[Congressional Record Volume 144, Number 2 (Wednesday, January 28, 1998)]
[Senate]
[Pages S173-S179]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ROBB:

  S. 1582. A bill to provide market transition assistance for quota 
holders, active tobacco producers, and tobacco-growing counties, to 
authorize a private Tobacco Production Control Corporation and tobacco 
loan associations to control the production and marketing and ensure 
the quality of tobacco in the United States, and for other purposes; to 
the Committee on Agriculture, Nutrition, and Forestry.


                   THE TOBACCO MARKET TRANSITION ACT

  Mr. ROBB. Mr. President, on behalf of many tobacco growers with whom 
I have worked, I rise today to introduce the Tobacco Market Transition 
Act. The comprehensive tobacco settlement announced on June 20 of last 
year simply did not include provisions for tobacco growers. This 
provision is designed to fill that void.
  This legislation is truly the result of a grassroots effort and 
elaborates the concepts I discussed in the Chamber on November 3. 
Tobacco-dependent regions realize that their lives will be directly 
affected by comprehensive tobacco legislation and they want to prepare 
for that future.
  Key members of my staff and I have worked with tobacco growers, 
leaders in tobacco growing communities and members of the public health 
community to develop legislation which will provide a soft landing to 
those regions that have so long depended on the production of tobacco.
  In short, because Government action is about to erode the value of 
quota, there would be a buyout of existing quota at $8 a pound. A 
privatized tobacco program limiting supply would be reinstituted, 
providing growers with a license to grow tobacco based on historical 
average production for that grower. To provide long-term economic 
security in tobacco communities, $250 million will be provided annually 
for economic development. Finally, a transition payment would be 
offered to growers as the system changes from its present form to a new 
one.
  Tobacco quota, Mr. President, represents the amount of tobacco 
allowed to be produced domestically. Over the years, individuals have 
accumulated the right to grow a certain proportion of that total quota. 
This individual quota, this right to produce, has liquid value that can 
be bought or sold or leased. Many have acquired quota over the years 
and planned to retire or in some cases have retired on the funds 
received from selling or leasing quota. When the Government depresses 
demand for tobacco, it depresses the value of that asset.
  The legislation I am introducing recognizes the value of that quota 
asset by paying quota holders $8 a pound for the quota they own over 5 
years. Once the quota holder has been made whole, a new supply-limiting 
program would be instituted giving licenses to grow tobacco to actual 
producers of tobacco. Unlike the present system, those licenses would 
not cost money to acquire. Eliminating the crushing cost of quota, 
which adds 40 cents a pound to the cost of producing flue-cured 
tobacco, will allow these growers to become more competitive even as 
demand declines in the United States as a result of any comprehensive 
bill that we pass. By becoming more competitive with imported tobacco, 
U.S. growers could keep the demand for their

[[Page S174]]

product from declining as steeply as demand for cigarettes and other 
finished products if we pass comprehensive legislation.
  The legislation also provides a transition payment for existing 
tobacco producers as we move into the new system and provides $250 
million annually to tobacco-growing communities for economic 
development. These economic development funds can be used for local 
communities to improve education, enhance transportation, promote small 
business incubators or develop high technology infrastructure. In 
short, these economic development funds will help keep these 
communities from exporting their most valuable asset, and that is their 
children.
  Finally, this proposal recognizes the benefits of a supply-limiting 
program for tobacco. A supply-limiting program is absolutely essential 
to stabilize the income of tobacco farmers and to protect tobacco-
growing communities from the utter destruction that would follow if the 
program is totally eliminated.
  A supply-limiting program is also appropriate in the unique 
circumstance of tobacco. Unlike other commodities where we are trying 
to lower the cost to consumers, pending Federal legislation is designed 
to do just the opposite. Every comprehensive tobacco proposal I have 
seen would increase the cost of tobacco products to lower demand. 
Indeed, the President said last night that he would approve something 
up to $1.50 a pack.
  There has been much healthy discussion in tobacco growing communities 
about whether to retain the current Federal tobacco program or to avoid 
the annual battles that threaten it and privatize the program, allowing 
growers and others to operate it.
  This is an important debate. The Federal program has served tobacco-
growing communities well for over 60 years, and it is my judgment--and 
the judgment of many, many with whom I have consulted--that it should 
not be dismantled cavalierly.
  The question we face is how best to maintain a supply-limiting 
program that protects tobacco communities. If we could guarantee that 
the Federal program would remain intact for the next 25 years, that may 
be the best way to proceed. But I have detected a great deal of unease 
about whether we can keep the program, and I think many on both sides 
of this issue are growing tired of annual fights which, if we lose, 
will destroy many tobacco-growing regions.
  That is why this legislation contains provisions to privatize the 
tobacco program. For those who have questions about how this program 
will work, I invite them to assist in answering those questions and 
improving this legislation. For those who are nervous about such a 
change, I can say I appreciate their apprehension. It is easier to 
understand the world as it is rather than how it could be. But I 
believe this offers us the best opportunity to retain a supply-limiting 
program over the long term.
  I look forward to working with my colleagues to pass legislation that 
will protect the communities that will be devastated if we fail to act, 
and will, in the words of the President, make growers and their 
communities ``whole.''
  I ask unanimous consent that the full text of the legislation as well 
as the section-by-section summary be printed in the Record following my 
remarks.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  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. 1582

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

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Tobacco 
     Market Transition Act''.
       (b) Table of Contents.--The table of contents of this Act 
     is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Definitions.
Sec. 3. Purposes.

          Title I--Tobacco Community Revitalization Trust Fund

Sec. 101. Tobacco Community Revitalization Trust Fund.

             Title II--Tobacco Market Transition Assistance

Sec. 201. Compensation to quota holders for loss of tobacco quota asset 
              value.
Sec. 202. Transition payments for active tobacco producers.
Sec. 203. Tobacco loan associations.
Sec. 204 Tobacco community economic development grants.
Sec. 205. Tax treatment of compensation and transition payments.

