[Congressional Record Volume 143, Number 42 (Thursday, April 10, 1997)]
[Senate]
[Pages S3017-S3057]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
THE NORTHERN FOREST STEWARDSHIP ACT
Mr. LEAHY. Mr. President, today I am pleased to join my colleague
Senator Gregg and Senators Jeffords, Snowe, Collins, Moynihan and Smith
in introducing the Northern Forest Stewardship Act of 1997 and the
Family Forestland Preservation Tax Act. I am proud that this
legislation has the entire support of the Senate delegations from the
Northern Forest States of Vermont, New Hampshire, Maine, as well as
Senators from other parts of the region.
Today's legislation is about empowering communities within the 26-
million-acre Northern Forest--the largest contiguous forest east of the
Mississippi River. This great natural resource criss crosses New York,
Vermont, New Hampshire, and Maine. But as we near the end of the 20th
century, growth pressures on the Northern Forest have increased. The
thousands of people who live in this region have wrestled with how to
maintain economies that provide jobs while preserving the environment
that makes the region such a special place.
Recognizing the challenge facing these communities, Senator Warren
Rudman and I sponsored the Northern Forest Lands Study in 1990.
Thousands of people who live in the Northern Forest participated in the
study which lasted 4 years. Upon the conclusion of the study, the
Northern Forest Lands Council was established to develop specific
recommendations to address the issues identified in the study.
As one might expect, the majority of these recommendations focused on
local and State issues. However, some of the ideas proposed by the
Northern Forest Lands Council requested changes in Federal law. Today,
we are here to move forward the council recommendations that need these
modifications.
Here is an example of what Congress can achieve when it heeds the
public's voice. It is founded on extensive research, open discussion,
consensus decisions, and visionary problem solving by the people who
have a stake in the future of the forest. Legislation rarely embodies
such a thorough effort by so diverse a constituency.
This legislation will reaffirm the council's vision of the Northern
Forest as a working landscape of interlocking parts and pieces,
reinforcing each other: small and rural communities, industrial forest
land, family and individual ownerships, small woodlots, recreation
land, public and private conservation land.
These bills focus on three key goals of the council: fostering
stewardship of private land, building knowledge and information on
forest resources, and increasing funds available for land conservation.
These are goals shared by the people and representatives of the
Northern Forest region and provide the foundation for the bipartisan
support of this legislation in the House and the Senate.
This legislation also recognizes the extraordinary resources the 26-
million-acre Northern Forest region provides to local communities and
visitors alike. The forests within the region are rich in natural
resources and values cherished by residents and visitors: timber,
fiber, and wood for forest products and energy supporting successful
businesses and providing stable jobs for residents; lakes, ponds,
rivers, and streams unspoiled by pollution or crowding human
development; viable tracts of land for wildlife habitat and
recreational use, and protected areas to help preserve the biological
integrity of the region.
Given the nature of the council's recommendations, one piece of
legislation to implement all the recommendations was not feasible,
therefore we are introducing this package of bills. It is our hope that
these bills will both be taken up in the appropriate committees of this
Congress and will move through Congress as complementary legislation.
Passing this legislation is a priority for me personally and for
Vermont. It will highlight the importance of the forest resources to
our region and to the Nation. It will help State, local, and community
groups draw upon Federal assistance to work toward the goals of the
council. And, it will reaffirm these goals and the shared commitment to
protect the environmental and economic heritage of the region.
Mr. President, I ask unanimous consent that the bill on the part of
myself, and Senators Gregg, Jeffords, Snowe, Collins, Smith of New
Hampshire, Moynihan, Kerry of Massachusetts, and Mr. Kennedy be
introduced and appropriately referred.
The PRESIDING OFFICER. The bill will be received and appropriately
referred.
Mr. JEFFORDS. Mr. President, I am pleased to be an original cosponsor
of the Family Forest Land Preservation Tax Act and the Northern Forest
Stewardship Act and commend both Senator Leahy and Senator Gregg for
their leadership in these bills. Both bills include recommendations
from the Northern Forest Lands Council that address the general
consensus of the residents in the Northern Forest region.
Since the Northern Forest Lands Council's creation in 1990, hundreds
of citizens have been seeking ways for Maine, New Hampshire, New York,
and Vermont to maintain the traditional patterns of land ownership and
use of the Northern Forest. For over 4 years the council conducted
indepth research, assessed data, consulted with experts, held public
meetings, and listened to thousands of people who live and work in the
region. The recommendations that are incorporated in both the
Stewardship Act and the Preservation Tax Act, represent the thoughtful
work of many individuals who live and work in the Northern Forest
region and hundreds of hours of forums and public meetings.
Mr. President, I am grateful and appreciate the dedication and vision
of the members of the Northern Forest Lands Council and the thousands
of people who participated in the process. I am grateful, because the
26-million-acre forest that stretches from eastern Maine through New
Hampshire and Vermont and across New York provides important and
valuable resources. This forest region is home to 1 million residents.
The people that work and live in this region have a bond to the land.
Hunting, fishing, trapping, walking, and hiking in the woods have been
a way of life for generations.
Nearly 85 percent of the Northern Forest is privately owned. For
years, these lands have provided a diversity of environmental and
economic benefits.
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Families and individuals have taken care of their forests for
generations providing economic viability to communities and overall
economic health to the region as well as maintaining opportunities for
recreation, natural beauty, and wildlife. The traditional values within
the forest regions are also cherished by those who live outside the
region. Seventy million people live within a day's drive of the
Northern Forest. They too, realize the importance of the Northern
Forest for its source of clean water, clean air, and vast diversity.
Mr. President, the Preservation Tax Act and the Stewardship Act are
needed to protect and maintain the traditional and valuable uses of the
Northern Forest. Complex social and economic forces, some originating
outside the region, have led to competing and conflicting uses of the
Northern Forest. These two bills will help keep the Northern Forest
productive and protected.
The Family Forest Land Preservation Tax Act will help encourage
private forest land owners to conserve their productive forests. Since
well managed productive forests are such an essential element to the
traditional values of the Northern Forest region, the Preservation Tax
Act is vital to maintaining sound forest management. Although this bill
was based on recommendation from citizens in the Northern Forest
region, it will benefit forest lands in all States. It's important
because it allows for post-mortem donations of conservation easements
for estate tax purposes, creates an estate tax alternative for heirs
who choose to maintain the property as forest land for 25 years,
provides a partial inflation adjustment for timber, creates an
incentive for the sale of conservation easements to public agencies,
and eliminates the 100-hour passive loss rule for forest land income.
Mr. President, the Preservation Tax Act and the Stewardship Act are
needed to relieve the pressure on forest land owners and provide
incentives to maintain and protect the forests that so many work and
enjoy. Both bills support the Northern Forest Council recommendations
by promoting a sound foundation for a diversified economy and stable
communities, opportunities for quality recreation, and long-term
protection of the diversity of plant and animal species in the region.
These bills are important steps in addressing the many interests in the
Northern Forest region. Several years of participation and involvement
from interested parties throughout the region have helped develop
useful recommendations that recognize the diversified opportunities of
one of the regions most important resources.
It is my hope that both bills will move swiftly through the Senate
and House and become law. I urge my colleagues to support these bills.
______
By Mr. McCAIN (for himself, Mrs. Hutchison, Mr. Lott, Mr.
Stevens, Mr. Nickles, Mr. Craig, Mr. Ashcroft, and Mr. Warner):
S. 547. A bill to provide for continuing appropriations in the
absence of regular appropriations for fiscal year 1998; to the
Committee on Appropriations.
THE GOVERNMENT SHUTDOWN PREVENTION ACT
Mr. McCAIN. Mr. President, today I and Senator Hutchison and Senator
Lott and Senator Nickles, Senator Stevens, and Senator Craig are
introducing the Government Shutdown Prevention Act. This bill creates a
statutory continuing resolution as sort of a safety net CR, which would
trigger only if the appropriation acts do not become law or if there is
no governing continuing resolution in place.
I want to emphasize here, after a long series of negotiations with
the House, with the advice and consent and leadership of the majority
leader, Senator Lott, and the active participation and leadership of
Senator Stevens especially, the chairman of the Appropriations
Committee, negotiations with the Speaker, the Appropriations Committee
chairman, Mr. Livingston, in the House, and also Majority Leader Armey,
we have come up with this legislation.
Mr. President, this legislation is important. It must be done soon. I
believe the lesson of the last 2 years is that we cannot allow the
Government to be shut down again. Nor can we allow the threat of a
Government shutdown to be so impactful that we fiscal conservatives are
somehow forced to appropriate billions--in the case of last year around
$8 billion--additional because of the threat of a Government shutdown.
So, this is very important legislation. It is not something that I am
idly throwing into the hopper.
I thank Senator Hutchison for her efforts and participation on this
bill. What this legislation does is ensures that the Government will
not shut down and that Government shutdowns cannot be used for
political games. This safety net continuing resolution basically would
set spending for fiscal year 1998 at 98 percent of 1997 fiscal year
levels.
In other words, the way this would work is if we could not get
agreement on the appropriations bills, rather than the threat of a
shutdown of Government or parts of Government because of failure to
appropriate funding for their continued effort, this would be funded at
98 percent of the previous year's level. That would ensure, if any kind
of standoff between the Congress and the White House occurs, that vital
Government functions will continue and Government employees will
continue to serve the public.
It is our intention to move this bill quickly. It is very important
we act before the appropriations season begins in earnest. Therefore,
it is the intent of Senator Hutchison and myself to move this bill as
soon as possible, specifically on the emergency supplemental
appropriations bill that will be before this body probably within a
month or so.
We all saw the effects of gridlock in the past. No one wins when the
Government shuts down. Shutdowns only confirm the American people's
suspicions that we are more interested in political gain than doing the
Nation's business. The American people are tired of gridlock. They want
the Government to work for them, not against them. The budget process
in the last Congress, in my view, was a fiasco and, more important, in
the view of the American people.
Our Founding Fathers would have been ashamed of our inability to
execute the power of the purse in a responsible fashion. I am sure they
would have been quite shocked by the 27 days that the Government was
shut down, 13 continuing resolutions, and almost $6 billion in
blackmail money that was given the administration to ensure that the
Government did not shut down a third time.
Although Republicans shouldered the blame for the Government
shutdown, President Clinton and his colleagues were equally at fault
for using it for their political gain. Republicans were outmaneuvered
by President Clinton because we were not prepared for him to use the
budget process for his own political purposes. We thought that by doing
the right thing--passing the first balanced budget in a generation, and
fiscally sound appropriations bills--that we would eventually prevail.
What we did not realize was that the President was more interested in
playing politics with the budget than actually balancing it. This year
we have to be prepared for these games and launch a preemptive strike
to ensure that basic Government operations will not be put at risk
during the next budget battle.
This legislation does not erode the power of the appropriators and
gives them ample opportunity to do their job. It is only if the
appropriations process is not completed by the beginning of the fiscal
year, as was the case in the last Congress, that the safety net
continuing resolution will go into effect.
In addition, I emphasize that entitlements are fully protected in
this legislation. The bill specifically states that entitlements such
as Social Security--as obligated by law--will be paid regardless of
what appropriations bills are passed or not passed.
According to President Clinton, the combined cost of last year's
Government shutdown was $1.5 billion. However, this figure does not
begin to account for the millions of dollars lost by small businesses
who depend on the Government being open. In my State of Arizona, during
the Government shutdown the Grand Canyon was closed for the first time
in 76 years. I heard from people who work close to the Grand Canyon.
These were not Government employees. These were independent small
business men and women. They
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told me that the shutdown cost them thousands of dollars because people
could not go to the park. According to a CRS report, local communities
near national parks alone lost an estimated $14.2 million per day in
tourism revenues as a direct result of the Government shutdown, for a
total of nearly $400 million over the course of the shutdown.
The cost of the Government shutdown cannot be measured in just
dollars and cents. During the shutdown millions of Americans could not
get crucial social services. For example, 10,000 new Medicare
applications, 212,000 Social Security card requests, 360,000 individual
office visits and 800,000 toll-free calls for information and
assistance were turned away each day. There were even more delays in
services for some of the most vulnerable in our society, including 13
million recipients of AFDC, 273,000 foster care children, over 100,000
children receiving adoption assistance services and over 100,000 Head
Start children--not to mention the new patients that were not accepted
into clinical research centers, the 7 million visitors who could not
attend national parks, or the 2 million visitors turned away at museums
and monuments. And the list goes on and on.
In addition, our Federal employees were left in fear wondering
whether they would be paid, would they have to go to work, would they
be able to pay their bills on time. In my State of Arizona, for
example, of the 40,383 Federal employees, over 15,000 of them were
furloughed in the last Government shutdown. I do not want to put these
workers at risk ever again.
A 1991 GAO report confirmed that permanent funding lapse legislation
is a necessity. In their report they stated, ``Shutting down the
Government during temporary funding gaps is an inappropriate way to
encourage compromise on the budget.''
Neither party can afford another break of faith with the American
people. Our constituents are tired of constantly being disappointed by
the actions of Congress and the President. They are tired of our not
being prepared for what appears to be the inevitable. That is why this
legislation is so important. We want the American people to know that
there are some of us in Congress who are thinking ahead and who do not
want a replay of the last Congress.
I want to especially note the support of our good friend, Senator
Stevens, the distinguished Senator from Alaska and chairman of the
Appropriations Committee. His support of this bill is crucial, and I
thank him for it. I wish him well in overseeing the appropriations
process.
While I am sure we will all have our differences, I am confident he
will be able to do his best to ensure that the Senate enacts the
appropriations bills in an efficient and expeditious manner. Let us
show the American people that we have learned our lessons from the last
Congress. Passing this preventive measure will go a long way to restore
America's faith that politics or stalled negotiations will not stop
Government operations. It will prove to our constituents that we will
never again allow a Government shutdown or threat of Government
shutdown to be used for political gain. I hope the Senate will act
quickly on this important matter.
I thank the Senator from Texas, Senator Hutchison, who is on the
floor, for her continued efforts on behalf of this legislation. The
State of Texas is a very large State. It was very heavily impacted, as
was my State. As I say, we fully intend to move this legislation onto
the supplemental appropriations bill, which should be before the body
either this month or sometime next month.
I want to say that this is not an idea that Senator Hutchison and I
came up with. It was an idea that is supported throughout the Congress.
We engaged in serious and sincere negotiations with the leader, Senator
Lott, whose leadership was vital in this endeavor.
Mrs. HUTCHISON. Mr. President, I thank the Senator from Arizona
because he and I talked about this when we saw the debacle of the
closing of the Government 2 years ago. We thought this is not the way
to run a railroad or a government.
We have talked about this for a long time, but it was Senator McCain
who said we are going to fix this and we are going to fix it in a
responsible way. The Senator from Arizona has provided great
leadership, and with the Senator from Arizona, we have gotten the other
leaders of our Congress--we certainly have Senator Stevens, the
chairman of the Appropriations Committee, who deserves a lot of credit
for helping on this; the majority leader, Senator Lott; the majority
whip, Senator Nickles; Senator Craig; Senator Ashcroft, and many
Members have been talking about what we can do to run this Government
in a responsible way. So the Senator from Arizona and I are introducing
this bill together to try to provide for a good, solid, easy way to
make sure that things keep going if we get bogged down in tough
negotiations.
This may seem like a kind of small, inside-the-beltway-process issue.
People might say, ``A continuing resolution, so what, big deal, why are
you doing that?'' This small thing will have huge ramifications if any
parts of our Government are not funded on September 30, because what
happens is that when you get into the heat of negotiations, threat of
Government shutdowns become a leverage point for one or the other side.
It can work either way.
But the issue is the American people, the people who were mentioned
by Senator McCain, the Federal employees and their families not knowing
for sure that they are going to get paychecks, people who have planned
their family vacations for over a year and they go to the Grand Canyon
and it is closed or they come to Washington, DC, to visit this Capitol
and it is closed or they cannot get into the Smithsonian or the
National Gallery of Art; people who are planning their vacations or
business travel and they find their passport has expired and they
cannot get a new passport, so their dreams go up in smoke--these are
people who are affected by a shutdown of Government.
This very small process issue becomes a real quality-of-life issue
for everyone in our country who is in need of regular Government
service. That is why we are acting now. We are trying to provide for a
smooth transition if we bog down in negotiations, hitting against the
end of the fiscal year, September 30 of this year. We want to make sure
that if we in Congress cannot agree with the President that we are
still able to negotiate in good faith for what is right, rather than
bumping up against a deadline and fearing that Government is going to
shut down and cause a disruption in the lives of so many families in
our country.
We wanted to do it right now. As Senator McCain said, we are
intending to put this bill on the supplemental resolution that will be
coming before Congress probably by the end of this month. We want to do
it now before the heat of battle so that we will know that this is not
going to be a tool used by either side.
Some people have said, ``Does this cut for Republicans or does it cut
for Democrats?'' It cuts for the American people. It might go either
way. It might hurt Republicans, it might hurt Democrats, but who will
not get hurt if we pass this are the people of America, and that is who
we are here to represent.
I want to talk for a minute about the 98 percent that we are going to
fund in the continuing resolution. People may say, ``Well, why not 100
percent, why not 90 percent?'' We wanted 98 percent because in our
original budget resolution, when Congress decided to get serious about
balancing the budget of this country, we set a trajectory starting at
fiscal year 1995, actually and going to the year 2002 that would have a
cut of about 2 percent each year in the growth rate of spending,
because we felt that that was a responsible approach.
Ninety-eight percent is a 2-percent cut in the 1997 budget that we
are in right now. A 2-percent cut makes sure that we are not going to
go over our budget projections and hurt our ability to balance the
budget if, in fact, we go into this continuing resolution. But it also
funds at 98 percent, which I think is virtually full funding, programs
that are ongoing and necessary.
If there is any agency in Government that cannot do with 98 percent
of its present budget, then I would like to introduce them to the real
people in America who have had to balance budgets and cut budgets every
day of their lives. I think 98 percent is certainly
[[Page S3020]]
something that the Government can live with, because we know that
families and businesses in this country have cut much more than 2
percent in any fiscal year in their own lives. We think 98 percent
covers expenses responsibly, but it keeps within our budget projections
so that we have the ability to slow the rate of growth of spending, and
so the Congress still has some leeway to make the decisions going into
the next fiscal year of what actually needs to be cut without running,
if we did go 2 or 3 months, into having to cut more because we were
overspending in some areas. So that is how we came up with the number
of 98 percent.
Mr. President, I think we are taking a very responsible action today.
I hope that we will have 100 percent vote in the Senate. I have not
really talked to anyone who is against this bill, but I think it is
something if we can agree on in a bipartisan way, we will clearly make
the people of America sure that we are not going to have some kind of
disruption in their lives, whether it is their family vacation or
business travel or going into a museum or a national park they would
like to go into or, if you are a Federal employee or a veteran, we do
not want you to worry that your pay or your benefits are going to be
there.
This will provide for that smooth transition, and I hope Congress
will take this responsible action, do this now before we even know what
the issues are so that the smooth transition is there and we can
negotiate on the budget in a way that is responsible, that does meet
the needs of our country, but also makes sure that in the end, we are
going to continue to march toward the year 2002 with a balanced budget
for the United States of America.
I am very pleased to be able to cosponsor with Senator McCain the
McCain-Hutchison Government Shutdown Prevention Act. We are joined in
the cosponsorship by Senators Stevens, Nickles, Craig, Ashcroft, our
majority leader, Senator Lott, and I ask unanimous consent that Senator
Warner be added as a cosponsor.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mrs. HUTCHISON. Those are the original cosponsors. I hope that we
have 100 cosponsors by the time this bill comes to the floor. I would
like for it to go on a voice vote. That may be a pipe dream, but,
nevertheless, I think it would be responsible Government, and I think
it would be right for the American people.
Mr. CRAIG. Mr. President, I rise to join Senators Hutchison of Texas
and McCain, Chairman Stevens, our majority leader, Senator Lott, and
others, as an original cosponsor of the Government Shutdown Prevention
Act.
Under this bill, if fiscal year 1998 starts before any of the 13
regular appropriations bills become law, no part of the Government
would shut down because of the delay.
Funding would automatically continue at 98 percent of fiscal year
1997 levels.
Some of us feel 98 percent is too high. And automatic continuing
appropriations may not be the perfect way to fund programs.
But this process would meet two important tests, best described by
two old, familiar rules of thumb:
There is an old saying: ``When you find yourself in a hole,
stop digging.''
And we all know the First Rule of Medicine: ``Do no harm.''
These two rules of thumb explain why we need the Government Shutdown
Prevention Act.
This is not a long-term, structural change in the budget process.
It's not a plan to balance the budget. But it is a very much-needed
stopgap reform, in case of another budget impasse. Indeed, it may
prevent such an impasse.
It will help us work toward a balanced budget, without disrupting the
lives and work of millions of innocent bystanders, both inside and
outside the Federal Government.
The first step toward balancing the budget is, stop digging.
For 36 of the last 37 years, the government has overspent. Every
year, no matter what the process, no matter what the negotiations,
spending goes up.
Many times--not just last year--liberals have threatened to shut down
the government if they didn't get their spending hikes.
This bill says, ``No More!'' to that upward spiral. If there's
gridlock, at least spending will not go up as a result. It will go
down, just slightly.
We also need to remind the budget doctors: Do no harm.
In the last two Government shutdowns, in Idaho--We had a VA hospital
wonder if it would have critical medicines on hand from week to week;
we had small businesses wonder if they should deliver goods that
Government offices had ordered--and if they would ever get paid; and we
had Government workers first worry about feeding their families and
making their house payments, and then outraged that they were ordered
not to do the jobs they and other taxpayers were paying for.
This bill says, ``We will not allow these innocent Americans to be
taken hostage again, by either side in a budget dispute.''
Keeping the Government open at 98 percent of current spending is a
responsible, fair, even generous formula. And it is consistent with the
reasonable fiscal restraint that we have begun, with the last Congress,
to work for.
The time to pass this reform is now.
Once the appropriations process begins in earnest, too many parties
are going to look at any reform like this in terms of whether they win
or lose, compared with what's in their appropriations bill, or what
they might get if their allies threaten another Government shutdown.
Now is the time we are most likely to see this reform judged on it
own merits, for what it is: Shutdown prevention, a level playing field,
legislation for the public good.
I urge my colleagues to join as cosponsors of this bill, and to
support every effort to enact this reform into law as quickly as
possible.
______
By Mr. LUGAR:
S. 549. A bill to amend the Internal Revenue Code of 1986 to provide
that certain cash rentals of farmland will not cause recapture of
special estate tax valuation; to the Committee on Finance.
S. 550. A bill to amend the Internal Revenue Code of 1986 to increase
the gift tax exclusion to $25,000; to the Committee on Finance.
ESTATE AND GIFT TAX LEGISLATION
Mr. LUGAR. Mr. President, I introduce two pieces of legislation aimed
at minimizing the burden of the estate and gift tax on Americans. The
first would provide Americans with a powerful estate tax planning tool
by raising the tax-free gift limit to $25,0000 from the current
$10,000. The second bill would correct a longstanding agricultural
problem that effectively limits the ability of farmers to rent farmland
that they have inherited to other family members.
The Senate Agriculture Committee held hearings at the end of February
to study the impact of estate and gift taxes on farmers. As a farmer
and chairman of the Agriculture Committee, I understand the far-
reaching effect that the inheritance tax has on rural America.
Testimony revealed that farmers are six times more likely to pay estate
taxes than other Americans due to the capital-intensive nature of the
farm business. Commercial farms, those core farms that produce 85
percent of the Nation's agricultural products, may be 15 times more
likely to pay inheritance taxes than other individuals. As the average
age of farmers approaches 60 years, a quarter of all farmers could
confront the inheritance tax over the next 20 years.
I have already introduced three comprehensive bills on this subject--
the first bill would eliminate the inheritance tax entirely; the second
phases it out gradually; and the third raises the unified credit
exemption to $5 million from the current $600,000 level. By raising the
level of exempted property to this amount, the Federal Government would
relieve 96 percent of the Americans who currently file estate tax
returns from this burden.
Although repeal of this tax ultimately is the best course of action,
I understand that sufficient momentum may not exist to achieve this
end. In the mean time, Congress should provide Americans with estate
planning alternatives that help facilitate the passing of their estates
to the next generation. These two bills further this goal.
The first bill would simply raise the yearly nontaxable gift amount
from the current $10,000 to $25,000. Congress
[[Page S3021]]
unified the estate and gift titles of the Tax Code in 1976, subjecting
a decedent's lifetime taxable gifts and taxable estate to one rate
structure. Under current law, the first $10,000 of gifts made by a
donor during a calendar year to any individual are not included in the
donor's taxable gift amount for that year. Nor does this $10,000 gift
lower the decedent's unified credit exemption, which allows each
individual to pass on $600,000 of assets without incurring estate and
gift taxes. Over the years, inflation has eroded this $10,000 amount,
which has not been increased since 1982. Under my proposal, individuals
could give $25,000 each year without estate and gift tax consequence.
Through the current practice known as ``gift splitting,'' a couple
could give up to $50,000 tax free each year. Raising the gift exemption
amount would be a positive first step for Congress to take in helping
with the transfer of family businesses and farms to the next
generation.
My second bill would correct a longstanding agricultural problem in
the Tax Code that disqualifies farm heirs from receiving special use
valuation for estate tax purposes because they cash leased the farm
property to another member of the family. Section 2032A of the Tax Code
provides heirs the option of valuing qualified farm property at its
current use rather than valuing the property at its highest and most
developed use. If the heir who inherited the property ceases to use it
in its qualified use within 10 years, an additional recapture tax is
imposed to regain the benefit of the special use valuation. Some tax
courts have held that the cash leasing of the property to members of
the decedent's family is not a qualified use, thus triggering the
recapture tax provision. Congress partially fixed this problem in 1988
in regard to spouses, but other qualified heirs remain unable to cash
lease the property to members of the family. My legislation would
correct this wrinkle in the law by allowing qualified heirs to cash
lease the inherited special use property to members of the decedent's
family or members of the spouse's family without triggering the
recapture tax. This bill is retroactive to December 31, 1976, when
section 2032A was enacted into law.
Congress intended to grant family businesses and farms some level of
protection from the estate and gift tax through section 2032A, and
farmers have relied on this provision for estate planning purposes over
the years. During the Senate Agriculture hearings on estate taxes, the
U.S. Department of Agriculture testified that the special use valuation
reduced the number of taxable estates and the total Federal estate and
gift taxes for all farm estates by about one-third. The American
Farmland Trust gave witness to the fact that more than half of farm
production in the United States occurs in counties that are
metropolitan or adjacent to metropolitan areas. Without special use
valuation for estate tax purposes, much of our Nation's agricultural
land would be valued as strip malls or housing developments, rather
than as farmland. Lessening the gross estate through section 2032A
allows the next generation of farmers to maintain this land in
agricultural production and helps slow urban sprawl. My legislation
would make this good provision better.
Mr. President, I am hopeful that my Senate colleagues will join me in
supporting these two estate and gift tax initiatives that provide
Americans with means for protecting their lifetime of savings and hard
work. I ask unanimous consent that both bills be printed in the Record.
There being no objection, the bills were ordered to be printed in the
Record, as follows:
S. 549
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. CERTAIN CASH RENTALS OF FARMLAND NOT TO CAUSE
RECAPTURE OF SPECIAL ESTATE TAX VALUATIONS.
(a) In General.--Subsection (c) of section 2032A of the
Internal Revenue Code of 1986 (relating to tax treatment of
dispositions and failures to use for qualified use) is
amended by adding at the end the following new paragraph:
``(8) Certain cash rental not to cause recapture.--For
purposes of this subsection, a qualified heir shall not be
treated as failing to use property in a qualified use solely
because such heir rents such property on a net cash basis to
a member of the decedent's family or a member of the
decedent's spouse's family, but only if, during the period of
the lease, such member uses such property in a qualified
use.''
(b) Conforming Amendment.--Section 2032A(b)(5)(A) of such
Code is amended by striking the last sentence.
(c) Effective Date; Waiver.--
(1) Effective date.--The amendments made by this section
shall apply with respect to rentals occurring after December
31, 1976.
(2) Waiver of statute of limitation.--If on the date of
enactment of this Act (or at any time within 1 year after
such date of enactment) refund or credit of any overpayment
of tax resulting from the application of the amendments made
by this section is barred by any law or rule of law, refund
or credit of such overpayment shall, nevertheless, be made or
allowed if claim therefor is filed before the date 1 year
after the date of enactment of this Act.
____
S. 550
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. INCREASE IN GIFT TAX EXCLUSION
(a) In General.--Section 2503(b) of the Internal Revenue
Code of 1986 (relating to exclusions from gifts) is amended
by striking ``$10,000'' and inserting ``$25,000''.
(b) Effective Date.--The amendment made by this section
shall apply to gifts made after December 31, 1997.
______
By Mr. GREGG:
S. 551. A bill to amend the Occupational Safety and Health Act of
1970 to make modifications to certain provisions; to the Committee on
Labor and Human Resources.
THE OSHA MODERNIZATION ACT
Mr. GREGG. Mr. President, I rise in introducing the Occupational
Safety and Health Modernization Act. Let me say at the outset that in
proposing and considering OSHA reform, worker safety was my first
concern. I am firmly committed to ensuring a safe and healthy workplace
and will not support legislation which puts that in jeopardy. I believe
in this bill that I have accomplished a true modernization of OSHA
without compromising the safety of our workers in any way.
Throughout my career in public office, I have worked to make
government more efficient and more user and consumer friendly. Federal
Government agencies have grown so large and become so bureaucratic that
they are often not providing the kinds of personal services and proper
oversight that was originally intended when they were created. Too
often Government carries a heavy stick, but no carrot, when it
interacts with individual citizens and businesses throughout our
country.
I believe that it is high time we take a close look at how we can
improve the way government works and, at the same time, provide
incentives for the private sector to act more responsibly. Americans
will be better served in a climate where people in government, and in
business, can work together to solve problems in a spirit of
cooperation, rather than in an atmosphere strictly of threats,
intimidation, and punitive measures.
When OSHA was enacted, its intended purpose was to make the workplace
free from ``recognized hazards that are causing, or likely to cause
death or serious physical harm to * * * employees.'' As is the case
with many programs established by Congress over the years, OSHA has
developed a well-earned reputation for over-regulation. OSHA has moved
from its original purpose of protecting workers to hindering businesses
with excessive mandates.
While I feel that much of the problem within OSHA is of a cultural
nature, the bill we are introducing today will concentrate on relieving
OSHA's oppressive and burdensome regulations, thereby removing a
feeling among American employers and employees that OSHA is the ``bad
cop.'' My legislation puts in place partnerships for assuring safety
and health in the workplace.
This balanced approach will include a consultation program, voluntary
compliance and third party certification, employee involvement,
warnings in lieu of citations for nonserious violations, and reduced
penalties for nonserious violations. This legislation will use
incentives, rather than penalties, to enhance workplace safety. It will
allow companies with clean safety records to implement their own health
and safety programs.
Mr. President, I ask unanimous consent that the bill be printed in
the Record.
[[Page S3022]]
There being no objection, the bill was ordered to be printed in the
Record, as follows:
S. 551
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; REFERENCE.
(a) Short Title.--This Act may be cited as the ``OSHA
Modernization Act of 1997''.
(b) Reference.--Whenever in this Act an amendment or repeal
is expressed in terms of an amendment to, or repeal of, a
section or other provision, the reference shall be considered
to be made to a section or other provision of the
Occupational Safety and Health Act of 1970 (29 U.S.C. 651 et
seq.).
SEC. 2. EMPLOYEE PARTICIPATION.
Section 4 (29 U.S.C. 653) is amended by adding at the end
the following:
``(c) In order to carry out the purpose of this Act to
encourage employers and employees in their efforts to reduce
the number of occupational safety and health hazards, an
employee participation program--
``(1) in which employees participate;
``(2) which exists for the purpose, in whole or in part, of
dealing with employees concerning safe and healthful working
conditions; and
``(3) which does not have, claim, or seek authority to
negotiate or enter into collective bargaining agreements with
the employer or to amend existing collective bargaining
agreements between the employer and any labor organization,
shall not constitute a labor organization for purposes of
section 8(a)(2) of the National Labor Relations Act (29
U.S.C. 158(a)(2)) or a representative for purposes of
sections 1 and 2 of the Railway Labor Act (45 U.S.C. 151 and
151a). Nothing in this section shall be construed to affect
employer obligations under section 8(a)(5) of the National
Labor Relations Act (29 U.S.C. 158(a)(5)) to deal with a
certified or recognized employee representative with respect
to health and safety matters to the extent otherwise required
by law.''.
SEC. 3. INSPECTIONS.
(a) Training and Authority of Secretary.--Section 8 (29
U.S.C. 657) is amended--
(1) by redesignating subsection (g) as subsection (h); and
(2) by inserting after subsection (f) the following:
``(g)(1) Except as provided in paragraph (2), the Secretary
shall not conduct routine inspections of, or enforce any
standard, rule, regulation, or order under this Act with
respect to--
``(A) any person who is engaged in a farming operation that
does not maintain a temporary labor camp and that employs 10
or fewer employees; or
``(B) any employer of not more than 10 employees if the
employer is included within a category of employers having an
occupational injury or a lost workday case rate (determined
under the Standard Industrial Classification Code for which
such data are published) that is less than the national
average rate as most recently published by the Secretary
acting through the Bureau of Labor Statistics under section
24.
``(2) In the case of persons who are not engaged in farming
operations, paragraph (1) shall not be construed to prohibit
the Secretary from--
``(A) providing consultations, technical assistance, and
educational and training services and conducting surveys and
studies under this Act;
``(B) conducting inspections or investigations in response
to complaints of employees, issuing citations for violations
of this Act found during the inspections, and assessing a
penalty for the violations that are not corrected within a
reasonable abatement period;
``(C) taking any action authorized by this Act with respect
to imminent dangers;
``(D) taking any action authorized by this Act with respect
to a report of an employment accident that is fatal to at
least 1 employee or that results in the hospitalization of at
least 3 employees, and taking any action pursuant to an
investigation conducted with respect to the report; and
``(E) taking any action authorized by this Act with respect
to complaints of discrimination against employees for
exercising the rights of the employees under this Act.''.
(b) Inspections Based on Employee Complaints.--Section 8(f)
(29 U.S.C. 657(f)) is amended to read as follows:
``(f)(1)(A) An employee or a representative of an employee
who believes that a violation of a safety or health standard
exists that threatens physical harm, or that an imminent
danger exists, may request an inspection by providing notice
of the violation or danger to the Secretary or an authorized
representative of the Secretary.
``(B) The notice under subparagraph (A) shall be reduced to
writing, shall set forth with reasonable particularity the
grounds for the notice, and shall state whether the alleged
violation or danger described in subparagraph (A) has been
brought to the attention of the employer and if so, whether
the employer has refused to take any action to correct the
alleged violation or danger.
``(C)(i) The notice under subparagraph (A) shall be signed
by the employee or the representative of the employee and a
copy shall be provided to the employer or the agent of the
employer not later than the time of arrival of an
occupational safety and health agency inspector to conduct
the inspection.
``(ii) Upon the request of the person providing the notice
under subparagraph (A), the name of the person and the names
of individual employees referred to in the notice shall not
appear in the copy of the notice or on any record published,
released, or made available pursuant to subsection (i).
``(D)(i) If, upon receipt of the notice under subparagraph
(A), the Secretary determines that there are reasonable
grounds to believe the violation or danger described in
subparagraph (A) exists, the Secretary may conduct an
inspection in accordance with this subsection as soon as
practicable. Except as provided in clause (ii), the
inspection shall be conducted for the limited purpose of
determining whether the violation or danger exists.
``(ii) During an inspection described in clause (i), the
Secretary may take appropriate actions with respect to health
and safety violations that are not within the scope of the
inspection and that are observed by the Secretary or an
authorized representative of the Secretary during the
inspection.
``(2) If the Secretary determines either before, or as a
result of, an inspection conducted under this subsection that
there are not reasonable grounds to believe a violation or
danger described in paragraph (1)(A) exists, the Secretary
shall notify the complaining employee or employee
representative of the determination and, upon request by the
employee or employee representative, shall provide a written
statement of the reasons for the determination of the
Secretary.
``(3) The Secretary or an authorized representative of the
Secretary may, as a method of investigating an alleged
violation or danger under this subsection, attempt, if
feasible, to contact an employer by telephone, facsimile, or
other appropriate methods to determine whether--
``(A) the employer has taken corrective actions with
respect to the alleged violation or danger; or
``(B) there are reasonable grounds to believe that a hazard
exists.
``(4) The Secretary is not required to conduct an
inspection under this subsection if the Secretary determines
that a request for an inspection was made for reasons other
than the safety and health of the employees of an employer or
that the employees of an employer are not at risk.''.
SEC. 4. WORKSITE-BASED INITIATIVES.
(a) Program.--The Act (29 U.S.C. 651 et seq.) is amended by
inserting after section 8 the following:
``SEC. 8A. HEALTH AND SAFETY MODERNIZATION INITIATIVES.
``(a) In General.--The Secretary shall establish a program
to encourage voluntary employer and employee efforts to
provide safe and healthful working conditions.
``(b) Exemption.--In establishing a program under
subsection (a), the Secretary shall, in accordance with
subsection (c), provide an exemption from all safety and
health inspections and investigations for a place of
employment maintained by an employer participating in the
program, except that this subsection shall not apply to
inspections and investigations conducted for the purpose of--
``(1) determining the cause of a workplace accident that
resulted in the death of 1 or more employees or the
hospitalization of 3 or more employees; or
``(2) responding to a request for an inspection pursuant to
section 8(f)(1).
``(c) Exemption Requirements.--To qualify for an exemption
under subsection (b), an employer shall provide to the
Secretary evidence that, with respect to the employer--
``(1) during the preceding year, the place of employment or
conditions of employment have been reviewed or inspected
under--
``(A) a consultation program provided by recipients of
grants under section 7(c)(1) or 23(g);
``(B) a certification or consultation program provided by
an insurance carrier or other private business entity
pursuant to a State program, law, or regulation; or
``(C) a workplace consultation program provided by a
qualified person certified by the Secretary, for purposes of
providing workplace consultations,
that includes a means of ensuring that serious hazards
identified in a consultation are corrected within an
appropriate time and that, where applicable, permits an
employee (of the employer) who is a representative of a
health and safety employee participation program to accompany
a consultant during a workplace inspection; or
``(2) the place of employment has an exemplary safety and
health record and the employer maintains a safety and health
program for the workplace that includes--
``(A) procedures for assessing hazards to the employees of
the employer that are inherent to the operations or business
of the employer;
``(B) procedures for correcting or controlling the hazards
in a timely manner based upon the severity of the hazards;
and
``(C) an employee participation program that, at a
minimum--
``(i) includes regular consultation between the employer
and the nonsupervisory employees of the employer regarding
safety and health issues;
``(ii) includes the opportunity for the nonsupervisory
employees of the employer to make recommendations regarding
hazards in the workplace and to receive responses or to
implement improvements in response to the recommendations;
and
``(iii) ensures that the participating nonsupervisory
employees of the employer have
[[Page S3023]]
training or expertise on safety and health issues consistent
with the responsibilities of the employees.
``A person that conducts a review or inspection under
paragraph (1)(B) shall meet standards established by the
Secretary and shall be certified by the Secretary.
``(d) Model Program.--The Secretary shall publish and make
available to employers a model safety and health program that
if completed by the employer shall be considered to meet the
requirements for an exemption under this section.
``(e) Certification.--The Secretary may require that, to
claim the exemption under subsection (b), an employer
provides certification to the Secretary and notice to the
employees of the employer of the eligibility of the employer
for the exemption. The Secretary may conduct random audits of
the records of employers to ensure against falsification of
the records by the employers.
``(f) Records.--Records of a safety and health inspection,
audit, or review that is conducted by an employer and that is
not conducted under a program described in subsection (a)
shall not be required to be disclosed to the Secretary
unless--
``(1) the Secretary is conducting an investigation
involving a fatality or a serious injury of an employee of
the employer; or
``(2) the employer has not taken measures to address
serious hazards in the workplace of the employer identified
during the inspection, audit, or review.''.
