TEFAP agencies, this represents a 
     new provision for other recipient agencies now receiving 
     commodities (e.g. CSFP, charitable institutions).
     Senate amendment
       No provision.
     Conference agreement
       See Item 1 above.


                 8. Allocation of Commodities to States

     Present law
       Requires Secretary to allocate commodities purchased for 
     TEFAP to States in the following proportions:
       60% of the value of commodities available based on each 
     State's proportion of the national total of persons with 
     incomes below the poverty line; and
       40% based on each State's proportion of the national total 
     of the average monthly number of unemployed persons.
     House bill
       Similar to current law as relates to allocation of TEFAP 
     commodities. CSFP commodities are exempted from the 
     allocation method, however, other recipient agencies 
     currently receiving commodities under authority other than 
     the EFAA (e.g. charitable institutions) are covered by the 
     allocation formula.
     Senate amendment
       No provision.
     Conference agreement
       See Item 1 above.


                            9. Notification

     Present law
       Requires the Secretary to notify each State of the amount 
     of commodities it is allotted to receive. Requires each State 
     to notify the Secretary promptly if it will not accept 
     commodities available to it, and requires the Secretary to 
     reallocate and distribute such commodities as he deems 
     appropriate and equitable. Further requires the Secretary to 
     establish procedures to permit State to decline portions of 
     commodity allocations during each fiscal year and to 
     reallocate and distribute such commodities, as deemed 
     appropriate and equitable. [Sec. 214(g), EFAA]
     House bill
       Same as current law, except applies to all eligible 
     agencies receiving commodities, not just TEFAP agencies.
     Senate amendment
       No provision.
     Conference agreement
       See Item 1 above.


                             10. Disasters

     Present law
       Permits the Secretary to request that States consider 
     assisting other States where substantial numbers of persons 
     have been affected by drought, flood, hurricane or other 
     natural disasters by allowing the Secretary to reallocate 
     commodities to those States affected by such disasters. [Sec. 
     214(g), EFAA]
     House bill
       Same as current law.
     Senate amendment
       No provision.
     Conference agreement
       See Item #1 above.


                   11. National Commodity Processing

     Present Law
       Requires through fiscal year 1995 that the Secretary 
     encourage agreements with private companies for reprocessing 
     into end-use products those commodities donated at no charge 
     to nutrition programs. [Sec. 1114(a)(2)(A) of Agriculture and 
     Food Act of 1981]
     House bill
       No provision.
     Senate amendment
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).
     Conference agreement
       The Conference agreement follows the Senate amendment.


                        12. Purchases and Timing

     Present law
       Requires that in each fiscal year, the Secretary purchase 
     commodities at times and under conditions determined 
     appropriate; deliver such commodities at reasonable intervals 
     to States (but no later than the end of the fiscal year), 
     based on the allocation formula, and entitles each State to 
     the additional commodities purchased for TEFAP in amounts 
     based on the allocation formula. [Sec. 214(h), EFAA]
     House bill
       Similar to current law except for reference to CSFP, 
     deletion of language relating to ``additional'' commodities, 
     and requirement that commodities be delivered by December 31 
     of the following fiscal year.
     Senate amendment
       No provision.
     Conference agreement
       See Item 1 above.


       13. Priority System for State Distribution of Commodities

                   A. Emergency Feeding Organizations

     Present law
       Requires States to give priority for commodities to 
     emergency feeding organizations if sufficient commodities are 
     not available to meet requests of all eligible agencies, and 
     encourages States to distribute commodities to rural areas. 
     [Sec. 203B(b), EFAA]
     House bill
       Requires that in distributing commodities allocated under 
     this section for other than CSFP, the State agency offer its 
     full allocation of commodities to emergency feeding 
     organizations.
     Senate amendment
       No provision.
     Conference agreement
       See Item #1 above.


                       B. Charitable Institutions

     Present law
       No provision.
     House bill
       Permits States agencies to distribute commodities that are 
     not able to be used by emergency feeding organizations to 
     charitable institutions (excluding penal institutions) that 
     do not receive commodities as emergency feeding 
     organizations.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                       C. Other Eligible Agencies

     Present law
       No provision.
     House bill
       Permits the State agency to distribute commodities that are 
     not able to be used by emergency feeding organizations or 
     other charitable institutions to other eligible recipient 
     agencies not receiving commodities under the previous 
     distributions.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                      14. Initial Processing Costs

     Present law
       Permits the Secretary to use CCC funds to pay the cost of 
     initial processing and packaging of commodities distributed 
     under this Act into forms and quantities the Secretary 
     determines are suitable for use by individual households or 
     institutional use. Permits payment in the form of commodities 
     equal in value to the cost, and requires the Secretary to 
     ensure that such payments in kind do not displace commercial 
     sales. [Sec. 203A, EFAA]
     House bill
       Similar to present law, except substitutes term ``eligible 
     recipient agencies'' for ``institutional use.''
     Senate amendment
       No provision.
     Conference agreement
       See Item #1 above.


                    15. Assurances; Anticipated Use

     Present law
       Requires the Secretary to take precautions to assure that 
     eligible recipient agencies and persons receiving commodities 
     do not diminish their normal expenditures for food because of 
     receipt of commodities, and to ensure that commodities made 
     available under the Act do not displace commercial sales. 
     Prohibits Secretary from donating commodities in a quantity 
     or manner that will substitute for agricultural produce that 
     otherwise would be purchased in the market. Requires 
     Secretary to submit a report to the Congress each year on 
     whether and to what 

[[Page H 13026]]
     extent displacement or substitution is occurring. [Sec. 203C(a)]
     House bill
       Similar to current law but does not refer to individual 
     displacement or substitutions or prohibit donation in a 
     quantity or manner that might interfere with market sales. 
     Also sets December 1997, and at least every two years 
     thereafter as the dates for displacement reports.
     Senate amendment
       No provision.
     Conference agreement
       See Item #1 above.


                               16. Waste

     Present law
       Requires that the Secretary purchase and distribute 
     commodities in quantities that can be consumed without waste, 
     and prohibits eligible recipient agencies receiving 
     commodities under this Act from receiving commodities in 
     excess of anticipated use (based on inventory records and 
     controls), or in excess of their ability to accept and store. 
     [Sec. 203C(b)]
     House bill
       Same as present law.
     Senate amendment
       No provision.
     Conference agreement
       See Item #1 above.


                  17. Authorization of Appropriations

                         A. Commodity Purchases

     Present law
       Authorizes $175 million for fiscal year 1991, $190 million 
     for fiscal year 1992, and $220 million for each of fiscal 
     year 1993-1995 to purchase, process and distribute additional 
     commodities to TEFAP agencies. [Sec. 214(e)]
     House bill
       Authorizes $260 million annually for each of fiscal years 
     1996 through 2000 to purchase, process, and distribute 
     commodities to States for distribution to eligible recipient 
     agencies, which include charitable institutions and CSFP 
     agencies, as well as TEFAP agencies.
     Senate amendment
       Extends funding authority for commodity purchases at $220 
     million annually through fiscal year 2002.
     Conference agreement
       See Item #1 above.


                       B. Administrative Funding

     Present law
       Authorizes $50 million for fiscal year 1991-95 for the 
     Secretary to make available to States for State and local 
     payments of costs associated with the distribution of 
     commodities by eligible recipient agencies. Requires 
     Secretary to allocate funds to States on advance basis in the 
     same proportion as the proportion each State receives of 
     allocated commodities, and requires the Secretary to 
     reallocate funds not able to be used by a State to other 
     States in an appropriate and equitable manner. Permits States 
     to use funds for costs associated with the distribution of 
     additional commodities purchased for the program and for soup 
     kitchens and food banks. [Sec. 204(a)(1)]
     House bill
       Authorizes $40 million annually for each of fiscal years 
     1996 through 2000 for payments to States and local agencies 
     (except for the CSFP) for the costs associated with 
     transporting storing, and handling commodities other than 
     those distributed to CSFP agencies. Same as current law with 
     respect to allocations and reallocations, and advanced 
     funding. No specific reference to soup kitchens and food 
     banks, which are included as eligible recipient agencies.
     Senate amendment
       Extends authority for administrative funding at $50 million 
     annually through fiscal year 2002.
     Conference agreement
       The Conference agreement follows the Senate amendment with 
     an amendment providing that administrative funds may be used 
     for processing, transporting, or distributing commodities 
     other than TEFAP commodities.