 Title III--Establishment of Private Tobacco Production Adjustment and 
                       Quality Assurance Programs

Sec. 301. Tobacco Production Control Corporation.
Sec. 302. Tobacco loan associations.
Sec. 303. Tobacco price support levels.
Sec. 304. Penalties.
Sec. 305. Referenda.

     SEC. 2. DEFINITIONS.

       In this Act:
       (1) Active tobacco producer.--The term ``active tobacco 
     producer'' means a person that--
       (A) is the actual producer, as determined by the Secretary, 
     of tobacco on a farm where tobacco is produced pursuant to a 
     tobacco farm marketing quota or farm acreage allotment 
     established under the Agricultural Adjustment Act of 1938 (7 
     U.S.C. 1281 et seq.) for the 1997 crop year; and
       (B) planted the crop, or is considered to have planted the 
     crop under that Act, in 1997.
       (2) Quota holder.--The term ``quota holder'' means an owner 
     of a farm on January 1, 1998 for which a tobacco farm 
     marketing quota or farm acreage allotment was established 
     under the Agricultural Adjustment Act of 1938 (7 U.S.C. 1281 
     et seq.).
       (3) Secretary.--The term ``Secretary'' means the Secretary 
     of Agriculture.
       (4) Tobacco loan association.--The term ``Association'' 
     means a producer-owned cooperative marketing association.
       (5) Tobacco production control corporation.--The term 
     ``Corporation'' means the Tobacco Production Control 
     Corporation established by section 301.
       (6) Trust fund.--The term ``Trust Fund'' means the Tobacco 
     Community Revitalization Trust Fund established by section 
     101.

     SEC. 3. PURPOSES.

       It is the purpose of this Act to--
       (1) dismantle the existing federal tobacco program and 
     establish a private program to ensure the stability of the 
     price and supply of domestically produced tobacco;
       (2) compensate quota holders for the value of assets that 
     may be diminished as a result of this legislation;
       (3) provide targeted economic development funds to tobacco 
     dependent communities for the creation of jobs, training of 
     individuals, and long-term economic development of the 
     communities;
       (4) reduce the operating costs of tobacco producers by 
     eliminating expenses associated with buying or leasing 
     tobacco quota; and
       (5) make domestically produced tobacco more competitive 
     with tobacco produced in other countries.

          TITLE I--TOBACCO COMMUNITY REVITALIZATION TRUST FUND

     SEC. 101. TOBACCO COMMUNITY REVITALIZATION TRUST FUND.

       (a) In General.--There is established in the Treasury of 
     the United States a trust fund to be known as the ``Tobacco 
     Community Revitalization Trust Fund'', consisting of such 
     amounts as may be appropriated or credited to the Trust Fund. 
     The Trust Fund shall be administered by the Corporation.
       (b) Transfers to Trust Fund.--There are appropriated and 
     transferred to the Trust Fund, from amounts made available to 
     the Trust Fund out of funds allocated through national 
     tobacco settlement legislation, $3,500,000,000 for each of 
     fiscal years 1999 through 2003 and $265,000,000 for each of 
     fiscal years 2004 through 2023.
       (c) Repayable Advances.--
       (1) Authorization.--There are authorized to be appropriated 
     to the Trust Fund, as repayable advances, such sums as may 
     from time to time be necessary to make expenditures under 
     subsection (d).
       (2) Repayment with interest.--Repayable advances made to 
     the Trust Fund shall be repaid, and interest on the advances 
     shall be paid, to the general fund of the Treasury when the 
     Secretary of the Treasury determines that moneys are 
     available in the Trust Fund to make the payments.
       (3) Rate of interest.--Interest on an advance made under 
     this subsection shall be at a rate determined by the 
     Secretary of Treasury (as of the close of the calendar month 
     preceding the month in which the advance is made) that is 
     equal to the current average market yield on outstanding 
     marketable obligations of the United States with remaining 
     period to maturity comparable to the anticipated period 
     during which the advance will be outstanding.
       (d) Expenditures From Trust Fund.--Amounts in the Trust 
     Fund shall be available for making expenditures to defray--
       (1) the costs of providing compensation to quota holders 
     for the loss of tobacco quota asset value under section 201;
       (2) the costs of making transition payments to active 
     tobacco producers under section 202;
       (3) the costs of forgiving loans and transferring title to 
     inventories of tobacco and funds to Associations under 
     section 203;
       (4) the costs of making tobacco community economic 
     development grants under section 204, but not to exceed 
     $250,000,000 for each of fiscal years 1999 through 2003 and 
     an amount

[[Page S175]]

     determined by the Corporation to be appropriate for each of 
     fiscal years 2004 through 2023;
       (5) the costs of carrying out the duties of the Corporation 
     and the Associations, including assuring the quality and 
     controlling the production and marketing of domestic tobacco 
     and otherwise carrying out title III;
       (6) the costs to the Secretary of enforcing title III;
       (7) the costs of providing crop insurance to tobacco 
     producers; and
       (8) any other costs incurred by the Department of 
     Agriculture associated with tobacco.

             TITLE II--TOBACCO MARKET TRANSITION ASSISTANCE

     SEC. 201. COMPENSATION TO QUOTA HOLDERS FOR LOSS OF TOBACCO 
                   QUOTA ASSET VALUE.

       (a) In General.--The Corporation shall make payments for 
     tobacco quota to eligible quota holders.
       (b) Eligibility.--To be eligible to receive payments under 
     this section, a quota holder shall prepare and submit to the 
     Corporation an application at such time, in such manner, and 
     containing such information as the Corporation may require, 
     including information sufficient to demonstrate to the 
     satisfaction of the Corporation that the person was a quota 
     holder on January 1, 1998.
       (c) Base Quota Level.--
       (1) In general.--The Secretary shall determine, for each 
     quota holder, the base quota level for the 1995 through 1997 
     marketing years.
       (2) Level.--The base quota level for a quota holder shall 
     be equal to the average tobacco farm marketing quota 
     established for the 1995 through 1997 marketing years for the 
     farm owned by the quota holder on January 1, 1998.
       (3) Marketing quotas other than poundage quotas.--For each 
     kind of tobacco for which there is a marketing quota or 
     allotment (on an acreage basis), the base quota level for 
     each quota holder shall be determined in accordance with this 
     subsection (based on a poundage conversion) in an amount 
     equal to the product obtained by multiplying--
       (A) the average tobacco farm marketing quota or allotment 
     for the 1995 through 1997 marketing years; by
       (B) the average county yield per acre for the county in 
     which the farm is located for the kind of tobacco for the 
     marketing years.
       (d) Payments.--The Corporation shall make payments to each 
     quota holder that is eligible under subsection (b) in 5 equal 
     installments, 1 for each of the 1999 through 2003 crops of 
     tobacco, in an aggregate amount that is equal to the product 
     obtained by multiplying--
       (1) $8 per pound; by
       (2) the base quota level established for the quota holder 
     under subsection (c).

