[Congressional Record Volume 147, Number 26 (Thursday, March 1, 2001)]
[Senate]
[Pages S1754-S1760]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mrs. FEINSTEIN:
  S. 424. A bill to provide incentives to encourage private sector 
efforts to reduce earthquake losses, to establish a national disaster 
mitigation program, and for other purposes; to the Committee on 
Finance.
  Mrs. FEINSTEIN. Mr. President, my thoughts go out today to the people 
of Washington as they assess the damage and begin recovery from the 
earthquake there yesterday afternoon.
  Yesterday's event is a reminder that earthquakes are a national 
problem, and one that can strike at any time, without warning.
  It is in this light that I introduce, today, the Earthquake Loss 
Reduction Act of 2001. This bill provides incentives to encourage 
responsible state and local governments, individuals, and businesses to 
invest in damage prevention measures before an earthquake strikes. It 
is an ``ounce of prevention'' that will save the federal treasury, 
homeowners, businesses, and state and local governments the ``pound of 
cure'' for relief and recovery.
  The legislation builds on the excellent work of our nation's earth 
scientists and engineers by making implementation of loss reduction 
measure a federal priority. We know where earthquake hazards exist, 
which buildings and utility and transportation systems are most 
vulnerable, and what the consequences will be to public safety, 
community character, and our economy if an earthquake strikes. We also 
know how to reduce losses. Guidelines exist that provide rational, 
common sense approaches to upgrade weak facilities.
  The challenge as we enter the 21st century is to put this knowledge 
to work to reduce future losses, and improving the safety of Americans 
and the performance of privately and publicly owned buildings and 
facilities. The time to implement our knowledge is now.
  There is no question that mitigation efforts save dollars and lives 
in the long run. It worries me greatly that the President, in his 
Budget, proposes a cut to existing mitigation efforts.
  First, the President proposes eliminating the Project Impact program. 
Project Impact is the nation's premier disaster prevention initiative. 
Communities use Project Impact funds to retrofit hospitals and schools, 
to create flood barriers, and to help shore-up communities against any 
number of other possible natural disasters.
  California has eight Project Impact communities, and has used Project 
Impact funds to stabilize emergency facilities and other important 
structures. Local communities do not always have the resources to 
mitigate these facilities on their own.
  There are two other proposals in President Bush's budget that are 
cause for alarm.
  1. The President's budget outline assumes $83 million in FEMA savings 
by including a public buildings disaster insurance requirement, phased 
in over three years. This provision would mean that public entities 
like the U.C. system would have to have insurance on ALL structures 
before they could apply for federal assistance in the event of a 
disaster.
  This proposal simply is not feasible for states like California. 
Insurance companies in California do not offer

[[Page S1755]]

