Congressional Record, Volume 143 Issue 12 (Tuesday, February 4, 1997)

[Congressional Record Volume 143, Number 12 (Tuesday, February 4, 1997)]
[Senate]
[Pages S949-S967]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

THE NATIONAL CHEESE EXCHANGE OVERSIGHT AND IMPROVEMENT ACT

Mr. KOHL. Mr. President, I am introducing legislation to
address a matter of great concern to all dairy farmers in the Nation--
the lack of a credible milk-pricing system. Though there are many
aspects of the milk-pricing system in need of reform, the legislation
that I am introducing today seeks to address concerns about the
potential for manipulation on the National Cheese Exchange [NCE] in
Green Bay, WI, and the influence of the NCE on farmers' milk prices.
Last year, a 3-year study funded by USDA, and conducted by economists
at the University of Wisconsin-Madison, highlighted the flaws of the
National Cheese Exchange. Specifically, the report showed that although
less than 1 percent of the nation's cheese is traded on the exchange,
the price resulting from the exchange's weekly trading sessions acts as
a reference price for nearly 95 percent of the commercial bulk cheese
sales in the country. Further, the NCE price is also used by the U.S.
Department of Agriculture as a factor in calculating the monthly
minimum price that farmers receive for their milk.
The report raised serious concerns about the appropriateness of
allowing a market that is as thinly traded, highly concentrated,
unregulated, and subject to manipulation as the NCE to have such
extreme influence over farmers' milk checks and national cheese prices.
Since the report was released, a great deal of time has been devoted
to a discussion of whether certain companies or cooperatives have
intentionally manipulated the exchange. I personally asked the
Department of Justice and the Federal Trade Commission to review the
report, to determine if any antitrust laws had been violated. While I
am not convinced that either agency gave much attention to the matter,
both replied that they saw no sign of illegality in the activities by
large traders on the NCE.
While these questions of legality and manipulation are valid, they
are questions that may never be resolved to anyone's satisfaction.
Ultimately what I believe to be the most important exercise is to find
a market that will be more reflective of supply and demand, and to
eliminate any potential for manipulation in price discovery. Farmers
and consumers alike deserve to know that markets are fair and
aboveboard.
With that goal in mind, my colleagues from Wisconsin, Senator
Feingold and Congressman Obey, and I have worked continuously on
several initiatives to create and promote alternative price discovery
mechanisms, and to urge Federal and State regulatory agencies to
exercise any authorities they might have to oversee the operations of
the exchange.

Need for an Alternative Cash Market for Cheese

With regard to the possible establishment of alternative cash markets
for cheese, several months ago, Senator Feingold and I asked the
Coffee, Sugar, and Cocoa Exchange [CSCE] to explore the possibility of
establishing such an alternative. The CSCE, which already trades
futures contracts for cheese, is regulated by the U.S. Commodity
Futures Trading Commission, and imposes strict self-regulatory
guidelines on its traders as well.
Further, there is some hope that the establishment of cash market for
cheese on the CSCE, and the more direct connection to the existing
cheese futures trading business, would lead to an increased volume of
trading on both the cash and futures markets for cheese.
I have been very pleased to see that the CSCE is seriously
considering our proposal, and is actively exploring the possibility of
creating a cash market for cheese in the near term. While there is no
guarantee that such a market will be successful, it is my hope that the
CSCE leadership will opt to establish such a market, and will establish
and enforce guidelines to assure that the new market does not merely
mimic the flaws of the National Cheese Exchange.
However, even if the CSCE decides to establish an alternative market
for

[[Page S950]]

cheese, it will be some time before the influence of the National
Cheese Exchange over farmers' milk prices and national cheese prices is
diminished. Therefore, I have tried to deal with that problem directly
and immediately.

Efforts to Reduce the Influence of the NCE on Farmers' Milk Prices

First, since I believe that it is inappropriate for an unregulated
and thinly traded market like the NCE to be used in setting farmers'
milk prices, I and other members of the Wisconsin congressional
delegation have asked Secretary Glickman to delink the NCE from the
calculation of the basic formula price [BFP]. Therefore, I was very
pleased last week when Secretary Glickman announced a 60-day comment
period to solicit comments about whether to delink the NCE from the
calculation of the BFP. I am hopeful that this process will free
farmers' milk checks from the direct connection to NCE within a few
short months.
But even if the Secretary decides to eliminate the direct link
between the NCE price and the basic formula price, farmers' milk prices
will still be indirectly linked to the NCE, as long as industry leaders
continue to use the NCE as a reference price for forward contracts for
bulk cheese. Since cheese is such a dominant end product for milk,
especially in Wisconsin, as long as cheese prices are set off the NCE,
the NCE will be remain a major factor in milk prices.
That is why, in the long term, I believe the creation of an
alternative market for cheese, which could become the new reference
price for bulk cheese contracts, will be in the best interest of
farmers, consumers, and cheese manufacturers.
However, until that happens, we must continue in the efforts to fix
some of the flaws of the National Cheese Exchange. And it is with that
purpose that I am introducing the National Cheese Exchange Oversight
and Improvement Act, to require the U.S. Commodity Futures Trading
Commission to oversee the activities of the NCE.

Legislation Needed to Require Federal Regulatory Oversight of the NCE

In October of 1996, Senator Feingold, Congressman Obey, and I wrote
to the CFTC to urge them to oversee the activities of the National
Cheese Exchange. This month, we received a response letter explaining
that the CFTC, as a futures market regulatory agency, has very limited
authority over cash markets. In the letter, CFTC Acting Director
Theodore C. Barreaux states,

The Commodity Exchange Act does not provide the CFTC with
regulatory jurisdiction over the day-to-day operations of
cash commodity markets * * * The Commodity Exchange Act does
confer on the CFTC the authority to investigate possible
manipulation of cash markets and to impose sanctions based on
its findings, if appropriate. Historically, given the
Commission's principal regulatory responsibility over futures
and options markets and its relatively limited resources, the
CFTC has focused its investigative attention on cash market
activity that involves possible adverse impact on one or more
of the numerous futures and option markets which it
regulates.

However, it seems very likely that the industrywide concern about the
lack of viability of the cash market for cheese, is a direct factor in
the reluctance of the industry to participate more fully in the trading
of futures contracts for cheese on the CSCE. Therefore, I believe that
the NCE does have a more direct nexus with the futures market than the
CFTC is acknowledging.
However, accepting CFTC's claim that it lacks the necessary authority
to oversee or regulate the NCE, this legislation is intended to give
the Commission the explicit authority to do so, at least until the
Commission determines that the NCE is no longer acting as a reference
price for commercial sales of bulk cheese of the NCE.
While I understand the concern of the Commission that requiring CFTC
regulation of cash markets would open a Pandora's box of new work for
the Commission, the bill has been written in a very narrow manner, so
as only to require regulation of the NCE, or other concentrated cash
markets that share the specific flaws of the NCE.
I believe there are certain circumstances where a cash market has
such great influence over national prices, and is so subject to
manipulation, that it needs to be regulated. And the cheese exchange is
perhaps the best example of that.
When you have a cash market that is very thinly traded, completely
unregulated, and used as a reference price for both raw product prices
paid to farmers and commercial end product sales, something must be
done to bring some credibility to the market.
It is my hope that this legislation could be attached as an amendment
to the Commodity Exchange Act reauthorization, which is on the Senate
Agriculture Committee agenda for early action this year. I look forward
to working with Chairman Lugar, Senator Harkin, and the other members
of the committee to assure that the necessary Federal oversight of the
NCE is put in place.
Further, I welcome my colleague Senator Feingold as an original
cosponsor of this legislation, and thank Congressman Obey and other
members of the Wisconsin House delegation for introducing companion
legislation in the House today as well. It is very gratifying that the
Wisconsin delegation is working cooperatively and constructively in
advancing these necessary dairy pricing reforms.
In that regard, I am also pleased to be an original cosponsor of the
Milk Price Discovery Improvement Act of 1997, as introduced today by
Senator Feingold. This legislation will make the U.S. Department of
Agriculture an equal partner in the NCE reform efforts by: First,
requiring USDA to delink the NCE opinion price from the USDA basic
formula price [BFP], which establishes minimum milk prices paid to
farmers; second, requires USDA to take steps to improve price discovery
for cheese, in order to reduce the influence of the NCE on farmers'
milk prices; and third, requires USDA to prohibit competitive practices
on any cash market that may affect milk prices regulated under Federal
milk marketing orders.
While my legislation requires CFTC oversight of the NCE and its day-
to-day rules of operation, Senator Feingold's legislation requires USDA
authority to prohibit anticompetitive actions by traders on the NCE.
These two roles are entirely compatible and complementary.
Mr. President, I ask unanimous consent that the bill summary, and the
full text of the bill, be included in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

S. 256

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

SECTION 1. SHORT TITLE.

This Act may be cited as the ``National Cheese Exchange
Oversight and Improvement Act of 1997''.

SEC. 2. FINDINGS.

The Congress finds that the operation of the National
Cheese Exchange and other cash markets is of national concern
and in need of Federal oversight because of the following:
(1) The National Cheese Exchange, located in Green Bay,
Wisconsin, is the dominant cash market for bulk cheese in the
United States.
(2) While less than 1 percent of the cheese produced in the
United States is sold on the National Cheese Exchange, the
price determined by the National Cheese Exchange acts as a
reference price for as much as 95 percent of the commercial
cheese transactions conducted in the United States.
(3) A three-year federally funded investigation into the
activities of the National Cheese Exchange determined that
the National Cheese Exchange is very thinly traded, highly
concentrated, completely unregulated, and subject to
manipulation.
(4) The Coffee, Sugar, and Cocoa Exchange in New York, an
exchange regulated by the Commodity Futures Trading
Commission, trades futures contracts for cheese.
(5) The low volume in trading of cheese futures contracts
on the Coffee, Sugar, and Cocoa Exchange is partially related
to concerns about the lack of viability, and potential for
manipulation, in the dominant cash market for cheese, the
National Cheese Exchange.
(6) The National Cheese Exchange is completely unregulated
by any Federal or State agency.
(7) The Commodity Futures Trading Commission claims a lack
of authority to regulate or oversee the National Cheese
Exchange and similar cash markets.

SEC. 3. COMMODITY FUTURES TRADING COMMISSION REGULATION OF
NATIONAL CHEESE EXCHANGE AND SIMILAR CASH
MARKETS.

The Commodity Exchange Act (7 U.S.C. 1 et seq.) is amended
by inserting after section 20 (7 U.S.C. 24) the following new
section:

[[Page S951]]

``SEC. 21. COMMISSION REGULATION OF NATIONAL CHEESE EXCHANGE
AND SIMILAR CASH MARKETS.

``(a) Definition of Concentrated Cash Market.--In this
section, the term `concentrated cash market' means--
``(1) the National Cheese Exchange located in Green Bay,
Wisconsin; and
``(2) a cash market for a commodity if the Commission
determines that--
``(A) the cash market is geographically centralized in the
form of a market or exchange;
``(B) the cash market is very thinly traded or highly
illiquid;
``(C) the price established by the cash market functions as
a reference price for a majority of commercial transactions
off the cash market for the commodity being traded;
``(D) trading in the cash market is concentrated among
relatively few buyers and sellers;
``(E) the cash market is substantially unregulated by any
other regulatory structure (including State regulation or
self-regulation);
``(F) a futures market regulated under this Act also exists
for the commodity that is being traded on the cash market;
and
``(G) the instability, illiquidity, or potential for
manipulation for on the cash market could be a deterrent to
the use of the futures market for that commodity.
``(b) Regulation of Concentrated Cash Markets.--In
consultation with the Secretary of Agriculture, the
Commission shall regulate a concentrated cash market under
this Act until such time as the Commission determines that
the concentrated cash market is not functioning as a
reference price for a majority of commercial transactions off
the cash market for the commodity being traded on the
concentrated cash market.
``(c) Submission and Review of Operating Rules.--The
Commission shall require a cash market that is subject to
this section to:
``(1) Submission required.--The Commission shall require a
concentrated cash market subject to regulation under
subsection (b) to submit to the Commission for approval a set
of rules governing the operation of the concentrated cash
market; and
``(2) Time for submission.--In the case of the National
Cheese Exchange, the operating rules required under this
subsection shall be submitted not later than 90 days after
the date of enactment of this section. In the case of other
concentrated cash markets, the operating rules shall be
submitted not later than 90 days after the date on which the
Commission notifies the concentrated cash market that it is
subject to regulation under this section.
``(3) Notification of commission action.--The Commission
shall promptly review operating rules submitted by a
concentrated cash market under this subsection to determine
whether the rules are sufficient to govern the operation of
the concentrated cash market. Not later than 60 days after
receiving the rules from a concentrated cash market, the
Commission shall notify the concentrated cash market of the
result of the review, including whether the rules are
approved or disapproved. If disapproved, the Commission shall
provide such recommendations regarding changes to the rules
as the Commission considers necessary to secure approval and
provide a schedule for resubmission of the rules.
``(4) Subsequent rule changes.--A concentrated cash market
may not change approved operating rules unless the proposed
change is also submitted to the Commission for review and the
Commission approves the change in the manner provided in
paragraph (3).
``(d) Effect of Failure To Submit or Receive Approval of
Rules.--Beginning one year after the date of the enactment of
this section, the National Cheese Exchange may operate only
in accordance with rules approved by the Commission under
subsection (c). In the case of other concentrated cash
markets, beginning one year after the date on which the
concentrated cash market is notified that it is subject to
regulation under this section, the concentrated cash market
may operate only in accordance with rules approved by the
Commission under subsection (c).''.
____

Summary of the Bill

Amends the Commodity Exchange Act, to require the Commodity
Futures Trading Commission (CFTC) to regulate the National
Cheese Exchange (NCE), in consultation with USDA, until such
time as the NCE is no longer used as a reference price for
the majority of commercial cheese sales off the exchange.
Require the NCE (or any other cash market regulated by the
CFTC as a result of this bill) to submit to the CFTC for
approval a set of rules of operation, and to enforce those
rules.
Further, the bill would give the CFTC authority to regulate
other cash markets, if the conditions similar to those on the
NCE were to occur on another cash market. Specifically, CFTC
would be required to regulate a cash market when the
following conditions coincide:
Trading is geographically centralized.
The cash market is very thinly traded or highly illiquid.
The price established by the market or exchange acts as a
reference price for a majority of commercial transactions off
the market.
The market is concentrated among relatively few buyers and
sellers.
The market is substantially unregulated by any other
regulatory structure (included state regulation or regulation
by the market itself).
Manipulation on the cash market is a deterrent to the use
of the futures market for the same commodity.
______

By Mr. LUGAR (for himself, Mr. Harkin, and Mr. Leahy):
S. 257. A bill to amend the Commodity Exchange Act to improve the
act, and for other purposes; to the Committee on Agriculture,
Nutrition, and Forestry.

THE COMMODITY EXCHANGE ACT AMENDMENTS OF 1997

Mr. LUGAR. Mr. President, today I am introducing, along with Senators
Harkin and Leahy, legislation to amend the Commodity Exchange Act. This
bill is very similar to S. 2077, which Senator Leahy and I introduced
last September after several months of hearings and informal
consultations with industry, academics, and regulators. The legislation
streamlines U.S. futures trading law, conforming it to changing
competitive realities.
In many ways, regulation has benefited the U.S. futures industry.
Prudent regulation enhances customer protection, prevents and punishes
fraud and other abuses, and makes futures markets better able to
provide risk management, price discovery, and investment opportunity.
Regulation, however, also has its costs. U.S. futures markets face
competition that is, in some cases, less regulated or differently
regulated. In the years ahead, our challenge is to balance the need for
adequate regulation with the need to offer cost-competitive products.
This bill tries to strike such a balance. It requires the Commodity
Futures Trading Commission to consider the costs for industry of the
regulations it imposes. The bill streamlines the process of introducing
new futures contracts, reducing the time that is required to begin
trading these new products. It makes similar reforms to the process by
which exchanges' rules are reviewed by the CFTC.
Where additional authority for the CFTC is needed, the bill provides
it. The CFTC will have the authority to require U.S. delivery points
for overseas futures markets to provide information that is also
regularly demanded of American market participants. This is eminently
reasonable, and may assist the CFTC and other regulators in the future
if situations similar to the 1996 London copper market scandal recur.
The bill will also provide greater legal certainty for swaps, over-
the-counter products that are of increasing importance to many
businesses. It is important that these contracts' enforceability be
made more certain, so that legal risk does not compound the other risks
inherent in any financial transaction. In one important addition to
last year's legislation, the new bill will also provide this legal
certainty for swaps that are based on equities, as well as for hybrid
instruments. In a more limited way, the bill will establish the terms
of exemptions for on-exchange products traded solely among professional
investors.
Another addition to last year's legislation is a major rewrite of the
so-called Treasury amendment, a provision of the Commodity Exchange Act
that excludes some financial products from its regulatory coverage.
This controversial section is at best unclear, and needs a fresh look
from Congress. I hope the proposals we have made in this bill--which
are explained in a discussion document I will mention in a moment--will
both stimulate dialog and find wide acceptance.
It is unfortunate that the CFTC and the Treasury Department, which
discussed this subject at Senator Leahy's and my request, were unable
to agree on a common approach. However, the committee will work with
both agencies as we move forward. Despite some differences in drafting,
I believe the Treasury Department's ideas are basically consistent with
what Senators Harkin, Leahy, and I have proposed. The Treasury did not
propose, as we do, to allow futures exchanges to create professionals-
only markets in Treasury amendment products. However, Senator Harkin
and I are informed that while the Treasury is still studying

[[Page S952]]

this proposal, in principle the Department does not object to treating
exchange affiliates in a manner similar to other sophisticated market
participants.
The bill contains a number of other provisions. Senator Harkin and I
have prepared a section-by-section discussion document, which may be
helpful to our colleagues.
On February 11 and 13, the committee will hold hearings on this
legislation. It is a priority for the committee during the coming weeks
and months.
I would like to thank Senator Harkin for his extraordinary
cooperation in putting this bill together. As the new ranking member of
the committee, he has been gracious and collegial. Likewise, Senator
Leahy's efforts both last year and this year deserve special praise. I
salute them both for their leadership.
Mr. President, I ask unanimous consent that the bill and additional
material be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

S. 257

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

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Commodity Exchange
Amendments Act of 1997''.