     SEC. 202. TRANSITION PAYMENTS FOR ACTIVE TOBACCO PRODUCERS.

       (a) In General.--The Corporation shall make transition 
     payments to eligible active tobacco producers.
       (b) Eligibility.--To be eligible to receive payments under 
     this section, an active tobacco producer shall--
       (1) prepare and submit to the Corporation an application at 
     such time, in such manner, and containing such information as 
     the Corporation may require, including information sufficient 
     to make the demonstration required under paragraph (2); and
       (2) demonstrate to the satisfaction of the Corporation 
     that, the person planted, or is considered to have planted, a 
     1997 crop of tobacco.
       (c) Payment Quantity.--
       (1) In general.--The Secretary shall determine and provide 
     to the Corporation, for each active tobacco producer, the 
     production quantity eligible for payment for the 1995 through 
     1997 marketing years.
       (2) Eligible production quantity.--The production quantity 
     eligible for payment for an active tobacco producer shall be 
     equal to the average number of pounds of tobacco quota 
     established for a farm for the 1995 through 1997 marketing 
     years for which the producer was the actual producer of the 
     tobacco on the farm.
       (3) Marketing quotas other than poundage quotas.--For each 
     kind of tobacco for which there is a marketing quota or 
     allotment (on an acreage basis), the production quantity 
     eligible for payment for each active tobacco producer 
     shall be determined in accordance with this subsection 
     (based on a poundage conversion) in an amount equal to the 
     product obtained by multiplying--
       (A) the average tobacco farm marketing quota or allotment 
     for the 1995 through 1997 marketing years; by
       (B) the average county yield per acre for the county in 
     which the farm is located for the kind of tobacco for the 
     marketing years.
       (d) Payments.--The Corporation shall make payments for each 
     of the 1999 through 2003 crops of tobacco to each active 
     tobacco producer that is eligible under subsection (b) in an 
     amount that is equal to the product obtained by multiplying--
       (1) $0.40 per pound; by
       (2) the payment quantity established for the producer under 
     subsection (c).
       (e) Death of Active Tobacco Producer.--If an active tobacco 
     producer who is entitled to payments under this section dies 
     and is survived by a spouse or 1 or more dependents, the 
     right to receive the payments shall transfer to the surviving 
     spouse of, if there is no surviving spouse, to the estate of 
     the producer.

     SEC. 203. TOBACCO LOAN ASSOCIATIONS.

       (a) Prior Loans.--The Secretary shall forgive each loan 
     made to an Association under section 106A or 106B of the 
     Agricultural Act of 1949 (7 U.S.C. 1445 1, 1445 2) that is 
     outstanding on the date of enactment of this Act.
       (b) Transfer of Title for Loan Inventories.--The Secretary 
     shall transfer to each Association described in subsection 
     (a) the title to all inventories of tobacco held by the 
     Secretary to secure loans made to the Association under 
     section 106A or 106B of the Agricultural Act of 1949 (7 
     U.S.C. 1445 1, 1445 2).
       (c) No Net Cost Tobacco Funds.--Notwithstanding sections 
     106A(f) and 106b(g) of the Agricultural Act of 1949 (7 U.S.C. 
     1445-1(f) and 1445-2(g)), all funds held in a No Net Cost 
     Tobacco Fund or No Net Cost Tobacco Account on behalf of an 
     Association under section 106A or 106B of that Act (1445-1, 
     1445-2) on the date of enactment of this Act shall be the 
     property of the Association.

     SEC. 204. TOBACCO COMMUNITY ECONOMIC DEVELOPMENT GRANTS.

       (a) Authority.--The Corporation shall make grants to 
     eligible tobacco-growing political subdivisions in accordance 
     with this section to enable the political subdivisions to 
     carry out economic development activities.
       (b) Eligibility.--To be eligible to receive payments under 
     this section, a political subdivisions in a State shall--
       (1) have in excess of $100,000 in gross income from sales 
     of tobacco produced within the political subdivision during 1 
     or more of the 1995 and 1997 marketing years, as determined 
     by the Corporation;
       (2) prepare and submit to the Corporation an application at 
     such time, in such manner, and containing such information as 
     the Corporation may require, including--
       (A) a description of the activities that the political 
     subdivision will carry out using amounts received under the 
     grant;
       (B) a designation of an appropriate political subdivision 
     agency to administer amounts received under the grant;
       (C) a description of the steps to be taken to ensure that 
     the funds are distributed in accordance with subsection (e); 
     and
       (D) an economic development plan, approved by a regional 
     authority authorized to coordinate economic development 
     efforts in the region where the political subdivision is 
     located, or approved by the State if no such regional 
     authority exists, that described the activities that the 
     political subdivision will carry out using amounts received 
     under the grant. Where a political subdivision ineligible to 
     receive payments under subsection (b)(1) is surrounded within 
     the State by a political subdivision eligible to receive 
     payments under subsection (b)(1), an economic development 
     plan shall not be approved unless submitted jointly by 
     both jurisdictions.
       (c) Amount of Grant.--
       (1) In general.--From the amounts available to carry out 
     this section for a fiscal year, the Corporation shall allot 
     to each eligible tobacco-growing political subdivision an 
     amount that bears the same ratio to the total funds available 
     as the total income of the tobacco-growing political 
     subdivision derived from the production of tobacco within the 
     political subdivision during the 1995 through 1997 marketing 
     years (as determined under paragraph (2)) bears to the total 
     income of all tobacco-growing political subdivisions derived 
     from the production of tobacco during the 1995 through 1997 
     marketing years.
       (2) Tobacco income.--For the 1995 through 1997 marketing 
     years, the Secretary shall determine and provide to the 
     Corporation the amount of income derived from the production 
     of tobacco in each tobacco-growing political subdivision and 
     in all tobacco-growing political subdivisions.
       (d) Payments.--
       (1) In general.--A tobacco-growing political subdivision 
     that has an application approved by the Corporation under 
     subsection (b) shall be entitled to a payment under this 
     section in an amount that is equal to its allotment under 
     subsection (c).
       (2) Form of payments.--The Corporation may make payments 
     under this section to a tobacco-growing political subdivision 
     in installments, and in advance or by way of reimbursement, 
     with necessary adjustments on account of overpayments or 
     underpayments, as the Corporation may determine.
       (3) Reallotments.--Any portion of the allotment of a 
     political subdivision under subsection (c) that the 
     Corporation determines will not be used to carry out this 
     section in accordance with an approved political subdivision 
     application required under subsection (b), shall be 
     reallotted by the Corporation to other tobacco-growing 
     political subdivisions in proportion to the original 
     allotments to the other tobacco-growing political 
     subdivisions.
       (e) Use and Distribution of Funds.--
       (1) In general.--Amounts received by a tobacco-growing 
     political subdivision under this section shall be used to 
     carry out economic development activities, including--
       (A) activities designed to help create productive farm or 
     off-farm employment in rural areas to provide a more viable 
     economic base and enhance opportunities for improved incomes, 
     living standards, and contributions by rural individuals to 
     the economic and social development of tobacco communities;
       (B) activities designed to provide training and transition 
     assistance to quota holders and active tobacco producers to 
     enable the holders and producers to produce alternative 
     agricultural commodities or obtain alternative employment;