                   18. Local Administrative Payments

     Present law
       Requires each State to make available not less than 40% of 
     the funds it receives for administrative costs in each fiscal 
     year to pay for, or provide advance payments to eligible 
     recipient agencies, for allowable expenses incurred by such 
     agencies in distributing commodities to needy persons. 
     Defines ``allowable expenses'' to include the costs of 
     transporting, storing, handling, repackaging and distributing 
     commodities after receipt by the eligible recipient agency; 
     costs associated with eligibility, verification, and 
     documentation of eligibility; costs of providing information 
     to commodity recipients on appropriate storage and 
     preparation of commodities; and costs of recordkeeping, 
     auditing, and other required administrative procedures. [Sec. 
     204(a)(2), EFAA]
     House bill
       Same as current law except also applies to non-TEFAP 
     agencies.
     Senate amendment
       No provision.
     Conference agreement
       See Item #1 above.


                   19. State Coverage of Local Costs

     Present law
       Requires that amounts of funding that States use to cover 
     the allowable expenses of eligible recipient agencies be 
     counted toward the amount a State must make available from 
     administrative funding provided under this Act for eligible 
     recipient agencies. [Sec. 204(a)(2), EFAA]
     House bill
       Same as present law except that it references the CSFP, 
     which is excluded from this rule.
     Senate amendment
       No provision.
     Conference agreement
       See Item #1 above.


                         20. Financial Reports

     Present law
       Requires States receiving funds to submit financial reports 
     on a regular basis to the Secretary on the use of such funds 
     and prohibits any such funds from being used by States for 
     costs other than those used to the distribution of 
     commodities by eligible recipient agencies. [Sec. 204(a)(3), 
     EFAA]
     House bill
       Same as present law.
     Senate amendment
       No provision.
     Conference agreement
       See Item #1 above.


                     21. Non-Federal Matching Funds

     Present law
       Requires that each State receiving administrative funds 
     under this subsection provide cash or in-kind contributions 
     from non-Federal sources in an amount equal to the amount of 
     Federal administrative funds it receives that are not 
     distributed to eligible recipient agencies or used to cover 
     the expenses of such agencies. Permits States to receive 
     administrative funding prior to satisfying the matching 
     requirement, based on their estimated contribution, and 
     requires the Secretary to periodically reconcile estimated 
     and actual contributions to correct for overpayments and 
     underpayments. [Sec. 204(a)(4), EFAA]
     House bill
       Same as present law, except excludes administrative funds 
     distributed for the CSFP from the non-Federal matching 
     requirements and rules.
     Senate amendment
       No provision.
     Conference agreement
       See Item #1 above.


                          22. Federal Charges

     Present law
       Prohibits any charge against the appropriations authorized 
     by this section for the value of commodities donated for the 
     purposes of this Act, or for the funds used by the CCC for 
     the costs of initial processing, packaging, and delivery of 
     program commodities to the States. [Sec. 204(b), EFAA]
     House bill
       Similar to present law except it applies the prohibition to 
     bonus donations of Section 32 and CCC commodities, as well as 
     those bought for the program.
     Senate amendment
       No provision.
     Conference agreement
       See Item #1 above.


                           23. State Charges

     Present law
       Prohibits States from charging for commodities made 
     available to eligible recipient agencies and from passing 
     along the cost of matching requirements. [Sec. 204(a)(5), 
     EFAA]
     House bill
       Same as present law.
     Senate amendment
       No provision.
     Conference agreement
       See Item #1 above.


        24. Mandatory Funding for Nutrition Program Commodities

     Present law
       For each of fiscal years 1994-1996, requires $230,000 of 
     Treasury funds not otherwise appropriated to be provided to 
     the Secretary to purchase, process and distribute commodities 
     that are low in saturated fats, sodium, and sugar, and a good 
     source of calcium, protein, and other nutrients to 2 States, 
     selected by the Secretary, to carry out a three year project 
     to improve the health of low-income participants of TEFAP. 
     Requires that commodities be easy for low-income families to 
     store, use, and handle, and include low-sodium peanut butter, 
     low-fat and low sodium cheeses and canned meats, fruits, and 
     vegetables. Also requires that $5000 of the amount provided 
     be given to each of the participating States to help with 
     administrative costs. [Sec. 13962 of OBRA, 1993]
     House bill
       No provision.
     Senate amendment
       Extends this requirement through fiscal year 2002.
     Conference agreement
       The Conference agreement follows the House bill.

[[Page H 13027]]



     25. commodity supplemental food program (csfp)--authorization

     Present law
       For each of fiscal years 1991-1995, authorizes the 
     Secretary to purchase and distribute sufficient agricultural 
     commodities with appropriated funds to maintain the 
     traditional level of assistance for food programs including 
     the supplemental food programs for women, infants, children, 
     and the elderly. [Sec. 4(a), Agriculture and Consumer 
     Protection Act of 1973]
     House bill
       Requires that $94.5 million of the amount appropriated for 
     programs under this subtitle for the period fiscal year 1996-
     2000 be used each fiscal year to purchase and distribute 
     commodities to supplemental feeding programs for women, 
     infants, and children, or elderly individuals participating 
     in the commodity supplemental food program.
     Senate amendment
       Extends appropriations authority through fiscal year 2002.
     Conference agreement
       This provision was dropped from the Reconcilation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).


                    26. csfp administrative funding

     Present law
       Requires the Secretary to provide administrative funds to 
     State and local agencies administering the CSFP for each of 
     fiscal years 1991-1995. Authorizes appropriations in an 
     amount equal to not more than 20% of the value of commodities 
     purchased for the program. [Sec. 5(a), Agriculture and 
     Consumer Protection Act of 1973]
       Defines administrative costs to include expenses for 
     information and referral, operation, monitoring, nutrition 
     education, start-up costs, and general administration 
     (including staff, warehouse, and transportation personnel, 
     insurance and administration of the State or local office. 
     [Sec. 5(c), Agriculture and Consumer Protection Act of 1973]
     House bill
       Requires that not more than 20% of the funds made available 
     for commodity purchase and distribution for the CSFP be made 
     available to States for the State and local payments of costs 
     associated with the distribution of commodities by CSFP 
     agencies.
     Senate amendment
       Extends present law authority through fiscal year 2002.
     Conference agreement
       The Conference agreement follows the Senate amendment.


           27. csfp--commodity purchases and advance warning

     Present law
       Permits the Secretary to determine the types, varieties, 
     and amounts of commodities purchased for the CSFP, but 
     requires the Secretary to report to the House and Senate 
     Agriculture Committees plans for significant changes from 
     commodities available or planned at the beginning of the 
     fiscal year before implementing such changes.
     House bill
       Same as present law.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                     28. cheese and nonfat dry milk

     Present law
       In each of fiscal years 1991-1995, the CCC is required to 
     provide at least 9 million pounds of cheese and 4 million 
     pounds of nonfat dry milk (to the extent inventory levels 
     permit), for the Secretary to use, before the end of each 
     fiscal year, to carry out the CSFP. [Sec. 5(d)(2), 
     Agriculture and Consumer Protection Act of 1973]
     House bill
       Implements this present law provision for fiscal years 
     1996-2000, otherwise it is exactly the same as present law.
     Senate amendment
       Extends present law provision through fiscal year 2002.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                       29. additional csfp sites

     Present law
       Requires the Secretary to approve additional sites each 
     fiscal year, including sites serving the elderly, in areas 
     where the program does not operate to the full extent that 
     applications can be approved within the funding available, 
     and without reducing participation levels (including the 
     elderly) in areas where the program is in effect. [Sec. 5(f), 
     Agriculture and Consumer Protection Act of 1973]
     House bill
       Same as present law.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                       30. additional recipients

     Present law
       Permits a local agency to serve low-income elderly persons, 
     with the approval of the Secretary, if it determines that the 
     amount of assistance it receives is more than is needed to 
     provide assistance to women, infants and children. [Sec. 
     5(g), Agriculture and Consumer Protection Act of 1973]
     House bill
       Same as present law.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                     31. commodity price increases

     Present law
       Requires the Secretary to determine the decline in the 
     number of persons able to be served by the CSFP if the price 
     of one or more commodities purchased for the program is 
     significantly higher than expected; to promptly notify State 
     agencies operating programs of the decline; and ensure that 
     State agencies notify local agencies of the decline. [Sec. 
     5(j)(1) and (2), Agriculture and Consumer Protection Act of 
     1973]
     House bill
       Same as present law.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the Senate amendment.


