Congressional Record, Volume 150 Issue 73 (Friday, May 21, 2004)

[Congressional Record Volume 150, Number 73 (Friday, May 21, 2004)]
[Senate]
[Pages S6088-S6106]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS

By Mr. LAUTENBERG (for himself, Mr. Kennedy, Mr. Corzine, Ms.
Stabenow, Mrs. Clinton, and Mr. Reed):
S. 2473. A bill to require payment of appropriated funds that are
illegally disbursed for political purposes by the Centers for Medicare
and Medicaid Services; to the Committee on Finance.
Mr. LAUTENBERG. Mr. president, yesterday, the Comptroller General of
the United States ruled that the Bush administration illegally spent
taxpayer dollars for political propaganda in violation of two laws.
To make matters worse, these funds were taken from the Medicare Trust
Fund.
In other words, money reserved for our seniors' healthcare was
illegally used for political activity. It is outrageous.
The President has raised plenty of money for his campaign. Over
200 million dollars. Why does he need to use Medicare funds?

With taxpayer money, the Bush administration produced so-called
``video news released'' --fake news stories that hailed the new
Medicare law--and distributed them to TV stations across the country.
This covert propaganda was never identified as being produced by the
administration. As a result many news stations ran this story as real
news and

[[Page S6089]]

viewers had no idea it was produced by the government.
The phony news stories show scenes of the President receiving a
standing ovation before signing the bill into law and even end with a
sign off from a fake reporter.
The GAO has said that these materials are illegal, but the money is
already spent and that money will likely never be recovered unless we
pass this legislation.
My bill calls on the Bush-Cheney re-election campaign to repay this
money to the Federal Government. It's the right thing to do.
I have long said that this administration's so-called ``education''
campaign on the new Medicare law is fraught with questionable activity.
And now we know that they have in fact acted illegally. I think
somewhere along the way they confused the word ``education'' with
``election.''
This is just the most recent incident in a long line of advertising
by the Bush administration that the non-partisan GAO has called
misleading and political.
If the Bush-Cheney campaign wants to spend funds dollars touting the
new Medicare law, that's their prerogative--but they cannot use
government agencies and taxpayer funds to do it.
I am all for educating seniors, but I will always guard against any
misuse of taxpayer dollars, especially those reserved for Medicare.
I am here today to tell the President: Don't use the people's money
to promote your bid for reelection. It's not only unethical, it's
against the law. Taxpayer money should not be used for political
purposes.
I ask unanimous consent that the text of the bill and the GAO report
be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

S. 2473

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 ``Medicare Trust Fund
Reimbursement Act of 2004''.

SEC. 2. REPAYMENT TO THE MEDICARE TRUST FUNDS OF AMOUNTS
ILLEGALLY DISBURSED FOR POLITICAL PURPOSES.

(a) In General.--Notwithstanding any other provision of
law, if the Comptroller General of the United States
determines that the Centers for Medicare & Medicaid Services
has violated the restriction on using appropriated funds for
publicity or propaganda purposes contained in section 626 of
division J of the Consolidated Appropriations Resolution,
2003 (Public Law 108-7; 117 Stat. 470) or any other provision
of law, the principal campaign committee (as defined in
section 301(5) of the Federal Election Campaign Act of 1971
(2 U.S.C. 431(5))) of the President of the United States
shall reimburse the Federal Government for the amount used in
committing such violation.
(b) Reimbursement of Medicare Trust Funds.--To the extent
that the amount described in subsection (a) was initially
appropriated to the Federal Hospital Insurance Trust Fund
under section 1817 of the Social Security Act or the Federal
Supplementary Medical Insurance Trust Fund under section 1841
of such Act, the amount reimbursed under such subsection
shall be credited to the Trust Fund to which the amount was
initially appropriated.
Comptroller General of the United States, United States
General Accounting Office,
Washington, DC.

Decision

Matter of: Department of Health and Human Services, Centers
for Medicare & Medicaid Services--Video News Releases.

File: B-302710.
Date: May 19, 2004.

DIGEST

1. The Centers for Medicare & Medicaid Services's (CMS) use
of appropriated funds to pay for the production and
distribution of story packages that were not attributed to
CMS violated the restriction on using appropriated funds for
publicity or propaganda purposes in the Consolidated
Appropriations Resolution of 2003, Pub. L. No. 108-7, Div. J,
Tit. VI, Sec. 626, 117 Stat. 11, 470 (2003).
2. CMS, in using appropriations in violation of the
publicity or propaganda prohibition, incurred obligations in
excess of appropriations available for that purpose. See B-
300325, Dec. 13, 2002. Accordingly, CMS violated the
Antideficiency Act, 31 U.S.C. Sec. 1341, and must report the
violation to the Congress and President in accordance with 31
U.S.C. Sec. 1351 and Office of Management and Budget Circular
No. A-11.

DECISION

In a March 10, 2004, opinion, we concluded that the
Department of Health and Human Services's (HHS) use of
appropriated funds to produce and distribute a flyer and
print and television advertisements, as part of a campaign to
inform Medicare beneficiaries about changes to Medicare under
the Medicare Prescription Drug, Improvement and Modernization
Act of 2003 (MMA), did not violate publicity or propaganda
prohibitions in the Consolidated Appropriations Act of 2004,
Pub. L. No. 108-199, Div. F, Tit. VI, Sec. 624, 118 Stat. 3,
356 (2004), and the Consolidated Appropriations Resolution of
2003, Pub. L. No. 108-7, Div. J, Tit. VI, Sec. 626, 117 Stat.
11, 470 (2003). B-302504, Mar. 10, 2004. During our
development of that opinion, we learned that the Centers for
Medicare & Medicaid Services (CMS), an agency in the
Department of Health and Human Services, had prepared as part
of this campaign video news releases or VNRs, including a
news story for television broadcast, to provide information
to the television medium. Letter from Dennis G. Smith,
Director, Center for Medicaid and State Operations, to Gary
L. Kepplinger, Deputy General Counsel, General Accounting
Office (GAO), April 2, 2004 (Smith Letter). The VNRs consist
of (1) video clips known as B-roll film, (2) introductory and
concluding slates with facts about MMA, and (3) prepackaged
news reports referred to as story packages with suggested
lead-in anchor scripts. Importantly, the prepackaged story
packages and anchor scripts did not include statements noting
that they had been prepared by CMS.
Our March 10, 2004, opinion addressed only the flyer and
advertisements and did not address CMS's use of appropriated
funds to prepare and distribute the VNRs. This decision
addresses whether CMS's use of appropriated funds to produce
and distribute the VNRs violated the publicity or propaganda
prohibitions enacted in the Consolidated Appropriations
Resolution of 2003, cited above. CMS told us that it used
fiscal year 2003 CMS program management appropriations to
produce and distribute the VNRs. Smith Letter, Enclosure 1 at
8. As we explain below, we conclude that of the three parts
of the VNRs, one part--the story packages with suggested
scripts--violates the prohibition. In neither the story
packages nor the lead-in anchor scripts did HHS or CMS
identify itself to the television viewing audience as the
source of the news reports. Further, in each news report, the
content was attributed to an individual purporting to be a
reporter but actually hired by an HHS subcontractor.
To perform our analysis, we requested information from CMS
regarding the production, filming and distribution of the VNR
materials. Letter from Gary L. Kepplinger, Deputy General
Counsel, GAO, to Dennis G. Smith, Acting Administrator, CMS,
March 17, 2004. CMS responded by letter dated April 2, 2004.
Smith Letter. We met with agency officials to clarify their
responses and to gain further factual information regarding
the production and distribution of the VNRs at issue. In
addition to the information CMS provided us, we also examined
available information regarding the use of VNRs generally by
the broadcast media and their current use as a public
relations tool.

BACKGROUND

Use of VNRs
VNRs have become a popular public relations tool to
disseminate desired information from private corporations,
nonprofit organizations and government entities, in part
because they provide a cheaper alternative to more
traditional broadcast advertising.\1\ While the practice is
widespread and widely known by those in the media industry,
the quality and content of materials considered to constitute
a VNR can vary greatly.\2\ Generally, a VNR package may
contain a prepackaged news story, referred to as a story
package, accompanied by a suggested script, video clips known
as B-roll film, and various other promotional materials.\3\
These materials are produced in the same manner in which
television news organizations produce materials for their own
news segments.\4\ By eliminating the production effort and
costs of news organizations, producers of VNRs find news
organizations willing to broadcast a favorable news segment
on the desired topic.\5\
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See footnotes at end of article.
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Since 1990, there has been a notable rise in the
distribution of VNR materials.\6\ With growing use of VNRs,
journalism scholars began questioning the effect of this
third-party material upon the perception that news was
derived from a neutral source.\7\ In particular, scholars
raised concerns regarding the influence of third-party
sources.\8\
Given these ethical concerns, there have been a number of
studies of the use of VNRs by the broadcast industry. Several
journalism scholars attribute the rise in the use of VNRs to
the economic circumstances of the industry.\9\ In smaller
broadcast markets during the early 1990s, news stations
suffered significant reductions in staff and budget, and had
difficulty obtaining footage of certain public interest
events.\10\ Footage from an outside source helped stations
fill airtime with programming that would otherwise not be
available and helped avoid depletion of already overextended
funds.\11\
Studies also show, however, that most news organizations
using VNR materials often use only a portion or edited
versions of the materials provided.\12\ Still, parties
interested in obtaining the maximum audience for VNR
materials argue that, even if the story package or scripted
materials are not used in full, the production of a
professionally complete news story provides a framework for
the message conveyed in the

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final broadcast.\13\ This allows the story package producer
to assert some control over the message conveyed to the
target audience.
Also, the use of VNRs may be attributed to the ease with
which the materials may be distributed. While some packages
are distributed directly from the source to the television
stations, satellite and electronic news services such as
provided by CNN Newsource facilitate distribution to a number
of news markets in a short period of time.\14\ Broadcast
stations subscribe to these services, which provide, in
addition to VNR materials, journalist reports and stories,
and advertising.\15\ While the news services label VNRs
differently than independent journalist news reports, there
apparently is no industry standard as to the labeling of
VNRs. In fact, when questioned about the use of the VNR
materials at issue here, some news organizations indicated
that they misread the label or they mistook the story
package as an independent journalist news story on CNN
Newsource.\16\
Professional journalism societies have noted in their codes
of ethics that journalists should resist influence from
outside sources, including advertisers and special interest
groups.\17\ Because VNRs consist of information generated by
a group with a distinct perspective on an issue, the
unfettered use of VNRs may run afoul of these principles.\18\
Moreover, professional organizations warn against using
materials that would deceive audiences.\19\ VNRs that
disclose the source of information to the target audience
alleviate these ethical concerns.
CMS's Medicare VNRs
The CMS VNRs consist of three videotapes with corresponding
scripts. CMS informed us that these videotapes represent what
a news organization would receive when obtaining the VNR
materials. Two of the videotapes are in English, and one is
in Spanish. The two English videotapes contain three items:
(1) video clips, referred to as B-roll, (2) slates
containing, among other things, title cards with facts on
MMA, and (3) a video segment called a ``story package.'' \20\
The B-roll provides news organizations with footage for use
in developing their own news reports. The slate is a visual
feed from CMS to recipient news organizations that contains
some facts regarding MMA.\21\ The last slate in the VNR
materials directs the receiving news station to contact CMS
for information on the VNR materials. The story packages are
news reports prepared by CMS rather than a news organization.
The B-roll clips on each videotape are exactly the same and
contain footage of President Bush, in the presence of Members
of Congress and others, signing MMA into law, and a series of
clips of seniors engaged in various leisure and health-
related activities, including consulting with a pharmacist
and being screened for blood pressure. The English videotapes
also include clips of Tommy Thompson, the Secretary of the
Department of Health and Human Services (HHS), and Leslie
Norwalk, Acting Deputy Administrator of CMS, making
statements regarding changes to Medicare under MMA. The
Spanish videotape includes clips of Dr. Cristina Beato of CMS
offering statements about MMA's changes to Medicare, instead
of Thompson and Norwalk.
The two English VNRs contain segments entitled ``story
packages'' that consist of self-contained news reports
regarding Medicare benefits under MMA. Although the English
story packages contain several of the same B-roll video clips
and the same narrator, identified as Karen Ryan, the contents
of the two story packages vary. With each story package, CMS
included a script for a news anchor of the recipient news
organization to read as a lead-in to the CMS produced news
report. One story package focuses on CMS's advertising
campaign regarding MMA (Story Package 1). The suggested
anchor lead-in states that ``the Federal Government is
launching a new, nationwide campaign to educate 41 million
people with Medicare about improvements to Medicare.'' The
lead-in ends with ``Karen Ryan explains.'' The video portion
of the story package begins with an excerpt of the television
advertisement with audio indicating ``it's the same Medicare
you've always counted on plus more benefits.'' Karen Ryan
explains, ``That's the main message Medicare's advertising
campaign drives home about the law.'' As more clips from the
advertisement appear, Karen Ryan continues her narration,
indicating that the campaign helps beneficiaries answer their
questions about the new law, the administration is
emphasizing that seniors can keep their Medicare the same,
and the campaign is part of a larger effort to educate people
with Medicare about the new law. The story package ends with
Karen Ryan stating: ``In Washington, I'm Karen Ryan
reporting.''
The second English story package (Story Package 2) focuses
on various provisions of the new prescription drug benefit of
MMA and does not mention the advertising campaign of CMS. The
anchor lead-in states: ``In December, President Bush signed
into law the first ever prescription drug benefit for people
with Medicare.'' The anchor lead-in then notes, ``[t]here
have been a lot of questions about'' MMA and its changes to
Medicare and ``Karen Ryan helps sort through the details.''
The video portion of the news report starts with footage of
President Bush signing MMA. Karen Ryan's voice narration
indicates that when MMA was ``signed into law last month,
millions of people who are covered by Medicare began asking
how it will help them.'' Next, the segment runs footage of
Tommy Thompson, in which he states that ``it will be the same
Medicare system but with new benefits. . . .'' Karen Ryan
continues her narration, stating ``most of the attention has
focused on the new prescription drug benefit . . . all people
with Medicare will be able to get coverage that will lower
their prescription drug spending . . . Medicare will offer
some immediate help through a discount card.'' She also tells
viewers that new preventive benefits will be available, low-
income individuals may qualify for a $600 credit on available
drug discount cards, and ``Medicare officials emphasize that
no one will be forced to sign up for any of the new
benefits.'' Karen Ryan's narration leads into clips of
Secretary Thompson and Leslie Norwalk explaining other
beneficial provisions of MMA. Similar to Story Package 1,
Story Package 2 ends with ``In Washington, I'm Karen Ryan
reporting.''
The Spanish-language materials contain the same three items
as the English language VNRs-a B-roll, slates and a story
package (Story Package 3). After the B-roll segments, the
story package segment appears. This segment is considerably
longer than its two English counterparts. Similar to Story
Package 2, Story Package 3 focuses on prescription drug
benefits available under MMA. It does not mention that CMS is
engaging in an advertising campaign. Here, the anchor lead-in
is similar to Story Package 2, except the anchor indicates
that Alberto Garcia ``helps sort through the details.'' The
video segment begins with the footage of President Bush
signing MMA into law as Alberto Garcia narrates that after
signing the law, millions of people who are covered by
Medicare began asking how the new law will help them. The
remainder of the story package contains identical footage of
Dr. Beato and of seniors engaged in various activities as in
the B-roll footage. During the video clips of seniors,
Alberto Garcia narrates that the focus of most of the
attention to MMA is on the prescription drug benefit
available in 2006. He also explains that prescription drug
discount cards will be available in June 2004 and that
``[p]eople with Medicare may be able to choose from several
different drug discount cards, offering up to 25 percent
savings on certain medications.'' \22\ Alberto Garcia
concludes his report, stating: ``In Washington, I'm Alberto
Garcia reporting.''
In response to our request for more factual information on
CMS's practice of using VNRs, CMS forwarded to us a fourth
videotape. This tape contains Story Package 2 and two VNRs,
each of which CMS described as a ``produced story segment,''
that HHS produced and distributed in 1999 under then-
Secretary Donna Shalala of the Clinton Administration. Smith
Letter at 2. These two story packages were designed to inform
beneficiaries of the Clinton Administration's position on
prescription drug benefits and preventive health benefits.
CMS pointed out similarities between the story packages in
current use and the earlier ones. Much like the story
packages at issue here, the earlier story packages contain
footage of seniors engaging in various activities, then-HHS
Secretary Donna Shalala appearing to answer questions
regarding the provisions of proposed legislation for a
prescription drug benefits and preventive health benefits,
and a report of the Administration's proposal. The earlier
story packages end with the phrase, ``Lovell Brigham,
reporting.''
Distribution of Medicare VNRs
CMS explained to us that HHS hired Ketchum, Inc., to
disseminate information regarding the changes to Medicare
under MMA. Specifically, HHS contracted with Ketchum to
assist HHS and its agencies with a ``full range of social
marketing activities to plan, develop, produce, and deliver
consumer-based communication programs, strategies, and
materials.'' Ketchum Contract at 2. Ketchum hired Home Front
Communications (HFC) to create the VNR materials. HFC is a
broadcast public relations firm specializing in producing
video products. Smith Letter, Enclosure 1 at 6-7. HFC wrote
the VNR scripts, which were reviewed, edited, and approved by
CMS and HHS. Id. at 7. HFC completed all production work,
including filming, audio work and editing. The final VNR
packages were reviewed and approved by CMS and HHS. Id.
The VNR materials were then distributed to television
stations via satellite, electronic services provided by CNN
Newsource, and/or mail. Id. at 2. CMS and HFC staff members
contacted some news directors by telephone to inform the
stations that the materials were available. Id. Additionally,
CMS e-mailed and faxed news advisories to news stations
regarding the VNR availability. Id.; see also Smith Letter,
Enclosure 4. The advisory indicated the satellite coordinates
to obtain the materials, how to find the materials on CNN
Newsource, and bullet-point key facts regarding the new
benefits available. Smith Letter, Enclosure 4. The advisory
further explains what the visual elements of the VNR
consisted of, including interviews, a story package, and B-
roll. Id. All stations could access satellite distribution.
Smith Letter, Enclosure 1 at 6. Computers of the subscribing
location stations' newsrooms could access CNN Newsource. Id.
The advisory directed news stations to contact Robin Lane, an
HFC employee, for more information on retrieving VNR
materials. CMS also mailed videotapes of VNR materials to
those television stations that requested the material. Smith
Letter, Enclosure 4. CMS provided us a list of television