[[Page S176]]

       (C) activities to improve the quality of education in 
     tobacco communities;
       (D) activities to promote tourism in tobacco communities 
     through natural resource protection;
       (E) activities to construct advanced manufacturing centers, 
     industrial parks, water and sewer facilities, and 
     transportation improvements in tobacco communities;
       (F) activities to establish small business incubators in 
     tobacco communities;
       (G) activities to install high technology infrastructure 
     improvement in tobacco communities;
       (H) rural business enterprise activities described in 
     subsections (c) and (e) of section 310B of the Consolidated 
     Farm and Rural Development Act (7 U.S.C. 1932);
       (I) down payment loan assistance programs that are similar 
     to the program described in section 310E of the Consolidated 
     Farm and Rural Development Act (7 U.S.C. 1935);
       (J) activities that expand existing infrastructure, 
     facilities, and services to capitalize on opportunities to 
     diversify economies in tobacco communities and that support 
     the development of new industries or commercial ventures;
       (K) activities by agricultural organizations that provide 
     assistance directly to quota holders and active tobacco 
     producers to assist in developing other agricultural 
     activities that supplement tobacco-producing activities;
       (L) initiatives designed to create or expand locally owned 
     value-added processing and marketing operations in tobacco 
     communities; and
       (M) technical assistance activities by persons to support 
     farmer-owned enterprises, or agriculture-based rural 
     development enterprises, of the type described in section 252 
     or 253 of the Trade Act of 1974 (19 U.S.C. 2342, 2343).
       (2) Maintenance of effort.--The political subdivision and 
     the State shall provide assurances to the Corporation that 
     funds provided to the political subdivision under this 
     section will be used only to supplement, not to supplant, the 
     amount of Federal, State, and local funds otherwise expended 
     for economic development activities in the political 
     subdivision.

     SEC. 205. TAX TREATMENT OF TOBACCO QUOTA HOLDER COMPENSATION 
                   AND TRANSITION PAYMENTS.

       (a) In General.--Part II of subchapter B of chapter 1 of 
     the Internal Revenue Code of 1986 (relating to items 
     specifically included in gross income) is amended by adding 
     at the end the following:

     ``SEC. 91. CERTAIN TOBACCO PROGRAM PAYMENTS.

       ``(a) General Rule.--Gross income includes amounts received 
     under section 201 or 202 of the Tobacco Market Transition 
     Act.
       ``(b) Exception for Amounts Transferred During Reinvestment 
     Period.--
       ``(1) In general.--Subsection (a) shall not apply to any 
     amount if during reinvestment period such amount is--
       ``(A) used to make a qualified debt repayment, or
       ``(B) transferred to a tobacco farmer individual retirement 
     account established under section 522.
       ``(2) Qualified debt repayment.--For purposes of paragraph 
     (1), the term `qualified debt repayment' means the payment of 
     debt incurred directly by the taxpayer to produce tobacco 
     prior to January 1, 1998.
       ``(c) Character of Income.--For purposes of this subtitle--
       ``(1) any amount received under section 201 of the Tobacco 
     Market Assistance Act and included in gross income under this 
     section shall be treated as long-term capital gain, and
       ``(2) any amount received under section 202 of such Act and 
     so included in gross income shall be treated as ordinary 
     income.''.
       (b) Tobacco Farmer Individual Retirement Accounts.--Part IV 
     of subchapter F of chapter 1 of the Internal Revenue Code of 
     1986 (relating to farmers' cooperatives) is amended by adding 
     at the end the following:

     ``SEC. 522. TOBACCO FARMER INDIVIDUAL RETIREMENT ACCOUNTS.