       32. affect of csfp commodities on other recipient agencies

     Present law
       No provision.
     House bill
       Stipulates that commodities distributed to CSFP agencies 
     under this section not be considered when determining 
     commodity allocations to States for other eligible recipient 
     agencies receiving commodities under this Act, or in 
     following the priority for distribution of commodities to 
     such agencies.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                       33. commodities not income

     Present law
       Specifies that commodities distributed under this Act not 
     be considered income or resources for any purposes under 
     Federal, State, or local law. [Sec. 206, EFAA]
     House bill
       Similar to present law, but narrower. Specifies that 
     receipt of commodities cannot be considered in ``determining 
     eligibility for any Federal, State, or local ``means-tested 
     program,'' instead of the broader ``any purposes'' outlined 
     in present law.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                    34. prohibition on state charges

     Present law
       Prohibits States from charging eligible recipient agencies 
     any amount that exceeds the difference between the State's 
     direct costs of storing and transporting commodities to 
     recipient agencies and the amount of funds provided for this 
     purpose by the Secretary. [Sec. 208, EFAA]
     House bill
       Same as present law.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                            35. definitions

            a. average monthly number of unemployed persons

     Present law
       The average monthly number of unemployed persons within a 
     State in the most recent fiscal year for which information is 
     available, as determined by the Bureau of Labor Statistics of 
     the Department of Labor. [Sec. 2143(b), EFAA]
     House bill
       Same as present law.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the House bill with an 
     amendment providing that all definitions included in the 
     TEFAP and soup kitchen/food bank program will be included in 
     the revised TEFAP.


                           b. elderly persons

     Present law
       No provision.
     House bill
       Defines ``elderly persons'' to mean persons 60 years or 
     older.
     Senate amendment
       No provision.
     Conference agreement
       See Item 35A above.


    c. eligible recipient agencies; emergency feeding organizations

     Present law
       Combines definition of ``eligible recipient agencies'' and 
     ``emergency feeding organizations, as follows: ``Eligible 
     recipient agency'' 

[[Page H 13028]]
     means public or non-profit organizations that administer activities or 
     projects providing nutrition assistance to relieve situations 
     of emergency and distress through the provision of food to 
     needy persons (including those in charitable institutions, 
     food banks, hunger centers, soup kitchens, and similar non-
     profit recipient agencies (hereinafter referred to as 
     ``emergency feeding organizations''); and school lunch, 
     summer camps, and child nutrition meal service, elderly 
     feeding programs, CSFP, charitable institutions for the 
     needy, and disaster relief. [Sec. 201A, EFAA]
     House bill
       Similar to present law, but separates into two separate 
     definitions, as follows: Defines ``eligible recipient 
     agency'' to mean a public or non-profit organization that 
     administers:
       an institution operating a CSFP;
       an emergency feeding organization (EFO);
       a charitable institution (including a hospital and a 
     retirement home, but excluding a penal institution) serving 
     needy persons;
       a summer camp for children or a child nutrition food 
     service program;
       an elderly feeding program; or
       a disaster relief program.
       Defines ``emergency feeding organization'' to mean public 
     or private organizations that administer activities and 
     projects (including charitable institutions, food banks and 
     pantries, hunger relief centers, soup kitchens, or similar 
     non-profit eligible agencies) providing nutrition assistance 
     to relieve situations of emergency and distress by providing 
     food to needy persons, including low-income and unemployed 
     persons.
     Senate amendment
       No provision.
     Conference agreement
       See Item 35A above.


                              d. food bank

     Present law
       The term ``food bank'' means a public and charitable 
     institution that maintains an established operation providing 
     food to food pantries, soup kitchens, hunger relief centers, 
     or other feeding centers that provide meals or food to feed 
     needy persons on a regular basis as an integral part of their 
     normal activity. [Sec. 110, Hunger Prevention Act of 1988]
     House bill
       Same as present law.
     Senate amendment
       No provision.
     Conference agreement
       See Item 35A above.


                             e. food pantry

     Present law
       Defines ``food pantry'' to mean a public or private 
     nonprofit organization distributing food (including other 
     than USDA food) to low-income and unemployed households to 
     relieve situations of emergency and distress. [Sec. 110, 
     Hunger Prevention Act of 1988]
     House bill
       Same as present law.
     Senate amendment
       No provision.
     Conference agreement
       See Item 35A above.


                            f. needy persons

     Present law
       No provision.
     House bill
       Defines ``needy persons'' to mean individuals who have low 
     incomes or are unemployed as determined by the State, as long 
     as this is not higher than 185% of the poverty line; 
     households certified as food stamp participants or 
     individuals participating in other Federally-supported means-
     tested programs.
     Senate amendment
       No provision.
     Conference agreement
       See Item 35A above.


                            g. poverty line

     Present law
       The term ``poverty line'' is the same as the term used in 
     Section 673(2) of the Community Services Block Grant Act (42 
     U.S.C.9902(2)). [Sec. 110, Hunger Prevention Act]
     House bill
       Same as present law.
     Senate amendment
       No provision.
     Conference agreement
       See Item 35A above.


                            h. soup kitchen

     Present law
       The term ``soup kitchen'' means a public and charitable 
     institution that, as an integral part of its normal 
     activities, maintains an established feeding operation for 
     needy homeless persons on a regular basis. [Sec. 110, Hunger 
     Prevention Act]
     House bill
       Same as present law.
     Senate amendment
       No provision.
     Conference agreement
       See Item 35A above.


                            36. Regulations

     Present law
       Requires the Secretary to issue regulations within 30 days 
     to implement this subtitle; to minimize to the extent 
     practicable the regulatory, recordkeeping and paperwork 
     requirements imposed on eligible recipient agencies, to 
     publish in the Federal Register as early as feasible, but not 
     later than the beginning of each fiscal year, an estimate of 
     the types and quantities of commodities anticipated to be 
     available; and to include in regulations provisions that set 
     standards relating to liability for commodity losses when 
     there is no evidence of negligence or fraud, and establish 
     conditions for payment to cover such losses, taking into 
     account the special needs and circumstances of the recipient 
     agencies. [Sec. 210, EFAA]
     House bill
       Similar to present law except provides 120 days for 
     Secretary to issue regulations and includes reference to 
     ``non-binding'' nature of Secretary's estimates of donations.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                     37. Finality of Determinations

     Present law
       Specifies that determinations made by the Secretary 
     concerning the types and quantities of commodities donated 
     under this subtitle, when in conformance with applicable 
     regulations, be final and conclusive and not reviewable by 
     any other officer or agency of the Government. [Sec. 211, 
     EFAA]
     House bill
       Same as present law.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                 38. Prohibition on Sale of Commodities

     Present law
       Prohibits the sale or disposal of commodities in commercial 
     channels in any form, except as permitted under Section 517 
     for in-kind payment of initial processing costs by the CCC. 
     [Sec. 205(b), EFAA]
     House bill
       Same as present law.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                        39. Settlement of Claims

     Present law
       Gives the Secretary or designee authority to determine the 
     amount of, settle and adjust any claim arising under this 
     subtitle, and waive any claim when the Secretary determines 
     it will serve the purposes of this Act. Specifies that 
     nothing in this Act diminishes the authority of the Attorney 
     General to conduct litigation on behalf of the United States. 
     [Sec. 215, EFAA]
     House bill
       Same as present law.
     Senate amendment
       No provision.
     Conference agreement
       The Conference agreement follows the Senate amendment.


                      40. Repealers and Amendments

     Present law
       No provision.
     House bill
       Repeals the Emergency Food Assistance Act of 1983.
       In the Hunger Prevention Act of 1988, strikes Section 110 
     (soup kitchens and food banks); Subtitle C of Title II (Food 
     processing and distribution); and Section 502 (food bank 
     demonstration project).
       Strikes Section 4 of the Commodity Distribution Reform Act 
     of 1987 (Food bank demonstration).
       Strikes Section 3 of the Charitable Assistance and Food 
     Bank Act of 1987.
       Amends the Food Security At of 1985 by striking Section 
     1571, and striking Section 4 of the Agriculture and Consumer 
     Protection Act (CSFP) and inserting Section 110 of the 
     Commodity Distribution Act of 1995.
       In the Agriculture and Consumer Protection Act of 1973: In 
     Section 4(a) strikes ``institutions (including hospitals and 
     facilities caring for needy infants and children) 
     supplemental feeding programs serving women, infants, and 
     children, and elderly, or both, wherever located, disaster 
     areas, summer camps for children'' and inserting ``disaster 
     areas;'' In subsection 4(c) strikes ``the Emergency Food 
     Assistance Act of 1983'' and inserts ``The Commodity 
     Distribution Act of 1995''; and strikes Section 5.
       In the Food Agriculture, Conservation, and Trade Act of 
     1990, strikes Section 1773(f).
     Senate amendment
       No provision.
     Conference agreement
       This provision was dropped from the Reconcilation bill 
     because it violates the Byrd Rule (section 313 of the 
     Congressional Budget Act of 1974).