(b) Definition.--Section 3 (29 U.S.C. 652) is amended by
adding at the end the following:
``(15) The term `exemplary safety and health record' means
a record that the Secretary shall establish annually for each
industry that identifies the employers in the industry that
provide safe and healthful working conditions for the
employees of the employers. The record shall include
employers that have had, in the most recent reporting period,
no employee death caused by occupational injury and fewer
lost workdays due to occupational injury and illness than the
average for the industry of which the employer is a part.''.
SEC. 5. EMPLOYER DEFENSES.
Section 9 (29 U.S.C. 658) is amended by adding at the end
the following:
``(d) No citation may be issued under subsection (a) to an
employer unless the employer knew, or with the exercise of
reasonable diligence, would have known, of the presence of an
alleged violation. No citation shall be issued under
subsection (a) to an employer for an alleged violation of
section 5, any standard, rule, or order promulgated pursuant
to section 6, any other regulation promulgated under this
Act, or any other occupational safety and health standard, if
the employer demonstrates that--
``(1) the employees of the employer have been provided with
the proper training and equipment to prevent such a
violation;
``(2) work rules designed to prevent such a violation have
been established and adequately communicated to the employees
by the employer and the employer has taken reasonable
measures to discipline employees when violations of the work
rules have been discovered;
``(3) the failure of employees to observe work rules led to
the violation; and
``(4) reasonable measures have been taken by the employer
to discover any such violation.
``(e) A citation issued under subsection (a) to an employer
who violates the requirements of section 5, of any standard,
rule, or order promulgated pursuant to section 6, or any
other regulation promulgated under this Act shall be vacated
if the employer demonstrates that employees of the employer
were protected by alternative methods that were equally or
more protective of the safety and health of the employees
than the methods required by the standard, rule, order, or
regulation in the factual circumstances underlying the
citation.
``(f) Subsections (d) and (e) shall not be construed to
eliminate or modify other defenses that may exist to any
citation.''.
SEC. 6. INSPECTION QUOTAS.
Section 9 (29 U.S.C. 658), as amended by section 5, is
further amended by adding at the end the following:
``(g) The Secretary shall not establish any quota for any
subordinate within the Occupational Safety and Health
Administration (including any regional director, area
director, supervisor, or inspector) with respect to the
number of inspections conducted, citations issued, or
penalties collected.''.
SEC. 7. WARNINGS IN LIEU OF CITATIONS.
Subsection (a) of section 9 (29 U.S.C. 658(a)) is amended
to read as follows:
``(a)(1) Except as provided in paragraph (2), if, upon an
inspection or investigation, the Secretary or an authorized
representative of the Secretary believes that an employer has
violated a requirement of section 5, of any regulation, rule,
or order promulgated pursuant to section 6, or of any
regulations prescribed pursuant to this Act, the Secretary
may with reasonable promptness issue a citation to the
employer. Each citation shall be in writing and shall
describe with particularity the nature of an violation,
including a reference to the provision of the Act,
regulation, rule, or order alleged to have been violated. The
citation shall fix a reasonable time for the abatement of the
violation.
``(2) The Secretary or the authorized representative of the
Secretary--
``(A) may issue a warning in lieu of a citation with
respect to a violation that has no significant relationship
to employee safety or health; and
``(B) may issue a warning in lieu of a citation in cases in
which an employer in good faith acts promptly to abate a
violation if the violation is not a willful or repeated
violation.
``(3) Nothing in this Act shall be construed as prohibiting
the Secretary or the authorized representative of the
Secretary from providing technical or compliance assistance
to an employer in correcting a violation discovered during an
inspection or investigation under this Act without issuing a
citation.''.
SEC. 8. REDUCED PENALTIES FOR NONSERIOUS VIOLATIONS AND
MITIGATING CIRCUMSTANCES.
Section 17 (29 U.S.C. 666) is amended--
(1) in subsection (c), by striking ``up to $7,000'' and
inserting ``not more than $100'';
(2) by striking subsection (i) and inserting the following:
``(i) Any employer who violates any of the posting or
paperwork requirements, other than serious or fraudulent
reporting requirement deficiencies, prescribed under this Act
shall not be assessed a civil penalty for such a violation
unless the Secretary determines that the employer has
violated subsection (a) or (d) with respect to the posting or
paperwork requirements.''; and
(3) by striking subsection (j) and inserting the following:
``(j)(1) The Commission shall have authority to assess all
civil penalties under this section. In assessing a penalty
under this section for a violation, the Commission shall give
due consideration to the appropriateness of the penalty with
respect to--
``(A) the size of an employer;
``(B) the number of employees exposed to the violation;
``(C) the likely severity of any injuries directly
resulting from the violation;
``(D) the probability that the violation could result in
injury or illness;
``(E) the good faith of the employer in correcting the
violation after the violation has been identified;
``(F) the extent to which employee misconduct was
responsible for the violation;
``(G) the effect of the penalty on the ability of an
employer to stay in business;
``(H) the history of previous violations by an employer;
and
``(I) whether the violation is the sole result of the
failure of an employer to meet a requirement under this Act,
or prescribed by regulation, with respect to the posting of
notices, the preparation or maintenance of occupational
safety and health records, or the preparation, maintenance,
or submission of any written information.
``(2)(A) A penalty assessed under this section shall be
reduced by not less than 25 percent in any case in which the
employer--
``(i) maintains a safety and health program described in
section 8A(a) for the worksite where the violation, for which
the penalty was assessed, occurred; or
``(ii) demonstrates that the worksite where the violation,
for which the penalty was assessed, occurred has an exemplary
safety and health record.
If the employer maintains a program described in clause (i)
and has the record described in clause (ii), the penalty
shall be reduced by not less than 50 percent.
``(B) A penalty assessed against an employer for a
violation other than a violation that--
``(i) has been previously cited by the Secretary;
``(ii) creates an imminent danger;
``(iii) has caused death; or
``(iv) has caused a serious incident,
shall be reduced by not less than 75 percent if the worksite
where the violation occurred has been reviewed or inspected
under a program described in section 8A(c)(1) during the 1-
year period before the date of the citation for the
violation, and the employer has complied with recommendations
by the Secretary to bring the employer into compliance within
a reasonable period of time.''.
SEC. 9. CONSULTATION SERVICES.
Section 21(c) (29 U.S.C. 670(c)) is amended--
(1) by striking ``(c) The'' and inserting ``(c)(1) The'';
and
(2) by adding at the end the following:
``(2)(A) The Secretary shall, through the authority granted
under section 7(c) and paragraph (1), enter into cooperative
agreements with States for the provision of consultation
services by such States to employers concerning the provision
of safe and healthful working conditions. A State that has a
plan approved under section 18 shall be eligible to enter
into a cooperative agreement under this paragraph only if the
plan does not include provisions for federally funded
consultation to employers.
``(B)(i) Except as provided in clause (ii), the Secretary
shall reimburse a State that enters into a cooperative
agreement under subparagraph (A) in an amount that equals 90
percent of the costs incurred by the State for the provision
of consultation services under such agreement.
``(ii) A State shall be fully reimbursed by the Secretary
for--
``(I) training approved by the Secretary for State staff
operating under a cooperative agreement; and
``(II) specified out-of-State travel expenses incurred by
the staff.
``(iii) A reimbursement paid to a State under this
subparagraph shall be limited to costs incurred by such State
for the provision of consultation services under this
paragraph and the costs described in clause (ii).
[[Page S3024]]
``(C) Notwithstanding any other provision of law, not less
than 15 percent of the total amount of funds appropriated for
the Occupational Safety and Health Administration for a
fiscal year shall be used for education, consultation, and
outreach efforts.''.
SEC. 10. VOLUNTARY PROTECTION PROGRAMS.
(a) Cooperative Agreements.--The Secretary of Labor shall
establish cooperative agreements with employers to encourage
the establishment of comprehensive safety and health
management systems that include--
(1) requirements for systematic assessment of hazards in
the workplace;
(2) comprehensive hazard prevention, mitigation, and
control programs;
(3) active and meaningful management and employee
participation in the voluntary program described in
subsection (b); and
(4) employee safety and health training.
(b) Voluntary Protection Program.--The Secretary of Labor
shall establish a voluntary protection program to encourage
the achievement of excellence in both the technical and
managerial protection of employees from occupational hazards
as follows:
(1) Application.--Volunteers for the program shall be
required to submit an application to the Secretary of Labor
demonstrating that the worksite with respect to which the
application is made meets such qualifications as the
Secretary of Labor may prescribe for participation in the
program.
(2) Onsite evaluations.--The representatives of the
Secretary of Labor shall conduct onsite evaluations of the
worksite of the participants in the program to ensure a high
level of protection of employees of the participants. The
onsite evaluations shall not result in enforcement citations
under the Occupational Safety and Health Act of 1970 (29
U.S.C. 651 et seq.), unless representatives of the Secretary
of Labor observe hazards for which no agreement can be made
to abate the hazards within a reasonable time period.
(3) Information.--Volunteers who are approved by the
Secretary of Labor for participation in the program shall
assure the Secretary of Labor that information about the
safety and health program of the volunteers shall be made
readily available to the Secretary of Labor to share with
employers.
(4) Reevaluations.--Periodic reevaluations by the Secretary
of Labor of the volunteers shall be required for continued
participation in the program.
(5) Exemptions.--A site with respect to which a program has
been approved shall, during participation of a volunteer in
the program, be exempt from inspections and certain paperwork
requirements to be determined by the Secretary of Labor,
except that this paragraph shall not apply to inspections
arising from employee complaints, fatalities, catastrophes,
or significant toxic releases.
(c) Annual Fee.--The Secretary of Labor may charge an
annual fee to participants in a voluntary protection program
described in subsection (b). The fee shall be in an amount
determined by the Secretary of Labor, and amounts collected
shall be deposited in the general treasury of the United
States.
______
By Mr. GREGG (for himself, Mr. Leahy, Mr. Jeffords, Ms. Collins,
Ms. Snowe and Mr. Smith of New Hampshire):
S. 552. A bill to amend the Internal Revenue Code of 1986 to preserve
family held forest lands, and for other purposes; to the Committee on
Finance.
THE FAMILY FORESTLAND PRESERVATION TAX ACT OF 1997
Mr. GREGG. Mr. President, I introduce the Family Forestland
Preservation Tax Act of 1997 on behalf of myself, Mr. Leahy, Mr.
Jeffords, Mr. D'Amato, Ms. Collins, Ms. Snowe, and Mr. Smith of New
Hampshire. This bill amends several key tax provisions to help
landowners keep their lands in long-term private forest ownership and
management. Without these changes, many landowners will continue to be
forced to sell or change the use of their land.
This bill derives from four years of work by the Northern Forest
Lands Council [NFLC]. The NFLC was created in 1990 to seek ways for
Maine, New Hampshire, Vermont, and New York to maintain the traditional
patterns of land ownership and use in the forest that covers this
Nation's Northeast. The Northern Forest is a 26-million-acre stretch of
land, home to 1 million residents and within a 2-hour drive of 70
million people. Nearly 85 percent of the forest is privately owned.
Times have changed, however, and social and economic forces have begun
to affect the traditional patterns of land use with more and more land
being marketed for development.
This bill will help maintain traditional patterns and, thus, preserve
the forest by adjusting several estate tax provisions. This bill would
allow heirs to make postmortem donations of conservation easements on
undeveloped estate land and allow the valuation of undeveloped land at
current use value for estate tax purposes if the owner or heir agrees
to maintain the land in its current use for a period of 25 years. This
bill also would establish a partial inflation adjustment for timber
sales by allowing a tax credit not to exceed 50 percent. This will
encourage landowners to maintain their timberland for long-term
stewardship, which is both economically and environmentally desirable.
Also, the bill would eliminate the requirement that landowners
generally must work 100-hours-per-year in forest management on their
forest properties to be allowed to deduct normal management expenses
from timber activities against nonpassive income. Currently, landowners
are required to capitalize these losses until timber is harvested. This
legislation, though prompted by the NFLC's work, will benefit not only
the four states that make up the Northern Forest, but also all States
with forest land and all who enjoy the multiple uses of forest land. I
urge my colleagues to support this bill, which will not only protect
the historic current use patterns, but also allow the rustic beauty of
our forests to be enjoyed by all.
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:
S. 552
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) Short Title.--This Act may be cited as the ``Family
Forestland Preservation Tax Act of 1997''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is
expressed in terms of an amendment to, or repeal of, a
section or other provision, the reference shall be considered
to be made to a section or other provision of the Internal
Revenue Code of 1986.
TITLE I--ESTATE TAX PROVISIONS
SEC. 101. ESTATE TAX TREATMENT OF QUALIFIED CONSERVATION
EASEMENT.
(a) In General.--Section 2031 (relating to the definition
of gross estate) is amended by redesignating subsection (c)
as subsection (d) and by inserting after subsection (b) the
following new subsection:
``(c) Exclusion of Conservation Easement.--
``(1) In general.--If an executor elects the application of
this subsection, with respect to any real property included
in the gross estate, there shall be excluded from the gross
estate the value of a qualified conservation contribution (as
defined in section 170(h)(1)) of a qualified real property
interest described in section 170(h)(2)(C) in such real
property made by the decedent or a member of the decedent's
family within 9 months after the date of the decedent's
death.
``(2) Certain contributions not included.--For purposes of
paragraph (1), section 170(h)(4)(A) shall be applied without
regard to clause (iv) thereof in determining whether there is
a qualified conservation contribution.
``(3) Family member.--For purposes of paragraph (1), the
term `member of the decedent's family' has the same meaning
given such term by section 2032A(e)(2).
``(4) Election.--An election under paragraph (1) shall be
made on the return of tax imposed by section 2001. Such an
election, once made, shall be irrevocable.''
(b) Carryover Basis.--Section 1014(a) (relating to basis of
property acquired from a decedent) is amended by striking the
period at the end of paragraph (3) and inserting ``, or'',
and by inserting at the end the following new paragraph:
``(4) in the case of property subject to a qualified
conservation easement excluded from the gross estate of the
decedent under section 2031(c), the basis of the property in
the hands of the decedent.''
(c) Effective Date.--The amendments made by this section
shall apply to estates of decedents dying after December 31,
1997, which include land subject to qualified conservation
easements granted after December 31, 1997.
SEC. 102. SPECIAL ESTATE TAX VALUATION OF FOREST LANDS.
(a) In General.--Part III of subchapter A of chapter 11
(relating to gross estate) is amended by inserting after
section 2032A the following new section:
``SEC. 2032B. VALUATION OF CERTAIN FORESTLAND.
``(a) Value Based on Use of Property as Forestland.--
``(1) General rule.--If--
``(A) the decedent was (at the time of his death) a citizen
or resident of the United States, and
``(B) the executor elects the application of this section
and files the agreement referred to in subsection (d)(2),
then, for purposes of this chapter, the value of qualified
forestland shall be its value for use as a timber operation,
under subsection (b), as qualified forestland.
``(2) Limitation on aggregate reduction in fair market
value.--The aggregate decrease in the value of qualified
forestland
[[Page S3025]]
taken into account for purposes of this chapter which results
from the application of paragraph (1) with respect to any
decedent shall not exceed $1,000,000.
``(b) Qualified Forestland.--
``(1) In general.--For purposes of this section, the term
`qualified forestland' means real property located in the
United States which was acquired from or passed from the
decedent to a qualified devisee or qualified heir and which,
on the date of the decedent's death, was being used for a
qualified forest use by the decedent or a member of the
decedent's family, but only if--
``(A) 25 percent or more of the adjusted value of the gross
estate consists of the adjusted value of real property which
meets the requirements of this paragraph,
``(B) during the 8-year period ending on the date of the
decedent's death there have been periods aggregating 5 years
or more during which the real property was used for a
qualified forest use, and
``(C) such real property is designated in the agreement
referred to in subsection (d)(2).
``(2) Qualified forest use.--For purposes of this section,
the term `qualified forest use' means the devotion of the
property to use in timber operations.
``(c) Tax Treatment of Dispositions and Failures To Use as
Qualified Forest Use.--
``(1) Imposition of additional estate tax (recapture).--
``(A) In general.--If, within 25 years after the decedent's
death and before the death of the qualified devisee or
qualified heir--
``(i) the qualified devisee or qualified heir disposes of
any interest in qualified forestland,
``(ii) the qualified devisee or qualified heir ceases to
use for the qualified forest use the qualified forestland
which was acquired (or passed) from the decedent for an
aggregated period of 3 years out of any 8-year period, or
``(iii) any depreciable improvements are made to the
property, other than those relating to a qualified forest
use,
then there is hereby imposed an additional estate tax.
``(B) Exceptions.--Subparagraph (A) shall not apply to--
``(i) a testamentary disposition that itself qualifies for
special valuation under this section,
``(ii) a disposition by a qualified heir to any other
person who agrees to continue devoting the heir's interest to
a qualified forest use and signs the agreement in subsection
(d)(2) (such person shall thereafter be treated as a
qualified devisee with respect to such interest),
``(iii) a disposition by a qualified devisee to a qualified
heir of such devisee who agrees to continue devoting the
devisee's interest to a qualified forest use and signs the
agreement in subsection (d)(2) (such heir shall thereafter be
treated as a qualified devisee with respect to such
interest),
``(iv) a disposition of timber used in a timber operation;
and
``(v) a disposition (other than by sale) of a qualified
conservation contribution (as defined in section 170(h)).
``(2) Amount of additional tax.--The amount of the
additional tax imposed by paragraph (1)(A) with respect to
any interest shall be the amount equal to the lesser of--
``(A) the adjusted tax difference with respect to the
estate (within the meaning of section 2032A(c)(2)(C), or
``(B) the amount realized from the disposition of the
interest.
``(3) Only one additional tax imposed with respect to any
one portion.--In the case of an interest acquired from (or
passing from) any decedent, if a particular clause of
paragraph (1)(A) applies to any portion of an interest, no
other clause of such paragraph shall apply with respect to
the same portion of such interest.
``(d) Election; Agreement.--
``(1) Election.--The election under this section shall be
made on the return of the tax imposed by section 2001. Such
election shall be made in such manner as the Secretary shall
by regulations prescribe. Such an election, once made, shall
be irrevocable.
``(2) Agreement.--The agreement referred to in this
paragraph is a written agreement signed by each person in
being who has an interest (whether or not in possession) in
any property designated in such agreement consenting to the
application of subsection (c) with respect to such property.
``(e) Definitions; Special Rules.--For purposes of this
section--
``(1) Qualified devisee.--The term `qualified devisee'
means, with respect to any property, a person who acquired
such property (or to whom such property passed) from the
decedent and who is not a qualified heir of the decedent.
``(2) Person.--The term `person' means an individual,
partnership, corporation, or governmental entity.
``(3) Certain real property included.--In the case of real
property which meets the requirements of subparagraph (B) of
subsection (b)(1), any depreciable improvements, including
roads, which are related to the qualified forest use shall be
treated as real property devoted to that use.
``(4) Qualified forestland.--The term `qualified
forestland' means any real property which--
``(A) qualifies for a differential use value assessment
program for forestland in the State in which the property is
located; or
``(B) if a State has no differential use value assessment
program--
``(i) is forestland,
``(ii) is a minimum of 10 acres, exclusive of a dwelling
unit or other non-forest related structure and its curtilage;
and
``(iii) is subject to a forest management plan.
``(5) Timber operations.--The term `timber operations'
means the planting, cultivating, caring for, or harvesting of
trees in the process of using and conserving renewable forest
resources.
``(6) Method of valuing forestland.--The value of
forestland shall be determined according to whichever of the
following methods results in the least value:
``(A) Assessed land values in a State which provides a
differential or use value assessment for forestland.
``(B) Comparable sales of other forestland in the same
geographical area far enough removed from a metropolitan or
resort area so that nonforest use is not a significant factor
in the sales price.
``(C) The capitalization of income which the property can
be expected to yield for timber operations over a reasonable
period of time under prudent management; using traditional
forest management for the area, and taking into account soil
capacity, terrain configuration, and similar factors.
``(D) Any other factor which fairly values the timber value
of the property.
``(7) Applicable definitions and rules of section 2032A.--
``(A) Definitions.--Except as otherwise provided in this
section, any term used in this section which is also used in
section 2032A shall have the meaning given such term by
section 2032A.
``(B) Rules.--The rules in the following provisions of
section 2032A shall apply to this section, by substituting
`qualified forestland' for `qualified real property' and
`qualified forest use' for `qualified use', and shall apply
to qualified devisees as well as qualified heirs:
``(i) Paragraphs (2)(D) (by substituting `paragraph (2)(B)'
for `subparagraph (A)(ii)' in clause (i) thereof), (4), (5),
and (7)(A) (by substituting `25 years' for `10 years') of
subsection (c).
``(ii) Subsection (d)(3).
``(iii) Paragraphs (9), (10), (11), and (14) (by
substituting `active management' for `material
participation') of subsection (e).
``(iv) Subsections (f) and (g).
``(f) Special Rules for Involuntary Conversions of
Qualified Forestland.--
``(1) Treatment of converted property.--
``(A) In general.--If there is an involuntary conversion of
an interest in qualified forestland--
``(i) no tax shall be imposed by subsection (c) on such
conversion if the cost of the qualified replacement property
equals or exceeds the amount realized on such conversion; or
``(ii) if clause (i) does not apply, the amount of the tax
imposed by subsection (c) on such conversion shall be the
amount determined under subparagraph (B).
``(B) Amount of tax where there is not complete
reinvestment.--The amount determined under this subparagraph
with respect to any involuntary conversion is the amount of
tax which (but for this subsection) would have been imposed
on such conversion reduced by an amount which--
``(i) bears the same ratio to such tax, as
``(ii) the cost of the qualified replacement property bears
to the amount realized on the conversion.
``(2) Treatment of replacement property.--For purposes of
subsection (c)--
``(A) any qualified replacement property shall be treated
in the same manner as if it were a portion of the interest in
qualified forestland which was involuntarily converted;
except that with respect to such qualified replacement
property the 25-year period under paragraph (1) of subsection
(c) shall be extended by any period, beyond the 2-year period
referred to in section 1033(a)(2)(B)(i), during which the
qualified devisee or qualified heir was allowed to replace
the qualified forestland;
``(B) any tax imposed by subsection (c) on the involuntary
conversion shall be treated as a tax imposed on a partial
disposition, and
``(C) subparagraph (A)(ii) of subsection (c)(1) shall be
applied by not taking into account periods after the
involuntary conversion and before the acquisition of the
qualified replacement property.
``(3) Definitions and special rules.--For purposes of this
subsection--
``(A) Involuntary conversion.--The term `involuntary
conversion' means a compulsory or involuntary conversion
within the meaning of section 1033.
``(B) Qualified replacement property.--The term `qualified
replacement property' means--
``(i) in the case of an involuntary conversion described in
section 1033(a)(1), any real property into which the
qualified forestland is converted, or
``(ii) in the case of an involuntary conversion described
in section 1033(a)(2), any real property purchased by the
qualified devisee or qualified heir during the period
specified in section 1033(a)(2)(B) for purposes of replacing
the qualified forestland.
Such term only includes property which is to be used for the
qualified forest use set forth in subsection (b)(2) under
which the qualified forestland qualified under subsection
(a).
``(4) Certain rules made applicable.--The rules of the last
sentence of section 1033(a)(2)(A) shall apply for purposes of
paragraph (3)(B)(ii).
[[Page S3026]]
``(g) Exchanges of Qualified Forestland.--
``(1) Treatment of property exchanged.--
``(A) Exchanges solely for qualified exchange property.--If
an interest in qualified forestland is exchanged solely for
an interest in qualified exchange property in a transaction
which qualifies under section 1031, no tax shall be imposed
by subsection (c) by reason of such exchange.
``(B) Exchanges where other property received.--If an
interest in qualified forestland is exchanged for an interest
in qualified exchange property and other property in a
transaction which qualifies under section 1031, the amount of
the tax imposed by subsection (c) by reason of such exchange
shall be the amount of tax which (but for this subparagraph)
would have been imposed on such exchange under subsection
(c)(1), reduced by an amount which--
``(i) bears the same ratio to such tax, as
``(ii) the value of the qualified exchange property bears
to the value of the qualified forestland exchanged.
For purposes of clause (ii) of the preceding sentence, value
shall be determined according to subsection (e)(6).
``(2) Treatment of qualified exchange property.--For
purposes of subsection (c)--
``(A) any interest in qualified exchange property shall be
treated in the same manner as if it were a portion of the
interest in qualified forestland which was exchanged; and
``(B) any tax imposed by subsection (c) by reason of the
exchange shall be treated as a tax imposed on a partial
disposition.
``(3) Qualified exchange property.--For purposes of this
subsection, the term `qualified exchange property' means real
property which is to be used for a qualified forest use set
forth in subsection (b)(2) under which the real property
exchanged therefor originally qualified under subsection
(a).''
(b) Conforming Amendments.--
(1) Section 1014(a)(3), as amended by section 101(b), is
amended by inserting ``or 2032B'' after ``2032A''.
(2) Section 1016(c) is amended--
(A) by inserting ``or 2032B(c)(1)'' after ``2032A(c)(1)''
in paragraphs (1), (3), (4), and (5)(B),
(B) by inserting ``or qualified devisee'' after ``qualified
heir'' in paragraph (1),
(C) by inserting ``or 2032B(f)(3)(B)'' after
``2032A(h)(3)(B)'' in paragraph (4), and
(D) by inserting ``or 2032B(g)(3)'' after ``2032A(i)(3)''
in paragraph (4).
(3) Section 1040 is amended--
(A) by inserting ``or qualified devisee (within the meaning
of section 2032B(e)(1))'' before ``any property'' in
subsection (a), and
(B) by inserting ``or 2032B'' after ``2032A'' in
subsections (a) and (b).
(4) Section 1223(12)(C) is amended by inserting ``or
qualified devisee (within the meaning of section
2032B(e)(1))'' before ``with respect''.
(5) Section 2013 is amended--
(A) by inserting ``or 2032B'' after ``2032A'' each place it
appears in subsection (f) and the heading thereof, and
(B) by inserting ``or 2032B(c)'' after ``2032A(c)'' both
places it appears in subsection (f).
(6) Section 2035(d)(3)(B) is amended by inserting ``or
section 2032B (relating to special valuation of certain
forestland)'' after ``real property)''.
(7) Section 2056A(b)(10)(A) is amended by inserting
``2032B,'' after ``2032A,''.
(8) Section 2624(b) is amended by striking ``sections 2032
and 2032A'' and inserting ``sections 2032, 2032A, and
2032B''.
(9) Section 2663(1) is amended by striking ``section
2032A(c)'' and inserting ``sections 2032A(c) and 2032B(c)''.
(10) Section 6324B is amended--
(A) by striking subsection (a) and inserting the following
new subsection:
``(a) General Rules.--
``(1) Section 2032a.--In the case of any interest in
qualified real property (within the meaning of section
2032A(b)), an amount equal to the adjusted tax difference
attributable to such interest (within the meaning of section
2032A(c)(2)(B)) shall be a lien in favor of the United States
on property in which such interest exists.
``(2) Section 2032b.--In the case of any interest in
qualified forestland (within the meaning of section
2032B(b)), an amount equal to the adjusted tax difference
with respect to the estate (within the meaning of section
2032A(c)(2)(C)) shall be a lien in favor of the United States
on property in which such interest exists.'',
(B) by inserting ``or 2032B'' after ``2032A'' both places
it appears in subsection (b),
(C) by inserting ``or 2032B(c)'' after ``2032A(c)'' in
subsection (b)(2), and
(D) by adding at the end of subsection (c) the following
new paragraph:
``(3) Qualified forestland.--For purposes of this section,
the term `qualified forestland' includes qualified
replacement property (within the meaning of section
2032B(f)(3)(B)) and qualified exchange property (within the
meaning of section 2032B(g)(3)).''
(c) Clerical Amendment.--The table of sections for part III
of subchapter A of chapter 11 is amended by adding at the end
the following new item:
``Sec. 2032B. Valuation of certain forestland.''
(d) Effective Date.--The amendment made by this section
shall apply to estates of decedents dying after December 31,
1997.
TITLE II--INCOME TAX TREATMENT
SEC. 201. PARTIAL INFLATION ADJUSTMENT FOR TIMBER.
(a) In General.--Part I of subchapter P of chapter 1
(relating to treatment of capital gains) is amended by adding
at the end the following new section:
``SEC. 1203. PARTIAL INFLATION ADJUSTMENT FOR TIMBER.
``(a) In General.--At the election of any taxpayer who has
qualified timber gain for any taxable year, there shall be
allowed as a deduction from gross income an amount equal to
the qualified percentage of such gain.
``(b) Qualified Timber Gain.--For purposes of this section,
the term `qualified timber gain' means the lesser of--
``(1) the net capital gain for the taxable year, or
``(2) the net capital gain for the taxable year determined
by taking into account only gains and losses from timber.
``(c) Qualified Percentage.--For purposes of this section,
the term `qualified percentage' means the percentage (not
exceeding 50 percent) determined by multiplying--
``(1) 3 percent, by
``(2) the number of years in the holding period of the
taxpayer with respect to the timber.
``(d) Estates and Trusts.--In the case of an estate or
trust, the deduction under subsection (a) shall be computed
by excluding the portion (if any) of the gains for the
taxable year from sales or exchanges of capital assets which,
under sections 652 and 662 (relating to inclusions of amounts
in gross income of beneficiaries of trusts), is includible by
the income beneficiaries as gain derived from the sale or
exchange of capital assets.''
(b) Coordination With Existing Limitations.--
(1) Subsection (h) of section 1 (relating to maximum
capital gains rate) is amended by inserting after ``net
capital gain'' each place it appears the following: ``(other
than qualified timber gain with respect to which an election
is made under section 1203)''.
(2) Subsection (a) of section 1201 (relating to alternative
tax for corporations) is amended by inserting after ``net
capital gain'' each place it appears the following: ``(other
than qualified timber gain with respect to which an election
is made under section 1203)''.
(c) Allowance of Deduction in Computing Adjusted Gross
Income.--Subsection (a) of section 62 (relating to definition
of adjusted gross income) is amended by adding after
paragraph (16) the following new paragraph:
``(17) Partial inflation adjustment for timber.--The
deduction allowed by section 1203.''
(d) Clerical Amendment.--The table of sections for part I
of subchapter P of chapter 1 is amended by adding at the end
the following new item:
``Sec. 1203. Partial inflation adjustment for timber.''
(e) Effective Date.--The amendments made by this section
shall apply to sales or exchanges after December 31, 1997.
SEC. 202. EXCLUSION OF GAIN FROM SALE OF INTERESTS IN FOREST
LANDS.
(a) In General.--Part III of subchapter B of chapter 1
(relating to items specifically excluded from gross income)
is amended by redesignating section 138 as section 139 and by
inserting after section 137 the following new section:
``SEC. 138. SALES OF INTERESTS IN CERTAIN FOREST LANDS.
``(a) Exclusion.--
``(1) In general.--Gross income shall not include the
applicable percentage of any qualified timber gain.
``(2) Applicable percentage.--For purposes of paragraph
(1), the term `applicable percentage' means--
``(A) 35 percent, or
``(B) in the case of qualified timber gain from the sale of
a qualified real property interest described in section
170(h)(2)(C), 100 percent.
``(b) Limitation.--The total amount of gain which may be
excluded from gross income under subsection (a) for any
taxable year shall not exceed the sum of--
``(1) the amount of qualified timber gain described in
subsection (a)(2)(B), plus
``(2) $800,000.
``(c) Qualified Timber Gain.--For purposes of this
section--
``(1) In general.--The term `qualified timber gain' means
gain from the sale or exchange of a qualified real property
interest in real property which is used in timber operations
to a governmental unit described in section 170(c)(1) for
conservation purposes.
``(2) Qualified real property interest.--The term
`qualified real property interest' has the meaning given such
term by section 170(h)(2).
``(3) Timber operations.--The term `timber operations' has
the meaning given such term by section 2032B(e)(5).
``(4) Conservation purposes.--The term `conservation
purposes' has the meaning given such term by section
170(h)(4)(A) (without regard to clause (iv) thereof).
``(d) Special Rule for Sales to Nongovernmental Entities.--
``(1) In general.--Subsection (a) shall apply to the sale
or exchange to a qualified organization described in section
170(h)(3) if such interest is transferred during the 2-year
period beginning on the date of the sale or exchange to a
governmental unit described in section 170(c)(1).
``(2) Time for exclusion.--If the transfer to which
paragraph (1) applies occurs in a
[[Page S3027]]
taxable year after the taxable year in which the sale or
exchange occurred--
``(A) no exclusion shall be allowed under subsection (a)
for the taxable year of the sale or exchange, but
``(B) the taxpayer's tax for the taxable year of the
transfer shall be reduced by the amount of the reduction in
the taxpayer's tax for the taxable year of the sale or
exchange which would have occurred if subparagraph (A) had
not applied.''
(b) Clerical Amendment.--The table of sections for part III
of subchapter B of chapter 1 is amended by striking the item
relating to section 138 and by inserting the following new
items after the item relating to section 137:
``Sec. 138. Sales of interests in certain forest lands.
``Sec. 139. Cross references to other Acts.''
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
1997.
SEC. 203. APPLICATION OF PASSIVE LOSS LIMITATIONS TO TIMBER
ACTIVITIES.
(a) In General.--Treasury regulations sections 1.469-
5T(b)(2) (ii) and (iii) shall not apply to any closely held
timber activity if the nature of such activity is such that
the aggregate hours devoted to management of the activity for
any year is generally less than 100 hours.
(b) Definitions.--For purposes of subsection (a)--
(1) Closely held activity.--An activity shall be treated as
closely held if at least 80 percent of the ownership
interests in the activity is held--
(A) by 5 or fewer individuals, or
(B) by individuals who are members of the same family
(within the meaning of section 2032A(e)(2) of the Internal
Revenue Code of 1986).
An interest in a limited partnership shall in no event be
treated as a closely held activity for purposes of this
section.
(2) Timber activity.--The term ``timber activity'' means
the planting, cultivating, caring, cutting, or preparation
(other than milling) for market, of trees.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
1997.
______
By Mr. KERRY:
S. 553. A bill to regulate ammunition, and for other purposes; to the
Committee on the Judiciary.
THE AMMUNITION SAFETY ACT OF 1997
Mr. KERRY. Mr. President, no gun works without a bullet. Yet for no
good reason, Congress in the early 1980's--which were marked by
terribly troubling increases in gun-caused fatalities and injuries--
repealed laws that regulate ammunition. And while a background check is
required to stop felons from purchasing guns, no such background check
is required to stop them from buying ammunition for guns they already
may have. In the meantime, bullets are getting meaner and more deadly.
Law enforcement officers know all too well the danger they face each
and every time a gun is pointed at them.
Advances in technology only promise to make matters worse. When a
large percentage of gun-related deaths involve handguns, and a larger
percentage of gun-related deaths is accidental, it is not sensible to
allow unrestricted manufacture, sale, and use of new, more destructive
bullets. In 1994, 157 police officers and State troopers were killed in
this country. Five lost their lives in my home State of Massachusetts.
Additionally, more than 200 people die from the accidental use of
handguns every year. In 1992 alone, 233 accidental deaths occurred
because of handguns. This included 6 babies, 36 children under the age
of 14, and 8 senior citizens, 2 of whom were over the age of 80.
In light of these sad and disturbing facts, there is no good reason
to permit ever more dangerous bullets to come on the market. And there
is every good reason to keep off our streets and out of our homes
bullets that supply handguns with the approximate destructive power of
assault weapons.
That is why I am today reintroducing the Ammunition Safety Act that I
introduced previously in the 104th Congress. The Ammunition Safety Act
of 1997 does two things: it reestablishes reasonable regulations for
the sale of handgun ammunition, and it outlaws all exceedingly
destructive handgun ammunition by expanding and updating the ban on
armor-piercing handgun ammunition. This bill would provide a weapon for
law enforcement to crack down on crime and would make ordinary people
safer from handgun violence and accidental shootings. The bill
accomplishes these goals in three steps.
First, the bill reinstates and strengthens ammunition control
language that Congress repealed during the Reagan era. The bill would
require dealers of handgun ammunition to be licensed by the Federal
Government and would restrict interstate sale and transportation of
handgun ammunition to licenced dealers. The bill also would double the
maximum penalties for sale of handgun ammunition to and possession of
such ammunition by felons and persons under age 21.
Second, the bill would apply Brady Bill provisions to handgun
ammunition. To prevent the sale of handgun ammunition to felons, every
purchaser of ammunition would have to pass a background check before
ammunition could be sold to him or her. These regulations would be a
vital tool for law enforcement to use in investigating crime, and would
provide equity to a system that currently monitors and restricts the
flow of guns, but, inexplicably, not of ammunition.
Third, the bill expands the definition of illegal armor-piercing
handgun ammunition to include any new conceivable kind of armor-
piercing bullet. The bill establishes a new method to accomplish this
goal. To date, no law has been able to effectively ban all armor-
piercing bullets. It is impossible to ban what cannot be defined
because vague laws are constitutionally void--and definitions to date
have failed to cover all armor-piercing bullets. All that existing law
does is ban bullets based on the materials of which they are made.
Consequently, bullets made of hard metal are illegal in the hope that
this definition will cover most armor-piercing bullets. But the
existing composition-based definitions fail to prevent the sale of
certain bullets that pierce armor like large lead bullets that are not
intended for handguns but can be used in them.
This bill calls on the Treasury Department to define major armor-
piercing bullets. Fulfilling this new responsibility would entail four
steps:
First, within 1 year, the Treasury Department is charged to determine
a standard test to ascertain the destructive capacity of any and all
bullets. This will probably result in something along the lines of a
system that has been employed for some testing purposes that calculates
the width times the depth of the hole a projectile bores in a block of
gelatin when it is shot with no extra powder from a standard handgun at
a distance of 10 feet.
Second, utilizing this destructive capabilities rating test, the
Treasury Department would then test and determine the destructive
rating of every bullet available on the market.
Third, all manufacturers of bullets for sale in the United States
would be required to cover the costs incurred by the Treasury
Department in this testing.
Fourth, the bill would make it illegal to manufacture, sell, import,
use, or possess any bullet--existing or newly invented--that has a
destructive rating equal to or higher than the armor-piercing
threshold. This would be in addition to the existing composition-based
definition.
This bill contains reasonable exemptions. Those bullets exclusively
manufactured for law enforcement would be exempt; so would be those
bullets designed for sporting purpose that Congress specifically
exempts by law; and so would be those bullets that are proven by their
manufacturer at its expense to have a destructive rating below the
armor-piercing threshold.
By setting the legal standard at the armor-piercing threshold, all
armor-piercing bullets would be illegal. And there is an additional
advantage to setting a legal threshold in this fashion: The threshold
would ban more than armor-piercing bullets. It would ban any bullet
invented in the future that explodes on impact, that turns to shrapnel,
that does things today's technology cannot yet fathom, or that by any
other means is exceptionally destructive.
Setting a legal standard this way draws a hard and fast line between
those bullets currently on the market and future bullets that do more
damage that we can image today. This bill says that America is
satisfied that the bullets of today are dangerous enough, and America
will tolerate no greater likelihood of accidental death as a result of
new bullets.
This bill recognizes the fact that regulating only guns is naive.
Those who
[[Page S3028]]
want to kill or injure others will always be able to find guns, but
they must purchase ammunition. When they do this, this bill will be
there to stop them.
Mr. President, I recognize that there is a limit to what the
Government can do to stop gun violence and accidental death. But today,
our Government is shirking its responsibility. This bill is a vital
step toward ensuring that our Government does what is necessary to save
lives.
The law enforcement community and the public will never again have to
react to advertisements like the one for the famous Rhino bullet. This
ad states: ``The Rhino inflicts a wound of 8 inches in diameter. Each
of these fragments becomes lethal shrapnel and is hurled into vital
organs, lungs, circulatory system components, the heart and other
tissues. The wound channel is catastrophic. Death is nearly
instantaneous.''
If this bill is enacted, opportunistic manufacturers like the one who
created the Rhino bullet will have nothing to gain from advertising the
dramatic innovations of their bullets. If an advertisement claims that
a new bullet is unusually destructive, the public will know that the
advertisement is either an outright lie or that the product is illegal.