disaster insurance or, specifically, earthquake insurance.
  It will be interesting to see how the cities affected by the 
Washington earthquake would be affected by this rule. Insurance 
companies in Washington do offer earthquake insurance and will be 
paying-out over the coming months. It will be interesting to see if the 
insurers are able to withstand the costs.
  2. The budget also proposes reducing from 75 percent to 50 percent 
the federal share of funding for hazard mitigation grants. Once again, 
this is simply not feasible in California. California public 
institutions would not be able to afford 50 percent of clean-up costs 
after a major earthquake. It would be difficult for them to pay even 25 
percent, which is current law.
  These two provisions could cause my State, and others, great harm if 
enacted. I am prepared to fight them, and I will.
  The United States Geological Survey tells us there are 40 states and 
five territories with a moderate or higher earthquake risk. Entire 
metropolitan areas in these states and territories are at risk of being 
crippled by earthquake damage because existing buildings and 
infrastructure were built without appropriate seismic requirements.
  Areas lying outside ``earthquake zones'' are also affected. Even 
localized damage threatens complex economic systems and the magnitude 
of federal disaster aid. Let me give you a few examples of potential 
losses estimated by FEMA's regional earthquake loss estimation model, 
HAZUS.
  A magnitude of 7.0 earthquake on California's Newport-Inglewood fault 
running through the Los Angeles basin could cause an estimated $80 
billion in losses. Damage to buildings and business interruption would 
affect Los Angeles, Orange, San Bernardino, Riverside, Ventura, and San 
Diego Counties. About 58 percent of the damage would be to residential 
buildings, displacing about 400,000 people. An estimated 100,000 people 
would need shelter.
  A magnitude 7.0 earthquake on the Hayward fault running along the 
east side of the San Francisco Bay could cause about $37 billion in 
damage. About 56 percent of the damage would be to residential 
buildings, displacing about 140,000 people. More than half of the 
losses would stem from damage to wood-frame homes and small business 
buildings.
  A magnitude 7.5 earthquake on the Border Ranges fault near Anchorage, 
AK could cause about $5 billion in losses. Anchorage, a city of about 
260,000 people, would suffer most of the damage. More than 60 percent 
of the damage would be to wood-frame buildings serving as homes and 
small businesses.
  A magnitude 7.2 earthquake on the Wasatch fault on the east side of 
Salt Lake City could cause about $13 billion in losses to the eight 
counties in that region. Most of the damage, about $11 billion, would 
occur in Salt Lake County. Throughout the region, about 150,000 people 
would be displaced, nearly 38,000 would require shelter, and nearly $10 
billion of the losses would result from damage and disruption to 
residential buildings.
  As large as these estimates seem, the actual losses could be even 
greater. Make no mistake, earthquakes will strike these regions and 
others, we just do not know when. In each estimate, over half of the 
losses are expected to come from residential buildings. Most vulnerable 
residential buildings can be upgraded for reasonable levels of 
expenditures. The incentives proposed in this bill could make it 
happen.
  While it is too early to determine the extent of the damage of 
yesterday's earthquake in Washington, taking a look at the losses from 
the 1994 earthquake in Northridge, CA. The direct losses from that 
quake totaled more than $44 billion. For all disasters declared since 
1989, FEMA has paid nearly $28 billion in disaster assistance for 
repairs to public buildings and infrastructure and for humanitarian 
aid. FEMA's outlay for Northridge alone represents 25 percent of this 
12-year aggregate figure, approximately $7 billion.
  You and I know that supplemental relief funds disrupt carefully 
planned budget decisions and undermine on-going programs. For some 
people, reducing recurring demands for federal disaster aid may be 
reason enough to support this bill, but there are more compelling 
reasons.
  The cost and consequences of earthquakes are painful to the victims, 
both individuals and businesses. The plight of those in the disaster 
area may be obvious, but the effects extend outside of the disaster 
area, often across state borders affecting those who depend on damaged 
businesses and affected customers. The American economy depends on 
closely linked businesses, suppliers of raw materials and components, 
manufacturers, transporters, and marketers. Worldwide competitors seek 
the market share of American business when a disaster disrupts our 
economy.
  Research from the Northridge earthquake indicates that even when 
businesses did not suffer direct damage in that quake, their presence 
in or near areas of wide-spread damage or disruption caused economic 
hardship. Economic losses can be large and have long-term effects on 
the future of businesses and regions. Simply put, earthquake loss 
reduction efforts improve the sustainability of American businesses.
  What we need is a widespread investment in loss reduction by many 
parties, not just the federal government. Responsibility for earthquake 
safety rests with state and local government, individuals, and 
companies. The federal role I advocate is one of leadership backed by 
incentives to inform and motivate those responsible to implement loss-
reduction actions. The result I seek is reduced pain and suffering, and 
more sustainable communities and businesses.
  The Federal Government is already contributing to earthquake disaster 
prevention. In a little over twenty years, our National Earthquake 
Hazard Reduction Program has sponsored research and development 
activities in earth sciences and engineering and has produced the 
knowledge and tools, such as the HAZUS estimates I noted earlier, we 
need to reduce our risk. If we are to reduce losses, however, we must 
put this knowledge to work.
  Reducing earthquake losses depends on the actions of millions of 
individual decision-makers, homeowners, business owners, and government 
officials. Many successful measures are easy to implement, but may seem 
expensive when considering competing demand for funds between immediate 
issues and the perceived low probability threat of an earthquake. The 
incentives in this bill provide good reasons to undertake loss 
reduction efforts. This bill will move knowledge from the laboratory to 
the community. The bill recognizes that shared responsibility for 
prevention means that those responsible for the facilities at risk 
accept responsibility for reducing the risk.
  This legislation does the following:
  1. It provides a credit against federal income taxes equal to 50 
percent of a homeowner's investment in seismic retrofit, not to exceed 
$6,000.
  2. It provides businesses an opportunity to depreciate the cost of 
seismic retrofit over five years.
  3. The bill defines a seismic retrofitting bond as a bond for which 
95 percent of the proceeds are used for seismic retrofitting 
expenditures or used to finance loans to borrowers for seismic 
retrofitting expenditures as ``qualified bonds.''
  4. It encourages private investments in seismic retrofitting of 
residential properties by allowing deduction of passive activity 
losses.
  5. The legislation provides mortgage insurance incentives for seismic 
retrofitting of residences.
  6. It authorizes a $1 billion Loss Reduction Trust Fund to provide 
matching grants for mitigation measures and recovery planning grants to 
reduce damage to buildings and utility and transportation systems 
critical to disaster response. Provided to local government entities, 
public and private hospitals, institutions of higher education, and 
special districts, the trust fund grants would require that the state 
and the local entity recipients benefitting from the investment fund a 
portion of the cost. To be eligible, the local entities must also have 
in place a long-term strategic earthquake loss reduction plan and 
enforce land use, building code, and other measures to reduce the 
vulnerability of facilities in the jurisdiction.
  7. And the bill authorizes establishment of the Advanced National 
Seismic Research and Monitoring System

[[Page S1756]]