       ``(a) General Rule.--Except as provided in this section, a 
     tobacco farmer individual retirement account shall be treated 
     for purposes of this title in the same manner as an 
     individual retirement plan.
       ``(b) Definitions and Special Rules.--For purposes of this 
     title--
       ``(1) Tobacco farmer individual retirement account.--The 
     term `tobacco farmer individual retirement account' means an 
     individual retirement plan (as defined in section 
     7701(a)(37)) other than a Roth IRA which is designated (in 
     such manner as the Corporation may prescribe) at the time of 
     establishment of the plan as a tobacco farmer individual 
     retirement account.
       ``(2) Treatment of contributions.--
       ``(A) Cash only.--No contribution will be accepted unless 
     it is in cash.
       ``(B) Source of contributions.--The only contributions 
     which will be accepted are--
       ``(i) payments under section 201 or 202 of the Tobacco 
     Market Transition Act, and
       (ii) trustee-to-trustee transfers to such trust from 
     another tobacco farmer individual retirement account of the 
     account beneficiary.
       ``(C) No deduction allowed.--No deduction shall be allowed 
     under section 219 for a contribution to a tobacco farmer 
     individual retirement account.
       ``(D) No rollover contributions allowed.--No rollover 
     contribution may be made to or from a tobacco farmer 
     individual retirement account.
       ``(3) Tax treatment of distributions.--Any amount 
     distributed from a tobacco farmer individual retirement 
     account attributable to payments made under section 201 or 
     202 of the Tobacco Market Transition Act (including earnings 
     thereon) shall be includible in the gross income of the 
     distributee under the rules described in section 91(c). Any 
     such distribution shall be made first from amounts in such 
     account (if any) attributable to payments under such section 
     202 (and earnings thereon).
       ``(4) Coordination with individual retirement accounts.--
     Section 408(d)(2) shall be applied separately with respect to 
     tobacco farmer individual retirement accounts and other 
     individual retirement plans.''.
       ``(c) Conforming Amendments.--
       (1) The table of sections for part II of subchapter B of 
     chapter 1 of the Internal Revenue Code of 1986 is amended by 
     adding at the end the following: ``Sec. 91. Certain tobacco 
     program payments.''.
       (2) The table of sections for part IV of subchapter 1 of 
     such Code is amended by adding at the end the following: 
     ``Sec. 522. Tobacco farmer individual retirement accounts.''.
       (3) The heading for part IV of subchapter F of chapter 1 of 
     such code is amended by striking

     ``FARMERS' COOPERATIVES'' and inserting ``CERTAIN FARMER 
     ENTITIES''.
       (4) The table of parts for subchapter F of chapter 1 of 
     such Code is amended by striking ``Farmers' cooperatives'' 
     and inserting ``Certain farmer entities''. Effective Date.--
     The amendments made by this section shall apply to taxable 
     years beginning after December 31, 1997.

 TITLE III--ESTABLISHMENT OF PRIVATE TOBACCO PRODUCTION ADJUSTMENT AND 
                       QUALITY ASSURANCE PROGRAM

     SEC. 301. TOBACCO PRODUCTION CONTROL CORPORATION.

       (a) Establishment.--There is established a corporation to 
     be known as the ``Tobacco Production Control Corporation'', 
     which shall be a federally chartered instrumentality of the 
     United States.
       (b) Duties.--Effective for the 1999 and each subsequent 
     crop of each kind of tobacco, on at least a \2/3\-vote of the 
     Board of Directors of the Corporation, the Corporation 
     shall--
       (1) promulgate rules that govern the production, marketing, 
     importation, exportation, and consumer quality assurances for 
     each kind of tobacco;
       (2) establish a licensing system that provides for the 
     orderly production and marketing of tobacco in the United 
     States under which--
       (A) the Corporation shall issue a license to each active 
     tobacco producer, or other person that meets requirements 
     established by the Corporation, initially based upon the 
     eligible production quantity determined for each producer 
     under section 202(c)(1);
       (B) the licensee shall surrender the license to the 
     Corporation if the licensee fails to actively engage in the 
     production of tobacco;
       (C) the sale or marketing of a type of tobacco which prior 
     to the date of enactment was produced pursuant to a tobacco 
     farm marketing quota or farm acreage allotment issued under 
     the Agricultural Act of 1938 is prohibited without a license;
       (D) the sale, lease, or other transfer of a license shall 
     be prohibited except pursuant to subsection (c); and
       (E) the Corporation shall issue marketing licenses to 
     tobacco marketing facilities and tobacco purchasing entities;
       (3) ensure compliance, through whatever means is available, 
     of all persons with any license, regulation, rule, 
     limitation, or guideline issued under, or in order to carry 
     out, this Act;
       (3) offer crop insurance for tobacco producers;
       (4) establish a system that will provide assurance to 
     consumers of the quality of all tobacco marketed in the 
     United States and that, at a minimum--
       (A) provides for the inspection and grading of domestically 
     produced tobacco and imported tobacco;
       (B) determines and describes the physical characteristics 
     of domestically produced tobacco and imported tobacco;
       (C) ensures the physical and chemical integrity of 
     domestically produced tobacco and imported tobacco;
       (5) carry out its duties, functions, and determinations 
     through loan associations and local committees, to the extent 
     practicable and appropriate, and
       (6) continue to maintain and carry out a tobacco program in 
     accordance with the rules and regulations contained in 
     Chapter 7 of the C.F.R. unless and until rules are 
     promulgated under subsection (c).
       (c) Transfer of License.--
       (1) Right of survivorship.--
       (A) In general.--In the case of the death of a person to 
     whom a license has been issued under this section, the 
     license shall transfer to the surviving spouse of the person 
     or, if there is no surviving spouse, to surviving direct 
     descendants of the persons.
       (B) Hardship.--In the case of the death of a person to whom 
     a license has been issued under this section and whose 
     descendants are temporarily unable to produce a crop of 
     tobacco, the Corporation may hold the license in the name of 
     the descendants for a period of not more than 18 months, at 
     the discretion of the Corporation.

