[Congressional Record Volume 143, Number 115 (Thursday, September 4, 1997)]
[Senate]
[Pages S8823-S8831]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

      By Mr. WELLSTONE:
  S. 1147. A bill to amend the Public Health Service Act, Employee 
Retirement Income Security Act of 1974, and the Internal Revenue Code 
of 1986 to provide for nondiscriminatory coverage for substance abuse 
treatment services under private group and individual health coverage; 
to the Committee on Labor and Human Resources.


            the substance abuse treatment parity act of 1997

  Mr. WELLSTONE. Mr. President, today I rise to introduce legislation 
that will ensure that private health insurance companies pay for 
substance abuse treatment services at the same level that they pay for 
treatment for other diseases. In other words, it is meant to guarantee 
that insurance coverage for substance abuse treatment is provided in a 
nondiscriminatory manner. This bill, the Substance Abuse Parity Act of 
1997, provides this assurance.

  For too long, the problem of substance abuse has been viewed as a 
moral issue, rather than a disease. A cloak of secrecy has surrounded 
this problem, as people who have this disease are often ashamed and 
afraid to admit their problem, for fear that they will be seen as 
admitting a weakness in character. We have all seen portrayals of 
alcoholics and addicts that are intended to be humorous or derogatory, 
and only reinforce the biases against people who have problems with 
substance abuse. Can you imagine this type of portrayal of someone who 
has a cardiac problem, or who happens to carry a gene that predisposes 
them to diabetes?
  Yet it has been shown that some forms of addiction have a genetic 
basis, and we still try to hide the seriousness of this problem. We 
forget that someone who has a problem with drugs or alcohol can look 
just like the person we see in the mirror, or the person who is sitting 
next to us on a plane. In fact, it is unlikely that any of us have not 
experienced substance abuse within our families or our circle of 
friends.
  The statistics concerning substance abuse are startling. In a recent 
article in Scientific American, December 1996, it was reported that 
excessive alcohol consumption is estimated to cause more than 100,000 
deaths in the United States each year. Of these deaths, 24 percent are 
due to drunken driving, 11 percent are homicides, and 8 percent are 
suicides. Alcohol contributes to cancers of the esophagus, larynx, and 
oral cavity, which account for 17 percent of the deaths. Strokes 
related to alcohol use account for another nine percent of deaths. 
Alcohol causes several other ailments such as cirrhosis of the liver. 
These ailments account for 18 percent of the deaths.
  We know that alcohol and other drugs contribute to other problems as 
well. Addictive substances have the potential for destroying the person 
who is addicted, their family and their other relationships. In a 1993 
Report to Congress on Alcohol and Health, the Secretary of Health and 
Human Services

[[Page S8824]]

stated that ``Alcohol is associated with a substantial proportion of 
human violence, and perpetrators are often under the influence of 
alcohol.'' There are high rates of alcohol and other drug involvement 
in domestic violence and child abuse. For example, in 1987, 64 percent 
of all reported child abuse and neglect cases in the city of New York 
were related to alcohol and other drug abuse. With respect to domestic 
violence, a study of over 2,000 American couples demonstrated that 
rates of domestic violence were almost 15 times higher in households 
where husbands were often drunk as compared to those households in 
which they were never drunk. And, alcohol has been shown to be present 
in over 50 percent of all incidents of domestic violence. In addition, 
substance use itself may result from direct experience with 
interpersonal violence, as demonstrated by a study of 472 women. This 
study showed that 87 percent of alcoholic women had been physically or 
sexually abused as children as compared to 59 percent of the 
nonalcoholic women in the study. We know that over 40 percent of motor 
vehicle crash fatalities are alcohol-related, and that many of the 
alcohol drinkers involved in these crashes have had long standing 
problems with alcohol abuse. It is estimated that over 25 percent of 
emergency department visits may be alcohol related, and that alcohol 
and other drug use accounts for at least 40 percent of hospital 
admissions.
  Data from the 1996 National Household Survey on Drug Abuse, which is 
conducted by the Substance Abuse and Mental Health Services 
Administration, provide the following estimates of substance use in the 
United States:


                                Alcohol

  There were about 9 million current alcohol, including beer, wine, and 
distilled spirits, drinkers under age 21 in 1996. Of these, 4.4 million 
were binge drinkers, including 1.9 million heavy drinkers.


                               Marijuana

  In 1996, an estimated 10.1 million Americans were current, past 
month, marijuana or hashish users. This represents 4.7 percent of the 
population aged 12 and older.
  Marijuana is by far the most prevalent drug used by illicit drug 
users. Approximately three-quarters, 77 percent of current illicit drug 
users were marijuana or hashish users in 1996.


                                Cocaine

  The number of occasional cocaine users, people who used in the past 
year but on fewer than 12 days, was 2.6 million in 1996, similar to 
what it was in 1995. The number of users was down significantly from 
1985, when it was 7.1 million.


                             Hallucinogens

  The rate of current use of hallucinogens among youth age 12-17 has 
nearly doubled in 2 years, 1.1 percent in 1994, 1.7 percent in 1995, 
and 2.0 percent in 1996.


                                 Heroin

  There were an estimated 141,000 new heroin users in 1995, and there 
has been an increasing trend in new heroin use since 1992. A large 
proportion of these recent new users were smoking, snorting, or 
sniffing heroin, and most were under age 26. The rate of heroin 
initiation for the age group 12-17 reached historic levels.
  We know what the problems are, and we can document them. But we have 
done little to treat the problems or prevent them. In order to decrease 
the violence, the domestic violence, child abuse, homicide, suicide, 
the motor vehicle crashes, the cancers and the other illnesses and 
deaths due to alcohol and drug use, we must treat the alcohol and drug 
abuse problems. But right now, even if treatment is available and 
accessible, it is often unaffordable, as many health plans do not pay 
for treatment for substance abuse at the same rate at which they pay 
for treatment of other diseases. This seems counterintuitive, given the 
relationship between substance use and other diseases. It would only 
seem logical that if we are willing to pay for the treatment of 
substance abuse, we would decrease costs of treatment for other 
diseases in the long run, as we would decrease the occurrence of those 
diseases that are related to substance abuse.
  SAMHSA has summarized the importance of substance abuse treatment as 
follows:

       Substance abuse adds substantially to the nation's total 
     health care bill. Numerous studies show that providing 
     adequate and accessible treatment for those with alcohol and 
     illicit drug problems is the most effective method to improve 
     the health of drug abusers and relieve the growing burden of 
     drug-related health care costs. Treatment is a sound, long-
     term and cost-effective investment in America's future.


                 Substance Abuse and Health Care Costs

       Approximately 35 percent of all AIDS cases are related to 
     intravenous drug use, and over 60 percent of all pediatric 
     AIDS cases are related to maternal exposure to HIV through 
     drug use or sex with a drug user.
       On the average, untreated alcoholics generally incur 
     general health care costs that are at least 100 percent 
     higher than those of the non-alcoholic. In the last 12 months 
     before treatment, the alcoholic's costs are close to 300 
     percent higher.
       More than 5 percent (221,000) of the 4 million women who 
     give birth each year use illicit drugs during their 
     pregnancy.
       The Health Insurance Association of America estimates an 
     expenditure of from $48,000 to $150,000 in costs of maternity 
     care, physicians' fees and hospital charges for each delivery 
     that is complicated by substance abuse.
       The number of methamphetamine (speed)-related emergency 
     room episodes increased by 35 percent (from 7,800 to 10,600) 
     between the first half of 1994 and the first half of 1995.


                       Health Care and Treatment

       Chicago's Women's Treatment Center offers a wide variety of 
     residential and outpatient programs for adolescent girls, 
     pregnant women and women with young children. The Center has 
     the only crisis nursery in Chicago, which provides care 24 
     hours a day to the infants and children of women undergoing 
     medically supervised detoxification. As a result of the 
     Women's Treatment Center's focus on responsible parenting, 67 
     drug-free babies have been born to women in treatment.
       Substance abuse treatment reduces overall hospital 
     admission rates by at least 38 percent. Hospital admissions 
     for drug overdose decreased by 58 percent among those who had 
     been treated.
       Ninety-five percent of women reported uncomplicated births, 
     free of illicit drugs, after one year of treatment.
       The state Alcohol and Other Drug Authority in Minnesota has 
     reported that, for chemical dependency clients, the state has 
     saved approximately $22 million in annual health care costs 
     by providing treatment.