Either way, the public will know in advance that no such bullet will
ever hit the street, and the public will have no cause for alarm.
When this bill becomes law, no new bullets that are more dangerous
than those of today will make it to market. When this bill becomes law,
bullets now available for purchase end up in the wrong hands.
This bill is a solid step toward returning sanity and safety to our
Nation's streets and households. The Government has no greater
responsibility than to work toward this goal. I welcome the support of
colleagues who share my concerns, as many do. I urge them to join me in
sponsoring this legislation.
Mr. President, I ask unanimous consent that the full text of the
legislation appear in the Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:
S. 553
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 ``Ammunition Safety Act of
1997''.
SEC. 2. DEALERS OF AMMUNITION.
(a) Definition.--Section 921(a)(11)(A) of title 18, United
States Code, is amended by inserting ``or ammunition'' after
``firearms''.
(b) Licensing.--Section 923(a) of title 18, United States
Code, is amended--
(1) in the matter preceding paragraph (1) by striking ``or
importing or manufacturing ammunition'' and inserting ``or
importing, manufacturing, or dealing in ammunition''; and
(2) in paragraph (3)--
(A) in subparagraph (A), by striking ``or'' the last place
it appears;
(B) in subparagraph (B), by striking the period at the end
and inserting ``; or''; and
(C) by inserting the following new subparagraph:
``(C) in ammunition other than ammunition for destructive
devices, $10 per year.''.
(c) Unlawful Acts.--Section 922(a)(1)(A) of title 18,
United States Code, is amended--
(1) in paragraph (1)--
(A) in subparagraph (A)--
(i) by inserting ``or ammunition'' after ``firearms''; and
(ii) by inserting ``or ammunition'' after ``firearm''; and
(B) in subparagraph (B), by striking ``or licensed
manufacturer'' and inserting ``licensed manufacturer, or
licensed dealer'';
(2) in paragraph (2), in the matter preceding subparagraph
(A), by inserting ``or ammunition'' after ``firearm'';
(3) in paragraph (3), by inserting ``or ammunition'' after
``firearm'' the first place it appears;
(4) in paragraph (5), by inserting ``or ammunition'' after
``firearm'' the first place it appears; and
(5) in paragraph (9), by inserting ``or ammunition'' after
``firearms''.
(d) Penalties.--Section 924 of title 18, United States
Code, is amended--
(1) in paragraph (5)--
(A) in subparagraph (A)(i), by striking ``1 year'' and
inserting ``2 years''; and
(B) in subparagraph (B)--
(i) in clause (i), by striking ``1 year'' and inserting ``2
years''; and
(ii) in clause (ii), by striking ``10 years'' and inserting
``20 years''; and
(2) by adding at the end the following new subsection:
``(o) Except to the extent a greater minimum sentence is
otherwise provided, any person at least 18 years of age who
violates section 922(g) shall be subject to--
``(1) twice the maximum punishment authorized by this
subsection; and
``(2) at least twice any term of supervised release.''.
(e) Application of Brady Handgun Violence Prevention Act to
Transfer of Ammunition.--Section 922(t) of title 18, United
States Code, is amended by inserting ``or ammunition'' after
``firearm'' each place it appears.
SEC. 3. REGULATION OF ARMOR PIERCING AND NEW TYPES OF
DESTRUCTIVE AMMUNITION.
(a) Testing of Ammunition.--Section 921(a)(17) of title 18,
United States Code, is amended--
(1) by redesignating subparagraph (D), as added by section
2(e)(2), as subparagraph (E); and
(2) by inserting after subparagraph (C) the following new
subparagraph:
``(D)(i) Notwithstanding subchapter II of chapter 5 of
title 5, United States Code, not later than 1 year after the
date of enactment of this subparagraph, the Secretary shall--
``(I) establish uniform standards for testing and rating
the destructive capacity of projectiles capable of being used
in handguns;
``(II) utilizing the standards established pursuant to
subclause (I), establish performance-based standards to
define the rating of `armor piercing ammunition' based on the
rating at which the projectiles pierce armor; and
``(III) at the expense of the ammunition manufacturer
seeking to sell a particular type of ammunition, test and
rate the destructive capacity of the ammunition utilizing the
testing, rating, and performance-based standards established
under subclauses (I) and (II).
``(ii) The term `armor piercing ammunition' shall include
any projectile determined to have a destructive capacity
rating higher than the rating threshold established under
subclause (II), in addition to the composition-based
determination of subparagraph (B).
``(iii) The Congress may exempt specific ammunition
designed for sporting purposes from the definition of `armor
piercing ammunition'.''.
(b) Prohibition.--Section 922(a) of title 18, United States
Code, is amended--
(1) in paragraph (7)--
(A) by striking ``or import'' and inserting ``, import,
possess, or use'';
(B) in subparagraph (B), by striking ``and'';
(C) in subparagraph (C), by striking the period at the end
and inserting ``; and''; and
(D) by adding at the end the following new subparagraph:
``(D) the manufacture, importation, or use of any
projectile that has been proven, by testing performed at the
expense of the manufacturer of the projectile, to have a
lower rating threshold than armor piercing ammunition.''; and
(2) in paragraph (8)--
(A) in subparagraph (B), by striking ``and'';
(B) in subparagraph (C), by striking the period at the end
and inserting ``; and''; and
(C) by adding at the end the following new subparagraph:
``(D) the manufacture, importation, or use of any
projectile that has been proven, by testing performed at the
expense of the manufacturer of the projectile, to have a
lower rating threshold than armor piercing ammunition.''.
______
By Mr. HARKIN:
S. 554. A bill to inform and empower consumers in the United States
through a voluntary labeling system for wearing apparel or sporting
goods made without abusive and exploitative child labor, and for other
purposes; to the Committee on Commerce, Science, and Transportation.
THE CHILD LABOR FREE CONSUMER INFORMATION ACT OF 1997
Mr. HARKIN. Mr. President, I rise to introduce legislation that will
inform and empower consumers in the United States through a voluntary
labeling system for wearing apparel and sporting goods made without the
use of abusive and exploitative child labor. Congressman George Miller
is introducing companion legislation in the other body.
This is the second time I have come to the floor of the Senate to
introduce this bill, and I will continue to introduce it until it
becomes law.
I'd like to ask my colleagues to take a moment to look around. Maybe
it's the shirt you have on right now. Or the silk tie or blouse. Or the
soccer ball you kick around with your kids in the backyard. Or the
tennis shoes you wear on weekends.
Chances are that you have purchased something--perhaps many things--
made with abusive and exploitative child labor. And chances are you
were completely unaware that was the case. You will find a label that
tells you what size it is, how to take care for it and what it costs.
But it doesn't tell you about the person who made it.
Mr. President, recently, the International Labor Organization [ILO]
released a very grim report about the number of children who toil away
in
[[Page S3029]]
abhorrent conditions. The ILO estimates that over 250 million children
worldwide under the age of 15 are working instead of receiving a basic
education. Many of these children begin working in factories at the age
of 6 or 7, some even younger. They are poor, malnourished, and often
forced to work 60-hour weeks for little or no pay.
Now when I speak about child labor, I am not talking about 17-year-
olds helping out on the family farm or running errands after school. I
am speaking about children, often under 12 years old, who are forced to
work long hours in hazardous and dangerous conditions, many as slaves,
instead of going to school.
On September 23, 1993, the Senate appropriately put itself on record
as expressing its principled opposition to the abhorrent practice of
exploiting children for commercial gain and asserting that it should be
the policy of the United States to prohibit the importation of products
made through the use of abusive and exploitative child labor by passing
a sense of the Senate Resolution I introduced. In my view, this was the
first step toward ending child labor.
Mr. President, never has the issue of child labor in the garment
industry been more prominent than today. Last year, talk show host
Kathie Lee Gifford learned that some of the garments with her name on
them were being produced by children. She did not bury her head in the
sand. Instead, she reacted quickly and decisively to heighten awareness
about the issue of abusive and exploitative child labor.
Americans in Des Moines or Dallas or Detroit may say, ``What does
this have to do with us?'' It is quite simple. By protecting the rights
of workers everywhere, we will be protecting jobs and opportunities
here at home. A U.S. worker cannot compete with a 12-year-old working
12 hours a day for 12 cents.
Last year, the United States imported almost 50 percent of the
wearing apparel sold in this country and the garment industry netted
$34 billion. According to the Department of Commerce, last year, the
United States imported 494.1 million pairs of athletic footwear and
produced only 65.3 million here at home. That means that we imported
enough shoes to encircle the earth five and a half times.
As I have traveled around the country and spoken with people about
the issue of abusive and exploitative child labor, I have found that
consumers--ordinary Americans--want to get involved. They want
information. They want to know if the products they are buying are made
by children.
According to a survey sponsored by Marymount University, more than
three out of four Americans said they would avoid shopping at stores if
they were aware that the goods sold there were made by exploitative and
abusive child labor. They also said that they would be willing to pay
an extra $1 on a $20 garment if it were guaranteed to be made under
legitimate circumstances. I ask unanimous consent to enter this study
into the Record.
Mr. President, it is obvious that consumers don't want to reward
companies with their hard-earned dollars by buying products made with
abusive and exploitative child labor.
This issue demands our attention. My legislation, the Child Labor
Free Consumer Information Act 1997, will inform and empower consumers
in the United States through a voluntary labeling system for wearing
apparel and sporting goods made without abusive and exploitative child
labor. In my view, a system of voluntary labeling holds the best
promise of giving consumers the information they want--and giving the
companies that manufacture these products the recognition they deserve.
The crux of this legislation is to provide the framework for members
of the wearing apparel and sporting goods industry, labor
organizations, consumer advocacy and human rights groups along with the
Secretaries of Commerce, Treasury, and Labor to establish the labeling
standard and develop a system to assure compliance that items were not
made with abusive and exploitative child labor. Thus, ensuring
consumers that the garment or pair of tennis shoes they purchase was
made without abusive and exploitative child labor.
In my view, Congress can't do it alone through legislation. The
Department of Labor can't do it alone through enforcement. It takes all
of us from the private sector to labor and human rights groups to take
responsibility, to come together to end abusive and exploitative child
labor. And I am pleased to say there has recently been promising action
to that end.
Yesterday, an article in the New York Times appeared announcing a
tentative agreement between human rights and labor leaders and some
members of the apparel industry to adopt a code of conduct and a
promise to form an association to provide consumers with information on
the items they purchase. This is a praise worthy initiative and I am
glad that my discussions with President Clinton on the issue of child
labor have helped lead to this development. Now, we must take the
logical next step to inform and assure consumers that the goods they
purchase are not made with abusive and exploitative child labor. My
bill has provisions for a labeling system that will inform consumers
that the wearing apparel and sporting goods they purchase are not made
by the sweat and toil of children, as well as enforcement provisions to
assure consumers that the label has integrity. Until an effective and
reliable labeling and monitoring system is in place, consumers can
never truly be sure that the goods they purchase were not made by an
exploited child. I look forward to continuing my work with my
colleagues and the White House on strengthening this initiative to
inform and empower consumers. That is what the American consumer
demands and deserves.
Mr. President, when the private sector decides to take speak up--it
certainly can make a difference. Recently, in Bangladesh, the
Bangladesh Garment Manufacturers and Exporters Association has agreed
to work with the International Labor Organization to take children out
of the garment factories and put them into school--where they belong.
As of July 1996, more than 110 schools for former child workers have
opened, serving nearly 2,000 children. So, if we can do it in
Bangladesh, then we can do it elsewhere.
Mr. President, let me be clear, companies can choose to use the label
or not to. This bill is not about the big government telling the
private sector what to do. This bill is centered around this
fundamental principle: Let the Buyer Be Aware. This ``Truth in
Labeling'' initiative is based on the principle that a fully informed
American consumer will make the right, and moral, choice and vote
against abusive and exploitative child labor with their pocketbook.
We have seen such an approach work effectively with the Rugmark label
for hand-knotted carpets from India. It is operating in some European
countries. Consumers who want to buy child labor-free carpets can just
look for the Rugmark label. I visited the Rugmark headquarters in New
Delhi, India last week. Mr. President, this initiative is working. It
has succeeded in taking children out of the factories and putting them
into schools while providing consumers with the information they need.
By the end of April, half a million carpets will have received the
Rugmark label and been shipped to stores in Germany. Rugmark licenses
already provide 30 percent of German carpet imports from India. And I
am pleased to say that there are two wholesalers in New York that offer
carpets with the Rugmark label. I am hopeful that by the end of the
year there will be at least 20 importers in the United States.
Mr. President, the progress that has been made on eradicating abusive
and exploitative child labor is irreversible. Therefore we must
continue to move forward. And I believe my bill allows us to do just
that. It allows the consumer to know more about the products they buy
and give companies that use the label the recognition they deserve.
Our nation began this century by working to end abusive and
exploitative child labor in America, let us close this century by
ending child labor around the world. I urge my colleagues to support my
bill.
I hope that we will be able to vote on this piece of legislation in
the near future so that we can give consumers the information they
deserve to make informed decisions.
[[Page S3030]]
Mr. President, I ask unanimous consent that the text of the bill be
printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
S. 554
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 ``Child Labor Free Consumer
Information Act of 1997''.
SEC. 2. FINDINGS.
The Congress finds that--
(1) the Secretary of Labor has conducted 3 detailed studies
that document the fact that abusive and exploitative child
labor exists worldwide;
(2) the Secretary of Labor has also determined, through the
studies referred to in paragraph (1), that child laborers are
often forced to work beyond their physical capacities, under
conditions that threaten their health, safety, and
development, and are denied basic educational opportunities;
(3) in most instances, countries that have abusive and
exploitative child labor also experience a high adult
unemployment rate;
(4) the International Labor Organization (commonly known as
the ``ILO'') estimates that--
(A) approximately 250,000,000 children between the ages of
5 and 14 are working in developing countries; and
(B) many of those children manufacture wearing apparel or
sporting goods that are offered for sale in the United
States;
(5) consumers in the United States spend billions of
dollars each year on wearing apparel and sporting goods;
(6) consumers in the United States have the right to
information on whether the articles of wearing apparel
(including any section of that wearing apparel) or sporting
goods that they purchase are made without abusive and
exploitative child labor;
(7) the rugmark labeling and monitoring system is a
successful model for eliminating abusive and exploitative
child labor in the rug industry;
(8) the labeling of wearing apparel or sporting goods would
provide the information referred to in paragraph (6) to
consumers; and
(9) it is important to recognize United States businesses
that have effective programs to ensure that products sold in
the United States are not made with abusive and exploitative
child labor.
TITLE I--CHILD LABOR FREE LABELING STANDARDS
SEC. 101. CHILD LABOR FREE LABELING STANDARDS.
(a) Establishment of Labeling Standards.--
(1) In general.--Not later than 180 days after the date of
enactment of this Act, the Secretary of Labor, in
consultation with the Child Labor Free Commission established
under section 201, shall issue regulations to ensure that a
label using the terms ``Not Made With Child Labor'', ``Child
Labor Free'', or any other term or symbol referring to child
labor does not make a false statement or suggestion that the
article or section of wearing apparel or sporting good was
not made with child labor. The regulations developed under
this section shall encourage the use of an easily
identifiable symbol or term indicating that the article or
section of wearing apparel or sporting good was not made with
child labor.
(2) Notification on use.--
(A) In general.--A producer, importer, exporter,
distributor, or other person intending to use any label
referred to in paragraph (1) shall submit a notification to
the Commission for review under subparagraph (C).
(B) Notification.--The notification referred to in
subparagraph (A) shall include information concerning the
source of the article or section of wearing apparel or
sporting good to which the label will be affixed, including--
(i) the country in which the article or section of wearing
apparel or sporting good is manufactured;
(ii) the name and location of the manufacturer; and
(iii) information concerning any outsourcing by the
manufacturer in the manufacture of the article or section of
wearing apparel or sporting good.
(C) Review of notification.--Upon receipt of the
notification, the Commission shall review the notification
and inform the Secretary of Labor concerning the findings of
the review. The permission of the Secretary of Labor shall be
required for the use of the label. The Secretary of Labor, in
consultation with the Commission, shall establish procedures
for granting permission to use a label under this
subparagraph.
(3) Fee.--The Secretary of Labor is authorized to charge a
fee to cover the expenses of the Commission in reviewing a
notification under paragraph (2). The level of fees charged
under this subparagraph shall not exceed the administrative
costs incurred in reviewing a notification. Fees collected
under this paragraph shall be available to the Secretary of
Labor for expenses incurred in the review and response of the
Commission under this subsection.
(4) Applicability.--The regulations issued under paragraph
(1) shall apply to any label contained in--
(A) an article or section of wearing apparel or sporting
good that is exported from or offered for sale in the United
States;
(B) any packaging thereof; or
(C) any advertising for an article or section of wearing
apparel or sporting good referred to in subparagraph (A).
(5) Effective date.--The regulations issued under paragraph
(1) shall take effect on the date that is 180 days after the
date of publication as final regulations.
(b) Violation of Section 5 of the Federal Trade Commission
Act.--It is a violation of section 5 of the Federal Trade
Commission Act (15 U.S.C. 45) for any producer, importer,
exporter, distributor, or seller of any article or section of
wearing apparel or sporting good that is exported from or
offered for sale in the United States--
(1) to falsely indicate on the label of that article or
section of wearing apparel or sporting good, the packaging of
the article or section of wearing apparel or sporting good,
or any advertising for the article or section of wearing
apparel or sporting good that the article or section of
wearing apparel or sporting good was not made with child
labor; or
(2) to otherwise falsely claim or suggest that the article
(or section of that article of wearing apparel) or sporting
good was not made with child labor.
(c) Amendment to the Federal Trade Commission Act.--Section
5(m)(1) of the Federal Trade Commission Act (15 U.S.C.
45(m)(1)) is amended--
(1) in subparagraph (A), by striking ``The Commission'' and
inserting ``Except as provided in subparagraph (D), the
Commission'';
(2) in subparagraph (B), by striking ``If the Commission''
and inserting ``Except as provided in subparagraph (D), if
the Commission''; and
(3) by adding at the end the following new subparagraph:
``(D)(i)(I) In lieu of the applicable civil penalty under
subparagraph (A) or (B), in any case in which the Commission
commences a civil action for a violation of section 101 of
the Child Labor Free Consumer Information Act of 1997 under
subparagraph (A), under subparagraph (B) for an unfair or
deceptive practice that is considered to be a violation of
this section by reason of section 101(b) of such Act, or
under subparagraph (C) for a continuing failure that is
considered to be a violation of this section by reason of
section 101(b) of such Act, if that violation--
``(aa) is a knowing or willful violation, the amount of a
civil penalty for the violation shall be determined under
clause (ii); or
``(bb) is not a knowing or willful violation, no penalty
shall be assessed against the person, partnership, or
corporation that committed the violation.
``(II) For purposes of this subparagraph, if in an action
referred to in subclause (I), if the Commission asserts that
a violation is a knowing and willful violation, the defendant
shall bear the burden of proving otherwise.
``(ii) The amount of a civil penalty for a violation under
clause (i)(I)(aa) that is committed shall be--
``(I) for an initial violation, an amount equal to the
greater of--
``(aa) 2 times the retail value of the articles of wearing
apparel or sporting goods mislabeled; or
``(bb) $200,000; and
``(II) for any subsequent violation, an amount equal to the
greater of--
``(aa) 4 times the retail value of the articles of wearing
apparel or sporting goods mislabeled; or
``(bb) $400,000.''.
(d) Special Fund To Assist Children.--
(1) Creation of fund.--There is established in the United
States Treasury a special fund to be known as the ``Free the
Children Fund''.
(2) Deposits into fund.--An amount equal to the amount of
penalties collected under this section shall be deposited
into the special fund. The Secretary of the Treasury shall,
upon request of the Secretary of Labor, make the amounts
deposited into the special fund available to the Secretary of
Labor for use by the Secretary of Labor for educational and
other programs described in paragraph (3).
(3) Authorization.--Amounts deposited into the special fund
are authorized to be appropriated annually for educational
and other programs with the goal of eliminating child labor.
(e) Other Industries.--The Commission may, as appropriate,
develop labeling standards similar to the labeling standards
developed under this section for any industry that is not
otherwise covered under this Act and recommend to the
Secretary of Labor that those standards be promulgated. If
the standards are promulgated by the Secretary of Labor--
(1) the provisions of this Act and the amendments made by
this Act shall apply to the labeling covered by those
standards in the same manner as they apply to any other
standards promulgated by the Secretary of Labor under this
section; and
(2) it shall be a violation of section 5 of the Federal
Trade Commission Act (15 U.S.C. 45) for any producer,
importer, exporter, distributor, or seller of any good that
is covered under the labeling standards and that is exported
from or offered for sale in the United States--
(A) to falsely indicate on the label of that good, the
packaging thereof, or any related advertising that the good
was not made with child labor; or
(B) to otherwise falsely claim or suggest that the good was
not made with child labor.
[[Page S3031]]
SEC. 102. REVIEW OF PETITIONS BY THE CHILD LABOR FREE
COMMISSION.
(a) In General.--In addition to the procedures established
under section 5 of the Federal Trade Commission Act (15
U.S.C. 45), the Child Labor Free Commission established under
section 201 shall assist the Federal Trade Commission by
reviewing petitions under this section.
(b) Contents of Petitions.--A petition under this section
shall--
(1) be submitted in such form and in such manner as the
Federal Trade Commission, in consultation with the Secretary
of Labor and the Child Labor Free Commission, shall
prescribe;
(2) contain the name of the--
(A) petitioner; and
(B) person or entity involved in the alleged violation of
the labeling standards under section 101; and
(3) provide a detailed explanation of the alleged
violation, including all available evidence.
(c) Review by Commission.--
(1) In general.--The Commission shall, to the maximum
extent practicable, not later than 90 days after receiving a
petition, review the petition to determine whether there
appears to have been a violation of the labeling standards.
(2) Action by the federal trade commission.--
(A) In general.--Upon completion of a review conducted
under paragraph (1), the Commission shall forward the
petition to the Secretary of Labor, together with a report by
the Commission containing a determination by the Commission
concerning the merits of the petition, including whether a
violation of the labeling standards occurred and whether
there appears to have been a knowing and willful (within the
meaning of section 5(m)(1)(D)(i) of the Federal Trade
Commission Act, as added by section 101(c) of this Act) or
repeated violation of those standards.
(B) Duties of the secretary of labor.--Upon receipt of the
petition and report, the Secretary of Labor shall--
(i) forward a copy of the petition and report to the
Federal Trade Commission for review by the Federal Trade
Commission; and
(ii) review the petition and report.
(3) Temporary withdrawal of permission; order to cease and
desist.--
(A) Temporary withdrawal of permission.--If the Secretary
of Labor determines, on the basis of the report referred to
in paragraph (2), that there is a substantial likelihood that
a violation of the labeling standards promulgated under
section 101 has occurred, the Secretary of Labor may
temporarily withdraw the permission granted under section
101(a)(2)(C) and inform the Federal Trade Commission of the
action and the reason for the action.
(B) Order to cease and desist.--If the Federal Trade
Commission concurs with a determination of the Child Labor
Free Commission in the report referred to in subparagraph (A)
that a violation of the labeling standards has occurred, the
Federal Trade Commission shall take such action as may be
necessary under the Federal Trade Commission Act (15 U.S.C.
41 et seq.) to cause the person or entity in violation of the
labeling standards under section 101 to cease and desist from
violating those standards immediately upon that concurrence.
TITLE II--CHILD LABOR FREE COMMISSION
SEC. 201. ESTABLISHMENT OF COMMISSION.
(a) Establishment.--There is established a commission to be
known as the ``Child Labor Free Commission''.
(b) Membership.--
(1) Composition.--The Commission shall be composed of 17
members, of whom--
(A) 1 shall be the Secretary of Commerce or a designee of
the Secretary of Commerce;
(B) 1 shall be the Secretary of the Treasury or a designee
of the Secretary of the Treasury;
(C) 1 shall be the United States Trade Representative or a
designee of the United States Trade Representative;
(D) 1 shall be the Secretary of Labor or a designee of the
Secretary of Labor, who shall serve as the Chairperson of the
Commission;
(E) 3 shall be representatives of nongovernmental
organizations that work toward the eradication of abusive and
exploitative child labor and in the promotion of human
rights, appointed by the Secretary of Labor;
(F) 3 shall be representatives of labor organizations,
appointed by the Secretary of Labor;
(G) 3 shall be representatives of the wearing apparel
industry, appointed by the Secretary of Labor;
(H) 3 shall be representatives of the sporting goods
industry, appointed by the Secretary of Labor; and
(I) 1 additional member shall be appointed by the Secretary
of Labor.
(2) Date.--The appointments of the members of the
Commission shall be made not later than 60 days after the
date of enactment of this Act.
(c) Period of Appointment; Vacancies.--
(1) Period of appointment.--Each member of the Commission
shall serve for a term of 4 years, except that in appointing
the initial members of the Commission, the Secretary of Labor
shall stagger the terms of the non-Federal members.
(2) Vacancies.--Any vacancy in the Commission shall not
affect its powers, but shall be filled in the same manner as
the original appointment.
(d) Initial Meeting.--Not later than 30 days after the date
on which all members of the Commission have been appointed,
the Commission shall hold its first meeting.
(e) Meetings.--The Commission shall meet at the call of the
Chairperson or at the request of a majority of the members.
(f) Quorum.--A majority of the members of the Commission
shall constitute a quorum, but a lesser number of members may
hold hearings or other meetings.
SEC. 202. DUTIES OF THE COMMISSION.
The Commission shall--
(1) assist the Secretary of Labor in developing labeling
standards under section 101; and
(2) assist the Secretary of Labor in developing and
implementing a system to ensure compliance with the labeling
standards established under section 101, including--
(A) receiving, reviewing, and making recommendations for
the resolution of petitions received under section 102 that
allege noncompliance with the labeling standards under
section 101;
(B) making recommendations to the Secretary of Labor for
the removal of labels subject to the standards under section
101 that are found to be in violation of those standards;
(C) assisting the Secretary of Labor in developing and
implementing a system to promote the increased use of the
labeling standards under section 101;
(D) publishing, not less frequently than annually, a list
of persons and entities that have notified the Commission of
their intent to use a label under section 101(a)(2); and
(E) publishing, not less frequently than annually, a list
of persons and entities found to be in violation of any
provision of this Act; and
(3) not later than 1 year after the date of the
establishment of the Commission, commence a study into the
feasibility of developing an easily identifiable labeling
standard that the Secretary of Labor may issue to encourage
the use of voluntary labels that ensure consumers that an
article of wearing apparel or sporting good was made without
the use of sweatshop or exploited adult labor.
SEC. 203. POWERS OF THE COMMISSION.
(a) Hearings.--The Commission may hold such hearings, sit
and act at such times and places, take such testimony, and
receive such evidence as the Commission considers advisable
to carry out the duties of the Commission under this title.
(b) Information From Federal Agencies.--The Commission may
secure directly from any Federal department or agency such
information as the Commission considers necessary to carry
out the duties of the Commission under this title. Upon
request of the Chairperson of the Commission, the head of
such department or agency shall furnish such information to
the Commission.
(c) Postal Services.--The Commission may use the United
States mails in the same manner and under the same conditions
as other departments and agencies of the Federal Government.
(d) Gifts.--The Commission may accept, use, and dispose of
gifts or donations of services or property.
SEC. 204. COMMISSION PERSONNEL MATTERS.
(a) Non-Federal Members.--Each member of the Commission who
is not an officer or employee of the Federal Government shall
serve without compensation.
(b) Federal Members.--Each member of the Commission who is
an officer or employee of the United States shall serve
without compensation in addition to that received for that
member's services as an officer or employee of the United
States.
SEC. 205. ADMINISTRATIVE AND SUPPORT SERVICES.
The Secretary of Labor shall, to the extent permitted by
law, provide the Commission with such administrative
services, funds, facilities, staff, and other support
services as may be necessary for the performance of its
functions.
TITLE III--RECOGNITION OF EXEMPLARY CORPORATE EFFORTS
SEC. 301. ANNUAL REPORT.
Not later than 1 year after the date of enactment of this
Act, and annually thereafter, the Secretary of Labor shall
issue a report concerning companies that are making exemplary
progress in ensuring that products made, sold, or distributed
by those companies are not made with abusive and exploitative
child labor.
SEC. 302. ADDITIONAL METHODS.
In addition to the reports made under section 301, the
Secretary of Labor in consultation with the Commission shall
develop and implement other methods of providing recognition
for exemplary programs carried out by companies to ensure
that products made, sold, or distributed by those companies
are not made with abusive and exploitative child labor.
TITLE IV--DEFINITIONS
SEC. 401. DEFINITIONS.
For purposes of this Act, the following definitions shall
apply:
(1) Child.--The term ``child'' means--
(A) an individual who has not attained the age of 15 years,
as measured by the Julian calendar; or
(B) an individual who has not attained the age of 14 years,
as measured by the Julian calendar, in the case of an
individual who resides in a country that, by law, defines a
child as such an individual.
(2) Commission.--The term ``Commission'' means the Child
Labor Free Commission established under section 201.
[[Page S3032]]
(3) Label.--The term ``label'' means a display of written,
printed, or graphic matter on or affixed to an article of
wearing apparel or a sporting good or on the packaging of the
article or a sporting good that meets the standards described
in section 101(a).
(4) Made with child labor.--
(A) In general.--A manufactured article or section of
wearing apparel or a sporting good shall be considered to
have been made with child labor if the article or section--
(i) was fabricated, assembled, or processed in whole or in
part; or
(ii) contains any part that was fabricated assembled, or
processed in whole or in part,
by any child described in subparagraph (B).
(B) Covered children.--A child is described in this
subparagraph if that child engaged in the fabrication,
assembly, or processing of the article or section--
(i) under circumstances that the Secretary of Labor
considers to be abusive or exploitative;
(ii) under circumstances tantamount to involuntary
servitude; or
(iii) under--
(I) exposure to toxic substances or working conditions that
otherwise pose serious health hazards; or
(II) working conditions that result in the child's being
deprived of basic educational opportunities.
(5) Producer.--The term ``producer'' includes a contractor
or subcontractor of a manufacturer of all or part of a good.
(6) Sporting good.--The term ``sporting good'' shall have
the meaning provided that term by the Secretary of Labor.
(7) Wearing apparel.--The term ``wearing apparel'' shall
have the meaning provided that term by the Secretary of
Labor.
____
[From Marymount University Center for Ethical Concerns, November, 1995]
New Study Finds Americans Intolerant of Sweatshops in Garment Industry
Arlington, VA.--Retailers selling clothing made in
sweatshops operating in the United States could feel the ire
of American consumers, suggests a new survey sponsored by
Marymount University in Arlington, Virginia. The new study
shows that consumers would avoid stores that sell goods made
in sweatshops and be more inclined to shop at stores working
actively to prevent garment worker abuses.
According to the survey, more than three-fourths of
Americans would avoid shopping at stores if they were aware
that the stores sold goods made in sweatshops. Consumers also
are willing to pay a price for assurances that the goods they
buy are not made in sweatshops. An overwhelming majority (84
percent) say they would be willing to pay up to an extra $1
on a $20 garment if it were guaranteed to be made in a
legitimate shop.
The study, sponsored by Marymount's Center for Ethical
Concerns and the Department of Fashion Design and
Merchandising, was prompted by the recent discovery of
sweatshops operating in the United States in which illegal
aliens smuggled into the country were forced to produce
garments under almost slave labor conditions. In one factory,
raided earlier this year by U.S. officials, workers had been
confined in a barbed wire-enclosed compound and forced to
work between 16 and 22 hours a day. Workers were paid less
than $1 an hour and essentially held captive until they had
repaid the cost of their passage to the United States, a
process that took years in some cases.
Since these revelations, the U.S. Department of Labor has
been working with retailers to encourage greater diligence in
policing the industry voluntarily and plans in the near
future to release a list of companies that have agreed to
cooperate in these efforts. The new study shows that a
substantial majority of Americans (66 percent) would be more
likely to patronize stores that they know are cooperating
with law enforcement officials to prevent sweatshops. If such
a list were published, more than two-thirds (69 percent) of
consumers say they would take this information into account
when deciding where to do their shopping this holiday season.
``It is gratifying to know that Americans condemn these
sweatshop conditions and are willing to demonstrate that
commitment when they shop, even if it costs them a few
pennies. The industry, including retailers, has a
responsibility to make sure it is not selling garments made
in sweatshops, and the public is willing to hold them
accountable,'' said Sr. Eymard Gallagher, RSHM, president of
Marymount University. ``Despite the competitiveness in the
industry, we can't close our eyes to these kinds of
conditions that we thought had disappeared years ago,'' she
said.
The telephone survey of 1,008 randomly selected adults, was
conducted by ICR Survey Research Group of Media, PA, at the
request of Marymount. The survey has a margin of error of
plus or minus 3 percentage points.
Marymount University's fashion design and fashion
merchandising programs are among the leaders in this field in
the United States. Marymount is an independent, Catholic
university, emphasizing excellence in teaching, attention to
the individual, and values and ethics across the curriculum.
Located in Arlington, Virginia, Marymount enrolls 4,200 men
and women in its 34 undergraduate and 24 master's degree
programs.
study background and objectives
United States officials recently discovered that workers
who had been smuggled into this country were making garments
in sweatshops where they were forced to work long hours under
extremely poor working conditions for less than the minimum
wage. As a result, this research was conducted to determine:
Whether respondents would avoid shopping at retailers if
aware they sold garments made in sweatshops; Whether
respondents would be more inclined to shop in retail stores
cooperating with law enforcement officials to prevent
sweatshops; Whether respondents would be willing to pay $1
more for a $20 garment if it were guaranteed to be made in a
legitimate shop, and; Whether respondents would be more
likely this holiday season to shop in retail stores on a
forthcoming list of retailers assisting authorities in their
effort to end abuse of United States garment workers. Whether
the manufacturers or the retailers should have the
responsibility of preventing sweatshops.
research methodology
The research entailed a telephone interview insert in ICR
Survey Research Group's EXCEL Omnibus. EXCEL includes a
national random sample of approximately 1,000 adults (18+),
half male and half female.
Interviewing was conducted from Friday, October 27 through
Tuesday, October 31. A total of 1008 interviews were
completed. Data has been weighted to reflect the U.S.
population 18 years of age and older (188,700,000).
in a nutshell . . . here are the findings
Retailers--beware of sweatshop garments
Americans overwhelmingly support the idea of officials
publishing a list of retailers who assist law enforcement
agencies in their effort to end abuse of United States
garment workers. Seven-in-ten respondents indicate they would
be more likely to shop at the stores this holiday season that
cooperate to end garment worker abuse. Consumers are willing
to pay a price for assurances that goods they buy are not
made in sweatshops. 84% of consumers would pay an additional
$1 on a $20 item if they knew the garment was guaranteed to
be made in a legitimate shop.
Most Americans (76%) blame the existence of sweatshops on
the manufacturers who employ the contractors or workers.
However, if consumers knew a retailer sold garments that were
made in sweatshops, nearly eight-in-ten would avoid shopping
there. As the holiday season starts to kick-off, retailers
would be wise to ensure their garments were in fact made in
legitimate shops. Given the potential for enticing customers
with legitimately made garments, and the potential for losing
customers if caught selling sweatshop-made garments,
promoting legitimately made garments provides a strategic
business opportunity for retailers.
______
By Mr. ALLARD:
S. 555. A bill to amend the Solid Waste Disposal Act to require that
at least 85 percent of funds appropriated to the Environmental
Protection Agency from the Leaking Underground Storage Tank Trust Fund
be distributed to States to carry out cooperative agreements for
undertaking corrective action and for enforcement of subtitle I of that
Act; to the Committee on Environment and Public Works.
THE LEAKING UNDERGROUND STORAGE TANK TRUST FUND AMENDMENTS ACT OF 1997
Mr. ALLARD. Mr. President, today I am introducing, The Leaking
Underground Storage Tank Trust Fund Amendments Act of 1997. This
legislation, if enacted, would change who controls the bulk of the
money from the trust fund, and the purposes for which the money can be
spent. The legislation is simple, it mandates that 85 percent of the
money in the trust fund must be allocated to the States. It's my view
that since the States are responsible for the bulk of underground
storage tank enforcement and cleanup, they should have greater control
over the dollars.
This legislation also broadens the purposes for which trust fund
dollars can be spent. Under this legislation States would have the
authority to use the funds to meet the greater demand for cleanup.
There has been some concern expressed about how trust fund money has
been targeted up to this point. For example, since inception of the
program only 1 percent of the money has been used for actual cleanup of
orphan tanks. The other 99 percent has gone to administration and
enforcement. I think there should be some discussion on whether this
money can be spent with greater environmental benefit. Instead of
targeting 99 percent to administration and enforcement, perhaps it
would be a better idea to help owners and operators who need financial
assistance to handle their problem. Since the money for assistance
would come from a dedicated tax, and not the general fund, why not get
as big an environmental bang for the buck as possible. By taking this
action we may also be able to have more appropriated out of the trust
fund every year. As some may be aware, only a small portion of the $1.5
billion in the trust fund
[[Page S3033]]
is appropriated every year. If we can show that the money being
appropriated is directly cleaning up tanks, we can certainly make a
better claim for those dollars.
Finally, I understand that EPA and some Members have concerns with
this legislation. I think that working with Chairman Smith and Chairman
Chafee, and their staffs, we can craft legislation that will be signed
into law.
______
By Mr. INHOFE (for himself, Mr. Hutchinson, Mr. Helms, Mr.
Cochran, Mr. Nickles, and Mr. Sessions):
S. 556. A bill to provide for the allocation of funds from the Mass
Transit Account of the Highway Trust Fund, and for other purposes; to
the Committee on Banking, Housing, and Urban Affairs.
mass transit legislation
Mr. INHOFE. Mr. President, I rise today to introduce legislation that
attempts to level the playing field for transit donor States across the
country. In addition to myself, Senators Tim Hutchinson, Helms,
Cochran, Nickles, and Sessions are all original cosponsors.
Federal Transit dollars are distributed according to the Federal
Transit Act as amended by the Intermodal Surface Transportation
Efficiency Act [ISTEA]. Similar to highway dollars, transit dollars are
collected at the gas pump and are distributed by both formula and
discretionary grants.
States such as Oklahoma that do not receive back all of the revenues
that they send to the Federal mass transit account are considered donor
States. Unfortunately, these States are not getting nearly as much back
in Federal funding as they contribute. In 1995, Oklahoma contributed
about $30 million and only received back about $8 million from the mass
transit account of the highway trust fund. This inequity allows for
States with more urban centers to receive more dollars back than they
actually contribute to the Federal account. Basically, donor States are
subsidizing large metropolitan areas with the portion of the funds that
we never get back. This puts smaller and rural areas at a disadvantage
in trying to maintain transit systems whether it be buses or light
rail. Rural areas are, too, interested in conserving fuel and
contributing to better air quality.
My proposal is designed to address this critical transit problem as
we move deeper into the ISTEA reauthorization debate. Under my bill,
each State that contributes $50 million or less into the Federal Mass
Transit Account will be guaranteed to receive back no less than 80
percent of its apportionment.
States should reasonably be able to expect that local dollars will be
used for local transit needs. A large portion of Oklahoma-generated
revenues should be remitted back to our State to provide for improved
public transportation in Oklahoma--not urban mass transit systems in
other States. My bill will put equity into the mass transit
apportionment system by returning locally generated dollars home.
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:
S. 556
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. ALLOCATION OF MASS TRANSIT ACCOUNT FUNDS.
(a) Minimum Allocation.--The Secretary of Transportation
shall take such actions as may be necessary to ensure that,
in each fiscal year, each State's percentage of the total
apportionments to all States from the Mass Transit Account of
the Highway Trust Fund established by section 9503 of the
Internal Revenue Code of 1986 is not less than 80 percent of
the State's estimated tax payment attributable to highway
users in the State paid into that Account in the most recent
year for which data are available.
(b) Applicability.--Subsection (a) does not apply to any
State whose contribution to the Mass Transit Account of the
Highway Trust Fund established by section 9503 of the
Internal Revenue Code of 1986 in the applicable fiscal year
is greater than or equal to $50,000,000.