SEC. 2. TREASURY AMENDMENT.

Section 2(a)(1)(A) of the Commodity Exchange Act (7 U.S.C.
2) is amended by striking clause (ii) and inserting the
following:
``(ii) Treasury amendment.--

``(I) In general.--Nothing in this Act shall be deemed to
govern or in any way be applicable to transactions in or
involving foreign currency, security warrants, security
rights, resales of installment loan contracts, repurchase
options, government securities, or mortgages and mortgage
purchase commitments, unless such transactions involve the
sale thereof to the general public for future delivery
conducted on a board of trade.
``(II) Other agencies.--Nothing in subclause (I) shall
affect the powers of the Securities and Exchange Commission,
the Office of the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System, the Department of
the Treasury, the Federal Deposit Insurance Corporation, any
agency of State government with the authority to charter,
regulate, or license banks, or any State insurance regulatory
agency, under this Act or any other provision of law.
``(III) Definitions.--

``(aa) Board of trade; foreign exchange transactions.--The
term `board of trade', as applied to foreign exchange
transactions described in subclause (I), shall include
unsupervised entities that are engaged in the systematic
marketing of standardized, non-negotiable foreign currency
transactions to retail investors.
``(bb) Board of trade; government securities.--The term
`board of trade', as used in subclause (I), shall not include
a government securities dealer or government securities
broker, to the extent the dealer or broker engage in
transactions in government securities, as the terms
`government securities', `government securities dealer', and
`government securities broker' are defined in section 3(a) of
the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)).
``(cc) General public; retail investors.--The Commission
shall define the terms `general public' as used in subclause
(I) and `retail investors' as used in item (aa), taking into
account, to the extent practicable, section 4(c)(3) of this
Act and section 35(b)(2) of title 17, Code of Federal
Regulations. In carrying out the preceding sentence, the
Commission shall not include in the definition of `retail
investors' a natural person with total assets that exceeds
$10,000,000.
``(dd) Option.--For purposes of this clause, an `option'
shall be considered to be a transaction at the time it is
purchased or sold and at the time, if any, that it is
exercised.

``(IV) Emergency authority.--Nothing in this clause shall
restrict the powers of the Commission under section 8a(9) as
they apply to designated contract markets.''.

SEC. 3. HEDGING.

Section 3 of the Commodity Exchange Act (7 U.S.C. 5) is
amended in the fourth sentence by striking ``through
fluctuations in price''.

SEC. 4. DELIVERY POINTS FOR FOREIGN FUTURES CONTRACTS.

Section 4(b) of the Commodity Exchange Act (7 U.S.C. 6(b))
is amended--
(1) in the third sentence--
(A) by striking ``(1)'' and ``(2)'' and inserting ``(A)''
and ``(B)'', respectively; and
(B) by striking ``No rule'' and inserting ``Except as
provided in paragraph (2), no rule'';
(2) by inserting ``(1)'' after ``(b)''; and
(3) by adding at the end the following:
``(2)(A) The Commission shall consult with a foreign
government, foreign futures authority, or department, agency,
governmental body, or regulatory organization empowered by a
foreign government to regulate a board of trade, exchange, or
market located outside the United States, or a territory or
possession of the United States, that has 1 or more
established delivery points in the United States, or a
territory or possession of the United States, for a contract
of sale of a commodity for future delivery that is made or
will be made on or subject to the rules of the board of
trade, exchange, or market.
``(B) In the consultations, the Commission shall endeavor
to secure adequate assurances, through memoranda of
understanding or any other means the Commission considers
appropriate, that the presence of the delivery points will
not create the potential for manipulation of the price, or
any other disruption in trading, of a contract of sale of a
commodity for future delivery traded on or subject to the
rules of a contract market, or a commodity, in interstate
commerce.
``(C) Any warehouse or other facility housing an
established delivery point in the United States, or a
territory or possession of the United States, described in
subparagraph (A) shall--
``(i) keep books, records, and other information specified
by the Commission pertaining to all transactions and
positions in all contracts made or carried on the foreign
board of trade, exchange, or market in such form and manner
and for such period as may be required by the Commission;
``(ii) file such reports regarding the transactions and
positions with the Commission as the Commission may specify;
and
``(iii) keep the books and records open to inspection by a
representative of the Commission or the United States
Department of Justice.''.

SEC. 5. EXEMPTION AUTHORITIES.

Section 4 of the Commodity Exchange Act (7 U.S.C. 6(c)) is
amended by adding at the end the following:
``(e) Private Transaction Exemption.--
``(1) In general.--Notwithstanding subsection (c)(1), to
the extent, if any, that an agreement, contract, or
transaction (or class thereof) is otherwise subject to this
Act, it shall be exempt from all provisions of this Act and
any person or class of persons offering, entering into,
rendering advice, or rendering other services with respect to
the agreement, contract, or transaction (or class thereof),
shall be exempt for the activity from all provisions of this
Act (except in each case the provisions of sections 4b and
4o, any antifraud provision adopted by the Commission
pursuant to section 4c(b), and the provisions of section 6(c)
and 9(a)(2) to the extent the provisions prohibit
manipulation of the market price of any commodity in
interstate commerce for future delivery on or subject to the
rules of any contract market) if--
``(A) the agreement, contract, or transaction (or class
thereof) is entered into only between appropriate persons at
the time the persons enter into the agreement, contract, or
transaction (or class thereof);
``(B) the agreement, contract, or transaction (or class
thereof) is not part of a fungible class of agreements,
contracts, or transactions that are standardized as to their
material economic terms;
``(C) the creditworthiness of any party having an actual or
potential obligation under the agreement, contract, or
transaction (or class thereof) would be a material
consideration in entering into or determining the terms of
the agreement, contract, or transaction (or class thereof),
including pricing, cost, or credit enhancement terms of the
agreement, contract, or transaction (or class thereof); and
``(D) the agreement, contract, or transaction (or class
thereof) is not entered into and traded on or through a
multilateral transaction execution facility.
``(2) Exceptions.--Paragraph (1) shall not preclude--
``(A) arrangements or facilities between parties to an
agreement, contract, or transaction (or class thereof) that
provide for netting of payment obligations resulting from the
agreement, contract, or transaction (or class thereof);
``(B) arrangements or facilities among parties to an
agreement, contract, or transaction (or class thereof) that
provide for netting of payments resulting from the agreement,
contract or transaction (or class thereof); or
``(C) the prohibition of transactions covered under section
32.2 of title 17, Code of Federal Regulations.
``(3) Definition of appropriate person.--In paragraph (1),
the term `appropriate person' means--
``(A) a person (as defined in subsection (c)(3)); or
``(B) a natural person whose total assets exceed
$10,000,000.
``(4) Hybrid instrument exemption.--
``(A) Definitions.--In this paragraph:
``(i) Commodity-dependent component.--The term `commodity-
dependent component' means a component of a hybrid
instrument, the payment of which results from indexing to, or
calculation by reference to, the price of a commodity.
``(ii) Commodity-dependent value.--The term `commodity-
dependent value' means the value of a commodity-dependent
component, which when decomposed into an option payout or
payouts, is measured by the absolute net value of the put
option premia with strike prices less than or equal to the
reference price plus the absolute net value of the call
option premia with strike prices greater than or equal to the
reference price, calculated as of the time of issuance of the
hybrid instrument.
``(iii) Commodity-independent component.--The term
`commodity-independent component' means the component of a
hybrid instrument, the payments of which do

[[Page S953]]

not result from indexing to, or calculation by reference to,
the price of a commodity.
``(iv) Commodity-independent value.--The term `commodity-
independent value' means the present value of the payments
attributable to the commodity-independent component
calculated as of the time of issuance of the hybrid
instrument.
``(v) Hybrid instrument.--The term `hybrid instrument'
means an equity or debt security or depository instrument
with 1 or more commodity-dependent components that have
payment features similar to commodity futures or commodity
option contracts or combinations thereof.
``(vi) Option premium.--The term `option premium' means the
value of an option on the referenced commodity of the hybrid
instrument, calculated by using--

``(I) the same method as that used to determine the issue
price of the instrument; or
``(II) a commercially reasonable method appropriate to the
instrument being priced where the premia are not explicitly
calculated in determining the issue price of the instrument.

``(vii) Reference price.--The term `reference price' means
a price nearest the current spot or forward price, whichever
is used to price the instrument, at which a commodity-
dependent payment becomes non-zero, or, in the case in which
2 potential reference prices exist, the price that results in
the greatest commodity-dependent value.
``(B) Exemption.--Notwithstanding subsection (c)(1), a
hybrid instrument is exempt from all provisions of this Act,
and any person or class of persons offering, entering into,
or rendering advice or other services with respect to the
hybrid instrument is exempt for such activity from all
provisions of this Act, if the following terms and conditions
are satisfied:
``(i) The instrument is--

``(I) an equity or debt security (within the meaning of
section 2(1) of the Securities Act of 1933 (15 U.S.C. 77b);
or
``(II) a demand deposit, time deposit or transaction
account within the meaning of subsections (b)(1),(c)(l), and
(e) of section 204.2 of title 12, Code of Federal
Regulations, respectively, that are offered by--

``(aa) an insured depository institution (as defined in
section 3 of the Federal Deposit Insurance Act (12 U.S.C.
1813));
``(bb) an insured credit union (as defined in section 101
of the Federal Credit Union Act (12 U.S.C. 1752)); or
``(cc) a Federal or State branch or agency of a foreign
bank (as defined in section 1 of the International Banking
Act of 1978 (12 U.S.C. 3101)).
``(ii) The sum of the commodity-dependent values of the
commodity-dependent components is less than the commodity-
independent value of the commodity-independent component.
``(iii) Provided that--

``(I) an issuer must receive full payment of the purchase
price of the hybrid instrument, and a purchaser or holder of
a hybrid instrument may not be required to make additional
out-of-pocket payments to the issuer during the life of the
instrument or at maturity;
``(II) the instrument is not marketed as a futures contract
or a commodity option or, except to the extent necessary to
describe the functioning of the instrument or to comply with
applicable disclosure requirements, as having the
characteristics of a futures contract or a commodity option;
and
``(III) the instrument does not provide for settlement in
the form of a delivery instrument that is specified as such
in the rules of a designated contract market.

``(iv) The instrument is initially issued or sold subject
to applicable Federal or State securities or banking laws to
persons who are permitted under the laws to purchase or enter
into the hybrid instrument.
``(C) Provision not exempted.--The prohibition of
transactions covered under section 32.2 of title 17, Code of
Federal Regulations, shall apply to a hybrid instrument under
this paragraph.
``(5) Application of exemptions.--Subsection (c) shall not
restrict the authority of the Commission to grant an
exemption under this subsection that is in addition to or
independent of an exemption provided under paragraph (1) or
(4). An exemption provided under subsection (c) may not be
applied in a manner that restricts the exemption provided
under either paragraph (1) or (4).
``(6) Exemption by commission.--
``(A) In general.--The Commission may exempt an agreement,
contract, or transaction (or class thereof), or a hybrid
instrument under this subsection, to the extent that the
agreement, contract, or transaction (or class thereof), or
hybrid instrument, may be subject to this Act.
``(B) No presumption created.--An exemption under this
subsection shall not create a presumption that the exempted
agreement, contract, or transaction (or class thereof), or
hybrid instrument, is subject to this Act.''.

SEC. 6. EXEMPTION FOR PROFESSIONAL MARKETS.

Section 4 of the Commodity Exchange Act (7 U.S.C. 6) (as
amended by section 5) is amended by adding at the end the
following:
``(f) Exemption for Professional Markets.--
``(1) Definitions.--In this subsection:
``(A) Appropriate person.--The term `appropriate person'
means--
``(i) a person (as defined in subsection (c)(3)); or
``(ii) a natural person whose total assets exceed
$10,000,000.
``(B) Professional market.--The term `professional market'
means a market--
``(i) that is traded on a board of trade that is otherwise
designated by the Commission as a contract market; and
``(ii) on which only an appropriate person (as defined in
subparagraph (A)) may enter into an agreement, contract, or
transaction (or class thereof) on the market.
``(2) Exemption.--
``(A) In general.--An agreement, contract, or transaction
(or class thereof) that is traded on a professional market
and is, or may be, subject to this Act shall be exempt from
this Act.
``(B) Contracts not exempted.--The exemption provided under
subparagraph (A) shall not apply to--
``(i) any individual agreement, contract, or transaction
that has been transacted for the product involved as of the
effective date of this subsection; or
``(ii) an agreement, contract, or transaction (or class
thereof) that involves an agricultural commodity referred to
in section 1a.
``(3) Applicability of certain provisions.--An agreement,
contract, or transaction (or class thereof) for which an
exemption is provided under paragraph (2)(A), shall, to the
extent applicable, in each case be subject to--
``(A) sections 2(a)(1)(B), 4b, and 4o;
``(B) the provisions of sections 6(c) and 9(a)(2) to the
extent the provisions prohibit manipulation of the market
price of any commodity in interstate commerce for future
delivery on or subject to the rules of a contract market;
``(C) prohibitions adopted by the Commission against fraud
or manipulation under section 4c(b); and
``(D) the powers of the Commission to respond to
emergencies as provided in section 8a(9).''.

SEC. 7. CONTRACT DESIGNATION.

(a) In General.--Section 5 of the Commodity Exchange Act (7
U.S.C. 7) is amended--
(1) by striking the matter preceding paragraph (1) and
inserting the following:

``SEC. 5. DESIGNATION OF A BOARD OF TRADE AS A CONTRACT
MARKET.

``(a) In General.--The Commission shall designate a board
of trade as a contract market if the board of trade complies
with and carries out the following conditions and
requirements:'';
(2) by striking paragraph (7);
(3) by redesignating paragraph (8) as paragraph (7); and
(4) by adding at the end the following:
``(b) Existing and Future Designations.--
``(1) In general.--If a board of trade is designated as a
contract market by the Commission under subsection (a) and
section 6, the board of trade shall retain the designation
for all existing or future contracts, unless the Commission
suspends or revokes the designation or the board of trade
relinquishes the designation.
``(2) Existing designations.--A board of trade that has
been designated as a contract market as of the date of
enactment of this subsection shall retain the designation
unless the Commission finds that a violation of this Act or a
rule, regulation, or order of the Commission by the contract
market justifies suspension or revocation of the designation
under section 6(b), or the board of trade relinquishes the
designation.
``(c) New Contract Submissions.--Except as provided in
subsection (e), a board of trade that has been designated as
a contract market under subsection (a) shall submit to the
Commission all rules that establish the terms and conditions
of a new contract of sale in accordance with subsection (d)
(referred to in this section as a `new contract'), other than
a rule relating to the setting of levels of margin and other
rules that the Commission may specify by regulation.
``(d) Procedures for New Contracts.--
``(1) Required submission to commission.--Except as
provided in subsection (e), a contract market shall submit
new contracts to the Commission in accordance with subsection
(c).
``(2) Effectiveness of new contracts.--A contract market
may make effective a new contract and may implement trading
in the new contract--
``(A) not earlier than 10 business days after the receipt
of the new contract by the Commission; or
``(B) earlier if authorized by the Commission by rule,
regulation, order, or written notice.
``(3) Notice to contract market.--The new contract shall
become effective and may be traded on the contract market,
unless, within the 10-business-day period beginning on the
date of the receipt of the new contract by the Commission,
the Commission notifies the contract market in writing--
``(A) of the determination of the Commission that the
proposed new contract appears to--
``(i) violate a specific provision of this Act (including
paragraphs (1) through (7) of section 5(a)) or a rule,
regulation, or order of the Commission; or
``(ii) be contrary to the public interest; and
``(B) that the Commission intends to review the new
contract.
``(4) Notice in the federal register.--Notwithstanding the
determination of the Commission to review a new contract
under paragraph (3) and except as provided in subsection (e),
the contract market may make

[[Page S954]]

the new contract effective, and may implement trading in the
new contract, on a date that is not earlier than 15 business
days after the determination of the Commission to review the
new contract unless within the period of 15 business days the
Commission institutes proceedings to disapprove the new
contract by providing notice in the Federal Register of the
information required under paragraph (5)(A).
``(5) Disapproval proceedings.--
``(A) Notice of proposed violations.--If the Commission
institutes proceedings to determine whether to disapprove a
new contract under this subsection, the Commission shall
provide the contract market with written notice, including an
explanation and analysis of the substantive basis for the
proposed grounds for disapproval, of what the Commission has
reason to believe are the grounds for disapproval, including,
as applicable--
``(i) the 1 or more specific provisions of this Act or a
rule, regulation, or order of the Commission that the
Commission has reason to believe the new contract violates
or, if the new contract became effective, would violate; or
``(ii) the 1 or more specific public interests to which the
Commission has reason to believe the new contract is
contrary, or if the new contract became effective would be
contrary.
``(B) Disapproval proceedings and determination.--
``(i) Opportunity to participate; hearing.--Before deciding
to disapprove a new contract, the Commission shall give
interested persons (including the board of trade) an
opportunity to participate in the disapproval proceedings
through the submission of written data, views, or arguments
following appropriate notice and an opportunity for a hearing
on the record before the Commission.
``(ii) Determination of disapproval.--At the conclusion of
the disapproval proceeding, the Commission shall determine
whether to disapprove the new contract.
``(iii) Grounds for disapproval.--The Commission shall
disapprove the new contract if the Commission determines that
the new contract--

``(I) violates this Act or a rule, regulation, or order of
the Commission; or
``(II) is contrary to public interest.