  So, it is apparent from these data that substance abuse treatment 
works, and can help reduce health care costs and costs to society. We 
need to ensure that health care insurance providers do not discriminate 
in their coverage of substance abuse treatment services.
  The Substance Abuse Treatment Parity Act of 1997 provides for 
nondiscriminatory coverage of substance abuse treatment services by 
private health insurers. It does not require that substance abuse 
benefits be part of a health benefits package, but establishes a 
requirement for parity in coverage for those plans that offer substance 
abuse coverage.
  Mr. President, my bill would prohibit private insurance providers 
from imposing caps, copayments, and deductibles and day and visit 
limits for substance abuse treatment services that differ from those 
that are described for other covered illnesses. In other words, private 
health insurers must treat substance abuse like any other disease. 
Covered services include inpatient treatment, including detoxification; 
nonhospital residential treatment; outpatient treatment, including 
screening and assessment, medication management, individual, group and 
family counseling and relapse prevention; and prevention services, 
including health education and individual and group counseling to 
encourage the reduction of risk factors for substance abuse.
  Mr. President, the Substance Abuse Treatment Parity Act of 1997 is 
designed to take a large step toward decreasing the problem of 
substance abuse and its consequences. We can't afford not to provide 
this coverage.
  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. 1147

       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 ``Substance Abuse Treatment 
     Parity Act of 1997''.

     SEC. 2. PARITY IN SUBSTANCE ABUSE TREATMENT BENEFITS.

       (a) Group Health Plans.--
       (1) Public health service act amendments.--(A) Subpart 2 of 
     part A of title XXVII of the Public Health Service Act (as 
     added by section 604(a) of the Newborns' and Mothers' Health 
     Protection Act of 1996 and

[[Page S8825]]

     amended by section 703(a) of the Mental Health Parity Act of 
     1996) is amended by adding at the end the following new 
     section:

     ``SEC. 2706. PARITY IN THE APPLICATION OF TREATMENT 
                   LIMITATIONS AND FINANCIAL REQUIREMENTS TO 
                   SUBSTANCE ABUSE TREATMENT BENEFITS.

       ``(a) In General.--In the case of a group health plan (or 
     health insurance coverage offered in connection with such a 
     plan) that provides both medical and surgical benefits and 
     substance abuse treatment benefits, the plan or coverage 
     shall not impose treatment limitations or financial 
     requirements on the substance abuse treatment benefits unless 
     similar limitations or requirements are imposed for medical 
     and surgical benefits.
       ``(b) Construction.--Nothing in this section shall be 
     construed--
       ``(1) as requiring a group health plan (or health insurance 
     coverage offered in connection with such a plan) to provide 
     any substance abuse treatment benefits; or
       ``(2) to prevent a group health plan or a health insurance 
     issuer offering group health insurance coverage from 
     negotiating the level and type of reimbursement with a 
     provider for care provided in accordance with this section.
       ``(c) Exemptions.--
       ``(1) Small employer exemption.--
       ``(A) In general.--This section shall not apply to any 
     group health plan (and group health insurance coverage 
     offered in connection with a group health plan) for any plan 
     year of a small employer.
       ``(B) Small employer.--For purposes of subparagraph (A), 
     the term `small employer' means, in connection with a group 
     health plan with respect to a calendar year and a plan year, 
     an employer who employed an average of at least 2 but not 
     more than 50 employees on business days during the preceding 
     calendar year and who employs at least 2 employees on the 
     first day of the plan year.
       ``(C) Application of certain rules in determination of 
     employer size.--For purposes of this paragraph--
       ``(i) Application of aggregation rule for employers.--Rules 
     similar to the rules under subsections (b), (c), (m), and (o) 
     of section 414 of the Internal Revenue Code of 1986 shall 
     apply for purposes of treating persons as a single employer.
       ``(ii) Employers not in existence in preceding year.--In 
     the case of an employer which was not in existence throughout 
     the preceding calendar year, the determination of whether 
     such employer is a small employer shall be based on the 
     average number of employees that it is reasonably expected 
     such employer will employ on business days in the current 
     calendar year.
       ``(iii) Predecessors.--Any reference in this paragraph to 
     an employer shall include a reference to any predecessor of 
     such employer.
       ``(2) Increased cost exemption.--This section shall not 
     apply with respect to a group health plan (or health 
     insurance coverage offered in connection with a group health 
     plan) if the application of this section to such plan (or to 
     such coverage) results in an increase in the cost under the 
     plan (or for such coverage) of at least 1 percent.
       ``(d) Separate Application to Each Option Offered.--In the 
     case of a group health plan that offers a participant or 
     beneficiary two or more benefit package options under the 
     plan, the requirements of this section shall be applied 
     separately with respect to each such option.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Treatment limitation.--The term `treatment 
     limitation' means, with respect to benefits under a group 
     health plan or health insurance coverage, any day or visit 
     limits imposed on coverage of benefits under the plan or 
     coverage during a period of time.
       ``(2) Financial requirement.--The term `financial 
     requirement' means, with respect to benefits under a group 
     health plan or health insurance coverage, any deductible, 
     coinsurance, or cost-sharing or an annual or lifetime dollar 
     limit imposed with respect to the benefits under the plan or 
     coverage.
       ``(3) Medical or surgical benefits.--The term `medical or 
     surgical benefits' means benefits with respect to medical or 
     surgical services, as defined under the terms of the plan or 
     coverage (as the case may be), but does not include substance 
     abuse treatment benefits.
       ``(4) Substance abuse treatment benefits.--The term 
     `substance abuse treatment benefits' means benefits with 
     respect to substance abuse treatment services.
       ``(5) Substance abuse treatment services.--The term 
     `substance abuse services' means any of the following items 
     and services provided for the treatment of substance abuse:
       ``(A) Inpatient treatment, including detoxification.
       ``(B) Non-hospital residential treatment.
       ``(C) Outpatient treatment, including screening and 
     assessment, medication management, individual, group, and 
     family counseling, and relapse prevention.
       ``(D) Prevention services, including health education and 
     individual and group counseling to encourage the reduction of 
     risk factors for substance abuse.
       ``(6) Substance abuse.--The term `substance abuse' includes 
     chemical dependency.
       ``(f) Notice.--A group health plan under this part shall 
     comply with the notice requirement under section 713(f) of 
     the Employee Retirement Income Security Act of 1974 with 
     respect to the requirements of this section as if such 
     section applied to such plan.
       ``(g) Sunset.--This section shall not apply to benefits for 
     services furnished on or after September 30, 2002.''.
       (B) Section 2723(c) of such Act (42 U.S.C. 300gg-23(c)), as 
     amended by section 604(b)(2) of Public Law 104-204, is 
     amended by striking ``section 2704'' and inserting ``sections 
     2704 and 2706''.
       (2) ERISA amendments.--(A) Subpart B of part 7 of subtitle 
     B of title I of the Employee Retirement Income Security Act 
     of 1974 (as added by section 603(a) of the Newborns' and 
     Mothers' Health Protection Act of 1996 and amended by section 
     702(a) of the Mental Health Parity Act of 1996) is amended by 
     adding at the end the following new section:

     ``SEC. 713. PARITY IN THE APPLICATION OF TREATMENT 
                   LIMITATIONS AND FINANCIAL REQUIREMENTS TO 
                   SUBSTANCE ABUSE TREATMENT BENEFITS.