[[Page H 13029]]



                       Subtitle K--Miscellaneous

1. Expenditure of Federal Funds in Accordance with Laws and Procedures 
                Applicable to Expenditure of State Funds

     Present law
       According to the National Conference of State Legislatures, 
     there currently are six States in which Federal funds go to 
     the Governor rather than the State legislature. Those States 
     are Arizona, Colorado, Connecticut, Delaware, New Mexico, and 
     Oklahoma.
     House bill
       No provision.
     Senate amendment
       Stipulates that funds from certain Federal block grants to 
     the States are to be expended in accordance with the laws and 
     procedures applicable to the expenditure of the State's own 
     resources (i.e., appropriated through the State legislature 
     in all States). This provision applies to the following block 
     grants: temporary assistance to needy families block grant 
     under title I, the optional State food assistance block grant 
     under title III, and the child care block grant under title 
     VI of the Senate amendment. Thus, in the States in which the 
     Governor previously had control over Federal funds, the State 
     legislatures now would have control.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


 2. Elimination of Housing Assistance with Respect to Fugitive Felons 
                   and Probation and Parole Violators

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Ends eligibility for public housing and Section 8 housing 
     assistance of a person who is fleeing to avoid prosecution 
     after conviction for a crime, or attempt to commit a crime, 
     that is a felony where committed (or, in the case of New 
     Jersey, is a high misdemeanor), or who is violating a 
     condition of probation or parole. The amendment states that 
     the person's flight shall be cause for immediate termination 
     of their housing aid.
       Requires specified public housing agencies to furnish any 
     Federal, State, or local law enforcement officer, upon the 
     request of the officer, with the current address, social 
     security number, and photograph (if applicable) of any SSI 
     recipient, if the officer furnishes the public housing agency 
     with the person's name and notifies the agency that the 
     recipient is a fugitive felon (or in the case of New Jersey a 
     person fleeing because of a high misdemeanor) or a probation 
     or parole violator or that the person has information that is 
     necessary for the officer to conduct his official duties, and 
     the location or apprehension of the recipient is within the 
     officer's official duties.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


           3. Sense of the Senate Regarding Enterprise Zones

     Present law
       No specific provision. However, as stated, the provisions 
     outlined in the Sense of the Senate language already can be 
     done under present law.
     House bill
       No provision.
     Senate amendment
       Outlines findings related to urban centers and empowerment 
     zones and includes sense of the Senate language that urges 
     the 104th Congress to pass an enterprise zone bill that 
     provides Federal tax incentives to increase the formation and 
     expansion of small businesses and to promote commercial 
     revitalization; allows localities to request waivers to 
     accomplish the objectives of the enterprise zones; encourages 
     resident management of public housing and home ownership of 
     public housing; and authorizes pilot projects in designated 
     enterprise zones to expand the educational opportunities for 
     elementary and secondary school children.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


  4. Sense of the Senate Regarding the Inability of the Non-Custodial 
                      Parent to Pay Child Support

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       It is the Sense of the Senate that States should pursue 
     child support payments under all circumstances even if the 
     noncustodial parent is unemployed or his or her whereabouts 
     are unknown; and that States are encouraged to pursue pilot 
     programs in which the parents of a minor non-custodial parent 
     who refuses or is unable to pay child support contribute to 
     the child support owed.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                       5. Food Stamp Eligibility

     Present law
       For purposes of determining eligibility and benefits under 
     the Food Stamp program, the income--less a pro rata share--
     and financial resources of an ineligible alien are included 
     in the income and resources of the household of which the 
     alien is a member. [Sec. 6(f) of the Food Stamp Act]
     House bill
       No provision.
     Senate amendment
       Permits States to include all of an ineligible alien's 
     income and resource in the income and resources of the 
     household of which the alien is a member. (Note: This 
     provision applies only to those aliens made ineligible under 
     present food stamp law, not to those who might be made 
     ineligible for food stamps under new provisions in the Senate 
     amendment.)
     Conference agreement
       The conference agreement follows the Senate amendment.


   6. Sense of the Senate on Legislative Accountability for Unfunded 
                 Mandates in Welfare Reform Legislation

     Present law
       P.L. 104-4, the Unfunded Mandates Reform Act of 1995, 
     enacted March 22, 1995, responds to the concern of many State 
     and local officials regarding costs placed upon them by 
     ``unfunded mandates.'' The Act addresses this issue by 
     requiring the Congressional Budget Office (CBO) to estimate 
     the costs to State, local, and tribal governments and the 
     private sector of unfunded intergovernmental mandates that 
     exceed a specified amount and to make the information 
     available to the Congress before a final vote on a given 
     piece of legislation is taken.
     House bill
       No provision.
     Senate amendment
       Includes the ``purposes'' section of P.L. 104-4 as findings 
     and states that it is the Sense of the Senate that before the 
     Senate acts on the conference agreement on H.R. 4 (or any 
     other welfare reform legislation), CBO include in its 7-year 
     estimates the costs to States of meeting all work 
     requirements (and other requirements) in the conference 
     agreement, including those for single-parent families, two-
     parent families, and those who have received cash assistance 
     for 2 years; the resources available to the State to meet 
     these work requirements and what States are projected to 
     spend under current welfare law; and the amount of additional 
     revenue needed by the States to meet the work requirements. 
     In addition, the Senate would like CBO to estimate how many 
     States would pay a penalty rather than raise the additional 
     revenue needed to comply with the specified work 
     requirements.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


7. Sense of the Senate Regarding Competitive Bidding for Infant Formula

     Present law
       Under the Special Supplemental Nutrition Program for Women, 
     Infants, and Children (WIC), States must carry out cost 
     containment measures in procuring infant formula (and, where 
     practicable, other foods). Cost containment must be by 
     competitive bidding or another method that yields equal or 
     greater savings. Any cost savings may be used by the State 
     for WIC program purposes. [Sec. 17(b) and (h) of the Child 
     Nutrition Act]
     House bill
       With respect to assistance provided to women, infants, and 
     young children under the Family Nutrition Block Grant, States 
     are required to establish and carry out a cost containment 
     system for procuring infant formula. States must use cost 
     containment savings for any of the activities supported under 
     the Family Nutrition Block Grant and must report on their 
     system and the estimated cost savings compared to the 
     previous year.
     Senate amendment
       Includes findings on the success of the WIC program in: 
     improving the health status of women, infants, and children, 
     saving Medicaid expenditures, and establishing the importance 
     of infant formula manufacture rebates in helping to fund the 
     WIC program. The amendment states that it is the sense of the 
     Senate that any legislation enacted by Congress must not 
     eliminate or in any way weaken present competitive bidding 
     requirements for the purchase of infant formula in programs 
     supported with Federal funds.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


     8. Establishing National Goals to Prevent Teenage Pregnancies

                                A. Goals

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Requires the Secretary of HHS to establish and implement by 
     January 1, 1997, a strategy for:

[[Page H 13030]]

       (1) preventing an additional 2% of out-of-wedlock teenage 
     pregnancies a year; and
       (2) assuring that at least 25% of U.S. communities have 
     teenage pregnancy programs in place.
       HHS is required to report to Congress by June 30, 1998, on 
     progress made toward meeting these 2 goals.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                         B. Prevention Programs

     Present law
       The Social Services block grant (SSBG) (sec. 2002 of SSA, 
     42 USC 1397a) entitles States to an allotment for services 
     not limited to, but including: child day care; protective 
     services for children and adults; services for children and 
     adults in foster care; home management services; adult day 
     care; transportation; family planning services; training and 
     related services; employment services; information, referral 
     and counseling; meal preparation and delivery; health support 
     services; and, combinations of services to meet the special 
     needs of children, the aged, the mentally retarded, the 
     blind, the emotionally disturbed, the physically handicapped, 
     alcoholics, and drug addicts. Also, Title XX of the Public 
     Health Service Act establishes the Adolescent Family Life 
     (AFL) program to encourage adolescents to delay sexual 
     activity and to provide services to alleviate the problems 
     surrounding adolescent parenthood. One-third of all funding 
     for AFL program services go to projects that provide 
     ``prevention services.'' The purpose of the prevention 
     component is to find effective means within the context of 
     the family of reaching adolescents, both male and female, 
     before they become sexually active to maximize the guidance 
     and support of parents and other family members in promoting 
     abstinence from adolescent premarital sexual relations. (The 
     fiscal year 1995 appropriation for AFL was $6.7 million.)
     House bill
       No provision.
     Senate amendment
       Amends the Social Services block grant (SSBG) (sec. 2002 of 
     the Social Security Act) to require the Secretary to conduct 
     a study of the relative effectiveness of different State 
     programs to prevent out-of-wedlock and teenage pregnancies 
     and to require States conducting programs under this 
     provision to provide data required by the Secretary to 
     evaluate these programs.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


  9. Sense of the Senate Regarding Enforcement of Statutory Rape Laws

     Present law
       No provision.
     House bill
       No provision.
     Senate amendment
       Includes Sense of the Senate that States and local 
     jurisdictions should aggressively enforce statutory rape 
     laws.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