``(iv) Specifications for disapproval.--Each disapproval
determination shall specify, as applicable--

``(I) the 1 or more specific provisions of this Act or a
rule, regulation, or order of the Commission, that the
Commission determines the new contract violates or, if the
new contract became effective, would violate; or
``(II) the 1 or more specific public interests to which the
Commission determines the new contract is contrary, or if the
new contract became effective would be contrary.

``(C) Failure to timely complete disapproval
determination.--If the Commission does not conclude a
disapproval proceeding as provided in subparagraph (B) for a
new contract by the date that is 120 calendar days after the
Commission institutes the proceeding, the new contract may be
made effective, and trading in the new contract may be
implemented, by the contract market until such time as the
Commission disapproves the new contract in accordance with
this paragraph.
``(D) Appeals.--A board of trade that has been subject to
disapproval of a new contract by the Commission under this
subsection shall have the right to an appeal of the
disapproval to the court of appeals as provided in section
6(b).
``(6) Contract market deemed designated.--A board of trade
shall be deemed to be designated a contract market for a new
contract of sale for future delivery when the new contract
becomes effective and trading in the new contract begins.
``(e) Required Interagency Review.--Notwithstanding
subsection (d), no board of trade may make effective a new
contract (or option on the contract) that is subject to the
requirements and procedures of clauses (ii) through (v) of
paragraph (1)(B), and paragraph (8)(B)(ii), of section 2(a)
until the requirements and procedures are satisfied and
carried out.''.
(b) Conforming Amendment.--Section 6(a) of the Commodity
Exchange Act (7 U.S.C. 8(a)) is amended in the first sentence
by striking ``Any board of trade desiring'' and inserting ``A
board of trade that has not obtained any designation as a
contract market for a contract of sale for a commodity under
section 5 that desires''.

SEC. 8. DELIVERY BY FEDERALLY LICENSED WAREHOUSES.

Section 5a(a) of the Commodity Exchange Act (7 U.S.C.
7a(a)) is amended by striking paragraph (7) and inserting the
following:
``(7) Repealed;''.

SEC. 9. SUBMISSION OF RULES TO COMMISSION.

Section 5a(a) of the Commodity Exchange Act (7 U.S.C.
7a(a)(12)) is amended by striking paragraph (12) and
inserting the following:
``(12)(A)(i) except as otherwise provided in this
paragraph, submit to the Commission all bylaws, rules,
regulations, and resolutions (collectively referred to in
this subparagraph as `rules') made or issued by the contract
market, or by the governing board or committee of the
contract market (except those relating to the setting of
levels of margin, those submitted pursuant to section 5 or
6(a), and those the Commission may specify by regulation) and
may make a rule effective not earlier than 10 business days
after the receipt of the submission by the Commission or
earlier, if approved by the Commission by rule, regulation,
order, or written notice, unless, within the 10-business-day
period, the Commission notifies the contract market in
writing of its determination to review such rules for
disapproval and of the specific sections of this Act or the
regulations of the Commission that the Commission determines
the rule would violate. The determination to review such
rules for disapproval shall not be delegable to any employee
of the Commission. Not later than 45 calendar days before
disapproving a rule of major economic significance (as
determined by the Commission), the Commission shall publish a
notice of the rule in the Federal Register. The Commission
shall give interested persons an opportunity to participate
in the disapproval process through the submission of written
data, views, or arguments. The determination by the
Commission whether a rule is of major economic significance
shall be final and not subject to judicial review. The
Commission shall disapprove, after appropriate notice and
opportunity for hearing (including an opportunity for the
contract market to have a hearing on the record before the
Commission), a rule only if the Commission determines the
rule at any time to be in violation of this Act or a
regulation of the Commission. If the Commission institutes
proceedings to determine whether a rule should be disapproved
pursuant to this paragraph, the Commission shall provide the
contract market with written notice of the proposed grounds
for disapproval, including the specific sections of this Act
or the regulations of the Commission that would be violated.
At the conclusion of the proceedings, the Commission shall
determine whether to disapprove the rule. Any disapproval
shall specify the sections of this Act or the regulations of
the Commission that the Commission determines the rule has
violated or, if effective, would violate. If the Commission
does not institute disapproval proceedings with respect to a
rule within 45 calendar days after receipt of the rule by the
Commission, or if the Commission does not conclude a
disapproval proceeding with respect to a rule within 120
calendar days after receipt of the rule by the Commission,
the rule may be made effective by the contract market until
such time as the Commission disapproves the rule in
accordance with this paragraph.
``(B)(i) The Commission shall issue regulations to specify
the terms and conditions under which, in an emergency as
defined by the Commission, a contract market may, by a two-
thirds vote of the governing board of the contract market,
make a rule (referred to in this subparagraph as an
`emergency rule') immediately effective without compliance
with the 10-day notice requirement under subparagraph (A), if
the contract market makes every effort practicable to notify
the Commission of the emergency rule, and provide a complete
explanation of the emergency involved, prior to making the
emergency rule effective.
``(ii) If the contract market does not provide the
Commission with the requisite notification and explanation
before making the emergency rule effective, the contract
market shall provide the Commission with the notification and
explanation at the earliest practicable date.
``(iii) The Commission may delegate the power to receive
the notification and explanation to such individuals as the
Commission determines necessary and appropriate.
``(iv) Not later than 10 days after the receipt from a
contract market of notification of such an emergency rule and
an explanation of the emergency involved, or as soon as
practicable, the Commission shall determine whether to
suspend the effect of the rule pending review by the
Commission under the procedures of subparagraph (A).
``(v)(I) The Commission shall submit a report on the
determination of the Commission on the emergency rule under
clause (iv), and the basis for the determination, to the
affected contract market, the Committee on Agriculture of the
House of Representatives, and the Committee on Agriculture,
Nutrition, and Forestry of the Senate.
``(II) If the report is submitted more than 10 days after
the Commission's receipt of notification of the emergency
rule from a contract market, the report shall explain why
submission within the 10-day period was not practicable.
``(III) A determination by the Commission to suspend the
effect of a rule under this subparagraph shall be subject to
judicial review on the same basis as an emergency
determination under section 8a(9).
``(IV) Nothing in this paragraph limits the authority of
the Commission under section 8a(9);''.

SEC. 10. AUDIT TRAIL.

Section 5a(b) of the Commodity Exchange Act (7 U.S.C.
7a(b)) is amended--
(1) in paragraph (3), by inserting ``selected by the
contract market'' after ``means'' each place it appears; and
(2) by adding at the end the following:
``(7) The requirements of this subsection establish
performance standards and do not mandate the use of a
specific technology to satisfy the requirements.''.

SEC. 11. CONSIDERATION OF EFFICIENCY, COMPETITION, RISK
MANAGEMENT, AND ANTITRUST LAWS.

Section 15 of the Commodity Exchange Act (7 U.S.C. 19) is
amended--

[[Page S955]]

(1) by striking ``Sec. 15. The Commission'' and inserting
the following:
``Sec. 15. (a)(1) Prior to adopting a rule or regulation
authorized by this Act or adopting an order (except as
provided in subsection (b)), the Commission shall consider
the costs and benefits of the action of the Commission.
``(2) The costs and benefits of the proposed Commission
action shall be evaluated in light of considerations of
protection of market participants, the efficiency,
competitiveness, and financial integrity of futures markets,
price discovery, sound risk management practices, and other
appropriate factors, as determined by the Commission.
``(b) Subsection (a) shall not apply to the following
actions of the Commission:
``(1) An order that initiates, is part of, or is the result
of an adjudicatory or investigative process of the
Commission.
``(2) An emergency action.
``(3) A finding of fact regarding compliance with a
requirement of the Commission.
``(c) The Commission''; and
(2) by striking ``requiring or approving'' and inserting
``requiring, reviewing, or disapproving''.

SEC. 12. DISCIPLINARY AND ENFORCEMENT ACTIVITIES.

(a) In General.--It is the sense of Congress that the
Commodity Futures Trading Commission should--
(1) to the extent practicable, avoid unnecessary
duplication of effort in pursuing disciplinary and
enforcement actions if adequate self-regulatory actions have
been taken by contract markets and registered futures
associations; and
(2) retain an oversight and disciplinary role over the
self-regulatory activities by contract markets and registered
futures associations in a manner that is sufficient to
safeguard financial and market integrity and the public
interest.
(b) Report.--Not later than 1 year after the date of
enactment of this Act, the Commission shall submit a report
to the Committee on Agriculture of the House of
Representatives and the Committee on Agriculture, Nutrition,
and Forestry of the Senate that evaluates the effectiveness
of the enforcement activities of the Commission, including an
evaluation of the experience of the Commission in preventing,
deterring, and disciplining violations of the Commodity
Exchange Act (7 U.S.C. 1 et seq.) and Commission regulations
involving fraud against the public through the bucketing of
orders and similar abuses.

SEC. 13. DELEGATION OF FUNCTIONS BY THE COMMISSION.

(a) In General.--It is the sense of Congress that the
Commodity Futures Trading Commission should--
(1) review its rules and regulations that delegate any of
its duties or authorities under the Commodity Exchange Act (7
U.S.C. 1 et seq.) to contract markets or registered futures
associations;
(2) consistent with the public interest and law, determine
which additional functions, if any, performed by the
Commission should be delegated to contract markets or
registered futures associations; and
(3) establish procedures (such as spot checks, random
audits, reporting requirements, pilot projects, or other
means) to ensure adequate performance of the additional
functions that are delegated to contract markets or
registered futures associations.
(b) Report.--Not later than 1 year after the date of
enactment of this Act, the Commission shall report the
results of its review and actions under subsection (a) to the
Committee on Agriculture of the House of Representatives and
the Committee on Agriculture, Nutrition, and Forestry of the
Senate.

SEC. 14. TECHNICAL AND CONFORMING AMENDMENTS.

(a) Section 1a(13)(B) of the Commodity Exchange Act (7
U.S.C. 1a(13)(B)) is amended by striking ``state'' and
inserting ``State''.
(b) Section 2(a)(1)(B)(iv)(I) of the Commodity Exchange Act
(7 U.S.C. 2a(iv)(I)) is amended in the last sentence by
striking ``section 6 of this Act'' and inserting ``section
6(a)''.
(c) Section 4(c)(3)(H) of the Commodity Exchange Act (7
U.S.C. 6(c)(3)(H)) is amended by striking ``state'' and
inserting ``State''.
(d) Section 4a(e) of the Commodity Exchange Act (7 U.S.C.
6a(e)) is amended in the last sentence by striking ``section
9(c) of this Act'' and inserting ``section 9(a)(5)''.
(e) Section 4c(d)(2)(A)(iv) of the Commodity Exchange Act
(7 U.S.C. 6c(d)(2)(A)(iv)) is amended by striking
``78c(a)(12)),'' and inserting ``78c(a)(12))),''.
(f) Section 4f(c)(4)(B)(i) of the Commodity Exchange Act (7
U.S.C. 6f(c)(4)(B)(i)) is amended--
(1) by striking ``compiled'' and inserting ``complied'';
and
(2) by striking ``1817(a),'' and inserting ``1817(a)),''.
(g) Section 5a(a) of the Commodity Exchange Act (7 U.S.C.
7a(a)) is amended--
(1) in paragraph (11)(ii), by striking the second semicolon
at the end;
(2) in paragraph (15)(C), by striking ``categories as'' and
inserting ``categories as--''; and
(3) in paragraph (17)--
(A) in subparagraph (A), by striking ``minimum, that'' and
inserting ``minimum, that--''; and
(B) in subparagraph (B)(ii), by striking ``affect'' and
inserting ``effect''.
(h) Sections 5b, 6(b), 6(c), 6(d), and 13(c) of the
Commodity Exchange Act (7 U.S.C. 7b, 8(b), 9, 13b, and
13c(c)) are amended by striking ``or the Commission'' after
``the Commission'' each place it appears.
(i) Section 6(c) of the Commodity Exchange Act (7 U.S.C. 9)
is amended in the tenth sentence by inserting a comma after
``such violation''.
(j) Section 6a(a) of the Commodity Exchange Act (7 U.S.C.
10a(a)) is amended in the second sentence by striking ``Such
Commission'' and inserting ``The Commission''.
(k) Section 8 of the Commodity Exchange Act (7 U.S.C. 12)
is amended--
(1) in subsection (a)(1)(B), by striking ``in any
receivership proceeding commenced involving a receiver
appointed in a judicial proceeding by the United States or
the Commission'' and inserting ``in any receivership
proceeding involving a receiver appointed in a judicial
proceeding commenced by the United States or the
Commission''; and
(2) in the last sentence of subsection (e), by striking
``authority.'' and inserting ``authority''.
(l) Section 8a of the Commodity Exchange Act (7 U.S.C. 12a)
is amended--
(1) in paragraph (2)--
(A) in subparagraph (B), by striking ``the provisions of
paragraph (3) of this section'' and inserting ``the
provisions of this paragraph or paragraph (3)'';
(B) in subparagraph (C), by adding a semicolon at the end;
(C) in subparagraph (D), by inserting ``pleaded guilty to
or has'' after ``such person has''; and
(D) in subparagraph (E), by striking ``Investors'' and
inserting ``Investor'';
(2) in paragraph (3)--
(A) in subparagraph (B), by striking ``Investors'' and
inserting ``Investor'';
(B) by striking subparagraph (D) and inserting the
following:
``(D) the person has pleaded guilty to or has been
convicted of a felony other than a felony of the type
specified in paragraph (2)(D), or has pleaded guilty to or
has been convicted of a felony of the type specified in
paragraph (2)(D) more than 10 years preceding the filing of
the application;''; and
(C) in subparagraph (H), by striking ``or has been
convicted in a State court,'' and inserting ``or has pleaded
guilty to, or has been convicted, in a State court,''; and
(3) in paragraph (11)(F), by striking ``section 6(b)'' and
inserting ``section 6(c)''.
(m) Section 8c(a)(2) of the Commodity Exchange Act (7
U.S.C. 12c(a)(2)) is amended in the second sentence by
inserting after ``denied access,'' the following: ``to any
other exchange, to any other registered futures
association,''.
(n) Section 8e(d)(1) of the Commodity Exchange Act (7
U.S.C. 12e(d)(1)) is amended by striking ``section 6b'' and
inserting ``section 6(c)''.
(o) Section 9 of the Commodity Exchange Act (7 U.S.C. 13)
is amended--
(1) by redesignating subsection (f) as subsection (e); and
(2) in subsection (e)(1) (as so redesignated), by striking
the period at the end and inserting ``; or''.
(p) Section 12(b) of the Commodity Exchange Act (7 U.S.C.
16(b)) is amended by aligning the margin of paragraph (4) so
as to align with paragraph (3).
(q) Section 14(a) of the Commodity Exchange Act (7 U.S.C.
18(a)) is amended by aligning the margin of paragraph (2) so
as to align with subsection (b).
(r) Section 17 of the Commodity Exchange Act (7 U.S.C. 21)
is amended--
(1) in subsection (b)--
(A) in paragraph (9)(D), by striking the semicolon at the
end and inserting a period;
(B) in paragraph (10)(C)(ii), by striking ``and'' at the
end;
(C) in paragraph (11), by striking the period at the end
and inserting a semicolon;
(D) in paragraph (12)--
(i) by striking ``(12)(A)'' and inserting ``(12)''; and
(ii) by striking the period at the end and inserting ``;
and''; and
(E) in paragraph (13), by striking ``A major'' and
inserting ``a major'';
(2) in subsection (h)(1)--
(A) in the first sentence, by inserting after ``person
associated with a member,'' the following: ``takes any
membership action against any member or associate
responsibility action against any person associated with a
member,''; and
(B) by adding at the end the following: ``The association
shall make public its findings and the reasons for the
association action (including the action and penalty imposed)
in any action described in the first sentence, except that
evidence obtained in the action shall not be disclosed other
than to an exchange, the Commission, or the member or person
who is being disciplined, who is subject to a member
responsibility action, who is being denied admission to the
futures association, or who is being barred from associating
with members of the futures association.'';
(3) in the last sentence of subsection (j)--
(A) by striking ``one hundred and eighty days'' and
inserting ``45 calendar days''; and
(B) by striking ``one year'' and inserting ``120 calendar
days''; and
(4) by redesignating subsection (q) (as added by section
206(b)(2) of the Futures Trading Practices Act of 1992
(Public Law 102-546)) as subsection (r) and moving such
subsection to the end of the section.