       ``(a) In General.--In the case of a group health plan (or 
     health insurance coverage offered in connection with such a 
     plan) that provides both medical and surgical benefits and 
     substance abuse treatment benefits, the plan or coverage 
     shall not impose treatment limitations or financial 
     requirements on the substance abuse treatment benefits unless 
     similar limitations or requirements are imposed for medical 
     and surgical benefits.
       ``(b) Construction.--Nothing in this section shall be 
     construed--
       ``(1) as requiring a group health plan (or health insurance 
     coverage offered in connection with such a plan) to provide 
     any substance abuse treatment benefits; or
       ``(2) to prevent a group health plan or a health insurance 
     issuer offering group health insurance coverage from 
     negotiating the level and type of reimbursement with a 
     provider for care provided in accordance with this section.
       ``(c) Exemptions.--
       ``(1) Small employer exemption.--
       ``(A) In general.--This section shall not apply to any 
     group health plan (and group health insurance coverage 
     offered in connection with a group health plan) for any plan 
     year of a small employer.
       ``(B) Small employer.--For purposes of subparagraph (A), 
     the term `small employer' means, in connection with a group 
     health plan with respect to a calendar year and a plan year, 
     an employer who employed an average of at least 2 but not 
     more than 50 employees on business days during the preceding 
     calendar year and who employs at least 2 employees on the 
     first day of the plan year.
       ``(C) Application of certain rules in determination of 
     employer size.--For purposes of this paragraph--
       ``(i) Application of aggregation rule for employers.--Rules 
     similar to the rules under subsections (b), (c), (m), and (o) 
     of section 414 of the Internal Revenue Code of 1986 shall 
     apply for purposes of treating persons as a single employer.
       ``(ii) Employers not in existence in preceding year.--In 
     the case of an employer which was not in existence throughout 
     the preceding calendar year, the determination of whether 
     such employer is a small employer shall be based on the 
     average number of employees that it is reasonably expected 
     such employer will employ on business days in the current 
     calendar year.
       ``(iii) Predecessors.--Any reference in this paragraph to 
     an employer shall include a reference to any predecessor of 
     such employer.
       ``(2) Increased cost exemption.--This section shall not 
     apply with respect to a group health plan (or health 
     insurance coverage offered in connection with a group health 
     plan) if the application of this section to such plan (or to 
     such coverage) results in an increase in the cost under the 
     plan (or for such coverage) of at least 1 percent.
       ``(d) Separate Application to Each Option Offered.--In the 
     case of a group health plan that offers a participant or 
     beneficiary two or more benefit package options under the 
     plan, the requirements of this section shall be applied 
     separately with respect to each such option.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Treatment limitation.--The term `treatment 
     limitation' means, with respect to benefits under a group 
     health plan or health insurance coverage, any day or visit 
     limits imposed on coverage of benefits under the plan or 
     coverage during a period of time.
       ``(2) Financial requirement.--The term `financial 
     requirement' means, with respect to benefits under a group 
     health plan or health insurance coverage, any deductible, 
     coinsurance, or cost-sharing or an annual or lifetime dollar 
     limit imposed with respect to the benefits under the plan or 
     coverage.
       ``(3) Medical or surgical benefits.--The term `medical or 
     surgical benefits' means benefits with respect to medical or 
     surgical services, as defined under the terms of the plan or 
     coverage (as the case may be), but does not include substance 
     abuse treatment benefits.
       ``(4) Substance abuse treatment benefits.--The term 
     `substance abuse treatment benefits' means benefits with 
     respect to substance abuse treatment services.
       ``(5) Substance abuse treatment services.--The term 
     `substance abuse services' means any of the following items 
     and services provided for the treatment of substance abuse:
       ``(A) Inpatient treatment, including detoxification.
       ``(B) Non-hospital residential treatment.

[[Page S8826]]

       ``(C) Outpatient treatment, including screening and 
     assessment, medication management, individual, group, and 
     family counseling, and relapse prevention.
       ``(D) Prevention services, including health education and 
     individual and group counseling to encourage the reduction of 
     risk factors for substance abuse.
       ``(6) Substance abuse.--The term `substance abuse' includes 
     chemical dependency.
       ``(f) Notice under Group Health Plan.--The imposition of 
     the requirements of this section shall be treated as a 
     material modification in the terms of the plan described in 
     section 102(a)(1), for purposes of assuring notice of such 
     requirements under the plan; except that the summary 
     description required to be provided under the last sentence 
     of section 104(b)(1) with respect to such modification shall 
     be provided by not later than 60 days after the first day of 
     the first plan year in which such requirements apply.
       ``(g) Sunset.--This section shall not apply to benefits for 
     services furnished on or after September 30, 2002.''.
       (B) Section 731(c) of such Act (29 U.S.C. 1191(c)), as 
     amended by section 603(b)(1) of Public Law 104-204, is 
     amended by striking ``section 711'' and inserting ``sections 
     711 and 713''.
       (C) Section 732(a) of such Act (29 U.S.C. 1191a(a)), as 
     amended by section 603(b)(2) of Public Law 104-204, is 
     amended by striking ``section 711'' and inserting ``sections 
     711 and 713''.
       (D) The table of contents in section 1 of such Act is 
     amended by inserting after the item relating to section 712 
     the following new item:

``Sec. 713. Parity in the application of treatment limitations and 
              financial requirements to substance abuse treatment 
              benefits.''.

       (3) Internal revenue code amendments.--(A) Subtitle K of 
     the Internal Revenue Code of 1986 (as added by section 401(a) 
     of the Health Insurance Portability and Accountability Act of 
     1996) is amended--
       (i) by striking all that precedes section 9801 and 
     inserting the following:
              ``Subtitle K--Group Health Plan Requirements
``Chapter 100. Group health plan requirements.

             ``CHAPTER 100--GROUP HEALTH PLAN REQUIREMENTS

``Subchapter A. Requirements relating to portability, access, and 
              renewability.
``Subchapter B. Other requirements.
``Subchapter C. General provisions.

   ``Subchapter A--Requirements Relating to Portability, Access, and 
                              Renewability

``Sec. 9801. Increased portability through limitation on preexisting 
              condition exclusions.
``Sec. 9802. Prohibiting discrimination against individual participants 
              and beneficiaries based on health status.
``Sec. 9803. Guaranteed renewability in multiemployer plans and certain 
              multiple employer welfare arrangements.'',
       (ii) by redesignating sections 9804, 9805, and 9806 as 
     sections 9831, 9832, and 9833, respectively,
       (iii) by inserting before section 9831 (as so redesignated) 
     the following:

                   ``Subchapter C--General Provisions

``Sec. 9831. General exceptions.
``Sec. 9832. Definitions.
``Sec. 9833. Regulations.'', and
       (iv) by inserting after section 9803 the following:

                   ``Subchapter B--Other Requirements

``Sec. 9811. Parity in the application of treatment limitations and 
              financial requirements to substance abuse treatment 
              benefits.

     ``SEC. 9811. PARITY IN THE APPLICATION OF TREATMENT 
                   LIMITATIONS AND FINANCIAL REQUIREMENTS TO 
                   SUBSTANCE ABUSE TREATMENT BENEFITS.