[[Page S6091]]

stations that aired at least some portion of the VNRs
between January 22, 2004, and February 12, 2004. This list
contained 40 stations in 33 different markets. Smith
Letter, Enclosure 3. CMS did not identify what parts of
the VNR each station broadcasted. One of the stations that
aired the story package was WBRZ, Baton Rouge, Louisiana.
According to transcripts published on the World Wide Web,
WBRZ broadcast Story Package 2 and used the suggested
anchor lead-in script on January 22, 2004, in its
entirety.\23\ At least two other television stations may
have aired either Story Package 1 or 2 in their entirety.
A review of excerpts of transcripts from Video Monitoring
Services of America show that two stations, WMBC-TV in New
Jersey (Story Package 1) and WAGA-TV in Atlanta (Story
Package 2), aired MMA news stories ending with Karen
Ryan's by-line.\24\

DISCUSSION

This is the first occasion that we have had to review the
use of appropriated funds by government entities to engage in
the production of VNRs. At issue here is whether CMS's use of
appropriated funds to produce VNR materials constituted a
proper use of those funds. In its written response and during
our informal interview, CMS contended that the production of
the VNR materials constitutes a ``standard practice in the
news sector'' and a ``well-established and well-understood
use of a common news and public affairs practice.'' Smith
Letter at 2. While we recognize that the use of VNR
materials, with already prepared story packages, is a common
practice in the public relations industry and utilized not
only by government entities but also the private and non-
profit sector as well, our analysis of the proper use of
appropriated funds is not based upon the norms in the public
relations and media industry.
CMS told us that it used fiscal year 2003 CMS program
management appropriations to produce and distribute the VNR
package. Smith Letter, Enclosure 1 at 8. While CMS may have
authority to use appropriated funds to disseminate
information regarding the changes to Medicare pursuant to
MMA,\25\ this authority is subject to the publicity or
propaganda prohibition appearing in the annual appropriation
act.\26\ Specifically, this prohibition states: ``No part of
any appropriation contained in this or any other Act shall be
used for publicity or propaganda purposes within the United
States not heretofore authorized by the Congress.'' Pub. L.
No. 108-7, Div. J, Tit. VI, Sec. 626, 117 Stat. 11, 470
(2003).
Our March 10, 2004, opinion noted that to date we have
applied the publicity or propaganda restriction to prohibit
the use of appropriated funds for materials that are self-
aggrandizing, purely partisan in nature, or covert as to
source. See generally B-302504. Of these three types, the VNR
materials on MMA raise concerns as to whether they constitute
``covert'' propaganda because they are misleading as to
source.\27\
CMS asserts that, in keeping with the traditional practices
in the media industry, CMS or the service it used to
distribute the VNR materials clearly labeled the materials as
VNRs. See generally Smith Letter. Because they are so labeled
and easily identifiable among those in the media, CMS
contends that the story packages could not be considered
misleading as to source. CMS officials also assert that it
was not their intent to distribute the VNR materials to the
broadcast stations covertly and that the labeling of the
entire VNR package clearly attributes the source of the
information to HHS and CMS. Smith Letter, Enclosure 1 at 4.
The ``critical element of covert propaganda is the
concealment of the agency's role in sponsoring the
materials.'' B-229257, June 10, 1988. In our case law,
findings of propaganda are predicated upon the fact that the
target audience could not ascertain the information source.
For example, we found government-prepared editorials to be
covert propaganda; although the newspapers who would have
printed the suggested editorials should have been aware of
the source, the reading public would not have been aware of
the source. B-223098, Oct. 10, 1986. In that case, we
examined materials concerning President Reagan's proposal to
transfer the Small Business Administration (SBA) to the
Department of Commerce. Id. In support of the
Administration's proposal, SBA prepared and distributed a
variety of materials, including suggested editorials. SBA
prepared these editorials and provided them to newspapers
around the country to run as the position of the recipient
newspapers without disclosing to the readers of those
editorials that SBA was the source of the information.
Because the SBA-prepared editorials did not identify SBA as
the source, SBA's use of appropriated funds to prepare and
distribute the editorials violated the publicity or
propaganda prohibition.\28\
In a 1987 case, the Department of State's Office of Public
Diplomacy for Latin America violated the prohibition by
paying consultants to write op-ed pieces in support of the
Administration's policy on Central America for distribution
to newspapers. B-229069, Sept. 30, 1987. The State Department
did not advise the newspapers of its involvement in the
writing of the op-ed pieces. The newspapers published these
articles for distribution to an equally uninformed audience
of individual readers. These materials were ``propaganda''
within the ``common understanding'' of the term, and they
constituted ``deceptive covert propaganda'' designed to
influence the media and public to support the
Administration's Latin American policies. Id.
In defending its VNRs, CMS fails to distinguish among the
three separate parts of its VNRs and the intended audience
for each part. We do not dispute the fact that CMS labeled
the entire package of VNR materials so that the receiving
news organizations could identify HHS or CMS as the source of
the information, whether they were received directly from CMS
through the mail or retrieved by the news organizations from
CNN Newsource or other satellite services.\29\ However, in
both B-223098 and B-229069, the readers of the printed
editorials and op-ed pieces would not have been aware of the
government's influence. In analyzing whether the three
separate materials that make up the VNR package are covert
propaganda, we do not consider the VNR as a whole, because
each of the three items that comprise the VNR was prepared
for a different purpose and audience.
In its written response and during our interviews, CMS
indicated that the 41 million Medicare beneficiaries, who may
comprise the news stations' viewing audience, and not just
the television stations themselves, were the intended
audience of the VNR materials. Some VNR materials, including
the B-roll and the slates, could not reasonably be targeted
directly to a television viewing audience. By their very
nature, the B-roll and slates were designed to be
incorporated in a news story of the receiving stations' own
creation. CMS clearly identified itself as the source of
these materials to the television stations receiving them.
CMS made efforts to notify the news stations of the
availability of these materials via e-mail, telephone, and
facsimile and the available distribution sources identified
the materials as a VNR. Smith Letter at 2, Enclosure 1 at 2.
Accordingly, the B-roll and slates do not violate the
publicity or propaganda prohibition.
The story packages and lead-in scripts, however, were
clearly designed to be seen and heard directly by the
television viewing audience and not solely by the media
receiving the package. CMS and HHS officials told us that the
story packages were designed so that television stations
could include them in their news broadcasts exactly as CMS
had produced them, without any production effort by the
stations. The suggested anchor lead-in scripts facilitate the
unaltered use of the story package, announcing the package as
a news story by Karen Ryan or Alberto Garcia. Importantly,
CMS included no statement or other reference in either the
story package or the anchor lead-in script to ensure that the
viewing audience would be aware that CMS is the source of the
purported news story.
The story packages, similar to the SBA editorials and the
State Department op-ed pieces, could be reproduced with no
alteration thereby allowing the targeted audience to believe
that the information came from a nongovernment source or
neutral party. The story packages of the VNRs consist of a
complete message that could be reproduced directly by the
news organizations to be viewed by the audience of the
newscasts. As such, the viewing audience does not know, for
example, that Karen Ryan and Alberto Garcia were paid with
HHS funds for their work.
The receiving news organization's ability to edit the story
packages to produce an independent news story does not negate
the fact that CMS designed the segments to broadcast as CMS
had produced them. CMS's effort to identify itself to the
news organizations that received the VNRs did not alert
television viewers that CMS was the source of the story
package. CMS has acknowledged that the television viewer was
the targeted audience. Because CMS did not identify itself as
the source of the news report, the story packages, including
the lead-in script, violate the publicity or propaganda
prohibition.\30\
In a modest but meaningful way, the publicity or propaganda
restriction helps to mark the boundary between an agency
making information available to the public and agencies
creating news reports unbeknownst to the receiving audience.
It is not the only marker Congress has placed in statute
between the government and the American press, however.
Consistent with the restrictions on publicity or propaganda
``within the United States,'' \31\ Congress has prohibited
the U.S. Information Agency and its succeeding agency, Board
of Broadcasting Governors, created by Congress for the
purpose of producing pro-U.S. government news reports and
print materials for international audiences, 22 U.S.C.
Sec. 1461, from broadcasting to domestic audiences, 22 U.S.C.
Sec. Sec. 1461(b), 1461-1a.\32\ In limiting domestic
dissemination of the U.S. government-produced news reports,
Congress was reflecting concern that the availability of
government news broadcasts may infringe upon the traditional
freedom of the press and attempt to control public opinion.
See B-118654-O.M., Feb. 12, 1979. Congress also restricted
government-produced programming for domestic audiences in the
law creating the Public Broadcasting Corporation. 47 U.S.C.
Sec. 396. Although the mission of the Public Broadcasting
Corporation includes instructional, educational and cultural
purposes, the statute creating the Corporation prohibits the
Corporation from directly producing any news programming. 47
U.S.C. Sec. 396(g)(3)(A) & (B).\33\ While Congress authorized
HHS to conduct a wide-range of informational activities, CMS
was given no authority to produce and disseminate
unattributed news stories.

[[Page S6092]]

CMS makes two other arguments in support of its use of
appropriated funds to produce and distribute the story
packages. Neither argument is persuasive. CMS argues that the
VNR materials cannot be covert propaganda because the VNR
materials were not produced as a ``purported editorial,
advocacy piece or commentary.'' Smith Letter, Enclosure 1 at
4. CMS asserts that the narration by Karen Ryan (and
presumably Alberto Garcia) does not take a position on the
MMA. Id. While we agree that the story packages may not be
characterized as editorials, explicit advocacy is not
necessary to find a violation of the prohibition.\34\ As with
the SBA-suggested editorials, the content of the story
packages themselves would not violate the publicity or
propaganda prohibition if identifying the source to the
target audience were not an issue. See B-302504, Mar. 10,
2004.
Further, CMS refers to our recent opinion in B-301022, Mar.
10, 2004, regarding the Office of National Drug Control
Policy's (ONDCP) open letter to state-level prosecutors
opposing efforts to legalize marijuana and other controlled
substances.\35\ Smith Letter, Enclosure 1 at 3. The open
letter contained two attachments, one of which did not
identify ONDCP as the source of the information. B-301022,
Mar. 10, 2004. We found that the unidentified attachment was
not a violation of the publicity or propaganda prohibition
because the document was part of a package that clearly
identified ONDCP as the source and because there was no
attempt to portray the contents of the document as the
position of an individual outside the agency. Id.
This reasoning cannot be applied to the story packages at
issue here. The target audience of the ONDCP letter and
attachments, the state prosecutors, had access to the entire
package. The television viewing audiences, however, could not
view the entire MMA VNR package. Evidence shows, and CMS
acknowledges, that the story package could be broadcast
without edit or alteration, and actually was broadcasted
unedited in some markets. Television audiences viewing the
story packages were not in a position to determine the source
from the other materials in the VNR packages. Unlike the
ONDCP materials, the content of the message expressed in the
story packages was attributed to alleged reporters, Karen
Ryan and Alberto Garcia, and not to HHS or CMS. Nothing in
the story packages permit the viewer to know that Karen Ryan
and Alberto Garcia were paid with federal funds through a
contractor to report the message in the story packages. The
entire story package was developed with appropriated funds
but appears to be an independent news story. The failure to
identify HHS or CMS as the source within the story package is
not remedied by the fact that the other materials in the VNR
package identify HHS and CMS as the source of the materials
or that the content of the story package did not attempt to
attribute the agency's position to an individual outside the
agency.\36\
HHS's misuse of appropriated funds in violation of the
publicity or propaganda prohibition also constitutes a
violation of the Antideficiency Act, 31 U.S.C. Sec. 1341(a).
The Antideficiency Act prohibits making or authorizing an
expenditure or obligation that exceeds available budget
authority. See B-300325, Dec. 13, 2002. Because CMS has no
appropriation available for the production and distribution
of materials that violate the publicity or propaganda
prohibition, CMS has violated the Antideficiency Act, 31
U.S.C. Sec. 1341(a). See B-300325, Dec. 13, 2002. CMS must
report its Antideficiency Act violation to the President and
the Congress. 31 U.S.C. Sec. 1351.\37\ Office of Management
and Budget Circular No. A-11 provides guidance to executive
agencies on information to include in Antideficiency Act
reports.

CONCLUSION

Although the VNR materials were labeled so that the
television news stations could identify CMS as the source of
the materials, part of the VNR materials--the story packages
and lead-in anchor scripts--were targeted not only to the
television news stations but also to the television viewing
audience. Neither the story packages nor scripts identified
HHS or CMS as the source to the targeted television audience,
and the content of the news reports was attributed to
individuals purporting to be reporters, but actually hired by
an HHS subcontractor. For these reasons, the use of
appropriated funds for production and distribution of the
story packages and suggested scripts violated the publicity
or propaganda prohibition of the Consolidated Appropriation
Resolution of 2003, Pub. L. No. 108-7, Div. J, Tit. VI,
Sec. 626, 117 Stat. 11, 470 (2003). Moreover, because CMS had
no appropriation available to produce and distribute
materials in violation of the publicity or propaganda
prohibition, CMS violated the Antideficiency Act, 31 U.S.C.
Sec. 1341. CMS must report the Antideficiency Act violation
to the Congress and the President. 31 U.S.C. Sec. 1351.
Anthony H. Gamboa,
General Counsel.