______
By Mr. McCONNELL (for himself and Mr. Inhofe):
S. 557. A bill to amend the Clean Air Act to exclude beverage alcohol
compounds emitted from aging warehouses from the definition of volatile
organic compounds; to the Committee on Environment and Public Works.
the clean air act amendments distilled spirits clarification act of
1997
Mr. McCONNELL. Mr. President, today I rise to introduce legislation
which will correct an oversight in the Clean Air Act Amendments of
1990. This legislation will clarify the treatment under the act of
beverage alcohol compounds emitted from aging warehouses.
Under the current statute, EPA classifies beverage alcohol emissions
(ethanol) as a volatile organic compound [VOC]. VOC's react in the
atmosphere to form ozone. Ethanol, however, has been proven to play an
insignificant role in ozone formation because of its low reactivity.
Despite scientific evidence proving the minimal value of these
controls (at exorbitant cost) the EPA has wrongly refused repeated
requests regarding removal of restrictions on beverage distillation. If
control technology is implemented, this would mean process changes in
the historical aging process that makes each beverage unique.
Aging is arguably one of the most important components of the
production process. For example, Bourbon whisky, which is a distinctive
product of the United States, and Kentucky, must be aged at least 2
years in wooden barrels according to Federal regulation. This process
involves natural oxidation which requires the passage of air and
ethanol vapors into and out of the barrels. Any effort to alter this
natural aging process through controls on temperature, ventilation
patterns, and humidity, could change the actual physical properties of
Bourbon whisky, thus altering the distinguishing taste associated with
certain brands.
Mr. President, I agree that we must protect the environment that we
all share. However, when extremist, inflexible regulation threatens an
entire industry at minimal, if any, environmental return, we must
reevaluate our priorities. I urge my colleagues to join me in restoring
a little sanity to our regulatory process.
I ask unanimous consent for the bill to be printed in the Record.
There being no objection, the bill was ordered to be printed in the
record, as follows:
S. 557
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. DEFINITION OF VOLATILE ORGANIC COMPOUNDS.
Section 302(s) of the Clean Air Act (42 U.S.C. 7602(s)) is
amended by adding the following at the end thereof: ``Such
term shall not include beverage alcohol compounds (ethanol)
emitted from aging warehouses.''.
______
By Mr. BIDEN (for himself and Mr. Grassley):
S. 558. A bill to provide for a study and report regarding the
potential recruitment, hiring, or retention of qualified former
officers of the Royal Hong Kong Police by Federal law enforcement
agencies; to the Committee on the Judiciary.
THE ROYAL HONG KONG POLICE ANTICRIME STRATEGY ACT OF 1997
Mr. BIDEN. Mr. President, the forthcoming reversion of Hong Kong to
Chinese control is, as a matter of diplomacy, the mere implementation
of a diplomatic agreement between the United Kingdom and the government
of the People's Republic of China.
But it is, of course, far more complicated, and its implications far
more profound. The challenges ahead are many. Will Beijing abide by the
rule of law and uphold its commitment to the United Kingdom and the
people of Hong Kong to ``one country, two systems?'' Will America and
the major powers have the political will to challenge China should they
renege on their commitments?
Nowhere are the challenges of reversion greater than for United
States law enforcement--for Hong Kong has long been a center of the
international criminal organizations which control the trade in Asian
heroin, money laundering is on the rise, and there are a host of other
law enforcement problems.
Here in the United States, we see the related problems of Asian
organized crime, or Tongs, heroin trafficking from Asia through Hong
Kong, alien smuggling, arms trafficking, and the
[[Page S3034]]
use of Hong Kong as a money laundering center for criminals.
Unfortunately, the capacity of U.S. law enforcement to respond to this
threat is limited by the fact that we simply do not have enough agents
with the language skills, intelligence background and contacts to
infiltrate Asian organized crime.
This is why I am introducing today the Royal Hong Kong Police
Anticrime Strategy Act of 1997. I am pleased to be joined in doing so
by Senator Grassley, my colleague on the Senate International Caucus on
Narcotics Control.
This legislation seeks to take advantage of a potential opportunity--
even in the face of all the challenges which will come with the
reversion of Hong Kong. To describe in simplest terms the opportunity--
as officers of the Royal Hong Kong Police leave their force, U.S. law
enforcement agencies may be able to bolster our anti-drug, money
laundering, alien smuggling and Asian organized crime capabilities with
the unique knowledge of the former officers of the Royal Hong Kong
Police.
For example, it could be of significant value to federal law
enforcement to simply retain on a one-time or continuing basis former
Royal Hong Kong Police personnel to use them to help build a major
Asian-Crime investigative database. Such a database could form the
backbone of U.S. investigations in the years to come. I offer this
simply as a means to illustrate to my Senate colleagues the potential
law enforcement benefits of this legislation. Of course, the best uses
must be decided by the law enforcement professionals within the Justice
and Treasury Departments.
I also point out that I have long worked on this issue--beginning
with a hearing with the FBI on the issue of Asian organized crime way
back in August, 1990. My January 1992 drug strategy also called on the
Bush Administration to determine if these police officers could be of
assistance. In fact, a DEA operation began in 1992 which used some
retired Royal Hong Kong Police in a very limited capacity to provide
translation services to support investigations of Asian heroin
trafficking.
I was also pleased to include a provision offered by Senator Roth in
the 1994 Biden Crime Bill to study this issue--unfortunately, this
provision was dropped from the final agreement due to opposition in the
House.
But, today, with the continuing rise of the heroin trade, I am
reiterating my call for us to address this issue. The legislation I
offer today calls on the Attorney General and the Treasury Secretary to
report to Congress on the need and potential benefits--as well as any
potential security or administrative problems--of adding former
officers of the Royal Hong Kong Police to our federal law enforcement
agencies.
And, if the benefits exist, this legislation authorizes the addition
of up to 200 former officers to assist in the investigation of
international drug trafficking, alien smuggling, money laundering and
organized crime undertaken by the Justice and Treasury Departments.
Mr. President, preparing for the reversion of Hong Kong primarily
means preparing for the challenges ahead--but it also requires us to
recognize the opportunities ahead. Taking advantage of this opportunity
is what the ``Royal Hong Kong Police Anticrime Act of 1997'' is all
about.
I ask unanimous consent that the full text of the legislation appear
in the Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:
S. 558
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 ``Royal Hong Kong Police
Anticrime Strategy Act of 1997''.
SEC. 2. ROYAL HONG KONG POLICE ANTICRIME STRATEGY.
(a) Definitions.--In this section--
(1) the term ``Attorney General'' means the Attorney
General of the United States;
(2) the term ``controlled substance'' has the same meaning
as in section 102 of the Controlled Substances Act (21 U.S.C.
802);
(3) the term ``Federal law enforcement agency'' includes--
(A) the Drug Enforcement Administration of the Department
of Justice;
(B) the Federal Bureau of Investigation of the Department
of Justice;
(C) the Immigration and Naturalization Service of the
Department of Justice;
(D) the Bureau of Alcohol, Tobacco, and Firearms of the
Department of the Treasury; and
(E) the United States Customs Service of the Department of
the Treasury;
(F) the United States Secret Service of the Department of
the Treasury; and
(G) any other department or agency of the Federal
Government that is authorized to engage in or supervise the
prevention, detection, investigation, or prosecution of any
violation of Federal law;
(4) the term ``qualified former officer of the Royal Hong
Kong Police'' means any individual employed by the Royal Hong
Kong Police on or before June 30, 1997, who--
(A) during that period of employment, was authorized to
engage in or supervise the prevention, detection,
investigation, or prosecution of criminal law;
(B) in the determination of the Attorney General and the
Secretary of the Treasury, does not constitute a law
enforcement, national security, or other threat to the
interest of the United States; and
(C) meets such other requirements as the Attorney General
and the Secretary of the Treasury may establish.
(b) Study and Report.--
(1) In general.--Not later than 1 year after the date of
enactment of this Act, the Attorney General and the Secretary
of the Treasury shall--
(A) conduct a study regarding the potential recruitment,
hiring, or retention of qualified former officers of the
Royal Hong Kong Police by Federal law enforcement agencies to
assist those agencies in the prevention, detection,
investigation, or prosecution of Federal criminal offenses;
and
(B) submit to the Committees on the Judiciary of the Senate
and the House of Representatives a report describing the
results of the study under subparagraph (A).
(2) Consultation.--The Attorney General and the Secretary
of the Treasury--
(A) shall consult with the Director of the Office of
National Drug Control Policy of the Executive office of the
President in conducting the study under paragraph (1)(A); and
(B) shall include any recommendations of the Director in
the report submitted under paragraph (1)(B).
(3) Contents of Report.--To the maximum extent practicable,
in addition to such information as may be included at the
discretion of the Attorney General and the Secretary of the
Treasury, the report under paragraph (1)(B) shall include an
analysis of--
(A) the potential benefits of recruiting, hiring, or
retaining qualified former officers of the Royal Hong Kong
Police by Federal law enforcement agencies to assist or
otherwise support those agencies the prevention, detection,
investigation, or prosecution of Federal criminal offenses,
including--
(i) illegal international and domestic trafficking of
controlled substances, including any violation of section
401(b)(1)(A) of the Controlled Substances Act (21 U.S.C.
841(b)(1)(A));
(ii) illegal immigration, including the smuggling of
illegal immigrants;
(iii) illegal international arms trafficking; and
(iv) any violation of section 1956 of title 18, United
States Code;
(B) any special knowledge or capabilities that qualified
former officers of the Royal Hong Kong Police would
potentially provide to Federal law enforcement agencies, such
as translation or linguistic support, including an assessment
of the extent to which such knowledge and capabilities are
available domestically;
(C) any legal or administrative barriers that may prevent
the recruitment, hiring, or retention of qualified former
officers of the Royal Hong Kong Police by Federal law
enforcement agencies and, if necessary, recommendations for
legislation to address those barriers; and
(D) any potential security issues that would be raised by
the hiring of qualified former officers of the Royal Hong
Kong Police by Federal law enforcement agencies and, if
necessary, the potential for minimizing any security risks
through deployment in support or other capacities.
(c) Certification.--Not later than 30 days after the date
on which the report is submitted under subsection (b)(1)(B)--
(1) if the Attorney General determines, based on the
results included in that report, that the recruitment,
hiring, or retention of qualified former officers of the
Royal Hong Kong Police would be of significant assistance to
Federal law enforcement, the Attorney General shall so
certify to Congress; and
(2) if the Secretary of the Treasury determines, based on
the results included in that report, that the recruitment,
hiring, or retention of qualified former officers of the
Royal Hong Kong Police would be of significant assistance to
Federal law enforcement, the Secretary of the Treasury shall
so certify to Congress.
(d) Authorization of Appropriations.--
(1) Fiscal year 1998.--There are authorized to be
appropriated for fiscal year 1998 such sums as may be
necessary to carry out subsection (b)(1).
(2) Succeeding fiscal years.--If--
(A) the Attorney General makes a certification under
subsection (c)(1), there are authorized to be appropriated
such sums as may be necessary for each of the fiscal years
[[Page S3035]]
1998, 1999, 2000, and 2001 for the purposes of recruiting,
hiring, or retaining not more than 100 qualified former
officers of the Royal Hong Kong Police to support the
activities of the Department of Justice; and
(B) the Secretary of the Treasury makes a certification
under subsection (c)(2), there are authorized to be
appropriated such sums as may be necessary for each of the
fiscal years 1998, 1999, 2000, and 2001 for the purposes of
recruiting, hiring, or retaining not more than 100 qualified
former officers of the Royal Hong Kong Police to support the
activities of the Department of the Treasury.
Mr. GRASSLEY. Mr. President, I am pleased to join Senator Biden in
offering the Royal Hong Kong Police Anticrime Strategy Act of 1997. As
the recent State Department report on international narcotics control
makes clear, the criminal activities of major Asian organized crime
groups directly affects the United States. Whether we are talking about
alien smuggling, heroin trafficking, or spreading corruption, major
Asian-based gangs, many operating from Hong Kong, daily affect the
quality of life of many of our citizens. Their activities to launder
their illegal incomes threatens the integrity of our banking and
financial systems.
With the transfer of Hong Kong to China, much of the current
expertise on these criminal organizations now based in the Royal Hong
Kong Police will be lost. What this legislation will do, and it is only
a first step, is to give us the opportunity to examine ways of
retaining that expertise, of putting it to use in our efforts to stop a
despicable trade in human beings and to improve our capability to stop
the flow of dangerous drugs that do so much to make our neighborhoods
and streets unsafe. The proposal is innovative and timely. While only
authorizing a study, the present proposal will give us the opportunity
to explore ways to ensure the effectiveness of our international
narcotics control efforts.
______
By Mr. DASCHLE (for himself and Mr. Kennedy) (by request):
S. 559. A bill to amend the Internal Revenue Code of 1986 to provide
tax relief to middle-income families who are struggling to pay for
college, to amend the Higher Education Act of 1965 to provide
significantly increased financial aid for needy students, provide
universal access to postsecondary education, reduce student loan costs
while improving student loan benefits, to streamline the Federal Family
Education Loan Program, and for other purposes; to the Committee on
Finance.
S. 560. A bill to amend the Higher Education Act of 1965 to provide
significantly increased financial aid for needy students, provide
universal access to postsecondary education, reduce student loan costs
while improving student loan benefits, to streamline the Federal Family
Education Loan Program, and for other purposes; to the Committee on
Labor and Human Resources.
the hope and opportunity for postsecondary education act of 1997
Mr. DASCHLE. Mr. President, on behalf of the administration, I am
introducing, with Senator Kennedy, the Hope and Opportunity for
Postsecondary Education [HOPE] Act of 1997. This legislation includes
the President's higher education tax and spending proposals to help
make a college education more affordable for American families.
During the last decade, college costs have soared. Federal student
aid programs have been instrumental in helping many people get a good
education. But aid to students has not kept pace with the cost. In the
1970's, Pell grants made up 77 percent of the cost of going to college;
today they make up only about 30 percent of the cost. Many of these
students, and those who don't qualify for assistance, are taking on
larger and larger amounts of debt. This has many consequences both for
the student and for the Nation. Concerns about high levels of
indebtedness affects students' choices about where to go to school or
what to study and, for some, makes it impossible to get a degree at
all. This means we are not developing the talents of our people to the
fullest, and that has significant costs for our Nation.
Access to higher education is clearly the key to our future. Not only
do we know that those who attend college earn higher incomes, but
having a well-educated work force is also important for our Nation's
overall economic growth and ability to compete in the global
marketplace.
I applaud the President for his initiatives in this area--his plan is
a good and thoughtful one. He deserves a lot of credit for taking on
this important issue and insisting that it be part of the national
agenda. His bill helps people from a wide range of backgrounds who need
help, from middle-class families who are struggling to make ends meet
to people from low-income families who are trying to escape poverty and
make decent lives for themselves. He does this by increasing the
maximum Pell grant to $3,000 and he reduces student loan interest
costs.
I do want to say that I have some concerns about aspects of this
bill. I believe we have an important opportunity to help lower income
people further by making the tax credit be refundable. We did that in
S. 12, legislation introduced earlier this year by Senate Democrats. I
also believe that we should allow the credit to be combined with other
aid, again as we did in S. 12.
Despite these concerns, I am pleased to introduce this legislation
for the administration, because I believe it helps us move forward to
find ways to improve the affordability of education in this country.
This is not a partisan issue: all families worry about the cost of
college. We ought to find common ground to make a college education
more affordable. It's time to hold hearings so that we can examine
these issues and advance the public dialog. Higher education is too
important to the future of this Nation to divide us. I am committed to
this goal and look forward to working with my colleagues on the other
side of the aisle to find solutions to this problem.
Senator Kennedy and I are also introducing, by request, a separate
piece of legislation that includes the non-tax-related provisions of
the HOPE legislation. We are doing this because, historically, these
programs have been in the Labor Committee's jurisdiction, and we want
to make sure the Labor Committee considers them fully.
Mr. President, I ask unanimous consent that the administration's
letter of transmittal, and a section-by-section analysis of the HOPE
legislation be printed in the Record.
Mr. President, I ask unanimous consent that additional material be
printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
S. 559
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled, That this
Act may be cited as the ``Hope and Opportunity for
Postsecondary Education Act of 1997''.
TITLE I--TAX PROVISIONS
short title; amendment of 1986 code; table of contents
Sec. 101. (a) Short Title.--This title may be cited as the
``Higher Education Tax Incentive Act of 1997''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this title an amendment or repeal is
expressed in terms of an amendment to, or repeal of, a
section or other provision, the reference shall be considered
to be made to a section or other provision of the Internal
Revenue Code of 1986.
(c) Table of Contents.--
TITLE I--TAX PROVISIONS
Sec. 101. Short title; amendment of 1986 code; table of contents.
Sec. 102. Credit for higher education expenses.
Sec. 103. Deduction for higher education expenses.
Sec. 104. Treatment of cancellation of certain student loans.
Sec. 105. Employer-provided educational assistance programs.
Sec. 106. Small business educational assistance credit.
credit for higher education expenses
Sec. 102. (a) In General.--Subpart A of part IV of
subchapter A of chapter 1 (relating to nonrefundable personal
credits) is amended by inserting after section 24 the
following new section:
``SEC. 24A. HIGHER EDUCATION TUITION AND FEES.
``(a) Allowance of Credit.--In the case of an individual,
there shall be allowed as a credit against the tax imposed by
this chapter for the taxable year the amount of qualified
higher education expenses paid by the taxpayer during such
taxable year for education furnished during any academic
period beginning in such year.
``(b) Limitations.--
``(1) Dollar limitation.--
``(A) In general.--The amount allowed as a credit under
subsection (a) for any taxable
[[Page S3036]]
year with respect to the qualified higher education expenses
of any 1 individual shall not exceed $1,500.
``(B) Reduction for other nontaxable federal assistance.--
``(i) In general.--If any nontaxable Federal assistance is
allocable to any academic period, the dollar amount
applicable under subparagraph (A) for the taxable year in
which such period begins shall be reduced by the amount of
such assistance.
``(ii) Nontaxable federal assistance.--For purposes of
clause (i), the term `nontaxable Federal assistance' means
any scholarship or grant provided by the Federal Government
which is exempt from tax under this chapter by reason of
section 117 or any other Federal law. Such term shall not
include any benefit described in section 480(c)(2) of the
Higher Education Act of 1965 (20 U.S.C. 1087vv(c)(2)), as in
effect on the date of enactment of this section.
``(2) Credit allowed for only 2 taxable years.--No credit
shall be allowed under subsection (a) for a taxable year with
respect to the qualified higher education expenses of an
individual unless the taxpayer elects to have this section
apply with respect to such individual for such year. An
election under this paragraph shall not take effect with
respect to an individual for any taxable year if an election
under this paragraph (by the taxpayer or any other
individual) is in effect with respect to such individual for
any 2 prior taxable years.
``(3) Credit allowed for year only if individual is at
least \1/2\ time student for portion of year.--No credit
shall be allowed under subsection (a) for a taxable year with
respect to the qualified higher education expenses of an
individual unless such individual is an eligible student for
at least one academic period which begins during such year.
``(4) Credit allowed only for first two years of
postsecondary education.--No credit shall be allowed under
subsection (a) for a taxable year with respect to the
qualified higher education expenses of an individual if the
individual has completed (before the beginning of such
taxable year) the first 2 years of postsecondary education at
an institution of higher education.
``(c) limitation Based on Modified Adjusted Gross Income.--
``(1) In general.--The amount which would (but for this
subsection) be taken into account under subsection (a) for
the taxable year shall be reduced (but not below zero) by the
amount determined under paragraph (2).
``(2) Amount of reduction.--The amount determined under
this paragraph is the amount which bears the same ratio to
the amount which would be so taken into account as--
``(A) the excess of--
``(i) the taxpayer's modified adjusted gross income for
such taxable year, over
``(ii) $50,000 ($80,000 in the case of a joint return),
bears to
``(B) $20,000.
``(3) Modified adjusted gross income.--The term `modified
adjusted gross income' means the adjusted gross income of the
taxpayer for the taxable year--
``(A) determined without regard to section 221, and
``(B) increased by any amount excluded from gross income
under section 911, 931, or 933.
``(d) Definitions.--For purposes of this section--
``(1) Qualified higher education expenses.--
``(A) In general.--The term `qualified higher education
expenses' means tuition and fees required for the enrollment
or attendance of--
``(i) the taxpayer,
``(ii) the taxpayer's spouse, or
``(iii) any dependent of the taxpayer with respect to whom
the taxpayer is allowed a deduction under section 151,
at an institution of higher education.
``(B) Exception for education involving sports, etc.--Such
term does not include expenses with respect to any course or
other education involving sports, games, or hobbies, unless
such course or other education is part of the individual's
degree program.
``(C) Exception for nonacademic fees.--Such term does not
include student activity fees, athletic fees, insurance
expenses, or other expenses unrelated to an individual's
academic course of instruction.
``(2) Institution of higher education.--The term
``institution of higher education' means an institution--
``(A) which is described in section 481 of the Higher
Education Act of 1965 (20 U.S.C. 1088), as in effect on the
date of the enactment of this section, and
``(B) which is eligible to participate in a program under
title IV of such Act.
``(3) Eligible student.--The term `eligible student' means,
with respect to any academic period, a student who--
``(A) meets the requirements of section 484(a)(1) of the
Higher Education Act of 1965 (20 U.S.C. 1091(a)(1), as in
effect on the date of the enactment of this section, and
``(B) is carrying at least \1/2\ the normal full-time work
load for the course of study the student is pursuing.
``(4) Other terms relating to the higher education act.--
The following terms shall have the meanings prescribed in
regulations under section 481(g) of the Higher Education Act
of 1965 (20 U.S.C. 1088(g)), as added by the Student
Financial Aid Improvements Act of 1997:
``(A) Academic period.
``(B) Normal full-time workload.
``(C) First two-years of postsecondary education.
``(D) Qualifying grade point average.
``(E) Job skills and new job skills.
``(e) Treatment of Expenses Paid by Dependent.--If a
deduction under section 151 with respect to an individual is
allowed to another taxpayer for a taxable year beginning in
the calendar year in which such individual's taxable year
begins--
``(1) no credit shall be allowed under subsection (a) to
such individual for such individual's taxable year, and
``(2) qualified higher education expenses paid by such
individual during such individual's taxable year shall be
treated for purposes of this section as paid by such other
taxpayer.
``(f) Treatment of Certain Prepayments.--If qualified
higher education expenses are paid by the taxpayer during a
taxable year for an academic period which begins during the
first 3 months following such taxable year, such academic
period shall be treated for purposes of this section as
beginning during such taxable year.
``(g) Special Rules.--
``(1) Denial of credit if individual convicted of drug
offense.--No credit shall be allowed under subsection (a)
with respect to the qualified higher education expenses of an
individual for any taxable year if the individual has been
convicted before the end of such year of a Federal or State
felony offense consisting of the possession or distribution
of a controlled substance.
``(2) Denial of Credit if Individual Fails to Satisfy Grade
Point Average Requirement.--If an election was in effect
under this section with respect to the qualified higher
education expenses of an individual for any taxable year, no
credit shall be allowed under subsection (a) with respect to
qualified higher education expenses of such individual for a
succeeding taxable year if the individual does not have a
qualifying grade point average for all courses at an
institution of higher education for academic periods ending
before the beginning of such succeeding taxable year. Such
average shall be determined without regard to--
``(A) courses taken while attending high school, and
``(B) courses referred to in subsection (d)(1)(B).
``(3) No double benefit.--No credit shall be allowed under
subsection (a) for any taxable year for any expense--
``(A) with respect to an individual if a deduction is
allowed under section 221 for the taxable year for any
expense with respect to such individual, or
``(B) for which a deduction is allowed under any other
provision of this chapter.
``(4) Identification requirement.--No credit shall be
allowed under subsection (a) to a taxpayer with respect to
the qualified higher education expenses of an individual
unless the taxpayer includes the name and taxpayer
identification number of such individual on the return of tax
for the taxable year.
``(5) Adjustment for certain scholarships.--The amount of
qualified higher education expenses otherwise taken into
account under subsection (a) with respect to an individual
for an academic period shall be reduced (before the
application of subsections (b) and (c)) by the sum of--
``(A) any amounts paid for the benefit of such individual
which are allocable to such period as--
``(i) a qualified scholarship which is excludable from
gross income under section 117,
``(ii) an educational assistance allowance under chapter
30, 31, 32, 34, or 35 of title 38, United States Code, or
under chapter 1606 of title 10, United States Code,
``(iii) a payment which is excludable from gross income
under section 127, or
``(iv) a payment (other than a gift, bequest, devise, or
inheritance within the meaning of section 102(a)) for such
individual's educational expenses, or attributable to such
individual's enrollment at an institution of higher
education, which is excludable from gross income under any
law of the United States, and
``(B) the amount excludable from gross income under section
135 which is allocable to such expenses with respect to such
individual for such period.
``(6) No credit for married individuals filings separate
returns.--If the taxpayer is a married individual (within the
meaning of section 7703), this section shall apply only if
the taxpayer and the taxpayer's spouse file a joint return
for the taxable year.
``(7) Nonresident aliens.--If the taxpayer is a nonresident
alien individual for any portion of the taxable year, this
section shall apply only if such individual is treated as a
resident alien of the United States for purposes of this
chapter by reason of an election under subsection (g) or (h)
of section 6013.
``(h) Inflation Adjustments.--
``(1) Dollar limitation on amount of credit.--
``(A) In general.--In the case of a taxable year beginning
after 1997, the $1,500 amount in subsection (b)(1)(A) shall
be increased by an amount equal to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment determined under
section 1(f)(3) for the calendar year in which the taxable
year begins, determined by substituting `calendar year 1996'
for `calendar year 1992' '' in subparagraph (B) thereof.
``(B) Rounding.--If any amount as adjusted under
subparagraph (A) is not a multiple of
[[Page S3037]]
$50, such amount shall be rounded to the next lowest multiple
of $50.
``(2) Income limits.--
``(A) In general.--In the case of a taxable year beginning
after 2,000, the $50,000 and $80,000 amounts in subsection
(c)(2) and section 221(b)(2)(B)(i)(II) shall each be
increased by an amount equal to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment determined under
section 1(f)(3) for the calendar year in which the taxable
year begins, determined by substituting `calendar year 1999'
for `calendar year 1992' in subparagraph (B) thereof.
``(B) Rounding.--If any amount as adjusted under
subparagraph (A) is not a multiple of $5,000, such amount
shall be rounded to the next lowest multiple of $5,000.
``(i) Regulations.--The Secretary may prescribe such
regulations as may be necessary or appropriate to carry out
this section, including regulations providing for a recapture
of credit allowed under this section in cases where there is
a refund in a subsequent taxable year of any amount which was
taken into account in determining the amount of such
credit.''
(b) Extension of Procedures Applicable to Mathematical or
Clerical Errors.--Paragraph (2) of section 6213(g) (relating
to the definition of mathematical or clerical errors) is
amended by striking ``and'' at the end of subparagraph (G),
by striking the period at the end of subparagraph (H) and
inserting ``, and'', and by inserting after subparagraph
(H) the following new subparagraph:
``(I) an omission of a correct TIN required under section
24A(g)(4) or under section 221(d)(2)(A) (relating to higher
education tuition and fees) to be included on a return.''
(c) Returns Relating to Higher Education Expenses.--
(1) In general.--Subpart B of part III of subchapter A of
chapter 61 (relating to information concerning transactions
with other persons) is amended by inserting after section
6050R the following new section:
``SEC. 6050S. RETURNS RELATING TO HIGHER EDUCATION EXPENSES.
``(a) In General.--Any person--
``(1) which is an institution of higher education which
receives payments for qualified higher education expenses
with respect to any individual for any calendar year, or
``(2) which is engaged in a trade or business which, in the
course of such trade or business makes payments during any
calendar year to any individual which constitute
reimbursements or refunds (or similar amounts) of qualified
higher education expenses of such individual,
shall make the return described in subsection (b) with
respect to the individual at such time as the Secretary may
be regulations prescribe.
``(b) Form and Manner of Returns. A return is described in
this subsection if such return--
``(1) is in such form as the Secretary may prescribe,
``(2) contains--
``(A) the name, address, and TIN of the individual with
respect to whom payments described in subsection (a) were
received from (or were paid to),
``(B) the name, address, and TIN of any individual
certified by the individual described in subparagraph (A) as
the taxpayer who will claim the individual as a dependent for
purposes of the deduction allowable under section 151 for any
taxable year ending with or within the calendar year,
``(C) the--
``(i) aggregate amount of payments for qualified higher
education expenses received with respect to the individual
described in subparagraph (A) during the calendar year, and
``(ii) aggregate amount of reimbursements or refunds (or
similar amounts) paid to such individual during the calendar
year,
``(D) the aggregate amount of nontaxable Federal assistance
received respect to the individual described in subparagraph
(A) during the calendar year, and
``(E) such other information as the Secretary may
prescribe.
``(c) Application to Government Units.--For purposes of
this section--
``(1) a governmental unit or any agency or instrumentality
thereof shall be treated as a person, and
``(2) any return required under subsection (a) by such
governmental entity shall be made by the officer or employee
appropriately designated for the purpose of making such
return.
``(d) Statements To Be Furnished to Individuals With
Respect to Whom Information Is Required.--Every person
required to make a return under subsection (a) shall furnish
to each individual whose name is required to be set forth in
such return under subparagraph (A) or (B) of subsection
(b)(2) a written statement showing--
``(1) the name, address, and phone number of the
information contact of the person required to make such
return, and
``(2) the aggregate amounts described in subparagraphs (C)
and (D) of subsection (b)(2).
The written statement required under the preceding sentence
shall be furnished on or before January 31 of the year
following the calendar year for which the return under
subsection (a) was required to be made.
``(e) Definitions.--For purposes of this section, the terms
`institution of higher education', `qualified higher
education expenses', and nontaxable Federal assistance' have
the meanings given such terms by section 24A.
``(f) Returns Which Would Be Required To Be Made By 2 or
More Persons.--Except to the extent provided in regulations
prescribed by the Secretary, in the case of any amount
received by any person on behalf of another person, only the
person first receiving such amount shall be required to make
the return under subsection (a).
``(g) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the provisions
of this section. No penalties shall be imposed under section
6724 with respect to any return or statement required under
this section until such time as such regulations are
issued.''
(2) Assessable Penalties.--Section 6724(d) (relating to
definitions) is amended--
(A) by redesignating clauses (x) through (xv) as clauses
(xi) through (xvi), respectively, in paragraph (1)(B) and by
inserting after clause (ix) of such paragraph the following
new clause:
``(x) section 6050S (relating to returns relating to
payments for qualified higher education expenses),'', and
(B) by striking ``or'' at the end of the next to last
subparagraph, by striking the period at the end of the last
subparagraph and inserting ``, or'', and by adding at the end
the following new subparagraph:
``(Z) section 6050S(d) (relating to returns relating to
qualified higher education expenses).''
(3) Clerical Amendment.--The table of sections for Subpart
B of part III of subchapter A of chapter 61 is amended by
inserting after the item relating to section 6050R the
following new item:
``Sec. 6050S. Returns relating to higher education expenses.''
(d) Clerical Amendment.--The table of sections for Subpart
A of part IV of subchapter A of chapter 1 is amended by
inserting after the item relating to section 24 the following
new item:
``Sec 24A Higher education tuition and fees.''
(e) Effective Date; Sunset.--(1) Purpose.--The President's
budget produces balance in fiscal year 2002 under Office of
Management and Budget assumptions, including the permanent
changes in law providing tax reduction set forth in the
preceding portions of this section. The President's budget
also includes a mechanism to guarantee balance under
Congressional Budget Office assumptions. As a part of that
mechanism, the following provision sunsetting the tax
reduction is included, as well as specific expedited
procedures for reinstatement of the reduction to the extent
that Office of Management and Budget assumptions prove
correct.
(2) The amendments made by this section shall apply to
expenses paid after December 31, 1996 (in taxable years
ending after such date), for education furnished in academic
periods beginning after June 30, 1997, except that no credit
shall be allowed under section 24A of the Internal Revenue
Code of 1986 for taxable years beginning after December 31,
2000.
deduction for higher education expenses
Sec. 103. (a) Deduction Allowed.--Part VII of subchapter B
of chapter 1 (relating to additional itemized deductions for
individuals) is amended by redesignating section 221 as
section 222 and by inserting after section 220 the following
new section:
``SEC. 221. HIGHER EDUCATION TUITION AND FEES.
``(a) Allowance of Deduction.--In the case of an
individual, there shall be allowed as a deduction the amount
of qualified higher education expenses paid by the taxpayer
during the taxable year for education furnished to the
taxpayer, the taxpayer's spouse, or any dependent of the
taxpayer with respect to whom the taxpayer is allowed a
deduction under section 151, as an eligible student at an
institution of higher education during any academic period
beginning in such year.
``(b) Limitations.--
``(1) Dollar limitation.--
``(A) (In general.--The amount allowed as a deduction under
subsection (a) for any taxable year shall not exceed $10,000.
``(B) Phase-in.--In the case of taxable years beginning in
1997 or 1998, subparagraph (A) shall be applied by
substituting `$5,000' for `$10,000'.
``(2) Limitation based on modified adjusted gross income.--
``(A) In general.--The amount which would (but for this
paragraph) be allowed as a deduction under subsection (a)
shall be reduced (but not below zero) by the amount
determined under subparagraph (B).
``(B) Amount of reduction.--The amount determined under
this subparagraph equals the amount which bears the same
ratio to the deduction (determined without regard to this
paragraph) as--
``(i) the excess of--
``(I) the taxpayer's modified adjusted gross income for the
taxable year, over
``(II) $50,000 ($80,000 in the case of a joint return),
bears to
``(ii) $20,000.
``(C) Modified adjusted gross income.--For purposes of
subparagraph (B), the term `modified adjusted gross income'
means the adjusted gross income of the taxpayer for the
taxable year determined--
``(i) without regard to this section and sections 911, 931,
and 933, and
``(ii) after the application of sections 86, 135, 219, and
469.
[[Page S3038]]
For purposes of sections 86, 135, 219, and 469, adjusted
gross income shall be determined without regard to the
deduction allowed under this section.
``(D) Cross reference.--For inflation adjustment of $50,000
and $80,000 amounts, see section 24A(h).
``(c) Definitions.--For purposes of this section--
``(1) In general.--Except as provided in paragraph (2),
terms used in this section which are also used in section 24A
have the respective meanings given such terms in section 24A.
``(2) Deduction available for education to acquire of
improve job skills.--For purposes of applying this section,
the requirement of section 24A(d)(3) shall be treated as met
if--
``(A) the individual is enrolled in a course which enables
the individual to improve the individual's job skills or to
acquire new job skills, and
``(B) the individual is not enrolled in an elementary or
secondary school.
``(d) Special Rules.--
``(1) Denial of double benefit.--No deduction shall be
allowed under subsection (a) for any expense for which a
deduction is allowed to the taxpayer under any other
provision of this chapter.
``(2) Certain rules to apply.--Rules similar to the rules
of subsections (e) and (f) of section 24A, and the following
rules of section 24A(g), shall apply for purposes of this
section:
``(A) Paragraph (4) (relating to identification
requirement).
``(B) Paragraph (5) (relating to adjustment for certain
scholarships).
``(C) Paragraph (6) (relating to no benefit for married
individuals filing separate returns).
``(D) Paragraph (7) (relating to nonresident aliens).
``(3) Regulations.--The Secretary may prescribe such
regulations as may be necessary or appropriate to carry out
this section.''
(b) Deduction Allowed in Computing Adjusted Gross Income.--
Section 62(a) is amended by inserting after paragraph (16)
the following new paragraph:
``(17) Higher education tuition and fees.--The deduction
allowed by section 221.''
(c) Conforming Amendment.--The table of sections for part
VII of subchapter B of chapter 1 is amended by striking the
item relating to section 221 and inserting:
``Sec. 221. Higher education tuition and fees.
``Sec. 222. Cross reference.''
(d) Effective Date; Sunset.--(1) Purpose.--The President's
budget produces balance in fiscal year 2002 under Office of
Management and Budget assumptions, including the permanent
changes in law providing tax reduction set forth in the
preceding portions of this section. The President's budget
also includes a mechanism to guarantee balance under
Congressional Budget Office assumptions. As a part of that
mechanism, the following provision sunsetting the tax
reduction is included, as well as specific expedited
procedures for reinstatement of the reduction to the extent
that Office of Management and Budget assumptions prove
correct.
(2) The amendments made by this section shall apply to
expenses paid after December 31, 1996 (in taxable years
ending after such date), for education furnished in academic
periods beginning after June 30, 1997, except that no
deduction shall be allowed under section 221 of the Internal
Revenue Code of 1986 for taxable years beginning after
December 31, 2000.
TREATMENT OF CANCELLATION OF CERTAIN STUDENT LOANS
Sec. 104. (a) Certain Direct Student Loans the Repayment of
Which Is Income Contingent.--Paragraph (1) of section 108(f)
is amended by striking ``any student loan if'' and all that
follows and inserting ``any student loan if--
``(A) such discharge was pursuant to a provision of such
loan under which all or part of the indebtedness of the
individual would be discharged if the individual worked for a
certain period of time in certain professions for any of a
broad class of employers, or
``(B) in the case of a loan made under part D of title IV
of the Higher Education Act of 1965 which has a repayment
schedule established under section 455(e)(4) of such Act
(relating to income contingent repayments), such discharge is
after the maximum repayment period under such loan (as
prescribed under such part).''
(b) Certain Loans by Exempt Organizations.--
(1) In General.--Paragraph (2) of section 108(f) (defining
student loan) is amended by striking ``or'' at the end of
subparagraphs (B) and (C) and by striking subparagraph (D)
and inserting the following:
``(D) any organization described in section 501(c)(3) and
exempt from tax under section 501(a), or
``(E) any educational organization described in section
170(b)(1)(A)(ii) pursuant to an agreement with any entity
described in subparagraph (A), (B), (C), or (D) under which
the funds from which the loan was made were provided to such
educational organization.
``The term `student loan' includes any loan made by an
organization described in subparagraph (D) to refinance a
loan meeting the requirements of the preceding sentence.''
(2) Exception for discharges on account of services
performed for certain lenders.--Subsection (f) of section 108
is amended by adding at the end the following new paragraph:
``(3) Exception for discharges on account of services
performed for certain lenders.--Paragraph (1) shall not apply
to the discharge of a loan made by an organization described
in paragraph (2)(D) (or by an organization described in
paragraph (2)(E) from funds provided by an organization
described in paragraph (2)(D)) if the discharge is on account
of services performed for either such organization.''
(c) Effective Date.--The amendments made by this section
shall apply to discharges of indebtedness after the date of
the enactment of this Act.
employer-provided educational assistance programs
Sec. 105. (a) Extension.--Subsection (d) of section 127
(relating to exclusion for educational assistance programs)
is amended to read as follows:
``(d) Termination.--This section shall not apply to taxable
years beginning after December 31, 2000.''
(b) Repeal of Limitation on Graduate Education.--The last
sentence of section 127(c)(1) is amended by striking ``, and
such term also does not include any payment for, or the
provision of any benefits with respect to, any graduate level
course of a kind normally taken by an individual pursuing a
program leading to a law, business, medical, or other
advanced academic or professional degree''.
(c) Effective Dates.--
(1) Extension.--The amendments made by subsection (a) shall
apply to taxable years beginning after December 31, 1996.
(2) Graduate education.--The amendments made by subsection
(b) shall apply with respect to expenses relating to courses
beginning after June 30, 1996.
(3) Expedited procedures.--The Secretary of the Treasury
shall establish expedited procedures for the refund of any
overpayment of taxes imposed by the Internal Revenue Code of
1986 which is attributable to amounts excluded from gross
income during 1996 or 1997 under section 127 of such Code,
including procedures waiving the requirement that an employer
obtain an employee's signature where the employer
demonstrates to the satisfaction of the Secretary that any
refund collected by the employer on behalf of the employee
will be paid to the employee.
small business educational assistance credit
Sec. 106. (a) In General.--Subpart D of part IV of
subchapter A of chapter 1 (relating to business related
credits) is amended by adding at the end the following new
section:
``SEC. 45D. SMALL BUSINESS EDUCATIONAL ASSISTANCE CREDIT.