       ``(a) In General.--In the case of a group health plan (or 
     health insurance coverage offered in connection with such a 
     plan) that provides both medical and surgical benefits and 
     substance abuse treatment benefits, the plan or coverage 
     shall not impose treatment limitations or financial 
     requirements on the substance abuse treatment benefits unless 
     similar limitations or requirements are imposed for medical 
     and surgical benefits.
       ``(b) Construction.--Nothing in this section shall be 
     construed--
       ``(1) as requiring a group health plan (or health insurance 
     coverage offered in connection with such a plan) to provide 
     any substance abuse treatment benefits; or
       ``(2) to prevent a group health plan or a health insurance 
     issuer offering group health insurance coverage from 
     negotiating the level and type of reimbursement with a 
     provider for care provided in accordance with this section.
       ``(c) Exemptions.--
       ``(1) Small employer exemption.--
       ``(A) In general.--This section shall not apply to any 
     group health plan (and group health insurance coverage 
     offered in connection with a group health plan) for any plan 
     year of a small employer.
       ``(B) Small employer.--For purposes of subparagraph (A), 
     the term `small employer' means, in connection with a group 
     health plan with respect to a calendar year and a plan year, 
     an employer who employed an average of at least 2 but not 
     more than 50 employees on business days during the preceding 
     calendar year and who employs at least 2 employees on the 
     first day of the plan year.
       ``(C) Application of certain rules in determination of 
     employer size.--For purposes of this paragraph--
       ``(i) Application of aggregation rule for employers.--Rules 
     similar to the rules under subsections (b), (c), (m), and (o) 
     of section 414 of the Internal Revenue Code of 1986 shall 
     apply for purposes of treating persons as a single employer.
       ``(ii) Employers not in existence in preceding year.--In 
     the case of an employer which was not in existence throughout 
     the preceding calendar year, the determination of whether 
     such employer is a small employer shall be based on the 
     average number of employees that it is reasonably expected 
     such employer will employ on business days in the current 
     calendar year.
       ``(iii) Predecessors.--Any reference in this paragraph to 
     an employer shall include a reference to any predecessor of 
     such employer.
       ``(2) Increased cost exemption.--This section shall not 
     apply with respect to a group health plan (or health 
     insurance coverage offered in connection with a group health 
     plan) if the application of this section to such plan (or to 
     such coverage) results in an increase in the cost under the 
     plan (or for such coverage) of at least 1 percent.
       ``(d) Separate Application to Each Option Offered.--In the 
     case of a group health plan that offers a participant or 
     beneficiary two or more benefit package options under the 
     plan, the requirements of this section shall be applied 
     separately with respect to each such option.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Treatment limitation.--The term `treatment 
     limitation' means, with respect to benefits under a group 
     health plan or health insurance coverage, any day or visit 
     limits imposed on coverage of benefits under the plan or 
     coverage during a period of time.
       ``(2) Financial requirement.--The term `financial 
     requirement' means, with respect to benefits under a group 
     health plan or health insurance coverage, any deductible, 
     coinsurance, or cost-sharing or an annual or lifetime dollar 
     limit imposed with respect to the benefits under the plan or 
     coverage.
       ``(3) Medical or surgical benefits.--The term `medical or 
     surgical benefits' means benefits with respect to medical or 
     surgical services, as defined under the terms of the plan or 
     coverage (as the case may be), but does not include substance 
     abuse treatment benefits.
       ``(4) Substance abuse treatment benefits.--The term 
     `substance abuse treatment benefits' means benefits with 
     respect to substance abuse treatment services.
       ``(5) Substance abuse treatment services.--The term 
     `substance abuse services' means any of the following items 
     and services provided for the treatment of substance abuse:
       ``(A) Inpatient treatment, including detoxification.
       ``(B) Non-hospital residential treatment.
       ``(C) Outpatient treatment, including screening and 
     assessment, medication management, individual, group, and 
     family counseling, and relapse prevention.
       ``(D) Prevention services, including health education and 
     individual and group counseling to encourage the reduction of 
     risk factors for substance abuse.
       ``(6) Substance abuse.--The term `substance abuse' includes 
     chemical dependency.
       ``(f) Sunset.--This section shall not apply to benefits for 
     services furnished on or after September 30, 2002.''.
       (B) Conforming Amendments.--
       (i) Chapter 100 of such Code (as added by section 401 of 
     the Health Insurance Portability and Accountability Act of 
     1996 and as previously amended by this section) is further 
     amended--
       (I) in the last sentence of section 9801(c)(1), by striking 
     ``section 9805(c)'' and inserting ``section 9832(c)'';
       (II) in section 9831(b), by striking ``9805(c)(1)'' and 
     inserting ``9832(c)(1)'';
       (III) in section 9831(c)(1), by striking ``9805(c)(2)'' and 
     inserting ``9832(c)(2)'';
       (IV) in section 9831(c)(2), by striking ``9805(c)(3)'' and 
     inserting ``9832(c)(3)''; and
       (V) in section 9831(c)(3), by striking ``9805(c)(4)'' and 
     inserting ``9832(c)(4)''.
       (ii) Section 4980D of such Code (as added by section 402 of 
     the Health Insurance Portability and Accountability Act of 
     1996) is amended--
       (I) in subsection (c)(3)(B)(i)(I), by striking 
     ``9805(d)(3)'' and inserting ``9832(d)(3)'';
       (II) in subsection (d)(1), by inserting ``(other than a 
     failure attributable to section 9811)'' after ``on any 
     failure'';
       (III) in subsection (d)(3), by striking ``9805'' and 
     inserting ``9832'';
       (IV) in subsection (f)(1), by striking ``9805(a)'' and 
     inserting ``9832(a)''.
       (iii) The table of subtitles for such Code is amended by 
     striking the item relating to subtitle K (as added by section 
     401(b) of the Health Insurance Portability and Accountability 
     Act of 1996) and inserting the following new item:

``Subtitle K. Group health plan requirements.''

       (b) Individual Health Insurance.--(1) Part B of title XXVII 
     of the Public Health Service Act (as added by section 605(a) 
     of the Newborn's and Mother's Health Protection

[[Page S8827]]

     Act of 1996) is amended by inserting after section 2751 the 
     following new section:

     ``SEC. 2752. PARITY IN THE APPLICATION OF TREATMENT 
                   LIMITATIONS AND FINANCIAL REQUIREMENTS TO 
                   SUBSTANCE ABUSE BENEFITS.

       ``(a) In General.--The provisions of section 2706 (other 
     than subsection (e)) shall apply to health insurance coverage 
     offered by a health insurance issuer in the individual market 
     in the same manner as it applies to health insurance coverage 
     offered by a health insurance issuer in connection with a 
     group health plan in the small or large group market.
       ``(b) Notice.--A health insurance issuer under this part 
     shall comply with the notice requirement under section 713(f) 
     of the Employee Retirement Income Security Act of 1974 with 
     respect to the requirements referred to in subsection (a) as 
     if such section applied to such issuer and such issuer were a 
     group health plan.''.
       (2) Section 2762(b)(2) of such Act (42 U.S.C. 300gg-
     62(b)(2)), as added by section 605(b)(3)(B) of Public Law 
     104-204, is amended by striking ``section 2751'' and 
     inserting ``sections 2751 and 2752''.
       (c) Effective Dates.--(1) Subject to paragraph (3), the 
     amendments made by subsection (a) shall apply with respect to 
     group health plans for plan years beginning on or after 
     January 1, 1999.
       (2) The amendment made by subsection (b) shall apply with 
     respect to health insurance coverage offered, sold, issued, 
     renewed, in effect, or operated in the individual market on 
     or after such date.
       (3) In the case of a group health plan maintained pursuant 
     to 1 or more collective bargaining agreements between 
     employee representatives and 1 or more employers ratified 
     before the date of enactment of this Act, the amendments made 
     subsection (a) shall not apply to plan years beginning before 
     the later of--
       (A) the date on which the last collective bargaining 
     agreements relating to the plan terminates (determined 
     without regard to any extension thereof agreed to after the 
     date of enactment of this Act), or
       (B) January 1, 1999.

     For purposes of subparagraph (A), any plan amendment made 
     pursuant to a collective bargaining agreement relating to the 
     plan which amends the plan solely to conform to any 
     requirement added by subsection (a) shall not be treated as a 
     termination of such collective bargaining agreement.
       (d) Coordinated Regulations.--Section 104(1) of Health 
     Insurance Portability and Accountability Act of 1996 is 
     amended by striking ``this subtitle (and the amendments made 
     by this subtitle and section 401)'' and inserting ``the 
     provisions of part 7 of subtitle B of title I of the Employee 
     Retirement Income Security Act of 1974, and the provisions of 
     parts A and C of title XXVII of the Public Health Service 
     Act, and chapter 1000 of the Internal Revenue Code of 1986''.
                                 ______
                                 
      By Mr. D'AMATO:
  S. 1148. A bill to amend title 49, United States Code, to require the 
forfeiture of counterfeit access devises and device-making equipment; 
to the Committee on the Judiciary.


               THE COUNTERFEIT ACCESS DEVICES ACT OF 1997

  Mr. D'AMATO. Mr. President, I rise today to introduce legislation 
which will strike a blow against counterfeiters and other criminals who 
commit cellular telephone fraud and credit card fraud.
  These criminal activities cost their respective industries hundreds 
of millions of dollars annually, and these costs are passed down to 
consumers who use credit cards and cellular telephones. The cellular 
telephone industry alone loses $650 million each year due to 
counterfeit or cloned telephone. The credit card industry faces a 
similar problem.
  The criminals who perpetrate these frauds use specialized equipment 
to clone cell phones and credit cards to create phony copies which can 
be sold on the street or used to rack up thousands of dollars in 
unauthorized credit card purchases and telephone calls. There is no 
legitimate reason for an individual to possess this special equipment 
used to create these phony copies. This equipment is only useful to 
create counterfeit credit cards and cell phones.
  Under current law, this equipment is actually returned to the 
criminal after he serves his sentence. The equipment is frequently used 
again to commit the same crimes over and over. The Government cannot 
confiscate the equipment without a separate expensive and time-
consuming forfeiture proceeding.
  Mr. President, it is preposterous that the Government must return the 
tools used to commit these crimes to criminals, even if they are 
convicted. These criminals are exploiting a loophole in the Federal 
forfeiture laws. My bill will close this loophole.
  My bill would amend title 49 of the United States Code to make this 
equipment, as well as the counterfeit credit cards and telephones 
themselves, contraband. This designation would make it a Federal crime 
to possess these items. My bill would also require that these items 
must not be returned to the criminals.
  Mr. President, these crimes take a tremendous toll on consumers whose 
telephones and credit cards are cloned by this equipment. By the time 
the consumer discovers that his or her telephone or credit card has 
been copied, the criminals usually have racked up thousands of dollars 
in unauthorized charges. This can have a devastating effect on 
consumers' credit ratings, rendering them unable to purchase a car or 
home or start a business. These problems can take years to correct.
  Last Congress, I introduced a similar bill, S. 1380. Unfortunately, 
the session ended before Congress was able to act. However, this bill 
is not without precedent. A similar measure was passed last year 
regarding counterfeit videos and music. These items are now considered 
contraband under the new law. Industry leaders and law enforcement 
authorities enthusiastically support this legislation.
  Mr. President, the Government must stop unwittingly aiding criminals 
to swindle hundreds of millions of dollars at the expense of consumers 
and the cellular telephone and credit card industries. My bill would 
close this outrageous loophole and help law enforcement crack down on 
these brazen criminals.
  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. 1148

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

     SECTION 1. FORFEITURES RELATING TO COUNTERFEIT ACCESS 
                   DEVICES.