footnotes

\1\ Eugene Marlowe, Sophisticated ``News'' Videos Gain Wide
Acceptance, Pub. Rel. J. 17 (Aug./Sept. 1994).
\2\ In 1991, it was reported that 78 percent of news
directors polled used edited VNRs at least once a week in
their broadcasts. Bob Sonenclar, The VNR Top Ten: How Much
Video PR Gets On the Evening News?, Col. J. Rev. 14 (Mar. 1,
1991). In 1992, another source reported that 100 percent of
polled stations admitted to using some VNR materials in their
newscasts. Anne R. Owen and James A. Karrh, Video News
Releases: Effects on Viewer Recall and Attitudes, 22 Pub.
Rel. Rev. 369 (Winter 1996). In 2001, it was reported that
approximately 800 television stations in the United States
use VNRs. Mark D. Harmon and Candace White, How Television
News Programs Use Video News Releases, 27 Pub. Rel. Rev. 213
(June 22, 2001).
\3\ Marlowe, supra note 1, at 17.
\4\ Id.
\5\ Glen T. Cameron and David Blount, VNRs and Air Checks: A
Content Analysis of the Use of Video News Releases in
Television Newscasts, 73 Journalism and Mass Comm. Q. 890,
891 (Winter 1996) (summarizes the logistic and resource
constraints of the media industry attributed to the media's
decision to utilize VNR material).
\6\ Sonenclar, supra note 2, noting the anticipated rise in
the use of VNRs. Harmon and White, supra note 2, noting the
new importance of using VNRs in the media industry in the
late 1980s and into the 1990s.
\7\ See generally Harmon and White, supra note 2, summarizing
the various studies in the 1990s regarding the ethics of
using VNRs in the journalism industry.
\8\ Id.; see also Owen and Karrh, note 2, examining the
credibility of news programming using messages derived from
VNRs.
\9\ Marlowe, supra note 1, at 17. See also Cameron and
Blount, supra note 5, at 893.
\10\ Owen and Karrh, supra note 2. Cameron and Blount, supra
note 5, at 893.
\11\ Cameron and Blount, supra note 5, at 893.
\12\ Id. This study showed that most news stations,
regardless of size of the market, did not use the prepackaged
news stories on a wide scale basis. The study noted that,
while most stations used part of the VNRs, very few stations
used the prepackaged story with no alteration.
\13\ Id. at 901.
\14\ Harmon and White, supra note 2.
\15\ Zachary Roth, Fact Check, CNN: Spinning PR into News,
CJR Campaign Desk, Mar. 22, 2004, available at http://
www.campaigndesk.org/archives/000318.asp.
\16\ Id. The article also notes that most news directors that
ran the VNRs at issue here expressed displeasure with the
Administration, and some thought the distribution of the VNR
took ``advantage of the smaller stations' well-known lack of
resources.''
\17\ See Code of Ethics and Professional Conduct Radio--
Television News Directors Association (RTNDA), available at
http://www.rtnda.org/ethics/coe.html; see also Society of
Professional Journalists (SPJ) Code of Ethics, available at
http://www.spi.org/ethics code-asp.
\18\ SPJ Code of Ethics states: ``Deny favored treatment to
advertisers and special interests and resist their pressure
to influence news coverage.'' SPJ Code of Ethics, supra note
17. RTNDA Code of Ethics states: ``Gather and report news
without fear or favor, and vigorously resist undue influence
from any outside forces, including advertisers, sources,
story subjects, powerful individuals, and special interest
groups.'' Code of Ethics and Professional Conduct RTNDA,
supra note 17.
\19\ RTNDA Code of Ethics states: ``Clearly disclose the
origin of information and label all material provided by
outsiders.'' (Emphasis added.) SPJ Code of Ethics states:
``Identify sources whenever feasible. The public is entitled
to as much information as possible on sources' reliability.''
\20\ In addition to these materials, one of the English-
language videos contains footage of an advertisement that
appeared on national television. Our legal opinion of March
10, 2004, B-302504, reviewed this material, and found that
HHS's use of appropriated funds for the advertisement did not
violate the publicity or propaganda prohibition.
\21\ In addition to the title cards, the slates contain the
visual feeds of the B-roll and the story packages. Each slate
may be separated and edited for individual use by the
receiving television station. For example, the receiving
station could separate the slate with the B-roll footage of
seniors engaged in health-related activities from the other
B-roll footage and the story packages. The station could then
use this slate separately from the remaining VNR materials.
\22\ In Story Package 2, Leslie Norwalk, in one of her
``interview'' video clips, not Karen Ryan, the reporter, made
this point.
\23\ The transcript, available http://www.2theadvocate.com/
scripts/012304/noon.htm, was accessed on April 7, 2004.
\24\ The partial transcripts indicate the time each news item
was broadcast, the topic discussed, some information on
visual clips, and the reporter on the assignment. For
example, the partial transcript for the WAGA-TV transcript
indicated that the story ran for 1 minute and 22 seconds,
contained video clips from the television campaign
advertisements and a pharmacy checkout, an interview with
Tommy Thompson, and Karen Ryan reporting from Washington. See
Video Monitoring Services of America, Good Day Atlanta,
February 4, 2004, available at www.nexis.com.
\25\ See generally, MMA Sec. 101(a) (adding new sections to
the Social Security Act and expanding HHS's authority to
engage in information dissemination activities to inform
Medicare beneficiaries about their benefits).
\26\ We need not speculate, and this decision does not
address, what type of authorization an agency must have, and
how specific that authority would have to be, to prepare and
distribute a ``news story'' absent a prohibition on publicity
or propaganda.
\27\ We did not criticize the flyer and advertisements under
consideration in our March 10, 2004, opinion as covert
propaganda because all of the materials identified HHS or CMS
as the source to every audience viewing the material.
\28\ We compared SBA's editorials to lobbying campaigns,
attempting to manipulate the perception that public support
for an issue was greater than it actually was. Id.; see also
B-129874, Sept. 11, 1978 (criticizing a plan to distribute
``canned editorial materials'').
\29\ Some news organizations reported that the use of such
information was a mistake due to their own misreading of the
label on the materials received or some confusion as to the
labeling by CNN Newsource. Later reports indicate that CNN
Newsource has changed its cataloguing and labeling of VNRs in
response to these reports. See Zachary Roth, Fact Check: CNN
Cracks Down--on CNN, CJR Campaign Desk, Mar. 31, 2004,
available at http://www.campaigndesk.org/archives/000358.asp.
\30\ As we noted in the background section of this decision,
CMS forwarded to us a videotape including what CMS described
as two story packages that HHS had produced and distributed
during the Clinton Administration in October 1999. These two
story packages were not brought to our attention at that
time. Had we been aware of the use of story packages in this
or other contexts, the principles discussed here would have
been applicable. We note, however, that accounts of the
government are settled by operation of law three years after
the close of the fiscal year. 31 U.S.C. Sec. 3526(c).

[[Page S6093]]

\31\ The prohibition restricts publicity or propaganda
``within the United States.'' The Consolidated Appropriations
Resolution of 2003, Pub. L. No. 108-7, Div. J, Tit. VI,
Sec. 626, 117 Stat. 11, 470 (2003).
\32\ There are some limited exceptions in which Broadcasting
Board of Governors and United States Information Agency
materials could be viewed by a domestic audience. 22 U.S.C.
Sec. 1461(b). None of these exceptions are relevant here.
\33\ The Administration and Congress have significant control
over the Public Broadcasting Corporation (PBC). The President
appoints and the Senate confirms the nine members of the
Board of Directors. 47 U.S.C. Sec. 396(c)(2). PBC is required
to report annually to Congress regarding its operations,
activities, financial condition and accomplishments. 47
U.S.C. Sec. 396(i).
\34\ Although the story package content may not contain
strong editorial positions on the benefits of MMA, they are
not strictly factual news stories as HHS contends. On
balance, the contents of the story packages consist of a
favorable report on effects on Medicare beneficiaries,
containing the same notable omissions and weaknesses as the
flyer and advertisements that we reviewed in our March 2004
opinion.
\35\ The National District Attorneys Association sent the
open letter and attachments with its own cover letter to the
state-level prosecutors.
\38\ CMS also argues that VNRs are similar to press releases
as ``[e]ach is designed to provide information to reporters
and is crafted for the use by the media to which it is
directed. Each provides quotes, facts and background that a
reporter can use to write or produce a story. Each is created
to provide context to the issue.'' Smith Letter at 1. There
may, indeed, be similarities between these two public
relations tools. We are familiar with the practice of
preparing press releases to include information useful to
reporters who then prepare and produce their own news stories
for publication. With the story packages, CMS prepared news
stories using alleged reporters rather than simply offering
information to reporters who would prepare their own stories.
\37\ We were unable to identify the amount of HHS's
violation. HHS advised that the English language story
packages cost $33,250, and that the Spanish language VNR cost
$9,500. Smith Letter, Enclosure 1 at 8. Although requested,
HHS did not provide further documentation of these costs to
us. We did not audit these amounts.
______

By Mr. ALLARD (for himself, Mr. Durbin, and Ms. Landrieu):
S. 2474. A bill to amend the Internal Revenue Code of 1986 to allow
penalty-free withdrawals from retirement plans during the period that a
military reservist or national guardsman is called to active duty for
an extended period, and for other purposes; to the Committee on
Finance.
Mr. ALLARD. Mr. President, I rise to introduce the Guardsmen and
Reservists Financial Relief Act of 2004. National guardsmen and
reservists are serving our country with virtue and valor in the war on
terror. These brave men and women deserve recognition for the many
sacrifices they make in serving and protecting this great country.
Their families also deserve protection from potential financial
hardships experienced at home that may result from the guardsmen or
reservists being called to service.
Since September 11, 2004, many men and women have left their jobs in
the private sector to fill vitally needed positions for our national
defense. In playing the role of true citizen soldiers, some have taken
drastic pay cuts from their civilian jobs in order to fulfill their
duty to their country. This is beginning to create financial strains on
their families.
The Department of Defense estimates that 3 percent of its reservists
have been called up more than once since September 11, 2001.
Additionally, the GAO reports that nearly 41 percent of reservists are
impacted by a pay discrepancy between his or her military and civilian
salary.
The Guardsmen and Reservists Financial Relief Act of 2004 will see
that the families and loved ones of Guard members and reservists, who
are called to service after September 11, 2001, can access retirement
funds without incurring any penalties.
This important legislation will allow Guard members and reservists
who are activated for more than 179 days to make penalty-free early
withdrawals from their IRA or 401(k) plan.
This bill retroactively covers members of the Guard and Reserve who
were called to service beginning on September 11, 2001, and extends
coverage to those who may continue to be called on to serve on an
active basis through September 12, 2005.
Furthermore, this bill will encourage repayment of any withdrawal
from an IRA or 401(k) fund within 2 years of a guardsman or reservist
ending their active duty, ensuring retirement, financial security for
soldiers and their families.
It also temporarily lifts the contribution cap to equal the amount of
the withdrawn funds to allow for full repayment.
National Guard members and military reservists have been imperative
to the military strength of our Nation over the years. Today, almost
half of our military strength is from those who serve in the National
Guard and military Reserve. There are currently 169,000 National Guard
members and military reservists on active duty helping fight the war on
terror.
Since September 11, 2001, 373,707 total National Guard members and
military reservists have been mobilized. There is no doubt we owe a
great deal to our men and women in uniform who are so honorably serving
their country by fighting the war on terror. Helping to ease the
financial burdens of families of Guard members and reservists is a good
start.
I look forward to working with my colleagues in the Senate on the
Guardsmen and Reservists Financial Relief of 2004 to provide members of
our National Guard and military Reserve with the financial relief they
deserve for loyally serving and protecting this country.
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. 2474

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 ``Guardsmen and Reservists
Financial Relief Act of 2004''.

SEC. 2. PENALTY-FREE WITHDRAWALS FROM RETIREMENT PLANS FOR
INDIVIDUALS CALLED TO ACTIVE DUTY FOR AT LEAST
179 DAYS.

(a) In General.--Paragraph (2) of section 72(t) of the
Internal Revenue Code of 1986 (relating to 10-percent
additional tax on early distributions from qualified
retirement plans) is amended by adding at the end the
following new subparagraph:
``(G) Distributions from retirement plans to individuals
called to active duty.--
``(i) In general.--Any qualified reservist distribution.
``(ii) Amount distributed may be repaid.--Any individual
who receives a qualified reservist distribution may, at any
time during the 2-year period beginning on the day after the
end of the active duty period, make one or more contributions
to an individual retirement plan of such individual in an
aggregate amount not to exceed the amount of such
distribution. The dollar limitations otherwise applicable to
contributions to individual retirement plans shall not apply
to any contribution made pursuant to the preceding sentence.
No deduction shall be allowed for any contribution pursuant
to this clause.
``(iii) Qualified reservist distribution.--For purposes of
this subparagraph, the term `qualified reservist
distribution' means any distribution to an individual if--

``(I) such distribution is from an individual retirement
plan, or from amounts attributable to employer contributions
made pursuant to elective deferrals described in subparagraph
(A) or (C) of section 402(g)(3) or section
501(c)(18)(D)(iii),
``(II) such individual was (by reason of being a member of
a reserve component (as defined in section 101 of title 37,
United States Code)), ordered or called to active duty for a
period in excess of 179 days or for an indefinite period, and
``(III) such distribution is made during the period
beginning on the date of such order or call and ending at the
close of the active duty period.

``(iv) Application of subparagraph.--This subparagraph
applies to individuals ordered or called to active duty after
September 11, 2001, and before September 12, 2005. In no
event shall the 2-year period referred to in clause (ii) end
before the date which is 2 years after the date of the
enactment of this subparagraph.''.
(b) Conforming Amendments.--
(1) Section 401(k)(2)(B)(i) of such Code is amended by
striking ``or'' at the end of subclause (III), by striking
``and'' at the end of subclause (IV) and inserting ``or'',
and by inserting after subclause (IV) the following new
subclause:

``(V) the date on which a period referred to in section
72(t)(2)(G)(iii)(III) begins, and''.

(2) Section 403(b)(11) of such Code is amended by striking
``or'' at the end of subparagraph (A), by striking the period
at the end of subparagraph (B) and inserting ``, or'', and by
inserting after subparagraph (B) the following new
subparagraph:
``(C) for distributions to which section 72(t)(2)(G)
applies.''.
(c) Effective Date.--The amendments made by this section
shall apply to distributions after September 11, 2001.
______

By Mr. AKAKA (for himself, Mr. Durbin, Mr. Leahy, and Mr.
Schumer):
S. 2475. A bill to require enhanced disclosure to consumers regarding
the consequences of making only minimum required payments in the
repayment of credit card debt; to the Committee on Banking, Housing,
and Urban Affairs.
Mr. AKAKA. Mr. President, I rise today to introduce the Credit Card
Minimum Payment Warning Act. I greatly appreciate the significant
contributions Senator Durbin made to this

[[Page S6094]]

bill, and I thank him very much for that. Also, I thank Senator Leahy
and Senator Schumer for cosponsoring this legislation.
Americans are carrying enormous amounts of debt. In 2003, consumer
debt increased for the first time to more than $2 trillion, according
to the Federal Reserve. This is a 28-percent increase since the year
2000. According to the Daily Bankruptcy News, consumer debt is now
equal to 110 percent of disposable income. Ten years ago, it was 85
percent; and 20 years ago, it was 65 percent. A key component of
household debt can be attributed to the use of credit cards. Revolving
debt, mostly comprised of credit card debt, has more than doubled from
$313 billion in January 1994 to $753 billion in debt in January 2004. A
U.S. Public Interest Research Group and Consumer Federation of America
analysis of Federal Reserve data indicates that the average household
with debt carries approximately $10,000 to $12,000 in total revolving
debt and has nine credit cards.
More and more working families are trying to meet growing financial
obligations and are having difficulties surviving financially. When
interest rates do eventually rise, consumers' increasing debt
obligations will be compounded further.
As household debt has increased, bankruptcy filings have surged to
record levels. In the year 2003, more than 1.6 million consumers filed
for bankruptcy. This staggering amount is an increase of 5.6 percent
over the previous record set in 2002. Bankruptcies disrupt the lives of
consumers and limit their ability to access credit in the future. In
addition, bankruptcies lead to significant financial losses for
creditors. It is imperative that we make consumers more aware of the
long-term effects of their financial decisions, particularly in
managing their credit card debt, so that they can avoid bankruptcy.

Even as we contemplate the consequences of more and more debt, it has
become easier to access credit. Pre-approved credit card offers are now
a routine piece of mail. Students are offered credit cards at earlier
ages, especially in view of the success that credit card companies are
having with their aggressive campaigns targeted towards college
students. Mr. President, 55 percent of college students acquire their
first credit card during their first year in college, and 83 percent of
college students have at least one credit card. Forty-five percent of
college students are in credit card debt, with the average debt being
over $3,000.
While it is relatively easy to obtain credit, not enough is done to
ensure that credit is properly managed. Currently, credit card
statements fail to include all of the information necessary to allow
individuals to make fully informed financial decisions. Additional
disclosure is needed to ensure that individuals completely understand
the implications of their credit card use.
Our legislation will provide a wakeup call for consumers. It will
make it very clear what costs consumers will incur if they make only
the minimum payments on their credit cards. The personalized
information they will receive for each of their accounts will help them
to make informed choices about the payments that they choose to make
towards their balance.
This bill requires a minimum payment warning notification on monthly
statements stating that making the minimum payment will increase the
amount of interest that will be paid and extend the amount of time it
will take to repay the outstanding balance. Consumers would have to be
informed of how many years and months it will take to repay their
entire balance if they make only the minimum payments. In addition, the
total costs in interest and principal, if the consumer pays only the
minimum payment, would have to be disclosed. These provisions will make
individuals much more aware of the true costs of their credit card
debts.
The bill also requires that credit card companies provide useful
information so that people can develop strategies to free themselves of
credit card debt. Consumers would have to be provided with the amount
they need to pay to eliminate their outstanding balance within 36
months. Finally, the legislation would require that creditors establish
a toll-free number so that consumers can access trustworthy credit
counselors. In order to ensure that consumers are referred from the
toll-free number to only trustworthy organizations, the agencies for
referral would have to be approved by the Federal Trade Commission and
the Federal Reserve Board as having met comprehensive quality
standards. These standards are necessary because certain credit
counseling agencies have abused their nonprofit, tax-exempt status and
have taken advantage of people seeking assistance in managing their
debts. People believe, sometimes mistakenly, that they can place blind
trust in nonprofit organizations and that their fees will be lower than
those of other credit counseling organizations.
Too many individuals may not realize that the credit counseling
industry does deserve the trust that consumers often place in it.
The Credit Card Minimum Payment Warning Act has been endorsed by the
Consumer Federation of America, Consumers Union, and U.S. Public
Interest Research Group.
I ask unanimous consent that the letter of support and factsheet from
these organizations be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Consumers Union, Consumer Federation of America, U.S.
Public Interest Research Group,
May 13, 2004:
Dear Senators Akaka and Durbin The undersigned national
consumer organizations write to strongly support the Credit
Card Minimum Payment Warning Act. The act would require
credit card issuers to disclose more information to consumers
about the costs associated with paying their bills at ever-
declining minimum payment rates. The Act provides a
personalized ``price tag'' so consumers can understand what
are the real costs of credit card debt and avoid financial
problems in the future.
Undisputed evidence links the rise in bankruptcy in recent
years to the increase in consumer credit outstanding. These
numbers have moved in lockstep for more than 20 years.
Revolving credit, for example (most of which is credit card
debt) ballooned from $214 billion in January 1990 to over
$750 billion currently. As a family debt increases, debt
service payments on items such as interest and late fees take
an ever-increasing piece of their budget. For some families,
this contributes to the collapse of their budget. Bankruptcy
becomes the only way out. (See the attached fact sheet for
more information about the scope and impact of credit card
debt.)
Credit card issuers have exacerbated the financial problems
that many families have faced by lowering minimum payment
amounts, from around 4 percent of the balance owed, to about
2 percent currently. This decline in the typical minimum
payment is a significant reason for the rise in consumer
bankruptcies in recent years. A low minimum payment often
barely covers interest obligations. It convinces many
borrowers that they are financially sound as long as they can
meet all of their minimum payment obligations. However, those
that cannot afford to make these payments often carry so much
debt that bankruptcy is usually the only viable option.
This bill will provide consumers several crucial pieces of
information on their monthly credit card statement:
A ``minimum payment warning'' that paying at the minimum
rate will increase the amount of interest that is owed and
the time it will take to repay the balance.
The number of years and months that it will take the
consumer to pay off the balance at the minimum rate.
The total costs in interest and principal if the consumer
pays at the minimum rate.
The monthly payment that would be required to pay the
balance off in three years.
The bill also requires that credit card companies provide a
toll-free number that consumers can call to receive
information about credit counseling and debt management
assistance. In order to assure that consumers are referred to
honest, legitimate non-profit credit counselors, the bill
requires the Federal Reserve to screen these agencies to
ensure that they meet rigorous quality standards.
Our groups command you for offering this very important and
long-overdue piece of legislation. It provides the kind of
personalized, timely disclosure information that will help
debt-choked families make informed decisions and start to
work their way back to financial health.
Sincerely,
Travis B. Plunkett,
Legislative Director, Consumer Federation of America.
Adam Goldberg,
Policy Analyst, Consumers Union.
Edmund Mierzwinski,
Consumer Programs Director, U.S. Public Interest Research
Group.