by the United States Geological Survey.
  The incentives offered in this bill are available only if the 
recipient, sometimes with state aid, invests in the effort to prevent 
losses. These investments will spawn meaningful loss prevention actions 
that will benefit all of the stakeholders involved and will reduce the 
need for disaster aid.
  Public/private partnership work:
  City of Berkeley, CA, has demonstrated that even small incentives 
work. This city of 109,000 people spends about $1 million each year in 
hazard reduction activities. It rebates a portion of its real estate 
transfer tax, up to $1,500, to homeowners for loss reduction actions, 
waives permit fees for seismic residential retrofit projects, and 
offers low income loans up to $15,000 and some grants to low income 
senior and disabled homeowners for retrofit work.
  In the 10 ears since these incentives were put in place, 38 percent 
of the single-family homes have had some form of retrofit work done and 
30 percent of small apartment buildings have been improved.
  Berkeley has also passed seven special taxes that concentrate funding 
on pre-disaster mitigation.
  Federal incentives can empower similar results nationwide. Cities 
like Berkeley, where the earthquake threat is a critical community 
concern, will benefit from the additional inducements included in this 
bill.
  Preventing damage makes sense, and it benefits our nation in many 
ways besides reducing the need for disaster aide. Not all benefits are 
easily quantified because they accrue to a variety of stakeholders and 
many of the indirect and human effects are subtle, yet important.
  Earthquakes impact all segments of the communities they strike, 
individuals, businesses, and public services such as police, fire, 
hospitals, and schools. Damage often creates economic ripples 
throughout the community and beyond state borders. Homeowners, building 
owners, their tenants, neighboring businesses, local and state 
government, and the Federal Government will benefit.
  Let me give you three examples of loss reduction projects that have 
widespread benefits:
  1. Water officials in Memphis, TN recently made the wise decision to 
invest in a structural upgrade of the Davis Water Pumping station. 
Strengthening this critical station cost about $488,000.
  What the officials at the Memphis Light, Gas, and Water Division 
recognize is that there is a fifty-fifty chance that a moderate 
earthquake will strike the Memphis area within the next fifteen years. 
It would cost $17 million to replace the water pumping station after 
such an earthquake. Plus, every day the station is inoperable costs 
about $1.4 million in lost services.
  The loss of drinkable water affects the entire community and cripples 
business activity. Considering the time to repair or replace a damaged 
pump facility, it is estimated that the cost of lost services would be 
$112 million. Clearly, a $488,000 investment is a good one.
  The Loss Reduction Trust Fund established by this bill authorizes $1 
billion in matching grants to strengthen critical infrastructure like 
the Davis Water Pumping Station.
  2. Another good example of forward thinking is the Anheuser-Busch 
brewery in Los Angeles. After realizing its facilities were vulnerable 
to earthquake damage, the company began a $20 million program to 
retrofit critical buildings and equipment. The brewery is a critical 
company asset because it supplies the Southwest and Pacific regions. 
Although located only a few miles from the epicenter of the 1994 
Northridge earthquake, the brewery was able to return to operation 
after just minor cleanup, repairs, and restoration of off-site water 
supply.
  Anheuser-Busch estimated that damage and business interruption costs 
could have exceeded $300 million after the Northridge quake, had it not 
strengthened its facilities. There was more at stake than the viability 
of a major business. Damage affects employees, federal, state, and 
local government income, suppliers, vendors, and the surrounding 
community.
  By accelerating depreciation of seismic retrofit expenses, this bill 
will encourage other businesses to carry out similar projects.
  3. And there is another example from the Northridge earthquake. Three 
months before that quake, a homeowner in the Hollywood area of Los 
Angeles spent $3,200 to retrofit his 1911-vintage home. The house 
survived with only minor damage, while similar houses on the same block 
suffered severe damage. In fact, several of those neighboring homes 
were demolished by the earthquake.
  Many homes across the nation are built on poorly braced foundation 
walls or piers and posts and are vulnerable to damage during even mild 
earthquake activity. The cost to add the bracing needed generally is 
only a few thousand dollars, yet the cost of repairing a home after it 
falls is tens of thousands of dollars. As with a business, when a home 
topples, there is more at stake than injury to family members and the 
cost of repairs. Not to mention the fact that a falling home can spark 
a fire that can burn an entire community.
  This bill creates a tax credit for half of the cost of the seismic 
retrofit of a residence, makes mortgages for earthquake resistant homes 
more attractive than those for homes meeting lower standards, and makes 
it easier for local government to use general obligation bonds 
financing for loss prevention project loans.
  FEMA's HAZUS software was recently used to estimate how the 
individual actions provided by the bill could add up to significant 
savings of importance to our communities, economy, and governments.
  If a magnitude 7.0 earthquake occurred on the Newport-Inglewood fault 
under Los Angeles today, it could cause about $80 billion in damages. 
Thousands of businesses would be interrupted, 400,000 people would be 
displaced, and there would be several hundred deaths. If every existing 
building in that area were retrofitted to the standards in current 
codes, the losses would drop by $28 billion to $52 billion. Business 
interruption losses would drop from $15 billion to less than $6 
billion. The number of people displaced would shrink to 93,000, and the 
estimated number of deaths would drop by over 90 percent.
  Similarly, a magnitude 7.0 earthquake on the Hayward fault in the San 
Francisco Bay area would cause about $37 billion in damages, if it 
struck today. 140,000 people would be displaced. However, if every 
existing building were retrofitted to the standards in current codes, 
the losses would be reduced by a third. Business interruption losses 
would drop from $6.5 billion to about $2 billion. The number of people 
displaced would shrink to 40,000 and the estimated deaths would drop by 
more than 90 percent.
  Assuming that all buildings meet the latest seismic standards is 
ambitious, but the resulting estimates give convincing evidence that 
implementing loss reduction measures can pay handsome dividends.
  Moreover, the importance of loss reduction efforts extends beyond 
these quantitative estimates. Less damage means less psychological 
pain, more sustainable communities and businesses, protected stocks of 
low-income housing and architecturally and historically significant 
buildings and neighborhoods, and protected family savings. Every time a 
neighbor, employer, or local government invests in prevention, the 
entire community benefits.
  Earthquakes are a nationwide problem. They have struck the Northeast 
and Northwest, damaged Charleston, Saint Louis, and Memphis, struck our 
mountain states, Alaska, and Hawaii. They will strike these and other 
places again.
  Much of the knowledge we need to reduce losses from future 
earthquakes exists. While some forward thinking businesses, 
individuals, and local governments are already using the knowledge to 
invest in measures to reduce future losses, the Earthquake Loss 
Reduction Act creates modest federal incentives to foster a needed 
increase in the implementation of hazard mitigation measures.
  This bill also establishes a $1 billion grant program to match the 
investments from local government entities, hospitals, and institutions 
of higher education. It challenges states to add to this match, and 
makes investment in properties for the purpose of seismic retrofit an 
attractive investment in

[[Page S1757]]

our future. While the occurrence of large-scale earthquakes may be 
perceived as a low probability, our experience shows the high 
consequence of these events.
  Strong federal leadership, and modest incentive, can lead Americans 
to undertake loss reduction measures and can lead us to a safer 
tomorrow. I urge my colleagues to support the Earthquake Loss Reduction 
Act.
  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. 424

       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 ``Earthquake Loss Reduction 
     Act of 2001''.

     SEC. 2. FINDINGS AND PURPOSE.

       (a) Findings.--Congress finds the following:
       (1) After 23 years of research funded by the National 
     Earthquake Hazards Reduction Program, a substantial body of 
     knowledge exists about earth sciences, geotechnical, and 
     structural engineering and human behavior relating 
     earthquakes.
       (2) The foremost challenge as we enter the 21st century is 
     putting this knowledge to work by reducing future losses to 
     improve the safety of Americans and the performance of State 
     and local government facilities and private buildings and 
     facilities.
       (3) Earthquakes and tsunamis cause great danger to human 
     life and property throughout the United States and continue 
     to threaten Americans significantly in over 40 States and 
     territories.
       (4) Too few States and local communities have sufficiently 
     identified and assessed their risk and implemented adequate 
     measures to reduce losses from such disasters and to ensure 
     that their critical public infrastructure and facilities will 
     continue to function after the disaster.
       (5) Too much of the Nation's stocks of housing and 
     commercial buildings remain inherently vulnerable to 
     earthquake shaking. Future losses in these facilities can be 
     lessened using currently feasible technology.
       (6) Too much of local government infrastructure remain at 
     risk and are likely to be non-functional in the aftermath of 
     foreseeable earthquake events at the time when the services 
     they provide are critically necessary.
       (7) Federal, State and local government expenditures for 
     disaster assistance and recovery have increased without 
     commensurate reduction in the likelihood of future losses 
     from such earthquakes.
       (8) Feasible techniques for reducing future earthquake 
     losses are readily available.
       (9) Without economic incentives, it is unlikely that States 
     and local communities and the public will be able to 
     implement available measures to reduce losses and ensure 
     continued functionality of their infrastructure.
       (b) Purpose.--It is the purpose of this Act to establish a 
     national disaster mitigation program that --
       (1) reduces the loss of life and property, human suffering, 
     economic disruption, and disaster assistance costs resulting 
     from earthquakes;
       (2) offers financial incentives to encourage private sector 
     efforts to reduce earthquake losses;
       (3) provides matching finds to encourage and assist States 
     and local governments and the private sector in their efforts 
     to implement measures designed to ensure the continued 
     functionality of public infrastructure, commerce, and 
     habitation after earthquakes; and
       (4) creates Federal, State and local government 
     partnerships to reduce the vulnerability of public 
     infrastructure, commercial enterprises, and residential 
     buildings to earthquakes.