     10. Sanctioning for Testing Positive for Controlled Substances

     Present law
       Eligibility and benefit status for most of the Federal 
     welfare programs are not affected by a recipient's use of 
     illegal drugs. Even under the SSI program, as long as a 
     recipient who is classified as a drug addict or alcoholic 
     participates in an approved treatment plan when so directed 
     and allows his or her treatment to be monitored, he or she is 
     in compliance with the SSI rules, and in most cases the SSI 
     benefit would continue without interruption.
     House bill
       No provision.
     Senate amendment
       Stipulates that States shall not be prohibited by the 
     Federal Government from sanctioning welfare recipients who 
     test positive for use of controlled substances.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                        11. Abstinence Education

     Present law
       The Maternal and Child Health (MCH) block grants (title V 
     of the SSA, 42 USC 701) provides grants to States and insular 
     areas to fund a broad range of preventive health and primary 
     care activities to improve the health status of mothers and 
     children, with a special emphasis on those with low income or 
     with limited availability of health services. Sec. 502 
     includes a set-aside program for projects of national or 
     regional significance. (The fiscal year 1995 appropriation 
     for MCH was $684 million.) See also: Title XX of the Public 
     Health Service Act establishes the Adolescent Family Life 
     (AFL) program to encourage adolescents to delay sexual 
     activity and to provide services to alleviate the problems 
     surrounding adolescent parenthood. One-third of all funding 
     for AFL program services go to projects that provide 
     ``prevention services.'' The purpose of the prevention 
     component is to find effective means within the context of 
     the family of reaching adolescents, both male and female, 
     before they become sexually active to maximize the guidance 
     and support of parents and other family members in promoting 
     abstinence from adolescent premarital sexual relations. (The 
     fiscal year 1995 appropriation for AFL was $6.7 million.)
     House bill
       No provision.
     Senate amendment
       Amends the Maternal and Child Health (MCH) block grants 
     (title V of the SSA) to set aside $75 million to provide 
     abstinence education--defined as an educational or 
     motivational program that has abstaining from sexual activity 
     as its exclusive purpose--and to provide at the option of the 
     State mentoring, counseling and adult supervision to promote 
     abstinence with a focus on those groups most likely to bear 
     children out-of-wedlock. Also increases the authorization 
     level of MCH to $761 million.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                              12. Scoring

     Present law
       In 1985, Congress passed legislation aimed at bringing the 
     Federal budget into balance by the early 1990's. That 
     legislation, the Balanced Budget and Emergency Deficit 
     Control Act of 1985, commonly referred to as Gramm-Rudman-
     Hollings Act after its primary sponsors, establishes a series 
     of declining annual deficit targets and creates a process 
     (known as sequestration) intended to insure that the deficit 
     targets are adhered to even if Congress and the President 
     fail to reduce the deficit sufficiently through legislative 
     action. Under the sequestration process, across-the-board 
     reductions in spending for many Federal programs are made 
     automatically toward the start of the fiscal year if the 
     deficit for that year is estimated to exceed the statutory 
     target.
     House bill
       The House bill specifies that the discretionary spending 
     limits in the Balanced Budget and Emergency Deficit Control 
     Act of 1985 are to be adjusted each year based on actual 
     appropriations compared to the level appropriated for fiscal 
     year 1995. Thus, if appropriations equaled the authorized 
     amounts, the discretionary spending limits would be increased 
     by the difference between the authorization level under H.R. 
     4 and the 1995 appropriation. (Under the House bill AFDC-
     related child care expenditures would change from mandatory 
     spending to discretionary spending.)
     Senate amendment
       No provision.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


    13. Provisions to Encourage Electronic Benefit Transfer Systems

     Present law
       In 1978, Congress passed the Electronic Fund Transfer Act 
     to provide a basic framework establishing the rights, 
     liabilities, and responsibilities of participants in 
     electronic fund transfer systems and required the Federal 
     Reserve Board to develop implementing regulations, which 
     generally are referred to as Regulation E.
     House bill
       The House bill exempts from Regulation E requirements any 
     electronic benefit transfer program (distributing needs-
     tested benefits) established under State or local law or 
     administered by a State or local government.
      Senate amendment
       See Sec. 320 in Senate amendment, which exempts from 
     Regulation E any food stamp electronic benefit transfers.
     Conference agreement
       This provision was dropped from the Reconciliation bill 
     because it violates the Byrd Rule (section 313 of 
     Congressional Budget Act of 1974).


                    13. Social Services Block Grant

     Present law
       The Social Services Block Grant (Title XX) provides funds 
     to States in order to provide a wide variety of social 
     services, including:
       (1) Child care;
       (2) Family planning;
       (3) Protective services for children and adults;
       (4) Services for children and adults on foster care; and
       (5) Employment services.
       States have wide discretion over how they use Social 
     Services Block Grant funds. States set their own eligibility 
     requirements and are allowed to transfer up to 10 percent of 
     their allotment to certain Federal health block grants, and 
     for low-income home energy assistance (LIHEAP).
       States can also use their block grant funds for staff 
     training in the field of social services. This includes 
     training at workshops, 

[[Page H 13031]]
     conferences, seminars, and educational institutions.
       Funding for the Social Services Block Grant is capped at 
     $2.8 billion a year. Funds are allocated among States 
     according to the State's share of its total population. no 
     State matching funds are required to receive Social services 
     Block Grant money.
     House bill
       No provision.
     Senate amendment
       Beginning in fiscal year 1997, the Social Services Block 
     Grant will be reduced by 20 percent.
     Conference agreement
       The House recedes.

 Subtitle L--Reform of the Earned Income Credit (Secs. 13701-13703 of 
      the House Bill and Secs. 7460-7466 of the Senate Amendment)

     Present law
       In general
       Certain eligible low-income workers are entitled to claim a 
     refundable credit on their income tax return. The amount of 
     the credit an eligible individual may claim depends upon 
     whether the individual has one, more than one, or no 
     qualifying children and is determined by multiplying the 
     credit rate by the individual's earned income up to an earned 
     income threshold. The maximum amount of the credit is the 
     product of the credit rate and the earned income threshold. 
     For individuals with earned income (or adjusted gross income 
     (AGI), if greater) in excess of the phaseout threshold, the 
     maximum credit amount is reduced by the phaseout rate 
     multiplied by the amount of earned income (or AGI, if 
     greater) in excess of the phaseout threshold. For individuals 
     with earned income (or AGI, if greater) in excess of the 
     phaseout limit, no credit is allowed.
       For taxable years beginning after December 31, 1995, an 
     individual is not eligible for the credit if the aggregate 
     amount of "disqualified income" of the individual for the 
     taxable year exceeds $2,350. Disqualified income is the sum 
     of:
       (1) interest (taxable and tax-exempt),
       (2) dividends, and
       (3) net rent and royalty income (if greater than zero).
       The parameters for the credit depend upon the number of 
     qualifying children the individual claims. For 1996, the 
     parameters are given in the following table (dollar amounts 
     are projections expressed in 1996 dollars):

------------------------------------------------------------------------
                                        Two or                          
                                         more         One         No    
                                      qualifying  qualifying  qualifying
                                       children      child     children 
------------------------------------------------------------------------
Credit rate (percent)...............       40.00       34.00        7.65
Phaseout rate (percent).............       21.06       15.98        7.65
Earned income threshold.............      $8,910      $6,340      $4,230
Maximum credit......................       3,564       2,156         324
Phaseout threshold..................      11,630      11,630       5,290
Phaseout limit......................      28,553      25,119       9,520
------------------------------------------------------------------------