[[Page S6095]]

____
FACTS ABOUT CREDIT CARD DEBT

Revolving debt (most of which is credit card debt) has
ballooned from $54 billion in January 1980 to over $750
billion currently.

In billions
January 1980.........................................................54
January 1984.........................................................79
January 1990........................................................214
January 1994........................................................313
January 2004........................................................753

Source: http://www.federalreserve.gov/Releases/G19/his/cc his sa.html.

About one-twelfth of this debt is paid off before it incurs
interest, so Americans pay interest on an annual load of
about $690 billion in revolving debt.
According to the Federal Reserve, the most recent average
credit card interest rate is 12.4% APR. At simple interest,
with no compounding, then, consumers pay at least $85 billion
annually in interest on credit card and other revolving debt.
Just about 55 percent of consumers carry debt. The rest are
convenience users.
From PIRG/CFA analysis of Federal Reserve data, the average
household with debt carriers approximately $10,000-12,000 in
total revolving debt and has approximately nine cards.

FACTS ABOUT THE EFFECT OF MINIMUM MONTHLY PAYMENTS

A household making the monthly minimum required payments on
this debt (usually the greater of 2 percent of the unpaid
balance or $20) at the very low average 12.4% APR (many
consumers pay much higher penalty rates than this FRB-
reported average) would pay $1,175 in interest just in the
first year, even if these cards are cut up and not used
again.
This household would pay a total of over $9,800 in interest
over a period of 25 years and three months. That fact is not
disclosed.
A household or consumer who merely doubled their minimum
payment and paid 4% of the amount due would fare better. A
household or consumer that paid 10% of the balance each month
would fare much better. Here is comparison.
Minimum Payment Warnings Would Encourage Larger Payments
and Save Consumers Thousands of Dollars in High-Priced Credit
Card Debt.

------------------------------------------------------------------------
Monthly Payment (% of unpaid
Credit Card Debt of $10,000 at Modest balance)
12.4% APR --------------------------------
2% 4% 10%
------------------------------------------------------------------------
First Year Interest.................... $1,175 $1,054 $775
Total Interest Owed.................... $9,834 $3,345 $1,129
Months To Pay Owed..................... 303 127 52
Years to Pay........................... 25.3 10.6 4.3
------------------------------------------------------------------------
Calculations by U.S. PIRG. also see http://www.truthaboutcredit.org/
lowerapr.htm for additional comparisons and amortization tables

Giving consumers a minimum payment warning on their credit
card statements is the most powerful action Congress could
take to increase consumer understanding of the cost of credit
card debt.

FACTS ABOUT WHO OWES CREDIT CARD DEBT

Credit card debt has risen fastest among lower-income
Americans. These families saw the largest increase--a 184
percent rise in their debt--but even very high-income
families had 28 percent more credit card debt in 2001 than
they did in 1989. Source: Demos
Thirty-nine percent of student loan borrowers now graduate
with unmanageable levels of debt, meaning that their monthly
payments are more than 8 percent of their monthly incomes.
According to PIRG analysis of the 1999-2000 NPSAS data, in
2001, 41 percent of the graduating seniors carried a credit
card balance, with an average balance of $3,071. Student loan
borrowers were even more likely to carry credit card debt,
with 48 percent of borrowers carrying an average credit card
balance of $3,176. See ``The Burden of Borrowing,'' 2002,
Tracey King, the State PIRGs, http://www.pirg.org/highered/
BurdenofBorrowing.pdf
While less likely to have credit cards than white families,
data show that African-American and Hispanic families are
more likely to carry debt.

------------------------------------------------------------------------
% With Average
credit Cardholding credit
cards % with debt card debt
2001 2001 2001
------------------------------------------------------------------------
All families......................... 76 55 $4,126
White families....................... 82 51 4,381
Black families....................... 59 84 2,950
Hispanic families.................... 53 75 3,691
------------------------------------------------------------------------
Demos calculation using 2001 Survey of Consumer Finance. See Borrowing
To Make Ends Meet. Demos, http://www.demos-usa.org/pubs/
borrowing_to_make_ends_meet.pdf.

seniors (over age 65)

Credit card debt among older Americans increased by 89
percent from 1992 to 2001. Average balances among indebted
adults over 65 increased by 89 percent, to $4,041.
Seniors between 65 and 69 years old, presumably the newly-
retired, saw the most staggering rise in credit card debt--
217 percent--to an average of $5,844.
Female-headed senior households experienced a 48 percent
increase between 1992 and 2001, to an average of $2,319.
Among seniors with incomes under $50,000 (70 percent of
seniors), about one in five families with credit card debt is
in debt hardship--spending over 40 percent of their income on
debt payments, including mortgage debt.

transitioners (ages 55-64)

Transitioners experienced a 47 percent increase in credit
card debt between 1992 and 2001, to an average of $4,088.
The average credit card-indebted family in this age group
now spends 31 percent of their income on debt payments, a 10
percent increase over the decade.
Source: ``Retiring in the Red: The Growth of Debt Among
Older Americans''; http://www.demos-usa.org/pub101.cfm.
Other fact sheet sources include ``Deflate Your Rate,''
MASSPIRG, 2002, see http://www.truthaboutcredit.org and other
reports by Demos. See http://www.demos-usa.org/page38.cfm.

Mr. AKAKA. I also ask unanimous consent that the text of the Credit
Card Minimum Payment Warning Act be printed in the Record following my
remarks.
The ACTING PRESIDENT pro tempore. Without objection, it is so
ordered.
Mr. AKAKA. Mr. President, I urge my colleagues to support this
legislation that will empower consumers by providing them with detailed
personalized information to assist them in making informed choices
about their credit card use and repayment. This bill makes clear the
adverse consequences of uninformed choices, such as making only minimum
payments, and provides opportunities to locate assistance to eliminate
credit card debt.

S. 2475

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 ``Credit Card Minimum Payment
Warning Act''.

SEC. 2. ENHANCED CONSUMER DISCLOSURES REGARDING MINIMUM
PAYMENTS.

Section 127(b) of the Truth in Lending Act (15 U.S.C.
1637(b)) is amended by adding at the end the following:
``(11)(A) Information regarding repayment of the
outstanding balance of the consumer under the account,
appearing in conspicuous type on the front of the first page
of each such billing statement, and accompanied by an
appropriate explanation, containing--
``(i) the words `Minimum Payment Warning: Making only the
minimum payment will increase the amount of interest that you
pay and the time it will take to repay your outstanding
balance.';
``(ii) the number of years and months (rounded to the
nearest month) that it would take for the consumer to pay the
entire amount of that balance, if the consumer pays only the
required minimum monthly payments;
``(iii) the total cost to the consumer, shown as the sum of
all principal and interest payments, and a breakdown of the
total costs in interest and principal, of paying that balance
in full if the consumer pays only the required minimum
monthly payments, and if no further advances are made;
``(iv) the monthly payment amount that would be required
for the consumer to eliminate the outstanding balance in 36
months if no further advances are made; and
``(v) a toll-free telephone number at which the consumer
may receive information about accessing credit counseling and
debt management services.
``(B)(i) Subject to clause (ii), in making the disclosures
under subparagraph (A) the creditor shall apply the interest
rate in effect on the date on which the disclosure is made.
``(ii) If the interest rate in effect on the date on which
the disclosure is made is a temporary rate that will change
under a contractual provision specifying a subsequent
interest rate or applying an index or formula for subsequent
interest rate adjustment, the creditor shall apply the
interest rate in effect on the date on which the disclosure
is made for as long as that interest rate will apply under
that contractual provision, and then shall apply the adjusted
interest rate, as specified in the contract. If the contract
applies a formula that uses an index that varies over time,
the value of such index on the date on which the disclosure
is made shall be used in the application of the formula.''.

SEC. 3. ACCESS TO CREDIT COUNSELING AND DEBT MANAGEMENT
INFORMATION.

(a) Guidelines Required.--
(1) In general.--Not later than 1 year after the date of
enactment of this Act, the Board of Governors of the Federal
Reserve System and the Federal Trade Commission (in this
section referred to as the ``Board'' and the ``Commission'',
respectively) shall jointly, by rule, regulation, or order,
issue guidelines for the establishment and maintenance by
creditors of a toll-free telephone number for purposes of the
disclosures required under section 127(b)(11) of the Truth in
Lending Act, as added by this Act.
(2) Approved agencies.--Guidelines issued under this
subsection shall ensure that referrals provided by the toll-
free number include only those agencies approved by the Board
and the Commission as meeting the criteria under this
section.
(b) Criteria.--The Board and the Commission shall only
approve a nonprofit budget and credit counseling agency for
purposes of this section that--
(1) demonstrates that it will provide qualified counselors,
maintain adequate provision

[[Page S6096]]

for safekeeping and payment of client funds, provide adequate
counseling with respect to client credit problems, and deal
responsibly and effectively with other matters relating to
the quality, effectiveness, and financial security of the
services it provides;
(2) at a minimum--
(A) is registered as a nonprofit entity under section
501(c) of the Internal Revenue Code of 1986;
(B) has a board of directors, the majority of the members
of which--
(i) are not employed by such agency; and
(ii) will not directly or indirectly benefit financially
from the outcome of the counseling services provided by such
agency;
(C) if a fee is charged for counseling services, charges a
reasonable and fair fee, and provides services without regard
to ability to pay the fee;
(D) provides for safekeeping and payment of client funds,
including an annual audit of the trust accounts and
appropriate employee bonding;
(E) provides full disclosures to clients, including funding
sources, counselor qualifications, possible impact on credit
reports, any costs of such program that will be paid by the
client, and how such costs will be paid;
(F) provides adequate counseling with respect to the credit
problems of the client, including an analysis of the current
financial condition of the client, factors that caused such
financial condition, and how such client can develop a plan
to respond to the problems without incurring negative
amortization of debt;
(G) provides trained counselors who--
(i) receive no commissions or bonuses based on the outcome
of the counseling services provided;
(ii) have adequate experience; and
(iii) have been adequately trained to provide counseling
services to individuals in financial difficulty, including
the matters described in subparagraph (F);
(H) demonstrates adequate experience and background in
providing credit counseling;
(I) has adequate financial resources to provide continuing
support services for budgeting plans over the life of any
repayment plan; and
(J) is accredited by an independent, nationally recognized
accrediting organization.

Mr. DURBIN. Mr. President, I am delighted to be working with my
friend the distinguished Senator from Hawaii, Senator Akaka, to
introduce a measure that provides a simple yet vital commodity to users
of credit cards. The commodity I speak of: information.
The modern-day credit-reporting system has benefitted consumers by
making affordable credit more widely available than ever before, and
the spread of credit cards is an important part of this ``credit
revolution.'' Along with this revolution in credit availability,
however, we need a revolution in consumers' ability to manage their
credit. Two facts provide a quick and simple snapshot of our progress
in that regard. In the fourth quarter of 2003, the number of
delinquencies on regular consumer loans went down. That same quarter,
the number of past-due credit card accounts hit an all-time high.
Clearly, an increasing number of credit card holders need to do a
better job of responsibility managing their credit exposure.
This bill is designed to help them to do just that by providing that
vital commodity, information. It would require credit card statements
to provide information that will help consumers understand the
relationships among their total balance, the minimum payment due, and
the accumulation of interest over time. Specifically, this bill would
require that statements provide the following information: the amount
of time it would take to pay off the total balance if just minimum
payments are made each month; the total cost to the consumer that would
be incurred over that time period, broken into interest and principle;
the payment amount that would be necessary each month to pay off the
total balance in three years; and a toll-free telephone number
consumers could call to get a referral to a legitimate, accredited,
non-profit credit counseling agency.
We would like to think that the credit card companies would be glad
to provide whatever information their consumers needed to responsibly
manage their credit. The fact of the matter is, though, that they do
not provide the information I just described, and chances are they will
not begin doing so on their own initiative. These numbers are not all
that hard to calculate. A few lines of computer code is all it would
take. And yet provision of these three simple numbers would provide a
huge payback by helping credit card users quickly and easily get a
clearer understanding of the size of their balance and what the
consequences will be for them--in terms of time and financial cost--of
carrying that balance.
Let me be extra clear about one thing: This bill will help markets
for credit work better. As Adam Smith told us, the free flow of
information is an absolute prerequisite of an efficient market. For
markets to work, buyers must know and understand what they are buying.
When our bill becomes law, credit card holders--who are simply buyers
of credit in the marketplace--will have a better understanding of what
exactly they are buying into, for the long term. The result can only be
that the credit markets will better serve us, and that our households
and our Nation will be on stronger financial footing.
I thank my friend Senator Akaka for working with me on this important
measure. I am also delighted that my friends Senator Schumer and
Senator Leahy have joined us as original cosponsors. I urge the rest of
my colleagues to join us by cosponsoring this bill.
______

By Mr. KYL (for himself, Mr. Miller, Mr. Cornyn, Mr. Sessions,
Mr. Chambliss, Mr. Graham of South Carolina, Mr. Nickles, Mr.
McConnell, Mr. Inhofe, and Mr. Roberts):
S. 2476. A bill to amend the USA PATRIOT Act to repeal the sunsets;
to the Committee on the Judiciary.
Mr. KYL. Mr. President, I rise today to introduce a bill that would
repeal
Sec. 224 of the USA Patriot Act. Section 224 provides that 16 different
parts of the Patriot Act ``shall cease to have effect on December 31,
2005.'' The authorities subject to this sunset include some of the most
important provisions of the Act. They are sections 201, wiretapping in
terrorism cases; 202, wiretapping in computer fraud and abuse felony
case; 203(b) sharing wiretap information; 203(d), sharing foreign
intelligence information; 204, Foreign Intelligence Surveillance Act
(FISA) pen register/trap and trace exceptions; 206, roving FISA
wiretaps; 207, duration of FISA surveillance of non-United States
persons who are agents of a foreign power; 209, seizure of voice-mail
messages pursuant to warrants; 212, emergency disclosure of electronic
surveillance; 214, FISA pen register/ trap and trace authority; 215,
FISA access to tangible items; 217, interception of computer trespasser
communications; 218, purpose for FISA orders; 220, nationwide service
of search warrants for electronic evidence; 223, civil liability and
discipline for privacy violations; and 225, provider immunity for FISA
wiretap assistance.
Rather than praise the Patriot Act myself, I would like to quote
others who have done so. First, I would note that the President has
called on Congress to renew all parts of the Patriot Act that are
scheduled to expire next year. As he has emphasized, ``to abandon the
Patriot Act would deprive law enforcement and intelligence officers of
needed tools in the war on terror, and demonstrate willful blindness to
a continuing threat.''
FBI Director Robert Mueller, in a hearing before the Judiciary
Committee yesterday, also voiced strong support for renewing the
Patriot Act. As he noted, ``for over two and a half years, the PATRIOT
Act has proved extraordinarily beneficial in the war on terrorism and
has changed the way the FBI does business. Many of our counterterrorism
successes, in fact, are the direct results of provisions included in
the Act, a number of which are scheduled to `sunset' at the end of next
year. I strongly believe it is vital to our national security to keep
each of these provisions intact.''
Similarly, in an April 14 field hearing before the Judiciary
Committee, Deputy Attorney General James Comey stated that the Patriot
Act ``has made us immeasurably safer.'' He also responded to the
allegation, occasionally made by some critics, that the Patriot Act was
passed too quickly. He replied that ``the USA Patriot Act was not
rushed, it actually came 10 years too late.''
The importance of the Patriot Act to American security also has drawn
the attention of the 9/11 Commission. Former New Jersey Governor Thomas
Kean has noted that the Commission has had ``witness after witness tell
us that the Patriot Act has been very, very helpful, and if the Patriot
Act, or portions of it, had been in place before 9/11, that would have
been very helpful.''