     SEC. 3. NONREFUNDABLE CREDIT FOR EXPENSES RELATED TO SEISMIC 
                   RETROFIT OF PRINCIPAL RESIDENCE.

       (a) General Rule.--Subpart A of part IV of subchapter A of 
     chapter 1 of the Internal Revenue Code of 1986 (relating to 
     nonrefundable personal credits) is amended by inserting after 
     section 25A the following:

     ``SEC. 25B. EXPENSES RELATED TO SEISMIC RETROFIT OF PRINCIPAL 
                   RESIDENCE.

       ``(a) General Rule.--In the case of an individual, there 
     shall be allowed as a credit against the tax imposed by this 
     chapter for the taxable year an amount equal to 50 percent of 
     so much of the qualified seismic retrofit expenses of the 
     taxpayer for the taxable year as do not exceed $6,000.
       ``(b) Qualified Seismic Retrofit Expenses.--For purposes of 
     this section--
       ``(1) In general.--The term `qualified seismic retrofit 
     expenses' means amounts paid or incurred by the taxpayer 
     during the taxable year in relation to any seismic retrofit 
     construction of the principal residence of the taxpayer.
       ``(2) Seismic retrofit construction.--The term `seismic 
     retrofit construction' means any addition or improvement--
       ``(A) which is certified by the State disaster agency or 
     other applicable agency--
       ``(i) as resulting in the mitigation of the risk of damage 
     to existing property from an earthquake, and
       ``(ii) as being in addition to any addition or improvement 
     required by any State or local law with respect to such 
     property, and
       ``(B) which is placed in service at least 5 years after the 
     date the building is first placed in service.

     Such term does not include the cost of acquiring such 
     property (or any interest therein).
       ``(3) Principal residence.--The term `principal residence' 
     has the same meaning as when used in section 121.
       ``(c) Denial of Double Benefit.--No deduction shall be 
     allowed under any other provision of this chapter with 
     respect to any amount of qualified seismic retrofit expenses 
     taken into account under subsection (a).
       ``(d) Basis Adjustment.--For purposes of this subtitle, if 
     a credit is allowed under this section with respect to any 
     residence, the basis of such residence shall be reduced by 
     the amount of the credit so allowed.''.
       (b) Conforming Amendments.--
       (1) The table of sections for subpart A of part IV of 
     subchapter A of chapter 1 of the Internal Revenue Code of 
     1986 is amended by inserting after the item relating to 
     section 25A the following new item:

``Sec. 25B. Expenses related to seismic retrofit of principal 
              residence.''.

       (2) Subsection (a) of section 1016 of such Code is amended 
     by striking ``and'' at the end of paragraph (26), by striking 
     the period at the end of paragraph (27) and inserting ``, 
     and'', and by adding at the end the following new paragraph:
       ``(28) in the case of a residence with respect to which a 
     credit was allowed under section 25B, to the extent provided 
     in section 25B(d).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to expenses paid or incurred in taxable years 
     beginning after December 31, 2000.

     SEC. 4. RECOVERY PERIOD FOR DEPRECIATION OF CERTAIN SEISMIC 
                   RETROFIT EXPENSES.

       (a) Treatment as 5-Year Property.--Section 168(e)(3)(B) of 
     the Internal Revenue Code of 1986 (relating to 5-year 
     property) is amended by striking ``and'' at the end of clause 
     (v), by striking the period and inserting ``, and'' at the 
     end of clause (vi), and by inserting after clause (vi) the 
     following new clause:
       ``(vii) any qualified seismic retrofit property.''.
       (b) Definition of Qualified Seismic Retrofit Property.--
     Section 168(i) of the Internal Revenue Code of 1986 (relating 
     to definitions and special rules) is amended by adding at the 
     end the following new paragraph:
       ``(15) Qualified Seismic Retrofit Property.--
       ``(A) In general.--The term `qualified seismic retrofit 
     property' means any addition or improvement to real property 
     for which depreciation is allowable under this section--
       ``(i) for which the expenditure is properly chargeable to 
     the capital account, and
       ``(ii) which is a seismic retrofit.
       ``(B) Seismic retrofit.--For purposes of subparagraph 
     (A)(i), the term `seismic retrofit' means any addition or 
     improvement--
       ``(i) which is certified by the State disaster agency or 
     other applicable agency--

       ``(I) as resulting in the mitigation of the risk of damage 
     to existing property from an earthquake, and
       ``(II) as being in addition to any addition or improvement 
     required by any State or local law with respect to such 
     property, and

       ``(ii) which is placed in service at least 5 years after 
     the date the building is first placed in service.

     Such term does not include the cost of acquiring such 
     property (or any interest therein).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to qualified seismic retrofit property placed in 
     service after December 31, 2000.

     SEC. 5. QUALIFIED SEISMIC RETROFITTING BONDS.