       For years after 1996, the credit rates and the phaseout 
     rates will be the same as in the preceding table. The earned 
     income threshold and the phaseout threshold are indexed for 
     inflation; because the phaseout limit depends on those 
     amounts as well as the phaseout rate and the credit rate, the 
     phaseout limit will also increase if there is inflation.
       In order to claim the credit, an individual must either 
     have a qualifying child or meet other requirements. A 
     qualifying child must meet a relationship test, an age test, 
     an identification test, and a residence test. In order to 
     claim the credit without a qualifying child, an individual 
     must not be a dependent and must be over age 24 and under age 
     65.
       To satisfy the identification test, individuals must 
     include on their tax return the name and age of each 
     qualifying child. For returns filed with respect to tax year 
     1996, individuals must provide a taxpayer identification 
     number (TIN) for all qualifying children born on or before 
     November 30, 1996. For returns filed with respect to tax year 
     1997 and all subsequent years, individuals must provide TINs 
     for all qualifying children, regardless of their age. An 
     individual's TIN is generally that individual's social 
     security number.
       Mathematical errors
       The IRS may summarily assess additional tax due as a result 
     of a mathematical error without sending the taxpayer a notice 
     of deficiency and giving the taxpayer an opportunity to 
     petition the Tax Court. Where the IRS uses the summary 
     assessment procedure for mathematical or clerical errors, the 
     taxpayer must be given an explanation of the asserted error 
     and a period of 60 days to request that the IRS abate its 
     assessment. The IRS may not proceed to collect the amount of 
     the assessment until the taxpayer has agreed to it or has 
     allowed the 60-day period for objecting to expire. If the 
     taxpayer files a request for abatement of the assessment 
     specified in the notice, the IRS must abate the assessment. 
     Any reassessment of the abated amount is subject to the 
     ordinary deficiency procedures. The request for abatement of 
     the assessment is the only procedure a taxpayer may use prior 
     to paying the assessed amount in order to contest an 
     assessment arising out of a mathematical or clerical error. 
     Once the assessment is satisfied, however, the taxpayer may 
     file a claim for refund if the taxpayer believes the 
     assessment was made in error.
       Return preparer penalties
       An income tax return preparer is subject to a penalty of 
     $250 if any part of an understatement of tax on a return or 
     refund claim is due to the return preparer taking a position 
     for which there was not a realistic possibility of the 
     position being sustained. The return preparer must have known 
     (or reasonably should have known) of the unrealistic position 
     and not disclosed that position. In addition, an income tax 
     return preparer is subject to a penalty of $1,000 if any part 
     of an understatement of tax on a return or refund claim is 
     due to the return preparer's willful attempt in any manner to 
     understate tax or to the return preparer's negligent or 
     intentional disregard of rules and regulations. An income tax 
     return preparer is also subject to a penalty of $50 for each 
     failure to (1) furnish a copy of a return or refund claim to 
     the taxpayer, (2) sign the return or refund claim, (3) 
     furnish his or her identifying number, (4) furnish certain 
     copies or lists of returns or refund claims, or (5) file 
     certain information returns regarding his or her employees. 
     In addition, tax return preparers who endorse or negotiate 
     checks made to taxpayers pay a penalty of $500 for each check 
     endorsed or cashed.
     House bill
       Deny eligibility for individuals without qualifying 
           children
       In order to claim the credit, an individual must have a 
     qualifying child.
       Modify definition of adjusted gross income used for phasing 
           out the credit
       The House bill modifies the definition of AGI used for 
     phasing out the credit by including the following items:
       (1) Social Security benefits not subject to income tax, and
       (2) nontaxable distributions from pensions, annuities, and 
     individual retirement arrangements (but only if not rolled 
     over into similar vehicles during the applicable rollover 
     period).
       Credit rate for individuals with two or more qualifying 
           children
       No provision.
       Phaseout of the credit
       The phaseout rate of the credit is increased to 23 percent 
     for individuals with two or more qualifying children and to 
     18 percent for individuals with one qualifying child. With 
     these changes, the parameters of the credit for 1996 will be 
     as follows:

------------------------------------------------------------------------
                                                    Two or              
                                                     more         One   
                                                  qualifying  qualifying
                                                   children      child  
------------------------------------------------------------------------
Credit rate (percent)...........................       40.00       34.00
Phaseout rate (percent).........................       23.00       18.00
Earned income threshold.........................      $8,910      $6,340
Maximum credit..................................       3,564       2,156
Phaseout threshold..............................      11,630      11,630
Phaseout limit..................................      27,126      23,608
------------------------------------------------------------------------

       For years after 1996, the credit rates and the phaseout 
     rates will be the same as in the preceding table. The dollar 
     values will continue to be indexed, as under present law.
       Expand definition of disqualified income
       No provision.
       Deny credit to individuals not authorized to be employed in 
           the United States
       Under the House bill, individuals are not eligible for the 
     credit if they do not include their taxpayer identification 
     number (and, if married, their spouse's taxpayer 
     identification number) on their tax return. Solely for these 
     purposes and for purposes of the present-law identification 
     test for a qualifying child, a taxpayer identification number 
     is defined as a social security number issued to an 
     individual by the Social Security Administration other than a 
     number issued under section 205(c)(2)(B)(i)(II) (or that 
     portion of sec. 205(c)(2)(B)(i)(III) relating to it) of the 
     Social Security Act (regarding the issuance of a number to an 
     individual applying for or receiving Federally funded 
     benefits).
       Use mathematical error procedures for certain omissions
       If an individual fails to provide a correct taxpayer 
     identification number, such omission will be treated as a 
     mathematical or clerical error. If an individual who claims 
     the credit with respect to net earnings from self-employment 
     fails to pay the proper amount of self-employment tax on such 
     net earnings, the failure will be treated as a mathematical 
     or clerical error.
       Increase return preparer penalties
       No provision.
       Effective date
       The provision is effective for taxable years beginning 
     after December 31, 1995.
     Senate amendment
       Deny eligibility for individuals without qualifying 
           children
       The Senate amendment is the same as the House bill.
       Modify definition of adjusted gross income used for phasing 
           out the credit
       The Senate amendment modifies the definition of AGI used 
     for phasing out the credit by including certain nontaxable 
     income and by disregarding certain losses. The nontaxable 
     items included are:
       (1) tax-exempt interest,
       (2) Social Security benefits not subject to income tax,
       (3) nontaxable distributions from pensions, annuities, and 
     individual retirement arrangements (but only if not rolled 
     over into similar vehicles during the applicable rollover 
     period), and
       (4) child support payments received pursuant to a divorce 
     or separation instrument, but only in excess of $6,000.

[[Page H 13032]]

       The losses disregarded are:
       (1) net capital losses (if greater than zero),
       (2) net losses from sole proprietorships (other than in 
     farming),
       (3) net losses from sole proprietorships in farming,
       (4) net losses from other trades and businesses,
       (5) net losses from nonbusiness rents and royalties,
       (6) net losses from trusts and estates, and
       (7) net operating losses.
       Credit rate for individuals with two or more qualifying 
           children
       The increase in the credit rate for individuals with two or 
     more qualifying children that was supposed to take effect for 
     1996 is repealed. Thus, for 1996 and following years the 
     credit rate for individuals with two or more qualifying 
     children is 36 percent.
       Phaseout of the credit
       The Senate amendment changes the method of phasing out the 
     credit. Rather than specifying a phaseout rate (which, given 
     a maximum credit that is indexed for inflation, results in a 
     phaseout range that increases with inflation), the size of 
     the phaseout range is fixed in nominal dollars. The maximum 
     amount of credit that may be claimed by an individual is 
     reduced by a certain percentage for each $100 (or portion 
     thereof) by which the individual's earned income (or modified 
     AGI, if greater) exceeds the applicable phaseout threshold. 
     For individuals with one qualifying child, the applicable 
     percentage is 0.86 percent, meaning that the credit is phased 
     out over a $11,600 range. For individuals with two or more 
     qualifying children, the applicable percentage is 0.66 
     percent, meaning that the credit is phased out over a $15,100 
     range. The size of these phaseout ranges is not indexed for 
     inflation, although the phaseout thresholds continue to be 
     indexed for inflation.
        With these changes, the parameters of the credit for 1996 
     are as follows:

------------------------------------------------------------------------
                                                     Two or             
                                                     more         One   
                                                  qualifying  qualifying
                                                   children      child  
------------------------------------------------------------------------
Credit rate (percent)...........................          36          34
Earned income threshold.........................      $8,910      $6,340
Maximum credit..................................       3,208       2,156
Phaseout threshold..............................      11,630      11,630
Phaseout limit..................................      26,730      23,230
------------------------------------------------------------------------