[[Page S956]]

____
Summary and Discussion--The Commodity Exchange Act Amendments of 1997

section 1. short title

The bill is entitled the ``Commodity Exchange Act Amendments of
1997.''

sec. 2. treasury amendment

The ``Treasury amendment'' to the Commodity Exchange Act
(so called because it was added in 1974 at the request of the
Treasury Department) excludes certain transactions from the
Act altogether, so that the CFTC has no authority to regulate
them. Foreign currency and government securities transactions
are the most prominent categories of transactions excluded by
the Treasury amendment, though there are several others. The
history, purpose and scope of the Treasury amendment have
been the subject of frequent disagreement even among federal
agencies, and the provision has been frequently litigated.
The CFTC has historically asserted that the amendment
permits it to enforce the Act against firms offering Treasury
amendment products to the general public, arguing that the
amendment's purpose was merely to exclude such institutional
markets as the interbank currency market from regulation.
Other agencies have dissented from this view. In addition,
futures exchanges have argued that they should be able to
offer contracts in Treasury amendment products that would not
be subject to CFTC regulation, as long as they did not offer
these contracts to the general public but only to a
sophisticated, institutional or professional clientele.
The Committee, in mid-1996, asked the CFTC and the Treasury
Department to arrive at a consensus on how the Treasury
amendment should be interpreted and, if necessary, re-
written. Unfortunately, the agencies were unable to agree and
have formulated recommendations that are quite different in
both intent and effect.
This legislation reflects a view that there should be a
federal role in protecting retail investors from abusive,
improper or fraudulent activity in connection with the sale
of foreign currency futures or options by an otherwise
unregulated entity. By the same token, the legislation
provides no role for the CFTC where other regulators--
including the banking and securities agencies--already
provide federal regulatory oversight. Similarly, the bill
views current regulation of other off-exchange Treasury
amendment products as adequate and does not provide a role
for the CFTC in this regard. For example, federal agencies
and private firms alike have widely agreed that it would be
unnecessary and inappropriate for the CFTC to regulate the
``when-issued'' market in Treasury securities.
The bill defines more clearly the CFTC's role in regulating
retail transactions and affords equivalent opportunities for
futures exchanges to develop markets in Treasury amendment
products for professional investors. In particular, the bill
states that an unsupervised entity systematically marketing
standardized, non-negotiable foreign currency transactions to
retail investors will be considered a ``board of trade,'' and
hence subject to the CFTC's jurisdiction.
The bill instructs the CFTC to define the term ``retail
investors,'' and provides some guidance on how to do so. It
further clarifies that an option involving a Treasury
amendment product is a ``transaction,'' meaning that it is
excluded from the Act to the same extent as other
transactions. Finally, the bill retains the current Treasury
amendment provision which extends CFTC jurisdiction to
products offered on a board of trade, but makes this
provision apply only when these products are offered to the
general public. The effect is that futures exchanges would be
able to develop separate markets in Treasury amendment
products. As is the case when such products are traded over
the counter among institutions today, the Act and its
regulations would not apply. The bill instructs the CFTC to
define the term ``the general public,'' in order to make
clear the parameters under which exchanges may establish
these markets. The bill also confirms the CFTC's ability,
acting pursuant to its emergency powers under Sec. 8a(9) of
the Act, to secure the integrity and viability of approved
contract markets in the event that market factors, including
the establishment by futures exchanges of markets in Treasury
amendment products, adversely affect them.

sec. 3. hedging

The CEA does not directly define the term ``hedging.'' In
Section 3 of the CEA, which contains various legislative
findings that justify regulation of futures markets, the
statute speaks of business operators ``hedging themselves
against possible loss through fluctuations in price.''
Questions have been raised whether hedging can occur against
risks other than price risks--for instance, in new futures
contracts that are based on yields of specified crops in
particular States. The bill deletes the phrase ``through
fluctuations in price.'' It makes clear that risks to be
hedged may be risks other than those directly resulting from
price changes. This change will not affect the authority to
establish speculative limits, require reporting of large
trader positions and otherwise ensure market integrity.
In the course of hearings and discussions on the proposed
legislation, the Committee may also consider whether to
revise Section 3 of the Act more extensively in order to
bring it up to date with market needs and conditions,
preserving the Act's important functions of facilitating
price discovery and customer protection while recognizing the
changes that have occurred in the composition and
sophistication of market participants as well as the more
competitive environment in which the futures industry now
operates.

sec. 4. delivery points for foreign futures contracts

In recent years, some overseas futures exchanges have
established delivery points in the United States. The
implications of making and taking delivery of a physical
commodity that is priced on a foreign exchange may differ,
depending on the comparability of price discovery on that
exchange and on U.S. exchanges, as well as other factors.
Serious questions were raised last year, as various
allegations about the copper markets were made and
investigated, about what role, if any, delivery points for
foreign futures contracts may have played in that affair.
These questions are not yet answered. However, the
legislation makes changes that will be appropriate regardless
of the outcome of specific investigations.
The bill directs the CFTC to consult with overseas
regulators and other appropriate parties in countries where
futures exchanges have established U.S. delivery points.
The aim of the consultations will be to secure adequate
assurances against any adverse effect on U.S. markets
because of these delivery points. Such assurances could
take the form of changes to regulations or trading rules
in the overseas market.
The bill also gives the CFTC authority to obtain
information from warehouses that are delivery points for
foreign exchanges. This information would be similar to that
which the CFTC may already require of persons making trades
on overseas futures markets, and will assist the CFTC in
ensuring market integrity, preventing abuses, and otherwise
discharging its responsibilities.

SEC. 5. EXEMPTION AUTHORITY AND SWAP EXEMPTION

The Act gives the CFTC authority to exempt transactions
from its regulatory requirements, either completely or on
stated terms. In 1993, the CFTC used this authority to exempt
swap agreements from most, but not all, portions of the Act.
This exemption generally has worked well, facilitating a
climate in which swaps, which offer numerous benefits to
their users if properly and prudently employed, could trade
with secure legal status. (It was the lack of such legal
certainty which, in part, prompted Congress to enact the
exemptive authority.) Despite the CFTC's prompt action
following the 1992 enactment of exemptive authority, the
status of swaps remains subject to a change in regulations
that could subject these instruments to renewed legal
uncertainty.
The bill will provide additional legal certainty for swaps
and similar transactions in three ways. First, the bill
codifies the present exemption from regulation for
transactions that meet its requirements, either now or in the
future. For these qualifying instruments--which now rely on
the exemptions for swaps in Part 35 of the Code of Federal
Regulations and for hybrid instruments in Part 34--a
statutory change would be required in order for the exemption
to become more restrictive than it now is. The codification
does not affect the CFTC's power to grant additional
exemptions that would be less restrictive than, or
independent of, the current exemption. Nor does it limit the
CFTC's ability to enforce antimanipulation or anti-fraud
provisions of the CEA as they may apply to these transactions
or as the present exemptions may be conditioned on compliance
with their provisions. The CFTC will have, under the codified
exemption, the same authority to enforce these provisions of
the Act as it has retained under its current policies. In
addition, the CFTC would implement the conditions for an
exemption, such as making creditworthiness a material
consideration, in a manner consistent with its current
interpretations. (It has been suggested that some additional
conforming changes may also be appropriate to Section 12(e)
of the Act.)
Second, the bill codifies two important elements of the
present swaps exemptive authority, again to enhance legal
certainty. The legislation clarifies that the CFTC may issue
an exemption that is applicable to the extent the exempted
transaction may have been subject to the Act--i.e., without
requiring a prior decision on whether the transaction
actually was, in fact, subject to the Act. Relatedly, the
legislation states that the mere fact that a transaction was
exempted from the Act does not, in itself, create a
presumption that the transaction was one that would have
fallen under the Act's regulatory requirements had it not
been exempted. Thus, the bill makes the existence of an
exemption a neutral event, for purposes of determining
whether the exempted transaction was subject to the Act:
No inference for or against such a determination is
warranted by the mere fact of an exemption. Both these
clarifications are consistent with present regulations for
these exemptions.
Third, the bill for the first time extends the same legal
certainty to swaps based on equities as is now available for
other swaps. Although the great majority of swaps involve
interest rates or currencies, there presently exist swaps
based on equities or equity indices. The legal status of
these instruments has been less certain than that of other
swaps; they rely primarily on a 1989 policy statement by the
CFTC which predates the present swaps exemption. The bill
codifies, for these swaps, the same exempt

[[Page S957]]

status as for other similar instruments: To the extent they
may be subject to the Act's provisions, they will be exempt
from those provisions (other than anti-fraud and anti-
manipulation strictures) as long as they satisfy the terms
and conditions of the present swaps exemption as to the way
in which they are structured and traded, and as to the
persons who may enter into them.

SEC. 6. EXEMPT TRANSACTIONS ON CONTRACT MARKETS

In contrast to the exemptions for swaps and hybrids, the
Commission's exemptive terms for on-exchange professionally
traded markets (codified in Part 36 of the Code of Federal
Regulations) have not led to significant commercial activity.
The legislation provides that such markets may be established
by futures exchanges, subject to some limitations. In
particular, the bill does not exempt such ``professional
markets'' from the so-called ``Shad-Johnson'' accord, which
governs on-exchange products involving equities. Moreover,
the legislation excludes agricultural commodities from the
list of products for which the professional markets must be
recognized.

SEC. 7. CONTRACT DESIGNATION

The Act now requires futures exchanges to be ``designated''
as a ``contract market'' for each futures contract they
trade. This process has been streamlined by the CFTC in
recent years, but the statute continues to reflect a rather
elaborate process in which, in many ways, the burden of proof
is placed on exchanges to demonstrate why they should be able
to offer new products for trading. Even for a sector like the
the futures industry, where the public interest requires
regulation, this implicit presumption against new product
development is out of date.
The bill streamlines the process of introducing new futures
contracts, both by compressing the time available for agency
review and by creating a presumption that products developed
by exchanges should be permitted to trade unless the CFTC
finds compellingly why they should not. The legislation
treats new contract applications as rules, albeit under
somewhat different procedures from other exchange rules.
Under the new procedure, an exchange submits a new contract
to the CFTC. The new contract may trade after 10 business
days, unless the CFTC states an intention to review it for
possible disapproval. After a further 15 business days, the
new contract can be traded unless the CFTC institutes
proceedings to disapprove it. These proceedings are to be
completed within 120 days; if not, the new contract can trade
until and unless it is finally disapproved. In contrast to
the present burden on an exchange to show that a contract is
in ``the public interest,'' the CFTC could only disapprove
a contract by showing that it was ``contrary to the public
interest'' (or by showing that it violated law or
regulations). The philosophy is a fairly simple one:
Subject to prudent regulatory limits, private futures
exchanges can more appropriately and efficiently decide
which new products are ripe for trading than can the
government. The exchanges may sometimes err in these
judgments, but that is the way markets work.

sec. 8. delivery by federally licensed warehouses

An obscure provision of the Act now allows any federally
licensed grain warehouse to make delivery against a futures
contract, on giving reasonable notice. Though seldom if ever
used, this provision appears to conflict with the ability of
exchanges to establish their own trading procedures,
including delivery points. In an extremely tight market, the
current provision could in some circumstances facilitate
market manipulation. The bill repeals this provision.

sec. 9. submission of rules to commission

The bill revises current requirements for submitting
exchange rules to the CFTC. These rules affect the everyday
procedures for doing business on the exchange, as well as the
ground rules for trading. They run the gamut from major to
minor. As with the procedures for approving new contracts,
the legislation compresses the time available for federal
review and generally streamlines procedures. Rules are to be
submitted to the CFTC and can become effective in 10 business
days unless the CFTC notifies the exchange that it will
review them for possible disapproval. If the CFTC does not
institute disapproval proceedings within 45 days of receiving
the proposed rule, or conclude its proceedings within 120
days, the rule can become effective until and unless
disapproved.
The authors of the bill intend that its legislative history
will also discuss the implementation of statutory
requirements for the composition of exchange boards of
directors. The CFTC will be directed to report, on an ongoing
basis, its evaluation of how fully these requirements are
being met. The report language will provide further
clarification of Congressional intent with regard to the
qualification of individuals to satisfy particular
requirements for board representation.

sec. 10. audit trail

Futures exchanges are subject to audit trail requirements
that are intended to ensure market integrity, and to deter
and detect abuse. The bill clarifies these requirements in
one respect. It states--consistent with testimony by the CFTC
before Congress in 1995--that the audit trail requirements
establish a performance standard, not a mandate for any
particular technological means of achieving the standard. In
further support of this clarification, the bill speaks of the
``means selected by the contract market'' for meeting audit
trail standards. The authors of the bill intend that its
legislative history will also note further CFTC testimony
that, in assessing the ``practicability'' of various
components of the audit trail standards, the cost to
exchanges of meeting the standards is one factor to be taken
into account.

sec. 11. miscellaneous technical amendments

The bill makes several technical changes to correct
omissions in the current statute. Moreover, it makes
additional technical amendments, in many cases as a result of
CFTC suggestions, that correct previous errors or
inconsistencies as to typography, proper citation and the
like.

sec. 12. consideration of efficiency, competition, risk management, and
antitrust laws

The bill requires the CFTC, in issuing rules, regulations
and some types of orders, to take into account the costs and
benefits of the action it contemplates. The requirement is
not for a quantitative cost-benefit analysis, but a mandate
to consider both costs and benefits, as well as other
enumerated factors. The authors of the bill believe that in
establishing its policies and giving direction to market
participants, the CFTC should weigh how its actions may
affect the participants' costs of doing business, as well as
what benefits may accrue from the action.
Some activities of the CFTC, of course, do not call for
this kind of approach, and indeed applying a cost-benefit
requirement to them would be inappropriate. Thus, the bill
exempts the CFTC's adjudicatory and investigative processes,
emergency actions and certain findings of fact that are
objective, quantitative or otherwise unsuitable for a cost-
benefit approach. The bill's eventual legislative history
will further discuss Congressional intent in enacting this
requirement.

sec. 13. disciplinary and enforcement activities

Enforcement is a priority for the CFTC. Like other
financial regulators, the CFTC is assisted in its enforcement
activities by the complementary rules, surveillance and
disciplinary actions of self-regulatory organizations (SROs).
These include both the futures exchanges themselves and the
National Futures Association. The bill provides guidance to
the CFTC on the deployment of enforcement resources, and
requires a report in one year on the overall enforcement
program. The legislation expresses the sense of Congress that
the CFTC should avoid unnecessary duplication of effort where
SROs have taken adequate action to deter abuse and ensure
customer protection. It further states that the CFTC's
oversight and disciplinary role should be sufficient to
safeguard market integrity and protect public confidence in
markets.

sec. 14. delegation of functions by the commission

The CFTC, under current law, has delegated some limited
duties to the National Futures Association. Today's austere
budget climate makes it prudent for the commission to assess
whether other functions could appropriately be delegated. The
bill calls on the CFTC to determine which, if any, additional
functions should be delegated to SROs, suggesting the use of
procedures like spot checks and random audits to ensure that
any delegated functions are adequately performed, and
requires a report in one year with the results of the review.
The authors intend that the bill's legislative history will
cite several current CFTC activities that could be considered
for delegation.