       (a) In General.-- Section 144 of the Internal Revenue Code 
     of 1986 (relating to qualified small issue bond; qualified 
     student loan bond; qualified redevelopment bond) is amended 
     by adding at the end the following new subsection:
       ``(d) Qualified seismic retrofitting bond.--For purposes of 
     this part--
       ``(1) In general.--The term `qualified seismic retrofitting 
     bond' means any bond issued as part of an issue 95 percent or 
     more of the net proceeds of which are to be used--
       ``(A) for seismic retrofitting expenditures, and
       ``(B) in a manner which meets the requirements of paragraph 
     (3).
       ``(2) Seismic retrofitting expenditure.--For purposes of 
     paragraph (1), the term `seismic retrofitting expenditure' 
     means any amount properly chargeable to capital account--
       ``(A) which is certified by the State disaster agency or 
     other applicable agency--
       ``(i) as resulting in the mitigation of the risk of damage 
     to existing property from an earthquake, and
       ``(ii) as being in addition to any addition or improvement 
     required by any State or local law with respect to such 
     property, and
       ``(B) which is placed in service at least 5 years after the 
     date the building is first placed in service.

     Such term does not include the cost of acquiring such 
     property (or any interest therein).

[[Page S1758]]

       ``(3) Use of proceeds requirements.--The use of the 
     proceeds of an issue meets the requirements of this paragraph 
     if within the 26-month period beginning with the date of 
     issue--
       ``(A) at least 95 percent of the net proceeds of such issue 
     are used for seismic retrofitting expenditures or are used to 
     finance 1 or more loans to ultimate borrowers for such 
     expenditures, or
       ``(B) to the extent not so used under subparagraph (A), 
     such proceeds in excess of $10,000 are used to redeem bonds 
     which are part of such issue.''.
       (b) Bonds Treated as Qualified Bonds.--Paragraph (1) of 
     section 141(e) of the Internal Revenue Code of 1986 (defining 
     qualified bond) is amended by striking ``or'' at the end of 
     subparagraph (F), by redesignating subparagraph (G) as 
     subparagraph (H), and by inserting after subparagraph (F) the 
     following new subparagraph:
       ``(G) a qualified seismic retrofitting bond, or''.
       (c) Bonds Included for Purposes of Small Issuer Exemption 
     Status.--Subclause (I) of section 265(b)(3)(C)(ii) of the 
     Internal Revenue Code of 1986 (relating to obligations not 
     taken into account in determining status as qualified small 
     issuer) is amended by inserting ``, or a qualified seismic 
     retrofitting bond, as defined in section 144(d)(1)'' after 
     ``section 145''.
       (d) Exception From Volume Cap.--Section 146(g) of the 
     Internal Revenue Code of 1986 (relating to exception for 
     certain bonds) is amended by striking ``and'' at the end of 
     paragraph (3), by striking the period at the end of paragraph 
     (4) and inserting a comma, and by adding after paragraph (4) 
     the following new paragraphs:
       ``(5) any qualified mortgage bond if 95 percent or more of 
     the net proceeds of the bond are to be used to provide home 
     improvement loans in connection with seismic retrofitting 
     expenditures (as defined in section 144(d)(2) without regard 
     to the capital account requirement), and
       ``(6) any qualified seismic retrofitting bond.''.
       (e) Proceeds of Mortgage Revenue Bonds Used in Connection 
     With Seismic Retrofitting.--
       (1) In general.--Paragraph (4) of section 143(k) of the 
     Internal Revenue Code of 1986 (relating to other definitions 
     and special rules for qualified mortgage bonds) is amended to 
     read as follows:
       ``(4) Qualified home improvement loan.--The term `qualified 
     home improvement loan' means--
       ``(A) the financing (in an amount which does not exceed 
     $15,000)--
       ``(i) of alterations, repairs, and improvements on or in 
     connection with an existing residence by the owner thereof, 
     but
       ``(ii) only for such items as substantially protect or 
     improve the basic livability or energy efficiency of the 
     property, and
       ``(B) the financing (in an amount which does not exceed 
     $20,000) of seismic retrofitting expenditures (as defined in 
     section 144(d)(2) without regard to the capital account 
     requirement) in connection with an existing residence by the 
     owner thereof.''.
       (2) Exception from income requirements.--Section 143(f) of 
     such Code (relating to income requirements) is amended by 
     adding at the end the following new paragraph:
       ``(7) Exception for certain qualified home improvement 
     loans.--Paragraph (1) shall not apply with respect to any 
     qualified home improvement loan (as defined in subsection 
     (k)(4)(B).''.
       (f) Clerical Amendments.--
       (1) The heading of section 144 of the Internal Revenue Code 
     of 1986 is amended by striking ``bond.'' and inserting ``bond 
     qualified seismic retrofitting bond.''.
       (2) The item relating to section 144 in the table of 
     sections for subpart A of part IV of subchapter B of chapter 
     1 of such Code is amended by striking ``bond.'' and inserting 
     ``bond; qualified seismic retrofitting bond.''
       (g) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act.

     SEC. 6. TREATMENT OF PASSIVE LOSSES OF CERTAIN PARTNERSHIPS 
                   ENGAGED IN SEISMIC RETROFITTING.

       (a) In General.--Section 469 of the Internal Revenue Code 
     of 1986 (relating to passive activity losses and credits 
     limited) is amended by adding at the end the following new 
     subsection:
       ``(n) Exemption for Seismic Retrofitting Trade or 
     Business.--
       ``(1) In general.--In the case of any natural person, 
     subsection (a) shall not apply to that portion of the passive 
     activity loss or the deduction equivalent (within the meaning 
     of subsection (j)(5)) of the passive activity credit for any 
     taxable year which is attributable to any seismic 
     retrofitting activity which such person engages in during the 
     taxable year, whether or not the taxpayer materially 
     participates in such activity.
       ``(2) Seismic retrofitting activity.--For purposes of this 
     subsection, the term `seismic retrofitting activity' means 
     any activity which involves the trade or business of seismic 
     retrofit construction (as defined in section 25B(b)(2)) for 
     residential property.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 7. MORTGAGE INSURANCE INCENTIVE.

       Section 203(b)(2) of the National Housing Act (12 U.S.C. 12 
     U.S.C. 1709(b)(2)), is amended, in the second undesignated 
     paragraph, by inserting ``or due to seismic retrofitting of 
     the residence (within the meaning of the term `seismic 
     retrofit construction' under section 25B(b)(2) of the 
     Internal Revenue Code of 1986)'' before the period at the 
     end.