       Section 80302(a) of title 49, United States Code, is 
     amended--
       (1) in paragraph (5), by striking ``or'' at the end;
       (2) in paragraph (6), by striking the period at the end and 
     inserting ``; or''; and
       (3) by adding at the end the following:
       ``(7) a counterfeit access device or any device-making 
     equipment (as those terms are defined in section 1029 of 
     title 18).''.
                                 ______
                                 
      By Mr. GRASSLEY (for himself, Mr. Durbin, Mr. Coverdell, Mr. 
        Shelby, and Mr. Kyl):
  S. 1149. A bill to amend title 11, United States Code, to provide for 
increased education funding, and for other purposes; to the Committee 
on the Judiciary.


                the investment in education act of 1997

  Mr. GRASSLEY. Mr. President, I rise today to introduce the Investment 
in Education Act of 1997. This bill will close gaping loopholes in the 
current bankruptcy code which allow companies that declare bankruptcy 
to cheat schools out of badly needed education funds. This bill has the 
support of Senator Durbin, the ranking member on my subcommittee. In an 
effort to work in a truly bipartisan way, I have reached out to the 
administration and have made several changes in the bill to accommodate 
the White House. As of now, I have received very positive signals from 
the administration and I'm optimistic that the administration will come 
out in favor of the bill.
  As we all know, our Nation's educators face difficult challenges 
every day, whether from crumbling facilities or classes that are too 
large because a school district can't afford additional teachers. Money 
won't solve every one of the problems facing our schools. But 
protecting funding for education from losses due to bankruptcies will 
do a great deal of good. That's why I believe that the Congress should 
enact the Investment in Education Act quickly to stem a federally 
created drain on already scarce education resources.
  As President Clinton has said, the era of big Government is over, and 
we have a responsibility in Congress to make certain that Federal 
laws--like the bankruptcy code--do not tie the hands of State and local 
governments. My bill will close bankruptcy law loopholes and provide 
millions of education dollars without raising taxes or spending any 
additional Federal money.
  Under current law, the bankruptcy code allows a Federal judge to 
retroactively lower the assessed value of a bankrupt debtor's 
property--often in

[[Page S8828]]

direct conflict with State laws. And another part of the bankruptcy 
code artificially subordinates local property tax revenues.
  All of this lowers the amount of money available for education since 
education is overwhelmingly dependant on local property tax revenue. In 
fact, there have been instances in which school districts have had to 
refund money they have already received and spent. In this way, the 
bankruptcy code is taking money earmarked for education and spending it 
instead on administrative costs such as lawyers' fees. We need to close 
these loopholes to put kids, and not bankruptcy lawyers, at the top of 
our Nation's priorities.

  During a hearing which I chaired before the Subcommittee on 
Administrative Oversight and the Courts, I found out about a school 
district in Texas that lost enough money in one case to provide 375,000 
meals for needy children. And I heard testimony about a school that 
could not rebuild its kindergarten which had been destroyed by a 
tornado as a result of money lost in a bankruptcy case earmarked for 
the school. In the State of Texas alone, between just a few school 
districts, about $70 million earmarked exclusively for education are 
currently at risk. Because the Administrative Office of the United 
States Courts does not keep comprehensive records on this, we don't 
know how big this problem is. But we know that it's a substantial 
problem. I say let's fix it now.
  The Investment in Education Act will close these bankruptcy loopholes 
so that there will be more money for meals for needy children, more 
money to pay for teachers' salaries, and more money to repair 
dilapidated schools. By passing my bill, we can ensure that our 
schoolchildren get the education dollars they need.
  Finally, section 3 of the Investment in Education Act will be of 
great help to children who are owned back child support. Section 3 of 
the bill will permit children and spouses to go into the exempt assets 
of the bankrupt debtor in order to make sure that unscrupulous 
deadbeats can't get out of paying child support by hiding their assets 
in bankruptcy. I don't think that Congress ought to let the bankruptcy 
code stick it to kids and so my bill corrects that.
  This bill has bipartisan support and has been endorsed by the 
National School Boards Association and the Iowa Association of School 
Boards. And as I mentioned earlier, I am optimistic that the 
administration will come out to support the bill. I know that time may 
be short, but since this bill has bipartisan support, I hope that we 
can pass it quickly. Mr. President, I have several letters supporting 
my bill and several news articles regarding the negative effect of 
bankruptcy on education. I ask that they be entered into the Record and 
that the bill be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 1149

       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 ``Investment in Education Act 
     of 1997''.

     SEC. 2. TREATMENT OF CERTAIN LIENS

       (a) Treatment of Certain Liens.--Section 724 of title 11, 
     United States Code, is amended--
       (1) in subsection (b), in the matter preceding paragraph 
     (1), by inserting ``(other than to the extent that there is a 
     properly perfected unavoidable tax lien arising in connection 
     with an ad valorem tax on real or personal property of the 
     estate)'' after ``under this title''; and
       (2) in subsection (b)(2), after ``507(a)(1)'' and before 
     the comma following thereafter insert ``(except that such 
     expenses, other than claims for wages, salaries or 
     commissions which arise after the filing of a petition, shall 
     be limited to expenses incurred under Chapter 7 of this title 
     and shall not include expenses incurred under Chapter 11 of 
     this title)''; and
       (3) by adding at the end the following:
     ``(e) Before subordinating a tax lien on real or personal 
     property of the estate which has arisen by virtue of state 
     law, the trustee shall--
       ``(1) exhaust the unencumbered assets of the estate; and
       ``(2) in a manner consistent with section 506(c) of this 
     title, recover from property securing an allowed secured 
     claim the reasonable, necessary costs and expenses of 
     preserving or disposing of that property.''.
       ``(f) Notwithstanding the exclusion of ad valorem tax liens 
     set forth in this Section, claims for wages, salaries and 
     commissions entitled to priority under Section 507(a)(3) or 
     claims for contributions to an employee benefit plan entitled 
     to priority under 507(a)(4) may be paid from property of the 
     estate which secures a tax lien, or the proceeds of such 
     property subject to the requirements of Subsection 724(e).''
       (b) Determination of Tax Liability.--Section 505(a)(2) of 
     title 11, United States Code, is amended--
       (1) by striking ``or'' at the end of subparagraph (A);
       (2) by striking the period at the end of subparagraph (B) 
     and inserting ``; or''; and
       (3) by adding at the end the following:
       ``(C) the amount or legality of any amount arising in 
     connection with an ad valorem tax real or personal property 
     of the estate if the applicable period for contesting or 
     redetermining that amount under any law (other than a 
     bankruptcy law) has expired.''.

     SEC. 2. ENFORCEMENT OF CHILD AND SPOUSAL SUPPORT.

       Section 552(c)(1) of title 11, United States Code, is 
     amended by inserting ``provided that, notwithstanding any 
     federal or state law relating to the enforcement of liens or 
     judgments on exempted property, exempt property shall be 
     liable for debts of a kind specified in Section 523(a)(5) of 
     this title,'' at the end of the subsection.
                                                                    ____

                                               Iowa Association of


                                                School Boards,

                                Des Moines, IA, September 2, 1997.
     Hon. Charles E. Grassley,
     U.S. Senator, Hart Senate Office Building, Washington, DC.
       Dear Senator Grassley: I am writing to thank you for 
     introducing and sponsoring ``The Investment in Education Act 
     of 1997''. This important legislation will pump millions of 
     badly-needed dollars into schools by closing loopholes in the 
     federal bankruptcy code which unscrupulous debtors use to 
     avoid paying delinquent property taxes. These delinquent 
     taxes go to fund important education programs such as school 
     lunch programs for needy children and school construction and 
     renovation projects. Thus, a loss of these revenues mean 
     fewer school lunches, school buildings in disrepair and fewer 
     teachers, since property tax revenues also fund teachers' 
     salaries.
       This federally created drain on local revenues intended for 
     education, if not checked in the near future, will obviously 
     have a devastating impact on our ability to provide our 
     children with a quality education. Companies which declare 
     bankruptcy should not be allowed to use federal law to 
     shortchange our children's education.
       With the federal government turning more power over to the 
     states, Congress has the responsibility to remove federal 
     laws--like these bankruptcy loopholes--which tie the hands of 
     local government. ``The Investment in Education Act of 1997'' 
     is a step in that direction. It increases education funding 
     by returning lost revenue to schools instead of raising taxes 
     and without sending local revenues to Washington.
       On behalf of Iowa's 377 school districts, thank you for 
     your leadership in finding a solution to this problem.
           Sincerely,
                                             Ronald M. Rice, E.D.,
     Executive Director.
                                                                    ____