Mr. HARKIN. Mr. President, I am pleased to join Chairman Lugar
and Senator Leahy in introducing legislation to amend the Commodity
Exchange Act. This bill updates and streamlines U.S. futures trading
law, and provides needed clarification to several critical issues
facing today's vast derivative markets.
After reviewing the committee testimony taken last year, and meeting
informally with industry, regulators, and academics, Chairman Lugar,
Senator Leahy, and I are convinced that these changes are appropriate
and necessary if the United States is to maintain its dynamic, world-
class futures trading industry.
There is a strong public interest in maintaining a competitive and
sound futures market in the United States. These markets are critical
because they allow farmers, ranchers, and other businesses to manage
risk and maximize their investment opportunities. At the same time, the
committee has an obligation to protect the public trust through
effective enforcement and regulatory measures that prevent and punish
fraud and other abuses that may, and have, occurred in the
international financial markets--including the futures market.
This bill is a bipartisan effort to find the balance between the need
for prudent regulation with industry's need for changes so that the
U.S. futures market continues to be the driving

[[Page S958]]

force in today's competitive global financial markets.
Introduction of this legislation is timely. President Clinton's 1998
budget, due for release later this week, challenges Federal agencies to
do more with less. It will ask Federal agencies to improve programs and
services and streamline procedures.
This legislation provides legislative backing to accomplish this
crucial goal. The bill proposes specific changes that will further
assist the Commodity Futures Trading Commission, the primary regulator
of the futures industry, to continue its on-going effort to focus
scarce resources where they are most effective--in enforcement--
preventing consumer fraud and manipulation of market prices.
The legislation allows industry to focus on product innovation and
marketing so that the end users--farmers, ranchers, and other
businesses--have available to them, free of fraud and at a competitive
price, the most state-of-the-art financial products.
The bill also provides the CFTC with additional authority to require
U.S. delivery points for overseas futures markets to provide
information similar to that currently demanded of American market
participants. This provision may help prevent a repeat of last summer's
1996 London/Tokyo copper market crisis where billions of dollars were
lost due, in part, to lack of sufficient information and Government
oversight by the CFTC's foreign counterparts.
I am pleased that this legislation addresses the uncertainty that
currently exists in the so-called ``Treasury amendment'', a 1974
provision of the Commodity Exchange Act that excludes certain financial
products from its regulatory coverage. This provision has long been
controversial and our proposal suggests one solution.
It is unfortunate that the Treasury Department and the CFTC were
unable to negotiate a resolution of this issue in time for this bill's
reintroduction. But I remain open to alternative proposals, and look
forward to hearing the views of all interested regulators, industry
participants, and users of these products at next week's hearings.
Two other important aspects of this legislation are a provision that
provides greater legal certainty for the over-the-counter financial
tools such as swaps and hybrids, and a provision that codifies a 1992
provision to allow on-exchange products to be traded solely among
professional investors. Both of these provisions are important to the
ability of private enterprises to manage business risk.
I am very pleased to join my colleagues in offering this bill.
Chairman Lugar, Senator Leahy, and I have worked together on futures
issues for many years. We did the same on this bill--working to ensure
that these markets remain competitive while maintaining effective
provisions on customer protection and market integrity.
Introducing this bill early in the 105th Congress offers ample time
to continue last year's public discussion and debate over what changes
are appropriate and necessary to maintaining a viable U.S. futures
market.
It is my experience that such a dialogue helps develop solid
bipartisan legislation. As with most issues, there are many interests
that must be balanced, and this bill strives to find that balance. I am
certainly open to further input as we hold hearings next week.
I look forward to continuing the process.
______

By Mr. FEINGOLD (for himself and Mr. Kohl):
S. 258. A bill to improve price discovery in milk and dairy markets
by reducing the effects of the National Cheese Exchange on the basic
formula price established under milk marketing orders, and for other
purposes; to the Committee on Agriculture, Nutrition, and Forestry.

THE MILK PRICE DISCOVERY IMPROVEMENT ACT OF 1997

Mr. FEINGOLD. Mr. President, I introduce the Milk Price
Discovery Improvement Act of 1997 with my senior Senator from Wisconsin
[Mr. Kohl]. Mr. President, this bill addresses longstanding farmer
concerns that milk prices can be manipulated by those with the
incentive and ability to do so. Those concerns were validated by a
March 1996 University of Wisconsin study funded by the Department of
Agriculture which concluded that the National Cheese Exchange, a cash
market for cheese located in Green Bay, WI, directly and indirectly
influences farm milk prices and is highly vulnerable to price
manipulation by its major traders.
Concern about trader concentration and price manipulation is not
exclusive to the dairy industry, Mr. President. Two weeks ago, the
minority leader, Senator Daschle, introduced the Cattle Industry
Improvement Act which addressed concerns about growing concentration in
the livestock industry and the lack of market information available to
livestock producers. Less than 2 percent of the cattle in the U.S. are
sold on markets with open and competitive bidding and the top four
packing firms in this country slaughter 80 percent of all cattle.
The unfortunate trend of increasing concentration throughout
agriculture and the growing scarcity of reliable market information has
placed farmers at an extreme disadvantage compared to powerful
corporate traders. Mr. President, I was pleased to cosponsor the Cattle
Industry Improvement Act, which seeks to prevent noncompetitive
practices in the livestock industry and improve market information
because I believe this trend must be stopped.
The bill I am introducing today addresses these same alarming trends
in the dairy industry and seeks to prevent manipulation of farm-level
milk prices. Dairy farmers must not be held captive to a market that
cannot be relied upon to provide accurate information about the value
of the milk they produce. Unfortunately, farm milk prices are currently
determined by such a market--the National Cheese Exchange.
The National Cheese Exchange is the only cash market in the United
States for the sale of bulk cheese. Located in Green Bay, WI, the
Exchange trades cheese each Friday for half an hour. Between 1988 and
1993, only 1 percent of all bulk cheese sold nationally was traded on
the NCE. During this 5-year period, eight buyers and sellers dominated
much of the exchange trading, despite exchange membership of 30 to 40
companies. The top seller on the exchange accounted for 75 percent of
all sales during this period.
Thus, the exchange is not only thin with respect to the volume of
cheese bought and sold, it is also thinly traded with the same small
number of large firms dominating the trading activity. The opinion
price on the National Cheese Exchange, and other markets with these
characteristics, is easily influenced by one trade. In addition, unlike
other cash markets which trade more frequently, when the price changes
at the National Cheese Exchange it stays at that level until one week
later at the next trading session. This infrequency of trading lends
greater significance to any trading activity which alters the price of
cheese.
The existence of such a market on its own would not be a problem if
it did not affect dairy farmers and others off the exchange.
Unfortunately, the opinion price of the National Cheese Exchange
directly and decisively affects the price that farmers throughout the
Nation receive for their milk. A 1-cent change in the opinion price at
the exchange generally translates into a 10-cent change in the price of
milk to farmers. When prices on the exchange drop suddenly and
precipitously, dairy farmers nationally lose millions of dollars in
producer receipts. In the last 3 months of 1996, cheese prices on the
National Cheese Exchange fell by more than 50 cents per pound, with an
unprecedented price plunge of 21 cents in one trading session. As a
result, as many of my colleagues are aware, milk prices fell by more
than $4 per hundredweight--a 26-percent decline in income. In Wisconsin
alone, this price decline has cost dairy farmers more than $165 million
in lost income.
The price decline has been extremely painful for dairy farmers still
struggling with high feed bills but what has made the pain more
difficult to bear is the general belief held by many dairy economists
that the price fell too far too fast and could not be justified based
on prevailing market conditions. Whether the price declined so
drastically simply because the National Cheese Exchange is a poor
indicator of market conditions or because traders intentionally drove
the price down is irrelevant. The perception of farmers that the
exchange price was manipulated warrants its retirement as the mover of
milk prices in this country.

[[Page S959]]

The reality that the exchange clearly overreacted to market conditions
with record-setting price declines necessitates it.
The National Cheese Exchange has such a dramatic effect on milk
prices for two reasons. First, milk prices are tied directly to the
exchange opinion price through the basic formula price [BFP],
calculated by USDA. The BFP determines the class III price for milk
regulated under the Federal milk marketing order system. Second, even
if the formal linkage did not exist, milk prices would still be
dramatically affected by the exchange opinion because it is used as the
benchmark in virtually all forward contracts for bulk cheese; 90 to 95
percent of bulk cheese in the United States is sold through forward
contracts. In other words, virtually all cheese sold in the country is
priced based on the opinion price at the Cheese Exchange. That is, at
least in part, due to the lack of any alternative market information on
the value of cheese.
The combination of thin nature of the National Cheese Exchange and
its influence on milk prices nationally, creates a situation in which
there is both the opportunity and the incentive for price manipulation.
Anyone buying or selling cheese on the National Cheese Exchange may be
able to affect the price of milk throughout the country. The extensive
report issued by the University of Wisconsin last year concluded that
the trading patterns on the NCE suggest that lead traders use the NCE
to influence exchange prices with the intent of affecting milk and
cheese prices nationwide.
Unfortunately, no viable alternative to the National Cheese Exchange
currently exists for cheese price discovery. While there is a futures
market for cheese and other dairy products, trading of futures
contracts have been weak making the futures prices unreliable
benchmarks. Furthermore, there is little or no market information on
prices for off-exchange spot transactions of cheese collected by the
Department of Agriculture. Secretary of Agriculture Dan Glickman
recently announced a new cheese price series that should improve market
information for off-exchange transactions. However, such information
may not be adequate to supplant the role of the National Cheese
Exchange. Of even greater concern is that despite its influence over
milk prices nationwide and its vulnerability to manipulation, the
exchange is not regulated by any State or Federal entity.

Mr. President, farmers throughout the country are frustrated by a
pricing system that can no longer guarantee that milk prices are
determined competitively and without manipulation and that they believe
led to the severe and unwarranted price decline last fall. They have
rightfully demanded that we change the way milk prices are set by U.S.
Department of Agriculture to reduce the influence of the exchange on
farm-level prices. In addition, farmers have called for increased
regulation of the exchange to prohibit manipulation of milk and cheese
prices.
Mr. President, that is my goal in introducing this legislation today.
Farmers must not be held hostage to this market any longer. First, my
legislation directs USDA to break the direct link between the basic
formula price and the National Cheese Exchange. Second, it requires
USDA to develop alternative sources of cheese market information so
that buyers and sellers of cheese need no longer rely on the exchange
as a reference price for forward contracts. Finally, my legislation
will provide USDA with clear authority to prohibit noncompetitive
practices on any cash market that affects the price of milk regulated
under Federal milk marketing orders, including the National Cheese
Exchange. By law, USDA has been charged with ensuring orderly
conditions for the marketing of milk. The agency cannot meet that
charge without greater authority to oversee the National Cheese
Exchange and prevent those who benefit from low milk prices from
driving them down. Ultimately, the solution to these problems lies in
the creation of a reliable price discovery system for milk and dairy
products that the dairy industry can rely on. But it will take time to
develop those alternatives, and it will take time for the dairy
industry to come to rely on them. Until we reach that goal, it is
absolutely critical that USDA prohibit noncompetitive activities on the
National Cheese Exchange.
Mr. President, I am also pleased to be a cosponsor of the National
Cheese Exchange Oversight and Improvement Act introduced by my senior
Senator from Wisconsin, Senator Kohl. This bill provides the Commodity
Futures Trading Commission [CFTC] with day-to-day regulatory
jurisdiction over the activities of the National Cheese Exchange. While
the CFTC has some limited jurisdiction over the exchange, they do not
have the authority to impose trading rules on the exchange. The new
authority provided in our respective bills for USDA and CFTC to oversee
the exchange should ensure farmers that until the functions of the
exchange can be replaced by alternative price discovery mechanisms, we
will do all we can to prevent manipulation of farm milk prices.
Mr. President, I believe the combination of the provisions of the
Milk Price Discovery Improvement Act and the National Cheese Exchange
Oversight and Improvement Act will go far toward resolving some of the
problems that have led to the recent milk price plunge that has cost
this country's family farmers so dearly. This legislation, if passed,
may also help restore the confidence of dairy farmers in our milk
pricing system.
Mr. President, there are varied and complicated reasons that the
trend in American agriculture is toward fewer and larger farms and
toward greater concentration in processing and manufacturing. However,
I believe that Federal policies that provide competitive advantages to
larger farms and subtly discriminate against smaller farmers are among
them. Sanctioning pricing mechanisms, like the National Cheese
Exchange, that provide unequal market power and information, and
relying on them to set prices, is one such policy. Small dairy farmers
are less able to withstand the lost income resulting from volatile
prices caused by the National Cheese Exchange. Small cheese processors
and manufacturers that dot Wisconsin's countryside also suffer from
price volatility and manipulation on the exchange yet lack the ability
to counteract the power of other traders. We can restore a degree of
market equality by improving price discovery and by preventing those
with the power to manipulate prices from doing so. That is the goal of
the Milk Price Discovery Act of 1997. I urge my colleagues to support
this important legislation.
Mr. President, I ask unanimous consent that a summary of my
legislation as well as the full text of the bill be included in the
Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

S. 258

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

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Milk Price Discovery
Improvement Act of 1997''.

SEC. 2. FINDINGS.

Congress finds that--
(1) the National Cheese Exchange, located in Green Bay,
Wisconsin, is the only cash market for bulk cheese in the
United States, trades less than 1 percent of all bulk cheese
sold nationally, and currently functions as the only price
discovery mechanism for bulk cheese throughout the industry;
(2) the National Cheese Exchange opinion price directly
influences milk prices paid to farmers because of its use in
the Department of Agriculture's basic formula price under
Federal milk marketing orders;
(3) opinion prices at the National Cheese Exchange
influence the price for much of the bulk cheese bought and
sold in the United States and directly or indirectly
influences the price of milk paid to producers throughout the
United States;
(4) the National Cheese Exchange is a thinly traded,
illiquid, and highly concentrated market that is increasingly
volatile;
(5) a report issued by the University of Wisconsin and
funded by the United States Department of Agriculture
concluded that the National Cheese Exchange is vulnerable to
price manipulation;
(6) the thin nature of the National Cheese Exchange and the
characteristics of that market that may facilitate price
manipulation have led to widespread producer concern about
the validity of prices at the National Cheese Exchange; and
(7) it is in the national interest to ensure that prices on
cash markets that directly and indirectly affect milk prices
are determined in the most competitive manner practicable and
to improve price discovery for milk and other dairy products.

[[Page S960]]

SEC. 3. BASIC FORMULA PRICE.

Section 143(a) of the Agricultural Market Transition Act (7
U.S.C. 7253(a)) is amended by adding at the end the
following:
``(5) National cheese exchange.--
``(A) In general.--In carrying out this subsection and
section 8c(5) of the Agricultural Adjustment Act (7 U.S.C.
608c(5)), reenacted with amendments by the Agricultural
Marketing Agreement Act of 1937, the Secretary shall not,
directly or indirectly, use a price established on the
National Cheese Exchange to determine the basic formula price
for milk or any other milk price regulated by the Secretary.
``(B) Regulations.--Not later than 60 days after the date
of enactment of this paragraph, the Secretary shall review
and amend the applicable regulations promulgated by the
Secretary to ensure that the regulations comply with
subparagraph (A).
``(C) Effect on further revision.--Subparagraph (B) shall
not preclude a further revision to, or replacement of, the
basic formula price under this subsection or section 8c(5) of
the Agricultural Adjustment Act (7 U.S.C. 608c(5)), reenacted
with amendments by the Agricultural Marketing Agreement Act
of 1937, except that the revision or replacement shall be
consistent with subparagraph (A).''.

SEC. 4. DAIRY PRICE DISCOVERY AND REPORTING SYSTEM.

Section 203 of the Agricultural Marketing Act of 1946 (7
U.S.C. 1622) is amended by adding at the end the following:
``(o) Dairy Price Discovery and Reporting System.--
``(1) In general.--Not later than 1 year after the date of
enactment of this subsection, the Secretary shall develop a
price discovery system for raw milk, bulk cheese, and other
dairy products in order to facilitate orderly marketing
conditions.
``(2) Administration.--In carrying out paragraph (1), the
Secretary shall--
``(A) collect and disseminate, on a weekly basis,
statistically reliable information, obtained from all cheese
manufacturing areas in the United States on prices and terms
of trade for spot and forward contracts, reported separately,
transactions involving bulk cheese, including information on
the national average price and regional average prices for
bulk cheese sold through spot and contract transactions;
``(B) provide technical assistance to any person, group of
persons, or organization seeking to organize a cash market
alternative to the National Cheese Exchange that the
Secretary believes will improve price discovery; and
``(C) not later than 180 days after the date of enactment
of this subsection--
``(i) in cooperation with the Commodity Futures Trading
Commission, conduct a study and report to Congress on means
of encouraging improved volume in futures trading for milk,
bulk cheese, and other dairy products; and
``(ii) conduct a study and report to Congress on the
feasibility and desirability of the creation of an electronic
exchange for cheese and other dairy products.
``(3) Confidentiality.--All information provided to, or
acquired by, the Secretary under paragraph (2)(A) shall be
kept confidential by each officer and employee of the
Department of Agriculture, except that general weekly
statements may be issued that are based on the information
and that do not identify the information provided by any
person.''.

SEC. 5. OVERSIGHT OF CASH MARKETS AFFECTING FEDERAL MILK
MARKETING ORDERS.