     SEC. 8. EARTHQUAKE DISASTER MITIGATION AND RECOVERY PLANNING 
                   GRANT PROGRAM.

       (a) Definitions.--
       (1) In general.--Section 4 of the Earthquake Hazards 
     Reduction Act of 1977 (42 U.S.C. 7703) is amended by adding 
     at the end the following:
       ``(8) Agency.--The term `Agency' means the Federal 
     Emergency Management Agency.
       ``(9) Critical facility.--The term `critical facility' 
     means--
       ``(A) a public structure (including a police station, fire 
     station, city or town hall, school, or other public building) 
     or a public or nonprofit private hospital that is--
       ``(i) owned by an entity; and
       ``(ii) critical to the continuity of the entity or to the 
     conduct of the disaster response activities of the entity; or
       ``(B) a facility that--
       ``(i) provides medical services to a specific occupational 
     or industry segment of the general public; and
       ``(ii) is operated by an organization described in 
     subsection (c) or (d) of section 501 of the Internal Revenue 
     Code of 1986 and exempt from taxation under subsection (a) of 
     such section.
       ``(10) Critical public infrastructure.--The term `critical 
     public infrastructure' means a utility or transportation 
     system (including a bridge, energy system, water or sewer 
     system, or communication system) that is--
       ``(A) owned by an entity; and
       ``(B) critical to the conduct of the disaster response 
     activities of the entity.
       ``(11) Earthquake disaster.--
       ``(A) In general.--The term `earthquake disaster' means a 
     disaster that results from a movement of the earth.
       ``(B) Inclusions.--The term `earthquake disaster' includes 
     a disaster that results from a tsunami or an earthquake-
     caused landslide or liquefaction (as determined by the 
     Director of the Agency).
       ``(12) Grant program.--The term `grant program' means the 
     earthquake disaster mitigation and recovery planning grant 
     program established under section 6.
       ``(13) Indian tribe.--The term `Indian tribe' has the 
     meaning given the term in section 4 of the Indian Self-
     Determination and Education Assistance Act (25 U.S.C. 450b).
       ``(14) Institution of higher education.--The term 
     `institution of higher education' has the meaning given the 
     term in section 101 of the Higher Education Act of 1965 (20 
     U.S.C. 1001).
       ``(15) Local government.--The term `local government' 
     means--
       ``(A) a city, town, township, county, parish, village, or 
     other general-purpose political subdivision of a State;
       ``(B) an Indian tribe; and
       ``(C) a geologic hazard abatement or similar special 
     purpose district formed to carry out or fund projects to 
     reduce the vulnerability of infrastructure and buildings to 
     earthquake disasters.
       ``(16) Loss reduction trust fund.--The term `Loss Reduction 
     Trust Fund' means the Loss Reduction Trust Fund established 
     by section 7.''.
       (2) Conforming amendment.--Section 5(b)(1) of the 
     Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 
     7704(b)(1)) is amended by striking ``(hereafter in this Act 
     referred to as the `Agency')''.
       (b) Grant Program.--The Earthquake Hazards Reduction Act of 
     1977 is amended by inserting after section 5 (42 U.S.C. 7704) 
     the following:

     ``SEC. 6. EARTHQUAKE DISASTER MITIGATION AND RECOVERY 
                   PLANNING GRANT PROGRAM.

       ``(a) Establishment.--The Director of the Agency may 
     establish a grant program to provide financial assistance to 
     eligible recipients described in subsection (b) to pay the 
     Federal share of the cost of carrying out earthquake disaster 
     mitigation and recovery planning measures with respect to the 
     critical facilities and critical public infrastructure under 
     the jurisdiction of the recipients.
       ``(b) Eligible Recipients.--
       ``(1) In general.--To be eligible for a grant under the 
     grant program, an entity shall be a local government, public 
     or nonprofit private hospital, or public institution of 
     higher education that--
       ``(A) has jurisdiction over, or is located in, an area that 
     is subject to earthquake disasters;
       ``(B) submits to the Director of the Agency for approval an 
     application for the grant in such form as the Director shall 
     require;
       ``(C) has completed an earthquake disaster risk analysis;
       ``(D) has adopted a long-term strategic earthquake disaster 
     loss reduction plan that identifies high priority earthquake 
     disaster loss reduction projects; and
       ``(E) meets criteria established by the Director under 
     paragraph (2).
       ``(2) Criteria.--
       ``(A) Establishment.--The Director of the Agency shall 
     establish, by regulation, criteria that local governments, 
     public and nonprofit private hospitals, and public 
     institutions of higher education shall meet to qualify for 
     grants under the grant program.
       ``(B) Requirement applicable to local governments.--The 
     criteria under subparagraph (A) applicable to local 
     governments shall include the requirement that a local

[[Page S1759]]