[[Page S177]]

       (2) Lifetime transfer.--A person that is eligible to obtain 
     a license under this section may at any time transfer all or 
     part of the license to the person's spouse or direct 
     descendants that are actively engaged in the production of 
     tobacco.
       (d) Board of Directors.--
       (1) In general.--The powers of the Corporation shall be 
     vested in a Board of Directors.
       (2) Members.--The Board of Directors shall consist of 25 
     members as follows:
       (A) The Secretary of Agriculture.
       (B) The Secretary of Health and Human Services.
       (C) The Administrator of the Environmental Protection 
     Agency.
       (D) The United States Trade Representative.
       (E) 1 member from each state that produces more than 
     50,000,000 pounds of tobacco. All members appointed under 
     this subparagraph shall be actively engaged in the production 
     of tobacco and shall be elected by the tobacco producers from 
     each respective state.
       (F) 3 members appointed by the flue-cured tobacco 
     association and 2 members appointed by the burley tobacco 
     associations, all such members to be licensees under this 
     Act.
       (G) 1 member appointed by tobacco associations other than 
     those specified in subparagraph (F), on a rotating basis.
       (H) 3 members representing public health interests, 
     appointed by the Secretary of Health and Human Services.
       (I) 1 member representing domestic cigarette manufacturers.
       (J) 1 member representing domestic export leaf dealers, 
     appointed by the Leaf Tobacco Exporters Association (LTEA).
       (K) 2 members representing tobacco marketing facilities, 1 
     each appointed by the Bright Belt Warehouse Association 
     (BBWA) and the Burley Auction Warehouse Association (BAWA).
       (L) 1 member that is the person responsible for operating 
     the quality assurance system of the Corporation described in 
     subsection (b)(4).
       (M) 1 member who is a Dean of Agriculture of a Land Grant 
     University from a tobacco producing state.
       (3) Membership qualifications.--A member of the Board shall 
     not hold any Federal, State, or local elected office.
       (4) Chairpersons.--The Secretary of Agriculture shall serve 
     as chairperson of the Board.
       (5) Executive director.--
       (A) Appointment.--The Board shall appoint an Executive 
     Director.
       (B) Duties.--The Executive Director shall be the chief 
     executive officer of the Corporation, with such power and 
     authority as may be conferred by the Board.
       (C) Compensation.--The Executive Director shall receive 
     basic pay at the rate provided for level IV of the Executive 
     Schedule under section 5315 of title 5, United States Code.
       (6) Officers.--The Board shall establish the offices and 
     appoint the officers of the Corporation, including a 
     Secretary, and define the duties of the officers in a manner 
     consistent with this section.
       (7) Meetings.--
       (A) In general.--The Board shall meet at least 3 times each 
     fiscal year at the call of a Chairperson or at the request of 
     the Executive Director.
       (B) Location.--The location of a meeting shall be subject 
     to approval of the Executive Director.
       (C) Quorum.--A quorum of the Board shall consist of a 
     majority of the members.
       (8) Term; vacancies.--
       (A) Term.--The term of office of a member of the Board 
     appointed under any of subparagraphs (E) through (K) of 
     paragraph (2) shall be 4 years.
       (B) Vacancies.--A vacancy on the Board shall be filled in 
     the same manner as the original appointment was made.
       (9) Compensation.--
       (A) Federal members.--A member of the Board who is an 
     officer or employee of the United States shall not receive 
     any additional compensation by reason of service on the 
     Board.
       (B) Non-federal members.--Any other member shall receive 
     compensation, for each day (including travel time) that the 
     member is engaged in the performance of the functions of the 
     Board, at a rate determined appropriate by the Board.
       (C) Expenses.--A member of the Board shall be reimbursed 
     for travel, subsistence, and other necessary expenses 
     incurred by the member in the performance of the duties of 
     the member.
       (10) Conflict of interest; financial disclosure.--
       (A) Conflict of interest.--Except as provided in 
     subparagraph (C), a member of the Board shall not vote on any 
     matter concerning any application, contract, or claim, or 
     other particular matter pending before the Corporation, in 
     which, to the knowledge of the member, the member, spouse, or 
     child of the member, partner of the member, or organization 
     in which the member is serving as officer, director, trustee, 
     partner, or employee, or any person or organization with 
     which the member is negotiating or has any arrangement 
     concerning prospective employment, has a financial interest.
       (B) Violations.--Violation of subparagraph (A) by a member 
     of the Board shall be cause for removal of the member, but 
     shall not impair or otherwise affect the validity of any 
     otherwise lawful action by the Corporation in which the 
     member participated.
       (C) Exceptions.--The prohibitions contained in subparagraph 
     (A) shall not apply to a member of the Board that is a 
     tobacco producer if the member advises the Board of the 
     nature of the particular matter in which the member proposes 
     to participate, and if the member makes a full disclosure of 
     the financial interest, prior to any participation.
       (D) Financial disclosure.--A Board member shall be subject 
     to the financial disclosure requirements of subchapter B of 
     chapter XVI of title 5, Code of Federal Regulations (or any 
     corresponding or similar regulation or ruling), applicable to 
     a special Government employee (as defined in section 202(a) 
     of title 18, United States Code).
       (E) Representation.--No member of the Board shall receive 
     compensation from more than one interest represented on the 
     Board.
       (11) Bylaws.--The Board shall adopt, and may from time to 
     time amend, any bylaw that is necessary for the proper 
     management and functioning of the Corporation.
       (12) Personnel.--The Corporation may select and appoint 
     officers, attorneys, employees, and agents, who shall be 
     vested with such powers and duties as the Corporation may 
     determine.
       (e) General Powers.--In addition to any other powers 
     granted to the Corporation under this title, the 
     Corporation--
       (1) shall have succession in its corporate name;
       (2) may adopt, alter, and rescind any bylaw and adopt and 
     alter a corporate seal, which shall be judicially noticed;
       (3) may enter into any agreement or contract with a person 
     or private or governmental agency;
       (4) may lease, purchase, accept a gift or donation of, or 
     otherwise acquire, use, own, hold, improve, or otherwise deal 
     in or with, and sell, convey, mortgage, pledge, lease, 
     exchange, or otherwise dispose of, any property or interest 
     in property, as the Corporation considers necessary in the 
     transaction of the business of the Corporation;
       (5) may sue and be sued in the corporate name of the 
     Corporation, except that--
       (A) no attachment, injunction, garnishment, or similar 
     process shall be issued against the Corporation or property 
     of the Corporation; and
       (B) exclusive original jurisdiction shall reside in the 
     district courts of the United States, and the Corporation may 
     intervene in any court in any suit, action, or proceeding in 
     which the Corporation has an interest;
       (6) may independently retain legal representation;
       (7) may provide for and designate such committees, and the 
     functions of the committees, as the Board considers necessary 
     or desirable;
       (8) may indemnify officers of the Corporation, as the Board 
     considers necessary and desirable, except that the officers 
     shall not be indemnified for an act outside the scope of 
     employment;
       (9) may, with the consent of any board, commission, 
     independent establishment, or executive department of the 
     Federal Government, including any field service, use 
     information, services, facilities, officials, and employees 
     in carrying out this section, and pay for the use, which 
     payments shall be transferred to the applicable appropriation 
     account that incurred the expense;
        (10) may obtain the services and fix the compensation of 
     any consultant and otherwise procure temporary and 
     intermittent services under section 3109(b) of title 5, 
     United States Code;
       (11) shall have the rights, privileges, and immunities of 
     the United States with respect to the right to priority of 
     payment with respect to debts due from bankrupt, insolvent, 
     or deceased creditors;
       (12) may collect or compromise any obligations assigned to 
     or held by the Corporation, including any legal or equitable 
     rights accruing to the Corporation;
       (13) shall determine the character of, and necessity for, 
     obligations and expenditures of the Corporation and the 
     manner in which the obligations and expenditures shall be 
     incurred, allowed, and paid, subject to provisions of law 
     specifically applicable to Government corporations;
       (14) may make final and conclusive settlement and 
     adjustment of any claim by or against the Corporation or a 
     fiscal officer of the Corporation;
       (15) may sell assets, loans, and equity interests acquired 
     in connection with the financing of projects funded by the 
     Corporation; and
       (16) may exercise all other lawful powers necessarily or 
     reasonably related to the establishment of the Corporation to 
     carry out this title and the powers, purposes, functions, 
     duties, and authorized activities of the Corporation.