[[Page S6097]]

This praise has not been limited to the Republicans who have
participated in the Commission's proceedings. Former Attorney General
Janet Reno, for example, testified before the Commission that
``everything that's been done in the Patriot Act has been helpful.''
Nor is President Bush alone among the major candidates for President
this year in hailing the importance of the Patriot Act. Indeed, his
principal rival for the office, Senator Kerry, recently claimed that he
would go even further than the President. According to an April 25
story in the Los Angeles Times, Senator Kerry's spokesman insists that
``it is the challenger, not the president, who brings the most muscular
view of the Patriot Act into the race.'' Senator Kerry's presidential
campaign website even includes a ``Plan to Restore American Security,''
which lists as its number-one priority to ``improve intelligence
capabilities.'' Senator Kerry states that he ``understands that
intelligence information is the key to disrupting and dismantling
terrorist organizations and that we need to improve our intelligence
capabilities, both domestically and internationally, in order to win
the war on global terrorism.''
One reform implemented by the Patriot Act that Attorney General Reno
and others have particularly emphasized is its authorization for
information sharing. Because this part of the Patriot Act is often
praised but infrequently described in detail, I would like to quote the
following accounts of pre-Patriot barriers to information sharing, and
of the investigative successes that the removal of those barriers has
made possible.
The FISA Court of Review decision upholding the Patriot Act's
authorization for information sharing, In re: Sealed Case, 310 F.3d
717,

F.I.S. Ct. Rev. 2002 , describes the origins of the pre-Patriot
barriers:

Apparently to avoid running afoul of the primary purpose
test used by some courts, the 1995 [Attorney General]
Procedures [(``Procedures for Contacts Between the FBI and
the Criminal Division Concerning Foreign Intelligence and
Foreign Counterintelligence Investigations'')] limited
contacts between the FBI and the Criminal Division in cases
where FISA surveillance or searches were being conducted by
the FBI for foreign intelligence (FI) or foreign
counterintelligence (FCI) purposes. The procedures state that
``the FBI and Criminal Division should ensure that advice
intended to preserve the option of a criminal prosecution
does not inadvertently result in either the fact or the
appearance of the Criminal Division's directing or
controlling the FI or FCI investigation toward law
enforcement objectives.'' Although these procedures provided
for significant information sharing and coordination between
criminal and FI or FCI investigations, based at least in part
on the ``directing or controlling'' language, they eventually
came to be narrowly interpreted within the Department of
Justice, and most particularly by OIPR, as requiring OIPR to
act as a ``wall'' to prevent the FBI intelligence officials
from communicating with the Criminal Division regarding
ongoing FI or FCI investigations. Thus, the focus became the
nature of the underlying investigation, rather than the
general purpose of the surveillance. Once prosecution of the
target was being considered, the procedures, as interpreted
by OIPR in light of the case law, prevented the Criminal
Division from providing any meaningful advice to the FBI.''

In re: Sealed Case, 310 F.3d at 727-28 citations omitted.
FBI Director Mueller, in his testimony yesterday, provided a concrete
account of the impact that these information-sharing barriers had on
intelligence investigations:

Prior to September 11, an [FBI] Agent investigating the
intelligence side of a terrorism case was barred from
discussing the case with an Agent across the hall who was
working the criminal side of that same investigation. For
instance, if a court-ordered criminal wiretap turned up
intelligence information, the criminal investigator could not
share that information with the intelligence investigator--he
could not even suggest that the intelligence investigator
should seek a wiretap to collect the information for himself.
If the criminal investigator served a grand jury subpoena to
a suspect's bank, he could not divulge any information found
in those bank records to the intelligence investigator.
Instead, the intelligence investigator would have to issue a
National Security Letter in order to procure that same
information.

Chicago U.S. Attorney Patrick Fitzgerald, in an October 21, 2003
hearing before the Senate Judiciary Committee, described how these pre-
Patriot information-sharing limits undercut one potentially vital
terror investigation. Mr. Fitzgerald discussed the grand-jury testimony
of Wadih el Hage, a key member of the Al Qaeda cell in Nairobi who, in
September 1997, was apprehended while changing flights in New York
City. Federal prosecutors subpoenaed el Hage from the airport to
testify before a Federal grand jury in Manhattan. Mr. Fitzgerald
described how el Hage:

[P]rovided some information of potential use to the
intelligence community--including potential leads as to the
location of his confederate Harun and the location of Harun's
files in Kenya. Unfortunately, as el Hage left the grand-jury
room, we knew that * * * [because of pre-Patriot
restrictions] we would not be permitted to share the grand-
jury information with the intelligence community. * * *
Fortunately, we found a way to address the problem that in
most other cases would not work. Upon request, el Hage
voluntarily agreed to be debriefed by an FBI agent outside
the grand-jury room * * *. El Hage then repeated the essence
of what he told the grand jury to the FBI agent, including
his purported leads to on the location of Harun and his
files. The FBI then lawfully shared the information with the
intelligence community. In essence, we solved the problem by
obtaining the consent of a since-convicted terrorist. We do
not want to have to rely on the consent of al Qaeda
terrorists to address the gaps in our national security.

Mr. Fitzgerald went on to describe how, in August 1998, the American
Embassy in Nairobi was bombed by al Qaeda. Investigators quickly
learned that el Hage's associate Harun was responsible. In this
particular case, investigators had been able to work around
information-sharing limits because of an al Qaeda terrorist's
willingness to be interviewed by the FBI, and even with this
information U.S. agents were not able to stop a terrorist attack. The
pre-Patriot limits were not a decisive factor in blocking U.S.
intelligence agents from preventing the Kenya bombing. But they could
have been. As U.S. Attorney Fitzgerald concluded, ``we should not have
to wait for people to die with no explanation [other] than that
interpretations of the law blocked the sharing of specific information
that probably [c]ould have saved [American lives].''
As Attorney General Reno noted in her testimony before the 9/11
Commission, ``these restrictions [on information sharing] have now been
eliminated as part of the Patriot Act.'' Director Mueller, in his
Judiciary Committee testimony yesterday, described the impact of this
change:

The removal of the ``wall'' has allowed government
investigators to share information freely. Now, criminal
investigative information that contains foreign intelligence
or counterintelligence, including grand jury and wiretap
information, can be shared with intelligence officials. This
increased ability to share information has disrupted
terrorist operations in their early stages--such as the
successful dismantling of the ``Portland Seven'' terror
cell--and has led to numerous arrests, prosecutions, and
convictions in terrorism cases.
In essence, prior to September 11th, criminal and
intelligence investigators were attempting to put together a
complex jigsaw puzzle at separate tables. The Patriot Act has
fundamentally changed the way we do business. Today, those
investigators sit at the same table and work together on one
team. They share leads. They fuse information. Instead of
conducting parallel investigations, they are fully integrated
into one joint investigation.

These Patriot Act changes can directly be credited with some
important recent successes in the war on terror. For example, in
February 2003, Federal prosecutors arrested and indicted Sami Al-Arian
and seven other suspected terrorists. The 50-count indictment indicated
that Al-Arian was the financial director and the North American leader
of Palestinian Islamic Jihad, a terrorist group that has killed more
than 100 people in and around Israel, including two Americans. Al-Arian
wired money to groups in Israel that paid money to the families of
terrorists who carried out suicide bombings. He also founded three
organizations in Florida which, among other things, drafted final wills
and testaments for suicide bombers.
Incredibly, through much of the 1990s, Al-Arian was secretly watched
by two different sets of U.S. investigators. The FBI had been
conducting a criminal probe of Al-Arian since 1995. Meanwhile,
intelligence agents had monitored Al-Arian since the late 1980s.
Because of pre-Patriot restrictions, the two sets of investigators were
not able to share information and were not aware of the full extent of
each other's investigations. It was only after the FISA Court of Review
upheld Patriot

[[Page S6098]]

Act Sec. 203's information-sharing provisions in November 2002 that
intelligence officials were able to show their files to prosecutors.
Several months after this Patriot provision was upheld and made
effective, prosecutors arrested and indicted Al-Arian and put an end to
his activities.
Of course, the provisions of the Patriot Act subject to the Sec. 224
sunset include much more than just the three provisions that facilitate
information sharing. Although I will not discuss all of those
provisions in detail today--some of which have never been
controversial--I would like to discuss one provision that has been a
particular focus of attacks on the Patriot Act.
Section 215 of the Patriot Act allows the FBI to seek an order for
``the production of tangible things (including books, records, papers,
documents, and other items) for an investigation to obtain foreign
intelligence information.'' FISA defines ``foreign intelligence'' as
information relating to foreign espionage, foreign sabotage, or
international terrorism, or information respecting a foreign power that
relates to U.S. national security or foreign policy. Thus Sec. 215
cannot be used to investigate ordinary crimes or even domestic
terrorism. And in every case, a Sec. 215 order must be approved by a
judge.
Alhough Sec. 215 is basically a form of subpoena authority, like that
allowed for numerous other types of investigation indeed, it is more
tightly restricted than other types of subpoenas because it must be
pre-approved by a judge Sec. 215 has been heavily targeted by Patriot
Act critics. Chief among their complaints is that Sec. 215 could be
used to obtain records from bookstores or libraries. Some of these
critics have even alleged that Sec. 215 would allow the FBI to
investigate someone simply because of the books that he borrows from a
library.
Section 215 could in fact be used to obtain library records, though
neither Sec. 215 nor any other provision of the Patriot Act
specifically mentions libraries or is directed at libraries.
Nevertheless, Sec. 215 does authorize court orders to produce tangible
records--which could include library records.
Where the critics are wrong is in suggesting that a Sec. 215 order
could be obtained because of the books that someone reads or the
websites that he visits. Sec. 215 allows no such thing. Instead,
Sec. 215 allows an order to obtain ``tangible things'' as part of an
investigation to ``obtain foreign intelligence information''--
information relating to foreign espionage or terrorism or relating to a
foreign government or group and national security. By requiring a judge
to approve such an order, Sec. 215 ensures that these orders will not
be used for an improper purpose. And as an added protection against
abuse, the Patriot Act also requires that the FBI ``fully inform'' the
House and Senate Intelligence Committees on all use of Sec. 215 every
six months. These checks and safeguards leave FBI agents little room
for the types of witch hunts that Patriot Act critics conjure up.
Further, it bears mention that federal investigators already use an
authority very similar to Sec. 215 the grand jury subpoena--to obtain
bookstore records. As Deputy AG Comey recently emphasized in a letter
that he submitted to the editor of the New York Times, ``orders for
records under [Sec. 215] are more closely scrutinized and more
difficult to obtain than ordinary grand jury supoenas, which can
require production of the very same records, but without judicial
approval.'' Similarly, in a September 11, 2003 editorial, ``Patriot
(Act) Games,'' the Washington Post noted that investigative authority
to review library records ``existed prior to the Patriot Act; the law
extends it to national security investigations, which isn't
unreasonable.''
Finally, I would emphasize that an intelligence or criminal
investigation may have good and legitimate reasons for extending to
library or bookstore records. For example, in a recent domestic
terrorism case, Federal investigators sought to prove that a suspected
bomber had built a particularly unusual detonator that had been used in
several bombings. The investigators used a grand-jury subpoena to show
that the suspect had purchased a book giving instructions on how to
build such a detonator.
Moreover, we should not forget that terrorists and spies historically
have used libraries to plan and carry out activities that threaten U.S.
national security. We know, for example, that some terrorists have used
computers at public libraries to use the internet and communicate by
email. It would be unwise to place libraries and bookstores beyond the
scope of anti-terror investigations.
Andrew McCarthy, a former federal prosecutor who led the 1995
terrorism case against Sheik Omar Abdel Rahman, recently elaborated on
this point in a November 13, 2003 article in National Review Online,
``Patriot Act Under Siege'':

[H]ard experience--won in the course of a string of
terrorism trials since 1993--instructs us that it would be
folly to preclude the government a priori from access to any
broad categories of business record. Reading material, we now
know, can be highly relevant in terrorism cases. People who
build bombs tend to have books and pamphlets on bomb making.
Terrorist leaders often possess literature announcing the
animating principles of their organizations in a tone
tailored to potential recruits. This type of evidence is a
staple of virtually every terrorism investigation--both for
what it suggests on its face and for the forensic
significance of whose fingerprints may be on it. No one is
convicted for having it--jurors are Americans too, and they'd
not long stand for the odious notion that one should be
imprisoned for the mere act of thinking.
When a defendant pleads ``not guilty,'' however, he is
saying: ``I put the government to its proof on every element
of the crime, including that I acted with criminal purport.''
Prosecutors must establish beyond a reasonable doubt not only
that the terrorist engaged in acts but did so intending
execrable consequences. If an accused says the precursor
components he covertly amassed were for innocent use, is it
not relevant that he has just borrowed a book that covers
explosives manufacture? If he claims unfamiliarity with the
tenets of violent jihad, should a jury be barred from
learning that his paws have yellowed numerous publications on
the subject? Such evidence was standard fare throughout Janet
Reno's tenure as attorney general--and rightly so.

In his testimony yesterday, FBI Director Mueller also described the
importance to antiterror investigations of some of the other Patriot
Act authorities subject to expire under Sec. 224. For example, Director
Mueller noted that:

The PATRIOT Act gave federal judges the authority to issue
search warrants that are valid outside the issuing judge's
district in terrorism investigations. In the past, a court
could only issue a search warrant for premises within the
same judicial district--yet our investigations of terrorist
networks often span multiple districts. The PATRIOT Act
streamlined this process, making it possible for judges in
districts where activities related to terrorism may have
occurred to issue search warrants applicable outside their
immediate districts.
In addition, the PATRIOT Act permits similar search
warrants for electronic evidence such as email. In the past,
for example, if an Agent in one district needed to obtain a
search warrant for a subject's email account, but the
Internet service provider (ISP) was located in another
district, he or she would have to contact an AUSA and Agent
in the second district, brief them on the details of the
investigation, and ask them to appear before a judge to
obtain a search warrant--simply because the ISP was
physically based in another district. Thanks to the PATRIOT
Act, this frustrating and time-consuming process can be
averted without reducing judicial oversight. Today, a judge
anywhere in the U.S. can issue a search warrant for a
subject's email, no matter where the ISP is based.
[Further], the PATRIOT Act updated the law to match current
technology, so that we no longer have to fight a 21st-century
battle with antiquated weapons. Terrorists exploit modern
technology such as the Internet and cell phones to conduct
and conceal their activities. The PATRIOT Act leveled the
playing field, allowing investigators to adapt to modern
techniques. For example, the PATRIOT Act clarified our
ability to use court-ordered pen registers and trap-and-trace
devices to track Internet communications. The Act also
enabled us to seek court-approved roving wiretaps, which
allow investigators to conduct electronic surveillance on a
particular suspect, not a particular telephone this allows
them to continuously monitor subjects without having to
return to the court.

All of the authorities described by Director Mueller obviously are
critical to antiterrorism investigations--and all will expire next year
unless Congress acts to repeal Sec. 224.
In responding to some of the accusations of Patriot Act critics, I do
not mean to dismiss the importance of either civil liberties or of
independent oversight of the federal government. I would simply
emphasize that the Patriot Act is carefully crafted legislation that
both guarantees protection for civil liberties and is subject to ample
oversight. I would note, in this vein, that in a report filed in
January

[[Page S6099]]

2004, Department of Justice Inspector General Glenn A. Fine--an
appointee of President Clinton described the results of his
investigation of all recent civil-rights and civil-liberties complaints
received by the Justice Department. The Inspector General found no
incidents in which the Patriot Act was used to abuse civil rights or
civil liberties.
The Patriot Act's provisions for independent oversight of the new
authorities created by the Act were described in detail by Deputy AG
Comey in his April 14, 2004 testimony before the Judiciary Committee.
Mr. Comey noted:

First, the USA PATRIOT Act preserves the historic role of
courts by ensuring that the vital role of judicial oversight
is not diminished. For example, the provision for delayed
notice for search warrants requires judicial approval. In
addition, under the Act, investigators cannot obtain a FISA
pen register unless they apply for and receive permission
from federal court. The USA PATRIOT Act actually goes farther
to protect privacy than that Constitution requires, as the
Supreme Court has long held that law enforcement authorities
are not constitutionally required to obtain court approval
before installing a pen register. Furthermore, a court order
is required to compel production of business records, in
national security investigations.
Second, the USA PATRIOT Act respects important
congressional oversight by placing new reporting requirements
on the Department. Every six months, the Attorney General is
required to report to Congress the number of times section
215 has been utilized, as well as to inform Congress
concerning all electronic surveillance under the Foreign
Intelligence Surveillance Act. Under section 1001 of the USA
PATRIOT Act, Congress receives a semiannual report from the
Department's Inspector General detailing any abuses of civil
rights and civil liberties by employees or officials of the
Department of Justice. It is important to point out that in
the Inspector General's most recent report to Congress, he
reported that his office has received no complaints alleging
misconduct by Department employees related to the use of a
substantive provision of the USA PATRIOT Act.
Finally, the USA PATRIOT Act fosters public oversight of
the Department. In addition to the role of the Inspector
General to review complaints alleging abuses of civil
liberties and civil rights, the Act provides a cause of
action for individuals aggrieved by any willful violation of
Title III or certain sections of FISA. To date, no civil
actions have been filed under this provision.