     government adopt and enforce comprehensive ordinances, 
     building codes, land use measures, and other measures for 
     earthquake disaster loss reduction that--
       ``(i) take into consideration the identified earthquake 
     hazards applicable to the area over which the local 
     government has jurisdiction; and
       ``(ii) reflect current, cost-effective techniques designed 
     to reduce losses from earthquake disasters and ensure the 
     continued functionality of critical facilities and critical 
     public infrastructure.
       ``(C) Consultation.--The criteria under subparagraph (A) 
     shall be adopted after consultation with--
       ``(i) Federal, State, and local government officials and 
     agencies; and
       ``(ii) other persons knowledgeable in the fields of natural 
     disasters and hazard mitigation.
       ``(c) Cost Sharing.--
       ``(1) Federal share.--
       ``(A) In general.--Subject to subparagraph (B), the Federal 
     share of the cost of measures carried out using a grant under 
     the grant program shall be 75 percent.
       ``(B) Insufficiency of federal funds.--In paying the 
     Federal share under subparagraph (A) in a case in which there 
     are insufficient funds in the Loss Reduction Trust Fund to 
     fund all applications that are eligible for approval, the 
     Director of the Agency may consider--
       ``(i) the desirability of geographical dispersal of 
     available funds;
       ``(ii) the extent to which any applicant faces a greater 
     risk of earthquake disasters, in number or severity, than 
     other applicants;
       ``(iii) the extent to which each applicant is expending 
     resources on addressing urgent problems concerning critical 
     facilities or critical public infrastructure; and
       ``(iv) the extent to which the measures proposed to be 
     funded using the grant are expected to result in cost savings 
     to the Federal Government under the Robert T. Stafford 
     Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 
     et seq.).
       ``(2) Non-federal share.--
       ``(A) Grants to local governments (other than indian 
     tribes).--In the case of a grant to a local government (other 
     than an Indian tribe) under the grant program, the non-
     Federal share of the cost of measures carried out using the 
     grant shall be provided as follows:
       ``(i) \1/2\ by the State.
       ``(ii) \1/2\ by the local government.
       ``(B) Grants to indian tribes.--In the case of a grant to 
     an Indian tribe under the grant program, the non-Federal 
     share of the cost of measures carried out using the grant 
     shall be provided as follows:
       ``(i) \1/2\ by the Bureau of Indian Affairs.
       ``(ii) \1/2\ by the Indian tribe.
       ``(C) Grants to public hospitals.--In the case of a grant 
     to a public hospital under the grant program, the non-Federal 
     share of the cost of measures carried out using the grant 
     shall be provided as follows:
       ``(i) \1/2\ by the State, from funds other than general 
     State appropriations to the hospital.
       ``(ii) \1/2\ by the public hospital, from general State 
     appropriations to the hospital or from funds donated to the 
     hospital.
       ``(D) Grants to nonprofit private hospitals.--In the case 
     of a grant to a nonprofit private hospital under the grant 
     program, the non-Federal share of the cost of measures 
     carried out using the grant shall be provided by the 
     nonprofit private hospital.
       ``(E) Grants to public institutions of higher education.--
     In the case of a grant to a public institution of higher 
     education under the grant program, the non-Federal share of 
     the cost of measures carried out using the grant shall be 
     provided as follows:
       ``(i) \1/2\ by the State, from funds other than general 
     State appropriations to the institution of higher education.
       ``(ii) \1/2\ by the public institution of higher education, 
     from general State appropriations to the institution of 
     higher education or from funds donated to the institution of 
     higher education.
       ``(d) Use of Grant Funds.--
       ``(1) In general.--A grant under the grant program may be 
     used--
       ``(A) to retrofit critical facilities and critical public 
     infrastructure in accordance with paragraph (2);
       ``(B) to implement earthquake disaster mitigation measures 
     in accordance with paragraph (3); or
       ``(C) to develop earthquake disaster recovery plans in 
     accordance with paragraph (4).
       ``(2) Retrofit of critical facilities and critical public 
     infrastructure.--
       ``(A) In general.--A grant under the grant program may be 
     used to retrofit a critical facility or critical public 
     infrastructure with parts or equipment that meets current 
     standards for withstanding earthquake disasters (as 
     determined by the Director of the Agency).
       ``(B) Selection of critical facilities and critical public 
     infrastructure.--A critical facility or critical public 
     infrastructure shall be selected for a grant under 
     subparagraph (A) if the critical facility or critical public 
     infrastructure is identified in a long-term strategic 
     earthquake disaster loss reduction plan adopted under 
     subsection (b)(1)(D) as having high priority for retrofit 
     because of the effect that damage to the critical facility or 
     critical public infrastructure from an earthquake disaster 
     would have on the quality of human life in the region and on 
     recovery from the earthquake disaster.
       ``(3) Implementation of earthquake disaster mitigation 
     measures.--A grant under the grant program may be used to 
     implement an earthquake disaster mitigation measure designed 
     to ensure the continued functionality of a critical facility 
     or critical public infrastructure.
       ``(4) Development of earthquake disaster recovery plans.--
       ``(A) In general.--A grant under the grant program may be 
     used to develop an earthquake disaster recovery plan that 
     includes--
       ``(i) a plan for reestablishing government operations and 
     community services after an earthquake disaster; and
       ``(ii) a plan for long-term recovery after an earthquake 
     disaster.
       ``(B) Schedule for payment of grant funds.--Of a grant for 
     measures described in subparagraph (A)--
       ``(i) 50 percent shall be paid upon approval by the 
     Director of the Agency of the application for the grant; and
       ``(ii) 50 percent shall be paid upon adoption of the 
     earthquake disaster recovery plan by the local government, 
     public hospital, or public institution of higher education.

     ``SEC. 7. LOSS REDUCTION TRUST FUND.