     SEC. 302. TOBACCO LOAN ASSOCIATIONS.

       The Corporation shall enter into an agreement with 
     producer-owned cooperative marketing loan associations for 
     each kind of tobacco to--
       (1) make price support available to producers of the kind 
     of tobacco;
       (2) carry out the licensing system established under 
     subsection (b)(2);
       (3) arrange for financing and the administration of price 
     supports for the kind of tobacco; and
       (4) receive, process, store, and sell any domestically 
     produced tobacco received as collateral for a price support 
     loan.

     SEC. 303. TOBACCO PRICE SUPPORT LEVELS.

       (a) Initial Level.--Effective for the 1999 crop of each 
     kind of tobacco, the support

[[Page S178]]

     level in cents per pound established under this title shall 
     be equal to--
       (1) the simple average price received by producers of the 
     kind of tobacco, as determined by the Corporation, during the 
     marketing years for the immediately preceding 5 crops of the 
     kind of tobacco; less
       (2) the average return to quota for 1994 through 1998 crops 
     of the kind of tobacco, as determined by the Corporation.
       (b) Subsequent Adjustment.--The Corporation, in 
     consultation with the Associations, shall adjust and 
     establish the support level for each kind of tobacco at an 
     appropriate level for each year after 1999.

     SEC. 304. PENALTIES.

       (a) In General.--The violation of any provision of this 
     Act, or any rule or regulation issued to carry out this Act, 
     or the terms of any license issued under this Act, by a 
     person (including the marketing of any kind of tobacco 
     without a license issued under this title or in excess of the 
     quantity permitted under such a license) shall subject the 
     person to revocation or suspension of the person's license, a 
     penalty of 75 percent of the average market price (calculated 
     to the nearest whole cent) for the kind of tobacco for the 
     immediately preceding marketing year, or both, in the 
     discretion of the Secretary.
       (b) Payor.--
       (1) In general.--Except as otherwise provided in this 
     subsection, the penalty shall be paid by the person who 
     acquired the tobacco from the producer.
       (2) Deduction from price.--An amount equivalent to the 
     penalty may be deducted by the buyer from the price paid to 
     the producer in any case in which the tobacco is marketed by 
     sale.
       (3) Warehouseman or agent.--If the tobacco is marketed by 
     the producer through a warehouseman or other agent, the 
     penalty shall be paid by the warehouseman or agent who may 
     deduct an amount equivalent to the penalty from the price 
     paid to the producer.
       (4) Direct marketing outside United States.--In any case in 
     which tobacco is marketed directly to any person outside the 
     United States, the penalty shall be paid and remitted by the 
     producer.
       (c) False Statement or Omission.--If any producer falsely 
     identifies or fails to account for the disposition of any 
     tobacco--
       (1) an amount of tobacco equal to the normal yield of the 
     number of acres harvested in excess of the quantity permitted 
     under a license issued under this title shall be considered 
     to have been marketed in excess of the license for the farm; 
     and
       (2) the penalty for the excess marketing shall be paid and 
     remitted by the producer.
       (d) Carryover.--Tobacco carried over by the producer of the 
     tobacco from 1 marketing year to another marketing year may 
     be marketed without payment of the penalty imposed by this 
     section if--
       (1) the total quantity of tobacco available for marketing 
     from the farm in the marketing year from which the tobacco is 
     carried over does not exceed the quantity that may be 
     marketed under a license issued for the farm for the 
     marketing year; or
       (2) the quantity of tobacco carried over does not exceed 
     the normal production of that number of acres by which the 
     harvested acreage of tobacco in the calendar year in which 
     the marketing year begins is less than the quantity that may 
     be marketed under the license.
       (e) Tobacco Marketed Prior to Marketing Year.--Tobacco 
     produced in a calendar year for the marketing year beginning 
     during the calendar year shall be subject to licenses issued 
     for the marketing year even though the tobacco is marketed 
     prior to the date on which the marketing year begins.
       (f) Proportional Payments.--The Secretary shall require 
     collection of the penalty on a proportion of each lot of 
     tobacco marketed from the farm equal to the proportion that 
     the tobacco available for marketing from the farm in excess 
     of the quantity that may be marketed under a license is of 
     the total quantity of tobacco available for marketing from 
     the farm if satisfactory proof is not furnished as to the 
     disposition to be made of the excess tobacco prior to the 
     marketing of any tobacco from the farm.
       (g) Lien.--Until the amount of the penalty provided by this 
     section is paid, a lien on the tobacco with respect to which 
     the penalty is incurred, and on any subsequent tobacco 
     subject to licenses issued under this title in which the 
     person liable for payment of the penalty has an interest, 
     shall be in effect in favor of the Corporation for the amount 
     of the penalty.