The United States has had some important successes in the war on
terror so far. Worldwide, more than half of al Qaeda's senior
leadership has been captured or killed. More than 3,000 al Qaeda
operatives have been incapacitated. Within the United States, 4
different terrorist cells have been broken up--cells located in
Buffalo, Detroit, Seattle, and Portland. 284 individuals have been
criminally charged to date, and 149 individuals have been convicted or
pleaded guilty, including: shoe bomber Richard Reid, six members of the
Buffalo terrorist cell, two members of the Detroit cell, Ohio truck
driver Iyman Faris, and U.S.-born Taliban John Walker Lindh.
Patriot-aided criminal prosecutions also have contributed to U.S.
intelligence efforts to learn more about terrorist organizations.
Facing long prison terms, some apprehended terrorist have chosen to
cooperate with the U.S. government. So far, the Justice Department has
obtained plea agreements from 15 individuals who are now cooperating
with terror investigations. One individual has given the U.S.
information about weapons stored by terrorists in the United States.
Another cooperating terrorist has given U.S. investigators information
about locations in the U.S. that are being scouted or cased for
potential attacks by al Qaeda.
The Patriot Act has played a major role in what U.S. antiterror
investigations have accomplished so far. And it is clear that we will
continue to need the authorities created by the Patriot Act into the
foreseeable future. For these reasons, I am pleased to introduce today
with my colleagues a bill to repeal Sec. 224 and make the Patriot Act
permanent.
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. 2476

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

SECTION 1. REPEAL OF USA PATRIOT ACT SUNSETS.

Section 224 of the USA PATRIOT Act (18 U.S.C. 2510 note) is
repealed.
______

By Mr. REED (for himself, Ms. Collins, Mr. Kennedy, and Mrs.
Murray):
S. 2477. A bill to amend the Higher Education Act of 1965 to expand
college access and increase college persistence, to simplify the
process of applying for student assistance, and for other purposes; to
the Committee on Health, Education, Labor, and Pensions.
Mr. REED. Mr. President, I rise today to introduce bipartisan
legislation to expand access to college. I am pleased to be joined in
this effort by Senators Collins, Kennedy, and Murray.
In a year in which we are slated to reauthorize the Higher Education
Act, we have had only a few hearings on the reauthorization in the HELP
Committee. In these hearings and the discussions ongoing in the other
body, there has been scant mention of our insufficient investment in
need-based financial aid. Instead, the discussions have been dominated
by proposals that will hurt, rather than help, the neediest students.
This is troubling, particularly as more and more students are being
priced out of college, which shortchanges their future and that of our
nation. Economic security is a necessity not just for the wealthy, but
for every American. And the key to economic security is education.
An individual's climb up the economic ladder is directly related to
the amount of education he or she receives. Given the strong
correlation among educational attainment, employment, and wages, the
cost of not going to college is just too high.
Almost a third of the growth in employment over the next decade is
expected to occur in occupations that require at least a bachelor's
degree. College graduates, on average, earn 60 percent more than high
school graduates, while an individual with a professional degree earns
almost four times what a high school graduate earns.
And yet, too many college students are under-prepared, underfinanced,
and overworked. Those who make it through are saddled by nearly
insurmountable loan debt. But many more cannot afford the cost of
college at all.
Even though there have been gains due to the Higher Education Act,
the current approach to student aid isn't alleviating the gaps between
our lowest and highest income students nor is it addressing the gaps
between the aid low-income students receive and the actual cost of
attendance.
7 times as many students from high-income families 48 percent
graduate from college by age 24 as students from low-income families 7
percent. Low-income, college-qualified high school graduates have an
annual ``unmet need'' of nearly $4,000 in college expenses. Without
drastic increases in need-based aid, over the next decade, according to
a report by the Advisory Committee on Student Financial Assistance, 4.4
million low- and moderate-income college qualified high school
graduates will not be able to pursue a four year degree full time and 2
million will not go to college at all.
A combination of factors has arisen to create this unfortunate
situation, chief among them a decline in the purchasing power of the
Pell Grant and sharp increases in the cost of college.
My predecessor, Senator Claiborne Pell, established what is now known
as the Pell Grant in order to ensure higher education wasn't an
``unachievable dream.'' Almost one quarter of undergraduate students
from colleges and universities nationwide receive a Pell Grant. It is
the single largest source of grant aid for higher education funded by
the Federal government.
Unfortunately, the Pell Grant's purchasing power has plummeted due to
the slow growth in funding and the rapid rise of college prices. In the
late 70s, the maximum grant covered 77 percent of costs at a public
four-year institution. Today, the maximum Pell Grant of $4,050 covers
only 41 percent.
On top of that, an estimated 60 percent of student aid is now in the
form of loans and 40 percent in grants, a reversal of the distribution
20 years ago. Indeed, the average graduate has a student loan debt of
$17,000. Pell Grant recipients, who represent the lowest income sectors
of students, graduate with an average of $20,000 in student loan debt.

[[Page S6100]]

Over the last ten years, public and private 4-year college costs,
tuition and fees, rose 47 percent and 42 percent, respectively, after
adjusting for inflation, which is a more rapid growth rate than
consumer prices. Over the last three years, since President Bush
entered office, tuition has increased by 28 percent on average, even
after inflation. Students have felt the bite as states have drastically
cut funding for public colleges.
There is a further convergence of economic and demographic factors.
In 2008, the largest number of students in our history will graduate
from high school. A high percentage of these students will be from low-
income, minority families, who will need student aid. At the same time,
our Nation will need replacement workers as aging, college-educated
baby boomers begin to retire in increasing numbers.
This crisis calls out for action. It should be a national imperative
to ensure an educated citizenry and a world class workforce. Our Nation
cannot afford to lose out on the countless returns from a robust
education investment.
The legislation we introduce today, the ACCESS, Accessing College
through Comprehensive Early outreach, State partnerships, and
Simplification, Act, seeks to set our Nation back on the course that
Senator Pell sought when he authored the grants later named after him
in 1972.
The ACCESS Act revitalizes the Leveraging Educational Assistance
Partnership (LEAP) program, which was established over thirty years ago
to encourage States to play a role in helping low-income students go to
college. Without this important, although extremely modest, Federal
incentive, many States would never have established need-based grant
programs and many States would not continue to maintain such programs.
Recognizing that LEAP can do even more to address the barriers to
college access and persistence, the ACCESS Act forges a new Federal
incentive for states--via higher levels of Federal match--to spur
greater investments by states, colleges, businesses, and philanthropies
in need-based grants for low-income students. At a time when public
higher education is bearing the brunt of the fiscal crises confronting
our States, we need to do more to encourage States to help low-income
students attend college.
We want States to focus their energies on enhancing coordination and
cohesion among Federal, State, and local programs and efforts of
colleges, philanthropies, and businesses, with the goal of generating
new investments in need-based aid sufficient to provide low-income
students with an access and persistence grant to fill the gap in aid
they face. All too often successful middle school students give up the
dream of college because they think there is no way they can ever
afford college. The ACCESS Act also requires States to notify low-
income students beginning in middle school of their potential
eligibility for student financial aid and encourages increased
participation in early intervention, mentoring, and outreach programs.
The legislation is modeled after initiatives like the Rhode Island
Children's Crusade in my home state and Indiana's 21st Century Scholars
Program. A Lumina Foundation evaluation found that 21st Century
Scholars--low-income students who receive an early notification of
assistance, early intervention and support, and scholarships equivalent
to the cost of in-state college tuition--were nearly 5 times more
likely than non-participants to enroll in college. Indeed, successful
college access programs are those that offer early intervention and
mentoring services coupled with early information about estimated
financial aid awards and adequate grant funding to make the dream of
higher education a reality. Students participating in such programs are
more financially and academically prepared, and thus more likely to
enroll in college and persist to degree completion.
Our legislation also simplifies the financial aid process for low-
income students. It allows more students to qualify for an Automatic-
Zero Expected Family Contribution, aligning its eligibility with the
standards for other Federal means-tested programs, like free school
lunch, SSI, and Food Stamps. Students and families should not have to
prove over and over again that they are low-income, and asking students
to fill out lengthy forms when they already meet the eligibility level
for Pell Grants is a burden we should ease.
In a similar vein, the legislation establishes a short, paper FAFSA-
EZ application form for students qualifying for the auto-zero along
with a tailored web-based system and a free telefile system for
students without Internet access.
The ACCESS Act also expands college access for low-income students,
in part by prohibiting a qualified education benefit, like education
savings plans, from being considered as a student asset and by reducing
the work penalty. The current income protection allowance levels are
unrealistically low, creating a disincentive for students who work in
order to pay college costs. I look forward to receiving further
information on this and other problems addressed in the legislation
when the Advisory Committee on Student Financial Assistance completes
work on the congressionally mandated financial aid simplification study
later this year.
We must act on this legislation and others to make sure that every
student who works hard and plays by the rules gets the opportunity to
live the American Dream.
I was pleased to work with the Advisory Committee on Student
Financial Assistance, and a host of other higher education
organizations and charitable foundations, including Scholarship
America, on this legislation. I am also pleased that this legislation
has the support of a range of higher education and student groups,
including the American Association of Community Colleges, the American
Association of State Colleges and Universities, the American Council on
Education, the Association of American Universities, the Association of
Jesuit Colleges and Universities, the Center for Law and Social Policy,
the Council for Opportunity in Education, National Association for
College Admission Counseling, the National Association of Independent
Colleges and Universities, National Association of State Student Grant
and Aid Programs, the National Association of State Universities and
Land-Grant Colleges, the National Association of Student Financial Aid
Administrators, the United Negro College Fund, and the United States
Student Association.
I urge my colleagues to cosponsor this important legislation and work
for its inclusion in the upcoming reauthorization of the Higher
Education Act.
I ask unanimous consent that the text of this legislation be printed
in the Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:

S. 2477

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 ``Accessing College through
Comprehensive Early Outreach, State Partnerships, and
Simplification Act''.

SEC. 2. GRANTS FOR ACCESS AND PERSISTENCE.

(a) Authorization of Appropriations.--Section 415A(b) of
the Higher Education Act of 1965 (20 U.S.C. 1070c(b)) is
amended by striking paragraphs (1) and (2) and inserting the
following:
``(1) In general.--There are authorized to be appropriated
to carry out this subpart $500,000,000 for fiscal year 2005,
and such sums as may be necessary for each of the 5
succeeding fiscal years.
``(2) Reservation.--For any fiscal year for which the
amount appropriated under paragraph (1) exceeds $30,000,000,
the excess amount shall be available to carry out section
415E.''.
(b) Applications for Leveraging Educational Assistance
Partnership Programs.--Section 415C(b) of the Higher
Education Act of 1965 (20 U.S.C. 1070c-2(b)) is amended--
(1) in paragraph (2), by striking ``$5,000'' and inserting
``$12,500'';
(2) in paragraph (9), by striking ``and'' after the
semicolon;
(3) in paragraph (10), by striking the period at the end
and inserting ``; and''; and
(4) by adding at the end the following:
``(11) provides notification to eligible students that such
grants are--
``(A) Leveraging Educational Assistance Partnership Grants;
and
``(B) funded by the Federal Government and the State.''.
(c) Grants for Access and Persistence.--Section 415E of the
Higher Education Act of 1965 (20 U.S.C. 1070c-3a) is amended
to read as follows:

[[Page S6101]]

``SEC. 415E. GRANTS FOR ACCESS AND PERSISTENCE.

``(a) Purpose.--It is the purpose of this section to expand
college access and increase college persistence by making
allotments to States to enable the States to--
``(1) expand and enhance partnerships with institutions of
higher education, early information and intervention,
mentoring, or outreach programs, private corporations,
philanthropic organizations, and other interested parties to
carry out activities under this section and to provide
coordination and cohesion among Federal, State, and local
governmental and private efforts that provide financial
assistance to help low-income students attend college;
``(2) provide need-based access and persistence grants to
eligible low-income students;
``(3) provide early notification to low-income students of
their eligibility for financial aid; and
``(4) encourage increased participation in early
information and intervention, mentoring, or outreach
programs.
``(b) Allotments to States.--
``(1) In general.--
``(A) Authorization.--From sums reserved under section
415A(b)(2) for each fiscal year, the Secretary shall make an
allotment to each State that submits an application for an
allotment in accordance with subsection (c) to enable the
State to pay the Federal share of the cost of carrying out
the activities under subsection (d).
``(B) Determination of allotment.--In making allotments
under subparagraph (A), the Secretary shall consider the
following:
``(i) Continuation of award.--If a State continues to meet
the specifications established in its application under
subsection (c), the Secretary shall make an allotment to such
State that is not less than the allotment made to such State
for the previous fiscal year.
``(ii) Priority.--The Secretary shall give priority in
making allotments to States that meet the requirements under
paragraph (2)(B)(iii).
``(2) Federal share.--
``(A) In general.--The Federal share of the cost of
carrying out the activities under subsection (d) for any
fiscal year may not exceed 66.66 percent.
``(B) Different percentages.--The Federal share under this
section shall be determined in accordance with the following:
``(i) If a State applies for an allotment under this
section in partnership with any number of degree granting
institutions of higher education in the State whose combined
full-time enrollment represents less than a majority of all
students attending institutions of higher education in the
State, then the Federal share of the cost of carrying out the
activities under subsection (d) shall be equal to 50 percent.
``(ii) If a State applies for an allotment under this
section in partnership with any number of degree granting
institutions of higher education in the State whose combined
full-time enrollment represents less than a majority of all
students attending institutions of higher education in the
State, and philanthropic organizations that are located in,
or who provide funding in, the State or private corporations
that are located in, or who do business in, the State, then
the Federal share of the cost of carrying out the activities
under subsection (d) shall be equal to 57 percent.
``(iii) If a State applies for an allotment under this
section in partnership with any number of degree granting
institutions of higher education in the State whose combined
full-time enrollment represents a majority of all students
attending institutions of higher education in the State,
philanthropic organizations that are located in, or who
provide funding in, the State, and private corporations that
are located in, or who do business in, the State, then the
Federal share of the cost of carrying out the activities
under subsection (d) shall be equal to 66.66 percent.
``(c) Application for Allotment.--
``(1) In general.--
``(A) Submission.--A State that desires to receive an
allotment under this section shall submit an application to
the Secretary at such time, in such manner, and containing
such information as the Secretary may require.
``(B) Content.--An application submitted under subparagraph
(A) shall include the following:
``(i) A description of the State's plan for using the
allotted funds.
``(ii) Assurances that the State will provide matching
funds, from State, institutional, philanthropic, or private
funds, of not less than 33.33 percent of the cost of carrying
out the activities under subsection (d). The State shall
specify the methods by which matching funds will be paid and
include provisions designed to ensure that funds provided
under this section will be used to supplement, and not
supplant, Federal and non-Federal funds available for
carrying out the activities under this title. A State that
uses non-Federal funds to create or expand existing
partnerships with nonprofit organizations or community-based
organizations in which such organizations match State funds
for student scholarships, may apply such matching funds from
such organizations toward fulfilling the State's matching
obligation under this clause.
``(iii) Assurances that early information and intervention,
mentoring, or outreach programs exist within the State or
that there is a plan to make such programs widely available.
``(iv) A description of the organizational structure that
the State has in place to administer the activities under
subsection (d), including a description of the system the
State will use to track the participation of students who
receive grants under this section to degree completion.
``(v) Assurances that the State has a method in place, such
as acceptance of the automatic zero expected family
contribution determination described in section 479, to
identify eligible low-income students and award State grant
aid to such students.
``(vi) Assurances that the State will provide notification
to eligible low-income students that grants under this
section are--

``(I) Leveraging Educational Assistance Partnership Grants;
and
``(II) funded by the Federal Government and the State.

``(2) State agency.--The State agency that submits an
application for a State under section 415C(a) shall be the
same State agency that submits an application under paragraph
(1) for such State.
``(3) Partnership.--
``(A) Mandatory partners.--In applying for an allotment
under this section, the State agency shall apply for the
allotment in partnership with--
``(i) not less than 1 public and 1 private degree granting
institution of higher education that are located in the
State; and
``(ii) new or existing early information and intervention,
mentoring, or outreach programs located in the State.
``(B) Permissive partners.--In addition to applying for an
allotment under this section in partnership with degree
granting institutions of higher education and early
information and intervention, mentoring, or outreach
programs, a State agency may also apply in partnership with
philanthropic organizations that are located in, or who
provide funding in, the State and private corporations that
are located in, or who do business in, the State.
``(C) Roles of partners.--
``(i) State agency.--A State agency that is in a
partnership receiving an allotment under this section--

``(I) shall--

``(aa) serve as the primary administrative unit for the
partnership;
``(bb) provide or coordinate matching funds, and coordinate
activities among partners;
``(cc) encourage each institution of higher education in
the State to participate in the partnership;
``(dd) make determinations and early notifications of
assistance as described under subsection (d)(2); and
``(ee) annually report to the Secretary on the
partnership's progress in meeting the purpose of this
section; and

``(II) may provide early information and intervention,
mentoring, or outreach programs.

``(ii) Degree granting institutions of higher education.--A
degree granting institution of higher education that is in a
partnership receiving an allotment under this section--

``(I) shall--

``(aa) recruit and admit participating qualified students
and provide such additional institutional grant aid to
participating students as agreed to with the State agency;
``(bb) provide support services to students who receive an
access and persistence grant under this section and are
enrolled at such institution; and
``(cc) assist the State in the identification of eligible
students and the dissemination of early notifications of
assistance as agreed to with the State agency; and

``(II) may provide funding for early information and
intervention, mentoring, or outreach programs or provide such
services directly.