                                                         Office of


                                       Sioux County Treasurer,

                                   Orange City, IA, July 29, 1997.
     U.S. Senator Charles Grassley,
     ATTENTION: John McMickle,
     Senate Hart Building,
     Washington, DC.
       Dear Mr. McMickle: Thank you for taking the time to discuss 
     the issues and concerns regarding bankruptcy and its affect 
     on local taxing bodies here in Iowa.
       I have been following with interest the proposed changes to 
     the Federal Bankruptcy statutes as presented by the National 
     Association of County Treasurers and Finance Officers 
     (NACTFO) and concur with the findings and recommendations in 
     their report. I believe that you have a copy of the report, 
     entitled ``Local Governments Recommendations for Reform of 
     the United States Bankruptcy Code''.
       Following our conversation of July 23, I did send an e-mail 
     message to all County Treasurers in Iowa, requesting 
     information on the affect of bankruptcy on tax collections. 
     To date, I have had a limited response to that request. 
     Approximately ten percent of the treasurers have contacted 
     me. Overall, their indications are that the statutes do not 
     present any big problems in Iowa. The main concern would be 
     the delay in payment of the taxes due.
       An example here in Sioux County is to the point. In the 
     Boyden-Hull School District, $13,457 in taxes remain 
     uncollected due to bankruptcy by two property owners. $7,806 
     of this amount due is to go to the local community school 
     district, if and when collected. These dollars are needed by 
     the local school to keep programs running.
       We have been fortunate in the Iowa Bankruptcy Courts to not 
     have any judges that want to adjust amounts due on our 
     priority claims for taxes. We have usually received the 
     amounts that we file with the courts, although usually 
     without interest due to late payment.
       My reading of the proposed changes indicates that the 
     judges would not have the latitude to change amounts due, 
     nationwide, and that would serve us well. Both of the

[[Page S8829]]

     cases affecting the Boyden-Hull School District are filed 
     outside of Iowa and we are at the mercy of the local 
     bankruptcy judges on collection.
       Thank you for your interest in the affect of this 
     legislation at the local level. If I may answer any further 
     questions that you or the Senator would have, please contact 
     me.
           Sincerely,
                                                  Robert R. Hagey,
     Treasurer.
                                                                    ____



                                         Polk County Attorney,

                                    Des Moines, IA, July 31, 1997.
     Senator Charles E. Grassley,
     Chairman, U.S. Senate Committee on the Judiciary, 
         Subcommittee on Administrative Oversight and the Courts, 
         Hart Senate Office Building, Washington, DC.
       Dear Senator Grassley: John McMickle of your office was 
     kind enough to send me a copy of your proposed ``Investment 
     in Education Act of 1997'', amending sections 724(b) and 
     505(a) of the Bankruptcy Code. I do not practice regularly in 
     Bankruptcy and so may not be as qualified to comment as many 
     of the people you will be hearing from, but I do represent 
     Iowa's largest county in its attempts to collect overdue 
     property taxes in those situations where Bankruptcy Court 
     involvement is unavoidable. I would strongly support your 
     attempt to reduce the impact on local governments of the 
     Bankruptcy Code's artificial lien priority shifting and pre-
     emption of state law.
       As you know, because of Iowa's consolidated tax system, a 
     County is responsible for collecting taxes not only for 
     itself but for the cities, school districts and other public 
     bodies in the jurisdiction. The Treasurer is an involuntary 
     creditor. He or she cannot evaluate and react to lending 
     risks the way a normal creditor can. The Treasurer cannot 
     police the debt or collateral or take additional steps to 
     protect the County when a debtor is in trouble. Taxes are 
     limited, so the County cannot build a reserve fund if it sees 
     danger ahead. It is difficult to reduce general relief or 
     quit collecting garbage or layoff teachers when economic 
     conditions result in delayed tax collections. That is often 
     when people look to government for additional assistance.
       In Iowa, state law requires a wait of 21 months or more 
     after a missed September local tax payment before property 
     can be taken to pay the tax debt. This is reasonable 
     protection for property owners who may be in trouble. 
     Government is, after all, a service, not a business trying to 
     make money off of the debt. Our procedure does, however, 
     often result in local taxes being put off while other more 
     aggressive creditors are paid. To then allow these creditors 
     priority over local taxes, as the present section 724(b) does 
     in many instances, seems eminently unfair. These junior 
     lienholders were aware of tax priorities at the time they 
     took their liens and to allow them to jump over local 
     government seems, to me, to be a pure windfall. Your bill 
     would correct this by keeping everyone in the same lineup to 
     which they originally agreed.
       We have had particular problems dealing with out of state 
     bankruptcies involving Iowa properties but courts which do 
     not understand the Iowa tax system and the fact that property 
     is valued for tax purposes twenty-one months ahead of the 
     first payment based on that value. We have often lost 
     moderate payments simply because we cannot fly off to another 
     state or hire a lawyer there to explain our case. Your 
     proposal to reduce the impact of section 724(b) would also 
     indirectly, but greatly, benefit Iowa local governments in 
     this regard.
       Finally, as to your proposal to limit the retroactive 
     impact of section 505(a), I can only say that in my own 
     experience I have found this section to be used primarily as 
     a negotiating tool by debtor and junior creditor lawyers in 
     Chapter 11 cases, who use the threat of redetermination to 
     browbeat the County into compromising taxes to provide a 
     larger income stream for junior lienholders. I strongly 
     support your bill's effort to limit the impact of this 
     section on local government as well.
       Thank you for your consideration and good luck in 
     convincing your associates of the desirability of your 
     proposals.
           Very Truly Yours,
                                               Michael J. O'Keefe,
     Assistant Polk County Attorney.
                                                                    ____


  Schools Turn To Income Tax--Most Districts Already Charge An Income 
                  Surtax. Should Des Moines Join Them?

       Iowa school districts increasingly are turning to a new 
     tax--an income surtax--to supplement the property taxes and 
     state aid they've long relied on.
       A movement is under way for Des Moines to join the trend.
       The school-district income surtax may not be familiar 
     everywhere. It has not been used by the schools in most of 
     Iowa's largest cities, but 204 of the state's 379 school 
     districts now use it to raise extra money for education.
       It's a simple concept that can raise a lot of cash for 
     classroom programs, new school buses, asbestos abatement, 
     routine maintenance, and remodeling. It works this way: A 
     school district approves a levy(ies) for one or more of those 
     purposes, either by a vote of the school board or citizens, 
     and designates the income surtax as a source of revenue.
       Each person in the district who pays state income taxes is 
     then charged an additional amount to meet that obligation--up 
     to 20 percent of his or her state income-tax bill. On a state 
     tax bill of $200, at the maximum 20 percent rate, you'd send 
     the state an extra $40 to be returned to your school 
     district. (Counties may also use the income surtax for 
     emergency medical services. Taxpayers who live where both 
     their school district and county have an income surtax don't 
     pay more than 20 percent combined.)
       Think of the income surtax as a tip-automatically tacked 
     onto a restaurant tab, and districts have been increasingly 
     hungry for it.
       Why? Growing pressure on their budgets, including higher 
     expectations in general, more low-income students who need 
     help to succeed and aging buildings that need to be renovated 
     or replaced.
       Iowa law first allowed use of the income surtax for school 
     districts in 1972, under restricted circumstances. Use of the 
     income surtax increased after lawmakers OK'd an ``enrichment 
     levy'' in 1975, which let school districts spend extra local 
     money on educational improvement through either the income 
     surtax, property taxes or both. But the explosion in the 
     number of districts with an income surtax came when the 
     ``instructional support levy'' replaced the enrichment levy 
     in 1991, with state money part of the bargain.
       From Ackley-Geneva to Woodbury Central--and in districts 
     like Ames, Decorah and Sioux City--the income surtax raised a 
     total of $27.2 million statewide for the 1996-97 school year 
     that ended June 30. That compares to $1.9 million just 10 
     years earlier. Of that $27.2 million, $24.6 million went to 
     the instructional support levy (which also got $43.3 million 
     in property taxes and $14.8 million in state money, with the 
     state paying less now than it originally promised).
       The income surtax raised another $72,000 for the 
     educational improvement levy, a one-time opportunity for 
     school districts to boost their budgets that could be put in 
     place only in the 1991-92 school year and continued until 
     rescinded by the school board. (Just four districts have it). 
     The income surtax raised nothing in 1996-97 for the asbestos 
     levy. It raised $2.5 million for the physical plant and 
     equipment levy.
       Who has the income surtax? Rural school districts 
     predominantly, where the push for it began as a way to reduce 
     reliance on property taxes and keep school budgets healthy, 
     although plenty of cities participate. Iowa City, for 
     example, raised the most--$2.6 million--this past school year 
     for the instructional support levy. In the immediate Des 
     Moines area, only the Bondurant-Farrar, Southeast Polk and 
     North Polk school districts have the income surtax.
       The surtax has been proposed for the Des Moines school 
     district as a means to move ahead the $315 million Vision 
     2005 plan for updating its 63 buildings.
       Residents of the Des Moines district paid $124.5 million in 
     state income tax in 1996. Based on that year's incomes, each 
     1 percent of surtax would bring in about $1.2 million for the 
     school district. The talk is of needing nearly $12 million 
     annually from the surtax, which would require nearly a 10 
     percent rate.
       Part of the appeal of the income surtax is that it spreads 
     the tax burden more equitably than property taxes or sales 
     taxes, and businesses are likely to support it since they 
     don't pay it. Part of the drawback is that it stands to 
     increase the differences in tax burdens among local school 
     districts, perhaps putting Des Moines at a further 
     competitive tax disadvantage.
       Somehow Des Moines has to settle on a way to come up with 
     money it needs for its schools, and a tax increase of some 
     sort is inevitable.
       Whether that ought to include the income surtax needs a 
     careful look, one taken knowing that many other Iowa 
     communities have found that it works for them.
                                                                    ____