``(a) General Rule.--For purposes of section 38, the small
business educational assistance credit for any taxable year
is an amount equal to 10 percent of the qualified educational
assistance expenses of the taxpayer for the taxable year.
``(b) Qualified Educational Assistance Expenses .--For
purposes of this section--
``(1) In general.--The term `qualified educational
assistance expenses' means any amount paid or incurred by an
eligible small employer for educational assistance furnished
to an employee of the employer by a person other than such
employer (or an employee of such employer) under an
educational assistance program described in section 127(b).
``(2) Educational assistance.--The term `educational
assistance' has the meaning given such term by section
127(c)(1) (determined without regard to subparagraph (B)
thereof).
``(3) Limitations.--
``(A) Dollar limitation per employee.--The aggregate amount
which may be taken into account under paragraph (1) with
respect to any employee for any taxable year shall not exceed
$5,250.
``(B) Payments to related persons.--
``(i) In general.--No amount shall be taken into account
under paragraph (1) if such amount is to be paid to a related
person with respect to the employer.
``(ii) Related person.--For purposes of this subparagraph,
a person shall be related to the employer if--
``(I) such person is a 5-percent owner (within the meaning
of section 416(i)(1)(B)(i)) of the employer, or
``(II) such person bears a relationship to the employer or
such a 5-percent owner which is described in section 267(b)
or 707(b)(1).
``(C) Trade or business.--No amount shall be taken into
account under paragraph (1) unless it is incurred in the
active conduct of a trade or business by the taxpayer.
``(c) Eligible Small Employer.--For purposes of this
section--
``(1) In general.--A taxpayer shall be treated as an
eligible small employer for any taxable year if the average
annual gross receipts of the taxpayer for the 3-taxable year
period ending with the preceding taxable year are $10,000,000
or less.
``(2) Special rules.--Section 448(c)(3) shall apply for
purposes of this subsection.
``(d) Definitions and Special Rules.--For purposes of this
section--
``(1) Definitions.--The terms `employee' and `employer'
have the meanings given such terms by paragraphs (2) and (3)
of section 127(c), respectively.
``(2) Aggregation.--
``(A) In general.--All persons treated as a single employer
under subsection (a) or (b) of section 52 or subsection (m)
or (o) of section 414 shall be treated as a single employer.
[[Page S3039]]
``(B) Allocation of credit.--The credit (if any) determined
under this section with respect to each person described in
subparagraph (A) shall be its proportionate share of the
qualified educational assistance expenses giving rise to such
credit.
``(3) Short taxable years.--For any taxable year having
less than 12 months, the credit determined under this section
shall be multiplied by a fraction, the numerator of which is
the number of days in the taxable year and the denominator of
which is 365.
``(4) Disallowance of deduction.--``For disallowance of
deduction for expenses for which credit allowable, see
section 280C(d).
``(e) Termination.--This section shall not apply to
qualified educational assistance expenses incurred in taxable
years beginning after December 31, 2000.''
(b) Disallowance of Deductions.--Section 280C (relating to
certain expenses for which credits are allowable) is amended
by adding at the end of the following new subsection:
``(d) Credit for Small Business Educational Assistance
Expenses.--
``(1) In general.--No deduction shall be allowed for that
portion of the qualified educational assistance expenses (as
defined in section 45D(b)) otherwise allowable as a deduction
for the taxable year which is equal to the amount of the
credit determined for such taxable year under section 45D.
``(2) Election of reduced credit.--
``(A) In general.--In the case of any taxable year for
which an election is made under this paragraph--
``(i) paragraph (1) shall not apply, and
``(ii) the amount of the credit under section 45D(a) shall
be the amount determined under subparagraph (B).
``(B) Amount of reduced credit.--The amount of the credit
determined under this subparagraph for any taxable year shall
be the amount equal to the excess of--
``(i) the amount of credit determined under section 45D(a)
without regard to this paragraph, over
``(ii) the product of--
``(I) the amount described in clause (i), and
``(II) the maximum rate of tax under section 11(b)(1).
``(C) Election.--An election under this paragraph for any
taxable year shall be made not later than the time for filing
the return of tax for such year (including extensions), shall
be made on such return, and shall be made in such manner as
the Secretary may prescribe. Such an election, once made,
shall be irrevocable.
``(3) Controlled Groups.--Paragraph (3) of subsection (b)
shall apply for purposes of this subsection.''
(c) General Business Credit.--Subsection (b) of section 38
(relating to general business credit) is amended by striking
``plus'' at the end of paragraph (11), by striking the period
at the end of paragraph (12) and inserting, ``plus'', and by
adding at the end the following new paragraph:
``(13) the small business educational assistance credit
determined under section 45D(a).''
(d) Conforming Amendments.--
(1) No Carryback.--Subsection (d) of section 39 (relating
to carryback and carryforward of unused credits) is amended
by adding at the end the following new paragraph:
``(8) No Carryback of section 45D credit before
enactment.--No portion of the unused business credit for any
taxable year which is attributable to the credit determined
under section 45D may be carried back to a taxable year
ending before the date of the enactment of section 45D.''
(2) The table of sections for Subpart D of such part IV is
amended by adding at the end the following new item:
``SEC. 45D. SMALL BUSINESS EDUCATIONAL ASSISTANCE CREDIT.''
(e) Effective Date.--The amendments made by this section
shall apply to education and training furnished in taxable
years beginning after December 31, 1997.
TITLE II--STUDENT FINANCIAL AID PROVISIONS
short title; references
Sec. 201. (a) Short Title.--This title may be cited as the
``Student Financial Aid improvements Act of 1997''.
(b) References.--References in this title to `'the Act''
shall refer to the Higher Education Act of 1965 (20 U.S.C.
1001 et seq.).
Part A--Pell Grants
pell grant maximum award
Sec. 211. Section 401(b)(2)(A) of the Act is amended by
adding at the end thereof the following: ``Except as
otherwise provided in this section, in no case shall the
maximum basic grant be less than $3,000.''.
Part B--Student Loan Provisions
management and recovery of reserves
Sec. 221. (a) Section 422 of the Act is amended--
(1) by amending subsection (g)(1) to read as follows:
``(1) Authority to recovery funds.--(A) Notwithstanding any
other provision of law, the reserve funds of the guaranty
agencies, and any assets purchased or developed with such
reserve funds, regardless of who holds or controls the
reserves or assets, shall remain the property of the United
States.
``(B) The Secretary may direct the guaranty agency to
require the return, to the guaranty agency or to the
Secretary, of any reserve funds or assets held by, or under
the control of, any other entity, that the Secretary
determines are required--
``(i) to pay the program expenses and contingent
liabilities of the guaranty agency;
``(ii) to satisfy the guaranty agency's requirements under
subsection (h); or
``(iii) for the orderly termination of the guaranty
agency's operations and the liquidations of its assets.
``(C) The Secretary may direct a guaranty agency, or such
agency's officers or directors, to cease any activity
involving expenditure, use, or transfer of the guaranty
agency's reserve funds or assets that the Secretary
determines is a misapplication, misuse, or improper
expenditure of such funds or assets.''; and
(2) by adding after subsection (g) the following new
subsections:
``(h) Recall of Reserves in Fiscal Years 1997 Through 2002;
Limitations on Use of Reserve Funds and Assets.--(1)(A)
Notwithstanding any other provision of law, the Secretary
shall, except as otherwise provided in this subsection,
recall from the reserve funds held by guaranty agencies
(which for purposes of this subsection shall include any
reserve funds held by, or under the control of, any other
entity) not less than--
``(i) $731,000,000 in fiscal year 1998;
``(ii) $127,000,000 in fiscal year 1999;
``(iii) $186,000,000 in each of the fiscal years 2000 and
2001; and
``(iv) $1,271,000,000 in fiscal year 2002.
``(B) Funds returned to the Secretary under this subsection
shall be deposited in the Treasury.
``(C) The Secretary shall require each guaranty agency to
return reserve funds under subparagraph (A) based on its
proportionate share, as determined by the Secretary, of all
reserve funds held by guaranty agencies as of September 30,
1996.
``(2)(A) Within 45 days of enactment of this subsection,
all reserve funds held by a guaranty agency that have not yet
been recalled by the Secretary under paragraph (1) shall be
transferred by the guaranty agency to a restricted account
(of a type specified by the Secretary) established by the
guaranty agency, and be invested in United States Government
securities specified by the Secretary. The manner and
timeframe in which reserve funds so invested are recalled
shall be specified by the Secretary, consistent with the
requirements of this subsection. Except as described in
subparagraph (B), the guaranty agency shall not use the
reserve funds in such account, which shall include the
earnings thereon, for any purpose without the express
permission of the Secretary.
``(B)(i) In order to assist guaranty agencies in meeting
program expenses, the Secretary shall permit the use of not
more than an aggregate of $350,000,000 of the reserve funds
held in the restricted accounts described in subparagraph (A)
by guaranty agencies with agreements under section 428(c), as
working capital to be used for such purposes as the Secretary
may specify. The Secretary shall specify the amount of
reserve funds in each guaranty agency's restricted account
that may be used as working capital, based on the guaranty
agency's proportionate share of all borrower accounts
outstanding on September 30, 1996. The guaranty agency shall
repay such amount to its restricted account (or returned to
the Treasury, if so directed by the Secretary) by no later
than September 30, 2002, or the date on which such agency's
agreement under section 428(c) ends (through resignation,
expiration, or termination), whichever is earlier.
``(ii) The guaranty agency may use the earnings from its
restricted account for fiscal year 1998 to assist in meeting
its operational expenses for such year.
``(C) Non-liquid reserve fund assets, such as buildings and
equipment purchased or developed by the guaranty agency with
reserve funds, and any liquid assets remaining in a guaranty
agency's restricted account after the recalls in paragraph
(1)(A), shall--
``(i) remain the property of the United States;
``(ii) be used only for such purposes as the Secretary
determines are appropriate; and
``(iii) be subject to recall by the Secretary no later than
the date on which such agency's agreement under section
428(c) ends (through resignation, expiration, or termination,
as the case may be).''.
repayment terms
Sec. 222.(a) Section 427 of the Act is amended--
(1) in subsection (a)(2)--
(A) in subparagraph (B), in the matter preceding clause
(i), by striking ``over a period'' through ``not more than 10
years'' and inserting ``in accordance with the repayment plan
selected under subsection (d),'';
(B) in subparagraph (C), at the end of the subparagraph, by
striking out ``the 10-year period described in subparagraph
(B);'' and inserting the following: ``the length of the
repayment period under a repayment plan described in
subsection (d);'';
(C) by striking subparagraph (F);
(D) by redesignating subparagraphs (G), (H), and (I) as
subparagraphs (F), (G), and (H), respectively; and
(E) in subparagraph (G) (as redesignated by subparagraph
(D)), by striking ``the option'' through the end of the
subparagraph and inserting ``the repayment options described
in subsection (d); and'';
(2) in subsection (c), by striking ``in subsection
(a)(2)(H),'' and inserting the following: ``by a repayment
plan selected by the borrower under subparagraph (C) or (D)
of subsection (d)(1),''; and
(3) by adding after subsection (c) the following new
subsection:
``(d) Repayment Plans.--(1) Design and selection.--In
accordance with regulations
[[Page S3040]]
of the Secretary, the lender shall offer a borrower of a loan
made under this part the plans described in this subsection
for repayment of such loan, including principal and interest
thereon. No plan may require a borrower to repay a loan in
less than five years. The borrower may choose from--
``(A) a standard repayment plan, with a fixed annual
repayment amount paid over a fixed period of time, not to
exceed ten years;
``(B) an extended repayment plan, with a fixed annual
repayment amount paid over an extended period of time, not to
exceed 30 years, except that the borrower shall repay
annually a minimum amount determined in accordance with
subsection (c);
``(C) a graduated repayment plan, with annual repayment
amounts established at 2 or more graduated levels and paid
over an extended period of time, not to exceed 30 years,
except that the borrower's scheduled payments shall not be
less than 50 percent, nor more than 150 percent, of what the
amortized payment on the amount owed would be if the loan
were repaid under the standard repayment plan; and
``(D) an income-sensitive repayment plan, with income-
sensitive repayment amounts paid over a fixed period of time,
not to exceed ten years.
``(2) Lender selection of option if borrower does not
select.--If a borrower of a loan made under this part does
not select a repayment plan described in paragraph (1), the
lender shall provide the borrower with a repayment plan
described in paragraph (1)(A).
``(3) Changes in selections.--The borrower of a loan made
under this part may change the borrower's selection of a
repayment plan under paragraph (1), or the lender's selection
of a plan for the borrower under paragraph (2), as the case
may be, under such conditions as may be prescribed by the
Secretary in regulation.
``(4) Acceleration permitted.--Under any of the plans
described in this subsection, the borrower shall be entitled
to accelerate, without penalty, repayment on the borrower's
loans under this part.''.
(b) Section 428(b) of the Act is amended--
(1) in paragraph (1)--
(A) in subparagraph (D), by striking clauses (i) and (ii)
and the clause designation ``(iii)'';
(B) in subparagraph (E)--
(i) in clause (i)--
(I) by striking ``or section 428A,'' and inserting ``or
section 428H,''; and
(II) by striking ``the option'' through the end of the
clause and inserting ``the repayment options described in
paragraph (9); and''; and
(ii) in clause (ii)--
(I) by striking ``over a period'' through ``nor more than
10 years'' and inserting ``in accordance with the repayment
plan selected under paragraph (9), and''; and
(II) by striking ``of this subsection;'' at the end of
clause (ii) and inserting a semicolon; and
(C) in subparagraph (L)(i), by inserting after the clause
designation the following: ``except as otherwise provided by
a repayment plan selected by the borrower under paragraph
(9)(A)(iii) or (iv),''; and
(2) by adding after paragraph (8) the following new
paragraph:
``(9) Repayment plans.--(A) Design and selection.--In
accordance with regulations of the Secretary, the lender
shall offer a borrower of a loan made under this part the
plans described in this subparagraph for repayment of such
loan, including principal and interest thereon. No plan may
require a borrower to repay a loan in less than five years.
The borrower may choose from--
``(i) a standard repayment plan, with a fixed annual
repayment amount paid over a fixed period of time, not to
exceed ten years;
``(ii) an extended repayment plan, with a fixed annual
repayment amount paid over an extended period of time, not to
exceed 30 years, except that the borrower shall repay
annually a minimum amount determined in accordance with
paragraph (2)(L);
``(iii) a graduated repayment plan, with annual repayment
amounts established at 2 or more graduated levels and paid
over an extended period of time, not to exceed 30 years,
except that the borrower's scheduled payments shall not be
less than 50 percent, or more than 150 percent, of what the
amortized payment on the amount owed would be if the loan
were repaid under the standard repayment plan; and
``(iv) an income-sensitive repayment plan, with income-
sensitive repayment amounts paid over a fixed period of time,
not to exceed ten years.
``(B) Lender selection of option if borrower does not
select.--If a borrower of a loan made under this part does
not select a repayment plan described in subparagraph (A),
the lender shall provide the borrower with a repayment plan
described in subparagraph (A)(i).
``(C) Changes in selections.--The borrower of a loan made
under this part may change the borrower's selection of a
repayment plan under subparagraph (A), or the lender's
selection of a plan for the borrower under subparagraph (B),
as the case may be, under such conditions as may be
prescribed by the Secretary in regulation.
``(D) Acceleration permitted.--Under any of the plans
described in this paragraph, the borrower shall be entitled
to accelerate, without penalty, repayment on the borrower's
loans under this part.
``(E) Comparable ffel and direct loan repayment plans.--The
Secretary shall ensure that the repayment plans offered to
borrowers under this part are comparable, to the extent
practicable and not otherwise provided in statute, to the
repayment plans offered under part D.''.
(c) Section 428C of the Act is amended--
(1) in subsection (b)(3)(F), by striking ``alternative'';
and
(2) in subsection (c)--
(A) by amending paragraph (2) to read as follows:
``(2) Repayment plans.--(A) Design and selection.--In
accordance with regulations of the Secretary, the lender
shall offer a borrower of a loan made under this section the
plans described in this paragraph for repayment of such loan,
including principal and interest thereon. No plan may require
a borrower to repay a loan in less than five years. The
borrower may choose from--
``(i) a standard repayment plan, with a fixed annual
repayment amount paid over a fixed period of time, not to
exceed ten years;
``(ii) an extended repayment plan, with a fixed annual
repayment amount paid over an extended period of time, not to
exceed 30 years, except that the borrower shall repay
annually a minimum amount determined in accordance with
paragraph (3);
``(iii) a graduated repayment plan, with annual repayment
amounts established at 2 or more graduated levels and paid
over an extended period of time, not to exceed 30 years,
except that the borrower's scheduled payments shall not be
less than 50 percent, nor more than 150 percent, of what the
amortized payment on the amount owed would be if the loan
were repaid under the standard repayment plan; and
``(iv) an income-sensitive repayment plan, with income-
sensitive repayment amounts paid over a fixed period of time,
not to exceed ten years.
``(B) Lender selection of option if borrower does not
select.--If a borrower of a loan made under this section does
not select a repayment plan described in subparagraph (A),
the lender shall provide the borrower with a repayment plan
described in subparagraph (A)(i).
``(C) Changes in selections.--The borrower of a loan made
under this section may change the borrower's selection of a
repayment plan under subparagraph (A), or the lender's
selection of a plan for the borrower under subparagraph (B),
as the case may be, under such conditions as may be
prescribed by the Secretary in regulation.''.
(d) Section 455(d) of the Act is amended--
(1) in paragraph (1)--
(A) in subparagraph (B), by inserting after ``an extended
period of time,'' the following: ``not to exceed 30 years,'';
and
(B) in subparagraph (C), by striking ``a fixed or extended
period of time,'' and inserting the following: ``an extended
period of time, not to exceed 30 years,''; and
(2) in paragraph (2), by striking ``subparagraph (A), (B),
or (C) of paragraph (1).'' and inserting ``paragraph
(1)(A).''.
interest rates
Sec. 223. (a) Section 427A of the Act is amended--
(1) in subsection (g)(2)--
(A) by inserting after the paragraph heading the
subparagraph designation ``(A)'';
(B) by redesignating subparagraphs (A) and (B) as clauses
(i) and (ii), respectively;
(C) by striking ``paragraph (1),'' and inserting
``paragraph (1), and except as provided in subparagraph
(B),''; and
(D) by adding after subparagraph (A) (as redesignated by
subparagraph (A)) the following new subparagraph:
``(B) In the case of loans made or insured under section
428 or 428H for which the first disbursement is made on or
after October 1, 1997, for purposes of paragraph (1), the
rate determined under this paragraph shall, during any 12-
month period beginning on July 1 and ending on June 30, be
determined on the preceding June 1 and be equal to the bond
equivalent rate of the securities with a comparable maturity,
as established by the Secretary, except that such rate shall
not exceed 8.25 percent.'';
(2) in subsection (h)--
(A) in the heading thereof, by striking ``July 1, 1998.--''
and inserting ``October 1, 1997.--'';
(B) in paragraph (1)--
(i) by striking ``(f), and (g)'' and inserting ``and
(f),''; and
(ii) by striking ``July 1, 1998,'' and inserting ``October
1, 1997,''; and
(C) in paragraph (2)--
(i) in the heading, by striking ``July 1, 1998.--'' and
inserting ``October 1, 1997.--''; and
(ii) by striking ``July 1, 1998,'' and inserting ``October
1, 1997,''; and
(3) in subsection (i)(7)(B), by adding at the end the
following: ``Notwithstanding any other provision of law, the
interest rate determined under this subparagraph shall be
used solely to determine the rebate of excess interest
required by this paragraph and shall not be used to calculate
or pay special allowances under section 438.''.
(b) Section 455(b) of the Act is amended--
(1) in paragraph (2)(B)--
(A) by redesignating clauses (i) and (ii) as subclauses (I)
and (II), respectively;
(B) by inserting after the subparagraph heading the clause
designation ``(i)'';
(C) by striking ``subparagraph (A),'' and inserting
``subparagraph (A) and except as provided in clause (ii),'';
and
(D) by adding after clause (i) (as redesignated by
subparagraph (B)) the following new clause:
``(ii) In the case of Federal Direct Stafford/Ford Loans or
Federal Direct Unsubsidized
[[Page S3041]]
Stafford/Ford Loans for which the first disbursement is made
on or after October 1, 1997, for purposes of subparagraph
(A), the rate determined under this subparagraph shall,
during any 12-month period beginning on July 1 and ending on
June 30, be determined on the preceding June 1 and be equal
to the bond equivalent rate of the securities with a
comparable maturity, as established by the Secretary, except
that such rate shall not exceed 8.25 percent.'';
(2) in paragraph (3)--
(A) by striking ``and (2),'' and inserting '', and except
as provided in paragraph (2),''; and
(B) by striking ``made on or after July 1, 1998,'' and
inserting ``for which the first disbursement is made on or
after October 1, 1997,''; and
(3) in paragraph (4)(B), by striking ``July 1, 1998,'' and
inserting ``October 1, 1997,''.
lender and holder risk sharing
Sec. 224. Section 428(b)(1)(G) of the Act is amended by
striking ``not less than 98 percent'' and inserting ``95
percent''.
fees and insurance premiums
Sec. 225. (a) Section 428(b)(1)(H) of the Act is amended--
(1) by inserting the clause designation ``(i)'' following
the subparagraph designation;
(2) by striking ``the loan,'' and inserting ``any loan made
under section 428 or 428B before July 1, 1998,''; and
(3) after clause (i) (as redesignated by paragraph (1)), by
adding ``and'' and the following new clause:
``(ii) provides that no insurance premiums shall be charged
to the borrower of any loan made under section 428 or 428B on
or after July 1, 1998;''.
(b) Section 428H(h) of the Act is amended--
(1) by inserting the paragraph designation ``(1)''
following the subsection heading;
(2) by striking ``under this section'' and inserting ``of a
loan made under this section made before July 1, 1998''; and
(3) by adding at the end of paragraph (1) (as redesignated
by paragraph (1)) the following new paragraph:
``(2) No insurance premium may be charged to the borrower
on any loan made under this section made on or after July 1,
1998.''.
(d) Section 438(c) of the Act is amended--
(1) in paragraph (2), by striking ``paragraph (6)'' and
inserting ``paragraphs (6) and (8)''; and
(2) by adding after paragraph (7) the following new
paragraph:
``(8) Origination fee on subsidized loans on or after july
1, 1998.--In the case of any loan made or insured under
section 428 on or after July 1, 1998, paragraph (2) shall be
applied by substituting `2.0 percent' for `3.0 percent'.''.
(e) Section 455(c) of the Act is amended--
(1) by striking ``The Secretary'' and inserting ``(1) For
loans made under this part before July 1, 1998, the
Secretary'';
(2) by striking ``of a loan made under this part''; and
(3) by adding at the end thereof the following new
paragraph:
``(2) For loans made under this part on or after July 1,
1998, the Secretary shall charge the borrower an origination
fee of--
``(A) 2.0 percent of the principal amount of the loan, in
the case of Federal Direct Stafford/Ford Loans; or
``(B) 3.0 percent of the principal amount of the loan, in
the case of Federal Direct Unsubsidized Stafford/Ford Loans
or Federal Direct PLUS Loans.''.
functions of guaranty agencies
Sec. 226. (a) Section 428 of the Act is further amended--
(1) in subsection (a)--
(A) in paragraph (1)(B)--
(i) in the matter preceding clause (i), by striking ``which
is insured'' and inserting ``which, before October 1, 1997,
is''; and
(ii) in clause (ii), by inserting ``as in effect the day
before the day of enactment of this section,'' after
``subsection (b),''; and
(B) in paragraph (3)--
(i) by striking subparagraph (B); and
(ii) in subparagraph (A)--
(I) in clause (ii), by striking ``under any'' through the
end of the clause and inserting a period;
(II) by striking the subparagraph designation ``(A)'';
(III) by redesignating clauses (i) and (ii) as
subparagraphs (A) and (B), respectively; and
(IV) by redesignating subclauses (I) and (II) as clauses
(i) and (ii), respectively;
(2) in subsection (b)--
(A) by amending the heading to read as follows:
``Requirements to qualify loans for insurance and interest
subsidies.--'';
(B) in paragraph (1)--
(i) by amending the heading to read as follows:
``Requirements.--'';
(ii) by amending the matter preceding subparagraph (A) to
read as follows: ``A loan by an eligible lender shall be
insurable by the Secretary, and students who receive such
loans shall be entitled to have made on their behalf the
payments provided for in subsection (a), under a program of
student loan insurance that--'';
(iii) by amending subparagraph (K) to read as follows:
``(K) provides that the holder of any such loan will be
required to submit to the Secretary, at such time or times
and in such manner as the Secretary may prescribe, statements
containing such information as may be required by regulation
for the purpose of enabling the Secretary to determine the
amount of the payment which must be made with respect to that
loan;'';
(iv) by amending subparagraph (O) to read as follows:
``(O) provides that, if the sale, assignment, or other
transfer of a loan made under this part to another holder
will result in a change in the identity of the party to whom
the borrower must send subsequent payments or direct any
communications concerning the loans, then--
``(i) the transferor and the transferee shall be required,
not later than 45 days from the date the transferee acquires
a legally enforceable right to receive payment from the
borrower on such loan, either jointly or separately to
provide a notice to the borrower of--
``(I) the sale, assignment, or other transfer;
``(II) the identity of the transferee;
``(III) the name and address of the party to whom
subsequent payments or communications must be sent; and
``(IV) the telephone numbers of both the transferor and the
transferee; and
``(ii) the transferee shall be required to notify the
Secretary, and, upon the request of an institution of higher
education, the Secretary shall notify the last such
institution the student attended prior to the beginning of
the repayment period of any loan made under this part, of--
``(I) any sale, assignment, or other transfer of the loan;
and
``(II) the address and telephone number by which contact
may be made with the new holder concerning repayment of the
loan;
``except that this subparagraph shall apply only if the
borrower is in the grace period described in section
427(a)(2)(B) or 428(b)(7) or is in repayment status'';
(v) in subparagraph (Q), by striking ``guarantee'' and
``428A'' and inserting ``insurance'' and ``428H'',
respectively;
(vi) by amending subparagraph (R) to read as follows:
``(R) provides for the making of such reports, in such form
and containing such information, including financial
information, as the Secretary may reasonably require to carry
out the Secretary's functions under this part and protect the
financial interest of the United States, and for keeping such
records and for affording such access thereto as the
Secretary may find necessary to ensure the correctness and
verification of such reports;'';
(vii) by amending subparagraph (S) to read as follows:
``(S) provides that a lender shall pay a default prevention
fee in accordance with subsection (g);
(viii) in subparagraph (T)--
(I) in clause (i), by inserting ``, by the guaranty agency,
in accordance with regulations prescribed by the Secretary,''
after ``limitation''; and
(II) in clause (ii)--
(aa) in the matter preceding subclause (I), by inserting
``, in accordance with regulations prescribed by the
Secretary,'' after ``institution'';
(bb) by striking subclauses (I) and (II); and
(cc) redesignating subclauses (III), (IV), and (V) as
subclauses (I), (II), and (III), respectively;
(ix) by amending subparagraph (U) to read as follows:
``(U) provides--
``(i) for such additional criteria concerning the
eligibility of lenders described in section 435(d)(1) as may
be permitted by the Secretary; and
``(ii) an assurance that the guaranty agency will report to
the Secretary concerning changes in criteria under clause
(i), including any procedures in effect under such program to
take emergency action, limit, suspend, or terminate lenders;
and''; and
(x) by striking subparagraphs (V), (W), and (X);
(C) by amending paragraph (2) to read as follows:
``(2) Skip-tracing requirement.--In the case of a default
claim based on an inability to locate the borrower, a lender
shall certify to the Secretary, at the time of submission of
the default claim, that diligent attempts have been made to
locate the borrower through the use of reasonable skip-
tracing techniques in accordance with regulations prescribed
by the Secretary.'';
(D) in paragraph (3)(B), by striking the parenthetical
through the end of the subparagraph and inserting a period;
and
(E) by striking out paragraph (5) and inserting in lieu
thereof the following new paragraph:
``(5) Compliance audits.--(A) Except as provided in
subparagraph (B) or by the Single Audit Act Amendments of
1996, an eligible lender that originates or holds more than
$5,000,000 in loans made under this title during an annual
audit period shall submit to the Secretary a compliance audit
for that audit period which is conducted by a qualified,
independent organization or person in accordance with the
Government Auditing Standards issued by the Comptroller
General, and the regulations of the Secretary.
``(B) The Secretary may permit a lender to submit the
results of an audit conducted for other purposes if the
Secretary determines that such other audit results provide
the same information as required under subparagraph (A).'';
(3) in subsection (c)--
(A) by amending the heading to read as follows:
``Agreements With Guaranty Agencies.--'';
(B) in paragraph (3)--
(i) in the matter preceding subparagraph (A), by striking
``A guaranty agreement''
[[Page S3042]]
and inserting ``An agreement between the Secretary and a
guaranty agency'';
(ii) in the flush left language at the end of the
paragraph, by striking ``Guaranty agencies'' and inserting
``The Secretary''; and
(iii) by redesignating paragraph (3) as paragraph (11);
(C) by striking paragraphs (1), (2), (4), and (5);
(D) by inserting after the subsection heading the following
new paragraphs:
``(1) Authority to enter into agreements.--(A)(i) The
Secretary may enter into an agreement with a guaranty agency,
under which the Secretary shall insure loans made under this
section through the guaranty agency as the agent of the
Secretary.
``(ii) Any guaranty agency that had an agreement with the
Secretary under section 428(b) as of the day before the date
of enactment of the Student Financial Aid Improvements Act of
1997 may enter into an initial agreement with the Secretary
under this subsection.
``(iii) An agreement under this subsection shall be five
years in duration, and may be renewed by the Secretary for
successive five-year periods.
``(iii) The Secretary may terminate the agreement prior to
its expiration in accordance with paragraph (9).
``(2) Effect on prior guaranty agreements and loan
insurance by guaranty agencies.--(A) All guaranty agreements
made under this subsection as it was in effect on the day
before the date of enactment of the Student Financial Aid
Improvements Act of 1997 shall terminate not later than 180
days after the date of enactment of that Act.
``(B) Notwithstanding any other provision of law--
``(i) to the extent that a guaranty agency had insured
loans under this part, loan insurance by such guaranty agency
that is outstanding as of the date of the termination under
subparagraph (A) shall be replaced on such date by loan
insurance issued by the Secretary, and the guaranty agency
shall be relieved of any further liability thereon;
``(ii) the Secretary's liability for any outstanding
liabilities of a guaranty agency (other than outstanding loan
insurance under this part), shall not exceed the fair market
value of the unrestricted funds of the guaranty agency, which
shall consist of--
``(I) all accumulated earnings not otherwise placed in a
restricted account in accordance with section 422(h)(2)(A);
and
``(II) any working capital that may be provided under
section 422(h)(2)(B); and
``(iii) for the first year after the date of enactment of
the Student Financial Aid Improvements Act of 1997, the
Secretary may specify such interim administrative measures as
the Secretary determines to be necessary for the efficient
transfer of the loan insurance function, and to carry out the
purposes of this part.
``(3) Terms of agreement.--The agreement between the
Secretary and a guaranty agency shall include, but not be
limited to--
``(A) provisions regarding the responsibilities of the
guaranty agency for--
``(i) administering the issuance of insurance on loans made
under this section on behalf of the Secretary;
``(ii) monitoring insurance commitments made under this
section;
``(iii) default prevention activities;
``(iv) review of default claims made by lenders;
``(v) payment of default claims;
``(vi) collection of defaulted loans;
``(vii) adoption of internal systems of accounting and
auditing that are acceptable to the Secretary, and reporting
the result thereof to the Secretary on a timely, accurate,
and auditable basis;
``(viii) timely and accurate collection and reporting of
such other data as the Secretary may require to carry out the
purposes of the programs under this title;
``(ix) monitoring of institutions and lenders participating
in the program under this part; and
``(x) such other program functions as the Secretary may
require of the guaranty agency;
``(B) provisions regarding the fees the Secretary shall pay
to the guaranty agency under the agreement, and other
revenues that the guaranty agency may receive thereunder, as
described in paragraphs (4) and (6);
``(C) provisions requiring the guaranty agency to carry out
its responsibilities under the agreement in accordance with
paragraph (5);
``(D) provisions regarding the use, in accordance with
paragraph (10), of net revenues in excess of the guaranty
agency's need for working capital, as determined after
compliance with section 422(h), for such other activities in
support of postsecondary education as may be agreed to by the
Secretary and the guaranty agency;
``(E) provisions regarding such other businesses,
previously purchased or developed with reserve funds, that
relate to the program under this part and in which the
Secretary permits the guaranty agency to engage (as
determined on a case-by-case basis);
``(F) provisions setting forth such administrative and
fiscal procedures as may be necessary to protect the United
States from the risk of unreasonable loss thereunder, and to
ensure proper and efficient administration of the loan
insurance program;
``(G) provisions regarding the submission of the results of
audits of the guaranty agency that are conducted--
``(i) at least annually;
``(ii) by a qualified, independent organization or person
in accordance with the standards established by the
Comptroller General for the audit of governmental
organizations, programs, and functions; and
``(iii) in accordance with the regulations of the
Secretary;
``(H) provisions requiring the making of such reports, in
such form and containing such information, including
financial information, as the Secretary may reasonably
require to carry out the Secretary's functions under this
part and to protect the Federal fiscal interest, and for
keeping such records and for affording such access thereto as
the Secretary may find necessary or appropriate to ensure the
correctness and verification of such reports;
``(I) adequate assurances that the guaranty agency will not
engage in any pattern or practice which may result in a
denial of a borrower's access to loans under this part
because of the borrower's race, sex, color, religion,
national origin, age, handicapped status, income, attendance
at a particular eligible institution, length of the
borrower's educational program, or the borrower's academic
year in school;
``(J) assurances that--
``(i) upon the request of an eligible institution, the
guaranty agency shall, subject to clauses (ii) and (iii),
furnish to the institution information with respect to
students (including the names and addresses of such students)
who received loans made or insured under this part for
attendance at the eligible institution and for whom preclaims
assistance activities have been requested under subsection
(l);
``(ii) the guaranty agency shall require the payment by the
institution of a reasonable fee (as determined in accordance
with regulations prescribed by the Secretary) for such
information; and
``(iii) the institution may use such information only to
remind students of their obligation to repay student loans
and may not disseminate the information for any other
purpose; and
``(K) such other provisions as the Secretary may determine
to be necessary to protect the United States from the risk of
unreasonable loss and to promote the purposes of this part.
``(4) Fees and other revenues.--(A)(i) The Secretary shall
pay to a guaranty agency with an agreement under this
subsection the following uniform fees:
``(I) a one-time issuance fee for each new loan made under
this part that is insured by the Secretary through the
guaranty agency; and
``(II) an annual maintenance fee for each active borrower
account.
``(ii) The fees described in clause (i) shall be paid on a
quarterly basis, from the funds available under section
458(a), in such amount as the Secretary determines, for all
guaranty agencies with agreements under this subsection.
``(B) A guaranty agency with an agreement under this
subsection also may receive revenues derived from--
``(i) a default prevention fee paid by lenders in
accordance with subsection (g);
``(ii) the collection retention allowance under paragraph
(6);
``(iii) the interest earned on working capital provided
under section 422(h);
``(iv) such other businesses, previously purchased or
developed with reserve funds, that relate to the program
under this part and in which the Secretary permits the
guaranty agency to engage (as determined on a case-by-case
basis); and
``(v) such other fees as may be authorized under this part.
``(5) Performance requirement.--(A) A guaranty agency with
an agreement under this subsection shall carry out its
responsibilities thereunder in accordance with such
measurable performance-based standards as the Secretary may
specify; and shall submit timely and accurate data to the
Secretary in support of its performance.
``(B) The Secretary shall apply the performance standards
uniformly to guaranty agencies with agreements under this
subsection.
``(C) The Secretary shall assess the performance of each
guaranty agency on the basis of the audits required under
paragraph (3)(G), and shall compare such guaranty agency's
performance against the performance of other such guaranty
agencies and publicly disseminate such comparison.
``(D) The Secretary may impose a fine, in accordance with
the terms of the agreement, on a guaranty agency that fails
to achieve a specified level of performance on one or more
performance standards. If the guaranty agency's failure to
achieve such performance level results in a financial loss to
the United States, the guaranty agency shall indemnify the
Secretary for such loss.'';
(E) by amending paragraph (6) to read as follows:
``(6) Collection retention allowance.--(A) If, after the
Secretary has paid a claim on a loan made under this title,
any payments are made in discharge of the obligation incurred
by the borrower with respect to such loan (including any
payments of interest accruing on such loan after the payment
of the default claim by the Secretary), there shall be paid
over to the Secretary that portion of the payments remaining
after the guaranty agency with which the Secretary has an
agreement under this subsection has deducted from such
payments an amount for costs related to the student loan
insurance program that--
``(i) shall be specified by the Secretary on the basis of
the Secretary's review of payments for similar services in a
competitive environment; and
[[Page S3043]]
``(ii) in no case shall exceed 18.5 percent of such
payments (subject to subparagraph (B)).
``(B) If, after the Secretary has paid a claim on a loan
made under this title, and the liability on such loan is
discharged by payment of the proceeds of a consolidation loan
under this part or under part D, the guaranty agency may not
deduct the amount specified in subparagraph (A), but may
charge the borrower an amount specified by the Secretary and
not to exceed 18.5% of the principal amount of the defaulted
loan at the time of consolidation, to defray the guaranty
agency's collection costs on the defaulted loan to be
consolidated.'';
(F) by amending paragraph (7) to read as follows:
``(7) Secretary authorized to renew or make alternate
agreements.--Notwithstanding any other provision of law, once
the initial agreement with a guaranty agency entered into
after the date of enactment of the Student Financial Aid
Improvements Act of 1997 has ended (through its expiration,
the termination of the guaranty agency agreement by the
Secretary in accordance with paragraph (9), or the
resignation of the guaranty agency, as the case may be), the
Secretary, in his discretion, may enter into--
``(A) another agreement with the guaranty agency;
``(B) an alternate agreement under which the functions
previously performed by the guaranty agency shall be
performed by another State or private nonprofit agency with
which the Secretary has an agreement under this subsection;
or
``(C) a contract under section 428E.'';
(G) by amending paragraph (9) to read as follows:
``(9) Termination of guaranty agency agreements.--(A) A
guaranty agency's agreement under this subsection may be
ended in advance of its expiration date in accordance with
subparagraph (B), or (C). If its agreement is so ended, the
guaranty agency shall immediately--
``(i) cease to be an agent of the Secretary for purposes of
the program under this part; and
``(ii) surrender all remaining liquid and non-liquid
reserve funds, and assets purchased or developed with reserve
funds, still held by the guaranty agency (including reserves
held by, or under the control of, any other entity) to the
Secretary or the Secretary's designated agent.
(B) A guaranty agency's agreement under this subsection
shall be void, and the Secretary shall immediately so notify
such guaranty agency, if--
``(i) the guaranty agency fails to comply in a timely
manner with the recall of reserve requirements of section
422(h);
``(ii) the guaranty agency fails to increase the amount of
funds in its unrestricted account (as measured by comparing
the amount of funds in such account at the beginning and end
of a year) for each of two years (that may or may not be
consecutive) in the five year period of the agreement under
this subsection;
``(iii) any other agreement that the guaranty agency has
with the Secretary is terminated;
``(iv) the guaranty agency becomes insolvent or declares
bankruptcy; or
``(v) there is any legal impediment to the guaranty agency
substantially performing its responsibilities under the
agreement.
``(C) The Secretary shall, after notice and opportunity for
a hearing, terminate a guaranty agency that has substantially
failed to achieve an acceptable level of performance under
its agreement with the Secretary. A substantial performance
failure under this subparagraph may include the existence of
material internal control weaknesses relating to data quality
in the guaranty agency's audits for each of two years (that
may or may not be consecutive) in the five year period of the
agreement under this subsection.