Section 8c of the Agricultural Adjustment Act (7 U.S.C.
608c), reenacted with amendments by the Agricultural
Marketing Agreement Act of 1937, is amended by adding at the
end the following:
``(20) Oversight of cash markets affecting federal milk
marketing orders.--
``(A) Definition of noncompetitive practice.--In this
paragraph, the term `noncompetitive practice' means an action
or measure that involves engaging in a course of business or
act for the purpose or with the effect of--
``(i) manipulating or controlling a price on a cash market
that affects the price of milk regulated under an order
issued under this section;
``(ii) creating a monopoly in the acquiring, buying,
selling, or dealing in a product; or
``(iii) restraining commerce.
``(B) General rule.--In order to ensure fair trade
practices and orderly marketing conditions for milk and milk
products under this section, the Secretary shall prohibit
noncompetitive practices on a cash exchange for milk, cheese,
and other milk products that the Secretary finds affects or
influences the price of milk regulated under an order issued
under this section.
``(C) Other agencies and states.--This paragraph shall not
affect the authority of the Federal Trade Commission,
Commodity Futures Trading Commission, Department of Justice,
any other Federal agency, or any State agency to regulate a
noncompetitive practice described in subparagraph (B).
``(D) Enforcement.--The enforcement provisions of sections
203, 204, and 205 of the Packers and Stockyards Act, 1921 (7
U.S.C. 193, 194, 195) shall apply, to the extent practicable
(as determined by the Secretary), to this paragraph.''.
____

The Milk Price Discovery Improvement Act of 1997

Section 1. Short Title.
Section 2. Findings.
Section 3. Basic Formula Price.
Requires U.S. Secretary of Agriculture to delink the
National Cheese Exchange (NCE) opinion price from the USDA
Basic Formula Price used under Federal Milk Marketing Orders
at a date no later than 60 days after enactment of this Act.
This will eliminate the formulaic link between the NCE and
milk prices that has been in place since Spring 1995.
Prohibits USDA's use of NCE prices in any future revision
or replacement of the Basic Formula Price.
Section 4. Dairy Price Discovery and Reporting System.
Requires Secretary to take steps to improve price discovery
in order to reduce the influence of the National Cheese
Exchange on farmer milk prices. Alternative price discovery
mechanisms will provide more information to buyers and
sellers of cheese and may reduce trader reliance on the
Exchange as the sole source of price information.
Requires Secretary to expand USDA's monthly cheese price
reporting system to provide weekly information on actual
prices paid for cheese throughout the country.
Requires Secretary to provide technical assistance to
farmers and others seeking the creation of alternative cash
markets.
Requires Secretary to work with the Commodity Futures
Trading Commission to determine means of increasing trading
volume on dairy futures markets.
Requires Secretary to conduct a study on the feasibility of
creating an electronic market for cheese and other dairy
products.
Section 5. Oversight of Cash Markets Affecting Federal Milk
Marketing Orders.
Requires Secretary to prohibit noncompetitive practices on
any cash market that may affect or influence the price of
milk regulated under Federal Milk Marketing Orders.
Noncompetitive practices include any activity conducted for
the purpose or with the effect of manipulating prices on such
a market.
______

By Mr. CRAIG:
S. 259. A bill to amend the Fair Labor Standards Act of 1938 to
adjust the maximum hour exemption for agricultural employees, and for
other purposes; to the Committee on Labor and Human Resources.

the fair labor standards act water delivery organizations flexibility
amendment act of 1997

Mr. CRAIG. Mr. President, I am introducing a bill today,
which this body previously approved as an amendment to the first bill
amending the Fair Labor Standards Act [FLSA] that the Senate passed in
1989. This bill would solve a problem with the interpretation of a
provision of the FLSA, clarifying that the maximum hour exemption for
agricultural employees applies to water delivery organizations that
supply 75 percent or more of their water for agricultural purposes.
Representative Mike Crapo, of the Second District of Idaho, is today
introducing an identical bill in the other body. Our bill would restore
an exemption that was always intended by Congress.
Companies that delivery water for agricultural purposes are exempt
from the maximum-hour requirements of the FLSA. The Department of Labor
has interpreted this to mean that no amount of this water, however
minimal, can be used for other purposes. Therefore, if even a small
portion of the water delivered winds up being used for road watering,
lawn and garden irrigation, livestock consumption, or construction, for
example, delivery organizations are assessed severe penalties.
The exemption for overtime pay requirements was placed in the FLSA to
protect the economies of rural areas. Irrigation has never been, and
cannot be, a 40-hour-per-week undertaking. During the summer, water
must be managed and delivered continually. Later in the year, following
the harvest, the work load is light, consisting mainly of maintenance
duties.
Our bill is better for employers, workers, and farmers. Winter
compensation and time off traditionally have been the method of
compensating for longer summer hours. Without this exemption,
irrigators are forced to lay off their employees in the winter.
Therefore, our bill would benefit employees, who would continue to earn
a year-round income. It also would keep costs level, which would
benefit suppliers and consumers.
Mr. President, I ask unanimous consent that the text of the bill be
printed in the Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:

[[Page S961]]

S. 259

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

SECTION 1. AMENDMENT TO THE FAIR LABOR STANDARDS ACT OF 1938.

Section 13(b)(12) of the Fair Labor Standards Act of 1938
(29 U.S.C. 213(b)(12)) is amended by inserting after
``water'' the following: ``, at least 75 percent of which is
ultimately delivered''.
______

By Mr. ABRAHAM (for himself, Mr. Hatch, Mrs. Feinstein, Mr.
Grassley, Mr. Kyl, Mr. Hutchinson, Mr. Roberts, and Mr. Robb):
S. 260. A bill to amend the Controlled Substances Act with respect to
penalties for crimes involving cocaine, and for other purposes; to the
Committee on the Judiciary.

Powder Cocaine Penalties Legislation

Mr. ABRAHAM. Mr. President, I introduce legislation that would
increase penalties for distribution of powder cocaine. It would do this
by applying existing mandatory minimum sentences of 5 and 10 years for
this crime to a larger class of powder cocaine dealers.
Specifically, under current law, a dealer has to distribute 500 grams
of powder to qualify for the 5-year minimum, and 5,000 grams to qualify
for the 10-year minimum. My bill would lower the trigger quantities to
100 grams and 1,000 grams, respectively.
As many of you will recall, last Congress, the Sentencing Commission
proposed a dramatic lowering of penalties for distribution of crack.
That proposal would have taken effect automatically had Congress not
stepped in to prevent it from doing so it by adopting legislation I
introduced to block it.
The principal argument the Commission advanced for its proposal was
that current law's sharp differentiation between sentences for crack
cocaine and powder cocaine distribution is wrong. Therefore, the
Commission argued, we should equalize these penalties by lowering
penalties for crack cocaine.
As is clear from the fact that I sponsored legislation to prevent its
recommendation from taking effect, I did not agree with the
Commission's view that crack and powder penalties should be equalized.
I also did not think that dramatically lowering crack penalties was a
good idea for anyone--least of all for inner-city residents where crack
is most freely available and where parents need the most help in
protecting their kids from those peddling this poisonous drug.
At the same time, it also seemed to me that the Commission's report
made some valid criticisms of the current disparity in the sentences.
It just seemed to me that it drew the wrong conclusion from its
criticisms, and that the answer to the problems it identified was not
to lower crack sentences but to raise powder sentences.
That is why, at the same time I introduced my legislation to prevent
the Commission's proposal from taking effect last Congress, I also
introduced the same bill I am introducing today: to raise the sentences
for those who deal powder cocaine, and thereby bring the quantity ratio
down from 100-1 to 20-1.
I believe this proposal recognizes two realities: that crack is more
dangerous and more addictive than powder, but that powder is very
dangerous and a critical contributor to our very serious crack problem.
First, as both the Commission's own study of the matter and a recent
medical study indicate, crack is a more dangerous and addictive form of
cocaine than powder. Moreover because of its relative cheapness and
ease of use, it is more attractive to first-time users, and especially
children.
It is also common sense that with crack use finally stabilizing, we
should not jeopardize what success we have had in combating it by
dramatically lowering the penalties for selling it. That would surely
invite new entrants into the crack market, and thereby lead to an
increase in drug use and trigger a resurgence of violence among
competing crack dealers.
On the other hand, as the Commission's report also pointed out,
present law has resulted, at least occasionally, in insufficiently
severe punishment of individuals at the top of crack distribution
chains. These dealers distribute their product in powder rather than in
crack form. And at least a few of them have received considerably less
than the mandatory 5-year penalty. At the same time lower level dealers
who worked for them and sold the final product, crack, were receiving
at least 5-year sentences. This overly lenient treatment of the powder
kingpins does not seem right.
Second and more generally, when the mandatory sentences for powder
were originally set, they were set without knowledge of the extent of
our crack problem and the contribution that powder cocaine makes to it.
An increase therefore is warranted for that reason as well.
Finally, while I believe some differential in the quantities that
trigger the same sentence for crack and powder is warranted, 100 to 1
seems too great. It is also unique in our drug laws' treatment of
derivative versus source drugs, and that uniqueness is part of what has
made it racially divisive.
My proposed legislation addresses all three of these points. Its
lower threshold for powder mandatories would make it much less likely
that a powder kingpin at the top of a crack-dealing chain would escape
with a lower punishment than those further down in the chain.
By raising the sentences for powder significantly, the bill also
takes into account the contribution that powder cocaine dealing
generally makes to the crack market.
Finally, the change in the powder triggers makes the ratio of powder
to crack necessary to trigger the same sentences 20 to 1 rather than
100 to 1. This would bring it in line with other similar differentials
between source and derivative drugs, such as opium and heroin, which
likewise have a 20 to 1 quantity ratio.
Mr. President, last Congress we withheld action on this question
beyond blocking the Sentencing Commission's proposal because we were
told that the Commission ought to be given another chance to devise a
solution. I believe, however, that this Congress must act on this
matter--whether with the help of the Commission or on its own. By
introducing this legislation at this time, I want to make clear that I
intend to see to it that we do so.
______

By Mr. DOMENICI (for himself, Mr. Ford, Ms. Snowe, Mr. Thompson,
Mr. Thomas, Mr. Roth, Mr. Moynihan, Mr. Nickles, Mr. McCain,
Mr. Conrad, Mr. Abraham, Mr. Frist, Mr. Grams, Mr. Lugar, Ms.
Collins, Mr. Breaux Mr. DeWine, Mr. Burns, Mr. Warner, Mr.
Roberts, Mr. Coats, Mr. Mack, Mr. Kempthorne, Mr. D'Amato and
Mr. Enzi):
S. 261. A bill to provide for biennial budget process and a biennial
appropriations process and to enhance oversight and the performance of
the Federal Government; to the Committee on the Budget and the
Committee on Governmental Affairs, jointly, pursuant to the order of
August 4, 1977, with instructions that if one committee reports, the
other committee have 30 days to report or be discharged.

THE BIENNIAL BUDGETING AND APPROPRIATIONS ACT

Mr. DOMENICI. Mr. President, on behalf of Senator Ford and 23 other
Senators, I rise to introduce the Biennial Budgeting and Appropriations
Act, a bill to convert the budget and appropriations process to a 2-
year cycle and to enhance oversight of Federal programs.
One of the greatest challenges facing the 105th Congress and
President Clinton is to balance the Federal budget by 2002 and maintain
balance through the next century when we will need to confront the very
serious fiscal problems associated with an aging America. Balancing the
Federal budget will require long-term planning, tough choices, and
steadfast effort. These decisions should not be made, indeed I contend
cannot be made, using the current fractionated annual budget process.
Congress should now act to streamline the system by moving to a 2-
year, or biennial, budget process. This is the most important reform we
can enact to streamline the budget process, to make the Congress a more
deliberative and effective institution, and to make us more accountable
to the American people.
Mr. President, moving to a biennial budget and appropriations process
enjoys very broad support. President Clinton has proposed this reform.
Presidents Reagan and Bush also proposed a biennial appropriations and
budget cycle. Leon Panetta, who has

[[Page S962]]

served as White House Chief of Staff, OMB Director, and House Budget
Committee chairman, has advocated a biennial budget since the late
1970's. Former OMB and CBO Director Alice Rivlin has been arguing for a
biennial budget for almost two decades. Other supporters include
Senators Lott, Ford, Roth, Thompson, and Glenn. Last year, 42 Senators
wrote our two Senate leaders calling for quick action to pass
legislation to convert the budget and appropriations process to a 2-
year cycle.
The most recent comprehensive studies of the Federal Government and
the Congress have recommended this reform. The Vice President's
National Performance Review and the Joint Committee on the
Reorganization of Congress both recommended a biennial appropriations
and budget cycle.
A biennial budget will dramatically improve the current budget
process. The current annual budget process is redundant, inefficient,
and destined for failure each year. The current process to develop,
legislate, and implement the annual budget consumes 3 years: 1 year for
the administration to prepare the President's budget, another year for
the Congress to put the budget into law, and the final year to actually
execute the budget.
Today, I want to focus just on the congressional budget process, the
process of annually passing a budget resolution, authorization
legislation, and 13 appropriation bills. The record clearly
demonstrates the serious shortcomings of this process:
We have met the statutory deadline to complete a budget resolution
only 3 times since 1974. In 1995, we broke the Senate record for the
most rollcall votes cast in a day on a budget reconciliation bill.
The Congressional Budget Office just released its report on
unauthorized appropriations. For fiscal year 1997, 121 laws authorizing
appropriations have expired. These laws cover over one-third, or $89.6
billion, of appropriations for nondefense programs. Another 52 laws
authorizing non-defense appropriations will expire at the end of fiscal
year 1997, representing $31 billion more in unauthorized nondefense
programs.
Since 1950 Congress has only twice met the fiscal year deadline for
completion of all 13 individual appropriations bills to fully fund the
Government.
While we have made a number of improvements in the budget process,
the current annual process is redundant and inefficient. The Senate has
the same debate, amendments, and votes on the same issue three or four
times a year--once on the budget resolution, again on the authorization
bill, and finally on the appropriations bill.
I recently asked the Congressional Research Service [CRS] to update
and expand upon an analysis of the amount of time we spend on the
budget. CRS looked at all votes on appropriations, revenue,
reconciliation, and debt limit measures as well as budget resolutions.
CRS then examined any other vote dealing with budgetary levels, Budget
Act waivers, or votes pertaining to the budget process. For 1996, CRS
found that the Senate devoted 73 percent of its time to the budget.
If we cannot adequately focus on our duties because we are constantly
debating the budget in the authorization, budget, and appropriations
process, just imagine how confused the American public is about what we
are doing. The result is that the public does not understand what we
are doing and it breeds cynicism about our Government.
Under the legislation I am introducing today, the President would
submit a 2-year budget and Congress would consider a 2-year budget
resolution and 13 2-year appropriation bills during the first session
of a Congress. The second session of the Congress would be devoted to
consideration of authorization bills and for oversight of Government
agencies.
Most of the arguments against a biennial budget process will come
from those who claim we cannot predict or plan on a 2 year basis. For
two-thirds of the budget, we do not actually budget on an annual basis.
Our entitlement and revenue laws are under permanent law and Congress
does not change these laws on an annual basis. The only component of
the budget that is set in law annually are the appropriated, or
discretionary accounts.
Mr. President, the most predictable category of the budget are these
appropriated, or discretionary, accounts of the Federal Government. I
recently asked CBO to update an analysis of discretionary spending to
determine those programs that had unpredictable or volatile funding
needs. CBO found that only 4 percent of total discretionary funding
fell into this category. Most of this spending is associated with
international activities or emergencies. Because most of this funding
cannot be predicted on an annual basis, a biennial budget is no more
deficient than the current annual process. My bill will continue to
allow supplemental appropriations necessary to meet these emergency and
unanticipated requirements.

This legislation also will enhance oversight of Federal programs and
activities. Frankly, the limited oversight we are now doing is not as
good as it should be. We have a total of 34 House and Senate standing
authorizing committees and these committees are increasingly crowded
out of the legislative process. Under a biennial budget, the second
year of the biennium will be devoted to examining Federal programs and
developing authorization legislation. The calendar will be free of the
budget and appropriations process, giving these committees the time and
opportunity to fully review and legislate changes to Federal programs.
We also build on the oversight process by incorporating the new
requirements of the Government Performance and Results Act of 1993
[GPRA] into the biennial budget process. The primary objective of this
law is to force the Federal Government to produce budgets focused on
outcomes, not just dollars spent. When the goal is to balance the
budget, decisions must be made based on performance.
More specifically, GPRA requires agencies to develop strategic plans,
performance plans, and performance goals. GPRA requires agencies to
report on their actual performance in relation to these goals. Finally,
GPRA requires the President to incorporate these performance plans into
the President's budget submission to Congress.
At the beginning of each even-numbered year, this new biennial bill
requires Federal agencies to submit their preliminary performance plans
and any proposed legislation that will enhance the performance of
Federal programs to authorizing committees. During these even-numbered
years, the authorizing committees will review these performance plans
and actual performance and develop authorization legislation geared to
enhancing the performance of the Federal Government.
Mr. President, a biennial budget is not a panacea for all our budget
woes. A biennial budget cannot make the difficult decisions that must
be made in budgeting, but it can provide the tools necessary to make
much better decisions. By moving to a biennial budget cycle, we can
budget more effectively, strengthen oversight and watchdog functions,
improve the efficiency of Government agencies, and work to balance the
budget in an intelligent, fair, and deliberative manner.
Mr. President, I ask unanimous consent that a Washington Post
article, a description of the bill, and a section-by-section analysis
of the bill be made a part of the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

Description of the Biennial Budgeting and Appropriations Act

Cosponsors (24): Senators Ford, Snowe, Thompson, Thomas,
Roth, Moynihan, Nickles, McCain, Conrad, Abraham, Frist,
Grams, Lugar, Collins, Breaux, DeWine, Burns, Warner,
Roberts, Coats, Mack, Kempthorne, D'Amato, and Enzi.
The Domenici bill would convert the annual budget,
appropriations, and authorization process to a biennial, or
two-year, cycle.