        For years after 1996, the credit rates will be the same as 
     in the preceding table. The dollar values for the earned 
     income threshold and the phaseout threshold will continue to 
     be indexed, as under present law. The phaseout limit will 
     always be $15,100 greater than the phaseout threshold for 
     individuals with two or more qualifying children and will 
     always be $11,600 greater than the phaseout threshold for 
     individuals with one qualifying child.
       Expand definition of disqualified income
        For purposes of the disqualified income test for taxable 
     years beginning after December 31, 1995, the following items 
     would be added to the definition of disqualified income: net 
     capital gain income (if greater than zero) and net passive 
     income (if greater than zero).
       Deny credit to individuals not authorized to be employed in 
           the United States
        The Senate amendment is the same as the House bill.
       Use mathematical error procedures for certain omissions
        The Senate amendment is the same as the House bill.
       Increase return preparer penalties
        The Senate amendment doubles the civil penalties 
     applicable to income tax return preparers. Also, the 
     Secretary of the Treasury is encouraged to use the maximum 
     feasible review process to insure that originators of 
     electronic income tax returns involving the credit comply 
     with the law.
       Effective date
        The effective date is the same as the House bill.
      Conference agreement
       Deny eligibility for individuals without qualifying 
           children
        The conference agreement follows the House bill and the 
     Senate amendment.
       Modify definition of adjusted gross income used for phasing 
           out the credit
        The conference agreement follows the Senate amendment.
       Credit rate for individuals with two or more qualifying 
           children
        The conference agreement provides that the credit rate for 
     individuals with two or more qualifying children is 
     maintained at 36 percent for 1996 and future years. The base 
     to which this rate is applied, however, is changed for some 
     individuals. In general, the maximum amount of the credit an 
     eligible individual with two or more qualifying children may 
     claim is determined by multiplying an enhancement factor 
     times the credit rate times the individual's earned income up 
     to the earned income threshold.
        For married couples filing joint returns for whom earned 
     income (or modified AGI, if greater) is less than or equal to 
     $17,000, the enhancement factor is 10/9ths. For married 
     couples filing joint returns for whom earned income (or 
     modified AGI, if greater) is greater than $21,000, the 
     enhancement factor is 1. For married couples filing joint 
     returns for whom earned income (or modified AGI, if greater) 
     is greater than $17,000 but less than or equal to $21,000, 
     the enhancement factor is ratably reduced from 10/9ths to 1. 
     For example, a married couple filing a joint return with an 
     earned income (and modified AGI) of $18,000 has an income 
     one-fourth [= ($18,000 - $17,000)/($21,000 - $17,000)] of the 
     way into the ratable reduction. Thus, the enhancement factor 
     for this couple is 13/12ths [= (10/9) - (1/4)((10/9) - 1)]. 
     The $17,000 and $21,000 amounts are indexed for inflation 
     after 1996.
        For unmarried individuals for whom earned income (or 
     modified AGI, if greater) is less than or equal to $14,000, 
     the enhancement factor is 10/9ths. For unmarried individuals 
     for whom earned income (or modified AGI, if greater) is 
     greater than $18,000, the enhancement factor is 1. For 
     unmarried individuals for whom earned income (or modified 
     AGI, if greater) is greater than $14,000 but less than or 
     equal to $18,000, the enhancement factor is ratably reduced 
     from 10/9ths to 1. For example, an unmarried individual with 
     an earned income (and modified AGI) of $16,500 has an income 
     five-eighths [= ($16,500 - $14,000)/($18,000 - $14,000)] of 
     the way into the ratable reduction. Thus, the enhancement 
     factor for this individual is 25/24ths [= (10/9) - (5/8)((10/
     9) - 1)]. The $14,000 and $18,000 amounts are indexed for 
     inflation after 1996.
        The conferees do not intend that individuals will have to 
     do the above calculations to determine enhancement factors; 
     these rules will be reflected in the credit tables provided 
     with the tax return materials.
       Phaseout of the credit
        The conference agreement increases the phaseout rate of 
     the credit for individuals with earned income (or modified 
     AGI, if greater) in excess of a second-tier phaseout 
     threshold. For individuals with two or more qualifying 
     children, the second-tier phaseout threshold is $17,750 and 
     the phaseout rate for income in excess of that threshold is 
     25 percent. For individuals with one qualifying child, the 
     second-tier phaseout threshold is $14,850 and the phaseout 
     rate for income in excess of that threshold is 20 percent. 
     These second-tier phaseout threshold are indexed for 
     inflation after 1996. The phaseout rate applied to income 
     between the present-law phaseout threshold and the new, 
     second-tier phaseout threshold is the same as would apply 
     under present law for 1996 and future years. With these 
     changes, the parameters of the credit for 1996 will be as 
     follows:

------------------------------------------------------------------------
                                                    Two or              
                                                     more         One   
                                                  qualifying  qualifying
                                                   children      child  
------------------------------------------------------------------------
Credit rate\1\..................................       36.00       34.00
Earned income threshold.........................      $8,910      $6,340
Maximum credit..................................      $3,564      $2,156
First-tier phaseout threshold...................     $11,630     $11,630
 First-tier phaseout rate (percent).............       21.06       15.98
Second-tier phaseout threshold..................     $17,750     $14,850
Second-tier phaseout rate (percent).............       25.00       20.00
Phaseout limit..................................     $25,425     $23,055
------------------------------------------------------------------------
\1\Subject to enhancement factor for individuals with two or more       
  qualifying children.                                                  

        For years after 1996, the credit rates and the phaseout 
     rates will be the same as in the preceding table. The dollar 
     values will continue to be indexed, as under present law.
       Expand definition of disqualified income
        The conference agreement follows the Senate amendment, 
     except that net capital gain income would not be added to the 
     definition of disqualified income.
       Deny credit to individuals not authorized to be employed in 
           the United States
        The conference agreement follows the House bill and the 
     Senate amendment.
       Use mathematical error procedures for certain omissions
        The conference agreement follows the House bill and the 
     Senate amendment.
       Increase return preparer penalties
       The conference agreement doubles the civil penalties 
     applicable to income tax return preparers. The conferees 
     encourage the Secretary of the Treasury to use the maximum 
     feasible review process to insure that originators of 
     electronic income tax returns involving the credit comply 
     with the law.
       Effective date
        The conference agreement follows the House bill and the 
     Senate amendment.

                        Miscellaneous Provisions

     Foreign affairs and related provisions


                 Foreign Affairs Agencies Consolidation

       House bill
       Section 6002 of the House bill would have enacted into law 
     division A of H.R. 1561, the Foreign Affairs Agencies 
     Consolidation Act of 1995. The Act reforms the foreign 
     affairs institutions that have grown up over the last forty 
     years and adapts them to the requirements of the post-Cold 
     Ware era.
       Senate amendment
       The Senate amendment contained no comparable provision.
       Conference agreement
        The conferences concluded that the application of the Byrd 
     Rule (section 313 of the Congressional Budget Act) against 
     the relevant provision of the House bill could not be avoided 
     if reported as part of the conference agreement and, 
     accordingly, agreed to omit the provision from the conference 
     agreement.


     Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1995

       House bill
        The House bill would have enacted legislation identical to 
     H.R. 927, as passed by the House of Representatives. H.R. 927 
     would reaffirm the U.S. policy continuing the economic and 
     political isolation of the Castro 

[[Page H 13033]]
     regime and would protect the property interests of U.S. citizens whose 
     property was confiscated by that regime. The bill would also 
     have required immediate planning for U.S. support for a 
     democratic transition in Cuba.
       Senate amendment
        Senate amendment contained no comparable provision.
       Conference agreement
        The conferences concluded that the application of the Byrd 
     Rule (section 313 of the Congressional Budget Act) against 
     the relevant provision of the House bill could not be avoided 
     if reported as part of the conference agreement and, 
     accordingly, agreed to omit the provision from the conference 
     agreement.


                             Lease-purchase

     House bill
       The House bill contained no comparable provision.
     Senate amendment
       The Senate amendment would authorize the Department of 
     State to acquire housing and other facilities overseas 
     through lease-purchase arrangements. Authority is granted 
     only within appropriated amounts and upon certification that 
     the arrangement will result in less cost than direct purchase 
     or construction.
     Conference agreement
       The conferences concluded that this provision would likely 
     be subject to the application of the Byrd Rule (section 313 
     of the Congressional Budget Act) and, accordingly, agreed to 
     omit the provision from the conference agreement.


                           Budget Enforcement

                     Discretionary Spending Limits

     House bill
       Reduces the discretionary spending limits from current law 
     levels for fiscal years 1996, 1997, and 1998. Extends 
     spending limits through fiscal year 2002. Further reduces 
     spending limits by $12 billion for 1997-2002 levels in budget 
     resolution conference report.
     Senate amendment
       There is no comparable provision in the Senate amendment.
     Conference agreement
       House recedes to Senate. Language would violate the Byrd 
     Rule.


                    Crime Trust Fund Spending Levels

     House bill
       Reduces spending limits for programs authorized by last 
     year's crime bill, P.L. 103-322, in fiscal years 1996, 1997, 
     1998. The bill also extends enforcement of the spending limit 
     on these programs through fiscal year 2000.
     Senate amendment
       There is no comparable provision in the Senate amendment.
     Conference agreement
       House recedes to Senate. Language would violate the Byrd 
     Rule.


                           Special Adjustment

     House bill
       Eliminates special adjustment in the discretionary spending 
     limits for changes in inflation.
     Senate amendment
       There is no comparable provision in the Senate amendment.
     Conference agreement
       House recedes to Senate. Language would violate the Byrd 
     Rule.


                            PAYGO Extension

     House bill
       Permanently extends PAY-AS-YOU-GO requirements for 
     entitlement and legislation. Specifies that PAYGO 
     requirements for any bill extend for four years after the 
     date of enactment .
     Senate amendment
       There is no comparable provision in the Senate amendment.
     Conference agreement
       House recedes to Senate. Language would violate the Byrd 
     Rule.


              Discretionary Spending Adjustment for H.R. 4

     House bill
       Provides adjustment in the discretionary spending limits to 
     accommodate funding for two categorical grants that would be 
     subject to appropriations in the House-passed welfare reform 
     bill, H.R. 4, but were previously funded as entitlement 
     (outside the discretionary spending limits). Adjustment 
     provides the Appropriations Committee with the necessary 
     resources to fund the program while guaranteeing that the 
     funds will actually be used for the specified welfare 
     programs.
     Senate amendment
       There is no comparable provision in the Senate amendment.
     Conference agreement
       House recedes to Senate. Language would violate the Byrd 
     Rule.