``(D) Notwithstanding any other provision of Federal or
State law, if the Secretary has terminated or is seeking to
terminate a guaranty agency's agreement in advance of its
expiration date--
``(i) no State court may issue any order affecting the
Secretary's actions with respect to such guaranty agency;
``(ii) any contract with respect to the administration of
reserve funds held by a guaranty agency, or the
administration of any assets purchased or developed with the
reserve funds of the guaranty agency, that is entered into or
extended by the guaranty agency, or any other party on behalf
of or with the concurrence of the guaranty agency, after the
date of enactment of the Student Financial Aid Improvements
Act of 1997 shall provide that the contract is terminable by
the Secretary upon 30 days notice to the contracting parties
if the Secretary determines that such contract includes an
impermissible transfer of the reserve funds or assets, or is
otherwise inconsistent with the terms or purposes of this
section; and
``(iii) no provision of State law shall apply to the
actions of the Secretary in terminating the operations of a
guaranty agency.''; and
(H) by adding after paragraph (9) the following new
paragraph:
``(10) Use of surplus funds.--(A) A guaranty agency with an
agreement under this subsection may retain the amount
determined in accordance with subparagraph (B) for activities
in support of postsecondary education that are approved by
the Secretary.
``(B)(i) A guaranty agency may retain 50 percent of its net
revenues for fiscal year 1998 in excess of the guaranty
agency's need for working capital for such year, as
determined after compliance with section 422(h), for approved
activities.
``(ii) A guaranty agency may retain for approved activities
for fiscal year 1999 and succeeding fiscal years the lesser
of--
``(I) 50 percent of its net revenues for such year in
excess of its need for working capital, as determined after
compliance with section 422(h); or
``(II) the amount of its net revenues for such year in
excess of its need for working capital, as determined after
compliance with section 422(h), that is equal to a uniform
percentage, established annually by the Secretary, of federal
revenues received by the guaranty agency for the preceding
year. In determining such percentage, the Secretary shall
take into account all guaranty agencies' revenues and costs
for the preceding year to determine an adequate level of
economic incentive for guaranty agencies to maximize their
efficiency.'';
(4) by amending subsection (g) to read as follows:
``(g) Default prevention fee paid by lenders.--(1) An
eligible lender shall pay a guaranty agency, to which such
lender referred a delinquent loan, a default prevention fee
of not to exceed $100 per borrower account if the guaranty
agency succeeds in bringing such loan into current repayment
status.
``(2) The Secretary shall prescribe in regulations the
circumstances in which a lender may obtain a refund of a
default prevention fee if the borrower of a loan on which
such fee was paid subsequently defaults on such loan.''; and
(5) in subsection (1)--
(A) in paragraph (1), by striking the paragraph designation
and the paragraph heading; and
(B) by striking paragraph (2).
(b) Section 435(j) of the Act is amended by striking
``section 428(b).'' and inserting ``section 428(c).''
repeal of state share of default costs
Sec. 227. Section 428 of the Act is further amended by
striking subsection (n).
consolidation loans
Sec. 228. (a) Section 428C of the Act is further amended--
(1) in subsection (a)(3)--
(A) in subparagraph (A), by inserting ``in an in-school
period,'' after ``for consolidation loan is''; and
(B) in subparagraph (B), by amending clause (i) to read as
follows:
``(i) Eligible student loans received by the eligible
borrower may be added to a consolidation loan during the 180-
day period following the making of such consolidation
loan.'';
(2) in subsection (b)(4)(C), by amending clause (ii) to
read as follows:
``(ii) provides that interest shall accrue and be paid--
``(I) by the Secretary, in the case of a consolidation loan
made before October 1, 1997 that consolidated only Federal
Stafford Loans for which the student borrower received an
interest subsidy under section 428;
``(II) by the Secretary, in the case of a consolidation
loan made on or after October 1, 1997, except that the
Secretary shall pay such interest only on that portion of the
loan that repays Federal Stafford Loans for which the student
borrower received an interest subsidy under section 428; and
``(III) by the borrower, or capitalized, in the case of a
consolidation loan, or portion thereof, other than one
described in subclause (I) or (II);''; and
(3) in subsection (c)--
(A) in paragraph (1)--
(i) in subparagraph (A), by striking ``subparagraph (B) or
(C).'' and inserting ``subparagraph (B), (C), (D), or (E),
and subject to subparagraph (F).'';
(ii) in subparagraph (C), by striking ``after July 1,
1994,'' and inserting ``after July 1, 1994 and before October
1, 1997,''; and
(iii) by adding after subparagraph (C) the following new
subparagraphs:
``(D) A consolidation loan made on or after October 1,
1997, that repays loans made under section 428 or 428H, or a
combination thereof, shall bear interest at an annual rate on
the unpaid principal balance of the loan that is equal to--
``(i) the rate specified in section 427A(g), in the case of
a borrower in an in-school or grace period; or
``(ii) the rate specified in section 427A(h)(1) in all
other cases.
``(E) A consolidation loan made on or after October 1,
1997, that repays loans made under section 428B shall bear
interest at an annual rate on the unpaid principal balance of
the loan that is equal to the rate specified in section
427A(h)(2).
``(F) Notwithstanding any other provision of this section,
the Secretary may prescribe in regulation such procedures as
may be necessary to ensure that--
``(i) a borrower of a consolidation loan that repays a
combination of loans eligible to be consolidated under this
section, shall continue to receive, after consolidation, any
interest subsidy benefits associated with a loan, without
extending such benefits to any other loans consolidated that
do not have interest subsidy benefits;
``(ii) in the case of a consolidation loan that repays a
combination of loans described in subparagraphs (D) and (E),
the interest rate on such consolidation loan shall be
calculated in a manner that reflects the interest rate
applicable to loans made under each such subparagraph; and
[[Page S3044]]
``(iii) in the case of a consolidation loan that repays a
loan eligible to be consolidated under this section other
than those described in subparagraphs (D) and (E), the
interest rate applicable to such other loan shall be the
interest rate described in subparagraph (D) if such other
loan is considered by the Secretary to be subsidized, and the
interest rate described in subparagraph (E) if such other
loan is considered by the Secretary to be unsubsidized.'';
and
(B) in paragraph (4)--
(i) by striking ``Repayment'' and inserting ``(A) Except as
provided in subparagraph (B), repayment''; and
(ii) by adding after subparagraph (A) (as redesignated by
clause (i)) the following new subparagraph:
``(B) In the case of a consolidation loan that repays a
loan made under this part for which the borrower is in an in-
school period at the time the consolidation application is
received, the repayment period for such consolidation loan
shall commence after the completion of a grace period, as
described in section 428(b)(7)(i).''.
contracts with other entities
Sec. 229. Part B of title IV of the Act is amended by
inserting after section 428D the following new section:
``contract authority
``Sec. 428E. The Secretary may enter into one or more
contracts to carry out any of the functions that otherwise
would be carried out by a guaranty agency with an agreement
under section 428(c).''.
ELIGIBLE LENDER
Sec. 230. Section 435(d) of the Act is amended--
(1) in paragraph (1), by striking ``(6),'' and inserting
``(7),''; and
(2) by adding after paragraph (6) the following new
paragraph:
``(7) Uniform terms and conditions. Subject to such
exceptions as the Secretary may prescribe in regulations, the
term `eligible lender' shall not include any lender that
offers different terms and conditions to different borrowers
of the same type of loan made or insured under this part.''.
SPECIAL ALLOWANCE
Sec. 231. Section 438 of the Act is amended--
(1) in subsection (a)(3), by striking ``quarterly rate''
each place it appears and inserting ``rate''; and
(2) in subsection (b)--
(A) in paragraph (2)--
(i) by striking ``subparagraphs (B), (C), (D), (E), and
(F)'' and inserting ``subparagraphs (B), (C), (D), (E), (F),
and (G)''; and
(ii) by adding after subparagraph (F) the following new
subparagraph:
``(G)(i) Notwithstanding any other provision of this
section, in the case of loans made or insured under this part
for which the first disbursement is made on or after October
1, 1997, the special allowance paid pursuant to this
subsection shall be computed for any 12-month period
beginning on July 1 and ending on June 30 by--
``(I) determining the bond equivalent rate on the preceding
June 1 of the securities with a comparable maturity, as
established by the Secretary; and
``(II) subtracting the applicable interest rate on such
loans from such amount.
``(ii) The amount of special allowance computed under
clause (i) shall be paid in quarterly increments for the 3-
month periods described in paragraph (1).''; and
(B) in paragraph (3), in the second sentence, by striking
``determined for any such 3-month period shall be paid
promptly after the close of such period,'' and inserting
``calculated under this subsection shall be paid promptly
after the close of the 3-month period for which such special
allowance payment is due,''.
STUDENT LOAN MARKETING ASSOCIATION OFFSET FEE
Sec. 232. Section 439(h)(7) of the Act is amended by adding
after subparagraph (C) the following new subparagraph:
``(D) The calculation of the fee required under
subparagraph (A) or (B), as the case may be, shall be
determined on the basis of the principal amount of all loans
(except for loans made under sections 428C, 439(o) or
439(q)--
``(i) owned, in whole or in part, by the Association, any
subsidiary of the Association, or any company, trust or other
entity owned by, or controlled by, the Association; or
``(ii) held by a trust (including by a trustee on behalf of
a trust), or by any other entity in which the Association, or
any subsidiary, holds more than a minimal beneficial interest
(as determined by the Secretary).''.
DIRECT LOAN TRANSITION FEE
Sec. 233. Section 452(b) of the Act is amended to read as
follows:
``(b) Transition Fees.--The Secretary shall pay fees to
institutions of higher education (or a consortium of those
institutions) with agreements under section 454(b), in the
first year of their participation in the program authorized
by this part, in order to compensate for costs associated
with their transition to the program. The fees shall not
exceed an average of $10 per borrower at all institutions
receiving the fees.''.
FUNDS FOR ADMINISTRATIVE EXPENSES
Sec. 234. Section 458(a) of the Act is amended, in the
first sentence, by striking $260,000,000'' through the end of
the sentence and inserting the following: ``$532,000,000 in
fiscal year 1998, $610,000,000 in fiscal year 1999,
$705,000,000 in fiscal year 2000, $806,000,000 in fiscal year
2001, and $904,000,000 in fiscal year 2002.''.
PART C--NEED ANALYSIS AND GENERAL PROVISIONS
hope scholarship need analysis amendments
Sec. 241. (a) Calculation of Available Income.--(1) Section
475 of the Act is amended--
(A) by amending subsection (c)(1)(A) to read as follows:
``(A) the sum of--
``(i) Federal income taxes;
``(iii) the amount of any tax credit taken under section
24A of the Internal Revenue Code of 1986; and
``(iii) the amount by which tax liability determined
without regard to the deduction provided under section 221 of
the Internal Revenue Code exceeds the amount of tax liability
determined after taking such deduction into account;''; and
(B) by amending subsection (g)(2)(A) to read as follows:
``(A) the sum of--
``(i) Federal income taxes;
``(ii) the amount of any tax credit taken by the student
under section 24A of the Internal Revenue Code of 1986; and
``(iii) the amount by which tax liability determined
without regard to the deduction provided under section 221 of
the Internal Revenue Code exceeds the amount of tax liability
determined after taking such deduction into account;''.
(2) Section 476(b)(1)(A)(i) of the Act is amended to read
as follows:
``(A) the sum of--
``(i) Federal income taxes;
``(ii) the amount of any tax credit taken under section 24A
of the Internal Revenue Code of 1986; and
``(iii) the amount by which tax liability determined
without regard to the deduction provided under section 221 of
the Internal Revenue Code exceeds the amount of tax liability
determined after taking such deduction into account;''.
(3) Section 477(b)(1)(A) of the Act is amended to read as
follows:
``(A) the sum of--
``(i) Federal income taxes;
``(ii) the amount of any tax credit taken under section 24A
of the Internal Revenue Code of 1986; and
``(iii) the amount by which tax liability determined
without regard to the deduction provided under section 221 of
the Internal Revenue Code exceeds the amount of tax liability
determined after taking such deduction into account;''.
(b) Definitions.--Section 480 of the Act is amended--
(1) in subsection (a)(2)--
(A) by striking ``and no portion'' and inserting ``no
portion''; and
(B) by inserting after ``(42 U.S.C. 12571 et seq.),'' the
following: ``and no portion of any tax credit taken under
section 24A of the Internal Revenue Code of 1986,'';
(2) in subsection (b)--
(A) in paragraph (13), by striking ``and'' at the end of
the paragraph;
(B) by redesignating paragraph (14) as paragraph (15); and
(C) by inserting after paragraph (13) the following new
paragraph:
``(14) any tax deduction taken under section 221 of the
Internal Revenue Code of 1986; and'';
(3) in subsection (e)--
(A) in paragraph (3), by striking ``and'' at the end of the
paragraph;
(B) in paragraph (4), by striking the period at the end of
the paragraph and inserting ``; and''; and
(C) by adding after paragraph (4) the following new
paragraph:
``(5) any tax credit taken under section 24A of the
Internal Revenue Code of 1986; and'';
(4) in subsection (j), by adding after paragraph (3) the
following new paragraph:
``(4) Notwithstanding paragraph (1), a tax credit taken
under section 24A of the Internal Revenue Code of 1986 shall
not be treated as estimated financial assistance for purposes
of section 471(3).''.
income protection allowance for independent students without dependents
Sec. 242. (a) Section 476(b) of the Act is amended--
(1) in paragraph (1)--
(A) in subparagraph (A)--
(i) by amending clause (iv) to read as follows:
``(iv) an income protection allowance, determined in
accordance with paragraph (4);''; and
(ii) in clause (v), by striking ``paragraph (4);'' and
inserting ``paragraph (5);''; and
(B) in subparagraph (B), by striking ``paragraph (5).'' and
inserting ``paragraph (6).'';
(2) by redesignating paragraphs (4) and (5) as paragraphs
(5) and (6), respectively; and
(3) by inserting after paragraph (3) the following new
paragraph:
``(4) Income protection allowance.--The income protection
allowance is determined by the following table (or a
successor table prescribed by the Secretary under section
478):
``INCOME PROTECTION ALLOWANCE
------------------------------------------------------------------------
Number in college
Family size (including student) ---------------------
1 2
------------------------------------------------------------------------
1................................................. 8,000 .........
2................................................. 10,520 8,720''.
------------------------------------------------------------------------
[[Page S3045]]
(b) Section 478(b) of the Act is amended by striking
``sections 475(c)(4) and 477(b)(4).'' and inserting
``sections 475(c)(4), 476(b)(4), and 477(b)(4).''.
hope scholarship definitions
Sec. 243. Section 481 of the Act is amended by adding after
subsection (f) the following new subsection:
``(g) Hope Scholarship Definitions.--(1) As necessary for
purposes of the tax credit provided under section 24A of the
Internal Revenue Code of 1986, and the deduction provided
under section 221 of such Code, the Secretary of Education
shall define in regulation the following terms:
``(A) academic period;
``(B) normal full-time workload;
``(C) first two years of postsecondary education;
``(D) qualifying grade point average;
``(E) job skills; and
``(F) new job skills.
``(2) Notwithstanding any other provision of law, the
regulations described in paragraph (1) shall not be subject
to section 482(c).''.
extension of student aid programs
Sec. 244. Title IV of the Act is amended--
(1) in section 401(a)(1), by striking ``September 30,
1998,'' and inserting ``September 30, 1999,'';
(2) in section 424(a), by striking ``1998.'' and ``2002.''
and inserting ``2002.'' and ``2006.'', respectively;
(3) in section 428(a)(5), by striking ``1998,'' and
``2002.'' and inserting ``2002,'' and ``2006.'',
respectively;
(4) in section 428C(e), by striking ``1998.'' and inserting
``2002.''; and
(5) in section 466--
(A) in subsection (a)--
(i) in the matter preceding paragraph (1), by striking
``September 30, 1996,'' and March 31, 1997,'' and inserting
``September 30, 1998,'' and March 31, 1999'', respectively;
and
(ii) in paragraph (1), by striking ``September 30, 1996,''
and inserting ``September 30, 1998,'';
(B) in subsection (b), by striking ``September 30, 1996,''
and inserting ``September 30, 1998,''; and
(C) in subsection (c), by striking out ``October 1, 1997,''
and inserting ``October 1, 1998,''.
PART D--EFFECTIVE DATES
effective dates
Sec. 251. (a) Except as otherwise provided in this section,
the amendments made by this title shall take effect on the
date of enactment of this Act.
(b) Section 211 is effective for the calculation of Pell
Grant awards for award years beginning on or after July 1,
1998.
(c) Section 222 is effective for a loan made under part B
or part D of title IV of the Act for which the first
disbursement is made on or after October 1, 1997.
(d) Section 223(a)(3) and section 428(b)(5)(C) of the Act
(as added by section 226(a)(2)(E)) are effective as if they
were enacted on July 23, 1992.
(e) Sections 224, 229, and 230 take effect on October 1,
1997.
(f) Section 231 is effective for a loan made or insured
under part B of title IV of the Act for which the first
disbursement is made on or after October 1, 1997.
(g) Section 232 is effective as if it were enacted on
August 10, 1993, but does not apply to the privatized entity
that may be created as a result of the Student Loan Marketing
Association Reorganization Act of 1996 (Title VI of the
Departments of Labor, Health and Human Services, Education,
and Related Agencies Appropriations Act, 1997, as enacted by
section 101(e) of Division A of Pub. L. No. 104-208).
(h) Section 242 is effective for determinations of need for
academic years beginning on or after July 1, 1998.
S. 560
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
TITLE I--STUDENT FINANCIAL AID PROVISIONS
SHORT TITLE; REFERENCES
Sec. 101. (a) Short Title.--This title may be cited as the
``Student Financial Aid Improvements Act of 1997''.
(b) References.--References in this title to ``the Act''
shall refer to the Higher Education Act of 1965 (20 U.S.C.
1001 et seq.).
Part A--Pell Grants
pell grant maximum award
Sec. 111. Section 401(b)(2)(A) of the Act is amended by
adding at the end thereof the following: ``Except as
otherwise provided in this section, in no case shall the
maximum basic grant be less than $3,000.''.
Part B--Student Loan Provisions
management and recovery of reserves
Sec. 121. (a) Section 422 of the Act is amended--
(1) by amending subsection (g)(1) to read as follows:
``(1) Authority to recover funds.--(A) Notwithstanding any
other provision of law, the reserve funds of the guaranty
agencies, and any assets purchased or developed with such
reserve funds, regardless of who holds or controls the
reserves or assets, shall remain the property of the United
States.
``(B) The Secretary may direct the guaranty agency to
require the return, to the guaranty agency or to the
Secretary, of any reserve funds or assets held by, or under
the control of, any other entity, that the Secretary
determines are required--
``(i) to pay the program expenses and contingent
liabilities of the guaranty agency;
``(ii) to satisfy the guaranty agency's requirements under
subsection (h); or
``(iii) for the orderly termination of the guaranty
agency's operations and the liquidation of its assets.
``(C) The Secretary may direct a guaranty agency, or such
agency's officers or directors, to cease any activity
involving expenditure, use, or transfer of the guaranty
agency's reserve funds or assets that the Secretary
determines is a misapplication, misuse, or improper
expenditure of such funds or assets.''; and
(2) by adding after subsection (g) the following new
subsections:
``(h) Recall of Reserves in Fiscal Years 1997 Through 2002;
Limitations on Use of Reserve Funds and Assets.--(1)(A)
Notwithstanding any other provision of law, the Secretary
shall, except as otherwise provided in this subsection,
recall from the reserve funds held by guaranty agencies
(which for purposes of this subsection shall include any
reserve funds held by, or under the control of, any other
entity) not less than--
``(i) $731,000,000 in fiscal year 1998;
``(ii) $127,000,000 in fiscal year 1999;
``(iii) $186,000,000 in each of the fiscal years 2000 and
2001; and
``(iv) $1,271,000,000 in fiscal year 2002.
``(B) Funds returned to the Secretary under this subsection
shall be deposited in the Treasury.
``(C) The Secretary shall require each guaranty agency to
return reserve funds under subparagraph (A) based on its
proportionate share, as determined by the Secretary, of all
reserve funds held by guaranty agencies as of September 30,
1996.
``(2)(A) Within 45 days of enactment of this subsection,
all reserve funds held by a guaranty agency that have not yet
been recalled by the Secretary under paragraph (1) shall be
transferred by the guaranty agency to a restricted account
(of a type specified by the Secretary) established by the
guaranty agency, and be invested in United States Government
securities specified by the Secretary. The manner and
timeframe in which reserve funds so invested are recalled
shall be specified by the Secretary, consistent with the
requirements of this subsection. Except as described in
subparagraph (B), the guaranty agency shall not use the
reserve funds in such account, which shall include the
earnings thereon, for any purpose without the express
permission of the Secretary.
``(B)(i) In order to assist guaranty agencies in meeting
program expenses, the Secretary shall permit the use of not
more than an aggregate of $350,000,000 of the reserve funds
held in the restricted accounts described in subparagraph (A)
by guaranty agencies with agreements under section 428(c), as
working capital to be used for such purposes as the Secretary
may specify. The Secretary shall specify the amount of
reserve funds in each guaranty agency's restricted account
that may be used as working capital, based on the guaranty
agency's proportionate share of all borrower accounts
outstanding on September 30, 1996. The guaranty agency shall
repay such amount to its restricted account (or returned to
the Treasury, if so directed by the Secretary) by not later
than September 30, 2002, or the date on which such agency's
agreement under section 428(c) ends (through resignation,
expiration, or termination), whichever is earlier.
``(ii) The guaranty agency may use the earnings from its
restricted account for fiscal year 1998 to assist in meeting
its operational expenses for such year.
``(C) Non-liquid reserve fund assets, such as buildings and
equipment purchased or developed by the guaranty agency with
reserve funds, and any liquid assets remaining in a guaranty
agency's restricted account after the recalls in paragraph
(1)(A), shall--
``(i) remain the property of the United States;
``(ii) be used only for such purposes as the Secretary
determines are appropriate; and
``(iii) be subject to recall by the Secretary no later than
the date on which such agency's agreement under section
428(c) ends (through resignation, expiration, or termination,
as the case may be).''.
repayment terms
Sec. 122. (a) Section 427 of the Act is amended--
(1) in subsection (a)(2)--
(A) in subparagraph (B), in the matter preceding clause
(i), by striking ``over a period'' through ``nor more than 10
years'' and inserting ``in accordance with the repayment plan
selected under subsection (d),'';
(B) in subparagraph (C), at the end of the subparagraph, by
striking out ``the 10-year period described in subparagraph
(B);'' and inserting the following: ``the length of the
repayment period under a repayment plan described in
subsection (d);'';
(C) by striking subparagraph (F);
(D) by redesignating subparagraphs (G), (H), and (I) as
subparagraphs (F), (G), and (H), respectively; and
(E) in subparagraph (G) (as redesignated by subparagraph
(D)), by striking ``the option'' through the end of the
subparagraph and inserting ``the repayment options described
in subsection (d); and'';
(2) in subsection (c), by striking ``in subsection
(a)(2)(H),'' and inserting the following: ``by a repayment
plan selected by the borrower under subparagraph (C) or (D)
of subsection (d)(1),''; and
(3) by adding after subsection (c) the following new
subsection:
[[Page S3046]]
``(d) Repayment Plans.--(1) Design and Selection.--In
accordance with regulations of the Secretary, the lender
shall offer a borrower of a loan made under this part the
plans described in this subsection for repayment of such
loan, including principal and interest thereon. No plan may
require a borrower to repay a loan in less than five years.
The borrower may choose from--
``(A) a standard repayment plan, with a fixed annual
repayment amount paid over a fixed period of time, not to
exceed ten years;
``(B) an extended repayment plan, with a fixed annual
repayment amount paid over an extended period of time, not to
exceed 30 years, except that the borrower shall repay
annually a minimum amount determined in accordance with
subsection (c);
``(C) a graduated repayment plan, with annual repayment
amounts established at 2 or more graduated levels and paid
over an extended period of time, not to exceed 30 years,
except that the borrower's scheduled payments shall not be
less than 50 percent, nor more than 150 percent, of what the
amortized payment on the amount owed would be if the loan
were repaid under the standard repayment plan; and
``(D) an income-sensitive repayment plan, with income-
sensitive repayment amounts paid over a fixed period of time,
not to exceed ten years.
``(2) Lender selection of option if borrower does not
select.--If a borrower of a loan made under this part does
not select a repayment plan described in paragraph (1), the
lender shall provide the borrower with a repayment plan
described in paragraph (1)(A).
``(3) Changes in selections.--The borrower of a loan made
under this part may change the borrower's selection of a
repayment plan under paragraph (1), or the lender's selection
of a plan for the borrower under paragraph (2), as the case
may be, under such conditions as may be prescribed by the
Secretary in regulation.
``(4) Acceleration Permitted.--Under any of the plans
described in this subsection, the borrower shall be entitled
to accelerate, without penalty, repayment on the borrower's
loans under this part.''.
(b) Section 428(b) of the Act is amended--
(1) in paragraph (1)--
(A) in subparagraph (D), by striking clauses (i) and (ii)
and the clause designation ``(iii)'';
(B) in subparagraph (E)--
(i) in clause (i)--
(I) by striking ``or section 428A,'' and inserting ``or
section 428H,''; and
(II) by striking ``the option'' through the end of the
clause and inserting ``the repayment options described in
paragraph (9); and''; and
(ii) in clause (ii)--
(I) by striking ``over a period'' through ``nor more than
10 years'' and inserting ``in accordance with the repayment
plan selected under paragraph (9), and''; and
(II) by striking ``of this subsection;'' at the end of
clause (ii) and inserting a semicolon; and
(C) in subparagraph (L)(i), by inserting after the clause
designation the following: ``except as otherwise provided by
a repayment plan selected by the borrower under paragraph
(9)(A) (iii) or (iv),''; and
(2) by adding after paragraph (8) the following new
paragraph:
``(9) Repayment plans.--(A) Design and selection.--In
accordance with regulations of the Secretary, the lender
shall offer a borrower of a loan made under this part the
plans described in this subparagraph for repayment of such
loan, including principal and interest thereon. No plan may
require a borrower to repay a loan in less than five years.
The borrower may choose from--
``(i) a standard repayment plan, with a fixed annual
repayment amount paid over a fixed period of time, not to
exceed ten years;
``(ii) an extended repayment plan, with a fixed annual
repayment amount paid over an extended period of time, not to
exceed 30 years, except that the borrower shall repay
annually a minimum amount determined in accordance with
paragraph (2)(L);
``(iii) a graduated repayment plan, with annual repayment
amounts established at 2 or more graduated levels and paid
over an extended period of time, not to exceed 30 years,
except that the borrower's scheduled payments shall not be
less than 50 percent, nor more than 150 percent, of what the
amortized payment on the amount owed would be if the loan
were repaid under the standard repayment plan; and
``(iv) an income-sensitive repayment plan, with income-
sensitive repayment amounts paid over a fixed period of time,
not to exceed ten years.
``(B) Lender selection of option if borrower does not
select.--If a borrower of a loan made under this part does
not select a repayment plan described in subparagraph (A),
the lender shall provide the borrower with a repayment plan
described in subparagraph (A)(i).
``(C) Changes in selection.--The borrower of a loan made
under this part may change the borrower's selection of a
repayment plan under subparagraph (A), or the lender's
selection of a plan for the borrower under subparagraph (B),
as the case may be, under such conditions as may be
prescribed by the Secretary in regulation.
``(D) Acceleration permitted.--Under any of the plans
described in this paragraph, the borrower shall be entitled
to accelerate, without penalty, repayment on the borrower's
loans under this part.
``(E) Comparable ffel and direct loan repayment plans.--The
Secretary shall ensure that the repayment plans offered to
borrowers under this part are comparable, to the extent
practicable and not otherwise provided in statute, to the
repayment plans offered under part D.''.
(c) Section 428C of the Act is amended--
(1) in subsection (b)(3)(F), by striking ``alternative'';
and
(2) in subsection (c)--
(A) by amending paragraph (2) to read as follows:
``(2) Repayment plans.--(A) Design and selection.--In
accordance with regulations of the Secretary, the lender
shall offer a borrower of a loan made under this section the
plans described in this paragraph for repayment of such loan,
including principal and interest thereof. No plan may require
a borrower to repay a loan in less than five years. The
borrower may choose from--
``(i) a standard repayment plan, with a fixed annual
repayment amount paid over a fixed period of time, not to
exceed ten years.
``(ii) an extended repayment plan, with a fixed annual
repayment amount paid over an extended period of time, not to
exceed 30 years, except that the borrower shall repay
annually a minimum amount determined in accordance with
paragraph (3);
``(iii) a graduated repayment plan, with annual repayment
amounts established at 2 or more graduated levels and paid
over an extended period of time, not to exceed 30 years,
except that the borrower's scheduled payments shall not be
less than 50 percent, nor more than 150 percent, of what the
amortized payment on the amount owed would be if the loan
were repaid under the standard repayment plan; and
``(iv) an income-sensitive repayment plan, with income-
sensitive repayment amounts paid over a fixed period of time,
not to exceed ten years.
``(B) Lender selection of option if borrower does not
select.--If a borrower of a loan made under this section does
not select a repayment plan described in subparagraph (A),
the lender shall provide the borrower with a repayment plan
described in subparagraph (A)(i).
``(C) Changes in selections.--The borrower of a loan made
under this section may change the borrower's selection of a
repayment plan under subparagraph (A), or the lender's
selection of a plan for the borrower under subparagraph (B),
as the case may be, under such conditions as may be
prescribed by the Secretary in regulation.''.
(d) Section 455(d) of the Act is amended--
(1) in paragraph (1)--
(A) in subparagraph (B), by inserting after ``an extended
period of time,'' the following: ``not to exceed 30 years,'';
and
(B) in subparagraph (C), by striking ``a fixed or extended
period of time,'' and inserting the following: ``an extended
period of time, not to exceed 30 years,''; and
(2) in paragraph (2), by striking ``subparagraph (A), (B),
or (C) of paragraph (1).'' and inserting ``paragraph
91)(A).''.
interest rates
Sec. 123. (a) Section 427A of the Act is amended--
(1) in subsection (g)(2)--
(A) by inserting after the paragraph heading the
subparagraph designation ``(A)'';
(B) by redesignating subparagraphs (A) and (B) as clauses
(i) and (ii), respectively;
(C) by striking ``paragraph (1),'' and inserting
``paragraph (1), and except as provided in subparagraph
(B),''; and
(D) by adding after subparagraph (A) (as redesignated by
subparagraph (A)) the following new subparagraph:
``(B) In the case of loans made or insured under section
428 or 428H for which the first disbursement is made on or
after October 1, 1997, for purposes of paragraph (1), the
rate determined under this paragraph shall, during any 12-
month period beginning on July 1 and ending on June 30, be
determined on the preceding June 1 and be equal to the bond
equivalent rate of the securities with a comparable maturity,
as established by the Secretary, except that such rate shall
not exceed 8.25 percent.'';
(2) in subsection (h)--
(A) in the heading thereof, by striking ``July 1, 1998.--''
and inserting ``October 1, 1997.--'';
(B) in paragraph (1)--
(i) by striking ``(f), and (g)'' and inserting ``and
(f),''; and
(ii) by striking ``July 1, 1998,'' and inserting ``October
1, 1997.''; and
(C) in paragraph (2)--
(i) in the heading, by striking ``JULY 1, 1998.--'' and
inserting ``OCTOBER 1, 1997.--''; and
(ii) by striking ``July 1, 1998,'' and inserting ``October
1, 1997,''; and
(3) in subsection (i)(7)(B), by adding at the end the
following: ``Notwithstanding any other provision of law, the
interest rate determined under this subparagraph shall be
used solely to determine the rebate of excess interest
required by this paragraph and shall not be used to calculate
or pay special allowances under section 438.''.
(b) Section 455(b) of the Act is amended--
(1) in paragraph (2)(B)--
(A) by redesignating clauses (i) and (ii) as subclauses (I)
and (II), respectively;
(B) by inserting after the subparagraph heading the clause
designation ``(i)'';
(C) by striking ``subparagraph (A),'' and inserting
``subparagraph (A) and except as provided in clause (ii),'';
and
(D) by adding after clause (i) (as redesignated by
subparagraph (B)) the following new clause:
[[Page S3047]]
``(ii) In the case of Federal Direct Stafford/Ford Loans or
Federal Direct Unsubsidized Stafford/Ford Loans for which the
first disbursement is made on or after October 1, 1997, for
purposes of subparagraph (A), the rate determined under this
subparagraph shall, during any 12-month period beginning on
July 1 and ending on June 30, be determined on the preceding
June 1 and be equal to the bond equivalent rate of the
securities with comparable maturity, as established by the
Secretary, except that such rate shall not exceed 8.25
percent.'';
(2) in paragraph (3)--
(A) by striking ``and (2),'' and inserting ``, and except
as provided in paragraph (2),''; and
(B) by striking ``made on or after July 1, 1998,'' and
inserting ``for which the first disbursement is made on or
after October 1, 1997,''; and
(3) in paragraph (4)(B), by striking ``July 1, 1998,'' and
inserting ``October 1, 1997,''.
lender and holder risk sharing
Sec. 124. Section 428(b)(1)(G) of the Act is amended by
striking ``not less than 98 percent'' and inserting ``95
percent''.
fees and insurance premiums
Sec. 125. (a) Section 428(b)(1)(H) of the act is amended--
(1) by inserting the clause designation ``(i)'' following
the subparagraph designation;
(2) by striking ``the loan,'' and inserting ``any loan made
under section 428 or 428B before July 1, 1998,''; and
(3) after clause (i) (as redesignated by paragraph (1)), by
adding ``and'' and the following new clause:
``(ii) provides that no insurance premiums shall be charged
to the borrower of any loan made under section 428 or 428B on
or after July 1, 1998;''.
(b) Section 428H(h) of the Act is amended--
(1) by inserting the paragraph designation ``(1)''
following the subsection heading;
(2) by striking ``under this section'' and inserting ``of a
loan made under this section made before July 1, 1998''; and
(3) by adding at the end of paragraph (1) (as redesignated
by paragraph (1)) the following new paragraph:
``(2) No insurance premium may be charged to the borrower
on any loan made under this section made on or after July 1,
1998.''.
(d) Section 438(c) of the Act is amended--
(1) in paragraph (2), by striking ``paragraph (6)'' and
inserting ``paragraphs (6) and (8)''; and
(2) by adding after paragraph (7) the following new
paragraph:
``(8) Origination fee on subsidized loans on or after july
1, 1998.--In the case of any loan made or insured under
section 428 on or after July 1, 1998, paragraph (2) shall be
applied by substituting `2.0 percent' for `3.0 percent'.''.
(e) Section 455(c) of the Act is amended--
(1) by striking ``The Secretary'' and inserting ``(1) For
loans made under this part before July 1, 1998, the
Secretary'';
(2) by striking ``of a loan made under this part''; and
(3) by adding at the end thereof the following new
paragraph:
``(2) For loans made under this part on or after July 1,
1998, the Secretary shall charge the borrower an origination
fee of--
``(A) 2.0 percent of the principal amount of the loan, in
the case of Federal Direct Stafford/Ford Loans; or
``(B) 3.0 percent of the principal amount of the loan, in
the case of Federal Direct Unsubsidized Stafford/Ford Loans
or Federal Direct PLUS Loans.''.
functions of guaranty agencies
Sec. 126. (a) Section 428 of the Act is further amended--
(1) in subsection (a)--
(A) in paragraph (1)(B)--
(i) in the matter preceding clause (i), by striking ``which
is insured'' and inserting ``which, before October 1, 1997,
is''; and
(ii) in clause (ii), by inserting ``as in effect the day
before the day of enactment of this section,'' after
``subsection (b),''; and
(B) in paragraph (3)--
(i) by striking subparagraph (B); and
(ii) in subparagraph (A)--
(I) in clause (ii), by striking ``under any'' through the
end of the clause and inserting a period;
(II) by striking the subparagraph designation ``(A)'';
(III) by redesignating clauses (i) and (ii) as
subparagraphs (A) and (B), respectively; and
(IV) by redesignating subclauses (I) and (II) as clauses
(i) and (ii), respectively;
(2) in subsection (b)--
(A) by amending the heading to read as follows:
``Requirements to Qualify Loans for Insurance and Interest
subsidies.--'',
(B) in paragraph (1)--
(i) by amending the heading to read as follows:
Requirements.--'';
(ii) by amending the matter preceding subparagraph (A) to
read as follows: ``A loan by an eligible lender shall be
insurable by the Secretary, and students who receive such
loans shall be entitled to have made on their behalf the
payments provided for in subsection (a), under a program of
student loan insurance that--'';
(iii) by amending subparagraph (K) to read as follows:
``(K) provides that the holder of any such loan will be
required to submit to the Secretary, at such time or times
and in such manner as the Secretary may prescribe, statements
containing such information as may be required by regulation
for the purpose of enabling the Secretary to determine the
amount of the payment which must be made with respect to that
loan;'';
(iv) by amending subparagraph (O) to read as follows:
``(O) provides that, if the sale, assignment, or other
transfer of a loan made under this part to another holder
will result in a change in the identity of the party to whom
the borrower must send subsequent payments or direct any
communications concerning the loans, then--
``(i) the transferor and the transferee shall be required,
not later than 45 days from the date the transferee acquires
a legally enforceable right to receive payment from the
borrower on such loan, either jointly or separately to
provide a notice to the borrower of--
``(I) the sale, assignment, or other transfer;
``(II) the identity of the transferee;
``(III) the name and address of the party to whom
subsequent payments or communications must be sent; and
``(IV) the telephone numbers of both the transferor and the
transferee; and
``(ii) the transferee shall be required to notify the
Secretary, and, upon the request of an institution of higher
education, the Secretary shall notify the last such
institution the student attended prior to the beginning of
the repayment period of any loan made under this part, of--
``(I) any sale, assignment, or other transfer of the loan;
and
``(II) the address and telephone number by which contact
may be made with the new holder concerning repayment of the
loan;
``except that this subparagraph shall apply only if the
borrower is in the grace period described in section
427(a)(2)(B) or 428(b)(7) or is in repayment status.'';
(v) in subparagraph (Q), by striking ``guarantee'' and
``428A'' and inserting ``insurance'' and ``428H'',
respectively;
(vi) by amending subparagraph (R) to read as follows:
``(R) provides for the making of such reports, in such form
and containing such information, including financial
information, as the Secretary may reasonably require to carry
out the Secretary's functions under this part and protect the
financial interest of the United States, and for keeping such
records and for affording such access thereto as the
Secretary may find necessary to ensure the correctness and
verification of such reports;'';
(vii) by amending subparagraph (S) to read as follows:
``(S) provides that a lender shall pay a default prevention
fee in accordance with subsection (g);
(viii) in subparagraph (T)--
(I) in clause (i), by inserting '', by the guaranty agency,
in accordance with regulations prescribed by the Secretary,''
after ``limitation''; and
(II) in clause (ii)--
(aa) in the matter preceding subclause (I), by inserting
'', in accordance with regulations prescribed by the
Secretary,'' after ``institution'';
(bb) by striking subclauses (I) and (II); and
(cc) redesignating subclauses (III), (IV), and (V) as
subclauses (I), (II), and (III), respectively;
(ix) by amending subparagraph (U) to read as follows:
``(U) provides--
``(i) for such additional criteria concerning the
eligibility of lenders described in section 435(d)(1) as may
be permitted by the Secretary; and
``(ii) an assurance that the guaranty agency will report to
the Secretary concerning changes in criteria under clause
(i), including any procedures in effect under such program to
take emergency action, limit, suspend, or terminate lenders;
and''; and
(x) by striking subparagraphs (V), (W), and (X);
(C) by amending paragraph (2) to read as follows:
``(2) Skip-tracing requirement.--In the case of a default
claim based on an inability to locate the borrower, a lender
shall certify to the Secretary, at the time of submission of
the default claim, that diligent attempts have been made to
locate the borrower through the use of reasonable skip-
tracing techniques in accordance with regulations prescribed
by the Secretary.'';
(D) in paragraph (3)(B), by striking the parenthetical
through the end of the subparagraph and inserting a period;
and
(E) by striking out paragraph (5) and inserting in lieu
thereof the following new paragraph:
``(5) Compliance audits.--(A) Except as provided in
subparagraph (B) or by the Single Audit Act Amendments of
1996, an eligible lender that originates or holds more than
$5,000,000 in loans made under this title during an annual
audit period shall submit to the Secretary a compliance audit
for that audit period which is conducted by a qualified,
independent organization or person in accordance with the
Government Auditing Standards issued by the Comptroller
General, and the regulations of the Secretary.