     SEC. 305. PROGRAM REFERENDA.

       (a) Initial Referendum.--Not later than 3 years after the 
     date of enactment of this Act, the Corporation shall conduct 
     a referendum among licensees engaged in the production of 
     each kind of tobacco to determine whether such producers are 
     in favor of continuing the operation of the program 
     established under this Act with respect to that kind of 
     tobacco. If more than one half of the licensees voting oppose 
     the continuation of the program, the Corporation shall 
     announce the result and shall conduct a second referendum one 
     year later. If more than one half of the licensees voting in 
     the second referendum also oppose the continuation of the 
     program, the Corporation shall announce the result and the 
     program shall cease to be in effect for that kind of tobacco.
       (b) Subsequent Referenda.--The Corporation may conduct 
     subsequent referenda from time to time as the Corporation 
     deems appropriate to determine whether producers are in favor 
     of continuing the program established under this Act, the use 
     of marketing allotments and quotas, limitations on transfer 
     of quota, or any other aspect of the program.
       (c) Effective Date.--This section shall be effective 1 year 
     after the date of enactment of this Act.
                                  ____



  Section-by-Section Summary of The ``Tobacco Market Transition Act''

       These are the highlights of each section of the 
     legislation:
       Section 1. Table of Contents.
       Section 2. Definitions.
       This section includes the definition of an ``active tobacco 
     producer'' (who will be eligible to receive transition 
     payments and a license to grow tobacco) and a ``quota 
     holder'' (who will be eligible for the quota asset buyout). 
     An ``active tobacco producer'' is a person who was the actual 
     producer of tobacco planted in 1997. A ``quota holder'' is a 
     person who owned a farm on January 1, 1998 which carried a 
     tobacco farm marketing quota or farm acreage allotment.
       Section 3. Purposes.
       Section 101. Tobacco Community Revitalization Trust Fund.
       This section establishes a trust fund which will compensate 
     quota holders, make transition payments to growers, fund the 
     privatized tobacco production limiting program, pay for 
     tobacco crop insurance, and provide community development 
     grants. From the funds generated as a result of comprehensive 
     tobacco legislation, the trust fund would receive $3.5 
     billion for the first five years, and $265 million each 
     succeeding year.
       Section 201. Compensation to Quota Holders for Loss of 
     Tobacco Quota Asset Value.
       A quota holder would receive $8/pound based on the average 
     tobacco farm marketing quota established for the 1995 through 
     1997 marketing years for the farm owned by the quota holder 
     on January 1, 1998. The payments would be made in 5 equal 
     annual installments beginning in 1999.
       Section 202. Transition Payments for Active Tobacco 
     Producers.
       Tobacco producers who grew tobacco in 1997 would be 
     eligible to receive 40 cents/pound for five years based on 
     the average number of pounds of tobacco quota established for 
     a farm for the 1995 through 1997 marketing years for which 
     the grower was the actual producer of tobacco on the farm.
       Section 203. Tobacco Loan Associations.
       To extricate the federal government from the tobacco 
     program and assist tobacco loan associations make the 
     transition to the privatized program, this section forgives 
     various loans made to the associations by the Department of 
     Agriculture, transfers title to the loan associations of 
     tobacco held in inventory by the Department of Agriculture, 
     and transfers to the loan associations the funds held in the 
     No Net Cost Tobacco Fund and the No Net Cost Tobacco Account 
     held on behalf of the associations.
       Section 204. Tobacco Community Economic Development Grants.
       The Corporation will award $250 million annually to 
     tobacco-dependent counties to aid community development 
     efforts. The funds can be used for various purposes, 
     including education, small business incubators, technology 
     infrastructure enhancement, transportation improvements and 
     water projects.
       Section 205. Tax Treatment of Tobacco Quota Holder 
     Compensation and Transition Payments.
       Compensation funds to quota holders and transition payments 
     to tobacco producers will not be taxed if placed in a 
     qualified retirement account or if used to retire debt 
     directly associated with tobacco production incurred prior to 
     January 1, 1998.
       Section 301. Tobacco Production Control Corporation.
       This section creates the privatized Tobacco Production 
     Control Corporation, which will undertake the duties 
     previously performed by the federal government. These duties 
     will include:
       Governing the production, marketing, importation, 
     exportation, and consumer quality assurance for each kind of 
     tobacco;
       Offering crop insurance;
       Establishing a quality assurance system that provides for 
     the inspection and grading of tobacco marketed in the U.S., 
     determines and describes the physical characteristics of 
     domestic and imported tobacco, and ensures the physical and 
     chemical integrity of domestic and imported tobacco; and
       Creating a licensing system to limit the production of 
     tobacco, replacing the current quota system. Licenses would 
     be issued by the Corporation at no cost to the producer and 
     no tobacco could be sold without a license. Initially, 
     licenses would be issued to active tobacco producers and 
     would be surrendered to the Corporation if the producer 
     ceases growing tobacco. Licenses could not be sold, leased or 
     transferred except to a licensee's spouse or children 
     actively engaged in the production of tobacco.
       Section 302. Tobacco Loan Associations.
       This section requires the Corporation to enter into 
     agreements with producer-owned loan associations for each 
     kind of tobacco to make price support available, carry out 
     the licensing system, arrange for financing and 
     administration of price supports and handle any domestically 
     produced tobacco received as collateral for a price support 
     loan.
       Section 303. Tobacco Price Support Levels.
       For the 1999 crop year, the price support shall be the 
     simple average price received by

[[Page S179]]

     producers for the preceding 5 years less the average return 
     to quota for 1994 through 1998 crops. This eliminates from 
     the price of tobacco an amount equal to the previous cost of 
     acquiring quota.
       Section 304. Penalties.
       This section sets forth the penalties for those who sell 
     tobacco without a license or in violation of a license, and 
     for those who purchase tobacco which is not licensed or 
     violates a license.
       Section 305. Program Referenda.
       This section allows producers to vote periodically on 
     whether to retain the new privatized program.

                          ____________________