``(iii) Programs.--An early information and intervention,
mentoring, or outreach program that is in a partnership
receiving an allotment under this section shall provide
direct services, support, and information to participating
students.
``(iv) Permissive partners.--A philanthropic organization
or private corporation that is in a partnership receiving an
allotment under this section shall provide funds for access
and persistence grants for participating students, or provide
funds or support for early information and intervention,
mentoring, or outreach programs.
``(d) Authorized Activities.--
``(1) In general.--
``(A) Establishment of partnership.--Each State receiving
an allotment under this section shall use the funds to
establish a partnership to award access and persistence
grants to eligible low-income students in order to increase
the amount of financial assistance such students receive
under this subpart for undergraduate education expenses.
``(B) Amount.--
``(i) Partnerships with institutions serving less than a
majority of students in the state.--

``(I) In general.--In the case where a State receiving an
allotment under this section is in a partnership described in
clause (i) or (ii) of subsection (b)(2)(B), the amount of an
access and persistence grant awarded by such State shall be
not less than the amount that is equal to the average
undergraduate tuition and mandatory fees at 4-year public
institutions of higher education in the State where the
student resides (less any other

[[Page S6102]]

Federal or State sponsored grant amount, college work study
amount, and scholarship amount received by the student) and
such amount shall be used toward the cost of attendance at an
institution of higher education, located in the State, that
is a partner in the partnership.
``(II) Cost of attendance.--A State that has a program,
apart from the partnership under this section, of providing
eligible low-income students with grants that are equal to
the average undergraduate tuition and mandatory fees at 4-
year public institutions of higher education in the State,
may increase the amount of access and persistence grants
awarded by such State up to an amount that is equal to the
average cost of attendance at 4-year public institutions of
higher education in the State (less any other Federal or
State sponsored grant amount, college work study amount, and
scholarship amount received by the student).

``(ii) Partnership with institutions serving the majority
of students in the state.--In the case where a State
receiving an allotment under this section is in a partnership
described in subsection (b)(2)(B)(iii), the amount of an
access and persistence grant awarded by such State shall be
up to an amount that is equal to the average cost of
attendance at 4-year public institutions of higher education
in the State where the student resides (less any other
Federal or State sponsored grant amount, college work study
amount, and scholarship amount received by the student) and
such amount shall be used by the student to attend an
institution of higher education, located in the State, that
is a partner in the partnership.
``(2) Early notification.--
``(A) In general.--Each State receiving an allotment under
this section shall annually notify low-income students, such
as students who are eligible to receive a free lunch under
the school lunch program established under the Richard B.
Russell National School Lunch Act, in grade 7 through grade
12 in the State of their potential eligibility for student
financial assistance, including an access and persistence
grant, to attend an institution of higher education.
``(B) Content of notice.--The notification under
subparagraph (A)--
``(i) shall include--

``(I) information about early information and intervention,
mentoring, or outreach programs available to the student;
``(II) information that a student's candidacy for an access
and persistence grant is enhanced through participation in an
early information and intervention, mentoring, or outreach
program;
``(III) an explanation that student and family eligibility
and participation in other Federal means-tested programs may
indicate eligibility for an access and persistence grant and
other student aid programs;
``(IV) a nonbinding estimation of the total amount of
financial aid a low-income student with a similar income
level may expect to receive, including an estimation of the
amount of an access and persistence grant and an estimation
of the amount of grants, loans, and all other available types
of aid from the major Federal and State financial aid
programs;
``(V) an explanation that in order to be eligible for an
access and persistence grant, at a minimum, a student shall
meet the requirement under paragraph (3), graduate from
secondary school, and enroll at an institution of higher
education that is a partner in the partnership;
``(VI) information on any additional requirements (such as
a student pledge detailing student responsibilities) that the
State may impose for receipt of an access and persistence
grant under this section; and
``(VII) instructions on how to apply for an access and
persistence grant; and

``(ii) may include a disclaimer that access and persistence
grant awards are contingent upon--

``(I) a determination of the student's financial
eligibility at the time of the student's enrollment at an
institution of higher education that is a partner in the
partnership;
``(II) annual Federal and State appropriations; and
``(III) other aid received by the student at the time of
the student's enrollment at an institution of higher
education that is a partner in the partnership.

``(3) Eligibility.--In determining which students are
eligible to receive access and persistence grants, the State
shall ensure that each such student meets not less than 2 of
the following criteria and give priority to students meeting
all of the following criteria:
``(A) Has an expected family contribution equal to zero (as
described in section 479) or a comparable alternative based
upon the State's approved criteria in section 415C(b)(4).
``(B) Is participating in, or has participated in, a
Federal, State, institutional, or community early information
and intervention, mentoring, or outreach program, as
recognized by the State agency administering activities under
this section.
``(C) Has qualified for a free lunch, or at the State's
discretion a reduced price lunch, under the school lunch
program established under the Richard B. Russell National
School Lunch Act.
``(D) Qualifies for the State's maximum undergraduate
award, as authorized under section 415C(b).
``(E) Receives, or has received, an access and persistence
grant under this section.
``(4) Grant award.--Once a student, including those who
have received early notification under paragraph (2) from the
State, applies for admission to an institution that is a
partner in the partnership, files a Free Application for
Federal Student Aid and any related existing State form, and
is determined eligible by the State under paragraph (3), the
State shall--
``(A) issue the student a preliminary access and
persistence grant award certificate with tentative award
amounts; and
``(B) inform the student that payment of the access and
persistence grant award amounts is subject to certification
of enrollment and award eligibility by the institution of
higher education.
``(5) Duration of award.--An eligible student that receives
an access and persistence grant under this section shall
receive such grant award for each year of such student's
undergraduate education in which the student remains eligible
for assistance under this title, including pursuant to
section 484(c), and remains financially eligible as
determined by the State, except that the State may impose
reasonable time limits to baccalaureate degree completion.
``(e) Administrative Cost Allowance.--A State that receives
an allotment under this section may reserve not more than 3.5
percent of the funds made available annually through the
allotment for State administrative functions required to
carry out this section.
``(f) Statutory and Regulatory Relief for Institutions of
Higher Education.--The Secretary may grant, upon the request
of an institution of higher education that is in a
partnership described in subsection (b)(2)(B)(iii) and that
receives an allotment under this section, a waiver for such
institution from statutory or regulatory requirements that
inhibit the ability of the institution to successfully and
efficiently participate in the activities of the partnership.
``(g) Applicability Rule.--The provisions of this subpart
which are not inconsistent with this section shall apply to
the program authorized by this section.
``(h) Maintenance of Effort Requirement.--Each State
receiving an allotment under this section for a fiscal year
shall provide the Secretary an assurance that the aggregate
amount expended per student or the aggregate expenditures by
the State, from funds derived from non-Federal sources, for
the authorized activities described in subsection (d) for the
preceding fiscal year were not less than the amount expended
per student or the aggregate expenditure by the State for the
activities for the second preceding fiscal year.
``(i) Reports.--Not later than 3 years after the date of
enactment of the Accessing College through Comprehensive
Early Outreach, State Partnerships, and Simplification Act,
and annually thereafter, the Secretary shall submit a report
describing the activities and the impact of the partnerships
under this section to the Committee on Health, Education,
Labor, and Pensions of the Senate and the Committee on
Education and the Workforce of the House of
Representatives.''.
(d) Continuation and Transition.--During the 2-year period
commencing on the date of enactment of this Act, the
Secretary shall continue to award grants under section 415E
of the Higher Education Act of 1965 (20 U.S.C. 1070c-3a), as
such section existed on the day before the date of enactment
of this Act, to States that choose to apply for grants under
such predecessor section.
(e) Implementation and Evaluation.--Section 491(j) of the
Higher Education Act of 1965 (20 U.S.C. 1098(j)) is amended--
(1) in paragraph (4), by striking ``and'' after the
semicolon; and
(2) by striking paragraph (5) and inserting the following:
``(5) not later than 6 months after the date of enactment
of the Accessing College through Comprehensive Early
Outreach, State Partnerships, and Simplification Act, advise
the Secretary on means to implement the activities under
section 415E, and the Advisory Committee shall continue to
monitor, evaluate, and make recommendations on the progress
of partnerships that receive allotments under such section;
and''.

SEC. 3. SIMPLIFIED NEEDS TEST AND AUTOMATIC ZERO
IMPROVEMENTS.

(a) Simplified Needs Test.--Section 479 of the Higher
Education Act of 1965 (20 U.S.C. 1087ss) is amended--
(1) in subsection (b)--
(A) in paragraph (1)--
(i) by striking subparagraph (A)(i) and inserting the
following:
``(i) the student's parents--

``(I) file, or are eligible to file, a form described in
paragraph (3);
``(II) certify that they are not required to file an income
tax return;
``(III) 1 of whom is a dislocated worker; or
``(IV) or the student received benefits at some time during
the previous 24-month period under a means-tested Federal
benefit program as defined under subsection (d); and''; and

(ii) by striking subparagraph (B)(i) and inserting the
following:
``(i) the student (and the student's spouse, if any)--

``(I) files, or is eligible to file, a form described in
paragraph (3);
``(II) certifies that the student (and the student's
spouse, if any) is not required to file an income tax return;
``(III) is a dislocated worker; or
``(IV) received benefits at some time during the previous
24-month period under a

[[Page S6103]]

means-tested Federal benefit program as defined under
subsection (d); and''; and

(B) in paragraph (3), by striking ``A student or family
files a form described in this subsection, or subsection (c),
as the case may be, if the student or family, respectively,
files'' and inserting ``In the case of an independent
student, the student, or in the case of a dependent student,
the family, files a form described in this subsection, or
subsection (c), as the case may be, if the student or family,
as appropriate, files'';
(2) in subsection (c)--
(A) in paragraph (1)--
(i) by striking subparagraph (A) and inserting the
following:
``(A) the student's parents--
``(i) file, or are eligible to file, a form described in
subsection (b)(3);
``(ii) certify that they are not required to file an income
tax return;
``(iii) 1 of whom is a dislocated worker; or
``(iv) or the student received benefits at some time during
the previous 24-month period under a means-tested Federal
benefit program as defined under subsection (d); and''; and
(ii) by striking subparagraph (B) and inserting the
following:
``(B) the sum of the adjusted gross income of the parents
is less than or equal to $25,000; or'';
(B) in paragraph (2)--
(i) by striking subparagraph (A) and inserting the
following:
``(A) the student (and the student's spouse, if any)--
``(i) files, or is eligible to file, a form described in
subsection (b)(3);
``(ii) certifies that the student (and the student's
spouse, if any) is not required to file an income tax return;
``(iii) is a dislocated worker; or
``(iv) received benefits at some time during the previous
24-month period under a means-tested Federal benefit program
as defined under subsection (d); and''; and
(ii) by striking subparagraph (B) and inserting the
following:
``(B) the sum of the adjusted gross income of the student
and spouse (if appropriate) is less than or equal to
$25,000.''; and
(C) by striking the flush matter at the end and inserting
the following:

``The Secretary shall annually adjust the income level
necessary to qualify an applicant for the zero expected
family contribution. The income level shall be adjusted
according to increases in the Consumer Price Index, as
defined in section 478(f).''; and
(3) by adding at the end the following:
``(d) Definitions.--In this section:
``(1) Dislocated worker.--The term `dislocated worker' has
the same meaning given the term in section 101 of the
Workforce Investment Act of 1998 (29 U.S.C. 2801).
``(2) Means-Tested Federal Benefit Program.--The term
`means-tested Federal benefit program' means a mandatory
spending program of the Federal Government in which
eligibility for the program's benefits, or the amount of such
benefits, or both, are determined on the basis of income or
resources of the individual or family seeking the benefit,
and includes the supplemental security income program under
title XVI of the Social Security Act, the food stamp program
under the Food Stamp Act of 1977, and the free and reduced
price school lunch program established under the Richard B.
Russell National School Lunch Act.''.
(b) Discretion of Student Financial Aid Administrators.--
Section 479A(a) of the Higher Education Act of 1965 (20
U.S.C. 1087tt(a)) is amended in the third sentence by
inserting ``a family member who is a dislocated worker (as
defined in section 101 of the Workforce Investment Act of
1998 (29 U.S.C. 2801)),'' after ``recent unemployment of a
family member,''.

SEC. 4. IMPROVING PAPER AND ELECTRONIC FORMS.

(a) Simplified Needs Test.--Section 479(a) of the Higher
Education Act of 1965 (20 U.S.C. 1087ss(a)) is amended by
adding at the end the following:
``(3) Simplified forms.--The Secretary shall make special
efforts to notify families meeting the requirements of
subsection (c) that such families may use the FAFSA-EZ or the
simplified electronic application form established under
section 483(a).''.
(b) Common Financial Aid Form Development and Processing.--
Section 483 of the Higher Education Act of 1965 (20 U.S.C.
1090) is amended--
(1) in subsection (a)--
(A) by striking paragraphs (1), (2), and (5);
(B) by redesignating paragraphs (3), (4), (6), and (7), as
paragraphs (7), (8), (9), and (10), respectively;
(C) by inserting before paragraph (7), as redesignated by
subparagraph (B), the following:
``(1) In general.--The Secretary, in cooperation with
representatives of agencies and organizations involved in
student financial assistance, shall produce, distribute, and
process free of charge common financial reporting forms as
described in this subsection to be used for application and
reapplication to determine the need and eligibility of a
student for financial assistance under parts A through E
(other than subpart 4 of part A). These forms shall be made
available to applicants in both paper and electronic formats
and shall be referred to as the `Free Application for Federal
Student Aid'.
``(2) Paper format.--
``(A) In general.--The Secretary shall produce, distribute,
and process common forms in paper format to meet the
requirements of paragraph (1). The Secretary shall develop a
common paper form for applicants who do not meet the
requirements of subparagraph (B).
``(B) FAFSA-EZ.--
``(i) In general.--The Secretary shall develop and use a
simplified paper application form, to be known as the `FAFSA-
EZ', to be used for applicants meeting the requirements of
section 479(c).
``(ii) Reduced data requirements.--The FAFSA-EZ shall
permit an applicant to submit for financial assistance
purposes, only the data elements required to make a
determination of whether the applicant meets the requirements
under section 479(c).
``(iii) State data.--The Secretary shall include on the
FAFSA-EZ space for information that needs to be submitted
from the applicant to be eligible for State financial
assistance, as provided under paragraph (5), except the
Secretary shall not include a State's data if that State does
not permit its applicants for State assistance to use the
FAFSA-EZ.
``(iv) Free availability and processing.--The provisions of
paragraph (6) shall apply to the FAFSA-EZ, and the data
collected by means of the FAFSA-EZ shall be available to
institutions of higher education, guaranty agencies, and
States in accordance with paragraph (7).
``(v) Testing.--The Secretary shall conduct appropriate
field testing on the FAFSA-EZ.
``(C) Phasing out the paper form for students who do not
meet the requirements of the automatic zero expected family
contribution.--
``(i) In general.--The Secretary shall make all efforts to
encourage all applicants to utilize the electronic forms
described in paragraph (3).
``(ii) Phaseout of full fafsa.--Not later than award year
2009-2010, the Secretary shall phaseout the long paper form
for applicants who do not qualify for the FAFSA-EZ.
``(iii) Use of savings to address the digital divide.--The
Secretary shall utilize savings accrued by moving more
applicants to the electronic forms to improve access to the
electronic forms for applicants meeting the requirements of
section 479(c).
``(3) Electronic format.--
``(A) In general.--The Secretary shall produce, distribute,
and process common forms in electronic format to meet the
requirements of paragraph (1). The Secretary shall develop a
common electronic form for applicants who do not meet the
requirements of subparagraph (B).
``(B) Simplified application: fafsa on the web.--
``(i) In general.--The Secretary shall develop and use a
simplified electronic application form to be used by
applicants meeting the requirements under subsection (b) or
(c) of section 479.
``(ii) Reduced data requirements.--The simplified
electronic application form shall permit an applicant to
submit for financial assistance purposes, only the data
elements required to make a determination of whether the
applicant meets the requirements under subsection (b) or (c)
of section 479.
``(iii) State data.--The Secretary shall include on the
simplified electronic application form space for information
that needs to be submitted from the applicant to be eligible
for State financial assistance, as provided under paragraph
(5), except the Secretary shall not include a State's data if
that State does not permit its applicants for State
assistance to use the simplified electronic application form.
``(iv) Free availability and processing.--The provisions of
paragraph (6) shall apply to the simplified electronic
application form, and the data collected by means of the
simplified electronic application form shall be available to
institutions of higher education, guaranty agencies, and
States in accordance with paragraph (7).
``(v) Testing.--The Secretary shall conduct appropriate
field testing on the form developed under this subparagraph.
``(C) Rule of construction.--Nothing in this subsection
shall be construed to prohibit the use of the form developed
by the Secretary pursuant to this paragraph by an eligible
institution, eligible lender, guaranty agency, State grant
agency, private computer software providers, a consortium
thereof, or such other entities as the Secretary may
designate.
``(D) Privacy.--The Secretary shall ensure that data
collection under this paragraph complies with section 552a of
title 5, United States Code, and that any entity using the
electronic version of the forms developed by the Secretary
pursuant to this paragraph shall maintain reasonable and
appropriate administrative, technical, and physical
safeguards to ensure the integrity and confidentiality of the
information, and to protect against security threats, or
unauthorized uses or disclosures of the information provided
on the electronic version of the form. Data collected by such
electronic version of the form shall be used only for the
application, award, and administration of aid awarded under
this title, State aid, or aid awarded by eligible
institutions or such entities as the Secretary may designate.
No data collected by such electronic version of the form
shall be used for making final aid awards under this title
until such data have been processed by the Secretary or a
contractor or designee of the Secretary, except as may be
permitted under this title.