``(B) The Secretary may permit a lender to submit the
results of an audit conducted for other purposes if the
Secretary determines that such other audit results provide
the same information as required under subparagraph (A).'';
(3) in subsection (c)--
(A) by amending the heading to read as follows:
``Agreements With Guaranty Agencies.--'';
(B) in paragraph (3)--
(i) in the matter preceding subparagraph (A), by striking
``A guaranty agreement''
[[Page S3048]]
and inserting ``An agreement between the Secretary and a
guaranty agency''
(ii) in the flush left language at the end of the
paragraph, by striking ``Guaranty agencies'' and inserting
``The Secretary''; and
(iii) by redesignating paragraph (3) as paragraph (11);
(C) by striking paragraphs (1), (2), (4), and (5);
(D) by inserting after the subsection heading the following
new paragraphs:
``(1) Authority to enter into agreements.--(A)(i) The
Secretary may enter into an agreement with a guaranty agency,
under which the Secretary shall insure loans made under this
section through the guaranty agency as the agent of the
Secretary.
``(ii) Any guaranty agency that had an agreement with the
Secretary under section 428(b) as of the day before the date
of enactment of the Student Financial Aid Improvements Act of
1997 may enter into an initial agreement with the Secretary
under this subsection.
``(iii) An agreement under this subsection shall be five
years in duration, and may be renewed by the Secretary for
successive five-year periods.
``(iii) The Secretary may terminate the agreement prior to
its expiration in accordance with paragraph (9).
``(2) Effect on prior guaranty agreements and loan
insurance by guaranty agencies.--(A) All guaranty agreements
made under this subsection as it was in effect on the day
before the date of enactment of the Student Financial Aid
Improvements Act of 1997 shall terminate not later than 180
days after the date of enactment of that Act.
``(B) Notwithstanding any other provision of law--
outstanding as of the date of the termination under
subparagraph (A) shall be replaced on such date by loan
insurance issued by the Secretary, and the guaranty agency
shall be relieved of any further liability thereon;
``(ii) the Secretary's liability for any outstanding
liabilities of a guaranty agency (other than outstanding loan
insurance under this part), shall not exceed the fair market
value of the unrestricted funds of the guaranty agency, which
shall consist of--
``(I) all accumulated earnings not otherwise placed in a
restricted account in accordance with section 422(h)(2)(A);
and
``(II) any working capital that may be provided under
section 422(h)(2)(B); and
``(iii) for the first year after the date of enactment of
the Student Financial Aid Improvements Act of 1997, the
Secretary may specify such interim administrative measures as
the Secretary determines to be necessary for the efficient
transfer of the loan insurance function, and to carry out the
purposes of this part.
``(3) Terms of agreement.--The agreement between the
Secretary and a guaranty agency shall include, but not be
limited to--
``(A) provisions regarding the responsibilities of the
guaranty agency for--
``(i) administering the issuance of insurance on loans made
under this section on behalf of the Secretary;
``(ii) monitoring insurance commitments made under this
section;
``(iii) default prevention activities;
``(iv) review of default claims made by lenders;
``(v) payment of default claims;
``(vi) collection of defaulted loans;
``(vii) adoption of internal systems of accounting and
auditing that are acceptable to the Secretary, and reporting
the result thereof to the Secretary on a timely, accurate,
and auditable basis;
``(viii) timely and accurate collection and reporting of
such other data as the Secretary may require to carry out the
purposes of the programs under this title;
``(ix) monitoring of institutions and lenders participating
in the program under this part; and
``(x) such other program functions as the Secretary may
require of the guaranty agency;
``(B) provisions regarding the fees the Secretary shall pay
to the guaranty agency under the agreement, and other
revenues that the guaranty agency may receive thereunder, as
described in paragraphs (4) and (6);
``(C) provisions requiring the guaranty agency to carry out
its responsibilities under the agreement in accordance with
paragraph (5);
``(D) provisions regarding the use, in accordance with
paragraph (10), of net revenues in excess of the guaranty
agency's need for working capital, as determined after
compliance with section 422(h), for such other activities in
support of postsecondary education as may be agreed to by the
Secretary and the guaranty agency;
``(E) provisions regarding such other businesses,
previously purchased or developed with reserve funds, that
relate to the program under this part and in which the
Secretary permits the guaranty agency to engage (as
determined on a case-by-case basis);
``(F) provisions setting forth such administrative and
fiscal procedures as may be necessary to protect the United
States from the risk of unreasonable loss thereunder, and to
ensure proper and efficient administration of the loan
insurance program;
``(G) provisions regarding the submission of the results of
audits of the guaranty agency that are conducted--
``(i) at least annually;
``(ii) by a qualified, independent organization or person
in accordance with the standards established by the
Comptroller General for the audit of governmental
organizations, programs, and functions; and
``(iii) in accordance with the regulations of the
Secretary;
``(H) provisions requiring the making of such reports, in
such form and containing such information, including
financial information, as the Secretary may reasonably
require to carry out the Secretary's functions under this
part and to protect the Federal fiscal interest, and for
keeping such records and for affording such access thereto as
the Secretary may find necessary or appropriate to ensure the
correctness and verification of such reports;
``(I) adequate assurances that the guaranty agency will not
engage in any pattern or practice which may result in a
denial of a borrower's access to loans under this part
because of the borrower's race, sex, color, religion,
national origin, age, handicapped status, income, attendance
at a particular eligible institution, length of the
borrower's educational program, or the borrower's academic
year in school;
``(J) assurances that--
``(i) upon the request of an eligible institution, the
guaranty agency shall, subject to clauses (ii) and (iii),
furnish to the institution information with respect to
students (including the names and addresses of such students)
who received loans made or insured under this part for
attendance at the eligible institution and for whom preclaims
assistance activities have been requested under subsection
(l);
``(ii) the guaranty agency shall require the payment by the
institution of a reasonable fee (as determined in accordance
with regulations prescribed by the Secretary) for such
information; and
``(iii) the institution may use such information only to
remind students of their obligation to repay student loans
and may not disseminate the information for any other
purpose; and
``(K) such other provisions as the Secretary may determine
to be necessary to protect the United States from the risk of
unreasonable loss and to promote the purposes of this part.
``(4) Fees and other revenues.--(A)(i) The Secretary shall
pay to a guaranty agency with an agreement under this
subsection the following uniform fees:
``(I) a one-time issuance fee for each new loan made under
this part that is insured by the Secretary through the
guaranty agency; and
``(II) an annual maintenance fee for each active borrower
account.
``(ii) The fees described in clause (i) shall be paid on a
quarterly basis, from the funds available under section
458(a), in such amount as the Secretary determines, for all
guaranty agencies with agreement under this subsection.
``(B) A guaranty agency with an agreement under this
subsection also may receive revenues derived from--
``(i) a default prevention fee paid by lenders in
accordance with subsection (g);
``(ii) the collection retention allowance under paragraph
(6);
``(iii) the interest earned on working capital provided
under section 422(h);
``(iv) such other businesses, previously purchased or
developed with reserve funds, that relate to the program
under this part and in which the Secretary permits the
guaranty agency to engage (as determined on a case-by-case
basis); and
``(v) such other fees as may be authorized under this part.
``(5) Performance requirements.--(A) A guaranty agency with
an agreement under this subsection shall carry out its
responsibilities thereunder in accordance with such
measurable performance-based standards as the Secretary may
specify, and shall submit timely and accurate data to the
Secretary in support of its performance.
``(B) The Secretary shall apply the performance standards
uniformly to guaranty agencies with agreements under this
subsection.
``(C) The Secretary shall assess the performance of each
guaranty agency on the basis of the audits required under
paragraph (3)(G), and shall compare such guaranty agency's
performance against the performance of other such guaranty
agencies and publicly disseminate such comparison.
``(D) The Secretary may impose a fine, in accordance with
the terms of the agreement, on a guaranty agency that fails
to achieve a specified level of performance on one or more
performance standards. If the guaranty agency's failure to
achieve such performance level results in a financial loss to
the United States, the guaranty agency shall indemnify the
Secretary for such loss.'';
(E) by amending paragraph (6) to read as follows:
``(6) Collection retention allowance.--(A) If, after the
Secretary has paid a claim on a loan made under this title,
any payments are made in discharge of the obligation incurred
by the borrower with respect to such loan (including any
payments of interest accruing on such loan after the payment
of the default claim by the Secretary), there shall be paid
over to the Secretary that portion of the payments remaining
after the guaranty agency with which the Secretary has an
agreement under this subsection has deducted from such
payments an amount for costs related to the student loan
insurance program that--
``(i) shall be specified by the Secretary on the basis of
the Secretary's review of payments for similar services in a
competitive environment; and
``(ii) in no case shall exceed 18.5 percent of such
payments (subject to subparagraph (B)).
[[Page S3049]]
``(B) If, after the Secretary has paid a claim on a loan
made under this title, and the liability on such loan is
discharged by payment of the proceeds of a consolidation loan
under this part or under part D, the guaranty agency may not
deduct the amount specified in subparagraph (A), but may
charge the borrower an amount specified by the Secretary and
not to exceed 18.5% of the principal amount of the defaulted
loan at the time of consolidation, to defray the guaranty
agency's collection costs on the defaulted loan to be
consolidated.'';
(F) by amending paragraph (7) to read as follows:
``(7) Secretary authorized to renew or make alternate
agreements.--Notwithstanding any other provision of law, once
the initial agreement with a guaranty agency entered into
after the date of enactment of the Student Financial Aid
Improvements Act of 1997 has ended (through its expiration,
the termination of the guaranty agency agreement by the
Secretary in accordance with paragraph (9), or the
resignation of the guaranty agency, as the case may be), the
Secretary, in his discretion, may enter into--
``(A) another agreement with the guaranty agency;
``(B) an alternate agreement under which the functions
previously performed by the guaranty agency shall be
performed by another State or private nonprofit agency with
which the Secretary has an agreement under this subsection;
or
``(C) a contract under section 428E.'';
(G) by amending paragraph (9) to read as follows:
``(9) Termination of guaranty agency agreements.--(A) A
guaranty agency's agreement under this subsection may be
ended in advance of its expiration date in accordance with
subparagraph (B), or (C). If its agreement is so ended,
the guaranty agency shall immediately--
``(i) cease to be an agent of the Secretary for purposes of
the program under this part; and
``(ii) surrender all remaining liquid and non-liquid
reserve funds, and assets purchased or developed with reserve
funds, still held by the guaranty agency (including reserves
held by, or under the control of, any other entity) to the
Secretary or the Secretary's designated agent.
(B) A guaranty agency's agreement under this subsection
shall be void, and the Secretary shall immediately so notify
such guaranty agency, if--
``(i) the guaranty agency fails to comply in a timely
manner with the recall of reserve requirements of section
422(h);
``(ii) the guaranty agency fails to increase the amount of
funds in its unrestricted account (as measured by comparing
the amount of funds in such account at the beginning and end
of a year) for each of two years (that may or may not be
consecutive) in the five year period of the agreement under
this subsection;
``(iii) any other agreement that the guaranty agency has
with the Secretary is terminated;
``(iv) the guaranty agency becomes insolvent or declares
bankruptcy; or
``(v) there is any legal impediment to the guaranty agency
substantially preforming its responsibilities under the
agreement.
``(C) The Secretary shall, after notice and opportunity for
a hearing, terminate a guaranty agency that has substantially
failed to achieve an acceptable level of performance under
its agreement with the Secretary. A substantial performance
failure under this subparagraph may include the existence of
material internal control weaknesses relating to data quality
in the guaranty agency's audits for each of two years (that
may or may not be consecutive) in the five year period of the
agreement under this subsection.
``(D) Notwithstanding any other provision of Federal or
State law, if the Secretary has terminated or is seeking to
terminate a guaranty agency's agreement in advance of its
expiration date--
``(i) no State court may issue any order affecting the
Secretary's actions with respect to such guaranty agency;
``(ii) any contract with respect to the administration of
reserve funds held by a guaranty agency, or the
administration of any assets purchased or developed with the
reserve funds of the guaranty agency, that is entered into or
extended by the guaranty agency, or any other party on behalf
of or with the concurrence of the guaranty agency, after the
date of enactment of the Student Financial Aid Improvements
Act of 1997 shall provide that the contract is terminable by
the Secretary upon 30 days notice to the contracting parties
if the Secretary determines that such contract includes an
impermissible transfer of the reserve funds or assets, or
is otherwise inconsistent with the terms or purposes of
this section; and
``(iii) no provision of State law shall apply to the
actions of the Secretary in terminating the operations of a
guaranty agency.''; and
(H) by adding after paragraph (9) the following new
paragraph:
``(10) Use of surplus funds.--(A) A guaranty agency with an
agreement under this subsection may retain the amount
determined in accordance with subparagraph (B) for activities
in support of postsecondary education that are approved by
the Secretary.
``(B)(i) A guaranty agency may retain 50 percent of its net
revenues for fiscal year 1998 in excess of the guaranty
agency's need for working capital for such year, as
determined after compliance with section 422(h), for approved
activities.
``(ii) A guaranty agency may retain for approved activities
for fiscal year 1999 and succeeding fiscal years the lesser
of--
``(I) 50 percent of its net revenues for such year in
excess of its need for working capital, as determined after
compliance with section 422(h); or
``(ii) the amount of its net revenues for such year in
excess of its need for working capital, as determined after
compliance with section 422(h), that is equal to a uniform
percentage, established annually by the Secretary, of federal
revenues received by the guaranty agency for the preceding
year. In determining such percentage, the Secretary shall
take into account all guaranty agencies' revenues and costs
for the preceding year to determine an adequate level of
economic incentive for guaranty agencies to maximize their
efficiency.'';
(4) by amending subsection (g) to read as follows:
``(g) Default Prevention Fee Paid by Lenders.--(1) An
eligible lender shall pay a guaranty agency, to which such
lender referred a delinquent loan, a default prevention fee
of not to exceed $100 per borrower account if the guaranty
agency succeeds in bringing such loan into current repayment
status.
``(2) The Secretary shall prescribe in regulations the
circumstances in which a lender may obtain a refund of a
default prevention fee if the borrower of a loan on which
such fee was paid subsequently defaults on such loan.''; and
(5) in subsection (l)--
(A) in paragraph (1), by striking the paragraph designation
and the paragraph heading; and
(B) by striking paragraph (2).
(b) Section 435(j) of the Act is amended by striking
``section 428(b).'' and inserting ``section 428(c).''
repeal of state share of default costs
Sec. 127. Section 428 of the Act is further amended by
striking subsection (n).
consolidation loans
Sec. 128. (a) Section 428C of the Act is further amended--
(1) in subsection (a)(3)--
(A) in subparagraph (A), by inserting ``in an in-school
period,'' after ``for a consolidation loan is''; and
(B) in subparagraph (B), by amending clause (i) to read as
follows:
``(i) Eligible student loans received by the eligible
borrower may be added to a consolidation loan during the 180-
day period following the making of such consolidation
loan.'';
(2) in subsection (b)(4)(C), by amending clause (ii) to
read as follows:
``(ii) provides that interest shall accrue and be paid--
``(I) by the Secretary, in the case of a consolidation loan
made before October 1, 1997 that consolidated only Federal
Stafford Loans for which the student borrower received an
interest subsidy under section 428;
``(II) by the Secretary, in the case of a consolidation
loan made on or after October 1, 1997, except that the
Secretary shall pay such interest only on that portion of the
loan that repays Federal Stafford Loans for which the student
borrower received an interest subsidy under section 428; and
``(III) by the borrower, or capitalized, in the case of a
consolidation loan, or portion thereof, other than one
described in subclause (I) or (II);''; and
(3) in subsection (c)--
(A) in paragraph (1)--
(i) in subparagraph (A), by striking ``subparagraph (B) or
(C).'' and inserting ``subparagraph (B), (C), (D), or (E),
and subject to subparagraph (F).'';
(ii) in subparagraph (C), by striking ``after July 1,
1994,'' and inserting ``after July 1, 1994 and before October
1, 1997,''; and
(iii) by adding after subparagraph (C) the following new
subparagraphs:
``(D) A consolidation loan made on or after October 1,
1997, that repays loans made under section 428 or 428H, or a
combination thereof, shall bear interest at an annual rate on
the unpaid principal balance of the loan that is equal to--
``(i) the rate specified in section 427A(g), in the case of
a borrower in an in-school or grace period; or
``(ii) the rate specified in section 427A(h)(1) in all
other cases.
``(E) A consolidation loan made on or after October 1,
1997, that repays loans made under section 428B shall bear
interest at an annual rate on the unpaid principal balance of
the loan that is equal to the rate specified in section
427A(h)(2).
``(F) Notwithstanding any other provision of this section,
the Secretary may prescribe in regulation such procedures as
may be necessary to ensure that--
``(i) a borrower of a consolidation loan that repays a
combination of loans eligible to be consolidated under this
section, shall continue to receive, after consolidation, any
interest subsidy benefits associated with a loan, without
extending such benefits to any other loans consolidated that
do not have interest subsidy benefits;
``(ii) in the case of a consolidation loan that repays a
combination of loans described in subparagraphs (D) and (E),
the interest rate on such consolidation loan shall be
calculated in a manner that reflects the interest rate
applicable to loans made under each such subparagraph; and
``(iii) in the case of a consolidation loan that repays a
loan eligible to be consolidated
[[Page S3050]]
under this section other than those described in
subparagraphs (D) and (E), the interest rate applicable to
such other loan shall be the interest rate described in
subparagraph (D) if such other loan is considered by the
Secretary to be subsidized, and the interest rate described
in subparagraph (E) if such other loan is considered by the
Secretary to be unsubsidized.''; and
(B) in paragraph (4)--
(i) by striking ``Repayment'' and inserting ``(A) Except as
provided in subparagraph (B), repayment''; and
(ii) by adding after subparagraph (A) (as redesignated by
clause (i)) the following new subparagraph:
``(B) In the case of a consolidation loan that repays a
loan made under this part for which the borrower is in an in-
school period at the time the consolidation application is
received, the repayment period for such consolidation loan
shall commence after the completion of a grace period, as
described in section 428(b)(7)(i).''.
contracts with other entities
Sec. 129. Part B of title IV of the Act is amended by
inserting after section 428D the following new section:
``contract authority
``Sec. 428E. The Secretary may enter into one or more
contracts to carry out any of the functions that otherwise
would be carried out by a guaranty agency with an agreement
under section 428(c).''.
eligible lender
Sec. 130. Section 435(d) of the Act is amended--
(1) in paragraph (1), by striking ``(6),'' and inserting
``(7),''; and
(2) by adding after paragraph (6) the following new
paragraph:
``(7) Uniform terms and conditions.--Subject to such
exceptions as the Secretary may prescribe in regulations, the
term `eligible lender' shall not include any lender that
offers different terms and conditions to different borrowers
of the same type of loan made or insured under this part.''.
special allowance
Sec. 131. Section 438 of the Act is amended--
(1) in subsection (a)(3), by striking ``quarterly rate''
each place it appears and inserting ``rate''; and
(2) in subsection (b)--
(A) in paragraph (2)--
(i) by striking ``subparagraphs (B), (C), (D), (E), and
(F)'' and inserting ``subparagraphs (B), (C), (D), (E), (F),
and (G)''; and
(ii) by adding after subparagraph (F) the following new
subparagraph:
``(G)(i) Notwithstanding any other provision of this
section, in the case of loans made or insured under this part
for which the first disbursement is made on or after October
1, 1997, the special allowance paid pursuant to this
subsection shall be computed for any 12-month period
beginning on July 1 and ending on June 30 by--
``(I) determining the bond equivalent rate on the preceding
June 1 of the securities with a comparable maturity, as
established by the Secretary; and
``(II) subtracting the applicable interest rate on such
loans from such amount.
``(ii) The amount of special allowance computed under
clause (i) shall be paid in quarterly increments for the 3-
month periods described in paragraph (1).''; and
(B) in paragraph (3), in the second sentence, by striking
``determined for any such 3-month period shall be paid
promptly after the close of such period,'' and inserting
``calculated under this subsection shall be paid promptly
after the close of the 3-month period for which such special
allowance payment is due.''.
student loan marketing association offset free
Sec. 132. Section 439(h)(7) of the Act is amended by adding
after subparagraph (C) the following new subparagraph:
``(D) The calculation of the fee required under
subparagraph (A) or (B), as the case may be, shall be
determined on the basis of the principal amount of all loans
(except for loans made under section 428C, 430(o) or
430(q))--
``(i) owned, in whole or in part, by the Association, any
subsidiary of the Association, or any company, trust or other
entity owned by, or controlled by, the Association; or
``(ii) held by a trust (including a trustee on behalf of a
trust), or by any other entity in which the Association, or
any subsidiary, holds more than a minimal beneficial interest
(as determined by the Secretary).''.
direct loan transition fee
Sec. 133. Section 452(b) of the Act is amended to read as
follows:
``(b) Transitiion Fees.--The Secretary shall pay fees to
institutions of higher education (or a consortium of those
institutions) with agreements under section 454(b), in the
first year of their participation in the program authorized
by this part, in order to compensate for costs associated
with their transition to the program. The fees shall not
exceed an average of $10 per borrower at all institutions
receiving the fees.''.
funds for administrative expenses
Sec. 134. Section 458(a) of the Act is amended, in the
first sentence, by striking ``$260,000,000'' through the end
of the sentence and inserting the following: ``$532,000,000
in fiscal year 1998, $610,000,000 in fiscal year 1999,
$705,000,000 in fiscal year 2000, $806,000,000 in fiscal year
2001, and $904,000,000 in fiscal year 2002.''.
PART C--NEED ANALYSIS AND GENERAL PROVISIONS
hope scholarship need analysis amendments
Sec. 141.(a) Calculation of Available Income.--(1) Section
475 of the Act is amended--
(A) by amending subsection (c)(1)(A) to read as follows:
``(A) the sum of--
``(i) Federal income taxes;
``(ii) the amount of any tax credit taken under section 24A
of the Internal Revenue Code of 1986; and
``(iii) the amount by which tax liability determined
without regard to the deduction provided under section 221 of
the Internal Revenue Code exceeds the amount of tax liability
determined after taking such deduction into account;''; and
(B) by amending subsection (g)(2)(A) to read as follows:
``(A) the sum of--
``(i) Federal income taxes;
``(ii) the amount of any tax credit taken by the student
under section 24A of the Internal Revenue Code of 1986; and
``(iii) the amount by which tax liability determined
without regard to the deduction provided under section 221 of
the Internal Revenue Code exceeds the amount of tax liability
determined after taking such deduction into account;''.
(2) Section 476(b)(1)(A)(i) of the Act is amended to read
as follows:
``(A) the sum of--
``(i) Federal income taxes;
``(ii) the amount of any tax credit taken under section 24A
of the Internal Revenue Code of 1986; and
``(iii) the amount by which tax liability determined
without regard to the deduction provided under section 221 of
the Internal Revenue Code exceeds the amount of tax liability
determined after taking such deduction into account;''.
(3) Section 477(b)(1)(A) of the Act is amended to read as
follows:
``(A) the sum of--
``(i) Federal income taxes;
``(ii) the amount of any tax credit taken under section 24A
of the Internal Revenue Code of 1986; and
``(iii) the amount by which tax liability determined
without regard to the deduction provided under section 221 of
the Internal Revenue Code exceeds the amount of tax liability
determined after taking such deduction into account;''.
(b) Definitions.--Section 480 of the Act is amended--
(1) in subsection (a)(2)--
(A) by striking ``and no portion'' and inserting ``no
portion''; and
(B) by inserting after ``(42 U.S.C. 12571 et seq.),'' the
following: ``and no portion of any tax credit taken under
section 24A of the Internal Revenue Code of 1986,'';
(2) in subsection (b)--
(A) in paragraph (13), by striking ``and'' at the end of
the paragraph;
(B) by redesignating paragraph (14) as paragraph (15); and
(C) by inserting after paragraph (13) the following new
paragraph:
``(14) any tax deduction taken under section 221 of the
Internal Revenue Code of 1986; and'';
(3) in subsection (e)--
(A) in paragraph (3), by striking ``and'' at the end of the
paragraph;
(B) in paragraph (4), by striking the period at the end of
the paragraph and inserting ``; and''; and
(C) by adding after paragraph (4) the following new
paragraph:
``(5) any tax credit taken under section 24A of the
Internal Revenue Code of 1986; and'';
(4) in subsection (j), by adding after paragraph (3) the
following new paragraph:
``(4) Notwithstanding paragraph (1), a tax credit taken
under section 24A of the Internal Revenue Code of 1986 shall
not be treated as estimated financial assistance for purposes
of section 471(3).''.
income protection allowance for independent students without dependents
Sec. 142. (a) Section 476(b) of the Act is amended--
(1) in paragraph (1)--
(A) in subparagraph (A)--
(i) by amending clause (iv) to read as follows:
``(iv) an income protection allowance, determined in
accordance with paragraph (4);''; and
(ii) in clause (v), by striking ``paragraph (4);'' and
inserting ``paragraph (5);''; and
(B) in subparagraph (B), by striking ``paragraph (5).'' and
inserting ``paragraph (6).'';
(2) by redesignating paragraphs (4) and (5) as paragraphs
(5) and (6), respectively; and
(3) by inserting after paragraph (3) the following new
paragraph:
``(4) Income Protection Allowance.--The income protection
allowance is determined by the following table (or a
successor table prescribed by the Secretary under section
478):
``INCOME PROTECTION ALLOWANCE
------------------------------------------------------------------------
Number in College
Family Size (including student) ---------------------
1 2
------------------------------------------------------------------------
1................................................. 8,000
2................................................. 10,250 8,720''.
------------------------------------------------------------------------
(b) Section 478(b) of the Act is amended by striking
``sections 475(c)(4) and 477(b)(4).'' and inserting
``sections 475(c)(4), 476(b)(4), and 477(b)(4).''.
[[Page S3051]]
HOPE SCHOLARSHIP DEFINITIONS
Sec. 143. Section 481 of the Act is amended by adding after
subsection (f) the following new subsection:
``(g) Hope Scholarship Definitions.--(1) As necessary for
purposes of the tax credit provided under section 24A of the
Internal Revenue Code of 1986, and the deduction provided
under section 221 of such Code, the Secretary of Education
shall define in regulation the following terms:
``(A) academic period;
``(B) normal full-time workload;
``(C) first two years of postsecondary education;
``(D) qualifying grade point average;
``(E) job skills; and
``(F) new job skills.
``(2) Notwithstanding any other provision of law, the
regulations described in paragraph (1) shall not be subject
to section 482(c).''.
EXTENSION OF STUDENT AID PROGRAMS
Sec. 144. Title IV of the Act is amended--
(1) in section 401(a)(1), by striking ``September 30,
1998,'' and inserting ``September 30, 1999,'';
(2) in section 424(a), by striking ``1998.'' and ``2002.''
and inserting ``2002.'' and ``2006.'', respectively;
(3) in section 428(a)(5), by striking ``1998,'' and
``2002.'' and inserting ``2002,'' and ``2006.'',
respectively;
(4) in section 428C(e), by striking ``1998.'' and inserting
``2002.''; and
(5) in section 466--
(A) in subsection (a)--
(i) in the matter preceding paragraph (1), by striking
``September 30, 1996,'' and ``March 31, 1997,'' and inserting
``September 30, 1998,'' and ``March 31, 1999'', respectively;
and
(ii) in paragraph (1), by striking ``September 30, 1996,''
and inserting ``September 30, 1998,'';
(B) in subsection (b), by striking ``September 30, 1996,''
and inserting ``September 30, 1998,''; and
(C) in subsection (c), by striking out ``October 1, 1997,''
and inserting ``October 1, 1998,''.
PART D--EFFECTIVE DATES
EFFECTIVE DATES
Sec. 151. (a) Except as otherwise provided in this section,
the amendments made by this title shall take effect on the
date of enactment of this Act.
(b) Section 211 is effective for the calculation of Pell
Grant awards for award years beginning on or after July 1,
1998.
(c) Section 222 is effective for a loan made under part B
or part D of title IV of the Act for which the first
disbursement is made on or after October 1, 1997.
(d) Section 223(a)(3) and section 428(b)(5)(C) of the Act
(as added by section 226(a)(2)(E)) are effective as if they
were enacted on July 23, 1992.
(e) Sections 224, 229, and 230 take effect on October 1,
1997.
(f) Section 231 is effective for a loan made or insured
under part B of title IV of the Act for which the first
disbursement is made on or after October 1, 1997.
(g) Section 232 is effective as if it were enacted on
August 10, 1993, but does not apply to the privatized entity
that may be created as a result of the Student Loan Marketing
Association Reorganization Act of 1996 (Title VI of the
Departments of Labor, Health and Human Services, Education,
and Related Agencies Appropriations Act, 1997, as enacted by
section 101(e) of Division A of Pub. L. No. 104-208).
(h) Section 242 is effective for determinations of need for
academic years beginning on or after July 1, 1998.
____
U.S. Department of Education,
Washington, DC, March 20, 1997.
Hon. Albert Gore, Jr.,
President of the Senate,
Washington, DC.
Dear Mr. President: We are enclosing for the consideration
of the Congress the Administration's legislative proposal
entitled ``The Hope and Opportunity for Postsecondary
Education (HOPE) Act of 1997.'' This bill, which includes
higher education tax and spending proposals, would promote
access to college for low- and middle-income students and
provide tax relief to middle-income families struggling to
pay for college. These proposals are fully paid for in the
President's fiscal year 1998 budget proposal. An identical
letter is being sent to the Speaker of the House.
The need for higher education--both for the individual and
the Nation--has never been greater. Economic prosperity in
the next century will come through productivity gains and
technological advances that require an adaptable and highly-
skilled work force. Those nations that provide their citizens
with opportunities to gain higher level skills and to learn
throughout a lifetime will thrive.
The Federal student aid programs have already opened the
doors to college for millions of Americans. Despite making
tremendous gains in access to college, students from lower-
income families still are far less likely to attend college
or earn a degree than are students from higher-income
families. Even students from middle-income families are only
one-half as likely to earn a college degree as those from
upper-income families. This gap shows that we must do more to
make higher education readily available to all.
To enable all of our citizens, young and old, to gain
access to higher education and training, and to strengthen
the Nation's ability to compete in the global economy, the
Administration proposes a set of integrated grant, loan and
tax relief measures that would: create HOPE Scholarships,
higher education tax deductions and other tax benefits worth
$38.6 billion between fiscal years 1997 and 2002; create
strong incentives for saving to help families pay for
postsecondary education costs; significantly increase the
amount of grant aid available to needy students through the
Pell Grant program; and reduce up-front fees in the loan
programs to put an additional $2.6 billion over five years in
the hands of students. These targeted financing proposals
would help our citizens acquire and maintain the knowledge
and skills they need to be productive throughout their
lives.
title i--tax provisions
This section of the bill would create a HOPE Scholarship
tax credit to help make 14 years of education the standard
for all Americans. A taxpayer could claim a $1,500 per-
student nonrefundable tax credit for tuition and required
fees for enrollment of the taxpayer, the taxpayer's spouse,
or the taxpayer's dependent in a postsecondary degree or
certificate program.
The credit would be available for payments made after
December 31, 1996 with respect to education commencing on or
after July 1, 1997. The amount of the credit would be reduced
by other non-taxable Federal educational grants, such as Pell
Grants, received by the student. The student could claim the
credit for two different years, so long as he or she is
enrolled on at least a half-time basis in each of those
years. The HOPE Scholarship would be available for a second
year only if the student had obtained at least a B-minus
average for all prior postsecondary course work completed
before the beginning of the second taxable year. A credit
would not be available in any year for a student who had been
convicted of a drug-related felony. The maximum credit amount
would be indexed for inflation beginning in 1998.
In addition to the HOPE Scholarship tax credit, an annual
tax deduction of up to $5,000 per family ($10,000 after 1998)
would be permitted for the tuition costs of college, graduate
study, job training, or retraining for the taxpayer, or the
taxpayer's spouse or dependents. The deduction would be
available to all taxpayers, whether or not they itemized
deductions. Because the deduction would be available for
students enrolled in as little as one course at a time if the
course is career-enhancing, it would be especially valuable
for working adults seeking to improve their job skills.
A taxpayer could claim either the HOPE Scholarship tax
credit or the tax deduction but not both, for a student's
expenses in the same tax year. In addition, both the credit
and deduction would be phased out for taxpayers filing a
joint return with adjusted gross income (AGI) between $80,000
and $10,000. For taxpayers filing a head-of-household or
single return, the credit and deduction would be phased out
for those with AGI between $50,000 and $70,000. The phase-out
ranges would be indexed for inflation beginning in 2001.
Education expenses qualifying for the credit and deduction
include tuition and fees paid to institutions eligible to
participate in Federal student aid programs under the Higher
Education Act (HEA).
This bill would exempt from taxation up to $5,250 annually
in employer-provided educational assistance and restore this
benefit for graduate level education. In addition, beginning
in 1998, small businesses would be eligible for a new credit
equal to 10 percent of amounts spent on worker training
provided by third parties. The bill also would provide tax
relief for loan forgiveness so that students whose loans are
forgiven by charitable or educational institutions in
return for community service, and borrowers whose Direct
Loans are forgiven after 25 years in the Income Contingent
Repayment plan, are not taxed on the forgiven amount.
As you know, in addition to the tax proposals contained in
the HOPE Act, the President has also proposed targeted tax
cuts to help middle-income Americans raise their young
children and save for the future. Under the economic and
technical assumptions of the Office of Management and Budget
(OMB), which we stand behind, all of these tax cuts could be
made permanent, and the President's budget would still reach
balance in 2002.
At the same time, the President has committed to reach
balance in 2002 under the assumptions of the Congressional
Budget Office (CBO) as well. For the sole purpose of ensuring
that CBO continues to score the President's budget as
balanced in 2002, we have included in this proposal, and
elsewhere, sunset dates that would end most of our tax cuts
after the year 2000. However, the President's budget also
includes a fast-track procedure for the Congress to extend
the tax cuts if, as we believe, OMB's assumptions prove more
accurate than CBO's, and we can still reach balance in 2002.
title ii--student aid provisions
The Administration is proposing funding sufficient to
establish the maximum Pell Grant award at $3,000 in its
fiscal year 1998 appropriation request, up from $2,700 in
fiscal year 1997. The HOPE Act contains language that would
reinforce this funding request by requiring that the Pell
Grant maximum award be at least $3,000, a level that is
needed to help restore the value of the grant and to provide
a meaningful level of support.
[[Page S3052]]
This bill also proposes substantial improvements in the way
financial need is determined for disadvantaged independent
students who do not have dependents (other than a spouse).
The bill would set the income protection allowances for
independent students who do not have dependents in the same
way as the allowances used for other students. The
Administration has included an amendment in the 1998
appropriation language for the 1998-99 award year. This bill
would make a permanent change to the HEA for later years.
The proposed bill would amend the HEA to reduce loan fees
for students by $2.6 billion over five years and lower
interest rates for Unsubsidized Stafford Loan borrowers by
one percentage point, thereby saving students an additional
$1 billion over five years. The bill also would standardize
benefits for students, to the extent practicable, across the
Direct Loan and Federal Family Education Loan (FFEL)
programs, and address a number of structural problems and
inefficiencies in the FFEL program.
Under this bill, borrowers would realize substantial
benefits as loan origination fees are cut in half for the
neediest students and by 25 percent for others. Interest
rates on Unsubsidized Stafford loans would be lowered by one
percentage point while borrowers are in school. Lenders
would be required to offer the same terms to all borrowers
for the same type of loan--just as the government is
required to do under the Direct Loan program. Borrowers
who consolidate loans within FFEL would receive the same
interest rates and comparable benefits to those who
consolidate in Direct Loans.
This bill proposes a number of changes to the FFEL guaranty
agency system in recognition that these State and private
nonprofit entities are not the ultimate guarantors of FFEL
and act only as administrative agents of the Federal
government. Because the Federal government is the sole
insurer of FFEL loans, the Secretary would undertake the
obligation to pay lenders directly using his agents and
recall guaranty agency reserves over the next five years,
saving some $2.5 billion.
To address structural deficiencies that hamper default
prevention activities, guaranty agencies would be authorized
to retain no more than 18.5 percent of default collections--
comparable to the Department's cost of collections--not the
arbitrary 27 percent guaranty agencies retain under current
law. Guaranty agencies would receive a default prevention fee
from lenders when delinquent loans are brought current. To
further encourage default prevention, lender risk-sharing
would be increased to 5 percent from 2 percent, and lenders
would be required to offer borrowers certain additional
flexible repayment options now offered under the Direct Loan
program.
A more complete summary of the bill's provisions is
contained in the Section-By-Section Analysis enclosed with
this letter.
This bill is part of an ambitious national agenda--an
agenda for the next century that places education at the
center and recognizes that all workers need to possess ever
higher levels of skills throughout their lifetime. Provisions
in this bill reflect the Administration's strong belief that
we must raise educational expectations and make 14 years of
education the standard for every American. At the same time,
this bill offers substantial increases in benefits to needy
students, significant, targeted education tax relief to
working and middle-income families, and lifelong learning
opportunities for all Americans.
The HOPE Act creates a powerful new way for the Nation to
invest in its citizens and the economy. I urge you to join me
in supporting this legislation. The Office of Management and
Budget advises that there is no objection to the submission
of this legislation to the Congress and that its enactment
would be in accord with the program of the President.
Pay-As-You-Go Requirement
The Omnibus Budget Reconciliation Act of 1990 requires that
all revenue and direct spending legislation meet a pay-as-
you-go requirement. That is, no such bill should result in an
increase in the deficit; and if it does, it will trigger a
sequester if not fully offset.
EDUCATION TAX INCENTIVES--CHANGE IN FEDERAL REVENUES
[Millions of dollars]
----------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 97-02
----------------------------------------------------------------------------------------------------------------
PAYGO--on-budget........................... -138 -4,479 -6,662 -8,372 -8,819 -9,349 -37,819
Non-PAYGO--off-budget...................... -28 -210 -207 -234 -60 0 -739
Total Receipts--Effects................ -166 -4,689 -6,869 -8,606 -8,879 -9,349 -38,558
----------------------------------------------------------------------------------------------------------------
STUDENT LOAN PROVISIONS--CHANGE IN BUDGET AUTHORITY AND OUTLAYS
[Millions of dollars]
----------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 97-02
----------------------------------------------------------------------------------------------------------------
Loans: Budget Authority........................... -340 -1,304 -154 -190 -193 -1,287 -3,468
Loans: Outlays.................................... -340 -1,050 -347 -225 -210 -1,294 -3,466
----------------------------------------------------------------------------------------------------------------
Sincerely,
Richard W. Riley,
Secretary of Education.
Robert Rubin,
Secretary of the Treasury.
THE HOPE AND OPPORTUNITY FOR POSTSECONDARY EDUCATION ACT OF 1997
Section-by-Section Analysis
TITLE I--EDUCATION AND TRAINING TAX INCENTIVES
hope scholarship tuition tax credit and education and job training tax
deduction
Current Law
Taxpayers generally may not deduct the expenses of higher
education and training. There are, however, special
circumstances in which deductions for higher education
expenses are allowed, or in which the payment of higher
education expenses by others is excluded from income.
Higher education expenses may be deductible, but only if
the taxpayer itemizes deductions, and only to the extent that
the expenses, along with other miscellaneous itemized
deductions, exceed two percent of adjusted gross income
(AGI). A deduction for educational purposes is allowed only
if the education maintains or improves a skill required in
the individual's employment or other trade or business, or is
required by the individual's employer, or by law or
regulation for the individual to retain his or her current
job.