                   [School Board News, Aug. 19, 1997]

                  Schools Lose When Firms Go Bankrupt

       Your school system might be missing out on thousands of 
     dollars every year because corporations involved in 
     bankruptcy proceedings are able to get their tax obligations 
     cut.
       The Dallas public school system, for example, is losing 
     $450,000 during the current year, due to a federal law that 
     makes it virtually impossible for school districts to collect 
     tax revenue from businesses that have declared bankruptcy.
       Accordingly to Dallas Superintendent Yvonne Gonzalez, the 
     district could have used this money to hire 15 extra teachers 
     to reduce class sizes or provide $150 in school supplies for 
     more than 3,000 teachers. ``We anticipate an equal or greater 
     loss each year for the foreseeable future,'' she says.
       That's because Dallas, like most local school districts 
     across the nation, depends heavily on ad valorem taxes, which 
     are assessed on businesses and individuals based on the value 
     of property.
       When businesses declare bankruptcy, however, school 
     districts and other local governments tend to be last in line 
     to collect the back taxes owed by property owners. Lawyers 
     and banks holding mortgage liens are paid first. As a result, 
     schools often never see the money they are owed, and in some 
     cases, are required to refund taxes already received.
       NSBA supports federal legislation to correct this problem. 
     The Investment in Education Act would amend the federal 
     bankruptcy code to increase local revenues derived from 
     property taxes.
       The Senate Judiciary Committee's Subcommittee on 
     Administrative Oversight and

[[Page S8830]]

     the Courts held a hearing on the bill Aug. 1. The bipartisan 
     measure will be formally introduced in September by 
     subcommittee chair Charles E. Grassley (R-Iowa) and Sen. 
     Richard J. Durbin (D-III).
       A description of the bill prepared by Sen. Grassley's 
     office notes that ``virtually every state has experienced 
     some revenue shortfall'' in school funding, due to two 
     provisions in the bankruptcy code. The issue has been getting 
     a lot of attention in Texas lately, however, because the 
     state experienced so many real estate bankruptcies in the 
     early 1990s.
       Elizabeth Weller of the Dallas law firm Blair, Goggan, 
     Sampson and Meeks notes that the Houston school district lost 
     $1 million in a single case. Weller, who represents some 200 
     clients on this issue, a third of whom are Texas school 
     districts, adds that in the past few years, the Fort Worth 
     Independent School District (ISD) lost more than $480,000 in 
     a total of four cases; the Dallas ISD lost nearly $450,000 in 
     six cases; and the Lake Worth ISD $357,000 in a single case.
       Section 505(a) of the bankruptcy code gives bankruptcy 
     judges broad power to overrule property valuation decisions. 
     This means a judge can decide to reduce a business's tax 
     burden to ensure that the company's debtors can receive more 
     of what they are owed.
       Debtors often seek to have the taxable value of property 
     reduced for as much as 10 years before the bankruptcy filing 
     and request a refund of taxes already paid. Current law 
     allows judges to approve these requests.
       The bill would amend Section 505(a) to permit a bankruptcy 
     court to reverse a property valuation decision only when the 
     bankruptcy debtor has the right to challenge such a decision 
     under applicable nonbankruptcy law.
       Section 724(b) requires that most other claims on a 
     bankruptcy estate be paid before ad valorem liabilities. 
     Thus, various expenses, including lawyers' fees, are paid 
     before and at the expense of tax liabilities, eventually 
     forcing local jurisdictions to accept much less in delinquent 
     back taxes than they would otherwise be entitled to receive--
     if they receive anything at all.
       The bill would amend Section 724(b) to provide that ad 
     valorem taxes protected by liens are paid ahead of other 
     expenses, increasing the likelihood that local jurisdictions 
     receive the same revenues they would have received if the 
     company didn't file bankruptcy.
       ``My clients are sympathetic to wage claimants and others 
     holding priority claims'' under the bankruptcy code, Weller 
     says. They are citizens that serve and protect,'' she says. 
     School districts are not asking for a special priority; 
     they just want to be treated like any other creditor.
       Weller says there's been ``definitely a lot more cases'' on 
     this issue in the past few years, even though there hasn't 
     been an increase in corporate bankruptcies as there has among 
     individuals. What has changed in that ``corporate attorneys 
     have become more aware of how they can use the law to avoid 
     paying taxes.''
       One of several examples cited by Weller involves the 
     bankruptcy of Merchants Fast Motor Lines. Taxes secured by 
     liens on personal property were reduced by a bankruptcy 
     court's application of Sections 505(a) and 724(b).
       That resulted in five county governments, three city 
     governments, and the school districts of Dallas, Houston, and 
     Irving losing a total of more than $70,890. The taxing 
     entities face the threat of additional tax losses when the 
     properties are sold.
       In some cases, a bank holding the mortgage on a property 
     demands that the seller declare bankruptcy so the taxes will 
     be reduced, thus increasing its profits from the sale.
       That's what happened to the Hurst Euless Bedford 
     Independent School District in Texas, which filed suit in 
     state court in May 1992 to collect delinquent taxes for a 
     company for 1989 and 1990.
       The day before the case was set to go to trial, the debtor 
     filed bankruptcy, attorney Barbara M. Williams said at the 
     hearing. The company succeeded in getting the taxes reduced 
     for 1989 and 1990, even though the debtor did not foreclose 
     upon the property until 1991. The property value was reduced 
     more than $1.5 million, and the school district lost more 
     than $61,000 in tax revenue. The debtor then filed a motion 
     to dismiss the bankruptcy.
       A single bankruptcy can have a major impact on a small 
     school district. For example, when the Lancaster, Texas, 
     school district was involved in a legal battle over the 
     bankruptcy and foreclosure of a country and western bar, it 
     succeeded in obtaining $150,000 in back taxes, Weller notes. 
     That money was enough to restore kindergarten for the 
     district's schoolchildren, which had been eliminated when the 
     school suffered severe tornado damage.
                                                                    ____



                        Lancaster Independent School District,

                                     Lancaster, TX, July 28, 1997.
     Senator Charles E. Grassley,
     Senate Judiciary Committee,
     SH-325 Hart Senate Office Building,
     Washington, DC.
     RE: Proposed Changes to Bankruptcy Code Sec. Sec. 724(b) and 
         505.
       Dear Senator Grassley: I am very pleased to write this 
     letter in support of your efforts to modify the Bankruptcy 
     Code to make revenue recovery easier for local governments. 
     As a small suburban school district, the Lancaster 
     Independent School District has felt the effects of debtors 
     using bankruptcy as a way to avoid paying ad valorem taxes. 
     In one particular case, a debtor avoided payment of taxes for 
     almost ten years before the tax-laden property was sold 
     through a bankruptcy plan to a new owner who paid the taxes. 
     As a result of this account being resolved, the School 
     District collected more than $130,000 and was able to fund 
     fullday kindergarten. I am attaching an article from our 
     local newspaper that describes the importance of the payment 
     of this account.
       Although the example I have given would not have been 
     specifically affected by your proposed changes to the 
     Bankruptcy Code, it represents the types of issues facing 
     local governments who cannot collect essential revenue 
     because of abuses of the bankruptcy process by property 
     owners. In our case, the issue was much more than a matter of 
     an individual paying his fair share of taxes. For Lancaster 
     ISD, this was a matter of whether or not we could provide 
     essential public services.
       Thank you very much for your actions on behalf of local 
     governments. Please let me know if I can provide any 
     additional assistance in this effort.
           Sincerely,
                                                        Bill Ward,
     Superintendent.
                                                                    ____