       ``(a) Establishment.--There is established in the Treasury 
     of the United States a fund to be known as the `Loss 
     Reduction Trust Fund', consisting of--
       ``(1) such amounts as are appropriated to the Loss 
     Reduction Trust Fund under subsection (b);
       ``(2) such amounts as are appropriated to the Loss 
     Reduction Trust Fund under section 13(e); and
       ``(3) any interest earned on investment of amounts in the 
     Loss Reduction Trust Fund under subsection (d).
       ``(b) Transfers to Loss Reduction Trust Fund.--There are 
     appropriated to the Loss Reduction Trust Fund amounts 
     equivalent to--
       ``(1) such amounts as the Director of the Agency determines 
     are remaining after the close-out of any active disaster 
     declaration account under the Robert T. Stafford Disaster 
     Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.);
       ``(2) such amounts as--
       ``(A) were allocated for hazard mitigation assistance with 
     respect to a major disaster under section 404 of that Act (42 
     U.S.C. 5170c); and
       ``(B) the Director of the Agency determines are remaining 
     after expiration of the time limits established under 
     subsection (c) of that section; and
       ``(3) amounts received as gifts under subsection (f).
       ``(c) Expenditures From Loss Reduction Trust Fund.--Upon 
     request by the Director of the Agency, the Secretary of the 
     Treasury shall transfer from the Loss Reduction Trust Fund to 
     the Director of the Agency such amounts as the Director of 
     the Agency determines are necessary to carry out section 6.
       ``(d) Investment of Amounts.--
       ``(1) In general.--The Secretary of the Treasury shall 
     invest such portion of the Loss Reduction Trust Fund as is 
     not, in the judgment of the Secretary of the Treasury, 
     required to meet current withdrawals. Investments may be made 
     only in interest-bearing obligations of the United States.
       ``(2) Acquisition of obligations.--For the purpose of 
     investments under paragraph (1), obligations may be 
     acquired--
       ``(A) on original issue at the issue price; or
       ``(B) by purchase of outstanding obligations at the market 
     price.
       ``(3) Sale of obligations.--Any obligation acquired by the 
     Loss Reduction Trust Fund may be sold by the Secretary of the 
     Treasury at the market price.
       ``(4) Credits to fund.--The interest on, and the proceeds 
     from the sale or redemption of, any obligations held in the 
     Loss Reduction Trust Fund shall be credited to and form a 
     part of the Loss Reduction Trust Fund.
       ``(e) Transfers of Amounts.--
       ``(1) In general.--The amounts required to be transferred 
     to the Loss Reduction Trust Fund under this section shall be 
     transferred at least monthly from the general fund of the 
     Treasury to the Loss Reduction Trust Fund on the basis of 
     estimates made by the Secretary of the Treasury.
       ``(2) Adjustments.--Proper adjustment shall be made in 
     amounts subsequently transferred to the extent prior 
     estimates were in excess of or less than the amounts required 
     to be transferred.
       ``(f) Gifts.--The Secretary of the Treasury may accept 
     gifts of cash for transfer to the Loss Reduction Trust 
     Fund.''.
       (c) Authorization of Appropriations.--Section 12 of the 
     Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 7706) is 
     amended--
       (1) by redesignating subsection (e) as subsection (f); and
       (2) by inserting after subsection (d) the following:
       ``(e) Loss Reduction Trust Fund.--There is authorized to be 
     appropriated to the Loss Reduction Trust Fund 
     $1,000,000,000.''.
       (d) Postdisaster Assistance.--
       (1) Definitions.--Section 102 of the Robert T. Stafford 
     Disaster Relief and Emergency Assistance Act (42 U.S.C. 5122) 
     is amended by adding at the end the following:
       ``(10) Critical facility.--The term `critical facility' 
     means--
       ``(A) a public structure (including a police station, fire 
     station, city or town hall, school, or other public building) 
     or a public or nonprofit private hospital that is--
       ``(i) owned by an entity; and
       ``(ii) critical to the continuity of the entity or to the 
     conduct of the disaster response activities of the entity; or

[[Page S1760]]

       ``(B) a facility that--
       ``(i) provides medical services to a specific occupational 
     or industry segment of the general public; and
       ``(ii) is operated by an organization described in 
     subsection (c) or (d) of section 501 of the Internal Revenue 
     Code of 1986 and exempt from taxation under subsection (a) of 
     such section.
       ``(11) Critical public infrastructure.--The term `critical 
     public infrastructure' means a utility or transportation 
     system (including a bridge, energy system, water or sewer 
     system, or communication system) that is--
       ``(A) owned by an entity; and
       ``(B) critical to the conduct of the disaster response 
     activities of the entity.''.
       (e) Conforming Amendments.--Section 12(a) of the Earthquake 
     Hazards Reduction Act of 1977 (42 U.S.C. 7706(a)) is amended 
     by inserting ``(as in effect on September 30, 1997)'' after 
     ``6 of this Act'' each place it appears.

     SEC. 9. ADVANCED NATIONAL SEISMIC RESEARCH AND MONITORING 
                   SYSTEM.

       (a) In General.--The Earthquake Hazards Reduction Act of 
     1977 (42 U.S.C. 7701 et seq.) is amended--
       (1) by redesignating section 12 as section 13; and
       (2) by inserting after section 11 the following:

     ``SEC. 12. ADVANCED NATIONAL SEISMIC RESEARCH AND MONITORING 
                   SYSTEM.

       ``(a) Establishment.--The Director of the United States 
     Geological Survey shall establish and operate an advanced 
     national seismic research and monitoring system (referred to 
     in this section as the `system').
       ``(b) Purpose.--The purpose of the system shall be to 
     organize, modernize, standardize, and stabilize the national, 
     regional, and urban seismic monitoring systems in the United 
     States, including sensors, recorders, and data analysis 
     centers, and meld the monitoring systems into a coordinated 
     system that will measure and record the full range of 
     frequencies and amplitudes exhibited by seismic waves, in 
     order to enhance earthquake research and warning 
     capabilities.
       ``(c) Management Plan.--
       ``(1) In general.--Not later than 90 days after the date of 
     enactment of the Earthquake Loss Reduction Act of 2001, the 
     Director of the United States Geological Survey shall submit 
     to Congress a 5-year management plan for establishing and 
     operating the system.
       ``(2) Required elements.--The plan shall include--
       ``(A) annual cost estimates for--
       ``(i) milestones, standards, and performance goals for 
     modernization of the seismic monitoring systems referred to 
     in subsection (b); and
       ``(ii) milestones, standards, and performance goals for 
     operation of the system; and
       ``(B) plans for securing the participation of all existing 
     networks in the system and for establishing new, or enhancing 
     existing, partnerships to leverage resources.
       ``(d) Authorization of Appropriations.--
       ``(1) Establishment.--In addition to amounts made available 
     under section 13(b), there are authorized to be appropriated 
     to establish the system--
       ``(A) $33,500,000 for fiscal year 2002;
       ``(B) $33,700,000 for fiscal year 2003;
       ``(C) $35,100,000 for fiscal year 2004;
       ``(D) $35,000,000 for fiscal year 2005; and
       ``(E) $33,500,000 for fiscal year 2006.
       ``(2) Operation.--In addition to amounts made available 
     under section 13(b), there are authorized to be appropriated 
     to operate the system--
       ``(A) $4,500,000 for fiscal year 2002; and
       ``(B) $10,300,000 for fiscal year 2003.''.
       (b) Conforming Amendments.--Section 2 of Public Law 105-47 
     (42 U.S.C. 7704 note) is amended--
       (1) in subsection (a)(7), by striking ``section 12(b) of 
     the Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 
     7706(b))'' and inserting ``section 13(b) of the Earthquake 
     Hazards Reduction Act of 1977''; and
       (2) in subsection (c)(2), by striking ``section 12(c) of 
     such Act (42 U.S.C. 7706(c))'' and inserting ``section 13(c) 
     of that Act''.
                                 ______