The interest from qualified U.S. savings bonds is excluded
from a taxpayer's gross income to the extent the proceeds of
the bonds are used to pay qualified educational expenses. To
be qualified, the savings bonds must be purchased after
December 31, 1989, by a person who has attained the age of
24. The interest exclusion is phased out for taxpayers with
AGI over certain amounts. For 1996, the exclusion was phased
out for taxpayers with modified AGI between $49,450 and
$64,450 ($74,200 and $104,200 for joint returns). Qualified
educational expenses consist of tuition and fees for
enrollment of the taxpayer, the taxpayer's spouse, or the
taxpayer's dependent at a public or non-profit institution of
higher education, including two-year colleges and vocational
schools.
Reasons for Change
Well-educated workers are essential to an economy
experiencing technological change and facing global
competition. The Administration believes that reducing the
after-tax cost of education for individuals and families
through tax credits and deductions will encourage investment
in education and training while lowering tax burdens for
middle-income taxpayers.
The expenses of higher education place a significant burden
on many middle-class families. Grants and subsidized loans
are available to students from low- and moderate-
income families; high-income families can afford the cost
of higher education. The combination of Federal grants and
a tax credit reduces the after-tax cost of higher
education, creating a Federal guarantee of a specified
amount of assistance for higher education expenses by
reducing the after-tax cost of higher education. This
guarantee will help make 14 years of education the norm in
America.
Proposal
As described in detail below, taxpayers would be able to
claim a non-refundable tax credit or a tax deduction for
qualified higher education expenses incurred for themselves,
their spouses or their dependents during their first two
years of postsecondary education in a degree or certificate
program. If the requirements for both the credit and the
deduction were met with respect to a particular student's
expenses, the taxpayer would be free to choose either the
credit or the deduction for those expenses. The deduction,
but not the credit, would be available for qualified higher
education expenses incurred after the first two years of
postsecondary education or at any time for courses that
enable the taxpayer, the taxpayer's spouse or dependent to
acquire or improve job skills.
HOPE Scholarship Tuition Credit
A taxpayer would be allowed a non-refundable credit against
Federal income tax for qualified higher education expenses
paid during the taxable year for the education of the
taxpayer, the taxpayer's spouse, or the taxpayer's
dependents. The credit would be
[[Page S3053]]
available with respect to an individual student for two
taxable years, provided the student has not completed the
first two years of postsecondary education.
A credit for qualified higher education expenses would be
available in the taxable year the expenses are paid, subject
to the requirement that the education commence or continue
during that year or during the first three months of the next
year, and provided the student is enrolled during the year
(or in the first three months of the next year) at least
half-time in a degree or certificate program. Qualified
higher education expenses paid with the proceeds of a loan
generally would be eligible for the credit (rather than
repayment of the loan itself). The credit would be recaptured
where a student or the taxpayer received a refund (or
reimbursement through insurance) of tuition and fees for
which a credit had been claimed in a prior year.
With respect to an individual student, a taxpayer is
limited to a tuition tax credit of the lesser of the
taxpayer's qualified higher education expenses and the
maximum credit amount. The maximum credit for a taxable year
would be $1500, reduced by any Federal educational grants,
such as Pell Grants, awarded for that year (or for education
beginning in the first three months of the next year, if
credits are claimed based on payments for that education).
Beginning in 1998, the maximum credit amount would be indexed
for inflation, rounded down to the closest multiple of $50.
The maximum credit amount would be phased out ratably for
taxpayers with modified AGI between $50,000 and $70,000
($80,000 and $100,000 for joint returns). Modified AGI would
include taxable Social Security benefits and amounts
otherwise excluded with respect to income earned abroad (or
income from Puerto Rico or U.S. possessions), and would be
determined before the deduction for education expenses
contained in this proposal. Beginning in 2001, the income
phase-out ranges would be indexed for inflation, rounded down
to the closest multiple of $5000.\1\
---------------------------------------------------------------------------
\1\ This description of the proposal reflects a modification
of the indexing date contained in the OMB analytical
materials relating to this proposal.
---------------------------------------------------------------------------
Qualified higher education expenses would be defined as
tuition and fees charged by an institution of higher
education that are directly related to an eligible student's
course of study (e.g., registration fees, laboratory fees,
and extra charges for particular courses). Charges and
expenses associated with meals, lodging, student activities,
athletics, health care, transportation, books and similar
personal, living or family expenses would not be included.
The expenses of education involving sports, games or hobbies
would not be qualified higher education expenses unless this
education is required as part of a degree program.
Qualified higher education expenses generally would include
only out-of-pocket tuition and fees. Qualified higher
education expenses would not include expenses covered by
educational assistance that is not required to be included in
the gross income of either the student or the taxpayer
claiming the credit. Thus, total tuition and required fees
would be reduced by scholarship or fellowship grants
excludable from gross income under section 117 of the
Internal Revenue Code (scholarships and fellowships that pay
for tuition, required fees, books and equipment) and any
educational assistance received as veterans' benefits.
However, assistance with expenses other than tuition,
required fees and books, such as expenses associated with
meals, lodging, student activities, athletics, health care
and transportation, could be received without a reduction of
creditable higher education expenses. In addition, qualified
higher education expenses would be reduced by the interest
from qualified U.S. savings bonds that is excluded from a
taxpayer's gross income for the taxable year. However, no
reduction would be required for a gift, bequest, devise, or
inheritance within the meaning of section 102(a).
An eligible student would be one who is enrolled or
accepted for enrollment during the taxable year in a degree,
certificate, or other program (including a program of study
abroad approved for credit by the institution at which such
student is enrolled) leading to a recognized educational
credential at an eligible institution. The student must
pursue a course of study on at least a half-time basis. In
addition, for a student's qualified higher education expenses
to be eligible for the credit, the student must not have been
convicted of a Federal or state felony consisting of the
possession or distribution of certain drugs, and generally
cannot be a nonresident alien. Furthermore, a taxpayer would
not be entitled to a credit for a second taxable year unless
the student obtained a qualifying grade point average for
all previous postsecondary education. Generally, this
would be an average of at least 2.75 on a 4-point scale,
or a substantially similar measure of achievement. This
provision would allow institutions that do not use a 4-
point grading scale to retain their own system while still
allowing their students to qualify for the credit: these
institutions will determine what measure under the system
they use reasonably approximates a B- grade point average.
An ``institution of higher education'' is defined by
reference to section 481 of the Higher Education Act. Such
institutions generally would be accredited postsecondary
educational institutions offering credit toward a bachelor's
degree, an associate's degree, or another recognized
postsecondary credential. They could also be proprietary
institutions or postsecondary vocational institutions. The
institution must be eligible to participate in Department of
Education student aid programs.
This proposed credit would not affect deductions claimed
under any other section of the Code, except that if a
student's qualified higher education expenses for a taxable
year are deducted under another section of the Code
(including the proposed deduction for education expenses) no
credit would be available. If a taxpayer is eligible to claim
either the credit or the deduction for qualified higher
education expenses with regard to a single student, the
taxpayer may choose between the credit and the deduction, but
may not claim both. In addition, a taxpayer may claim the
credit for some students and the deduction for others. An
eligible student would not be entitled to claim a credit
under this provision if that student is claimed as a
dependent for tax purposes by another taxpayer. If a parent
claims a student as a dependent, any education expenses paid
by the student would be treated as paid by the parent for
purposes of this proposal.
The Secretary of the Treasury and the Secretary of
Education, operating in close consultation, will have
authority to issue regulations to implement the provisions.
The Secretary of the Treasury generally would be authorized
to issue regulations to implement this section of the
Internal Revenue Code. For example, the Secretary of the
Treasury would have authority to issue regulations providing
appropriate rules for recordkeeping and information of
reporting. These regulations would address the information
reports institutions of higher education would file to assist
students and the IRS in determining whether a student meets
the eligibility requirements for the credit and calculating
the amount of the credit that is potentially available.
However, certain terms would be defined by reference to the
Higher Education Act of 1965. The Secretary of Education
would have the authority to issue regulations under those
provisions as well as authority to define other education
terms as necessary. The Secretary of the Treasury and the
Secretary of Education would coordinate their work in
developing their respective regulations.
The proposal would be effective for payments made on or
after January 1, 1997, for education commencing on or after
July 1, 1997.
Education and Job Training Tax Deduction
A taxpayer would be allowed a deduction for qualified
higher education expenses paid during the taxable year for
the education or training of the taxpayer, the taxpayer's
spouse, or the taxpayer's dependents. The deduction would be
allowed in determining AGI. Therefore, taxpayer's could claim
the deduction even if they do not itemize their deductions
and even if they do not meet the two-percent of AGI floor on
miscellaneous itemized deductions.
The term ``eligible student'' generally is defined in the
same way for the proposed deduction as it is for the proposed
tuition credit, that is, to include students enrolled at
least half-time in a degree or certificate program at an
institution of higher education. However, a student taking a
course to improve or acquire jobs skills would also be an
eligible student for purposes of the deduction. Qualified
higher education expenses would also be defined in the same
way for the deduction proposal as they are for the tuition
credit proposal, that is, tuition and required fees that are
directly related to an eligible student's course of study.
``Institution of higher education'' is defined the same way
for purposes of this proposal as it is in the tuition credit
proposal.
Qualified higher education expenses would be deductible in
the taxable year the expenses are paid, subject to the
requirement that the education commences or continues during
that year or during the first three months of the next year.
Deductible educational expenses paid with the proceeds of a
loan generally would be deductible (rather the repayment of
the loan itself). Normal tax benefits rules would apply to
refunds (and reimbursement through insurance) of previously
deducted tuition and fees, making such refunds includable in
income in the year received.
In 1997 and 1998 the maximum deduction for a taxpayer would
be $5,000. In 1999 and thereafter, this maximum would
increase to $10,000. The deduction would be phased out
ratably over an income range in the same way as the credit.
The maximum deduction would not vary with the number of
students in a family.
This proposal would not affect deductions claimed under any
other section of the Code, except that any amount deducted
under another section of the Code could not also be deducted
under this provision. In addition, a taxpayer who claimed a
deduction for a student's qualified higher education expenses
for a particular taxable year could not also claim a tuition
tax credit for any of the student's qualified higher
education expenses for the year. A student would not be
eligible to claim a deduction under this provision if that
student is claimed as a dependent for tax purposes by another
taxpayer. If a parent claims a student as a dependent, any
education expenses paid by the student will be treated as
paid by the parent for purposes of this proposal.
The proposal would grant the Secretary of the Treasury
authority to issue regulations
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under this section, including rules requiring record keeping
and information reporting.
This proposal would be effective for payments made on or
after January 1, 1997, for education commencing on or after
July 1, 1997.
tax incentives for expansion of student loan forgiveness
Current Law
Generally, a taxpayer has income when all or part of a loan
made to the taxpayer is forgiven. However, an exception is
provided in section 108(f) for the forgiveness of certain
student loans. If the United States, a State or local
government, or a public benefit corporation with control over
a state, county, or municipal hospital makes a loan to a
student to support the student's attendance at an educational
institution and subsequently forgives all or part of the
loan, the income resulting from the cancellation of
indebtedness is excluded from the student's income, provided
the loan forgiveness is contingent on the student's working
for a certain period of time in certain professions for any
of a broad class of employers.
Reasons for Change
The Administration believes in encouraging Americans to use
their education and training in community service. Providing
tax relief in connection with the forgiveness of certain
student loans will help make it possible for students with
valuable professional skills to accept lower-paying jobs that
serve the public.
Proposal
The income exclusion for student loan forgiveness would be
expanded to cover forgiveness of loans extended by nonprofit
tax-exempt charitable or educational institutions to their
students or graduates when the proceeds are to be used to
repay outstanding student loans, provided the loan
forgiveness is contingent on the student's working for a
certain period of time in certain professions for any of a
broad class of employers. The income exclusion would not be
available where a loan is extended and then forgiven by an
institution that employs the borrower. The exclusion would
also be expanded to cover forgiveness of direct student loans
made through the William D. Ford Federal Direct Loan Program
where loan repayment and forgiveness are contingent on the
borrower's income level.
The proposal would be effective with respect to amounts
otherwise includable in income after the date of enactment.
exclusion for employer-provided educational assistance
Current Law
Section 127 provides that an employee's gross income and
wages do not include amounts paid or incurred by the employer
for educational assistance provided to the employee if
such amounts are paid or incurred pursuant to a qualified
educational assistance program. This exclusion is limited
to $5,250 of educational assistance with respect to an
individual during a calendar year. The exclusion applies
whether or not the education is job-related. In the
absence of this exclusion, educational assistance is
excludable from income only if it is related to the
employee's current job.
The exclusion for undergraduate education expires in mid-
1997. The exclusion does not apply to graduate level courses
beginning after mid-1996.
Reason for Change
Well-educated workers are essential to an economy
experiencing technological change and facing global
competition. Extension of section 127, including
reinstatement of its application to graduate courses, will
expand educational opportunity and increase productivity. In
addition, these provisions will encourage the retraining of
current and former employees to reflect the changing needs of
the workplace. The extension of section 127 also will
simplify the rules for employers and workers by eliminating
the need to distinguish between job-related expenses and
other employer-provided educational assistance.
Proposal
The section 127 exclusion would be extended through
December 31, 2000 and reinstated for graduate education.
small business tax credit for employer-provided educational assistance
Current Law
Under current law, job-related training and education
expenses, as well as amounts paid or incurred by an employer
for educational assistance provided to employees pursuant to
a qualified educational assistance program, are deductible by
the employer. Employer payments for job-related training and
amounts paid under a qualified educational assistance program
up to $5,250 annually are excluded from the gross income and
wages of the employee. No special incentive is provided to
assist small businesses in promoting employee education.
Reason for Change
Education and training builds skills and increases the
productivity of the American workforce. Well-educated workers
are better able to adapt to changes in the workforce and the
demands of technological challenges and global competition.
An additional incentive is needed to foster increased
educational opportunities and workforce training for
employees of small businesses that otherwise may be unable to
devote sufficient resources to their employees' skill
development.
Proposal
Small businesses would be allowed a 10 percent income tax
credit for payments made in taxable years beginning after
December 31, 1997, and before January 1, 2001, with respect
to expenses incurred during those taxable years for education
of employees by third parties under an employer-provided
educational assistance program. The credit would be available
to employers with average annual gross receipts of $10
million or less for the prior three years.
Title II--Student Financial Aid Provisions
Section 201.--Section 201 of the bill sets out the short
title for Title II of the bill, the ``Student Financial Aid
Improvements Act of 1997''.
Part A--Pell Grants
Section 211.--Section 211 of the bill would amend section
401 (b)(2)(A) of the Higher Education Act of 1965
(hereinafter referred to as ``the Act'') to provide that,
subject to the award rules in section 401(b) of the Act, the
Pell Grant maximum award may not be less than $3,000. This
increase from the $2,700 maximum for FY 1997, which was in
turn a significant increase in the Pell Grant maximum award
over previous years, further restores the eroded buying power
of Pell Grants. By providing more aid to students at the
lowest income levels, this increase would complement the tax
proposals in Title I of the bill, which are focused more on
middle class students and their families. Together, these
proposals would significantly enhance the affordability of
postsecondary education.
Part B--Student Loan Provisions
Section 221.--Section 221 of the bill would add a new
subsection (h) to section 422 of the Act, and make conforming
changes to subsection (g) of that section. Under new section
422(h), the Secretary would recall from the reserve funds
held by guaranty agencies at least $731,000,000 in fiscal
year 1998; $127,000,000 in fiscal year 1999; $186,000,000 in
each of the fiscal years 2000 and 2001; and $1,271,000,000 in
fiscal year 2002. The amounts recalled from each guaranty
agency each year would be in proportion to its share of the
total reserve funds held by guaranty agencies as of September
30, 1996, and recalled funds would be deposited in the
Treasury.
Each guaranty agency would be required, within 45 days of
the date of enactment of this provision, to transfer all
reserve funds that it holds (that have not yet been recalled)
to a restricted account and invest those funds in United
States Government securities specified by the
Secretary. Except under the working capital provisions
described below, the guaranty agency could not use any
restricted account funds for any purpose without the
express permission of the Secretary.
A guaranty agency would be permitted to use the FY 1998
earnings on its restricted account to assist in meeting its
operational expenses. In addition, the Secretary would permit
the use of up to $350,000,000 in the aggregate of restricted
account funds to be used as working capital to assist with
guaranty agency operating expenses. A guaranty agency's share
of working capital would be based on its proportionate share
of all borrower accounts outstanding on September 30, 1006.
Working capital provided to the guaranty agency must be
repaid by no later than September 30, 2002, or the date on
which the guaranty agency's agreement under section 428(c)
ends (through resignation, expiration, or termination),
whichever is earlier.
Finally, new subsection 422(h) would specify that non-
liquid reserve fund assets, such as buildings and equipment
purchased or developed by the guaranty agency with reserve
funds, as well as any liquid assets remaining in a guaranty
agency's restricted account after the recalls, would remain
the property of the United States, could only be used for
purposes that the Secretary determines are appropriate, and
would be subject to recall by the Secretary no later than the
date on which the guaranty agency's agreement under section
428(c) ends.
The proposed recall of reserves is consistent with the
legal status of those reserves as Federal property, as well
as the current role of the guaranty agency in the Federal
Family Education Loan (FFEL) program, as well as the changes
proposed in section 226 of the bill, described below. Section
432(o) of the Act, which was added by the Higher Education
Amendments of 1992 (P.L. 102-325), clarified that the
Secretary is the ultimate insurer of all FFEL guarantees.
Thus, guaranty agencies function more like loan servicers
than guarantors, and their need for reserve funds is
currently limited to their 2 percent risk-sharing
requirement, which also comes from Federal funds. The changes
proposed in section 226 of the bill would eliminate any need
for a guaranty agency to hold capital excess of their working
capital requirements.
Section 222.--Section 222 of the bill would amend sections
427, 428(b), 428C, and 455(d) of the bill to provide FFEL
borrowers with the extended and graduated repayment options
currently available only to Direct Loan borrowers. These new
options would be in addition to the standard and income
sensitive repayment plans currently available to FFEL
borrowers (a more limited form of graduated repayment is also
currently available to FFEL borrowers), and would provide far
greater flexibility to FFEL borrowers in managing their loan
obligations, and therefore may avoid defaults. As with Direct
Loan repayment, a FFEL borrower would also
[[Page S3055]]
have the ability to change repayment plans. The Secretary
would also be required to ensure that, to the extent
practicable and not otherwise provided in statute, the
repayment plans offered to FFEL borrowers are comparable to
Direct Loan repayment plans.
Section 223.--Section 223 of the bill would amend sections
427A and 455 of the Act to reduce the applicable interest
rate on all subsidized and unsubsidized FFEL and Direct
Loans during in-school, grace, and deferment periods to
the same rate as the Department of Education's own
borrowing rate, although the interest rates would be
capped at the same levels as in current law. This change
would reduce Federal costs by reducing excess profits to
lenders during times when there are few servicing costs
associated with subsidized loans, but the highest profit
margins. It would also provide lower interest rates to
borrowers of unsubsidized loans while they are in in-
school, grace, or deferment periods. Finally, these
amendments would standardize interest subsidy costs for
the FFEL and Direct Loan programs.
In addition, section 223 of the bill would clarify that the
interest rate used to determine the rebate of excess interest
under section 427A(i)(7)(B) of the Act was not intended to be
used to change special allowance payments for the period
affected by the rebate. This change would correct a recent
contrary court decision.
Section 224.--Section 224 of the bill would amend section
428(b)(1)(G) of the Act by reducing lenders' insurance rate
from 98 to 95 percent. This change would give lenders a
greater economic incentive to prevent loan defaults.
Section 225.--Section 225 of the bill would amend sections
428(b)(1)(H), 428H(h), 438(c), and 455(c) of the Act to
eliminate the one percent insurance premium that may be
charged to a FFEL borrower at the time his or her loan is
originated, to reduce FFEL origination fees on subsidized
FFELs by one percent (i.e., from three percent to two
percent), and to reduce comparably the loan fee charged on
Direct Loans. The loan fee for Direct Loans is currently four
percent, and is designed to be the equivalent of the FFEL
insurance premium plus the FFEL origination fee. Thus, the
Direct Loan loan fee would be reduced from four percent to
three percent for unsubsidized Direct Loans, and from four
percent to two percent for subsidized Direct Loans.
These reductions in fees will provide significant benefits
to all students, and will provide additional funds to
borrowers up front, at the time that the loan funds are
needed to pay for costs of attendance. The proposed changes
would also assist in standardizing borrower benefits within
the FFEL program as well as between the FFEL and Direct Loan
programs, because lenders and guaranty agencies will no
longer be able to selectively reduce costs for certain FFEL
borrowers by waiving or paying the insurance premium on the
borrower's behalf. The Secretary is not authorized to waive
or lower loan fees under the Direct Loan program.
The additional reduction in fees for subsidized FFEL and
Direct Loans would also complement the HOPE Scholarship and
tax deduction proposals in Title I of the bill by
significantly reducing loan costs for the neediest students
and providing them with additional resources when the loan is
originated.
Section 226.--Section 226 of the bill would substantially
revise section 428 of the Act to reflect more accurately the
current role of the guaranty agency in the FFEL program, and
to affirmatively recognize that the Secretary is the sole
guarantor of FFELs. Section 432(o) of the Act, which was
added by the Higher Education Amendments of 1992 (P.L.
102-325), clarified that the Secretary is the ultimate
insurer of all FFEL guarantees. Thus, in practice,
guaranty agencies actually function more like loan
servicers than guarantors. The changes proposed in section
226 of the bill would treat guaranty agencies in a manner
more consistent with their current program functions.
Subsections (a) and (b) of section 428 would be modified
and reorganized to reflect the substantive changes proposed
primarily to section 428(c) of the Act. Under these changes,
the Secretary would be authorized to enter into an agreement
with a guaranty agency, under which the Secretary would
insure loans with the guaranty agency acting as the agent of
the Secretary. Any guaranty agency that had an agreement with
the Secretary under section 428(b) on the day before the date
of enactment of this bill could enter into an initial
agreement with the Secretary, and all existing guaranty
agency agreements would expire within 180 days of the date of
enactment. Outstanding loan insurance issued by the guaranty
agency would be replaced by loan insurance issued by the
Secretary, and the guaranty agency would, in general, be
relieved of any further liability on the loans. To help
ensure a smooth transition, for the first year after the date
of enactment the Secretary could specify interim
administration measures necessary for the efficient transfer
of the loan insurance function.
The new guaranty agreements would be for five years,
renewable by the Secretary for successive five-year periods,
although the Secretary could terminate the agreements prior
to expiration of certain circumstances. After the initial
agreement with a guaranty agency entered into after the date
of enactment has ended (through its expiration, the
termination of the guaranty agency agreement by the
Secretary, or the resignation of the guaranty agency), the
Secretary, in his discretion, may enter into another
agreement with that guaranty agency, an alternate agreement
under with a different guaranty agency, or one or more
contracts under section 428E (as added by section 229 of the
bill) under which contractors would carry out one or more of
the functions formerly performed by the guaranty agency.
The agreement between the Secretary and a guaranty agency
would specify the responsibilities of the guaranty agency, if
any, for: administering the issuance of insurance on FFELs on
behalf of the Secretary; monitoring insurance commitments
made under this section; default prevention activities;
review of default claims made by lenders; payment of default
claims, collection of defaulted loans; adoption of internal
systems of accounting and auditing that are acceptable to the
Secretary; reporting requirements; and monitoring or
participating institutions and lenders. The Secretary could
also permit the guaranty agency, on a case-by-case basis, to
engage in such other businesses, previously purchased or
developed with reserve funds, that relate to the FFEL
program.
Under the agreement, guaranty agencies would receive the
following fees and revenues: a one-time issuance fee for each
new FFEL insured by the Secretary through the guaranty
agency; and annual maintenance fee for each active borrower
account; a default prevention fee, paid by lenders, of not to
exceed $100 per borrower account if the guaranty agency
succeeds in bringing a loan into current repayment status; a
collection retention allowance of not to exceed 18.5
percent, determined on the basis of the Secretary's review
of payments for similar services in a competitive
environment; the interest earned on working capital
provided under section 422(h) (as added by section 221 of
the bill); and revenues derived from other FFEL-related
businesses in which the Secretary permits the guaranty
agency to engage.
In addition to restructuring guaranty agency agreements,
the changes proposed in section 226 of the bill would provide
guaranty agencies with an incentive to improve their
efficiency by permitting them to retain a share of their net
revenues for activities, approved by the Secretary, in
support of postsecondary education. The share that guaranty
agencies may retain and use for this purpose would be
calculated by the Secretary after determining an adequate
level of economic incentive for guaranty agencies to maximize
their efficiency, in an amount not to exceed 50 percent of
guaranty agency net revenues.
A guaranty agency would be required to carry out its
responsibilities under the agreement in accordance with
performance standards specified by the Secretary, which would
be uniformly applied to all guaranty agencies. The Secretary
would compare the performance of the guaranty agencies with
one another, and publicly disseminate the comparison. A
guaranty agency that fails to achieve a specified level of
performance on one or more performance standards could be
fined, and if its failure resulted in a financial loss to the
United States, the guaranty agency would be required to
indemnify the Secretary for that loss.
A guaranty agency's agreement could be ended in advance of
its expiration date, either because its agreement becomes
automatically void under certain circumstances, or because
the Secretary, after notice and opportunity for a hearing,
terminates the guaranty agency for substantially failing to
achieve an acceptable level of performance under its
agreement.
Finally, while most of the changes proposed in this section
of the bill pertain to guaranty agencies and their functions,
section 226(a)(2)(E) of the bill would require only eligible
lenders that originates or holds more than $5,000,000 in
FFELs during an annual audit period to submit to the
Secretary a compliance audit for that audit period. This
change is similar to exemptions provided in recent
Appropriation Acts, and would alleviate the burden and
disproportionate expense that annual compliance audits impose
on lenders with small FFEL portfolios.
Section 227.--Section 227 of the bill would repeal section
428(n) of the Act, which requires a State to pay to the
Secretary an annual amount that represents the State's share
of risk for high default rates at institutions within the
State. This provision has never been implemented.
Section 228.--Section 228 of the bill would make a number
of changes to section 428C of the Act pertaining to FFEL
consolidation loans that would make the terms of these loans
more comparable to Direct consolidation loans. (Changes to
repayment terms for FFEL consolidation loans are proposed in
section 222 of the bill.) Section 228 would permit borrowers
to obtain a FFEL consolidation loan while they are in ``in-
school'' status, and to consolidate FFEL consolidation loans
into new FFEL consolidation loans. Lenders would also
retain the interest subsidy on the portion of a FFEL
consolidation loan that repays subsidized loans, and the
interest rate on FFEL consolidation loans would be changed
to a variable rate comparable to the rate applicable to
Direct consolidation loans. By extending favorable terms
currently available only to borrowers of Direct
consolidation loans to borrowers of FFEL consolidation
loans, these amendments would reduce costs for, and
provide greater flexibility to, these FFEL borrowers,
particularly those FFEL borrowers with
[[Page S3056]]
loans from multiple lenders who have not consolidated
these loans because they would lose the benefits
associated with the separate loans.
Section 229.--Section 229 of the bill would add a new
section 428E to part B of Title IV of the Act that would
authorize the Secretary to enter into one or more contracts
to carry out any of the functions that otherwise would be
carried out by a guaranty agency. This amendment is
consistent with the changes to guaranty agency functions that
are proposed in section 226 of the bill.
Section 230.--Section 230 of the bill would amend the
definition of an ``eligible lender'' in section 435(d) of the
Act to require lenders to offer uniform terms and conditions
to all borrowers taking out the same type of FFEL loans (for
example, Unsubsidized or Consolidation Loans). The Secretary
would be authorized to prescribe regulatory exceptions to
this requirement.
Section 231.--Section 231 of the bill would amend section
438 of the Act to provide for the computation of special
allowance rates at the same time and in the same manner as
student loan interest rates (annually rather than quarterly),
to eliminate the potential for special allowance payments
merely because the rates are calculated on a different cycle.
Section 232.--Section 232 of the bill would amend section
439(h)(7) of the Act to reflect congressional intent that the
Student Loan Marketing Association (Sallie Mae) not be able
to circumvent the requirement that it pay an offset fee on
loans it holds by ``securitizing'' loans upon which it would
otherwise be required to pay the offset fee. This provision
would also remedy a recent, partially adverse, court decision
and would be effective retroactively to August 10, 1993, the
date of enactment of the Sallie Mae offset fee requirement,
but would not apply to the privatized entity that may be
created as a result of the Student Loan Marketing Association
Reorganization Act of 1996.
Section 233.--Section 233 of the bill would amend section
452(b) of the Act to replace the statutory requirement
(currently overridden by the FY 1997 Appropriation Act) to
pay all participating institutions that originate Direct
Loans a fee to assist in meeting the costs of loan
origination with a fee to be paid only to institutions (or
consortia of institutions) in their first year of
participation in the Direct Loan program, in order to
compensate for costs associated with their transition to the
program. The new, more targeted transition fee could not
exceed an average of $10 per borrower at the institutions
receiving the fee.
Section 234. Section 234 of the bill would amend section
458(a) to specify funding levels through FY 2002 for
mandatory administrative expenses for the student financial
aid programs, including the Direct Loan program, at levels
lower than the current baseline.
Part C--Need Analysis and General Provisions
Section 241.--Section 241 of the bill would make a series
of changes to the calculation of a postsecondary student's
need for assistance under Title IV of the Act that complement
the HOPE Scholarship and deduction proposals in Title I of
the bill. These changes are intended to ensure that a
student's future eligibility for Title IV assistance is not
affected by his or her family's use of the HOPE Scholarship
tax credit or the education and training tax deduction. These
amendments would: 1) prevent the HOPE Scholarship tax credit
from being treated as part of the family's total income by
treating the credit amount as ``excludable income'' and
making clear that it is not to be treated as ``untaxed income
and benefits''; 2) prevent the education and training tax
deduction from reducing the family's total income by treating
the amount deducted as ``untaxed income and benefits''; 3)
ensure that the family's available income is accurately
reflected by taking account of federal taxes that would be
owed if neither the HOPE Scholarship tax credit nor the
education and training tax deduction were available; and 4)
prevent the HOPE Scholarship tax credit from substituting for
other forms of student aid by making clear that the amount of
the credit is not to be treated as ``financial assistance.''
Section 242.--Section 242 of the bill would amend section
476(b) of the bill to make the income protection allowance
(IPA) (one factor used in the calculation of a student's need
assistance) for independent students without dependents
(other than a spouse) comparable to the IPAs used for parents
of dependent students and for independent students with
dependents. This change would increase the Pell Grant and
other need-based aid available to low- and moderate-income
students in this category. A conforming change would also be
made to section 478(b) of the Act to permit the updating of
the numbers used in the IPA calculation to reflect inflation,
consistent with the IPA calculations for the other categories
of students.
Section 243.--Section 243 of the bill would add a new
subsection (g) to section 481 of the Act that would require
the Secretary to define in regulations certain education-
related terms for purposes of the HOPE Scholarship tax credit
and the deduction proposed in Title I of the bill. Section
482(c) of the Act, which requires that regulations must be
published in final form by December 1 in order to be
effective for the award year beginning the following July 1,
shall not apply to these regulations, which pertain to the
administration of the tax provisions, not the student aid
programs under Title IV.
Section 244.--Section 244 of the bill would amend several
provisions of Title IV of the Act primarily to extend the
FFEL program and section 458 of the Act through FY 2002.
These extensions are necessary in order to make the other
changes proposed in this Title for years after FY 1998.
Part D--Effective Dates
Section 251.--Section 251 sets out the effective dates for
the amendments proposed in this Title of the bill.
Mr. KENNEDY. Mr. President, I give my strong support to President
Clinton's HOPE and Opportunity for Postsecondary Education Act of 1997,
introduced today by Senator Daschle and myself.
Education must continue to be a top priority in Congress. We need to
do more to make college accessible and affordable for all students. It
is not enough to maintain current spending levels for education.
Targeted increases are essential to help students, and also to help
colleges deal with increasing enrollments.
Today, college is priced out of reach for many families. From 1980 to
1990, the cost of college rose by 126 percent, while family income
increased by only 73 percent. To meet that rising cost, students are
going deeper and deeper into debt. In 1993 alone, students borrowed $30
billion--a 65-percent increase since 1993. Since 1988, borrowing in the
Federal student loan program has increased by more than 100 percent,
while starting salaries for college graduates have failed to increase
at all. Many students and their families are fearful of the mounting
debt burdens that await college graduates.
The President's bill will help students pay for college in two ways:
through tax relief and through increased direct financial aid. With the
tax relief, students and their families will be able to choose between
a $1,500 HOPE tax credit and a $10,000 tax deduction to pay annual
tuition expenses for the first 2 years of postsecondary education,
including graduate school The tax deduction is also available to help
reduce the cost of further years of education, including graduate
school. These two changes will make a college education more affordable
for thousands of middle and lower income families.
The bill also provides tax relief for students whose loans are
forgiven in return for community service or for low-income wage earners
under the income-contingent repayment plan. In addition, the bill
provides tax incentives to encourage employers to pay for the further
education of their employees.
In the area of direct financial aid, the bill broadens the reach of
Pell grants to help the neediest students pay for higher education. It
increases the maximum Pell grant from $2,700 to $3,000. It also changes
the needs analysis for some independent students by increasing the
income protection allowance to make it comparable with that allowance
for other categories of students.
The bill also decreases the cost of student loans by reducing
interest rates, and by lowering the initial fees charged to students.
Borrowing has become an essential part of financing education for
millions of students. These provisions will benefit them while they are
in college by reducing the initial fees, and after college by lowering
the interest rates on the amount they owe.
It is fitting that this bill is being introduced today, because many
members of the United States Student Association are here on Capitol
Hill this week to urge Congress to give education the high priority it
deserves. These students want a better education. They know they need
it. And they are worried about how to pay for it. They want Congress to
work together to provide the financial assistance they need to pursue
their dreams. The presence of these intelligent and committed students
reminds us that the future of our country depends on the education they
receive. This Congress can open the door of higher education for many
more of them.
The President's proposal deserves broad bipartisan support. It is
vital for the country that higher education be truly open to all
qualified students, without monetary barriers. Investing in education
is investing in a stronger America here at home and around the world. I
look forward to working with
[[Page S3057]]
my colleagues on both sides of the aisle to renew and extend our
commitment to higher education.
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By Mr. D'AMATO (for himself, Mr. Faircloth, Mr. Bennett, Mr.
Sarbanes, Mr. Dodd, Mr. Kerry, Mr. Bryan, Mrs. Boxer, Ms.
Moseley-Braun, Mr. Johnson and Mr. Reed):
S. 562. A bill to amend section 255 of the National Housing Act to
prevent the funding of unnecessary or excessive costs for obtaining a
home equity conversion mortgage; to the Committee on Banking, Housing,
and Urban Affairs.
THE SENIOR CITIZEN HOME EQUITY PROTECTION ACT
Mr. D'AMATO. Mr. President, I rise today to introduce legislation
which will protect our Nation's senior citizens from exploitation by
fraudulent operators who are manipulating the Department of Housing and
Urban Development's [HUD] Federal Housing Administration [FHA] home
equity conversion mortgage program.
I commend the cosponsors of this legislation and thank them for their
support of this essential initiative: Senator Lauch Faircloth; Senator
Robert Bennett; Senator Paul Sarbanes; Senator Christopher Dodd;
Senator John Kerry; Senator Richard Bryan; Senator Barbara Boxer;
Senator Moseley-Braun; Senator Tim Johnson; and Senator Jack Reed.
I am pleased to announce a bicameral, bipartisan response to this
injustice. Identical companion legislation is being introduced today by
Representative Rick Lazio, chairman of the House Banking Subcommittee
on Housing and Community Opportunity. I salute Congressman Lazio for
his swift response in condemning this outrageous practice and for
proposing a legislative solution. I pledge to work side-by-side with
him on this important issue until our companion bills become law.
This legislation has been endorsed by the administration. I would
like to commend HUD Secretary Andrew Cuomo for recognizing this serious
problem, bringing these abuses to our attention, and acting
courageously to prohibit their continued occurrence.
The FHA home equity conversion mortgage program offers elderly
homeowners the opportunity to borrow against the equity in their homes.
This effective program assists our senior citizens who have substantial
equity in their property but have incomes too low to meet ordinary or
extraordinary living expenses. A program recipient can receive cash
through this reverse mortgage in the following ways: a lifetime
guaranteed monthly payment; a line of credit; a combination of monthly
payment and line-of-credit options; or a lump sum. These mortgages are
originated by FHA-approved lenders, insured by the FHA and purchased by
the secondary mortgage market.
Since the program's inception, approximately 20,000 loans have been
made. The median age of borrowers is 76 years old and the median income
is $10,400. This reverse mortgage program represents an ideal public/
private partnership in which needy, very-low income Americans are aided
without cost to the Federal Government.
Unfortunately, unscrupulous middlemen, posing as service providers or
estate planners have taken advantage of seniors by charging unnecessary
and excessive fees to assist them in obtaining a home equity conversion
mortgage. These predators have charged elderly homeowners fees ranging
from 6 to 12 percent of the loan amount. In hundreds of cases, very
low-income seniors have been manipulated into paying several thousand
dollars in return for ministerial and often meaningless services. The
Department of Housing and Urban Development provides information on
applying for a reverse mortgage at no cost.
These abuses must be stopped at once. Such exploitation is absolutely
unconscionable. The elderly who are being preyed upon are some of the
most vulnerable in our society. Reverse mortgage proceeds are generally
used by the homeowner to maintain a decent standard of living and pay
for essentials like property taxes, medical bills, and groceries.
The legislation we are introducing today will assist HUD with its
efforts to ensure that our senior citizens are protected. We must
ensure that not even one recipient of a HUD reverse mortgage is charged
any unnecessary or excessive costs for obtaining that mortgage.
The bill provides two important safeguards to achieve this purpose.
First, it provides a requirement that the mortgagor has received a full
disclosure of all costs of obtaining the mortgage, including any costs
of estate planning, financial advice or other related services. Second,
it clarifies that the HUD Secretary has authority to impose
restrictions to ensure that the mortgagor is not charged any
unnecessary or excessive costs for obtaining a reverse mortgage.
The legislation requires the HUD Secretary to implement the above
described safeguards in an expeditious manner by interim notice. Within
90 days of the date of enactment of this Act, the Secretary shall issue
final regulations after providing notice and opportunity for public
comment. The terms of the interim notice shall not be effective after
the final regulations are in place.
I urge all my colleagues to support this vital legislation and look
forward to its speedy passage by the Senate. The Senate, the House of
Representatives and the administration must work together quickly to
ensure that our Nation's most vulnerable homeowners are no longer
victimized.
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:
S. 562
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 ``Senior Citizen Home Equity
Protection Act''.
SEC. 2. DISCLOSURE REQUIREMENTS; PROHIBITION OF FUNDING OF
UNNECESSARY OR EXCESSIVE COSTS.
Section 255(d) of the National Housing Act (12 U.S.C.
1715z-20(d)) is amended--
(1) in paragraph (2)--
(A) in subparagraph (B), by striking ``and'' at the end;
(B) by redesignating subparagraph (C) as subparagraph (D);
and
(C) by inserting after subparagraph (B) the following:
``(C) has received full disclosure of all costs to the
mortgagor for obtaining the mortgage, including any costs of
estate planning, financial advice, or other related services,
and'';
(2) in paragraph (9)(F), by striking ``and'';
(3) in paragraph (10), by striking the period at the end
and inserting ``; and''; and
(4) by adding at the end the following:
``(11) have been made with such restrictions as the
Secretary determines to be appropriate to ensure that the
mortgagor does not fund any unnecessary or excessive costs
for obtaining the mortgage, including any costs of estate
planning, financial advice, or other related services.''.
SEC. 3. IMPLEMENTATION.
(a) Notice.--The Secretary of Housing and Urban Development
shall, by interim notice, implement the amendments made by
section 2 in an expeditious manner, as determined by the
Secretary. Such notice shall not be effective after the date
of the effectiveness of the final regulations issued under
subsection (b).
(b) Regulations.--The Secretary shall, not later than the
expiration of the 90-day period beginning on the date of the
enactment of this Act, issue final regulations to implement
the amendments made by section 2. Such regulations shall be
issued only after notice and opportunity for public comment
pursuant to the provisions of section 553 of title 5, United
States Code (notwithstanding subsections (a)(2) and (b)(B) of
such section).
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