First Year: Budget and Appropriations

Requires the President to submit a two-year budget at the
beginning of the first session of a Congress. The President's
budget would cover each year in the biennium and planning
levels for the four out-years. Converts the ``Mid-session
Review'' into a ``Mid-biennium review''. The President would
submit his ``mid-biennium review'' at the beginning of the
second year.
Requires Congress to adopt a two-year budget resolution and
a reconciliation bill (if necessary). Instead of enforcing
the first fiscal year and the sum of the five years set out
in the budget resolution, the bill provides that the budget
resolution establish binding levels for each year in the
biennium and the sum of the six-year period. The bill
modifies the time frames in the Senate ten-year pay-as-you-go
point of order to provide that legislation could not increase
the deficit for the

[[Page S963]]

biennium, the sum of the first six years, and the sum of the
last 4 years.
Requires Congress to enact a two-year appropriations bill
during the first session of Congress. The Domenici bill
provides two fail-safe measures if there were an attempt to
continue to appropriate funding on an annual basis. First,
the Domenici bill provides a new majority point of order
against appropriations bills that fail to cover two years.
Second, if an appropriations bill were enacted that failed to
appropriate money for the second year of the biennium,
funding would be automatically appropriated at the first
year's level. These fail-safe measures would not apply to
supplemental appropriations bills to fund unanticipated needs
such as emergencies.
Makes budgeting and appropriating the priority for the
first session of a Congress. The bill provides a majority
point of order against consideration of authorization and
revenue legislation until the completion of the biennial
budget resolution, reconciliation legislation (if necessary)
and the thirteen biennial appropriations bills. An exception
is made for certain ``must-do'' measures.

Second Year: Authorization Legislation and Enhanced Oversight

Devotes the second session of a Congress to consideration
of biennial authorization bills and oversight of federal
programs. The bill provides a majority point of order against
authorization and revenue legislation that cover less than
two years except those measures limited to temporary programs
or activities lasting less than two years.
Requires the General Accounting Office (GAO) to give
priority to requests for audits and evaluations of programs
and activities during the second year of the biennium.
Modifies the Government Performance and Results Act of 1993
(GPRA) to incorporate the government performance planning and
reporting process into the two-year budget cycle to enhance
oversight of federal programs.
The Government Performance and Results Act of 1993 (GPRA)
requires federal agencies to develop strategic plans,
performance plans, and performance reports. The law requires
agencies to establish performance goals and to report on
their actual performance in meeting these goals. GPRA
requires federal agencies to consult with congressional
committees as they develop their plans. Beginning this year,
GPRA will require all federal agencies to submit their
strategic plans to the Office of Management and Budget, along
with their budget submissions, by September 30 of each year.
Finally, GPRA requires the President to include a performance
plan for the entire government, beginning with the FY 1999
budget.
The Domenici bill modifies GPRA to place it on a two-year
cycle along with the budget process. The bill also requires
the authorizing committees to review the strategic plans,
performance plans, and performance reports of federal
agencies and to submit their views, if any, on these GPRA
plans and reports as part of their views and estimates
submissions to the budget committees.
The Domenici bill requires agencies to submit a preliminary
performance plan and proposed authorization legislation to
the relevant authorizing committees by March 31 of even-
numbered years. In developing proposed authorization
legislation, the bill directs agencies to include in their
proposed legislation, changes that will enhance agencies'
ability to meet their strategic and performance goals.
____

Biennial Budgeting and Appropriations Act--Section-by-Section Analysis

Section 1 states the title of the legislation--the
``Biennial Budgeting and Appropriations Act''.
Section 2 amends section 300 of the Congressional Budget
and Impoundment Control Act to revise the timetable to
reflect a biennial budget process. In general, the revised
timetable is similar to the current timetable except that
most of the milestones only apply to the first session of a
Congress. The timetable is modified to extend the deadline
for completion of the budget resolution to May 15th and to
extend the deadline for completion of reconciliation
legislation to August 1st. The revised timetable contains two
milestones in the second session: a February 15th reporting
requirement for the CBO annual report on the budget and an
end of session deadline for completion of action on
authorization legislation. This section also amends the
timetable to provide a special schedule in years a new
President is elected. Generally, deadlines are extended by 6
weeks to give a new President more time to prepare and submit
his budget.
Section 3 includes most of the other amendments made to the
Congressional Budget and Impoundment Control Act.
Section 3(a) amends section 2 of the Act to make a
conforming change to the statement of the purposes of the
Act. Section 3(b) adds a definition for ``biennium'' and
makes a conforming change to the definition of a budget
resolution.
Section 3(c) amends section 301 to require the Congress to
complete action on a biennial budget resolution by May 15th
of each odd-numbered year; to require the budget resolution
to cover the biennium, and each of the ensuing four years; to
make conforming changes regarding requirements for hearings
and reports on budgets; to make other conforming changes to
the section; and, to make conforming changes to the section
heading and the table of contents of the Act.
Section 3(d) amends section 302 of the Budget Act,
regarding committee allocations, to require the conference
report on a budget resolution to include an allocation of
budget authority and outlays to each committee for each year
in the biennium and the total of the biennium and the four
succeeding fiscal years. This subsection also makes
conforming changes to section 302(f).
Section 3(e) amends section 303 of the Budget Act,
regarding the point of order against spending and revenue
legislation affecting future fiscal years, to make a
conforming change to provide that such legislation cannot be
considered until the budget resolution for a biennium is
adopted. This subsection also drops an exception in the
Senate that exempts appropriations measures providing an
advance appropriation for the two fiscal years following
the budget year from this point of order.
Section 3(f) makes conforming changes to section 304 of the
Budget Act, regarding revisions of budget resolutions.
Maintains current law that allows Congress to revise the
budget resolution at any time.
Section 3(g) amends section 305 to make a conforming change
regarding a reference to the budget resolution.
Section 3(h) and (i) amend sections 307 and 309 to make
conforming changes regarding the deadlines for completion of
appropriations bills.
Section 3(j) amends section 310 to make conforming changes
regarding reconciliation.
Section 3(k) amends section 311 to provide that a point of
order will lie against any legislation that would cause the
total budget authority, outlay, Social Security outlay, or
Social Security revenue levels to be breached in either
fiscal year of the biennium or that would cause revenue,
Social Security revenue, or Social Security outlays levels to
breached for the sum of the biennium and the four outyears
covered by the resolution. Currently, the budget resolution
all budget authority and outlays are enforced for the first
year covered by the budget resolution and Social Security
outlay, Social Security revenue, and total revenues are
enforced for the five years covered by the budget resolution.
Section 3(l) amends section 401(b)(2) to make a conforming
change regarding the referral of certain entitlement
legislation to the Appropriations Committee.
Section 3(m) amends section 603 to make a conforming change
regarding automatic allocations to the House Appropriations
Committee if the budget resolution is not adopted by May
15th.
Section 4 amends the Senate pay-as-you-go point of order
that prohibits consideration of legislation that would
increase the deficit over a ten year period. The current
Senate pay-as-you-go point of order prohibits consideration
of legislation that would increase the deficit in the first
year, the sum of the first five years, or the sum of the last
five years. Section 4 modifies this point of order to
prohibit consideration of legislation that would increase the
deficit for the sum of the first two years (the biennium),
the sum of the first six years, or the sum of the last four
years.
Section 5 amends the relevant sections of Title 31 of the
U.S. Code regarding materials the President's budget
submission and related documents.
Section 5(a) amends section 1101 to add a definition of
``biennium''.
Section 5(b) amends section 1105 to require the President
to submit the budget the first Monday of February for every
odd-numbered year (except the schedule in section 300(b) of
the Budget Act applies for years in which a new President is
elected). Section 5(b) also amends a number of requirements
in section 1105 to conform the President's budget to a
biennial budget. Among these changes, the President's budget
would have to propose levels for each fiscal year in the
biennium and projections for the four succeeding years.
Section 5(c) amends section 1105(b), regarding estimated
expenditures and proposed appropriations for the legislative
and judicial branches, to require the submittal of these
proposals to the President by October 16th of even-numbered
years.
Subsections (d) and (e) of section 5 make conforming
changes to section 1105 regarding the President's
recommendations if there is a proposed deficit or surplus and
capital investment analyses.
Section 5(f) amends section 1106 to change the requirements
regarding the President's ``Mid-session Review''. Current law
requires the President to submit the Mid-session Review
before July 16 of each year. Section 5(f) requires the
President to submit a ``Mid-biennium Review'' before February
15 of each even-numbered year. With this modification, the
President will submit his biennial budget at the beginning of
each odd-numbered year and provide updated information on the
budget at the beginning of each even-numbered year.
Section 5(g) amends section 1109 to make conforming changes
to require the President to submit current services estimates
for the upcoming biennium and to require the Joint Economic
Committee to submit an economic evaluation to the Budget
Committee as part of its views and estimates report. This
subsection also makes two technical corrections to require
the President to submit the current services information with
his budget

[[Page S964]]

submission and to require the Joint Economic Committee to
submit its economic evaluation within 6 weeks of the
President's budget submission.
Section 5(h) makes amendments to provisions regarding year
ahead requests on authorization legislation to require the
President to submit requests for authorization legislation by
March 31st of even-numbered years.
Section 5(i) amends section 1119 to conform a requirement
regarding agency budget justifications and consulting
services information to the biennial budget submission.
Section 6 amends section 105 of Title I of the U.S. Code
regarding the form and style of appropriations Acts to
require that they cover two years.
Section 7 adds a new section 314 to the Budget Act that
establishes two new points of order in the Congress against
authorization legislation. The first point of order prohibits
consideration of authorization legislation that covers less
than 2 years except for temporary activities. The second
point order prohibits consideration of authorization or
revenue legislation until the Congress has completed action
on the biennial budget resolution, biennial appropriations
bills, and all reconciliation bills. These two points of
order do not apply to appropriations measures, reconciliation
bills, privileged matters, treaties, or nominations. This
point of order can be waived by a simple majority.
Section 8 amends section 717 of title 31 of the U.S. Code
to require the General Accounting Office to give priority
during the second session of a Congress to requests for
Federal program audits and evaluations.
Section 9 establishes a stopgap funding mechanism to
provide funding authority for the second year if Congress
enacts an appropriations bill that only funds one year. This
automatic funding authority does not apply to supplementals
or continuing resolutions.
Section 9(a) amends chapter 13 of title 31 to add a new
section 1311. Section 9(b) amends the table of contents of
chapter 13 of title 31 to add the new section 1311.
Section 1311(a)(1) provides that if Congress enacts a
regular appropriation bill in an odd-numbered year that fails
to provide funding for the second year of the biennium, the
second year is automatically funded at the first year's
level. Section 1311(a)(2) provides that in determining the
level of funding for the first year, the President must take
into account sequester reductions made pursuant to the
Balanced Budget and Emergency Deficit Control Act and
cancellations made pursuant to the Line Item Veto Act.
Section 1311(a)(3) provides that the automatic funding
authority remains in effect only for the duration of the
second fiscal year.
Section 1311(b) makes the automatic appropriation in the
second year subject to the same terms and conditions Congress
established for the first year's appropriation.
Section 1311(c) provides that the funding authority shall
not apply to a project or activity if another law prohibits
funding for that activity.
Section 1311(d) defines ``regular appropriation bill'' as
any one of the thirteen regular appropriations bills.
Section 10 amends the Government and Performance and
Results Act of 1993 (GPRA) to incorporate GPRA into the
biennial budget cycle.
The Government Performance and Results Act of 1993 (GPRA)
requires federal agencies to develop strategic plans,
performance plans, and performance reports. Strategic plans
set out the agencies' missions and general goals. Performance
plans lay out the specific quantifiable goals and measures.
Performance reports compare actual performance with the goals
of past performance plans.
GPRA currently requires federal agencies to consult with
congressional committees as they develop their strategic
plans. Beginning this year, GPRA will require all federal
agencies to submit their strategic and performance plans to
the Office of Management and Budget, along with their budget
submissions, by September 30 of each year. Finally, GPRA
requires the President to include a performance plan for the
entire government, beginning with the FY 1999 budget.
Section 10(a) and (b) amend section 306 of title 5 and
section 115 of title 31 to require agencies to prepare
performance plans every two years, in conjunction with the
President's development of a biennial budget, and strategic
plans every four years (covering a six-year period). This
subsection also requires federal agencies to submit a
preliminary draft of the performance plans to the relevant
authorizing committees by March 31 of even-numbered years.
Subsection (b) also requires agencies to include an executive
summary of their 10 most important performance goals and to
consult with Congress in developing these priority goals. The
purpose of this change is to require agencies to highlight
the crucial goals for Congress.
Section 10(c) amends section 1105(a)(30) of title 31 to
require the President's budget to include aggregate
performance report for the executive branch starting with the
FY 2002-03 budget. Currently, OMB must submit an aggregate
performance plan (known as the Federal Government performance
plan) with the President's budget, but GPRA does not require
them to prepare a performance report, indicating how they
measured up to their goals.
Section 10(d) amends section 1116 of title 31 to make two
changes. First, this subsection requires agencies to report
to Congress on statutory barriers that limit their ability to
meet their mission statement and to propose legislative
recommendations to modify or eliminate such barriers. Second,
this subsection adds subsections (g) and (h) to section 1116.
Subsection (g) would require agencies to include an executive
summary in their performance report describing actual results
in relation to their 10 most important performance goals.
Subsection (h) requires OMB's overall performance report to
compare actual results with the goals established in previous
federal government performance plans.
Section 10(e) amends section 301(d) of the Budget Act to
require Congressional committees to review the strategic
plans, performance plans, and performance reports of agencies
in their jurisdiction. Committees may then provide their
views on the plans or reports to the Budget Committee, if
they so choose, as part of their views and estimates report.
Section 10(f) provides that the amendments shall take
effect on March 31, 1998.
Section 11 amends the Budget Act to add a new section 315
that provides a majority point of order against consideration
in any odd-numbered year of a regular appropriations bill
that fails to fund both years of the biennium. This point of
order does not apply to supplementals or continuing
resolutions.
Section 12 requires OMB to conduct a study within 6 months
of enactment of the feasibility of converting the fiscal year
to a two year period.
Section 13 provides an effective date for the Act and a
transition period. Subsection (a) generally provides that the
Act takes effect on January 1, 1998. Section 13(b) provides a
transition year to the biennial cycle by requiring the
authorizing committees to start consideration of two-year
authorization legislation in 1997. The result is that the
authorizing committees will act on legislation for the fiscal
year 2000-2001 biennium in calendar year 1997. The budget and
appropriations committees will then follow by developing a
budget resolution and 13 appropriations bills for the fiscal
year 2000-2001 biennium in calendar year 1998.
____

[From the Washington Post, Dec. 8, 1996]

Make It a Two-Year Budget

(By Pete V. Domenici)

Democrats and Republicans are pledging bipartisanship
cooperation in fashioning this year's federal budget. We
should begin by abandoning the outmoded and disorderly annual
budget and appropriation process and move to biennial
budgeting and appropriating to stabilize our budget
decisions. This is the most important reform we can adopt to
improve the process, provide for oversight and careful
deliberation, and make us accountable to the American people.
This is not a partisan issue. President Clinton, Senate
Republican Leader Trent Lott and Democratic Whip Wendell Ford
support biennial budgeting and appropriating. It also was
recommended in 1993 by the bipartisan Joint Committee on
Reorganization of Congress.
Under a biennial budget, the president would submit a two-
year budget and Congress would consider a two-year budget
resolution and 13 two-year appropriation bills during the
first session of a Congress. The second session would be
devoted to consideration of authorization bills and for
oversight of government agencies.
A biennial budget would dramatically improve the current
budget process. It would allow legislators to legislate
intelligently. It would provide for oversight of what has
been legislated, and it would cut down on the tremendous
annual effort that now is devoted to developing and
implementing the annual budget.
Consider that each year program managers interrupt their
work to develop detailed documents to propose and support
their budget. That budget must be reviewed by agency budget
officers and senior agency officials before it is presented
to the Office of Management and Budget (OMB). After OMB's
review and the president's approval, the entire budget is
presented to Congress. The executive branch's preparation and
review of the budget takes a year.
After the budget is submitted to Congress; the agencies
have to track and respond to inquiries from Congress as it
considers the budget through the budget resolution,
authorizing legislation and, ultimately, through
appropriations legislation. The congressional budget consumes
another year.
To understand how much effort goes into preparation of the
annual budget, one need only look at one agency's budget
justification in the annual process. Let's take the civil
works program of the Army Corps of Engineers. The corps'
civil works budget amounts to roughly $3.7 billion, or 0.2
percent of the total federal budget. Each year