                    CHAMPUS Sequestration Exemption

     House bill
       Allows President to effectively exempt from sequestration 
     personnel accounts used to fund CHAMPUS (the account would be 
     subject to sequestration, but could be replenished with funds 
     from other DoD accounts).
     Senate amendment
       There is no comparable provision in the Senate amendment.
     Conference agreement
       House recedes to Senate. Language would violate the Byrd 
     Rule.


                     Sequestration of DoD Accounts

     House bill
       Specifies that any sequester effecting DoD accounts be 
     across the accounts identified in the DoD appropriations 
     bill.
     Senate amendment
       There is no comparable provision in the Senate amendment.
     Conference agreement
       House recedes to Senate. Language would violate the Byrd 
     Rule.


                      Direct Student Loan Scoring

     House bill
       Puts direct student loans and loan guarantees on an 
     equivalent budgetary basis by stipulating that the 
     administrative costs of direct student loan must be included 
     in the cost estimates used to enforce PAYGO and the 
     discretionary spending limits.
     Senate amendment
       There is no comparable provision in the Senate amendment.
     Conference agreement
       House recedes to Senate. Language would violate the Byrd 
     Rule.


            Relationship of Discretionary Spending and PAYGO

     House bill
       Provides that in the 104th Congress any reduction in the 
     discretionary spending limits shall be treated as a reduction 
     in the deficit under PAYGO procedures. Effectively allows the 
     revenue loss from tax cuts to be offset, in part, by a 
     reduction in discretionary spending.
     Senate amendment
       There is no comparable provision in the Senate amendment.
     Conference agreement
       House recedes to Senate. Language would violate the Byrd 
     Rule.


                 Medicare Savings Precluded from Pay-go

     House bill
       Provides that none of the savings from Medicare reforms can 
     be counted for PAYGO purposes. Effectively precludes using 
     the deficit reduction resulting from Medicare changes to 
     offset the revenue loss from the tax cuts.
     Senate amendment
       There is no comparable provision in the Senate amendment.
     Conference agreement
       House recedes to the Senate. Language would violate the 
     Byrd Rule.


                        Generational Accounting

     House bill
       There is no comparable provision in the House bill.
     Senate amendment
       Requires the President's Budget to include an analysis of 
     the generational accounting consequences of the budget.
     Conference agreement
       Senate recedes to the House. Language would violate the 
     Byrd Rule.
     For consideration of the House bill and the Senate amendment, 
     and modifications committed to conference:
     John R. Kasich,
     Robert S. Walker,
     Dick Armey,
     Tom DeLay,
     John Boehner,
     As additional conferees from the Committee on the Budget, for 
     consideration of title XX of the House bill, and 
     modifications committed to conference:
     Jim Kolbe,
     Christopher Shays,
     Dave Hobson,
     As additional conferees from the Committee on Agriculture, 
     for consideration of title I of the House bill, and subtitles 
     A-C of title I of the Senate amendment, and modifications 
     committed to conference:
     Pat Roberts,
     Bill Emerson,
     As additional conferees from the Committee on Banking and 
     Financial Services, for consideration of title II of the 
     House bill, and title III of the Senate amendment, and 
     modifications committed to conference:
     James A. Leach,
     Bill McCollum,
     Marge Roukema,
     As additional conferees from the Committee on Commerce, for 
     consideration of title III of the House bill, and subtitle A 
     of title IV, subtitles A and G of title V, and section 6004 
     of the Senate amendment, and modifications committed to 
     conference:
     Tom Bliley,
     Michael Bilirabis
     Dan Schaefer,
     As additional conferees from the Committee on Commerce, for 
     consideration of title XV of the House bill, and subtitle A 
     of title VII of the Senate amendment, and modifications 
     committed to conference:
     Tom Bliley,
     Michael Bilirakis,
     J. Dennis Hastert,
     James Greenwood,
     As additional conferees from the Committee on Commerce, for 
     consideration of title XVI of the House bill, and subtitle B 
     of title VII of the Senate amendment, and modifications 
     committed to conference:
     Tom Bliley,
     Michael Bilirakis,
     Billy Tauzin,
     Joe Barton,

[[Page H 13034]]

     Bill Paxon,
     J. Dennis Hastert,
     James Greenwood,
     Ralph M. Hall,
     As additional conferees from the Committee on Economic and 
     Educational Opportunities, for consideration of title IV of 
     the House bill, and title X of the Senate amendment, and 
     modifications committed to conference:
     William F. Goodling,
     Buck McKeon,
     As additional conferees from the Committee on Government 
     Reform and Oversight, for consideration of title V of the 
     House bill, and title VIII and sections 13001 and 13003 of 
     the Senate amendment, and modifications committed to 
     conference:
     Bill Clinger,
     Steven Schiff,
     As additional conferees from the Committee on International 
     Relations, for consideration of title VI of the House bill, 
     and section 13002 of the Senate amendment, and modifications 
     committed to conference:
     Ben Gilman,
     Dan Burton,
     As additional conferees from the Committee on the Judiciary, 
     for consideration of title VII of the House bill, and title 
     IX and section 12944 of the Senate amendment, and 
     modifications committed to conference:
     Henry Hyde,
     Carlos J. Moorhead,
     As additional conferees from the Committee on National 
     Security, for consideration of title VIII of the House bill, 
     and title II of the Senate amendment, and modifications 
     committed to conference:
     Floyd Spence,
     Duncan Hunter,
     As additional conferees from the Committee on Resources, for 
     consideration of title IX of the House bill, and title V 
     (except subtitles A and G) of the Senate amendment, and 
     modifications committed to conference:
     Don Young,
     Billy Tauzin,
     As additional conferees from the Committee on Transportation 
     and Infrastructure, for consideration of title X of the House 
     bill, and subtitles B and C of title IV and title VI (except 
     section 6004) of the Senate amendment, and modifications 
     committed to conference:
     Bud Shuster,
     Bill Clinger,
     As additional conferees from the Committee on Veterans' 
     Affairs, for consideration of title XI of the House bill, and 
     title XI of the Senate amendment, and modifications committed 
     to conference:
     Robert Stump,
     Tim Hutchinson,
     G.V. Montgomery,
     As additional conferees from the Committee on Ways and Means, 
     for consideration of titles XII, XIII, XIV, and XIX of the 
     House bill, and subtitles H and I of title VII and title XII 
     (except section 12944) of the Senate amendment, and 
     modifications committed to conference:
     Bill Archer,
     Phil Crane,
     Wm. Thomas,
     E. Clay Shaw, Jr.,
     Jim Bunning,
     As additional conferees from the Committee on Ways and Means, 
     for consideration of title XV of the House bill, and subtitle 
     A of title VII of the Senate amendment, and modifications 
     committed to conference:
     Bill Archer,
     Wm. Thomas,
     Nancy L. Johnson,
     Jim McCrery,
                                Managers on the Part of the House.

     From the Committee on the Budget for consideration of all 
     titles:
     Pete V. Domenici,
     Chuck Grassley,
     From the Committee on Agricuture, Nutrition, and Forestry:
     Dick Lugar
       (for consideration of all of title I),
     Bob Dole
       (for consideration of all of title I),
     Jesse Helms
       (for consideration of section 113 and subtitle D),
     Thad Cochran
       (for consideration of title I, except sections 1106, 1108, 
     1113, and subtitle D),
     Larry E. Craig
       (for consideration of sections 1106 and 1108),
     From the Committee on Armed Services:
     Strom Thurmond,
     John McCain,
     From the Committee on Banking, Housing and Urban Affairs:
     Alfonse M. D'Amato,
     Phil Gramm,
     From the Committee on Commerce, Science, and Transportation:
     Larry Pressler,
     Ted Stevens,
     John McCain,
     From the Committee on Energy and Natural Resources:
     Frank H. Murkowski,
     Mark O. Hatfield,
     Don Nickles,
     From the Committee on Environment and Public Works:
     John H. Chafee,
     John Warner,
     Bob Smith,
     From the Committee on Finance:
     William V. Roth, Jr.,
     Bob Dole,
     From the Committee on Governmental Affairs (and for 
     consideration of the title of the House bill relating solely 
     to abolishing the Department of Commerce):
     Ted Stevens,
     Fred Thompson,
     From the Committee on the Judiciary:
     Orrin Hatch,
     Chuck Grassley,
     From the Committee on Labor and Human Resources:
     Nancy Landon Kassebaum,
     Dan Coats,
     Bill Frist,
     From the Committee on Veterans Affairs:
     Alan K. Simpson,
     Frank H. Murkowski,
     Managers on the Part of the Senate.

                          ____________________