[[Page S6104]]

``(E) Signature.--Notwithstanding any other provision of
this Act, the Secretary may permit an electronic form to be
submitted without a signature, if a signature is subsequently
submitted by the applicant.
``(F) Personal identification numbers authorized.--The
Secretary is authorized to assign to applicants personal
identification numbers--
``(i) to enable the applicants to use such numbers in lieu
of a signature for purposes of completing a form under this
paragraph; and
``(ii) for any purpose determined by the Secretary to
enable the Secretary to carry out this title.
``(4) Reapplication.--
``(A) In general.--The Secretary shall develop streamlined
reapplication forms and processes, including both paper and
electronic reapplication processes, consistent with the
requirements of this subsection, for an applicant who applies
for financial assistance under this title in the next
succeeding academic year subsequent to the year in which such
applicant first applied for financial assistance under this
title.
``(B) Updated.--The Secretary shall determine, in
cooperation with States, institutions of higher education,
agencies and organizations involved in student financial
assistance, the data elements that can be updated from the
previous academic year's application.
``(C) Rule of construction.--Nothing in this title shall be
construed as limiting the authority of the Secretary to
reduce the number of data elements required of reapplicants.
``(D) Zero family contribution.--Applicants determined to
have a zero family contribution pursuant to section 479(c)
shall not be required to provide any financial data in a
reapplication form, except that which is necessary to
determine eligibility under such section.
``(5) State requirements.--
``(A) In general.--The Secretary shall include on the forms
developed under this subsection, such State-specific
nonfinancial data items as the Secretary determines are
necessary to meet State requirements for need-based State
aid. Such items shall be selected in consultation with States
to assist in the awarding of State financial assistance in
accordance with the terms of this subsection. The number of
such data items shall not be less than the number included on
the form on October 7, 1998, unless States notify the
Secretary that they no longer require those data items for
the distribution of State need-based aid.
``(B) Annual review.--The Secretary shall conduct an annual
review process to determine which nonfinancial data items the
States require to award need-based State aid and other
application requirements that the States may impose.
``(C) Federal register notice.--The Secretary shall publish
on an annual basis a notice in the Federal Register requiring
State agencies to inform the Secretary--
``(i) if they are unable to permit applicants to utilize
the FAFSA-EZ or the simplified electronic application form;
and
``(ii) of the State-specific nonfinancial data that the
State agency requires for delivery of State need-based
financial aid.
``(D) State notification to the secretary.--
``(i) In general.--Each State shall notify the Secretary
whether it permits an applicant to file a form described in
paragraph (2)(B) or (3)(B) for purposes of determining
eligibility for State need-based grant aid.
``(ii) No permission.--In the event that a State does not
permit an applicant to file a form described in paragraph
(2)(B) or (3)(B) for purposes of determining eligibility for
State need-based grant aid--

``(I) the State shall notify the Secretary if it is not
permitted to do so because of either State law or because of
agency policy; and
``(II) the notification under subclause (I) shall include
an estimate of the program cost to permit applicants to
complete FAFSA-EZs and simplified electronic application
forms.

``(iii) Lack of notification by the state.--If a State does
not notify the Secretary pursuant to clause (i), the
Secretary shall--

``(I) permit residents of that State to complete a FAFSA-EZ
or a simplified electronic application form; and
``(II) not require any resident of that State to complete
any nonfinancial data previously required by that State.

``(E) Restriction.--The Secretary shall not require
applicants to complete any nonfinancial data or financial
data that are not required by the applicant's State agency,
except as may be required for applicants who use the common
paper form.
``(6) Charges to students and parents for use of forms
prohibited.--The common financial reporting forms prescribed
by the Secretary under this subsection shall be produced,
distributed, and processed by the Secretary and no parent or
student shall be charged a fee by the Secretary, a
contractor, a third party servicer or private software
provider, or any other public or private entity for the
collection, processing, or delivery of financial aid through
the use of such forms. The need and eligibility of a student
for financial assistance under parts A through E (other than
under subpart 4 of part A) may only be determined by using a
form developed by the Secretary pursuant to this subsection.
No student may receive assistance under parts A through E
(other than under subpart 4 of part A), except by use of a
form developed by the Secretary pursuant to this subsection.
No data collected on a paper or electronic form, worksheet,
or other document for which a fee is charged shall be used to
complete the form prescribed under this subsection. No
person, commercial entity, or other entity shall request,
obtain, or utilize an applicant's Personal Identification
Number for purposes of submitting an application on an
applicant's behalf except State agencies that have entered
into an agreement with the Secretary to streamline
applications, eligible institutions, or programs under this
title as permitted by the Secretary.'';
(2) by striking subsection (b) and inserting the following:
``(b) Early Notification of Aid Eligibility.--
``(1) In general.--The Secretary shall make every effort to
provide students with early information about potential
financial aid eligibility.
``(2) Availability of means to determine eligibility.--
``(A) In general.--The Secretary shall provide, in
cooperation with States, institutions of higher education,
agencies, and organizations involved in student financial
assistance, both through a widely disseminated printed form
and the Internet or other electronic means, a system for
individuals to determine easily, by entering relevant data,
approximately the amount of grant, work-study, and loan
assistance for which an individual would be eligible under
this title upon completion and verification of form under
subsection (a).
``(B) Determination of whether to use simplified
application.--The system established under this paragraph
shall also permit users to determine whether or not they may
apply for aid using a FAFSA-EZ or a simplified electronic
application form under subsection (a).
``(3) Availability of means to communicate eligibility.--
``(A) Lower-income students.--The Secretary shall--
``(i) make special efforts to notify students who qualify
for a free or reduced price lunch under the school lunch
program established under the Richard B. Russell National
School Lunch Act, benefits under the food stamp program under
the Food Stamp Act of 1977, or benefits under such programs
as the Secretary shall determine, of such students' potential
eligibility for a maximum Federal Pell Grant under subpart 1
of part A; and
``(ii) disseminate informational materials regarding the
linkage between eligibility for means-tested Federal benefit
programs and eligibility for a Federal Pell Grant, as
determined necessary by the Secretary.
``(B) Middle school students.--The Secretary shall, in
cooperation with States, middle schools, programs under this
title that serve middle school students, and other
cooperating independent outreach programs, make special
efforts to notify middle school students of the availability
of financial assistance under this title and of the
approximate amounts of grant, work-study, and loan assistance
an individual would be eligible for under this title.
``(C) Secondary school students.--The Secretary shall, in
cooperation with States, secondary schools, programs under
this title that serve secondary school students, and
cooperating independent outreach programs, make special
efforts to notify students in their junior year of secondary
school the approximate amounts of grant, work-study, and loan
assistance an individual would be eligible for under this
title upon completion and verification of an application form
under subsection (a).'';
(3) in subsection (c), by striking ``Labor and Human
Resources'' and inserting ``Health, Education, Labor, and
Pensions'';
(4) by striking subsection (d); and
(5) by redesignating subsection (e) as subsection (d).
(c) Toll-Free Application and Information.--Section 479 of
the Higher Education Act of 1965 (20 U.S.C. 1087ss), as
amended by section 3, is further amended by adding at the end
the following:
``(e) Toll-Free Application and Information.--The Secretary
shall contract for, or establish, and publicize a toll-free
telephone service to provide an application mechanism and
timely and accurate information to the general public. The
information provided shall include specific instructions on
completing the application form for assistance under this
title. Such service shall also include a service accessible
by telecommunications devices for the deaf (TDD's) and shall,
in addition to the services provided for in the previous
sentence, refer such students to the national clearinghouse
on postsecondary education that is authorized under section
685(d)(2)(C) of the Individuals with Disabilities Education
Act. Not later than 2 years after the date of enactment of
the Accessing College through Comprehensive Early Outreach,
State Partnerships, and Simplification Act, the Secretary
shall test and implement a toll-free telephone-based
application system to permit applicants to utilize the FAFSA-
EZ or simplified electronic application form under section
483(a) over such system.''.
(d) Master Calendar.--Section 482(a)(1)(B) of the Higher
Education Act of 1965 (20 U.S.C. 1089) is amended to read as
follows:
``(B) by March 1: proposed modifications and updates
pursuant to sections 478 and 483(a)(5) published in the
Federal Register;''.

[[Page S6105]]

SEC. 5. ALLOWANCE FOR STATE AND OTHER TAXES.

Section 478(g) of the Higher Education Act of 1965 (20
U.S.C. 1087rr(g)) is amended to read as follows:
``(g) State and Other Tax Allowance.--For each award year
after award year 2004-2005, the Secretary shall publish in
the Federal Register a revised table of State and other tax
allowances for the purpose of sections 475(c)(2), 475(g)(3),
476(b)(2), and 477(b)(2). The Secretary shall develop such
revised table after review of the Department of the
Treasury's Statistics of Income file and determination of the
percentage of income that each State's taxes represent.
Updates shall be phased in proportionately over a period of
time equal to the number of years since the last update.''.

SEC. 6. SUPPORT FOR WORKING STUDENTS.

(a) Dependent Students.--Section 475(g)(2)(D) of the Higher
Education Act of 1965 (20 U.S.C. 1087oo(g)(2)(D)) is amended
to read as follows:
``(D) $9,000;''.
(b) Independent Students Without Dependents Other Than a
Spouse.--Section 476(b)(1)(A)(iv) of the Higher Education Act
of 1965 (20 U.S.C. 1087pp(b)(1)(A)(iv)) is amended to read as
follows:
``(iv) an income protection allowance of the following
amount (or a successor amount prescribed by the Secretary
under section 478)--

``(I) $10,000 for single students;
``(II) $10,000 for married students where both are enrolled
pursuant to subsection (a)(2); and
``(III) $13,000 for married students where 1 is enrolled
pursuant to subsection (a)(2);''.

(c) Independent Students With Dependents Other Than a
Spouse.--Section 477(b)(4) of the Higher Education Act of
1965 (20 U.S.C. 1087qq(b)(4)) is amended to read as follows:
``(4) Income protection allowance.--The income protection
allowance is determined by the following table (or a
successor table prescribed by the Secretary under section
478):

``Income Protection Allowance
----------------------------------------------------------------------------------------------------------------
Number in College
Family Size ----------------------------------------------------------------
1 2 3 4 5
----------------------------------------------------------------------------------------------------------------
2 $17,580 $15,230
3 20,940 17,610 $16,260
4 24,950 22,600 20,270 $17,930
5 28,740 26,390 24,060 21,720 $19,390
6 32,950 30,610 28,280 25,940 23,610
----------------------------------------------------------------------------------------------------------------
NOTE: For each additional family member, add $3,280.
For each additional college student, subtract $2,330.''.

SEC. 7. TREATMENT OF PREPAYMENT AND SAVINGS PLANS UNDER
STUDENT FINANCIAL AID NEEDS ANALYSIS.

(a) Definition of Assets.--Section 480(f) of the Higher
Education Act of 1965 (20 U.S.C. 1087vv(f)) is amended--
(1) in paragraph (1), by inserting ``qualified education
benefits (except as provided in paragraph (3)),'' after ``tax
shelters,''; and
(2) by adding at the end the following:
``(3) A qualified education benefit shall not be considered
an asset of a student for purposes of section 475.
``(4) In this subsection, the term `qualified education
benefit' means--
``(A) a program that is described in clause (i) of section
529(b)(1)(A) of the Internal Revenue Code of 1986 and that
meets the requirements of section 529(b)(1)(B) of such Code;
``(B) a State tuition program described in clause (ii) of
section 529(b)(1)(A) of the Internal Revenue Code of 1986
that meets the requirements of section 529(b)(1)(B) of such
Code; and
``(C) a Coverdell education savings account (as defined in
section 530(b)(1) of the Internal Revenue Code of 1986).''.
(b) Definition of Other Financial Assistance.--Section
480(j) of the Higher Education Act of 1965 (20 U.S.C.
1087vv(j)) is amended--
(1) in the heading, by striking ``; Tuition Prepayment
Plans';
(2) by striking paragraph (2); and
(3) by redesignating paragraph (3) as paragraph (2).
(c) Effective Date.--The amendments made by this section
shall apply with respect to determinations of need under part
F of title IV of the Higher Education Act of 1965 (20 U.S.C.
1087kk et seq.) for academic years beginning on or after July
1, 2005.

SEC. 8. ADVISORY COMMITTEE ON STUDENT FINANCIAL ASSISTANCE.

Section 491 of the Higher Education Act of 1965 (20 U.S.C.
1098), as amended by section 2, is further amended--
(1) in subsection (a)(2)--
(A) in subparagraph (B), by striking ``and'' after the
semicolon;
(B) in subparagraph (C), by striking the period at the end
and inserting a semicolon; and
(C) by adding at the end the following:
``(D) to provide knowledge and understanding of early
intervention programs and make recommendations that will
result in early awareness by low- and moderate-income
students and families of their eligibility for assistance
under this title, and, to the extent practicable, their
eligibility for other forms of State and institutional need-
based student assistance; and
``(E) to make recommendations that will expand and improve
partnerships among the Federal Government, States,
institutions, and private entities to increase the awareness
and total amount of need-based student assistance available
to low- and moderate-income students.'';
(2) in subsection (d)--
(A) in paragraph (6), by striking ``, but nothing in this
section shall authorize the committee to perform such
studies, surveys, or analyses'';
(B) in paragraph (8), by striking ``and'' after the
semicolon;
(C) by redesignating paragraph (9) as paragraph (10); and
(D) by inserting after paragraph (8) the following:
``(9) monitor the adequacy of total need-based aid
available to low- and moderate-income students from all
sources, assess the implications for access and persistence,
and report those implications annually to Congress and the
Secretary; and'';
(3) in subsection (j), by adding at the end the following:
``(6) monitor and assess implementation of improvements
called for under this title, make recommendations to the
Secretary that ensure the timely design, testing, and
implementation of the improvements, and report annually to
Congress and the Secretary on progress made toward
simplifying overall delivery, reducing data elements and
questions, incorporating the latest technology, aligning
Federal, State, and institutional eligibility, enhancing
partnerships, and improving early awareness of total student
aid eligibility for low- and moderate-income students and
families.''; and
(4) in subsection (k), by striking ``2004'' and inserting
``2010''.
______

By Ms. COLLINS (for herself, Mr. Akaka, Mr. Fitzgerald, Mr.
Lieberman, and Mr. Voinovich):
S. 2479. A bill to amend chapter 84 of title 5, United States Code,
to provide for Federal employees to make elections to make, modify, and
terminate contributions to the Thrift Savings Fund at any time, and for
other purposes; to the Committee on Governmental Affairs.
Ms. COLLINS. Mr. President, today, I am pleased to be joined by my
colleagues, Senators Akaka, Fitzgerald, Lieberman, and Voinovich in
introducing the Thrift Savings Plan Open Elections Act of 2004. This
legislation would provide Federal employees with maximum flexibility to
tailor their investment decisions by eliminating the current
restrictions on when employee contributions to the Thrift Savings Plan
can begin or be modified.
Since its inception in 1987, the Thrift Savings Plan has provided
Federal employees with the opportunity to participate in a retirement
savings plan similar to the 401(k) plans offered by many private
companies. The open seasons were created to encourage Federal employees
to contribute money toward their retirement. Open seasons were
practical during the early years when the Thrift Savings Plan was just
getting started and lacked the administrative capability to quickly
enroll participants and to implement investment elections on a real-
time basis. With the introduction of the automatic record-keeping
system, however, the program has outgrown its existing framework.
Under current law, newly hired employees can sign up to contribute to
the Thrift Savings Plan during an initial 60-day eligibility period. If
an employee chooses not to make an election, he or she must wait until
an open season to do so. Further, if an employee stops contributing to
the Thrift Savings Plan outside of an open season, he or she must wait
until the second open season after contributions stop before
contributions can resume. These

[[Page S6106]]

restrictions can unfairly penalize employees and discourage their
participation. But allowing employees to initiate, modify, or terminate
contributions to the TSP in any period, provided the amount does not
exceed existing limits for contributions, the legislation ensures that
Federal employees' investment decisions will no longer be restricted by
the open season requirement.
In testimony before the Congress, Andrew Saul, Chairman of the
Federal Retirement Thrift Investment Board, stated that the Board
supports the elimination of the open season requirement because it
would expand participant access and simplify the administration of the
Thrift Savings Plan. Jim Sauber, Chairman of the Employee Thrift
Advisory Council, testified in March 2004 that eliminating the TSP open
season is perhaps the single best way to reach the 13 percent of
employees in the Federal Employees Retirement System who still do not
make contributions to the TSP.
In addition to the support by the Federal Retirement Thrift
Investment Board and the Employee Thrift Advisory Council, the
legislation is supported by the American Federation of Government
Employees, the National Treasury Employees Union, the National
Association of Retired Federal Employees, the Federal Managers
Association, and the Senior Executives Association.
I urge my colleagues to support this important legislation.

____________________