                    [Today Lancaster, Aug. 10, 1997]

      Money in the Bank--LISD Receives Biggest Back Taxes Payment

                            (By Chuck Bloom)

       Gary Faunce is a happy man. Happier than usual.
       The Lancaster school district top finance man is breathing 
     a little easier with an infusion of more than $133,000 in 
     back taxes paid by the LISD's most notorious delinquent 
     account.
       Bear Creek/GID II, representing the Crystal Chandelier, 
     delivered payment of $133,377 July 24 to the district's tax 
     attorneys, Blair, Coggan, Sampson and Meeks, closing out a 
     ``difficult chapter'' in the district's financial life, 
     Faunce said.
       ``This helps us make next year's budget and it certainly 
     lifted us through this year's budget.'' he said. ``It has 
     been very helpful to fund a few programs.''
       Faunce said much of the funds would be earmarked to cover 
     the cost of full-day kindergarten in the LISD, which begins 
     this Monday for all 5-year-olds.
       The Crystal Chandelier, located at Bear Creek Road and I-
     35, was purchased by John Drain earlier this year, and worked 
     with BGSM to resolve the delinquent tax problem.
       ``With the property in the hands of a new owner, we are 
     hopeful that it will remain off the delinquent tax roll,'' 
     said Nancy Primeaux, BGSM regional manager. She said her firm 
     would monitor the GID account ``to ensure the property's 
     prior history is not repeated.''
       In addition, the district received $6,915 from Jordan 
     Tractor and Marine, plus payment on five other accounts, 
     Primeaux said.
       Needham Carpets, which is subject to seizure activity, had 
     its bankruptcy filing dismissed ``with prejudice'' by the 
     Bankruptcy Court. The ruling prevents Needham from filing for 
     bankruptcy for the next 12 months, and BGSM can proceed with 
     its litigation and seizure efforts.
       The LISD has been working under an extremely tight 
     financial cloud, due in part to the large amount of back 
     taxes owed.
                                                                    ____

                                                    North Carolina


                                     League of Municipalities,

                                                  August 14, 1997.
     Hon. Lauch Faircloth,
     317 Hart Senate Office Building,
     Washington, DC.
       Dear Senator Faircloth: We are aware of proposed amendments 
     to the Bankruptcy Code that will ensure better local tax 
     collection and administration when a taxpayer files for 
     bankruptcy. We support these amendments, included in Senator 
     Grassley's Investment in Education Act of 1997, that amend 
     Sections 724 and 505(a)(2) of Title 11 of the US Code.
       The amendment to Section 724 will prevent the property tax 
     lien from being subordinated to other liens when property is 
     sold free and clear of liens during bankruptcy. This is 
     already the case under North Carolina law, as has been held 
     and affirmed by our courts, if the tax collector reads the 
     notice carefully enough to understand there is to be a sale 
     free and clear of liens and if the collector knows to contact 
     the city or county attorney and request that an objection be 
     filed to the sale.
       Under existing Section 505, a bankruptcy court can 
     redetermine the value of property for tax purposes and 
     recompute the tax owed, if the debtor had not appealed the 
     value to the Board of Equalization and Review, and this is 
     true even though the time for making an appeal to the Board 
     has expired. This has happened in several cases in North 
     Carolina, and the taxes were always recomputed downward. The 
     proposed amendment to Section 505 prohibits a bankruptcy 
     court from making this reassessment if the time for making an 
     appeal under state law has expired.
       We appreciate your consideration and, in the interest of 
     more equitable property tax collection and administration, we 
     feel these are good amendments and would request your 
     support. Would you please share your position on the 
     amendments?
           Sincerely yours,
     Terry A. Henderson,

[[Page S8831]]

       Director of Advocacy.
     S. Ellis Hankins,
       Executive Director.
                                                                    ____

         The Office of Salt Lake County Attorney, Douglas R. 
           Short, County Attorney,
                                                    July 29, 1997.
     Attn: John McMickle.
     Re amendments to 11 U.S.C. Sec. 505 and 724(b).
     Hon. Charles Grassley,
     U.S. Senator, Subcommittee on Administrative Oversight and 
         the Courts, 308 Senate Hart Office Building, Washington, 
         DC.
       Dear Senator Grassley: Salt Lake County's tax revenue, 
     including those of the several school districts located 
     within the county, has been adversely affected by 11 U.S.C. 
     Sec. Sec. 724(b) and 505. Both provisions discriminate 
     unfairly against governmental entities and take needed 
     governmental and school revenue and shift it to other 
     creditors of the estate.
       For example, because 11 U.S.C. Sec. 505 permits the 
     bankruptcy court to redetermine the value of property for tax 
     purposes, Salt Lake County and schools have lost substantial 
     tax revenue because debtors have been permitted to challenge 
     assessments without the necessity of complying with state 
     law.
       In one chapter 11 proceeding Salt Lake County and the 
     school districts lost $61,800 due to the provisions of 11 
     U.S.C. Sec. 505. In another chapter 11 proceeding the debtor 
     attempted to obtain a refund of taxes paid three years prior 
     to the bankruptcy filing and one post-petition year totaling 
     approximately $80,000. The county settled after the trustee 
     agreed to drop his pre-petition refund but lost approximately 
     $18,000 which the Trustee would not have been entitled to 
     under state law. Further, in 1996 the county and school 
     districts lost another $13,500 in a chapter 7 proceeding 
     because of section 505 jurisdiction. The above actions could 
     not have been brought had state law applied.
       Title 11, U.S.C., Sec. 724(b) is often used in this 
     jurisdiction to take county and school district tax money and 
     shift it to administrative expense and other priority 
     claimants. It should be eliminated or limited to federal 
     statutory liens. It is evident from the legislative history 
     of Sec. 724 and its predecessors that Congress never 
     contemplated the impacts of shifting local property tax 
     revenue away from schools and local governments, which 
     provide police and fire protection and other essential 
     services to estate property, to other creditors such as 
     chapter 11 administrative expense claimants and lienholders 
     junior to the tax liens.
       Thank you for considering the foregoing issues. 
     Unfortunately we are not able to present this in person. 
     However, your assistance is appreciated.
           Sincerely,

                                             Mary Ellen Sloan,

                                 Deputy Salt Lake County Attorney,
     Civil Division.
                                                                    ____



                          Treasurers' Association of Virginia,

                                                    July 29, 1997.
     Re Investment in Education Act of 1997.
     U.S. Senator Charles Grassley,
     Senate Hart Office Building,
     Washington, DC.
       Dear Senator Grassley: I am writing on behalf of the 
     Treasurers' Association of Virginia to express our support 
     for the Investment in Education Act of 1997. The membership 
     of the Treasurers' Association consists of over 180 county, 
     city and town treasurers throughout the Commonwealth of 
     Virginia. In Virginia, the local treasurer is responsible for 
     the receipt and collection, safekeeping and investing, 
     accounting and disbursement of local government revenue.
       Of primary importance to our members is the retention of an 
     effective ad valorem tax lien on real property. This lien is 
     paramount to all other debts under Virginia law. In giving 
     this lien the ultimate priority, the Virginia legislature 
     recognized the importance of real property taxes to Virginia 
     localities. Real property taxes are an indispensable method 
     of funding government functions including schools, police and 
     fire protection, sanitation and other essential government 
     services. Under the current bankruptcy scheme, however, this 
     first priority lien can be negated by a bankruptcy trustee 
     acting pursuant to Sec. 724(b).
       The legislation which you have proposed would rectify this 
     anomaly of the Bankruptcy Code. This legislation would exempt 
     a ``properly perfected unavoidable tax lien arising in 
     connection with an ad valorem tax on real or personal 
     property . . .'' from the scope of Sec. 724(b). This 
     amendment is consistent with the original legislative history 
     of this subsection, and reflects the primary importance of ad 
     valorem taxes and tax liens in the operations of local 
     government.
           Sincerely,
                                                   Kevin R. Appel,
     Counsel.

                          ____________________