[[Page S965]]

the corps prepares and submits to the Appropriations
Committee an eight-volume budget justification amounting to
2,005 pages!
Moreover, our current budget process--in which Congress
tries to hold hearings, markups and floor action annually on
authorization, budget and appropriations legislation--makes
it extremely difficult for a member of Congress to fully meet
all his or her obligations, much less take the necessary time
to fully participate in each of these activities.
While an improvement over what went before, the current
budget process is redundant and inefficient. Yogi Berra once
observed that ``it's never over until it's over,'' but it
seems too often that the budget process is never over. The
Senate has the same debate and votes on the same issue three
or four times a year--once on the budget resolution, again on
the authorization bill and few amendments on the floor, and
again on the appropriations bill. In 1993 I found that the
Senate devotes roughly 40 percent of its time debating budget
resolutions, reconciliation and appropriations bills.
In addition to the time-consuming nature of the budget
process, Congress regularly misses its own deadlines and
guidelines, which generates cynicism about our work. In the
22-year history of the Budget Act, we have met the statutory
deadline to complete a budget resolution only three times.
Last year, we broke the Senate record for the most roll-call
votes cast in a day on a budget reconciliation bill.
Since 1950, Congress only twice has met the fiscal year
deadline for completion of all 13 individual appropriations
bills to fully fund the government. Congress usually governs
in the breach, rushing to complete action on omnibus
continuing resolutions in the best years or government
shutdowns in the worst.
A biennial budget, while not a panacea, could improve the
budget process dramatically. In 1987 I asked 50 agencies
about their views on the biennial budget. Thirty-seven
agencies supported a biennial budget. None opposed it. The
agencies generally responded that they could operate under a
biennial budget, and that it would save money for their
operations.
Based on a 1993 congressional study, only 4 percent of
discretionary funding--or $18.5 billion of the $541 billion
appropriated in FY 1993--required annual funding because of
unpredictable funding patterns.
If we have a two-year process, we can deal with another
concern--that Congress does not spend enough time reviewing
the operations of the federal government. Frankly, the
limited oversight we are doing now is not as good as it
should be.
Authorizing committees must increase their focus on their
oversight role. Implementing the Government Performance and
Results Act will begin to force the federal government to
produce budgets next year focused on outcomes, not just
dollars spent. When the goal is to balance the budget,
decisions must be made based on performance. With a biennial
budget, we would create an atmosphere that encourages and
rewards better oversight, because the entire second year of
any Congress would be devoted to authorizations and reviewing
program performance.
By moving to a two-year budget and appropriations cycle,
Congress can inject stability into a sometimes chaotic
system, strengthen congressional oversight and watchdog
functions, improve the efficiency of government agencies
and--finally, it is hoped--increase the public's confidence
that the achievement of balanced budget has been done
intelligently, deliberatively and fairly.

Mr. McCAIN. Mr. President, I rise in strong support of the Biennial
Appropriations and Budget Act--A bill introduced today by Senator
Domenici, the chairman of the Budget Committee. I am pleased to be an
original cosponsor of this important legislation.
Under a biennial budget, the President would submit a 2-year budget
in the first session of a Congress. The priority in the first session
of the Congress would be completion of the biennial budget resolution
and biennial appropriations bills. The second session would be reserved
for authorization legislation and enhanced oversight. The planning and
performance requirements of the Government Performance and Results Act
of 1993 would be incorporated into the budgeting process as well.
I have long advocated changing our budget process in this manner. As
a matter of fact in 1993, I introduced similar legislation. Changing
our budget process would give Congress more time to develop and
implement long-term budget plans. In addition, the 2-year cycle would
allow more time for oversight and thorough evaluation of programs and
spending.
Our current process is simply not working. Only three times in the
past 20 years has Congress passed the budget resolution on time, and
this is only the first step in congressional action on the budget. Only
twice since 1950, has Congress met the fiscal year deadline for
completion of all 13 individual appropriations bills. Most of the time
Congress is rushing to pass appropriations bills, continuing
resolutions, or omnibus spending bills at the last minute, trying to
avoid a Government shutdown. This is not how we should be managing the
power of the purse.
This idea is not new. President Clinton's former Chief of Staff and
OMB Director, Leon Panetta, introduced the first biennial budget bill
in 1977 when he was a Congressman. Vice President Gore strongly
endorsed this idea in his National Performance Review. In his book,
``Creating a Government that Works Better and Costs Less,'' Gore
states, ``Biennial budgeting will not make our budget decisions easier,
for they are shaped by competing interests and priorities. But it will
eliminate an enormous amount of busy work that keeps us from evaluating
programs and meeting customer needs.''
Congress' failure to meet our prescribed deadlines, in current budget
process, contributes to the American people's cynicism about politics.
The time has come to recognize that our current budget process is
broken and we must find a way to fix it. Biennial budgeting is an
important first step toward fixing our current system by making our
budget process more efficient and streamlined. I hope that Congress
will act on this important legislation expeditiously.
Mr. THOMAS. Mr. President, it is an honor to join the chairman of the
Budget Committee, Senator Domenici, in introducing legislation to
create a 2-year budget and appropriations process. Senator Domenici has
worked long and hard on this issue and I am hopeful that we can finally
enact this commonsense reform this year.
The current budget process is breaking down. Congress and the
executive branch spend entirely too much time on budget issues. Since
the most recent budget process reform in 1974, Congress has
consistently failed to complete action on the Federal budget before the
start of the fiscal year and, as a result, has increasingly relied on
omnibus spending measures to fund the Federal Government. In fact,
since 1977, Congress has passed over 60 continuing resolutions just to
keep the Federal Government open.
The budget resolution, reconciliation bill, and appropriations bills
continue to become more time consuming. In the process, authorizing
committees are being squeezed out of the schedule. There are too many
votes on the same issues and too much duplication. In the end, this
time could be better spent conducting vigorous oversight of Federal
programs which currently go unchecked, exacerbating the Federal budget
deficit.
In response to these problems, last Congress I introduced legislation
that would create a biennial budget process. I am pleased to continue
this effort by joining Senator Domenici in offering this bill. It will
rectify many of the problems regarding the current process by promoting
timely action on budget legislation. In addition, it will eliminate
much of the redundancy in the current budget process. This legislation
does not eliminate any of the current budget processes--each step
serves an important role in congressional deliberations. However, by
making decisions once every 2 years instead of annually, the burden
should be significantly reduced.
Perhaps most importantly, biennial budgeting will provide more time
for effective congressional oversight, which will help reduce the size
and scope of the Federal Government. Congress simply needs more time to
review existing Federal programs in order to determine priorities in
our drive to balance the budget.
Another benefit of a 2-year budget cycle is its effect on long-term
planning. A biennial budget will allow the executive branch and State
and local governments, all of which depend on congressional
appropriations, to do a better job making plans for long-term projects.
Two-year budgets are not a novel idea. Nor will biennial budgeting
cure all of the Federal Government's ills. However, separating the
budget session from the oversight session works well across the country
in our State legislatures. It is a solid first step toward restoring
some fiscal accountability in our Nation's Capital. I am hopeful this
bill will be a catalyst for action on this commonsense, good Government
reform.
Mr. FORD. Mr. President, I am pleased to be an original cosponsor of

[[Page S966]]

the Biennial Budgeting and Appropriations Act. I am a full-fledged
supporter of a 2-year budget cycle--an issue I have been championing
since 1981. I believe in its potential as strongly now as I did then.
It's an idea whose time has come.
There are several advantages to a 2-year budget cycle. Foremost,
there will be a savings of time and money. Congress currently debates
spending priorities and funding decisions not only every year, but
several times within 1 year. By limiting budget action to only one
session of each Congress, we eliminate repetitive votes on budget
priorities and spending allocations. We also allow the executive branch
and recipients of Federal aid, such as State and local governments, to
better manage Federal dollars to get more cents out of the dollar.
Biennial budgeting allows for greater planning and more deliberate
spending decisions. Too often, Congress has padded the budget
resolution with spending for anticipated reforms and new initiatives
only to find that action is not completed on the authorization before
the new fiscal year begins. Unfortunately, those funds provided in the
budget cannot be deleted or reserved for the next fiscal year, but must
be spent on other programs.
A 2-year budget, with one session reserved specifically for oversight
and authorizations, will give Congress the time to enact responsible
spending proposals before the adoption of a budget resolution and
appropriations bill. A 2-year budget cycle will give the executive
branch and State and local governments, 2 years to plan for the most
efficient use of Federal dollars.
This legislation will give Congress the opportunity to review
spending decisions, and allow the executive branch to conduct
compliance review. Too often we hear that once a Federal program is
created, it will be funded into eternity. Congress simply needs more
time to review existing spending programs to determine whether they
should be modified, expanded, or replaced.
The Biennial Budgeting and Appropriations Act provides greater
funding certainty for State and local governments. Our elected
counterparts in the States must plan their budgets in large part around
Federal spending decisions. As we know from last year's debate on the
budget, Congress all too often misses deadlines and does not complete
action before the beginning of the fiscal year. State and local
governments simply cannot put their budget deliberations on automatic
pilot while Congress completes its work and they cannot be expected to
efficiently carry out Federal spending programs if they lack the
certainty that funds will be provided on time.
While a 2-year budget won't replace the tough decisionmaking
necessary for deficit reduction, it will make our work on the deficit
and the Federal budget more efficient and more effective. When I was
Governor of Kentucky, 2-year budgeting helped us to lay out a master
plan for the entire State. And that master plan enabled agencies, local
governments, and constituency groups to do long-term planning--planning
that led to greater efficiency, overall cost savings, and equally
important, peace of mind about future funding. We need this sort of
planning on the Federal level. Ask any constituent what some of their
top concerns are, and most, if not all, will talk about wasteful
Government spending. If we truly want to address their concerns, I say
the 2-year budget is the way to go and I am pleased to join Senator
Domenici and others in pushing it forward with renewed vigor this year.
Mr. THOMPSON. Mr. President, I am pleased to join Senator Domenici as
a cosponsor of this important legislation. I supported a similar
measure in the 104th Congress and held a hearing last year in the
Committee on Governmental Affairs. The issue has been debated over a
number of years without success. However, the 105th Congress presents a
new opportunity. As chairman of the Governmental Affairs Committee, I
pledge my support in moving this measure to the full Senate.
The bill being introduced today has the fundamental goal of moving
both the budget and appropriations process to a 2-year cycle--just once
at the beginning of each Congress. In addition, it will link program
results obtained under the Government Performance and Results Act
[GPRA] to the budget process. Congressional committees will be required
to review the GPRA reports and provide views and comments in
conjunction with their comments on the budget.
Biennial budgeting would provide more time for Congress to conduct
greater oversight and indepth evaluations of existing programs. We need
to take more time to find out what is working and what is not. Congress
should not just rely on good intentions when it passes new measures. We
must ensure that the laws we write do provide the benefits and services
as envisioned. The current budget process leaves us with far too little
time to devote to thoughtful and systematic oversight of Federal
programs, and far too little time to develop and consider long-term
policy initiatives.
Another important reason I support 2-year budgeting, in addition to
enhanced oversight, I believe the bill would provide Members of
Congress with more time to spend with the people they represent,
receiving their views and insights on Government programs, services,
and pending legislation. Freedom from dealing with the budget on an
annual basis has the ability to move us closer to a citizen legislature
as envisioned by the Founding Fathers. We have no greater
responsibility than representing the people of our State. To do so, we
need to spend time at home.
On the issue biennial budgeting, once again the States are leading
the way, with more than 20 States currently using some form of it. I
firmly believe it is time for Washington to recognize the value in this
and enact this bill promptly. I support the Biennial Appropriations and
Budget Act of 1997, and encourage all my colleagues to do the same. It
is an idea whose time has come.
______

By Mr. WELLSTONE:
S. 262. A bill to amend title 18, United States Code, to provide for
the prospective application of certain prohibitions relating to
firearms; to the Committee on the Judiciary.

firearms legislation

Mr. WELLSTONE. Mr. President, today I am introducing
legislation that will make clear that from now on, if you are convicted
of beating your wife, your husband, or your children, your actions will
result in you forfeiting your firearm privileges, no matter who you
are.
The bill amends the Federal law that prohibits someone with a
misdemeanor conviction for domestic violence from possessing firearms
or ammunition so that the law is applied prospectively only, from the
date of enactment. I urge my colleagues to support this bill. We know
that all too often the only difference between a battered woman and a
dead woman is a batterer with a gun. Many of you are familiar with
facts I have stood here and recited in the past: Four women a day are
killed at the hands of their batterer;
The California Department of Justice Law Enforcement reported in 1994
that 68 percent of the murder victims known to have been killed by an
intimate were killed by firearms, 68 percent;
The likelihood of a woman dying during a domestic assault is directly
related to the type of weapon available. When a firearms is available,
the assault is three times more likely to end in death than an assault
with a knife. If no weapon is available the dispute is 23 times less
likely to end in death;
Fifty-seven percent of children under 12 who are murdered are killed
by a parent.
These are statistics based only on what is reported. We know that
there are people watching who are victims of abuse in their own homes.
It is happening to women that you know in your work place, in your
church or synagogue and your neighborhood.
Domestic violence is the most underreported crime in the country.
We will not tolerate the violence.
We will not ignore the violence.
We will not say that it is someone else's responsibility.
I urge my colleagues to support this bill.
Mr. President, I ask unanimous consent that the text of the bill be
printed in the Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:

[[Page S967]]

S. 262

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

SECTION 1. PROSPECTIVE APPLICATION OF THE DOMESTIC VIOLENCE
MISDEMEANOR CONVICTION FIREARMS PROHIBITION.

(a) Findings.--Congress makes the following findings:
(1) Spouses, ex-spouses, and current and former boyfriends
commit over 1,000,000 violent crimes against women each year,
including assault, rape, and murder.
(2) Approximately 28 percent of all women murdered in the
United States each year are killed by current or former
husbands or boyfriends.
(3) Weapons are used in 30 percent of domestic violence
incidents.
(4) Domestic violence calls are one of the largest
categories of calls to police each year, and, in some
locations, up to one-third of all police time is spent
responding to domestic calls.
(5) Studies show that police are more likely to respond to
a reported incident within 5 minutes if the offender is a
stranger to the victim and that, police are more likely to
take a formal report with respect to an incident in which the
offender is a stranger to the victim.
(6) Studies show that only approximately 10 percent of
spouses who are abused ever call the police, in spite of the
fact that conjugal assaults account for 12 percent of all
assaults that result in serious injury, 16 percent of all
assaults requiring medical care, and 18 percent of assaults
that result in the loss of at least a full day of work.
(7) Data compilation suggests that injuries in all domestic
assaults are at least as severe as those suffered in 90
percent of violent felonies, although the overwhelming number
of domestic violence injuries are considered to be only
misdemeanors in most States.
(8) In the 104th Congress, Congress amended the Federal law
that regulates the lawful transfer and possession of firearms
and ammunition to provide that an individual's conviction of
a misdemeanor crime of domestic violence will prohibit the
individual from possessing any firearm or ammunition and will
prohibit others from licensing or transferring a firearm or
ammunition to that person.
(9) The term ``misdemeanor crime of domestic violence'' is
defined in Federal law as a Federal or State misdemeanor
crime that ``has, as an element, the use or attempted use of
physical force, or the threatened use of a deadly weapon,
committed by a current or former spouse, parent, or guardian
of the victim, by a person with whom the victim shares a
child in common, by a person who is cohabiting with or has
cohabited with the victim as a spouse, parent, or guardian,
or by a person similarly situated to a spouse, parent, or
guardian of the victim''.
(10) For purposes of Federal law, to be considered
convicted to be of a misdemeanor crime of domestic violence,
a person must--
(A) have been represented by counsel or knowingly waived
representation; and
(B) have been tried by a jury or knowingly waived trial by
a guilty plea or otherwise if entitled to a jury trial for
the offense at issue.
(11) There are exceptions to the new Federal law that may
apply to an individual determined to have been convicted of a
misdemeanor crime of domestic violence, if ``the conviction
has been expunged or set aside, or is an offense for which
the person has been pardoned or has had civil rights restored
(if the law of the applicable provision provides for the loss
of civil rights under such an offense) unless the pardon,
expungement, or restoration of civil rights expressly
provides that the person may not ship, transport, possess, or
receive firearms''.
(12) Congress clearly intended for this Federal law to
apply to peace officers. The general exception to the law for
firearms and ammunition that are issued for the use of ``the
United States or any department or agency thereof or any
State or any department, agency, or political subdivision
thereof,'' does not apply to individuals convicted of a
misdemeanor crime of domestic violence.
(b) Unlawful Acts.--Subsections (d)(9), (g)(9), and
(s)(3)(B)(i) of section 922 of title 18, United States Code,
are each amended by inserting'', on or after September 30,
1996,'' before ``of a misdemeanor''.
(c) Effective Date.--The amendments made by this section
shall take effect as if included in the amendments made by
the first section designated as section 658 of Public Law
104-208.

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